CLOSURE REPORT - Ministry of Justice · (1)(a) (2)(d). This Closure Report is also the final Annual...

E7

CLOSURE REPORT and final Annual Report

for the 12 months ended 30 June 2011

HELPING PEOPLE ACCESS JUSTICE

C O N T E N T S

1

E7

Introduction Letter to the Minister ................................................................................................................................ 2

From the Chair ......................................................................................................................................... 3

From the General Manager ...................................................................................................................... 5

Part One: The Agency

The Agency’s statutory position and functions ......................................................................................... 6

Legal Services Agency Board .................................................................................................................. 6

Audit and Risk Committee ....................................................................................................................... 7

Memorandum of Understanding between the Agency and the Crown .................................................... 7

Directions issued by Ministers ................................................................................................................. 7

Mission, vision and values ....................................................................................................................... 7

Public Advisory Committee ...................................................................................................................... 8

Legal Aid Review Panel ........................................................................................................................... 8

Part Two: Strategic and Operational Achievements Core service operations and transformation ............................................................................................ 9

Cross-agency achievements .................................................................................................................. 14

Part Three: Statement of Service Performance and Financial Statements Statement of Responsibility ................................................................................................................... 20

Independent Auditor’s Report ................................................................................................................ 21

Statement of Service Performance ........................................................................................................ 24

Statement of Comprehensive Income .................................................................................................... 35

Statement of Movements in Equity ........................................................................................................ 36

Statement of Financial Position ............................................................................................................. 37

Statement of Cash Flows ....................................................................................................................... 38

Statement of Commitments ................................................................................................................... 40

Statement of Contingent Assets and Liabilities ...................................................................................... 41

Statement of Accounting Policies .......................................................................................................... 42

Notes to Financial Statements ............................................................................................................... 51

I N T R O D U C T I O N

2 Legal Services Agency | Introduction

LETTER TO THE MINISTER

Minister of Justice Parliament Buildings Wellington

The Secretary for Justice is pleased to present the Legal Services Agency’s Annual Report for the financial year ending 30 June 2011 in accordance with section 150 of the Crown Entities Act 2004.

Legal Services Act 2011, Part 4 section 117, disestablished the Legal Services Agency as at 30 June 2011 and from 1 July 2011 all the Board’s power and responsibilities transfer to the Secretary for Justice, unless the reference relates to a matter that falls within the Commissioner’s functions set out in section 71 (1)(a) (2)(d). This Closure Report is also the final Annual Report for the Agency, in accordance with section 45J of the Public Finance Act 1989.

Andrew Bridgman Chief Executive and Secretary for Justice 31 October 2011

Legal Services Agency | Introduction 3

FROM THE CHAIR On 1 July 2011, the Ministry of Justice became solely responsible for the strategic leadership and administration of the legal aid system. The Board, appointed 18 months prior, has no further role to play in the legal aid sector. In preparing this, our final Annual Report to Parliament, the sector and the people of New Zealand, I can say, with no hesitation, that we are proud of what the Legal Services Agency has achieved in the last 18 months. In particular, I want to acknowledge our General Manager Stuart White who has earned respect and loyalty for the way he has led his staff and the Agency through a very challenging period. I also acknowledge the loyalty and hard work of all staff, particularly in a time of great change and uncertainty.

One of the Agency’s key achievements has been to manage a huge amount of change, including the disestablishment of the Agency, and maintain the delivery of legal aid services to the people of New Zealand. The changes include the improvements made to back office functions, and the progress made, both independently and with the Ministry, in starting to transform the legal aid system.

We were particularly pleased at how many improvements to the effectiveness of the legal aid system we could initiate under the current legislation.

Some of these improvements followed on from excellent initiatives that had been underway for several years, such as the Public Defence Service. The Public Defence Service started as a pilot at two courts in 2004 and is now representing clients at many of New Zealand’s busiest courts. A reformed duty lawyer service is being introduced alongside the establishment of the Public Defence Service and is providing a better service to unrepresented defendants at their first court appearance, as well as contributing to the smooth running of more courts.

