Chapter Two > Outcome One: Command of Operations > Price to Government

Outcome One: Command of Operations

Price to Government

Table 2.4 Outcome One - Command of Operations in Defence of Australia and its Interests
Budget
Estimate
Revised Additional Estimate(1) Projected Result(2) Actual Result(3) Variation(5) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Operating Expenses
Employees - Military 295,704 190,802 225,648 282,897 57,250 25.4
Employees - Civilian 88,975 76,388 76,725 81,489 4,763 6.2
Sub-Total Employees 384,680 267,190 302,373 364,386 62,013 20.5
Suppliers expense 364,349 388,477 456,174 318,263 -137,911 -30.2
Inventory consumption 82,554 77,141 46,117 43,283 -2,834 -6.1
Sub-Total Suppliers 446,903 465,618 502,291 361,546 -140,745 -28.0
Grants 87 44 89 251 161 180.5
Depreciation and amortisation 57,600 67,798 80,254 61,289 -18,964 -23.6
Value of assets sold - - 10,325 3,631 -6,695 -64.8
Write-down of assets 18,023 11,244 11,220 107,203 95,984 855.5
Borrowing costs 933 1,207 1,462 1,331 -131 -9.0
Other expenses -136 12 - 5,458 5,458 -
Total Operating Expenses from Ordinary Activities 908,091 813,114 908,014 905,095 -2,919 -0.3
Revenues
Sale of goods and services -44,649 -85,549 -74,968 -59,688 15,281 -20.4
Revenue from sale of assets - - -10,325 -5,574 4,751 -46.0
Assets now recognised -16,124 -8,444 -8,704 -46,369 -37,666 432.8
Other revenues(4) -1,915 -2,624 -3,554 -53,282 -49,728 1399.2
Total Own Source Revenues -62,688 -96,618 -97,551 164,913 -67,362 69.1
Price to Government for Outcome One 845,403 716,496 810,463 740,181 -70,282 -8.7

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.25) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The Actual Price to Government for Outcome One, shown in this table ($740.181m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome One does not include $2.405m of administered expenses and revenues, which comprise other expenses ($22.793m) and other revenues ($20.387m).
  4. The Actual Result amount for Other revenues includes interest and dividends, net foreign exchange gains/losses and resources received free of charge.
  5. The variation figures are the difference between the Actual Result and the Projected Result.

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Explanation of Significant Variations

The overall price of Outcome One was $70.3m lower than the 2003-04 projected result, representing a decrease of 8.7 per cent. The major variations were due to:

  • a net increase in military employee expenses (+$57.3m) due to:

    Salary and allowances

    • an overestimate of long service and annual leave to be paid in 2003-04 (-$0.8m);
    • an overstatement of the military employees salaries estimates in 2003-04 (-$0.8m);
    • decreased take-up rate and overstatement of the estimate for the Home Purchase Assistance Scheme (-$0.6m);
    • an overstatement of salary advances (-$0.5m);
    Superannuation

    • the decision not to proceed with the proposed transfer of the liability for the Defence Force Retirement and Death Benefits Scheme 3 per cent productivity benefit from the administered to departmental accounts (-$11.4m);
    • an overstatement of military superannuation estimates in 2003-04 (-$0.3m);
    Leave liability

    • an overestimate of the impact of the workplace remuneration arrangement on leave liability and the implementation of a new methodology for calculating attrition rates on annual and long service leave provisions (-$0.1m);
    Housing

    • an increase in housing expenses including buy-out of old, on-base housing annuities and increased take-up rate by members without dependents using rental assistance rather than living-in accommodation (+$0.5m);
    Compensation

    • a decrease in the number and value of claims for lump sum compensation for permanent impairment (-$0.5m);
    Health

    • increased health costs relating to medical and professional fees (+$0.9m);
    Fringe benefits tax

    • an underestimate of fringe benefits tax payable for rental allowance for members without dependents (+$1.5m);
    Reserves

    • increased activity by officers and instructors of cadets and a higher than projected use of Reserve days by non-Service Groups (+$0.2m);
    Cost attribution

    • a redirection of Land Command salaries to Outcome One incorrectly attributed to Outcome Three in the projected result (+$59.4m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$9.6m).
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  • a net increase in civilian employee expenses (+$4.8m) due to:

    Salary and allowances

    • the recognition of Defence Integrated Distribution System redundancy costs in 2003-04, rather than in 2004-05 as originally planned (+$1.4m);
    • lower full-time equivalent-average personnel than projected in 2003-04 (-$0.2m);
    • an overstatement of civilian employee salaries in 2003-04 (-$1.3m);
    Superannuation

    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities from supplier expenses rather than civilian employee expenses (-$1.8m);
    • an underestimate of the impact of the changing profile of members in the Commonwealth Superannuation Scheme and Public Sector Superannuation schemes (+$0.8m);
    Leave liability

    • an increase in the future leave liability costs resulting from the new Defence Employee Certified Agreement (+$1.8m);
    • an increase in the future leave liability costs resulting from the Commonwealth Superannuation Scheme and Public Sector Superannuation rate increases on leave liabilities (+$0.5m);
    • a recalculation of accrued leave balances arising from actuarial reviews and errors in certain aspects of the estimates (+$0.5m);
    Other

    • a variation in health costs reflecting more emphasis by Defence on the health and wellbeing of its civilian workforce and other minor variations (+$0.1m); and
    Cost attribution

    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns (+$3.0m).
  • a net decrease in supplier expenses (-$137.9m) due to:
    • payment to the University of New South Wales for Australian Defence Force Academy staff superannuation liabilities (+$1.4m);
    • changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (+$2.3m);
    • lower levels of expenses incurred on Defence's recruitment contract due to improvement in separation rates (-$0.5m);
    • the rephasing of some information systems and business improvement projects to 2004-05 to reflect changed schedules for these projects (-$0.8m);
    • the rephasing of funding for Operation Catalyst (-$14.6m) and Operation Anode (-$12.8m) into 2004-05 and future years (-$27.4m);
    • the redirection to inventory purchases as Defence progressively reduces backlogs in this area (-$6.5m);
    • the redirection of major capital project costs to Outcome Four for the Joint Strike Fighter, incorrectly attributed to Outcome One in the projected result (-$54.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$51.6m).
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  • a net decrease in inventory consumption (-$2.8m) due to:
    • the flow through of improvements in the pricing of explosive ordnance (-$2.2m);
    • an overstatement of inventory consumption estimate (-$4.6m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distribution and expenditure patterns and other variations (+$4.0m).
  • a net increase in grants due to a reclassification of research agreements between the Defence Science and Technology Organisation and universities, the Point Nepean community grant, the Mornington Peninsula land grant and refinement to cost attribution rules (+$0.2m).
  • a net decrease in depreciation and amortisation expense (-$19.0m) due to:
    • net movements from asset revaluations, assets under construction roll-out, assets first recognised and property sale delays (+$2.3m);
    • a revaluation of buildings and infrastructure (+$2.7m);
    • a review of the useful life on the repairable items on a number of platforms (+$1.3m);
    • an understatement of the depreciation estimate (+$1.0m);
    • the reclassification of some operating leases into finance leases (+$0.9m);
    • greater than anticipated adjustment in other property, plant and equipment required to correct an error in the migration of assets from Defence's legacy financial system, Defence Financial Management and Information System (DEFMIS) to the Resource and Output Management Accounting Network (ROMAN) (-$0.9m);
    • the non-requirement to proceed with the anticipated adjustment in specialist military equipment relating to the migration of assets from Defence's legacy financial system (DEFMIS) to ROMAN (-$12.1m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$14.2m).
  • a net decrease in the value of assets sold (-$6.7m) due to:
    • the value of assets sold for which Defence owes an annuity to the Defence Housing Authority (+$1.8m);
    • an overestimation of the expected proceeds for other property, plant and equipment (-$1.0m);
    • the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and State Government priority (-$4.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$2.7m).
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  • a net increase in write-down of assets (+$96.0m) due to:
    • asset disposals including F/A-18 Hornet aircraft radars, Black Hawk helicopters and night vision goggles (+$19.0m);
    • the write-down of specialist military equipment, including assets under construction through project-initiated reviews including LAND 75 - Battlefield Command System, SEA 1114 - Submarines and JP 2070 - Lightweight Torpedoes (+$12.4m);
    • a large scale review of Defence's inventory holdings by the Defence Materiel Organisation which led to inventory being recognised as obsolete (+$9.2m);
    • the transfer of assets, including George's Heights and Chowder Bay to the Sydney Harbour Foreshore Trust (+$3.8m);
    • the reclassification of certain fixed assets in Standard Defence Supply System as inventory (+$6.2m);
    • the flow through of improvements in the pricing of explosive ordnance, including inventory consumed throughout the year and inventory still to be consumed (+$6.9m);
    • an adjustment to account for the change from $1,000 to $2,000 in the asset threshold for administrative assets, and the removal of grouping of these assets (+$1.7m);
    • an increase in inventory disposals (+$2.6m);
    • the incorrect capitalisation of the Forward Operating Base facilities at Moleana in East Timor (+$15.7m);
    • the write-down to correct error in the capitalisation of information technology equipment for the Joint Intelligence Centre (+$6.3m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$12.2m).
  • a net decrease in borrowing costs (-$0.1m) due to:
    • the reclassification of some operating leases into finance leases (+$0.1m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$0.2m).
  • a net increase in other expenses (+$5.5m) due to:
    • an increase in provision for Defence's share of the Commonwealth's common law liability for asbestos-related diseases (+$4.4m);
    • corrections arising from the reconciliation of Defence Housing Authority annuity balances (+$0.8m); and
    • the resolution of past errors in accounting for the transfer of expense and revenue items between Defence and special public monies accounts (items transferred after 30 June 2003 have been accounted for correctly) (+$0.3m).
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  • a net increase in sales of goods and services (+$15.3m) due to:
    • increased fuel sales to foreign governments (-$0.7m);
    • the sale of equipment to other government agencies (-$1.6m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$17.6m).
  • a net decrease in revenue from sale of assets (+$4.8m) due to:
    • the delay in the property sales program due to Government decisions, the need to refer works at Randwick, New South Wales, to the Public Works Committee, and variations in project scheduling for various reasons including the lead time required to consider local and state government priority sale proposals (+$4.0m);
    • an overestimation of the expected proceeds for other property, plant and equipment (+$1.0m);
    • the revenue received from the sale of housing for which Defence owes an annuity to the Defence Housing Authority (-$1.8m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (+$1.6m).
  • a net increase in assets now recognised (-$37.7m) due to:
    • assets identified following site audits and other remediation activities (-$2.9m);
    • the reclassification of certain fixed assets in the Standard Defence Supply System as inventory (-$6.2m);
    • the reconciliation of the ROMAN fixed asset register to the Standard Defence Supply System - Defence's inventory management system - following the introduction of Standard Defence Supply System version 4 (-$12.6m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$16.0m).
  • a net increase in other revenues (-$49.7m) due to:
    • Australian National Audit Office audit services received free of charge (-$0.9m);
    • the changes in accounting treatment of revenue collected under garrison support contracts, which is no longer offset against expenses (-$2.3m);
    • the receipt of liquidated damages including for the high frequency modernisation project to fund a program of rectification works caused by delays in the projects (-$5.3m);
    • the net variations due to the timing difference between invoices for transactions in foreign currencies entering the system and being paid (-$5.0m); and
    • progressive refinement of Defence's cost attribution rules to reflect changes in workforce distributions and expenditure patterns and other variations (-$36.2m).

