ACT Local Hospital Network Directorate Controlled Note Index
Note 1. Objectives of the ACT Local Hospital Network Directorate
Operations and Principal Activities
The ACT Local Hospital Network Directorate (the Directorate) is administrated by the Director-General of the Health Directorate and supported by Health Directorate staff.
The ACT Local Hospital Council (the Council) provides advice to the Director-General on the clinical and corporate governance framework needed to support improvement of standards of patient care and services under the local hospital network and ways in which to support, encourage and facilitate community and clinician involvement in the planning of services that form part of the Directorate.
The Council also reports to the Minister for Health on the state of the local hospital network and any recommendations relating to the improvement of health services provided by the Directorate that the Council considers necessary.
The Directorate receives Activity Based Funding from the Commonwealth and ACT Governments and block funding for teaching, training, research and community mental health. It purchases public hospital services from four ACT public hospital providers:
- Canberra Hospital and Health Services;
- Calvary Public Hospital;
- Clare Holland House; and
- Queen Elizabeth II Family Centre.
Note 2. Summary of Significant Accounting Policies
(a) Basis of Accounting
The Financial Management Act 1996 (FMA) requires the preparation of annual financial statements for ACT Government agencies.
The FMA and the Financial Management Guidelines issued under the Act, requires the Directorate's financial statements to include:
i. an Operating Statement for the year;
ii. a Balance Sheet at the end of the year;
iii. a Statement of Changes in Equity for the year;
iv. a Cash Flow Statement for the year;
v. a Statement of Appropriation for the year;
vi. an Operating Statement for each class of output for the year;
vii. a summary of the significant accounting policies adopted for the year; and
viii. such other statements as are necessary to fairly reflect the financial operations of the Directorate during the year and its financial position at the end of the year.
These general-purpose financial statements have been prepared to comply with 'Generally Accepted Accounting Principles' (GAAP) as required by the FMA. The financial statements have been prepared in accordance with:
i. Australian Accounting Standards; and
ii. ACT Accounting and Disclosure Policies.
The financial statements have been prepared using the accrual basis of accounting, which recognises the effects of transactions and events when they occur. The financial statements have also been prepared according to the historical cost convention.
These financial statements are presented in Australian dollars, which is the Directorate's functional currency.
The Directorate is an individual reporting entity.
(b) Controlled and Territorial Items
The Directorate produces Controlled financial statements. The Controlled financial statements include income, expenses, assets and liabilities over which the Directorate has control.
The Directorate does not produce Territorial financial statements because it does not administer any resources on behalf of the Territory.
(c) The Reporting Period
These financial statements state the financial performance, changes in equity and cash flows of the Directorate for the year ending 30 June 2014 together with the financial position of the Directorate as at 30 June 2014.
(d) Comparative Figures
To facilitate a comparison with Budget Papers, as required by the Financial Management Act 1996, budget information for 2013-2014 has been presented in the financial statements. Budget numbers in the financial statements are the original budget numbers that appear in the Budget Papers.
Prior Year Comparatives
Comparative information has been disclosed in respect of the previous period for amounts reported in the financial statements, except where an Australian Accounting Standard does not require comparative information to be disclosed.
Where the presentation or classification of items in the financial statements is amended, the comparative amounts have been reclassified where practical. Where a reclassification has occurred, the nature, amount and reason for the reclassification is provided.
All amounts in the financial statements have been rounded to the nearest thousand dollars ($'000). Use of the " " symbol represents zero amounts or amounts rounded up or down to zero.
(f) Revenue Recognition
Revenue is recognised at the fair value of the consideration received or receivable in the Operating Statement. All revenue is recognised to the extent that it is probable that the economic benefits will flow to the Directorate and the revenue can be reliably measured. In addition, the following specific recognition criteria must also be met before revenue is recognised:
Government Payment for Outputs
Government Payment for Outputs are recognised as revenues when the Directorate gains control over the funding. Control over appropriated funds is normally obtained upon the receipt of cash.
Cross Border (Interstate) Health Revenue
Revenue for cross border (interstate) health services is recognised when the number of patients and complexities of treatments provided can be measured reliably using the National Efficient price that is determined by the Independent Hospital Pricing Authority. Actual patient numbers and services are settled following an acquittal process undertaken in subsequent years and variations to the revenue recognised is accounted for in the year of settlement.
The National Health Reform Agreement specifies that each jurisdiction will make funding contributions through the National Health Funding Pool for services provided by other jurisdictions to its residents either on an ad hoc basis reflecting actual activity, or on a regular basis as scheduled through a Cross Border agreement. For 2013-14 the ACT has Cross Border Agreements in place with the New South Wales Ministry of Health, South Australia Department of Health and Tasmania Department of Health and Human Services.