It was the problems with the operation of the duty solicitor scheme at the Manukau District Court that convinced us of the need for changes to the way that criminal legal aid cases were allocated to lawyers. After consultation with the sector, we brought back rotational assignment processes for the simpler criminal legal aid cases (defined as Category 1 and 2) on 29 November 2010. As a result, the available case load at any particular court is now distributed more evenly between the available lawyers, both public and private, in each court cluster. These changes have also reduced the opportunities for duty solicitors to use the system to their own advantage. High Court decisions on proceedings taken by some lawyers and legally aided persons have confirmed our approach.

Another key issue was the cost to the Crown of the legal aid scheme. We responded to the Government’s expectations that the Board would start reducing this cost, which was forecast to rise to unsustainable levels. Our first initiatives focused on the management of high cost cases. These are now identified by triggers early in the decision-making process and these cases are now managed with assistance from a panel of specialist advisors. Savings are also expected from re-introducing more thorough checks to ensure that all applicants are eligible for aid.

The continuing provision of community legal services was important to this Board and we have worked closely with community law centres to help them understand the Government’s expectations and to improve the effectiveness of the network. A new national body for community law centres, Community Law Centres o Aotearoa, has now been established and this will support its members, represent their collective views, and improve the quality and consistency of the services they deliver. One of the Board’s final decisions was to provide a one off operational grant of $600,000 from Agency reserves to enable the centres to establish and operate the new national body for the next two years.

Another key issue, and one that was particularly important to us, was the quality of legal aid services. It was clear from Dame Margaret Bazley’s report and associated discussions that people were reluctant to formally report instances of unsatisfactory lawyer performance and behaviour. We introduced a new centralised complaints management system to make it easier for staff and others to lodge complaints and concerns about specific lawyers. In the 12 months to 30 June 2011, we received 323 complaints or Agency concerns, of which 77 were substantiated and a further 40 are currently being worked on. The Agency initiated cancellation procedures in the more serious instances, which sometimes resulted in lawyers deciding voluntarily to withdraw from the list. Investigations of other substantiated complaints were still underway at year end. Discussions with the New Zealand Law Society, the judiciary, senior practitioners and courts staff led us to agree with Dame Margaret on the need for appropriate guarantees

4 Legal Services Agency | Introduction

of confidentiality in the law to ensure that judges, prosecutors, the Police, court staff, lawyers, clients and others are more willing to formalise complaints.

One key internal change has been the introduction of a new grants processing system. In September 2010, the Agency’s aging and inflexible system, Legal Aid Office, was replaced with the Legal Services Management System (LSMS). The Board inherited the new system at an advanced stage of development and there was an additional cost to the Agency in ensuring that the new system fully met the business needs and scope. The initial review of business processes was complicated by the change to business requirements for the system during the development period. Following changes being made to the system to accommodate the policy and legislative changes, the capital value of LSMS has been written down.

When the Canterbury earthquakes struck, we were very glad that we had taken extra steps to protect our core business processes and information. The Christchurch office was red-stickered after the February earthquake; however, Grants staff in offices throughout the country could use LSMS to access information about Christchurch legal aid cases. Another initiative already in place was a well-designed Quality and Value Audit Programme. The 2010/11 audit programme has shown that 87% of the 100 legal aid lawyers audited during 2010/11 were assessed as competent or better. This figure could become a key benchmark for future checks that all legal aid lawyers are consistently delivering quality legal aid services.

Dame Margaret envisaged a range of benefits including improved quality of service, from the transfer of legal aid responsibilities to the Ministry of Justice. Much has already been achieved through closer working relationships between the Agency and the Ministry. With the shift to a single governance structure, the Ministry will have more incentives to develop an evidence-based understanding of the impacts of policy interventions on service providers and people with legal needs. There may also be more opportunities to look beyond the justice sector to start testing more ways of reducing New Zealanders’ need for legal services.

