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 Contents Readers’ Guide The Insolvency and Trustee Service Australia (ITSA) 2008–09 annual report has been prepared in accordance with the Requirements for Annual Reports, as approved by the Joint Committee of Public Accounts and Audit. The body of the report is divided into the following sections:
Nikki Duvall Client Services Coordinator GPO Box 821 CANBERRA ACT 2601 Tel: (02) 6270 3434 Fax: (02) 6270 3413 Email: nikki.duvall@itsa.gov.au 1. Overviews Chief Executive’s review I am delighted to introduce the Annual Report for the Insolvency and Trustee Service Australia for 2008-09 having taken up the position in February 2009. As ITSA is an important agency at the frontline of the Government’s efforts to mitigate the effect of the global financial crisis on Australian’s suffering financial hardship, I was very happy to join the agency at such a critical time. I wish to thank David Bergman, the acting Chief Executive, from July 2008 to January 2009, for contributing to many of the initiatives and outcomes mentioned below. As in past periods the incidence of new personal insolvency administrations provides a useful contextual background when reviewing ITSA’s achievements. In 2008-09 total activity under the Bankruptcy Act 1966, comprising bankruptcies, debt agreements and personal insolvency agreements, increased over the 2007-08 year by 11%, to 36,487. That level has again set a new high water mark against the previous peak in 2007-08 and reflects a 29% increase in the use of debt agreements as well as a 6% increase in bankruptcies. For the past three years running, debt agreements have comprised about 20% of total insolvencies and this year increased to 23.5%. This again reflects the increasing confidence that larger institutional creditors have in the credibility of the debt agreement system following the introduction of the regulatory and compliance reforms in July 2007 and the importance we give to both liaison with the major stakeholders and practitioner development. By way of example, as well as regular formal and informal meetings with practitioners and key stakeholders, ITSA runs biannual stakeholder forums and practitioner development days. This greater confidence by creditors in the debt agreement system is further evidenced by the increase in the acceptance rate by creditors of 86%, up from 71% in 2006-07 and 81% in 2007-08. In addition, there has been a significant reduction in the termination rates of debt agreements since the introduction of the reforms in July 2007. Under the “old system” more than 30% terminated prior to the end of the agreement. This compares with the “new system” where only 8% so far of new agreements entered into in 2007-08 were terminated during the last two years. Integral to our registry and information functions we continue to meet client service standards in assisting the increasing numbers of debtors who contact us. Feedback from ITSA’s client opinion survey shows over 90% of debtors who present petitions were satisfied with the quality and timeliness of services ITSA provides, an 8% improvement from the 2005 survey, with room still for improvement. ITSA’s information service which provides a telephone, email and web information service, received 177,555 telephone enquiries, an increase of 6% from 2007-08. ITSA’s role as the regulator of the personal insolvency system continued to be a focus during the year with our proactive program strongly supported by the representative industry body, the Insolvency Practitioners Association of Australia. As well as regulating the standards and practices of private registered trustees, the Official Trustee and registered debt agreement administrators, ITSA fulfils a compliance role, both at the registry interface in respect of new matters, and when supporting registered trustees through the issue of notices which assist bankruptcy trustees to administer their estates. To assist in the regulation and compliance areas in September 2008 we launched a new practice and policy website for practitioners and other affected parties, issuing 41 new practice and policy statements. These cover our various functions and provide transparency and certainty for clients in understanding the basis on which we make decisions and exercise statutory powers. The policy statements also provide details of our expectations of trustees and debt agreement administrators; as well as provide interpretation of the law as they will be applied in regulating these practitioner groups. Another of ITSA’s compliance responsibilities which supports confidence in the system is the Bankruptcy Fraud Investigation function. As in prior years the team has produced significant outcomes. Whilst referrals from trustees has marginally declined, a total of 239 people were convicted of committing offences under the Bankruptcy Act an increase of 10% from 2007-08. This included eight custodial sentences with three required to serve time in jail and five conditionally released. In a further 269 instances the efforts of the investigators who followed up alleged offence referrals resulted in parties complying with their responsibilities. In its capacity as Official Trustee, ITSA has maintained the amount of dividends paid to creditors at $17.9 million. Contributors increased by 4% to 3,153 people and contributions collected increased by 18.1% to $12.9m. Contributions collected now represent 28% of all dividend payments made by the Official Trustee compared to 25% in 2007-08. With respect to Proceeds of Crime, the number of pecuniary penalty and forfeiture orders rose by 67% from 75 in 2007-08 to 125 in 2008-09, the value of property under control at 30 June 2009 was $41.18 million and there was an increase in distributions with $16.95 million paid to the Confiscated Assets Account and the Confiscated Assets Special Account, an increase of 21% from 2007-08. A major seizure occurred in April 2009 when, as part of a joint AFP/Queensland Police operation, ITSA assisted in the seizure of property totalling $815,000 plus cash of $994,900. In respect of our people, we continue to give high priority to ensuring that all of our employees are highly skilled and committed. We built upon the findings from the 2008 Employee Opinion Survey by conducting leadership development for the Executive Group and in October 2008 all teams in ITSA developed Team Action Plans to improve their team performance in terms of morale and well being, resulting in improved business outcomes. We have again conducted the annual Employee Opinion Survey to assess the success and effectiveness of those initiatives and await the results of that survey. We have also made substantial progress during the year towards providing enhanced online services to our clients. We hope to substantially develop further our capability in this regard during the coming year. The future A notable change during the year was that responsibility for providing advice to the Attorney-General concerning personal insolvency policy and legislation was transferred from ITSA to the Attorney-General’s Department with effect from 1 February 2009. ITSA plans to continue to liaise closely with the Department and key stakeholders to assist in having policy development and legislative reforms appropriately informed by operational experience and stakeholder views. Whilst there were no amendments made to the bankruptcy legislation during this period, ITSA progressed the preparation of amendments relating to the effectiveness of the offences provisions and amendments to improve the regime for the remuneration of registered trustees under the Bankruptcy Act 1966. In addition, in May 2009 the Attorney General announced a review of bankruptcy legislation aimed at lessening the incidence of bankruptcy by encouraging those in financial difficulty to obtain advice and information about their options before entering bankruptcy. Areas of the review included the dollar limits for debt agreements, the period of bankruptcy, the debt limit for creditor’s petitions and whether the bankruptcy register should remain a permanent public record. Implementing new legislation will be a significant part of future work. With personal insolvency activity levels expected to increase over the next year as unemployment peaks following the global financial crisis, ITSA will continue to adapt to ensure service levels are maintained. ITSA’s restructure along five national business lines (operational from 1 July 2009) will facilitate seamless, consistent and efficient delivery of services to our clients and stakeholders, no matter where they are located. This will result in a very significant positive change to the look and feel of the organisation and I look forward to the challenge of implementing the restructure and the harvesting of its benefits during the coming year. Veronique Ingram Chief Executive September 2009 Agency overview Role and functions The Insolvency and Trustee Service Australia (ITSA) is an executive agency in the Attorney-General’s portfolio that administers and regulates Australia’s personal insolvency system. ITSA’s outcome is to provide a personal insolvency system that minimises the impact of financial failure on the community, produces equitable outcomes for debtors and creditors and enjoys public confidence through application of bankruptcy laws, regulation and trustee services. ITSA is responsible for administering the Bankruptcy Act 1966 and its related legislation, the Bankruptcy (Estate Charges) Act 1997. The Bankruptcy Act creates the roles of Inspector-General in Bankruptcy, Official Receiver and Official Trustee in Bankruptcy. ITSA fulfils each of these roles. ITSA’s Chief Executive is also appointed as the Inspector-General in Bankruptcy. The Inspector-General is responsible for the general administration of the Bankruptcy Act and has powers to regulate bankruptcy trustees and debt agreement administrators, review decisions of trustees and investigate allegations of offences under the Act. On behalf of the Official Receiver, ITSA operates a public bankruptcy registry service with compliance and coercive powers to assist bankruptcy trustees to discharge their responsibilities. The Official Trustee in Bankruptcy, a body corporate, administers bankruptcies and other personal insolvency arrangements when a private trustee or other administrator is not appointed. ITSA provides personnel and resources to ensure the Official Trustee can fulfil its responsibilities. The Official Trustee also has responsibility under the Proceeds of Crime Act 2002 and the Customs Act 1901 to control and deal with property under court orders made under these statutes. ITSA commenced the 2008–09 year with six outputs. They are listed on page 14; performance in relation to them is addressed in Section 2. Organisational structure ITSA’s senior management team is led by the Chief Executive. The Chief Executive was directly assisted by:
ITSA has branch offices in each mainland capital city, with offices also in Hobart, Townsville and Canberra. The Northern Territory is serviced from the Adelaide office and through local arrangements in the territory. The Secretariat Branch is located mainly in Canberra. Figure 1: Organisation chart  There were also four nationally managed functions – Bankruptcy Regulation, the Debt Agreement Service, the Information Service, and Bankruptcy Fraud Investigation.
