This Report on the Public Accounts and Total State Sector Accounts (the Accounts) has been prepared under section 52 of the Public Finance and Audit Act 1983 (the Act).

The Act requires the Treasurer to present the Accounts to the Legislative Assembly.

This Report, presented in terms of section 52A(1) of the Act, includes the Operating Statement, Statement of Financial Position and Statement of Cash Flows for the Accounts together with the qualified Independent Audit Report. For ease of use, this Report includes copies of the Accounts excluding the associated notes.

The qualification issues are in respect to:

• Invalid collections of business franchise licence fees
• Non-recognition of underdeveloped Crown land
• Non-recognition of some assets and liabilities of FANMAC Trusts
• Recognition as income of unallocated reserve balances in the State Superannuation Scheme to be transferred to Crown employee reserve accounts
• Non-recognition of collection assets or uncertainty as to the reliability of such assets recognised
• Non-recognition of funds held in Government schools’ bank accounts
• Uncertainty as to the reasonableness of Sydney Water Corporation infrastructure asset values and depreciation charges
• Non-recognition of obligations and assets relating to Sydney Water Corporation water treatment plants.

Also included is the Statement of Budget Result (a cash-based statement prepared on Government Finance Statistics principles which classifies transactions using a methodology common to all Governments in Australia) together with the Independent Audit Report on that statement.

Section 52 also requires that the Auditor-General shall annex or append a copy of every case laid by the Auditor-General before the Attorney General or the Crown Solicitor for an opinion together with a copy of the opinion given. This requirement is met on a progressive basis during the year by including such requests and opinions in the Volume of the Auditor-General’s Report next presented to Parliament. This principle is also applied to the method of reporting instances of variation of legislative requirements as required by the section.

The enactment during the year of the Public Finance and Audit Amendment (Consolidated Financial Statements) Act 1999, extended the time for the Accounts to be tabled in the Legislative Assembly by the Treasurer to "no later than 30 November".

Section 52A of the Act which requires the Auditor-General to present the report on those Accounts to the Legislative Assembly, was also amended to reflect the date change to 30 November.

Agencies are required to submit their financial report to the Auditor-General within six weeks of their balance date. For those with a 30 June balance date, submission must occur by 17 August.

In many instances this year, this did not occur. Where statements were submitted by 17 August, their standard was often such that considerable reworking was necessary before it was possible to furnish an audit report.

This reworking and the consequent delay in completing the audit of agencies’ statements meant that Treasury had to make considerable and continuing revisions to the Public Accounts and the Total State Sector Accounts. While section 6(4) of the Act sets 30 September as the latest date by which the Treasurer is to transmit the Accounts to the Auditor-General, the Accounts were not completed, in a form that would enable an Independent Audit Report to be furnished, until 15 November. This is the latest date under section 49(2) of the Act on which the Auditor-General can issue the Independent Audit Report. That Report was issued on the same day.

Given these delays, it has only been possible to include in this Report summary tables and copies of the relevant Independent Audit Reports.

A further report, to be presented in February 2000, will provide detailed commentary on the Accounts. Also included in that report will be commentary on the Government Finance Statistics Statement (NSW General Government Sector Statement of the Budget Result) together with the Crown Entity.

I have audited the Public Accounts and the Total State Sector Accounts for the year ended 30 June 1999. The Treasurer is responsible for the financial reports of the Public Accounts and the Total State Sector Accounts consisting of the accompanying consolidated statements of financial position, consolidated operating statements and consolidated statements of cash flows together with the notes thereto and information contained therein. My responsibility is to express an opinion on the financial reports of the Public Accounts and the Total State Sector Accounts to Members of the New South Wales Parliament based on my audit as required by sections 34 and 49(1) of the Public Finance and Audit Act 1983.

My audit has been conducted in accordance with the provisions of the Act and Australian Auditing Standards to provide reasonable assurance whether the Public Accounts and the Total State Sector Accounts are free of material misstatement. My procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the Public Accounts and the Total State Sector Accounts and the evaluation of accounting policies and significant accounting estimates.

In addition, other legislative and policy requirements, that could have an impact on the Public Accounts and the Total State Sector Accounts have been substantially reviewed on a cyclical basis throughout the total state sector. For this year, the requirements examined comprised compliance with:

• Core business activities being in accordance with legislation;
• Legislative and other requirements in respect of trust account operations; and
• Policies and procedures in respect of grants made to entities external to the NSW public sector.