We will follow the future evolution of the legal aid sector with interest. We remain optimistic of further improvements to performance measures so that the impacts of the reforms and access to justice can be identified. Finally, I want to thank all the people in the sector who gave willingly of their time and expertise to share their concerns and their hopes and aspirations for the future legal aid system. I also want to express my appreciation to the Minister, my colleagues on the Board, managers and staff of the Agency and the Ministry for all their support and commitment.

Sir John Hansen Board Chair 30 June 2011

Legal Services Agency | Introduction 5

FROM THE GENERAL MANAGER There have been many occasions over the last 18 months when I have been impressed by the range and complexity of the tasks our staff have achieved, whether they were delivering core services to clients, supporting transformation initiatives, or continuing to improve the Legal Services Management System on which so many of our decision-making processes depend on. Staff have also faced unexpected events such as the Canterbury earthquakes, the implications of Government’s changes to GST for legal aid invoices, and announcements of further proposed changes to the legal aid system that may have implications for the future size and shape of the organisation of legal services.

Preparing to transfer the Agency’s functions to the Ministry of Justice generated a major stream of work. The shift of the Agency’s head office into the Ministry’s national office was completed successfully in August 2010. Ensuring a smooth transition of the Agency’s corporate services functions and systems into those of the Ministry proved more demanding. Merging the IT systems presented particular challenges, and demonstrated need for a legal aid IT system that can be updated quickly to reflect changes in legislation, regulations, policy settings and business imperatives. Nevertheless, by 1 July 2011, the merger was well-underway. Appointments were made to establish key positions in the new legal services structure in the Ministry, and staff had accepted roles in the Ministry. The policies, procedures and delegations were in place to enable the business of providing legal aid services to continue without interruption.

The Board agreed the use of the Agency’s reserves to engage additional staff to support projects relating to the transition to the Ministry of Justice, and help design policy changes approved during the year. Numbers rose from 263 permanent staff and 22 fixed term staff at 30 June 2010, to 274 permanent staff and 55 fixed term staff at 30 April 2011. Most new permanent appointees were in the Public Defence Service. Fixed term staff assisted with the Legal Aid Review Programme, IT projects, and maintaining core services. Our back office staff coped well with the additional workload generated by the expanding size of the organisation, the demands of merging Agency and Ministry business systems, and maintaining business as usual.

Throughout all these changes, our staff in legal aid offices and the Public Defence Service have maintained their focus on providing the legal aid and representation services that support access to justice for the people of New Zealand. In the criminal jurisdiction, we have made it easier to access criminal legal aid by shortening the application form. We have employed clerical staff at more courts to assist applicants to complete application forms, and we have removed the ability for some applicants to choose their own legal aid lawyer.

We have also continued to improve access to community legal services. These changes will mean that 94% of people over 15 years of age, with incomes of $20,000 or less, will have access to community law centres in the territorial local authority area where they live.

Following the disestablishment of the Agency, information about central government’s role in the legal aid system will be incorporated into Ministry of Justice accountability documents. The Agency sees this, its final Annual Report, as an opportunity to report back to Parliament, the sector and the public on what has been achieved since the release of Dame Margaret Bazley’s report and how legal aid practices will change as a result of the Legal Aid Review Programme.

Finally, I want to thank all staff for their hard work and commitment during a challenging year. I know it has not been easy for many of you to see the Agency disestablished. Those who are transferring to the Ministry will need to adapt to new ways of doing things, but will also have access to many new career-building and personal development opportunities. To all of you involved in the Agency’s work over the past 10 years, including staff who have assisted more recently in the transition process, I wish you well for the future.

Stuart White General Manager 30 June 2011

P A R T O N E : T H E A G E N C Y

6 Legal Services Agency | Part One: The Agency

THE AGENCY’S STATUTORY POSITION AND FUNCTIONS The Legal Services Agency was established under the Legal Services Act 2000. As a Crown Agent under the Crown Entities Act 2004, the Agency was required to give effect to government policy when so directed by the Minister of Justice.

