Hospital Circular 03/2016
Date Issued:20December 2016
Subject: Changes to the Department of Health and Human Services policy for funding and reporting long service leave for applicable portfolio agencies – effective from 1 July 2016.
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Background
Since 1 July 2009 the Department of Health and Human Services has fully funded the long service leave of most portfolio entities.[1] An amount equal to 2.8% of defined salaries and wages is included in the grants paid to these entities.
In addition to the 2.8%, all movements in the long service leave provision have been fully funded by the department and are included in the long service leave debtor calculation. This calculation is performed at the end of May each year and recognised by the department as a grant payable to the respective portfolio entities. It includes movements resulting from the following categories:
- Increase/decrease due to normal entitlements such as salary increments
- Increase in contributions due to award rate increases
- Impact of award increases on vested long service leave entitlements[2]
- Increase/decrease due to bond rate movement and changes in probability factors[3]
The Department of Treasury and Finance released a new Budget Operations Framework for Victorian Government Departments in March 2016. The new framework is applicable from 1 July 2016 and replaces the previous Budget and Finance Management Guidelines.
The new framework clarifies that:
- A long service leave equivalent amount is recognised in the State Administered Unit inter-entity account when an actual long service leave expense is first recognised
- Any revaluation[4] or write-back of long service leave does not change the long service leave equivalents amounts in the State Administered Unit inter-entity account
- these unfunded amounts should be reported in financial statements under the economic flows included in net result.
This clarifies that the department is not funded for the long service leave expense incurred in respect of the revaluation of the long service leave provision for either itself and its portfolio entities.
As the department is not funded for movements in the long service leave provision resulting from bond rate and probability changes, the department policy for funding portfolio agencies is being changed to align with the Department of Treasury and Finance’s treatment.
As a result of this, portfolio agencies will no longer be funded by the department for the impact of the bond rate and probability factors changes on their long service leave balance and no corresponding payable will be recorded in the department’s books relating to this.
The impact of the proposed changes to the department’s policy for funding and reporting long service leave expenses for applicable portfolio entities will be as follows:
- applicable portfolio entities will no longer recognise grant revenue from the department for the impact of changes due to bond rate and probability factors on long service leave balances.
- gains/losses from changes to bond rate and probability factors will be reported under other the economic flows included in net result, which means that they will not be included in the Statement of Priorities operating results. As both operating revenue and expenses reported by applicable portfolio entities1 will be affected by the same amount, there should be no impact on the operating result agreed in and reported in the Statement of Priorities.
- If hospitals have been accruing revenue for these movements, these will need to be reversed out with effect from 1 July 2016.
Kym Peake
Secretary
20 / 12 / 2016
[1] The exclusions are cemeteries, sport agencies and VicHealth.
[2] The impact of award increases on vested entitlements is also not funded by theDepartment of Treasury and Finance.
[3] The impact of bond rate movement and changes in probability factors are not funded by the Department of Treasury and Finance.
[4]Revaluations can arise from bond rate changes, a review of probability rates or a change in the LSL model used.