Secretariat Branch coordinated and delivered executive support and a wide range of corporate services including legal, ministerial, financial management, information communication and technology, human resource management, contract and property management. From March 2009, in preparation for a new business line structure, the Chief Executive established a more compact National Management Board to oversee corporate governance, make decisions on strategic business management, and provide advice on performance within the agency. The Board comprises the Chief Executive, national managers of ITSA’s five new business lines and the Chief Financial Officer. Further information about the purpose of the new structure and its development is given at Section 3. 2008–09 Outcome and Output Structure  2. Performance Output 1.1: Personal insolvency laws which satisfy business and community needs Overview In line with the usual departmental approach to portfolio agencies, responsibility for providing advice to the Attorney-General concerning personal insolvency policy and legislation was transferred from ITSA to the Attorney-General’s Department with effect from 1 February 2009. ITSA liaises closely with the Department and will continue to collaborate with the personal insolvency sector on matters of administration. Such liaison will assist in having policy development and legislative reforms appropriately informed by operational experience and which take account of administrative practicalities affecting implementation. The following discussion in relation to Output 1.1, to the extent it relates to advice on policy and legislation, covers the period 1 July 2008 to 31 January 2009 and should be read with the transfer of responsibility in mind. No amendments were made to the bankruptcy legislation during the year. However, during this time ITSA progressed the preparation of amendments announced by the Attorney-General in March 2008 relating to the effectiveness of the offences provisions in the Bankruptcy Act 1966, and amendments announced by the Attorney-General in May 2008 to improve the regime for the remuneration of registered trustees under the Bankruptcy Act 1966. These proposed amendments were described in ITSA’s 2007–08 annual report. Strategies The following strategies were employed to meet Output 1.1:
In accordance with an agreement setting out how ITSA and the Attorney-General’s Department will work together in relation to policy development after 31 January 2009 there has been continued collaboration in advancing the government’s reform agenda and assisting with significant policy issues. Consultation
Members of the forum have indicated that they value this consultative process and appreciate the opportunity to be involved in policy development from an early stage. Apart from participation in the forum, ITSA also engaged in regular, less formal consultation with registered trustees, other insolvency practitioners and financial counsellors across Australia. This liaison provided further opportunities to discuss new developments, and to receive suggestions for improvement on practical aspects of proposals including those proposed in response to the growing number of consumer debtors affected by the global financial crisis. Education ITSA continues to conduct regular information sessions for various client and stakeholder groups. The focus during the year has remained on ensuring the effectiveness of the new debt agreement regime which commenced on 1 July 2007. To this end there were further meetings with the major creditors involved in debt agreements and another professional development day was held in March by ITSA for debt agreement administrators. Cost recovery The Bankruptcy Legislation Amendment (Fees and Charges) Act 2006 altered the mechanism for setting fees and charges payable under the bankruptcy legislation. They are now set by the Attorney-General in legislative instruments made for that purpose. This provides greater flexibility and responsiveness when there is a need to keep fees and charges in line with costs. The fees and charges that applied from 1 July 2006 were introduced following a comprehensive review of all ITSA’s fees and charges to ensure they appropriately reflected the costs of providing the services to which they relate. In line with the government’s cost-recovery policy, ITSA undertook to conduct a biennial review of all fees and charges. However, it may be necessary to undertake reviews more frequently if the cost of providing any of ITSA’s services changes significantly. The first biennial review conducted in 2007–08 resulted in minor changes to ITSA’s fees and charges. The current fees and charges are set out in the Bankruptcy (Fees and Remuneration) Determination 2008. The next biennial review is scheduled for 2009–10. International engagement ITSA is a member of the International Association of Insolvency Regulators (IAIR). ITSA provides secretariat services for the association which has 28 member agencies from countries around the world. Its purpose is to promote liaison, cooperation and discussion among member agencies and to be recognised as an international body with knowledge and credibility to promote fair and effective systems for the administration of insolvencies. ITSA contributed to two comparative studies in 2008–09 relating to secured creditors and development of professional standards. These two projects were commissioned by the association at its 2008 meeting in St Petersburg and reports on the projects will be presented at the association’s meeting in Johannesburg in October 2009. Other projects undertaken by IAIR in recent years include comparative studies on user fees and charges and approaches to consumer bankruptcy. Reports on IAIR projects can be found on its website at <www.insolvencyreg.org>.
During 2008–09, ITSA continued to publish practice statements and directions on the Practice and Policy page of the ITSA website. This was in response to calls from professional clients for more information about how decisions are made within ITSA and to provide guidance on bankruptcy law and practice. There are now 41 statements and directions available for clients on this webpage. Professional clients continued to see the provision of regular consultation as an important issue. As there were no changes to bankruptcy legislation during the year there was a reduction in the level of formal consultations held. ITSA continued to perform well in relation to listening and responding appropriately to professional client needs. ITSA will continue to engage and consult with professional clients in the future both to improve its operations and also to provide input to policy and legislation developments managed by the Attorney-General’s Department. Output 1.2: A public bankruptcy registry service and compliance with the Bankruptcy Act Overview ITSA provides an information and registry service where debtors can obtain information about dealing with unmanageable debt, lodge petitions to become bankrupt and propose debt agreements or personal insolvency agreements. Clients can call ITSA’s 1300 number to obtain information and forms or enquire about their personal insolvency administration. Clients can also seek information or request forms and documents using email, webmail and fax or by attending one of ITSA’s registries in person. ITSA’s registries provide other services including issuing Bankruptcy Notices, exercising Official Receiver powers and maintaining the National Personal Insolvency Index (NPII) which is the permanent record of all personal insolvency administrations in Australia. Strategies Output 1.2 was delivered by three business units within ITSA – Information Service, Bankruptcy Registry & Compliance and the Debt Agreement Service. The three units achieved this output through four broad strategies:
Clients contacting the Information Service obtain relevant and accurate information as employees working in the Information Service participate in an extensive induction and training program covering aspects of bankruptcy and its alternatives. Our employees are also supported by a suite of readily accessible reference materials. During 2008–09, there was increased client contact with the Information Service: · 6% in 1300 telephone calls · 65% in correspondence received · 35% in hits to ITSA’s website. The Information Service internal standard of answering 80% of calls within 30 seconds was not met this year. This was due to the increased client use of this service and telephone hardware problems which were rectified in May 2009. Fifty-three per cent of calls were answered within 30 seconds and the average wait time for calls was 2 minutes and 14 seconds. Following initial contact, the Information Service issued over 48,249 (44,432 in 2007–08) debtor packs and facts sheets to clients outlining the options available to deal with unmanageable debt. In addition, approximately 26,800 pieces of correspondence were received and actioned, with over 90% being actioned within 24 hours of receipt. This service ensures clients have the latest information and forms available to them. ITSA met its performance standard of providing over-the-counter general information within 10 minutes and dispatching documents within one day. TABLE 1: Levels of enquiry activity
There was a 4% increase in unique visitors to ITSA’s website, located at www.itsa.gov.au during 2008–09. Visitors downloaded a total of 67,760 information sheets and forms per month, with an average visitor spending around nine minutes viewing our content. In November 2008 ITSA launched a dedicated email address for enquiries – info@itsa.gov.au. Clients can use this email address to seek information, obtain documents, raise issues, provide feedback and/or lodge complaints. ITSA also has an online contact form as an alternative, particularly where clients are accessing the Internet from a public arena. ITSA has also made substantial progress towards providing enhanced services to our clients online. From July 2009 practitioners have been able to perform core insolvency-related tasks online, such as:
This is the first phase in an extensive suite of online services. Electronic access to ITSA’s services and information remains an increasingly important means of communicating with our clients. Registry
TABLE 2: Levels of registry services activity
Declarations of intention to present a debtor’s petition A debtor is also able to seek temporary relief from recovery action taken by a creditor by presenting a declaration of intention to present a debtor’s petition. Once such a declaration is accepted by ITSA it prevents unsecured creditors from enforcing their debts for seven days, during which time debtors are able to consider their options under the Bankruptcy Act. There was over a 100% increase in the use of declarations of intent in 2008–09. This increase is a likely outcome of the economic climate. It would seem that debtors are more closely examining their financial situation and considering the available insolvency options to help ease their unmanageable debt. Part IX Debt Agreements – ITSA’s Debt Agreement Service Debt agreements result from creditors voting to accept a proposal to compromise debts of debtors with unmanageable debt. To be eligible to propose a debt agreement a debtor must be insolvent and have unsecured debts and assets (not exempt in bankruptcy) below $83,647 and after-tax income below $62,735. ITSA’s Debt Agreement Service (DAS) receives debt agreement proposals, conducts the voting with creditors and maintains the NPII record in regard to debt agreements. Administrators and creditors use the DAS telephone helpline service to obtain information and guidance on practice about proposals. This in turn enables debtors to make well-informed decisions to suit their circumstances. Debt agreement proposals are received from debt agreement administrators who provide debtors with information on options to deal with unmanageable debt and the consequences of these options. The administrator assists the debtor to prepare debt agreement proposal forms and must certify that reasonable grounds exist to believe that the debtor is likely to be able to pay the amount offered and has disclosed all information required. ITSA performs an extensive service to fulfil the requirements of the Bankruptcy Act so that there is confidence in the debtors’ capability to maintain the repayments proposed. After the DAS checks the debtor’s eligibility, further compliance checks are made to ensure the debtor is insolvent; the proposal clearly shows the debtor’s offer to creditors; conditions in the proposal are able to be met within seven days of acceptance by creditors and the debtor has disclosed information to enable creditors to make an informed voting decision. The DAS compliance program aims to improve knowledge and practice relating to debt agreement proposals. Compliance telephone calls are made by DAS employees to debtors and administrators to clarify proposals and check compliance with requirements and to creditors to check their claim and voting eligibility. The DAS published nine Practice Statements which describe the way ITSA performs functions and exercises powers conferred on the Official Receiver under the Bankruptcy Act and also distributes a bi-monthly newsletter on practice relating to proposals to clients. The newsletter is also available on the ITSA website. The DAS works closely with creditors and regularly meets – individually with major creditor clients – to inform them of their individual response and acceptance rates and improve their support of the debt agreement system. The DAS organises a six-monthly major creditor forum to enable progress of the debt agreement system to be monitored by large institutional creditors, the Australian Bankers Association and the Australian Finance Conference. Administrators endorsed the importance of the major creditor forum and individual visits to improve support for the debt agreement system in the 2009 ITSA Client Opinion Survey. The number of debt agreement proposals accepted to send to creditors for voting increased by 27% in 2008–09. The number of new debt agreements made increased by 30% in 2008–09. The increased use of debt agreements as an option for debtors in dealing with unmanageable debt appears to result from changes to the debt agreement system in July 2007 –