The Agency’s main functions were:

• to administer the Legal Aid, Duty Solicitor and Police Detention Legal Assistance schemes in as consistent, accountable, inexpensive and efficient manner, consistent with the purpose of the Act

• to provide high quality, professionally independent, criminal representation services to legally aided persons at specific courts

• to fund, provide and support community legal services for the public or any section of the public. Community legal services include the services provided by community law centres, and the development and distribution of law-related education and legal information.

In December 2009, the Minister of Justice announced that the Legal Services Agency would be disestablished as a Crown Entity and its functions transferred to the Ministry of Justice. This followed a review of the legal aid system by Dame Margaret Bazley and the release of her report Transforming the Legal Aid System: Final Report and Recommendations.

The legislation to enable the transfer of legal aid functions from the Agency to the Ministry of Justice was introduced into Parliament in August 2010. The Legal Services Bill was passed into law in April 2011, and came into effect on 1 July 2011. In accordance with the Legal Services Act 2011, the Agency was disestablished on 30 June 2011. This Annual Report is the Agency’s final Annual Report at the point of disestablishment.

From 1 July 2011, a new Legal Services and Treaty Group within the Ministry will be responsible for legal aid functions. The new group is led by a Deputy Secretary who will also have the statutorily independent functions of the Legal Aid Commissioner.

LEGAL SERVICES AGENCY BOARD The members of the Agency’s Board were appointed by the Minister of Justice and the Board was accountable for performing the Board’s collective and individual duties under the Crown Entities Act 2004. Members of the Board were Sir John Hansen (Chair), John Spencer (Deputy Chair), Ross Tanner and Jane Huria. The Board’s governance responsibilities included:

• communicating with the Minister of Justice and other stakeholders to ensure their views were incorporated in the Agency’s planning and decision-making

• delegating responsibility for achievement of specific objectives to the General Manager

• ensuring clear division between the roles of the Board and management

• monitoring organisational performance towards achieving objectives

• accounting to the Minister on plans and progress against them

• maintaining effective systems of internal control, and the prevention and detection of fraud

• ensuring that the Agency complied with all relevant legislation and regulations.

The Board met monthly during 2010/11 to ensure that the Agency’s business was being conducted in accordance with statutory responsibilities, the Minister’s expectations and Board policies.

Legal Services Agency | Part One: The Agency 7

AUDIT AND RISK COMMITTEE The Audit and Risk Committee, a sub-committee of the Board, also met monthly and provided advice to the Board on the internal and external audit programmes, financial management and management of risk. Members of the Committee were Ross Tanner (Chair), Jane Huria and John Spencer. The Ministry of Justice Deputy Chief Executive and the General Manager of the Agency also attended meetings.

MEMORANDUM OF UNDERSTANDING BETWEEN THE AGENCY AND THE CROWN The annual Memorandum of Understanding with the Minister of Justice (on behalf of the Crown) recorded the amount included in the Estimates as an appropriation under Vote Justice to fund the Agency’s activities during 2010/11. It also specified various reporting requirements, including four-monthly reports on key priorities in the Statement of Intent 2010 to 2011 and matters highlighted in the Letter of Expectations from the Minister of Justice.

DIRECTIONS ISSUED BY MINISTERS The Agency did not receive any directions from Ministers. Under the Crown Entities Act 2004, section 151 (1) (f), the Agency is required to disclose any whole-of-government directions made jointly by the Ministers of Finance and State Services that affected the Agency.

MISSION, VISION AND VALUES The following mission, vision and values continued to guide the Agency’s staff. Further guidance was available through the Agency’s Code of Conduct. Lawyers in the Public Defence Service had an additional code covering their responsibilities to clients and the Courts.

MISSION

Helping people access justice.

VISION

Ensuring all eligible people in New Zealand are able to access publicly funded legal services.

