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Financial Overview

Defence's Cash Position

Overview

Defence sources its annual cash requirements mainly from appropriations (appropriations for outcomes and the equity injection), own-source revenue, capital receipts and cash reserves. The allocations are subject to Government approval as part of the annual budget process. Once funds are appropriated for Defence purposes, they remain in Defence's accounts even if not fully used in the budget year. They are held as an appropriation receivable in the Official Public Account and are available to meet liabilities as they fall due, including employee liabilities, subject to Government approval.

With the approval of the Government, Defence had planned to have cash reserves totalling $741m at 30 June 2004, comprising cash at bank ($100m) and $641m held in the appropriation receivable. At the end of the financial year, there was $238m in the bank and $538m in the appropriation receivable, for a total of $776m - some $35m higher than forecast.

Use of Cash in 2003-04

Defence was able to source $17,746m in cash in 2003-04 and used $17,508, leaving it with a cash balance at 30 June 2004 of $238m. This was $138m higher than the $100m forecast due mainly to the need to draw down $150m on 30 June 2004 for the pay day on 1 July 2004. When this factor is taken into account, the balance reduces to $88m, representing an underlying variance of $12m, which was within 0.06 per cent of the total available cash. Table 1.8 provides details.

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Table 1.8 shows the actual movement of cash in 2003-04.

Table 1.8 Use of Cash by Defence in 2003-04
  2003-04
  Actual Result
$'000
Sources of Cash  
2003-04 Opening Cash at Bank 99,557
Appropriation Bills No 1 & 3 14,570,357
Appropriation Bills No 2 & 4 706,334
- equity injection  
Own-source revenue (1) 676,511
GST refund from Australian Taxation Office 710,088
Effect of Exchange Rate Movements 16,552
Cash from Official Public Account (1) 966,218
Sub-total: Cash Available 17,745,617
Use of Cash  
Employee Payments 6,237,818
Suppliers 5,382,002
GST Expenses -
Other operating expenses (grants, borrowing costs and other) 82,496
Purchase of Specialist Military Equipment 2,454,482
Purchase of Property, Plant and Equipment 720,524
Purchase of Inventory 1,202,210
Repayments of Debt 117,982
Return of contributed equity 742,418
Cash transfer to Official Public Account(2) 567,877
Sub-total: Cash Used 17,507,809
2003-04 Closing Cash at Bank 237,809
less Draw Down for 1 July 2004 Pay Day 150,225
Underlying Cash Balance 87,584

Notes

  1. Includes sale of goods and services ($274.3m), other revenue ($157.9m), proceeds from sale of assets ($184.4m), reclassification of foreign military sales advance payments as cash (+$59.7m) and interest revenue ($0.1m)
  2. See Table 1.9 for detailed breakdown of this figure.

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Current Status of the Appropriation Receivable

Defence used all of its 2003-04 appropriations, its own source revenue, and part of its cash reserves in 2003-04 (with the approval of the Government), leaving $538m in the appropriation receivable, or $103m less than the forecast of $641m. The reasons for the variation are explained in Table 1.9, but the major variation was the draw-down on 30 June 2004 of $150m for the pay day on 1 July 2004. The withdrawal more than fully explains the $103m reduction in the appropriation receivable.