Commonwealth Grants relate to Activity Based Funding and Block Funding under the National Health Reforms. They also include the Commonwealth funding component of cross border health costs for New South Wales residents treated in ACT public hospitals.
Activity Based Funding refers to a system for funding public hospital services provided to individual patients using national classifications, price weights and nationally efficient price as set by the Independent Hospital Pricing Authority.
Block funding is provided to support public hospital functions that are recognised by the Independent Hospital Pricing Authority as services acceptable to be funded on this basis and that conform to the Independent Hospital Pricing Authority's national pricing model.
Revenue Received in Advance
Revenue Received in Advance is recognised as a liability if there is a present obligation to return the funds received, otherwise all funds received are recorded as revenue.
(g) Waivers of Debt
Debts that are waived during the year under Section 131 of the Financial Management Act 1996 are expenses during the year in which the right to payment was waived. Further details of waivers are disclosed at Note 9: Waivers, Impairment Losses and Write-offs.
(h) Current and Non-Current Items
Assets and liabilities are classified as current or non-current in the Balance Sheet and in the relevant notes. Assets are classified as current where they are expected to be realised within 12 months after the reporting date. Liabilities are classified as current when they are due to be settled within 12 months after the reporting date or when the Directorate does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.
Assets or liabilities which do not fall within the current classification are classified as non-current.
(i) Cash and Cash Equivalents
For the purposes of the Cash Flow Statement and the Balance Sheet, cash includes cash at bank and cash on hand.
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
Accounts receivable are initially recognised at fair value and are subsequently measured at amortised cost, with any adjustments to the carrying amount being recorded in the Operating Statement.
Accrued Cross Border revenue relates to the estimated number of interstate patients treated in an ACT public hospital for 2013-14. Under the National Health Reform Agreement, States and Territories are required to pay for Cross Border activity using the National Efficient Price that is determined by the Independent Hospital Pricing Authority. The actual level of revenue will be subject to an acquittal process to be completed in subsequent years.
The allowance for impairment losses represents the amount of receivables the Directorate estimates will not be repaid. The allowance for impairment losses is based on objective evidence and a review of overdue balances. The Directorate considers the following is objective evidence of impairment:
- becoming aware of financial difficulties of debtors;
- default payments; or
- debts more than 90 days overdue.
The amount of the allowance is the difference between the assets' carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short term receivables are not discounted if the effect of discounting is immaterial. The amount of the allowance is recognised in the Operating Statement. The allowance for impairment losses are written off against the allowance account when the Directorate ceases action to collect the debt as it considers that it will cost more to recover the debt than the debt is worth.
Receivables that have been renegotiated because they are past due or impaired are accounted for based on the renegotiated terms
Payables are a financial liability and are initially recognised at fair value based on the transition costs and subsequent to initial recognition at amortised cost, with any adjustments to the carrying amount being recorded in the Operating Statement. All amounts are normally settled within 30 days after the invoice date.
(l) Employee Costs and Employee Benefits Liabilities
The Directorate was established as a consequence of the ACT implementing the National Health Reform Agreement. The objective of the Directorate is to receive Activity Based Funding and Block Funding from the Commonwealth and ACT Governments, and to purchase hospital services from ACT public hospitals. The Directorate does not employ any staff. All staff providing administrative support are employed by the Health Directorate. Therefore, the Directorate does not incur any employee costs and does not have any employee benefit liabilities.
(m) Equity Contributed by the ACT Government
Contributions made by the ACT Government, through its role as owner of the Directorate are treated as contributions of equity.
Increases or decreases in net assets as a result of Administrative Restructures are also recognised in equity.
(n) Significant Accounting Judgements and Estimates
In the process of applying the accounting policies listed in this note, the Directorate has made the following judgements and estimates that have the most significant impact on the amounts recorded in the financial statements:
Cross Border (Interstate) Health Receivables: is an estimation based on the number of interstate patients converted into a National Weighted Activity Unit and paid at the National Efficient Price consistent with the National Health Reform Agreement. Interstate patient numbers for the current year is an estimation based on the actual patient numbers for the nine months to 31 March 2014. Actual patient numbers and services are settled following an acquittal process undertaken in subsequent years and variations to the revenue recognised are accounted for in the year of settlement.