VALUES

We are a public organisation that helps people access justice.

We act with integrity, fairness and consistency

• We are respectful of others

• We value all cultures and diversity

• We are impartial and non-judgemental

• We deliver on our commitments

We provide high quality services

• We provide high quality service to our clients

• We take responsibility for the quality of our work

• We continually strive for improvement

• We recognise our achievements

8 Legal Services Agency | Part One: The Agency

We work together

• We cooperate with others internally and externally

• We are approachable

• We communicate openly

• We value and support our colleagues.

PUBLIC ADVISORY COMMITTEE The Public Advisory Committee, a statutory body under the Legal Services Act 2000, was also disestablished on 30 June 2011. The Committee met five times in 2010/11. In its final year, the Committee provided advice to the Agency on funding for community law centres.

LEGAL AID REVIEW PANEL The Legal Aid Review Panel was disestablished by the Legal Services Act 2011 on 30 June 2011, but continued to sit until 31 July 2011 to reduce the number of reviews that needed to be transferred to the new Legal Aid Tribunal. Only 28 reviews were transferred from the Panel to the Tribunal, much lower than over 200 that were anticipated.

Under the Legal Services Act 2000, applicants for legal aid and legally aided persons were able to apply to the Panel for a review of an Agency legal aid decision. Legal aid lawyers could also apply for reviews of Agency decisions on claims for payment. Members of the Panel were appointed by the Attorney-General and supported by Agency staff based in a separate office in Takapuna.

A new statutory tribunal, the Legal Aid Tribunal, has been established in the Tribunals Unit of the Ministry of Justice, in accordance with the Legal Services Act 2011. Its primary responsibility is to review decisions of the Legal Services Commissioner. The Governor-General has appointed a full-time chair and several part-time lawyers to the Tribunal on the recommendation of the Minister of Justice. All matters that could result in requests for reviews by the Tribunal will first have to go through an internal reconsideration process. Under the new regime, lawyers will not be able to seek reviews of the Commissioner’s decisions on claims.

A new Review Authority has also been established within the Ministry’s Tribunals Unit to review Secretary of Justice decisions about the management of legal aid providers, for example, cancellations of a provider’s approval to provide legal aid services. The Review Authority is able to confirm, modify or reverse the Secretary’s decisions, and its decisions are binding.

P A R T T W O : S T R A T E G I C A N D O P E R A T I O N A L A C H I E V E M E N T S

Legal Services Agency | Part Two: Strategic and Operational Achievements 9

In planning for its final year, the Agency focused on two priorities: maintaining the delivery of core services, and supporting the transformation of the legal aid system. These two streams of work were often closely related and dependent on the support of back office staff.

CORE SERVICE OPERATIONS AND TRANSFORMATION This section endeavours to tell this story in an integrated way that illustrates the impact of the transformation programme on seven of the Agency’s core services. The seven sections are:

• Public Defence Service

• Duty Solicitor Scheme and Duty Lawyer Service

• management of legal aid providers

• legal aid applications and grants

• legal aid debt management

• community law centres

• education and legal information.

PUBLIC DEFENCE SERVICE

The Public Defence Service started as a pilot at two courts in 2004. By 30 June 2010, lawyers employed on salary by the Service were representing clients at most District Courts in Auckland. During 2010/11, the Public Defence Service started operating at six more District Courts – Papakura, Pukekohe, Wellington, Lower Hutt, Porirua and Hamilton. The planned extension to Christchurch was delayed by the earthquake on 22 February 2011. The Public Defence Service is also authorised to take cases at two High Courts (Auckland and Wellington), the Court of Appeal and the Supreme Court.

In April 2011, the Minister announced plans to introduce the Service to Dunedin, Tauranga and Hawkes Bay (Napier and Hastings). These offices will become operational during the 2011/12 financial year. The Minister also increased the proportion of criminal legal aid cases to be assigned to the Service from 33% to 50% in anticipation of further savings in legal aid costs. Expansion to each new location required collaboration between a project team in the Legal Aid Review Programme, senior staff from the Public Defence Service and the Corporate Services team.