Table 1.9 Current Status of the Appropriation Receivable
  2003-04
  Budget Estimate
$'000
Revised Estimate
$'000
Projected Result
$'000
Actual Result
$'000
Variation
$'000
2003-04 Opening Appropriation Receivable position 706,075 870,201 870,201 870,201 -
less Cash Outflows    
Return of 2002-03 Operations funds (Relex II, Citadel and Slipper) not spent in that year - -26,916 -26,916 -26,916 -
Reprogramming of major capital equipment funds in 2002-03 - - -200,000 -200,000 -
Return of 1997-98 and 1998-99 Fringe Benefits Tax funds from the Australian Taxation Office - - - -22,020 -22,020
Return of funds for the Defence Housing Authority competitive neutrality from 2000-01 and 2002-03 - - - -7,900 -7,900
Reprogramming of major capital equipment funds in 2003-04 (funds transferred to Official Public Account) - - -500,000 -330,000 170,000
Cash used to reduce employee liabilities in 2003-04 -46,900 -46,900 -46,900 -46,900 -
Use of excess 2002-03 property proceeds to fund needs in 2003-04 - - -95,756 -95,756 -
Other employee and supplier costs - - - -3,027 -3,027
Defence Procurement Review implementation costs - - -5,300 -5,300 -
Second tranche of the Papua New Guinea Defence Force Reform Program (part) - - -3,700 -3,700 -
Commercialisation of Defence Housing Authority costs - - -20,000 -18,500 1,500
Point Nepean Community Grant - - -5,000 -5,000 -
Property disposal costs from 2003-04 - - -31,800 -22,374 9,426
Mulwala tendering costs - - -3,600 -3,600 -
27th pay draw down on 30 June 2004 - - - -150,225 -150,225
Submarine intellectual property settlement - - - -25,000 -25,000
Sub-total: Cash Outflows (1) -46,900 -73,816 -938,972 -966,218 -27,246
plus Cash Inflows    
Reimbursements for Operation Bastille (Iraq) 2002-03 expenditure 248,570 112,900 112,900 112,900 -
Reimbursements for Operation Bel Isi (Bougainville) 2002-03 expenditure 10,090 14,600 14,600 14,600 -
Provision to meet future liabilities 42,540 42,540 42,540 42,540 -
Operation Citadel rephasing - - 11,100 11,100 -
Operation Catalyst rephasing - - 27,700 27,700 -
Operation Anode rephasing - - - 27,500 27,500
Return of major capital equipment funds in 2003-04 to the appropriation receivable - - 500,000 330,000 -170,000
Locally engaged staff salaries from the Department of Foreign Affairs and Trade 59 846 846 846 -
Intelligence projects - - - 691 691
Sub-total: Cash Inflows (1) 301,259 170,886 709,686 567,877 -141,809
2003-04 Closing Cash Appropriation Receivable position 960,434 967,271 640,915 471,860 -169,055
Accrual Appropriation Receivable(2) - - - 65,800 65,800
Total Appropriation Receivable 960,434 967,271 640,915 537,660 -103,255

Notes

  1. Cross reference to Table 1.8.
  2. The accrual appropriation receivable was due to the recognition of accrual appropriation revenue for initiatives approved by the Government for which cash will be reimbursed in 2004-05.

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Planned Rundown in Cash Levels

Table 1.10 shows how Defence intends to progressively reduce its cash reserves over the forward estimates in accordance with the schedule agreed by the Government.

Table 1.10 Planned Rundown in Cash Levels
2003-04
Actual Result
$'000
Use of Cash Reserves 2004-05
Budget Estimate
$'000
2005-06
Forward Estimate
$'000
2006-07
Forward Estimate
$'000
2007-08
Forward Estimate
$'000
870,201 Opening balance of cash reserves held by Department of Finance and Administration on behalf of Defence 471,860 599,410 544,310 469,010
-26,916 Return of 2002-03 Operation underspend (Relex II, Citadel and Slipper) - - - -
-200,000 Return of Capital underspend in 2002-03 - - - -
-22,020 Return of 1997-98 and 1998-99 fringe benefits tax return from the Australian Taxation Office - - - -
-7,900 Return of underspend Defence Housing Authority supplementation from 2000-01 and 2002-03 - - - -
-46,900 Cash used to reduce employee liabilities in 2003-04 -34,800 -52,600 -75,300 -97,000
-95,756 Use of cash reserves (part of 2002-03 property proceeds) for funding needs in 2003-04 - - - -
-3,027 Other employee and supplier costs - - - -
-5,300 Defence Procurement Review implementation costs 5,300 - - -
-3,700 Part of the second tranche of the Papua New Guinea Defence Reform Program 3,700 - - -
-18,500 Commercialisation of Defence Housing Authority costs 18,500 - - -
-5,000 Point Nepean Community Grant costs 5,000 - - -
-22,374 Property disposal costs from 2003-04 22,374 - - -
-3,600 Mulwala tendering costs 3,600 - - -
-150,225 27th pay - - - -
-25,000 Kockums Settlement 25,000 - - -
112,900 Reimbursements for Operation Bastille (Iraq) 2002-03 expenditure - - - -
14,600 Reimbursements for Operation Bel Isi (Bougainville) 2002-03 expenditure - - - -
42,540 Provision to meet future liabilities 143,367 - - -
11,100 Operation Citadel rephasing -11,100 - - -
27,700 Operation Catalyst rephasing -25,200 -2,500 - -
27,500 Operation Anode rephasing -27,500 - - -
846 Locally engaged staff salaries from Department of Foreign Affairs and Trade - - - -
691 Intelligence projects -691 - - -
471,860 Cash Reserves as at 30 June 599,410 544,310 469,010 372,010

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