The overall effect had been to improve confidence in the debt agreement system shown by an increase in the acceptance rate by creditors to 86% of proposals sent to them for voting. Debt agreements now represent 23.5% of all personal insolvency administrations. The Debt Agreement Service has performance measures for notification of new proposals and electronic notification processes now enable a significant improvement in promptness of notification. In recent times DAS has been able to process the initial debt agreement proposal and send a report to creditors within three days in 67% of matters; and within five days in 92% of matters. Personal insolvency agreements A personal insolvency agreement results from creditors voting to accept a proposal from a debtor to compromise their debts. Unlike debt agreements, personal insolvency agreements are not subject to income, asset or debt thresholds. However, they are subject to an extensive process of investigation and reporting by a trustee prior to creditors voting. There was a 48% increase in agreements made in 2008–09. One reason for this increase could be the declining economic conditions with more debtors being placed in financial stress and reaching a settlement with their creditors to avoid bankruptcy. Bankruptcy by debtors’ petitions and sequestration orders ITSA accepts and rejects applications from debtors to become voluntarily bankrupt (debtors’ petitions). It also receives notification of court orders making a debtor involuntarily bankrupt (a sequestration order). There were 21 instances in 2008–09 when a petition was rejected by an Official Receiver as an abuse of the bankruptcy system. In a number of other instances enquiries made of debtors about their circumstances and their ability to deal with their circumstances, outside of the bankruptcy system, have resulted in them withdrawing their petitions. These withdrawn applications are not included in the figure above. ITSA’s performance standard of accepting or rejecting debtors’ petitions within one day of receipt of all necessary documentation could not be met in all instances this year. This was due to increased petitions presented with 25,387 being accepted (23,683 in 2007–08) in 2008–09. An additional procedure ITSA adopted this year to scan all documents has also impacted on meeting this measure. Approximately 85% of petitions were processed in the required timeframe of one day, with the remaining petitions being processed within five days. TABLE 3: Debt agreements, personal insolvency agreements and bankruptcies as a proportion of all personal insolvency administrations
The public and businesses can search the NPII on payment of a fee. Searches are conducted predominantly through index search agents. As well as providing a basis for information used to conduct credit checks, searches may be conducted, for instance, by a purchaser’s solicitor enquiring as to the vendor’s title to a property, or by employers checking the background of a prospective employee. There was around a 10% decrease in the number of searches undertaken by the public and business in 2008–09. More than 94% of searches were conducted online using an index search agent. The number of searches performed appears to be proportional to the level of economic activity (new contracts, new employment, etc), and with the slowing of the Australian economy there has been a reduction in the volume of searches conducted. TABLE 4: NPII searches
Bankruptcy notices
ITSA continued to meet its performance standard of issuing bankruptcy notices within one day of receipt of settled notices from creditors’ solicitors. Official Receiver notices
ITSA continued to meet its performance standard of issuing notices within one day of receipt of settled notices from trustees. TABLE 5: Bankruptcy notices and Official Receiver notices
Clients
Information and registry services Feedback from the 2009 Client Opinion Survey indicates that all clients rate ITSA as providing a good level of information and service through the 1300 number and by email. Clients made bankrupt by a Debtor Petition – in comparison to clients made bankrupt by a Creditor Petition – rate the level of service provided by the Information Service higher, by an average 17% against timeliness, employees and quality of service. Bankrupt clients rated increased satisfaction levels with the quality of service, the timeliness of responding and the conduct of employees they dealt with. Bankrupt clients seek to source information and documents from ITSA’s website, with the ability to lodge documents on line. Bankrupt clients are also satisfied that they are properly and adequately informed about the consequences of bankruptcy and what can and cannot be done once bankrupt. Debtors are indicating that they are approached less by creditors after becoming bankrupt. This is a positive outcome as it reflects the effectiveness of the Bankruptcy Act to offer protection from creditors once a client has entered into an insolvency option, providing some relief to the debtor’s financial situation. Professional clients consider provision of accurate information as one of the most important attributes of ITSA’s services. These clients seek improvement in the promptness of service, responding to client needs and ensuring that information is relevant and easy to understand. ITSA continues to have regular contact and consultation with the professional clients and will investigate these and other opportunities for improvement. Website ITSA’s website at www.itsa.gov.au provides information to the general public, potential and existing clients and professional clients. The website is a resource that can assist with:
Seventy per cent of clients made bankrupt from a creditors petition have access to the Internet; while 37% of these clients use ITSA’s website. The use of ITSA’s website is becoming more popular each year as clients want to be able to access information outside of normal business hours. ITSA is continually adding more information and features to the website to ensure easy access and navigation by clients. Of all clients who accessed ITSA’s website, a strong majority found what they wanted reasonably easily. NPII Of the four client groups asked about the NPII, personal access varied greatly, with the proportion of client groups accessing it generally decreasing since the 2005 client survey:
There were higher satisfaction levels with the NPII’s search capability since the last client survey and a majority of debt agreement administrators and registered trustees who responded to the current survey indicated they were satisfied with the searches provided by their agent. NPII users, who were not totally satisfied with the search service, offered the following suggestions for improvement:
ITSA continues its work on the NPII project set up in October 2006 to examine and recommend on NPII products, service delivery and methods of data integrity improvement. Implementation of project recommendations aimed at increasing data accuracy and standardising extracts has been ongoing during 2008 and 2009. It is hoped that increased client satisfaction will continue as a result of new NPII products and options. Output 1.3: Regulation of bankruptcy trustees and debt agreement administrators Overview The regulatory responsibilities of the Inspector-General in Bankruptcy are aimed at ensuring high national standards of bankruptcy practice and procedure. These functions are undertaken by ITSA’s Bankruptcy Regulation Branch, which oversees registered trustees in private practice, ITSA’s trustee function (the Official Trustee), debt agreement administrators, and solicitors who act as trustees in personal insolvency agreements. The branch acts independently from ITSA trustee areas and reports directly to the Inspector-General. The branch licenses those trustees and debt agreement administrators required to be registered by law; monitors the ongoing eligibility of unregistered people who, in limited circumstances, can act as trustees of personal insolvency agreements; inspects the systems and files of practitioners (including the Official Trustee); and investigates complaints about activities and applies sanctions when appropriate. The branch also fulfils the Inspector-General’s administrative review role, determining applications for review of decisions made by trustees. The following strategies are employed to meet Output 1.3:
Summary During the year, Bankruptcy Regulation Branch inspected 198 practitioners; requested remedial action of 22 trustees and nine debt agreement administrators; finalised 229 complaints; finalised 12 applications to be registered as a trustee and 16 applications to be registered as debt agreement administrators; commenced disciplinary proceedings in respect of one registered trustee and two debt agreement administrators and finalised 77 reviews of trustee decisions. Inspection program for trustees and debt agreement administrators
The purpose of this proactive program is to evaluate the qualitative standard of trusteeship and administration. In 2008–09 Bankruptcy Regulation Branch maintained its focus on inspections of higher-risk trustees and on registered debt agreement administrators as an emerging and developing profession with a significant number of new entrants and increasing consumer utilisation of the debt agreement provisions of the Act. Bankruptcy Regulation’s targeted inspection activities resulted in several major enforcement projects being initiated in 2008–09. This resulted in a decision being made to defer the Official Trustee inspection program until 2009–10. TABLE 6: Number of practitioners and their administrations inspected
TABLE 7: Non-compliance issues identified
While there has been an increase in the number of errors identified in 2008–09, the overall number of instances when it was appropriate to request specific remedial action has declined. Nevertheless, the identification of some instances of serious non-compliance has resulted in some major enforcement projects being initiated by the branch. Non-compliance in administration by practitioners is reported in three categories, A, B and C – depending on their level of materiality and effect. Of the 362 issues identified:
The major areas where non-compliance occurred were errors relating to property or asset investigations and income assessments 24% (14%); inadequate communications 23% (30%); failing to maintain proper records 12% (10%); errors in the calculation of the realisations and interest charge 9% (7%) and problems with the convening of meetings 9% (11%) . The increase in errors relating to property or asset investigations and income assessments, in part, relates to a small number of matters in which disciplinary proceedings are contemplated. These matters were under investigation at 30 June. The reduction in the percentage of errors relating to communication is pleasing and appears to reflect the focus given to educating practitioners in prior years. 1The figures in brackets refer to 2007–08 statistics
Bankruptcy Regulation Branch also monitors personal insolvency agreement proposals and attends meetings of creditors to determine the legitimacy of proposals and to ensure that procedures comply with the Act. In 2008–09, the branch reviewed 302 Part X proposals and attended 58 creditors’ meetings, compared to 329 and 35 respectively in 2007–08. Intervention and corrective action was required in 5% of the Part X matters reviewed, compared to 10% in 2007–08. Non-compliance generally comprised failing to report adequately or to make sufficient enquiries and incorrect treatment of creditor’s claims. Remedial actions by trustees included supplementary reports to creditors and correction of procedural deficiencies prior to, or at the time of the meeting. Official Trustee As outlined previously, due to a number of enforcement projects commenced in 2008–09, a decision was made to defer the Official Trustee inspection program until 2009-10. Registered debt agreement administrators In March 2009, ITSA’s Bankruptcy Regulation Branch held its second professional development forum for administrators where current issues and Inspector-General requirements were discussed at length. Of the 55 errors found in DAA administrations as a result of the inspection program:
The major areas where errors occurred were incorrect certifications 40% (27%); record keeping and accounting issues 15% (15%); and in connection with fees taken 9% (9%). There was a reduction in the rate of failure to report the three month arrears 7% (14%); and in dealing with creditor’s claims 9% (18%). The Category A errors comprised failures by an individual, unregistered administrator and failures by an associated company, a registered administrator. The conduct involved failure to keep books and records to fully and correctly account for administration, failing to deal with property in the manner specified in the debt agreement, a failure to reconcile trust monies, and failing to carry out duties including certification, reporting defaults and terminations. This led to disciplinary actions against each administrator, resulting in a declaration of ineligibility and a deregistration. Complaints
All complaints received are examined and, where possible, quickly finalised without the need for in-depth investigations or a report being requested from the trustee or administrator. Complainants may be:
The remaining complaints are investigated and if deficiencies are identified, the remedial action taken usually involves counselling, disciplinary proceedings, and/or direct intervention in the trustee’s or administrator’s conduct of the particular administration or litigation. The branch also looks for opportunities to utilise negotiation and alternative dispute resolution techniques to achieve an outcome.
TABLE 8: All practitioners – complaints
Trustee complaints Of the 418 complaints received in 2008–09, 310 were against registered trustees and the Official Trustee (266 in 2007–08). These complaints encompass six main areas:
Registered debt agreement administrator complaints Of the 108 complaints made against debt agreement administrators (112 in 2007–08), 61 required investigation (35 in 2007–08). In addition to these formal complaints, numerous concerns were raised by creditors and debtors during the debt agreement process. These matters were handled by ITSA’s Debt Agreement Service (DAS) and generally do not escalate into a formal complaint. In 2008–09, DAS resolved 5,085 such minor issues. In 2008–09, 21 complaints (19%) were found to be justified. This is counter to the downward trend of justified complaints from previous years with 2007–08 (11%), 2006–07 (13%), 2005–06 (9%), 2004–05 (14%), 2003–04 (15%), and 2002–03 (26%) and appears to be due to a change in the type of complaints reaching BR. More serious complaints are reaching BR for investigation while minor or administrative issues are being resolved by DAS personnel and are not escalating to formal complaints. Previously, these minor complaints would also have been examined by BR increasing the number of overall complaints examined and potentially lowering the percentage of justified complaints. Most justified complaints centred around issues concerning information and communication 46%, and creditors’ claims and dividends 23%. Registration/eligibility of trustees and administrators
In 2008–09, 12 new applications were received from people wanting to be registered as bankruptcy trustees, compared to seven in 2007–08. All applications were finalised and 11 were approved. The branch commenced disciplinary proceedings against one trustee for failing to exercise his powers or carry out his duties properly, requiring the trustee to show cause why he should not have his registration cancelled. Several other matters are currently under investigation and these are likely to result in the commencement of disciplinary proceedings. Seventeen applications were received from people and companies seeking registration as debt agreement administrators. Sixteen applications were accepted and one was rejected. Disciplinary action was commenced against two related-party debt agreement administrators for breaches of duty.