Other steps taken in 2010/11 to support the increasingly prominent role of the Public Defence Service in New Zealand’s criminal justice system included:

• developing a new national structure for the Public Defence Service, which is headed by a Director Public Defence Service who will report to the newly created position of Deputy Secretary, Legal Services and Treaty

• confirming that the Deputy Secretary of the Legal Services and Treaty Group will exercise the independent statutory responsibilities of the Legal Aid Commissioner

• commissioning a new case management system for managing Public Defence Service cases

• refining the methodology for comparing the cost to the Crown of cases handled by private lawyers and the Public Defence Service

• developing a Professional Development Framework for Public Defence Service lawyers

• auditing the internal listing process for Public Defence Service lawyers.

Lawyers in both the Public Defence Service and the private sector will be affected by changes to the statutory eligibility criteria for criminal legal aid, the increasing use of audio-visual links in courts, the

10 Legal Services Agency | Part Two: Strategic and Operational Achievements

success of the Policing Excellence initiative, and the implementation of the Criminal Procedure (Reform and Modernisation) Bill (when enacted).

DUTY SOLICITOR SCHEME AND DUTY LAWYER SERVICE

Agency staff developed duty lawyer rosters to ensure that unrepresented defendants have access to an approved lawyer when making their first appearance before a court. In recent years, this service has been delivered in two main ways: through the Duty Solicitor Scheme at the majority of District Courts, and through the enhanced Duty Lawyer Service at specific busier courts. Roster preparation takes into account the requirements of each court, including the number of unrepresented defendants, the availability of private and Public Defence Service lawyers, and the reliability of lawyers in meeting their roster obligations.

Development of the Duty Lawyer Service started in 2006, with funding from the Agency’s Research and Education Fund. Enhancements have included appointing duty lawyer supervisors to manage teams of duty solicitors, assuring the suitability of new lawyers for the roster, and using clerical staff instead of duty lawyers to assist applicants to complete legal aid application forms. Government decisions in Budget 2009 and Budget 2010 enabled the Duty Lawyer Service to be introduced at more courts. Lawyers from the Public Defence Service are now playing more prominent roles in delivering this service, both as supervisors and in representing clients. An Initial Criminal Legal Services unit, operating from the Manukau Public Defence Service office, manages rosters for the Duty Lawyer Service.

During 2010/11, the Duty Lawyer Service was introduced at six more District Courts and, by 30 June 2011, was operating in Auckland, Waitakere, Manukau, North Shore, Papakura, Papatoetoe, Wellington, Porirua, Lower Hutt and Hamilton. Extension of the service to Christchurch was interrupted by the February earthquake. In April 2011, the Minister announced that the Duty Lawyer Service would be introduced at Dunedin, Tauranga and Hawkes Bay courts.

Generic benefits of the new approach have been identified as improved service quality from duty lawyers and benefits to court processes and efficiencies. More specific feedback has been provided on the improvements at the Manukau court. Judges have commented on the quality of the instructions prepared and the standard of courtroom advocacy. Court staff have spoken of improvements in the flow of work through the courtroom as a result of better availability of lawyers for defendants. Police prosecutors advised that the service was working better and lawyer competence had improved, especially the quality of instructions prepared after lawyers had interviewed defendants.

MANAGEMENT OF LEGAL AID PROVIDERS

Authorisation to provide legal aid services

Lawyers wishing to be listed with the Agency as providers of services under the Legal Services Act 2000 had to demonstrate to the Agency that they met specific criteria and had sufficient experience, qualifications, and competence in the relevant area of the law. From time to time, lawyers on the list also sought approval to increase their level of experience or add new law types or categories of cases to their listings.

During 2010/11, the Agency made decisions on 300 applications for listing as a provider, an average of 25 lead provider applications and five secondary provider applications per month. Seventeen local consultative groups with access to expertise in different types of law gave their time voluntarily to provide the Agency with comments on applications for listings from lead lawyers.

