DIMIA Annual Report 2004-05
Aboriginal and Torres Strait Islander Land Fund Account
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
Objectives
To provide a secure stream of income to the Indigenous Land Corporation (ILC) in perpetuity to provide economic, environmental, social and cultural benefits for Aboriginal people and Torres Strait Islanders by assisting in the acquisition and management of an Indigenous land base.
To retain the real value of the Aboriginal and Torres Strait Islander Land Fund.
Establishment
The Aboriginal and Torres Strait Islander Land Fund Account (the Land Fund), together with the ILC, was established in 1995 by the Land Fund and Indigenous Land Corporation (ATSIC Amendment) Act 1995. It is now established by the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act). This report is required under subsection 193I(1) of the ATSI Act and is for the full financial year.
Financial arrangements
Between 1995-96 and 2003-04 (ATSIC Act 'Category A years'), the Australian Government made an annual appropriation of $121 million (indexed to 1994 values) to the Land Fund. The Land Fund was to be built up to become a self-sustaining capital fund by 30 June 2004. Approximately 63 per cent of the annual appropriation was to be invested to build the capital base of the Land Fund. The remaining 37 per cent was to be administered by the ILC for its statutory land acquisition and land management responsibilities and for associated costs.
From the beginning of 2004-05, government allocations to the Land Fund ceased and the ILC received the realised real return on investments of the Land Fund in the previous year on the last working day of the financial year.
It is envisaged that the capital base will be sufficient for the annual earnings to replace the government appropriation making it a perpetual fund.
Structure of the Land Fund
From 1 January 1998 the Land Fund became a Reserved Fund within the Commonwealth Public Account. From that date moneys placed in the Land Fund must be invested in accordance with subsection 39(10) of the Financial Management and Accountability Act 1997 (FMA Act). On 1 July 1999 the Financial Management Legislation Amendment Act 1999 converted the Land Fund Reserve to a Special Account under subsection 20(1) of the FMA Act. As a consequence, the Land Fund Reserve became known as the Land Fund Account.
The Land Fund and its investments were administered by ATSIC under delegation from the Minister for Finance and Administration under subsection 193F(1) and (2) of the ATSIC Act until 30 June 2003. Following the creation of the Executive Agency Aboriginal and Torres Strait Islander Services (ATSIS) on 1 July 2003, the Chief Finance Officer (CFO) of ATSIS was appointed as the Minister's Delegate for that purpose by the Minister for Finance and Administration, effective from 1 July 2003.
This arrangement continued until the ATSIC Amendment Act 2005/Aboriginal and Torres Strait Islander Act 2005 came into force on 24 March 2005, when responsibility for the administration of the Land Fund transferred to the department.
Delegation from the Minister for Finance and Administration under the ATSIC Act was with the Acting Chief Executive Officer, ATSIS and Acting CFO, ATSIS until 23 March 2005. From 24 March 2005, the delegation was to the department's Chief Financial Officer and Director, Financial Management and Reporting.
Effects of ANAO performance audits
The Australian National Audit Office (ANAO) published two reports in 2004-05: the Management of Special Appropriations and the Investment of Public Funds. Both reports impacted on the Land Fund.
In the Management of Special Appropriations report, the ANAO concluded that the Land Fund had been over-credited during the years 1995-96 through 2003-04 inclusive. The over-crediting was caused by incorrect indexation factors (as required by subsection 193D(1) of the then ATSIC Act) being applied to the annual appropriation amount. On the basis of the ANAO calculations, the Land Fund reported a payable back to the Official Public Account (OPA) in the 2003-04 financial statements of $15 789 359, being $11 569 382 of principal and $4 219 977 of interest.
Further refinement of the calculations occurred prior to the repayment of the OPA of the amount of over crediting taking further account of the provisions of subsection 193D(1) of the ATSIC Act.
On the basis of indexation factors as per subsection 193D(1), the correct amount of over-crediting was determined as $16 859 958. This is dissected as follows:
Figure 88: Over crediting amounts
The $16 859 958 was subsequently verified by the Department of Finance and Administration as being the correct amount of over-crediting, and the amount was repaid to OPA.
As the $16 859 958 was a total of the effect of over-crediting for the Land Fund, the ILC and ATSIC, the repayment was as follows:
| Land Fund principal | $10 432 046 |
| ILC principal | $6 236 344 |
| ATSIC principal | $191 568 |
| Total principal | $16 859 958 |
In addition, $3 915 121 of interest earned on the over-crediting between 1 July 1995 and 30 June 2004 was calculated as relating to the over-crediting. This was also paid to the OPA.
Between 30 June 2004 and the repayment date, a further $364 405 of interest was earned by the Land Fund on the over-credited principal and interest, which was also paid to the OPA.
The Department of Finance and Administration has subsequently confirmed that all amounts owing have been paid to the OPA.