These procedures have been undertaken to form an opinion whether, in all material respects, the Public Accounts and the Total State Sector Accounts are presented fairly in accordance with the requirements of sections 6(1), 6(1A) and 6(1B) of the Act, Australian Accounting Standards and other mandatory professional reporting requirements so as to present a view which is consistent with my understanding of the general government sector's and the total state sector’s financial positions, the results of their operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

The qualifications have been grouped according to their effect on the financial reports.

(a)  On 5 August 1997 the High Court held that the fee based licensing provisions in the Business Franchise Licences (Tobacco) Act 1987 were unconstitutional. The New South Wales Solicitor-General advised that if challenged the High Court would also strike down the equivalent provisions of the Business Franchise Licences (Petroleum Products) Act 1987. As a consequence of the High Court decision the Government collected invalidly $123.6m in Business Franchise Licence fees in the previous financial year. There were no invalid collections during the current financial year. The Solicitor-General has advised that as the law presently stands, the Government is not required to refund those fees collected prior to the decision. There is no financial effect on the financial report.

(b) Note 1, Statement of Significant Accounting Policies, discloses that undeveloped Crown land has not yet been recognised pending completion of an identification and valuation program. In my opinion, recognising this land using a valuation methodology similar to that used for other land in these financial reports would have a material effect, the amount of which is uncertain, on the items Property and Net Liabilities included in the statements of financial position.

(c) Some assets and liabilities of the FANMAC Trusts relating to the HomeFund program have been recognised in the statements of financial position. At 30 June 1999, assets and liabilities of $129m (1997-98, $173m) were recognised but at 30 June 1999 $401m (1997-98 , $476m) was not recognised. In my opinion, the Home Purchase Assistance Authority has the capacity to dominate the FANMAC Trusts decision making process in relation to financial and operating policies. Accordingly all the Trusts' assets and liabilities should be recognised in the Public Accounts and the Total State Sector Accounts statements of financial position. The inclusion of amounts for the Trusts would not alter the net assets or the operating results as reported.

(d) As disclosed in Note 4, Abnormal Items, and Note 12, Employee Entitlements, to the financial statements, income of $704m has been recognised. This income is the Government Actuary's estimate of unallocated reserve balances in the State Superannuation Scheme to be transferred to Crown employer reserve accounts of the Scheme when an allocation process is completed. In my opinion this income should not be recognised until the allocation process has been completed and approved by the SAS Trustee Corporation and the Minister as required by the Superannuation Act 1916.

(e)   Australian Accounting Standard AAS 31 "Financial Reporting by Governments" requires that all assets must be recognised when future economic benefits in the asset will eventuate and the asset can be measured reliably. The Australian Museum Trust, The Museum of Applied Arts and Sciences, the Royal Botanic Gardens and Domain Trust and the State Records Authority of New South Wales have conducted an initial valuation exercise for their collection assets resulting in values totalling $4,755m. This amount has not been recognised in the statements of financial position. In addition, as indicated in Note 1 to the financial statements the Library Council of New South Wales obtained initial valuations of $2,084m for its collection assets. Although recognised in the financial reports there is uncertainty as to reliability of the Library’s valuations. In my opinion, because of the non recognition of assets valued at $4,755m and the uncertainty over the reliability of the value of assets recognised at $2,084m there is a departure from Australian Accounting Standard AAS 31 "Financial Reporting by Governments".

(f) Note 6, Investments, discloses that funds held in Government schools' bank accounts comprising cash and investments are not recognised in the statements of financial position. In my opinion, these amounts are assets of the Public Accounts and the Total State Sector Accounts and should be recognised. Although details are not readily available they could be obtained from school financial statements and records.

(g) Note 1, Statement of Significant Accounting Policies, describes methods used to determine depreciation. In my opinion, uncertainty exists as to the reasonableness of depreciation charges and the carrying value of Sydney Water Corporation's infrastructure assets because values have not been determined on a disaggregated, condition based approach.

(h) Assets and obligations arising from private sector financing of the Sydney Water Corporation's water treatment plants have not been recognised in the financial report. In my opinion, the Corporation carries substantially the risks and benefits incident to ownership of the underlying assets. As at 30 June 1999 the value of obligations and underlying assets relating to the water treatment plants not recognised in the statement of financial position is approximately $489m (1997-98 $494m). There is no material effect on net assets or the operating statement.

The Independent Audit Report on the Public Accounts and the Total State Sector Accounts for the year ended 30 June 1998 was qualified for the matters (a) to (c) and (f) to (h).