Administrative review of trustee decisions
During 2008–09, there were 19 applications made to the AAT for a review of the Inspector-General’s review decisions, compared with 13 in 2007–08. Five applications for review related to income and contribution liabilities, three related to hardship and 11 related to reviews of objections to discharge. In presentations to trustees during the year the branch has emphasised that objections should be used only in the circumstances set out in the Act and in particular only when there is no other way to induce the bankrupt to discharge a duty. Sixteen matters were finalised (comprising new matters and matters outstanding at the commencement of the period) with 15 of these being withdrawn or the Inspector-General’s review decision being confirmed by the tribunal. In the remaining matter the tribunal overturned the Inspector-General’s review decision. TABLE 9: Inspector-General review decisions
A priority for action in the 2009 survey related to BR disciplining non-performing trustees. This perceived inaction by professional clients may be in part due to BR’s inability to publish detailed information on disciplinary action being taken. Only if a registered trustee or registered debt agreement administrator is deregistered does the information become public. Output 1.4: Administration of bankrupt estates and other arrangements under the Bankruptcy Act Overview Australia’s personal insolvency system operates on the basis that a trustee or administrator is appointed in every bankruptcy or agreement under the Bankruptcy Act. When a registered trustee or administrator is not appointed or can no longer perform their function, ITSA handles the matter in its capacity as the Official Trustee. In 2008–09, there were 27,502 new bankruptcies lodged compared to 25,970 the previous year. ITSA received 86% (23,571) of these new bankruptcies compared to 88% the previous year. Administered estates are grouped into three broad categories:
The following strategy is employed by ITSA to deliver Output 1.4:
The standard for reporting to creditors on the estate within six weeks was exceeded during 2008–09; however, the standard of reporting to all creditors within three months was not achieved, primarily because of an increase in estates with over-encumbered properties. It can take significantly longer to gather the information on properties than is available to meet the general reporting standard. ITSA’s dividend standards are to pay dividends in 20% of administered estates and within two months of the last receipt of funds in 80% of cases. In 2008–09 both standards were exceeded but with a smaller increase over 2007–08. TABLE 10: Key performance measures for notifying creditors and paying dividends
The Bankruptcy Act requires a bankrupt who derives income above a threshold amount to pay contributions to their estate. The number of contributors assessed increased by 4% and the amount of contributions recovered increased by 18.1% compared to 2007-08. TABLE 11: Level of contributors and contributions for bankruptcies handled by ITSA
TABLE 12: Key performance measures for administered bankruptcies handled by ITSA
Estates on hand are decreasing as a result of the increase in estates able to be finalised due to improved business processes. The trend for an increase in estates that achieve a realisation should continue as improved business processes are implemented throughout ITSA. The decrease in the number of finalised estates that paid a dividend is a result of a decrease in the net realisable value of properties received in bankrupt estates.
TABLE 13: Performance against other standards for bankruptcies handled by ITSA
TABLE 14: Levels of outputs achieved in administered estates handled by ITSA
Last year there was a focus on using objections to discharge (which increases the bankruptcy period from three to five or eight years) as a means of gaining compliance in respect of the obligation of bankrupts to supply information and make income contributions. They have proved successful and fewer needed to be issued this year.
In the course of administering the 23,571 new bankruptcies in 2008–09 (and 7,353 estates on hand from 2007–08), 44 complaints were received about Official Trustee administrations compared to 34 complaints received in 2007–08. Of these complaints, 16 were non-investigative complaints and 28 were investigated by Bankruptcy Regulation with six complaints found to be justified. Bankruptcy Regulation conducted 25 Inspector-General reviews compared to 28 reviews in 2007–08. Of the Official Trustee decisions reviewed, 16 related to income assessments in regard to income contributions. Six assessments were varied and five withdrawn as a result of the review. Nine related to objections to discharge lodged to induce bankrupts to provide evidence of their income and generally to comply with their obligations to make contributions to their bankrupt estate. Six of the objections were confirmed and two were withdrawn; the balance of the reviews are awaiting an outcome.
While fewer creditors indicated they were satisfied with ITSA’s estate administration services (84% compared with 93% in 2005), ITSA was rated consistently better than other private registered trustees across ten dimensions contained in the survey, this was also consistent with the findings of the 2005 survey. One development has been the increasing trend to use the ITSA internet website for downloading information and documents and more bankrupts reported they found the information relevant and useful. Output 1.5: Investigation of Bankruptcy Act offences Overview ITSA is responsible for upholding public confidence in the personal insolvency system. In doing so, ITSA receives, assesses and investigates alleged offence referrals and prepares briefs of evidence for possible prosecution by the Commonwealth Director of Public Prosecutions (CDPP). ITSA is also responsible for investigating bankruptcy-related offences under the Commonwealth Crimes Act 1914, various state crime statutes and the Commonwealth Criminal Code 1995. Referrals of alleged offences are received from the Official Trustee, registered trustees in private practice, registered debt agreement administrators, creditors and the general public. During 2008–09, ITSA’s Bankruptcy Fraud Investigation Unit (BFI) received and assessed 988 alleged offence referrals; commenced 730 investigations; completed 851 investigations; achieved voluntary compliance in 259 matters.3; and forwarded 306 briefs of evidence to the CDPP. Over the year, 239 offenders were found guilty of criminal offences: 203 offenders were convicted in relation to 311 bankruptcy-related charges and eight people received custodial sentences. A further 36 offenders received non-conviction bonds or fines for an additional 39 offences. 3 Compliance achieved refers to matters where an investigation was conducted and the alleged offender voluntarily complied, thereby avoiding the need for prosecution. Note – excludes matters where compliance was achieved subsequent to a prosecution Strategies The following strategies are employed to meet Output 1.5:
TABLE 15: Referral and investigation statistics
During 2008–09, 239 people were found guilty of 350 charges, which had an estimated fraud value in excess of $2.4m.
In all instances where a warning letter is issued, ITSA investigators conduct follow-up interviews with the alleged offenders, educating them about their rights and responsibilities, and counselling them about the potential consequences of any future non-compliance. When a recipient of a warning letter elects not to participate in the interview process, BFI withdraws the warning letter and prosecution actions are initiated. In 2008–09 ITSA issued warning letters to 156 first-time alleged offenders regarding less serious breaches of the Bankruptcy Act. The effectiveness of these warning letters and subsequent educative interviews is illustrated by the fact that in the six years BFI has been issuing warning letters, only one recipient of this strategy has re-offended and that person was prosecuted immediately.
In addition to the 251 matters prosecuted in 2008–09, at 30 June 2009 there were 223 ITSA briefs of evidence with the CDPP awaiting prosecution.
ITSA’s commitment to achieving increased levels of voluntary compliance in lieu of prosecution action continues to be enhanced through its on-going partnership with the Royal Melbourne Institute of Technology University (RMITU) – a partnership that sees students who are undertaking a Bachelor of Arts (Criminal Justice Administration) complete a three-month placement within the BFI Compliance Team. Students progressing through ITSA’s Compliance Team are instructed in the basics of law enforcement and gain skills in an on-the-job law enforcement environment. This collaborative relationship allows ITSA to pursue ongoing compliance strategies while simultaneously assisting the RMITU in achieving its undergraduate teaching and development aims.
Output 1.6: Administration of proceeds of crime property Overview ITSA, in its capacity as Official Trustee, administers property in accordance with orders made under the Proceeds of Crime Act 1987, the Proceeds of Crime Act 2002 and the Customs Act 1901. ITSA takes custody of restrained property and disposes of restrained and forfeited property, and pays proceeds into the Confiscated Assets Account (CAA) and the Confiscated Assets Special Account (CASA). ITSA works with the Australian Federal Police (AFP), the Commonwealth Director of Public Prosecutions (CDPP) and other law enforcement agencies when performing its ‘proceeds of crime’ role. Total recoveries amounting to $16.95m were paid into the CAA and CASA with a total balance of $21.49m of which $20.31m is available for distribution. ITSA distributed $12.21m to law enforcement and drug rehabilitation programs in accordance with determinations made by the Minister ($6.68m in 2007–08) and distributed $0.68m under the equitable-sharing program. Of the 141 matters on hand, 137 relate to matters under the Proceeds of Crime Act 2002 and four relate to the Proceeds of Crime Act 1987. TABLE 16: Proceeds of crime summary
Strategies The following strategy is employed to deliver Output 1.6:
There has been a significant decrease in the value of property taken under control of the Official Trustee as a result of a 50% decrease in the number of custody and control orders obtained by CDPP. ITSA met the standards of taking action to control property within 24 hours of notification and achieving control within two weeks of locating property except where property is retained by law enforcement agencies for evidentiary or operational purposes.
The court may impose a pecuniary penalty order on people who have committed, or who have been convicted of, Commonwealth offences and/or may order forfeiture of restrained property. Where the conviction involves a serious offence, restrained property is automatically forfeited. The Official Trustee must then sell or otherwise dispose of the property to satisfy the penalty or deal with the forfeited property. There has been a 65% increase in the number of pecuniary penalties and forfeitures received during 2008–09; however this has largely contributed to an increase in orders requiring the destruction of property with little or no value. The standard of disposing of property within six months of receipt of final orders was met in 2008–09, except where property was held by the AFP for evidentiary or operational purposes, and in three instances where real property was unable to be sold for reasons outside the Official Trustee’s control.