(o) Impact of Accounting Standards Issued but yet to be Applied
The following new and revised accounting standards and interpretations have been issued by the Australian Accounting Standards Board but do not apply to the current reporting period. These standards and interpretations are applicable to future reporting periods. The Directorate does not intend to adopt these standards and interpretations early. Where applicable, these Australian Accounting Standards will be adopted from their application date. It is estimated that the effect of adopting the below financial statement pronouncements, when applicable, will have no material financial impact on the Directorateâ€™s financial statements in future reporting periods:
- AASB 9 Financial Instruments (application date 1 January 2017);
- AASB 127 Separate Financial Statements (application date 1 January 2014 for not-for-profit entities);
- AASB 1031 Materiality (application date 1 January 2014);
- AASB 1055 Budgetary Reporting (application date 1 July 2014);
- AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023 & 1038 and Interpretations 2, 5, 10, 12, 19 & 127] (application date 1 January 2017);
- AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards [AASB 1, 2, 3, 5, 7, 9, 2009-11, 101, 107, 112, 118, 121, 124, 132, 133, 136, 138, 139, 1023 & 1038 and Interpretations 5, 9, 16 & 17] (application date 1 January 2014 for not-for-profit entities);
- AASB 2012-3 Amendments to Australian Accounting Standards - Offsetting Financial Assets and Financial Liabilities [AASB 132] (application date 1 January 2014);
- AASB 2013-3 Amendments to AASB 136 Recoverable Amount Disclosures for Non-Financial Assets (application date 1 January 2014);
- AASB 2013-8 Amendments to Australian Accounting Standards - Australian Implementation Guidance for Not-for-Profit Entities - Control and Structured Entities [AASB 10, AASB 12 & AASB 1049] (application date 1 January 2014); and
- AASB 2013-9 Amendments to Australian Accounting Standards - Conceptual Framework, Materiality and Financial Instruments Part B Materiality (application date 1 January 2014) Part C Financial Instruments (application date 1 January 2015).
Note 3. Government Payment for Outputs
Government Payment for Outputs (GPO) is revenue received from the ACT Government for the purchase of hospital services from ACT public hospitals. The ACT Government pays GPO appropriation on a fortnightly basis.
In 2013 14 these Commonwealth payments are included in the Grants from the Commonwealth revenue item. The 2013-14 amount also includes an increase in funding for growth in patient activity for acute services, cancer services, rehabilitation, aged and community services and mental health services.
Note 4. User Charges - Non-ACT Government
User charge revenue is derived by providing public hospital services to interstate residents. User charge revenue is not part of ACT Government appropriation and is paid by other state or territory governments. This revenue is driven by demand for health services from interstate patients and is not for profit in nature.
Note 5. Grants from the Commonwealth
Grants from the Commonwealth reflect contributions from the Commonwealth for Activity Based Funding and Block Funding, as well as a contribution for public health services.
Note 6. Grants and Purchased Services
Grants and Purchased Services reflect public hospital payments to the Canberra Hospital and Health Services, Calvary Public Hospital, Clare Holland House, Queen Elizabeth II Hospital, and other states and territory for cross border patient services.
b. The increase is mainly due to additional public hospital services considered as satisfying the Commonwealth's criteria for activity based funding, finalisation of prior year acquittals for several jurisdictions and an increase in the National Efficient Price.
Note 7. Transfer Expenses
Transfer Expenses relate to the on-passing of Commonwealth public health funding to the Health Directorate.
Note 8. Auditor's Remuneration
Auditor's remuneration represents fees charged by the Auditor-General for financial audit services provided to the Directorate.
All amounts in the Auditor's Remuneration note are inclusive of GST.
Note 9. Waivers, Impairment Losses and Write-offs
Under Section 131 of the Financial Management Act 1996 the Treasurer may, in writing, waive the right to payment of an amount payable to the Territory.
A waiver is the relinquishment of a legal claim to a debt over which the Directorate has control. The write-off of a debt is the accounting action taken to remove a debt from the books but does not relinquish the legal right of the Directorate to recover the amount. The write-off of debts may occur for reasons other than waivers.
The Directorate had no waivers, impairment losses or write-offs in 2013-14 (nil, 2012-13).
Note 10. Act of Grace Payments
Under Section 130 of the Financial Management Act 1996 the Treasurer may, in writing, authorise Act of Grace Payments to be made by a Directorate. Act of Grace payments are a method of providing equitable remedies to entities or individuals that may have been unfairly disadvantaged by the ACT Government but have no legal claim to the payment.
The Directorate made no Act of Grace Payments during 2013-14 (nil, 2012-13).
Note 11. Cash and Cash Equivalents
The Directorate holds a number of bank accounts on which it does not earn interest. These funds are able to be withdrawn upon request.