In my opinion, except for:

• the effects on the comparative information of the matter referred to in qualification paragraph (a);
• the effects of the matters referred to in the qualification paragraphs (c) to (f) and (h); and
• the effects of such adjustments if any as might have been required had the limitations in the qualification paragraphs (b) and (g) not existed.

the Public Accounts and the Total State Sector Accounts are properly drawn up in accordance with the Act, accord with the accounts and records of the Treasurer, and present fairly in accordance with applicable Australian Accounting Standards and other mandatory professional reporting requirements the financial position of the general government sector and the total state sector as at 30 June 1999 and the results of their operations and their cash flows for the year then ended.

Without further qualification to the opinion expressed above attention is drawn to the following matters.

(a) As indicated in Note 19, Contingent Liabilities, within the financial report litigation by various HomeFund borrowers is being defended on behalf of the Government. The circumstances of the case are such that the ultimate outcome of the litigation cannot presently be determined, and accordingly no provision for any liability that may result has been made in the financial report.

(b)   Powercor Australia initiated proceedings against Pacific Power in the Supreme Court of Victoria relating to alleged electricity trading agreements. The action was instigated on 21 August 1998. The ultimate outcome of the litigation cannot be presently determined. This uncertainty only applies to the Total State Sector Account.

Valuation of Systems Assets in the Electricity Generation Industry

The emerging competitive energy market has created uncertainty in the valuation of systems assets in the electricity generation sector. Until more discernible market conditions apply, the quantum of the financial effect of adjustments, if any, to the values is unclear. This uncertainty only applies to the Total State Sector Accounts.

The financial reports of certain agencies that provide critical services disclose uncertainty of the impact of date changes involving the year 2000 on their activities. Those agencies are the following economic entities: Department of Community Services; New South Wales Police Service; Department of Corrective Services; Department of Health (including Area Health Services); New South Wales Fire Brigades; New South Wales Rural Fire Service; Delta Electricity; Macquarie Generation; Pacific Power; Electricity Transmission Authority; Advance Energy; Australian Inland Energy; EnergyAustralia; Great Southern Energy; Integral Energy Australia; NorthPower; Broken Hill Water Board, Hunter Water Corporation; Sydney Water Corporation; Roads and Traffic Authority of New South Wales; Rail Access Corporation; Rail Services Australia; State Rail Authority and the Lord Howe Island Board.

These agencies have investigated if and to what extent the date changes involving the year 2000 will have on their activities. They have established programs to minimise the impact of the transition to the year 2000 by seeking to ensure that their significant/core computer hardware, software and or systems are year 2000 compliant. Activities of all the agencies may also be affected by the ability of third parties dealing with these agencies to manage the effect of the year 2000 date change. Therefore the outcome of the date change on all these agencies’ operations, which provide critical services to the State, cannot be determined with complete confidence. This uncertainty applies to both the Public Accounts and the Total State Sector Accounts.

Similar uncertainties existed at 30 June 1998 and the Independent Audit Report was modified accordingly.

R J Sendt

Auditor-General

15 November 1999

I have audited the Statement of the Budget Result for the year ended 30 June 1999. The Treasurer is responsible for the Statement and he has determined that the policies used are appropriate for reporting the Government’s budget result in accordance with the Australian Bureau of Statistics’ Government Finance Statistics principles. There are no statutory requirements as to the form, content or audit of the Statement.

The Statement has been prepared to disclose the Government’s actual budget result. I disclaim any assumption of responsibility for any reliance on this report or on the Statement for any purpose other than that for which it was prepared.

I have conducted an independent audit of the Statement of the Budget Result in order to express an opinion on it to Members of the New South Wales Parliament.

My audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the Statement of the Budget Result is free of material misstatement. My procedures included examination, on a test basis, of evidence supporting the amounts and other disclosures in the Statement of the Budget Result, and the evaluation of accounting policies and significant accounting estimates. These procedures have been undertaken to form an opinion whether, in all material respects the Statement of the Budget Result presents fairly in accordance with Australian Bureau of Statistics’ Government Finance Statistics principles the budget result.

The audit opinion expressed in this report has been formed on the above basis.

Note 2, Compliance with Australian Bureau of Statistics Classifications, discloses that the classification of premiums on loans issued does not comply with Government Finance Statistics principles. These principles require premiums to be treated as a negative interest payment in the year of issue but they have been treated as a negative interest payment in the year of maturity or prepayment. I have not been able to conduct audit procedures to quantify reliably the effects on the Statement of this matter. The Independent Audit Report on the Statement for the year ended 30 June 1998 was also qualified accordingly.

Qualified Audit Opinion

In my opinion, except for the effect of the matter referred to in the qualification paragraph, the Statement of the Budget Result presents fairly the budget result in accordance with the Australian Bureau of Statistics’ Government Finance Statistics principles.

R J Sendt

Auditor-General

SYDNEY

22 November 1999