As the ANAO figures were impounded in the 2003-04 financial statements, the difference between these figures and those required to be compliant with the ATSI Act are reflected in the 2004-05 statements.
This resulted in the following adjustments in 2004-05:
Figure 89: Difference between ANAO calculations 2003-04 and revised calculations
The Investment of Public Funds report found that $415 540 684 of the then $1 417 836 351 of investments did not fit within the categories of investments allowed under section 39 of the FMA Act, in that they were not deposits with banks.
No definition was provided in the report as to what constituted a deposit with a bank, nor is there an agreed definition in the FMA Act or elsewhere. With some residual uncertainty as to the final definition of what constitutes a deposit with a bank under the FMA Act, the Land Fund has chosen to invest in government-backed securities or negotiable or tradable certificates of deposit, until the matter is resolved.
The Consultative Forum (see below) agreed to sell the investments classified by the ANAO as non-compliant so long as there was no net loss on the sale of the group as a whole. The investments in question were sold with a net profit of $810 041.
Consultative Forum
The Minister has appointed a Consultative Forum (section 193G of the ATSI Act) to consider the investment policy of the Land Fund, comprising nominated ILC Directors, other appointees of the Minister, and the Delegate of the Minister for Finance and Administration. The forum met on two occasions in 2004-05. The members of the Consultative Forum during the year were:
- David Baffsky, Director, ILC
- Shirley McPherson, Chairperson, ILC
- Michael Fileman, Acting CFO, ATSIS (1 July 2004 to 30 May 2005) and Director, Financial Management and Reporting, DIMIA (1 June 2005 onwards) and Delegate of the Minister for Finance and Administration.
Realised real return
As noted above, 2004-05 was the first year in which there was no government appropriation to the Land Fund, and the realised real return of the Land Fund was calculated and paid to the ILC on the last working day of 2004-05. The realised real return was calculated as being $4 038 109. This was based on a nominal return of 4.12 per cent and a discount rate of 3.8 per cent.
The calculation of the realised real return is performed using the indexation factor defined under section 193D of the ATSI Act. That section is as follows:
The indexation factor for a category A year is worked out using the following formula (and then rounded under subsection (3)):
Sum of index numbers for quarters in first March year Sum of index numbers for quarters in second March yearwhere:
first March year means the period of 12 months ending on 31 March immediately before the category A year.
index number, for a quarter, means the implicit price deflator for gross non-farm product (trend) published by the Australian Statistician in respect of the quarter (ignoring any later number that may be published by the Australian Statistician in substitution for it).
second March year means the period of 12 months immediately before the first March year.
Indexation factor-category B yearThe indexation factor for a category B year is worked out using the following formula (and then rounded under subsection (3)):
Sum of index numbers for quarters in first June year Sum of index numbers for quarters in second June yearwhere:
first June year means the period of 12 months ending on 30 June immediately before the category B year.
index number, for a quarter, means the implicit price deflator for gross non-farm product (trend) published by the Australian Statistician in respect of the quarter (ignoring any later number that may be published by the Australian Statistician in substitution for it).
second June year means the period of 12 months immediately before the first June year.
Rounding the indexation factor
A result under subsection (1) or (2) must be rounded up or down to 3 decimal places (rounding up in the case exactly half-way between).
Change in statistical reference base
For the purposes of applying the formula component index number in subsection (1) or (2), if:
- at any time, whether before or after the commencement of this subsection, the Australian Statistician has changed or changes the reference base for the implicit price deflator for gross non-farm product (trend);
then:
- after the change, only numbers published in terms of the new base are to be used.
- at any time, whether before or after the commencement of this subsection, the Australian Statistician has changed or changes the reference base for the implicit price deflator for gross non-farm product (trend);
On the basis of section 193D of the ATSI Act, the following indexation factor was determined:
Figure 90: Indexation factors
The indexation factor was applied to the Land Fund earnings as follows:
Figure 91: Indexation factors applied to Land Fund earnings
The department interpreted 'realised real return' to be the return of the Land Fund that was manifested in cash in the year, adjusted on the basis of the discount rate under section 193D of the ATSI Act.
However, so as to ensure that all payments to the ILC are in accordance with the ATSI Act, the department has requested an audit under section 20 of the Audit Act by the ANAO of the correct interpretation of 'realised real return'.
Future investment strategy
The department has recommended that the Consultative Forum outsource the investment advisory services, investment management and custodial services through open tender. Should the Consultative Forum agree to this approach, tenders are expected to be requested in the first quarter of 2005-06.
Indigenous Land Corporation (ILC)
The ILC is an independent statutory authority within the Immigration and Multicultural and Indigenous Affairs Portfolio which uses the funds made available to it each year from the Land Fund. The ILC has responsibility for the acquisition and management of newly acquired Indigenous land and for existing indigenous held land in all states and territories. The ILC is obliged to table an annual report detailing its administrative structure and processes under subsection 193K(1) of the ATSI Act.