Note 12. Receivables
Note 13. Other Assets
Note 14. Payables
Note 15. Financial Instruments
Details of the significant policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset and financial liability are disclosed in Note 2: Summary of Significant Accounting Policies.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Directorate is considered to have no exposure to interest rate risk, as it holds only cash and cash equivalents with Westpac Banking Corporation and Reserve Bank of Australia that generate no interest, and receivables are non-interest bearing.
A sensitivity analysis has not been undertaken for the interest rate risk of the Directorate as it is not exposed to movements in interest rates.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Directorate's credit risk is limited to the amount of the financial assets held less any allowance for impairment.
The Directorate's financial assets consist of Cash and Cash Equivalents and Receivables.
Cash and cash equivalents are held with the Westpac Banking Corporation, a high credit, quality financial institution, in accordance with whole of ACT Government banking arrangements and at year end the Directorate holds no investments.
The Directorate's receivables mainly consist of amounts owed from the New South Wales Ministry of Health. As the New South Wales Government has a AAA credit rating it is considered that there is a very low risk of default for these receivables. Any credit risk for receivables with New South Wales Ministry of Health is managed by having an agreement in place, providing required activity data in a timely manner and requiring provisional payments for these activities.
Liquidity risk is the risk that the Directorate will encounter difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.
The main source of cash to pay these obligations is appropriation from the ACT Government which is paid on a fortnightly basis during the year. The Directorate manages its liquidity risk through forecasting appropriation drawdown requirements to enable payment of anticipated obligations.
Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, whether these changes are caused by factors specific to the individual financial instrument or its issuer, or by factors affecting all similar financial instruments traded in the market.
The Directorate holds no financial instruments that are subject to price risk and as a result, is not considered to have any price risk. Accordingly, a sensitivity analysis has not been undertaken.
Fair Value of Financial Assets and Liabilities
The carrying amounts and fair values of financial assets and liabilities at the end of the reporting period are:
The following table sets out the Directorate's maturity analysis for financial assets and liabilities as well as the exposure to interest rates, including average weighted interest rates by maturity period as at 30 June 2014. Financial assets and liabilities which have a floating interest rate or are non-interest bearing will mature in 1 year or less. All amounts appearing in the following maturity analysis are shown on an undiscounted cash flow basis.
Fair Value Hierarchy
The Directorate does not have any financial assets or financial liabilities at fair value. As such no Fair Value Hierarchy disclosures have been made.
Note 16. Commitments
The Directorate has no commitments as at 30 June 2014 (nil, 30 June 2013).
Note 17. Contingent Liabilities and Contingent Assets.
There were no contingent liabilities or contingent assets as at 30 June 2014 (nil, 30 June 2013). There were no indemnities as at 30 June 2014 (nil, 30 June 2013).
Note 18. Events Occurring After Balance Date
There were no events occurring after the balance date, which would affect the financial statements as at 30 June 2014, or in the future reporting periods.
Note 19. Cash Flow Reconciliation
Note 20. Service Concession Assets
The Directorate has entered into an agreement with Calvary Health Care ACT Ltd for the provision of hospital and associated services. The original agreement was entered into by the Commonwealth on 22 October 1971 and does not stipulate any expiry date. This was subsequently amended in 1979 to include the Directorate (named at the time as Capital Territory Health Commission) with any duties or functions of the Commonwealth being transferred to the Directorate. The Agreement was for the facility to be used for a public hospital. This was varied, in 1988, by the Calvary Private Agreement to allow Calvary Health Care Ltd to use two floors of the facility for treating private patients. The Calvary Private Agreement sets the process and mechanism for Calvary Private to reimburse Calvary Public for any costs incurred in using public hospital facilities for treating private patients. These agreements were replaced on 7 December 2011 with the Calvary Network Agreement.
Under the agreement, Calvary Health Care ACT Ltd is required to provide hospital services and make these services available to all persons irrespective of their circumstances and is to charge patients fees only in accordance with the scale of fees applicable at Health Directorate hospitals for comparable services. In the event that the agreement ceases, all land is to be returned to the Territory. The level of services that is required to be provided in a financial year, for the amount of funding provided, is stipulated in a Performance Plan agreed between the Directorate and Calvary Health Care ACT Ltd for each year.
The amount of funding provided for in the 2013-14 financial year was $175.1 million (2012-13, $167.8 million). in recurrent funding, recognised in the Health Directorate's ($3.1 million) and the ACT Local Hospital Network Directorate's ($172.0 million) grants and purchased services expenditure. In addition there was $3.85 million for capital projects and $0.76 million for capital upgrades of assets subject to these service concession arrangements. The capital funding was administered through the Health Directorate Statement of Income and Expenses on Behalf of the Territory.
The land, hospital buildings and other assets comprising the Calvary Public Hospital are not recognised in the Directorate's Balance Sheet.