Confiscated Assets Special Account Proceeds from property realised under the Proceeds of Crime Act 1987 are paid into the CASA along with interest earned. Since the introduction of the 2002 Act in January 2003, no new matters have been initiated under the 1987 Act. The balance of funds of $272,741 has, as a consequence, been transferred to consolidated revenue. Confiscated Assets Account From 1 January 2003, proceeds from property realised under the Customs Act 1901 and the Proceeds of Crime Act 2002 have been paid into the CAA along with interest earned. During the year $0.28m was paid to the United Kingdom and $0.20m each to the governments of Victoria and New South Wales under equitable sharing arrangements. As at 30 June 2009, ITSA held an amount of $21.49m, of which $1.18m was committed to programs, as approved by the Minister, for crime prevention or law enforcement measures, and measures relating to treatment of drug addiction; and $20.31m was available for other distribution. 3. Management and Accountability Corporate governance ITSA’s corporate governance arrangements comprise the structures and procedures by which the agency is directed and controlled, and the mechanisms by which those who direct and control the agency are supervised. The Minister and Parliament ITSA’s Chief Executive reports to the Attorney-General and, in accordance with the Public Service Act 1999 and the Financial Management and Accountability Act 1997 (FMA Act), assists the Attorney-General to fulfil his accountability obligations to the Parliament. In this annual report the Chief Executive accounts for ITSA’s performance and use of resources. In a separate report, as required under the Bankruptcy Act, the Inspector-General reports annually to the Attorney-General, for presentation to the Parliament, on the operation of the Bankruptcy Act. ITSA’s accountability to the Parliament also includes scrutiny through relevant Parliamentary committees including Senate Estimates hearings.Direction and control Senior executives The Chief Executive is responsible for managing and leading ITSA in accordance with the Public Service Act 1999, the FMA Act 1997 and other legislation. As the Inspector-General in Bankruptcy, the Chief Executive is also responsible for the general administration of the Bankruptcy Act. The National Manager of Bankruptcy Regulation and the five Official Receivers who managed the state and territory branches were responsible for the delivery of ITSA’s regulatory and operational services respectively (see organisation chart on p 12). The Executive Director was responsible for the Secretariat Branch, located primarily in Canberra, which gave legal, financial, personnel, IT and administrative support to ITSA. Until 30 June 2009 ITSA’s Bankruptcy Fraud Investigation section was attached to the Secretariat Branch. ITSA’s Leadership Team comprised all senior executives listed below as well as the leaders of ITSA’s Legal, Information and Communication Technology (ICT), Finance, Fraud Investigation and Human Resource functions.TABLE 18: ITSA senior executives 2008–09
Options to achieve this objective were the subject of extensive consultation with all employees. Other objectives were to ensure ITSA’s structure maximised the effective use of resources, an enabled ITSA to be in the best position to harness the benefits of improved service delivery optioins, including online services. Ultimately it was decided to adopt a structure based on five national business lines.FIGURE 2: ITSA’s five new business lines and national managers (commencing 1 July 2009)  The Board meets monthly and notes of key matters discussed are circulated to all employees after meetings and posted on the ITSA intranet. Papers considered at meetings are also available on the intranet. Audit and Financial Practices Committee ITSA’s Audit and Financial Practices Committee advises the Chief Executive and ITSA management on a range of audit and financial practice matters. In addition to considering the results of the various internal and external audits and, importantly, the action subsequently taken to respond to and implement auditors’ recommendations, the committee also monitors the application of and compliance with systems and frameworks for ensuring high levels of internal controls, financial reporting, risk management and fraud control. The Audit and Financial Practices Committee has three members: an independent (external) Chairman, Peter Kennedy, PSM and two ITSA senior executives – Digby Ross FCA, FCPA (the Branch Head and Official Receiver, Queensland), and Pat Tragauer (Branch Head and Official Receiver, South Australia appointed to replace David Bergman). Committee meetings ordinarily are attended by ITSA’s internal auditors, KPMG, Australian National Audit Office representatives who attend as observers, and ITSA’s Executive Director, the Chief Finance Officer and the Finance Manager. One committee member was unable to attend one of the four meetings during the financial year. Internal audits completed during 2008–09 tested both compliance and performance when addressing a range of functions, including data integrity of the National Personal Insolvency Index, Proceeds of Crime asset administration, Debt Agreement System regulation and compliance, management and use of government corporate credit cards, the annual payroll review and a review and update of ITSA’s Chief Executive Instructions. Employee consultative committees The National Consultative Committee (NCC) and Branch Consultative Committees (BCC) facilitate consultation with employees on administration and workplace issues, including operational policy and practice changes, organisational change, accommodation and improvement strategies. The NCC and BCC met regularly during 2008–09 to discuss important issues such as the proposed new certified agreement and the proposed restructure. Corporate and operational plans ITSA maintains an integrated planning process, which is initiated at the annual planning workshop early in each calendar year. There are linkages between ITSA’s Strategic Plan, the annual Business Plan and individual employee performance plans. National priorities and objectives and performance measures cascade down to branch plans and, ultimately, to individual employee performance and development plans. This assists employees’ understanding of the expectations for their role and how their role contributes to the achievement of ITSA’s overall national strategies. Business improvement initiatives ITSA continued the development and implementation of the eSolve case management initiative. The eSolve system both enables the delivery of quality services and provides a robust and efficient electronic business platform for employees. This year further phases of the program were implemented to enhance effective and efficient outcomes to ITSA and its clients and stakeholders, specifically through:
In addition ICT undertook a major initiative to support the restructure along business lines. Values, conduct and ethical standards ITSA’s Business Plan and Collective Agreement play a lead role in reinforcing the requirement for ITSA employees to uphold the Australian Public Service (APS) Values and comply with the Code of Conduct. The Values and the Code also are incorporated into ITSA’s generic capability framework, which is used as the basis for selecting employees. Information on the Values and Code of Conduct is contained in induction material given to each new employee, and is posted on ITSA’s intranet. Formal procedures are in place for investigating and determining breaches of the Code of Conduct and for handling reports from whistleblowers. One complaint was received in 2008–09 and an independent investigation is currently underway. The Values, implications of breaches of the Code, and the importance of handling confidential information sensitively and appropriately were some of the themes covered in all staff information sessions held in all offices in March 2009. Information on the APS Commission’s ethics advisory service was circulated to all employees in May 2009, and links were made from the ITSA website to the APS Commission ethics page. Managing risk and fraud Risk management is an integral part of ITSA’s planning and management processes at all levels. ITSA’s Risk Management Plan sets out a systematic process and tools to help identify, analyse, assess, manage and monitor risks to ITSA in achieving its objectives. During 2008–09, each of ITSA’s business lines had detailed management assurance programs with monthly management reports to address or minimise risks within their areas of business. Separately, senior managers, with assistance from the internal auditors, re-assessed higher-level risk from the agency-wide perspective, further complementing risk assessments at the business line level. ITSA’s Fraud Control Plan, in accordance with the Commonwealth Fraud Control Guidelines, is based on a comprehensive risk assessment which assesses both inherent fraud risk and associated mitigation strategies. During 2008–09, ITSA’s Fraud Control Plan was extensively reviewed and updated to take into account management assurance practice, the new restructure and associated roles and IT specific fraud references. Separately, annual fraud data has been collected and reported in accordance with fraud control guidelines. Senior executive remuneration ITSA employees work under a Collective Agreement that includes provisions for organisational improvement linked to pay outcomes. The nature and amount of remuneration for senior executive service officers during 2008–09 was determined by Australian Workplace Agreements (AWAs). There were five SES employed under AWAs in ITSA for this period. Note 11 to our financial statements gives the number of executives whose total remuneration falls within each $15,000 band commencing at $130,000 and the aggregate remuneration paid to all executives. Client service Client Service Charter ITSA’s performance is measured against service standards set out in the Client Service Charter. The charter is available as a hard-copy booklet, a short-form brochure and is also accessible on the ITSA website. In 2008–09, over 22,000 copies of the charter booklet were distributed. Charters were sent or given to:
Charter brochures (short version) were also distributed to debtors making initial enquiries about bankruptcy and its alternatives and during presentations and information sessions. Service standards Service standards for returning telephone calls promptly, sending documents when requested and answering letters are measured by exception. Nearly all of the service charter standards are used as performance measures and are reported under relevant outputs elsewhere in this report. For example:
Complaints During 2007–08, ITSA rolled out a new Complaints and Compliments reporting system to all branches. The system, which included revised complaints handling protocols and training, was developed to provide a centralised database for recording client feedback, to facilitate the monitoring and analysis of client feedback, and to further enhance ITSA’s reporting functions. The reporting of complaints by ITSA during 2008–09 has increased dramatically as a direct result of this system. General complaints In 2008–09, 409 general complaints (62 in 2007–08) were recorded about service delivery standards, as distinct from complaints about the way in which debtors became bankrupt, which is outside ITSA’s control. Of these, 217 were considered justified (17 in 2007–08), with over 77% of all complaints received during the year being justified or partially justified. The majority of complaints received related to accuracy of information and data entry issues as well as responsiveness. Where a complaint was found to be justified, remedial action was undertaken, for example, to fully deliver the service initially requested, make corrections to personal details or provide more substantial information. ITSA has identified the time taken to deal with complaints as an area for improvement in 2009–10. During 2008–09, 55% of complaints were resolved within 14 days (our acknowledged timeframe for addressing complaints). Over 18% of complaints took in excess of 150 days to finalise; however, much of this delay is attributable to poor recording practices in the complaints system as opposed to actual delays in resolving the complaint. At 30 June 2009, nine complaints remained outstanding. Ministerial correspondence There were 140 letters directed through the Minister’s office or direct to the Inspector-General during 2008–09 that contained enquiries or complaints. Of those complaints which lend themselves to remedial action by ITSA, four were considered justified and one was considered partially justified. It should be noted that many of these complaints had already been examined through either ITSA’s internal review process or by Bankruptcy Regulation, and occasionally by the Ombudsman. Ombudsman The Commonwealth Ombudsman’s office advised that it received 71 complaints in connection with ITSA during 2008–09. This is a 21% increase on the 56 complaints received in the previous year but is largely attributable to a high volume of approaches (10) received on one matter, none of which were investigated by the Ombudsman’s office. During 2008–09, the Ombudsman investigated eight cases (11%), five of which had been concluded by 30 June 2009. The matters investigated involved a range of issues but the most common theme related to concerns that ITSA had failed to adequately clarify or explain information about an individual’s bankruptcy. One Ombudsman investigation resulted in a finding of ‘administrative deficiency’. The finding was the result of the Official Trustee requiring a bankrupt to apply under the Bankruptcy Act 1966 using a specific standard form. The Act however only prescribes that the relevant application be ‘in writing’. ITSA accepted the Ombudsman finding and has since given appropriate instructions to officers to ensure that its practice is consistent and accords with legislative requirements. Compliments During 2008–09, 215 compliments about the quality of service provided by ITSA employees were recorded. Compliments mainly related to the courteous and friendly service offered by ITSA staff. For example:
‘ITSA staff are the most positive government department I have ever had to deal with’ ‘My case officer was very professional and caring, she answered my enquiries very well and it was the first time in a long while that someone had treated me as a person without passing judgment in regards to my situation. I have had so many issues with the way some customer service officers have treated me previously from different organisations and when I spoke to ITSA I was very surprised at how nice and professional she was in dealing with me’ Client service During 2008–09, ITSA initiated various new strategies that were planned to produce improved levels of client service and simplified procedures for clients dealing with ITSA. These included:
Social justice and equity People who find themselves in financial difficulty come from a wide range of cultural and socio-economic backgrounds. ITSA provides information about bankruptcy, debt agreements and other options directly to those in financial difficulties or affected by other people’s financial failure. ITSA is aware of how insolvency affects people within our community, and aims to ensure that access to useful information and services is readily available to enable debtors and others to help themselves. In line with social justice principles, ITSA ensures information and services are accessible through a range of channels including a 1300 telephone enquiry service, counter service, publications and an extensive website. The following Access and Equity initiatives were taken during 2008–09 to improve ITSA’s ability to meet client needs:
ITSA’s Information Service continues to record all client contacts with ITSA. Part of this record involves logging clients’ special needs, eg, if clients have a language preference or disability which requires special attention. The Information Service maintains accurate records of Translating and Interpreting Service (TIS) usage and the types of languages that are being translated for clients. All of this information will enable us to better understand our client groups and will assist in identifying a target audience for new information/publications. Planned work in this area during 2009–10 includes:
External scrutiny Review of ITSA’s administration is also available under the Administrative Decisions (Judicial Review) Act 1977 and the Ombudsman Act 1976. There were no judicial decisions, or decisions of administrative tribunals that have had, or may have, a significant impact on the operations of ITSA, nor has ITSA been the subject of any reports on its operations by any parliamentary committees or the Commonwealth Ombudsman during the year. Section 313 of the Bankruptcy Act 1966 requires the Auditor-General to inspect and audit the accounts and records of the Official Trustee and the Official Receivers and to report to the Minister at least once in each financial year. The Auditor-General advised that the audit of the accounts and records of the Official Trustee and the Official Receivers undertaken during the 2008–09 financial year for the period 1 March 2008 to 29 February 2009 was completed with satisfactory results. In the Auditor-General’s opinion, proper accounts and records were maintained by the Official Trustee and the Official Receivers, and receipt, expenditure and investment of moneys by the Official Trustee and the Official Receivers were in accordance with the provisions of the Act and the Bankruptcy Rules. Financial management Overview of financial performance The financial statements for the year ended 30 June 2009 can be found in Section 5. These financial statements have been prepared on an accrual basis in accordance with Australian Accounting Standards and the Finance Minister’s Orders. The Australian National Audit Office has issued an unqualified audit report on the financial statements. The financial statements show that ITSA achieved an operating surplus of $0.052m, or 0.1% of the total income. As in 2007-08, this result reflects larger than expected revenue from other (non-appropriation) sources during the year, and will assist in providing an injection of resources to effect the continued development of business improvement initiatives. Table 19: Agency Resource statement
Workload pressures in Output 3.1 due to increases in debt agreement activity from 2007–08 and increased legal activity in the defence of the Inspector-General, contributed to an increase in resources to the regulation of bankruptcy trustees and debt agreement administrators. ITSA’s financial performance is summarised by output in the table below. TABLE 20: Resources for outcomes and outputs
In carrying out its functions, ITSA imposes various fees and charges for the products and services it provides, in accordance with the Australian Government Cost Recovery Policy. ITSA has completed five reviews of its fees and charges in accordance with that policy:
The outcome of the first biennial review was a reduction in the charges to access material on ITSA’s National Personal Insolvency Index (NPII) (a decrease from $22 to $20 per extract). A second biennial review will be undertaken in the 2009–10 financial year, to be effective from 1 July 2010. Each review has included stakeholder consultation, and has resulted in a Cost Recovery Impact Statement (CRIS). All five CRIS’s are available on ITSA’s internet site. Procurement The Commonwealth Procurement Guidelines (CPGs) form the basis for ITSA’s procurement practices and procedures. The CPG principles are reflected in ITSA’s Chief Executive Instructions (CEIs) and supporting procedural rules which are available to all employees through ITSA’s intranet. General procurement is devolved to branches, where acquisitions and expenditure are monitored to ensure value for money in delivering ITSA’s outputs. The procurement of goods and services of a materially significant or national nature is centrally coordinated. This ensures that more complex procurement is handled by appropriately trained staff. Consultants and competitive tendering and contracting ITSA’s contracts with private suppliers for the provision of internal audit, accommodation, and media support extended into 2008–09. During 2008–09, tenders were held for ICT matters, the provision of transactional banking and recruitment services. Refer to Appendix 4 for further details on consultancy services within ITSA. Management of ITSA’s people ITSA’s strategic people objective is:
The key focus of the ITSA’s People Strategy for 2008–09 has been continuous improvement across the agency, specifically at the team level. A regular employee opinion survey continued to be used as the guide for organisational improvement and development. In October 2008, as a result of the survey, all teams in ITSA developed team action plans in order to improve their team performance in terms of morale and well being, resulting in improved business outcomes throughout the year.Leadership ITSA responded to the identified need to focus on leadership skills by embarking on a Leadership Development Program for all the members of the Executive Group. This five-day program was conducted over seven months, specifically targeting skills associated with team work, collaboration, giving and receiving feedback, learning and coaching. This skills-development process aimed to achieve behavioural change amongst the Executive Group and subsequently with their direct reports and teams. In March 2009 the National Management Board was formed, taking the place of the Executive Group. This smaller, more tightly structured team aims to provide the direction and decision-making required to take ITSA into the next financial year with a new organisational structure in place. The Manager Toolkit, an intranet resource for managers, was launched in July 2008, with a full-day pilot workshop conducted in November 2008, aimed at managers to help them better understand their accountabilities and responsibilities within ITSA and the APS. It is proposed to rollout these workshops throughout ITSA in 2009–10. Through the employee opinion survey all managers were provided with feedback on their leadership behaviours to enable more targeted leadership development. They were also required to oversight the implementation of team improvement action plans with a view to improving employee motivation and morale. An improvement target was included in each manager’s Performance Development Plan. This will be monitored in the next employee opinion survey conducted in June 2009.Performance management Increased compliance expectations for the participation in the Performance Feedback Scheme came about in 2008–09. Seventy-three per cent of employees in ITSA finalised their performance development plans by the due date, but only 46% of employees had new plans in place on time. These results remain less than satisfactory. Efforts to improve this resulted in a 97% compliance rate at the mid-cycle review in April 2009. Learning and development In October 2008 a learning and development framework was launched in ITSA, with a requirement for all employees to participate in 40 hours learning and development per annum. All operational business lines have developed a learning and development strategy. All employees participated in some kind of training activity, with an average of 39.74 hours per employee spent on training during 2008–09. Total expenditure on learning and development was $207,945 (excluding employee salaries) or $602,667 (including employee salaries). In addition, ITSA assisted 31 employees progress their tertiary studies in accordance with the ITSA Studies Assistance Scheme with the provision of assistance for course fees and leave. Staffing During the year, the number of ITSA employees reduced due to budgetary constraints in the agency. Workload continued to increase putting pressure on some business lines. At 30 June 2009, ITSA employed a total of 279 full-time equivalent (FTE) employees (293 actual headcount). This is compared with 308.4 FTE employees (323 actual headcount) at 30 June 2008. Further details of ITSA’s workforce profile are in Appendix 2.APS Values APS Values and Code of Conduct are part of the ITSA induction process for all new starters to the agency. The APS Values and Code of Conduct were further highlighted as a key driver for leadership behaviour and decision-making as part of the Manager Toolkit intranet resource and workshop. Workplace diversity In January 2009, ITSA launched the new Workplace Diversity Program 2009–13. The aim of the new Diversity Program is to continue to improve on the recruitment and retention of Indigenous employees, and employees with a disability. It also commits to embedding a greater commitment to diversity in ITSA, through recognising key dates during the year including Harmony Day, NAIDOC week, and International Day of People with Disability, which was recognised in ITSA through the conduct of a new workplace diversity survey to update the records on employees with a disability. ITSA currently has 13 employees (4.5% of the workforce) who have disclosed that they have a disability. ITSA employed three Indigenous cadets in February 2008 and these employees completed their Certificate IV in Government in December 2008. During the year ITSA also funded an Indigenous employee to participate in an interagency secondment through the Horizons programs coordinated by the APSC. ITSA’s Collective Agreement 2006–09 assists in providing flexibilities around work life balance 13.3% of ITSA’s workforce is engaged on a part-time basis as at June 2009.Employee consultation ITSA’s Branch and National Consultative Committees provide an opportunity for employees to be consulted on and give input into decisions that affect their working lives. Branch Consultative Committees met regularly in each location, and National Consultative Committee meetings were held in Sydney in March and June 2009. Employment conditions and agreement making ITSA’s current Collective Agreement 2006–09 expires on 25 September 2009. A draft new Enterprise Agreement has been circulated throughout ITSA and briefings from the Chief Executive and Director Employee Relations have been provided throughout the agency. The new agreement should be in place by September 2009. Executive remuneration All ITSA Senior Executive Service (SES) employees and other senior managers in ITSA have their remuneration and other conditions of employment established by individual Australian Workplace Agreements (AWAs). ITSA had a total of nine AWAs in operation at June 2009, five for SES and four for non-SES employees. ITSA’s AWAs emphasise the achievement of agreed outcomes and commit the parties to uphold and promote the APS Values and the principles contained in the ITSA CA. Salary bands available under the AWAs are included at Appendix 2. Under the new legislation and the Fair Work Act 2009, AWAs can no longer be entered into, and all employees currently on AWAs in ITSA will need to move onto another employment instrument, such as a Section 24 Determination, from 1 July 2009 or at the nominal expiry date. Performance pay ITSA’s CA and AWAs do not include any provision for performance-based pay or bonuses.Reward and recognition ITSA encourages reward and recognition of employees who make an outstanding contribution. Each branch regularly provides opportunities for reward and recognition in accordance with ITSA’s Employee Recognition Program. The recipients of the Australia Day Achievement Award for 2009 were: Sara Saravanabhava for providing reliable support to the Official Receiver and senior managers of the Brisbane office for almost 25 years, and more recently networking with accountants to improve ITSA’s ability to attract suitable recruits. Members of the Business Unit for significantly improving the depth of content and form of presentation of ITSA’s complex annual financial statements in 2008. Those members of the Business Unit to receive this award were:
Details of ITSA’s Health and Safety Management Arrangements (HSMA) are provided at Appendix 3. Commonwealth disability strategy Roles of government are grouped into five core areas by the Commonwealth Disability Service, namely – policy adviser, purchaser, regulator, provider and employer. In this context, ITSA fulfils all five of these core roles and has reporting responsibilities against each. ITSA’s achievements under the employer core area during 2008–09 have involved:
4. Appendices Appendix 1: Freedom of information This functional statement is published to meet the requirements of Section 8 of the Freedom of Information Act 1982 (FOI Act). A general description of ITSA and its function is contained in Section 1 of this report. This statement sets out the statutory responsibilities and powers of relevant office holders under the Bankruptcy Act. Chief Executive and Inspector-General in Bankruptcy Functions and powers The Chief Executive has the powers of a secretary of a department of the Australian Government. The Chief Executive as the Inspector-General in Bankruptcy is also a statutory office holder responsible for the administration of the Bankruptcy Act. The Inspector-General has a number of statutory functions under the Act. These include the power to:
The Inspector-General holds certain delegations from the Minister to assist in the administration of the Act. The delegations include giving the Inspector-General the Minister’s powers and functions with respect to the funding of trustees under Section 305 of the Act.Official Receivers Functions and powers The functions of the Official Receivers under the Act are to:
In addition to the statutory duties stated above, the Official Receivers have administrative duties as a result of their responsibility to supervise the administration of bankruptcy generally and the activities of their branch.Categories of documents ITSA maintains the following categories of documents:
Establishment The Official Trustee is established under the Bankruptcy Act. Organisation The Official Trustee is a body corporate. Functions and powers – personal insolvency Under the Bankruptcy Act, the Official Trustee acts as:
The Official Trustee also acts as interim controller of the estate of a debtor before sequestration and when there is a vacancy in the office of controlling trustee. The principal powers and functions of the Official Trustee, when acting as trustee of a bankrupt or deceased estate, are set out in the Act. The Official Trustee:
When acting as a debt agreement administrator under Part IX of the Act or a trustee of a personal insolvency agreement under Part X of the Act, the Official Trustee has the functions and duties set out in the relevant agreement. As well as acting as trustee of the estates listed above, the Official Trustee maintains an account known as the Common Investment Fund into which monies received by the Official Trustee must be paid.Functions and powers – proceeds of crime When goods are designated as condemned or forfeited in accordance with Section 9 of the Crimes Act 1914, the Official Trustee disposes of the property and deposits the proceeds, after deduction of the Official Trustee’s costs and remuneration, into the Confiscated Assets Account, as required by Section 296 of the Proceeds of Crime Act 2002. Similarly, Section 208DA of the Customs Act 1901 requires the Official Trustee to dispose of ‘narcotic-related’ goods and deposit the proceeds, after deduction of the Official Trustee’s costs and remuneration, into the Confiscated Assets Account. The Official Trustee was provided with additional functions under the Proceeds of Crime Act 2002. Under that Act, restraining orders may be made against property of a person suspected of committing an offence. If the Official Trustee is ordered to take control and custody of that property, the office is provided with investigative and disposal powers in relation to the controlled property. In addition, the Official Trustee is able to deal appropriately with controlled property, including its destruction if it is in the public interest to do so, with the net proceeds of property disposed of by the Official Trustee being deposited to the Confiscated Assets Account after deduction of the Official Trustee’s costs and remuneration. Under the former legislation, the Proceeds of Crime Act 1987, property forfeited under Sections 20 and 30 of that Act was disposed of by the Official Trustee with the net proceeds after deduction of the Official Trustee’s costs and remuneration being deposited to the Confiscated Assets Special Account.Categories of documents The Official Trustee maintains the following categories of documents: Statements of Affairs lodged by bankrupts and on behalf of deceased persons whose estates are being administered in bankruptcy
Facilities for access The Official Trustee does not maintain separate facilities for access. Documents may be examined and copies obtained through the access facilities provided by ITSA.FOI procedures and initial contact points FOI contact officers will help applicants identify the particular documents they seek. All national managers of ITSA’s business lines, together with authorised officers at ITSA’s national office in Canberra, are authorised to grant or deny access to documents. Enquiries about access to documents or other matters relating to freedom of information may be directed to any of the following addresses: TABLE 21: FOI contact points
Requests TABLE 22: FOI requests
Review of decisions Two requests for internal review were received in 2008–09. FOI response times The following table illustrates the time that elapsed in finalising requests for access. It includes matters that were determined, withdrawn or transferred in full. TABLE 23: FOI response times
Fees and charges Requests for access to documents under the FOI Act attract a $30 application fee, which may be remitted in certain circumstances. The Act also provides for other charges to be imposed, including for the time taken to search for and retrieve documents and in making a decision whether to grant access. These charges may also be remitted in certain circumstances. TABLE 24: FOI fees and charges
Appendix 2: Staffing profile Employee profile
TABLE 26: Non-ongoing employees by classification group and location
8.9 per cent of employees were employed on a non-ongoing basis in 2008–09.TABLE 27: Part-time employees by classification group and location
13.3 per cent of employees worked part-time. TABLE 28: Salary ranges at 30 June 2009 under the Collective Agreement and AWAs
Appendix 3: Occupational health and safety ITSA is committed to providing a safe and healthy workplace for all employees. The following information details our responses to our legal obligations under Section 74 of the Occupational Health and Safety (Commonwealth Employment) Act 1991. ITSA’s Health and Safety Management Arrangements (HSMAs) aim to facilitate a direct relationship between ITSA and its employees to enable effective cooperation on health and safety matters and promote and develop appropriate measures to ensure the health, safety and welfare of employees at work. In 2008–09, the HSMA ensured the ongoing integration of Occupational Health and Safety (OH&S) into regular consultative mechanisms convened on a quarterly basis, either through Branch Consultative Committees, or a separately constituted OH&S Committee. ITSA’s National Consultative Committee continued to consider ITSA-wide OH&S matters. A six-monthly national OH&S report is produced and tabled with ITSA’s National Management Board and at the National Consultative Committee. ITSA’s workers’ compensation premium for 2008–09 was 0.66% of payroll, which reflected a marginal increase from the predicted rate due to some lifetime claims from previous years. The continued effort in managing workplace safety over the past year has resulted in a reduction in the compensation premium for 2009–10 to 0.48% of payroll. This is compared to 1.25% for the overall average premium rate for the Commonwealth sector. During the year, ITSA had no notifications under Section 68 of the Occupational Health and Safety (Commonwealth Employment) Act 1991 concerning health and safety incidences, accidents or dangerous occurrences. No notices were issued under Sections 29, 46 or 47 of the Act. In addition, no investigations were conducted. Appendix 4: Consultancy services Policy on selection and engagement of consultants Consultants were engaged where specialist skills were not available within ITSA, or where staff or in-house resources were limited. Each engagement is supported by evidence that the work is essential to ITSA and/or government objectives. The engagement must be essential to administrative efficiency and likely to achieve a significant tangible result. ITSA’s Chief Executive Instructions require that due consideration be given to the consultancy services procurement process. The process must promote public and effective competition, maintain ethics and fair dealing, and provide value for money. Typically, consultants employed by ITSA are entities (individuals, partnerships or corporations) engaged to provide professional independent and expert advice or services to:
TABLE 29: Summary of consultancies 2008–09
TABLE 30: Consultancy contracts
a. Public tender b. Selective tender c. Direct engagement of a consultant who had previously undertaken closely related work for the agency Justification key A. Special skills not available within the agency B. Special skills available within the agency but consultant engaged because of staff resource priorities C. Need for independent study or assessment. Information on expenditure on contracts and consultancies is also available on the AusTender website www.tenders.gov.au. Appendix 5: Advertising and market research Section 311A of the Commonwealth Electoral Act 1918 requires ITSA to disclose payments to specific types of organisations. The organisations are categorised into advertising agencies, market research organisations, polling organisations, direct mail organisations, and media advertising organisations. During 2008–09, ITSA has contracted the following advertising and market research organisations:
Appendix 6: Ecologically sustainable development and environmental performance The following information is presented in accordance with s.516A of the Environmental Protection and Biodiversity Conservation Act 1999 (the EPBC Act). Ecologically Sustainable Development (ESD) During 2008–09, ITSA has remained committed to the principles of ESD. ITSA does not administer programs or legislation relating to ESD or the environment and therefore, the direct impact of our activities on the environment is essentially confined to the operation of our leased office accommodation. The most effective means of reducing this impact is to emphasise more efficient use of space in new tenancies, and to improve the energy efficiency in established tenancies. ITSA’s new accommodation in Sydney and the newly refurbished national office in Canberra incorporate many new environmental initiatives for energy, such as the implementation of T6 lighting; movement-activated controls; improved waste reduction through the removal of personal waste paper bins and increased co-mingle and paper recycling bins. The Chief Executive issued a revised Environmental Policy in May 2008, which included a commitment to best practice and the latest environmental targets required in government operations. Some of ITSA’s objectives were to reduce waste sent to landfill by 90% by 2010 and for all motor vehicles to be Green Vehicle Guide 3.5 star rated or higher by 2010. Environmental Management System ITSA continues to develop its innovative intranet-based Environmental Management System (EMS) to improve environmental performance by developing strategies and targets. Since its implementation a number of initiatives have been introduced. The EMS management team last reviewed ITSA’s energy consumption in October 2008. ITSA’s total energy use for tenant light and power of 9,533 megajoules per person is well below the 2003–04 government target of 10,000 megajoules per person and with further projected savings, the 2011–12 target of 7,500 megajoules per person should be achievable by ITSA. 5. Financial Statements Independent Auditor’s Report   Statement by the Chief Executive and Chief Finance Officer  INCOME STATEMENT For the year ended 30 June 2009
As at 30 June 2009
For the year ended 30 June 2009
For the year ended 30 June 2009
The above schedule should be read in conjunction with the accompanying notes. 1. Operating leases are effectively non-cancellable and comprise:
As at 30 June 2009
SCHEDULE OF ADMINISTERED ITEMS
Notes to and forming part of the Financial Statements For the year ended 30 June 2009 Table of Contents Note 1: Summary of Significant Accounting Policies Note 2: Events after the Balance Sheet Date Note 3: Income Note 4: Expenses Note 5: Financial Assets Note 6: Non-Financial Assets Note 7: Payables - Suppliers Note 8: Provisions Note 9: Cash Flow Reconciliation Note 10: Contingent Liabilities and Assets Note 11: Executive Remuneration Note 12: Remuneration of Auditors Note 13: Staff at Reporting Date Note 14: Financial Instruments Note 15: Income Administered on Behalf of Government Note 16: Assets Administered on Behalf of Government Note 17: Liabilities Administered on Behalf of Government Note 18: Administered Reconciliation Table Note 19: Administered Financial Instruments Note 20: Appropriations Note 21: Special Accounts Note 22: Trust Moneys Note 23: Other Trust Moneys and Assets Held in Trust Note 24: Compensation and Debt Relief Note 25: Reporting of Outcomes Note 1: Summary of Significant Accounting Policies 1.1 Objectives of Insolvency and Trustee Service Australia Insolvency and Trustee Service Australia (ITSA) is responsible for the administration and regulation of the personal insolvency system in Australia, pursuant to the Bankruptcy Act 1966 and related bankruptcy legislation. ITSA also has a role in administering property and assets under the proceeds of crime legislation. ITSA’s outcome is a personal insolvency system that produces equitable outcomes for debtors and creditors, enjoys public confidence and minimises the impact of financial failure on the community. Agency activities contributing towards this outcome are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by ITSA in its own right. Administered activities involve the management or oversight by ITSA on behalf of the Government of items controlled or incurred by Government. Departmental activities are identified under the following six outputs:
Output 1.2: A bankruptcy registry service and compliance with the Bankruptcy Act; Output 1.3: Regulation of bankruptcy trustees and debt agreement administrators; Output 1.4: Administration of bankrupt estates and other arrangements under the Bankruptcy Act; Output 1.5: Investigation of Bankruptcy Act offences; Output 1.6: Administration of proceeds of crime property. The continued existence of ITSA in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for ITSA’s administration and programs.1.2 Basis of Preparation of the Financial Report The financial statements and notes are required by section 49 of the Financial Management and Accountability Act 1997 and are a general-purpose financial report. The financial statements and notes have been prepared in accordance with:
The financial report has been prepared on an accrual basis and is in accordance with the historical cost convention, except for certain assets at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. The financial report is presented in Australian dollars and values rounded to the nearest thousand dollars unless disclosure of the full amount is specifically required. Unless an alternative treatment is specifically required by an Accounting Standard or the FMO’s, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to ITSA or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an Accounting Standard. Liabilities and assets that are unrealised are reported in the Schedule of Commitments and the Schedule of Contingencies. Unless an alternative treatment is specifically required by an Accounting Standard, revenues and expenses are recognised in the Income Statement when and only when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.