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Table 2.5 Price Summary of Outputs for Outcome One - Command of Operations in Defence of Australia and its Interests
Budget
Estimate
Revised
Additional Estimate(1)
Projected Result(2) Actual Result(3) Variation(5) Variation
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
$'000
2003-04
%
Output 1.1 - Command of Operations 408,959 412,232 375,310 479,384 104,074 27.7
Output 1.2 - Defence Force Military Operations and Exercises 418,433 294,773 426,446 240,223 -186,224 -43.7
Output 1.3 - Contribution to National Support Tasks 18,011 9,491 8,706 20,575 11,869 136.3
Price to Government for Outcome One 845,403 716,496 810,463 740,181 -70,281 -8.7

Notes

  1. The Revised Additional Estimate figures have been adjusted since the Portfolio Additional Estimates Statements 2003-04 (p.27) to reflect an improved costing methodology.
  2. The Projected Result is consistent with the Portfolio Budget Statements 2004-05.
  3. The Actual Price to Government for Outcome One, shown in this table ($740.181m), relates to Departmental expenses and revenues. The Actual Price to Government for Outcome One does not include $2.405m of administered expenses and revenues, which comprise other expenses ($22.793m) and other revenues ($20.387m).
  4. The variation figures are the difference between the Actual Result and the Projected Result.

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