1.3 Significant Accounting Judgements and Estimates No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period. 1.4 Statement of Compliance No new standards, amendments to standards or interpretations issued by the Australian Accounting Standards Board are estimated to have a material financial impact in the 2008-09 or future reporting periods. 1.5 Revenue Revenues from Government Amounts appropriated for Departmental outputs appropriations for the year (adjusted for any formal additions and reductions) are recognised as revenue when the Agency gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. Appropriations receivable are recognised at their nominal amounts. Other Types of Revenue Revenue from the sale of goods is recognised when:
Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when:
Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance. Collectability of debts is reviewed at balance date. Allowances are made when the collectability of the debt is no longer probable. Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement.1.6 Gains Resources Received Free of Charge Resources received free of charge are recognised as revenue when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. The use of those resources is recognised as an expense. Contributions of assets at no cost of acquisition or for normal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another government agency as a consequence of a restructuring administrative arrangement. Resources received free of charge are recorded as either revenues or gains depending on their nature. Sale of Assets Gains from disposal of non-current assets is recognised when control of the asset has passed to the buyer.1.7 Transactions with the Government as Owner Equity Injections Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) are recognised directly in Contributed Equity in that year. Restructuring of Administrative Arrangements Net assets received from or relinquished to another Australian Government agency or authority under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity. 1.8 Employee Benefits Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled. Liabilities for ‘short term employee benefits’ (as defined in AASB 119) and termination benefits due within twelve months of balance date are measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability. All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date. Leave The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of ITSA is estimated to be less than the annual entitlement for sick leave. The leave liabilities are calculated on the basis of employees’ remuneration, including ITSA’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The liability for long service leave has been determined using the Australian Government’s shorthand method as at 30 June 2009. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.Separation and Redundancy Provision is made for separations and redundancy benefit payments. ITSA recognises a provision for termination when it has informed those employees affected that it will carry out the terminations. Superannuation Staff of ITSA are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS Accumulation Plan (PSSap) or another superannuation fund of the employee’s choice. The CSS and PSS are defined benefit schemes for the Australian Government. New employees (from 1 July 2005) are eligible to join the new PSS Accumulation Scheme which is a defined contribution scheme or another superannuation fund of the employee’s choice. The liability for their superannuation benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. ITSA makes employer contributions to the employee superannuation scheme at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of ITSA’s employees. ITSA accounts for the contributions as if they were contributions to defined contributions plans. The liability for superannuation recognised at 30 June 2009 represents outstanding contributions for the final fortnight of the year.1.9 Leases A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits. Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the beginning of the lease term. A liability is recognised at the same time and for the same amount. The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense. Operating lease payments are expensed on a straight line basis unless another systematic approach is more representative of the pattern of benefits derived from the leased assets.1.10 Borrowing Costs All borrowing costs are expensed as incurred. 1.11 Cash Cash and cash equivalents includes notes and coins held and any deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount. 1.12 Financial Assets ITSA classifies its financial assets in the following categories:
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon ‘trade date’.Loans and receivables For ITSA trade receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. They are measured at amortised cost using the effective interest method less impairment. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis except for financial assets ‘at fair value through profit or loss’. Financial assets are derecognised when the contractual rights to the cash flow from the financial assets expire or the asset is transferred to another entity. In the case of a transfer to another entity, it is necessary that the risk and rewards of ownership are also transferred. ITSA’s activities expose it to normal commercial financial risk. As a result of ITSA’s internal policies and related Australian Government policies, ITSA’s exposure to market, credit, liquidity and cash flow and fair value interest rate risk is considered to be low.Impairment of financial assets Financial assets are assessed for impairment at each balance date. If there is objective evidence that an impairment loss has occurred for loans and receivables or held-to-maturity investments held at amortised cost, then the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the income statement. ITSA does not have any impairment loss for this financial year. 1.13 Financial Liabilities These comprise: Supplier and other payables Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (irrespective of having been invoiced). Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs. They are then subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. For financial liabilities the effective interest method is equivalent to the method for financial assets. Financial liabilities are derecognised when the obligation under the contract is discharged, cancelled or expires. 1.14 Contingent Liabilities and Contingent Assets Contingent liabilities and assets are not recognised in the Balance Sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Contingent assets are reported when settlement is probable, and contingent liabilities are recognised when settlement is greater than remote.1.15 Acquisition of Assets Assets are recorded at cost of acquisition except as stated elsewhere in Note 1. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor agency’s accounts immediately prior to the restructuring. 1.16 Property, Plant and Equipment Asset Recognition Threshold Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total). The initial cost of an asset includes an estimate of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make-good’ provisions in property leases taken up by ITSA where there exists an obligation to restore the property to its original condition. These costs are included in the value of ITSA’s leasehold improvements with a corresponding provision for the ‘make-good’ taken up. Revaluations Fair values for each class of asset are determined as shown below:
There was an independent valuation undertaken on all asset classes as at 30 June 2008 by the Australian Valuation Office. Revaluation adjustments are made on a class basis. Any revaluations increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through the income statement. Revaluation decrements for a class of assets are recognised directly through the income statement except to the extent that they reverse a previous revaluation increment for that class. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset.Depreciation Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives using, in all cases, the straight line-method of depreciation. Leasehold improvements are depreciated on a straight-line over the lesser of the estimated useful life of the improvements or the unexpired period of the lease. Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate. Depreciation rates applying to each class of depreciable assets are based on the following useful lives:
Impairment All assets were assessed for impairment at 30 June 2009. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if ITSA were deprived of the asset, its value in use is taken to be its depreciated replacement cost.1.17 Intangibles ITSA’s intangibles comprise internally developed and externally purchased software for internal use. These assets are carried at cost. Software is amortised on a straight-line basis over its anticipated useful life. The useful life of ITSA’s software is between 1 and 7 years (2008: between 1 and 7 years) All software assets were assessed for indications of impairment as at 30 June 2009. 1.18 Taxation ITSA is exempt from all forms of taxation except fringe benefits tax (FBT) and the goods and services tax (GST). Revenues, expenses and assets are recognised net of GST:
Under the Bankruptcy Act 1966, ITSA (fulfilling the role of the Official Trustee) takes possession of all divisible (or non-exempt) property of a bankrupt where it is trustee of the bankrupt estate, with the intention of dealing with that property in accordance with that Act. Amounts which have been realised for the property are paid into the Common Investment Fund, pending application of those proceeds to creditors, expenses and other payments in accordance with the Act. Details of the Common Investment Fund are included in Note 23. Assets that have vested, for which proceeds have not yet been paid into the Common Investment Fund, are reported at Note 24. The gross value of assets represents the value of assets based on the bankrupt’s estimated fair value at the time of completing the Statement of Affairs, and adjustments to that estimated value subsequently made by the Official Trustee. As ITSA deals with that property then its realisable value progressively crystallises. The net value represents the value of assets available for the benefit of creditors after consideration of mortgages and other securities over these assets. Assets acquired represent assets that have come under the control of the Official Trustee, or have been reactivated for investigation by the Official Trustee. Assets disposed represent assets that the Official Trustee no longer has an interest in.1.21 Assets Seized under Proceeds of Crime Legislation The Proceeds of Crime Act 1987 (POC Act 1987), the Proceeds of Crime Act 2002 (POC Act 2002), the Customs Act 1901 and the Crimes Act 1914 make provision in relation to, amongst other things, the seizure, forfeiture and condemnation of articles and goods, as the case may be. ITSA administers real and personal property which has been seized or restrained under these Acts. ITS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