From 1 July 2011, a new quality framework will apply to all lawyers who want to obtain approval to act as legal aid providers under the Legal Services Act 2011. This will require lawyers to demonstrate that they meet the entry criteria for each type of legal aid service that they wish to provide. Applicants will be assessed by Selection Committees chaired by senior court staff. Other members will be appointed by the Secretary for Justice from lawyers nominated by the New Zealand Law Society. At 30 June 2011, there were approximately 2,700 lawyers listed to provide legal aid services. The Legal Services Act 2011 separated the approvals process from the contracting arrangements for lawyers, and new contracting arrangements are under development as part of the Legal Aid Review Programme. Lawyers who obtain approval to provide specific legal aid services will not necessarily be contracted by the Ministry to supply those services.


Assignment of cases to lawyers

Following consultation on a proposal to remove choice of lawyer, a rotational assignment of legal aid cases was introduced in November 2011. This ensures that each provider is assigned criminal legal aid cases in strict rotation.

The Ministry will update assignment lists in February, May, August and November of each year. Updates will include additions and deletions of lawyers from the list for each cluster of courts. Publication of these updates will also ensure that external stakeholders can view what assignments have been made to individual legal aid providers.

Auditing lawyers’ performance

The Agency formally established a new Quality and Value Audit Programme on 1 July 2009, following development and testing by experienced legal aid lawyers during 2007/08 and 2008/09. Baseline funding restrictions meant only 20 lawyers were audited in 2009/10. The Agency audited 100 lawyers in 2010/11. The Statement of Service Performance (see page 31) provides information relating to number of lawyers audited and the percentage that were considered competent.

Complaints management

The centralised complaints management system, introduced in June 2010, has resulted in a more consistent and timely response to the Agency’s management of complaints about legal aid providers. A total of 323 complaints were received from lawyers, courts staff, judges, and members of the public. Concerns from staff were handled through the same centralised process. The number of complaints received was less than anticipated.

LEGAL AID APPLICATIONS AND GRANTS

Demand in 2010/11

The number of legal aid applications received exceeded 100,000 for the first time in 2009/10 and fell to 96,148 in 2010/11. Each of these applications had to be assessed against the relevant statutory criteria. Decision-making became more complex and time-consuming under the Legal Aid Act 2000 as amended in 2006, particularly regarding decisions on eligibility and whether or not the recipient should be required to repay some of the grant. Some decisions also required statutory discretion or knowledge of past decisions made by the High Court or the Legal Aid Review Panel on similar applications. Grants staff are supported in these and other decision-making roles by a national team of specialist advisors and an online knowledge base. The 2010/11 year also provided a heavy load of additional challenges for grants staff including:

• addressing the backlog of work that resulted from the disruption to services caused by the Canterbury earthquakes, including the loss of access to files in the Christchurch office after the 22 February 2011 earthquake

• testing several iterations of the Legal Services Management System prior to, and following, the initial implementation in September 2010

• preparing and delivering staff training or undertaking training on the administrative and decision-making processes within the Legal Services Management System

• changes to criminal legal aid case assignments to individual lawyers, according to Agency policies

• ensuring that all new delegations were in place for 1 July 2011 so that decision-making processes were not interrupted by the transfer of legal aid responsibilities to the Ministry of Justice

• participating in a time study investigation to assess the impact of the change in the grant management systems on the processing times for specific process steps.

In its Statement of Intent 2010 to 2011, the Agency identified as a risk that it may not be able to maintain its usual standards of timeliness throughout 2010/11, particularly during the period immediately before and after the implementation of the Legal Services Management System. This risk eventuated, despite the precautionary decision to engage extra staff on fixed term contracts for this period. Staff initially gave priority to making decisions on new applications for criminal and urgent family legal aid cases. As a result there were some complaints from a small number of legal aid lawyers about delays in payment of their


claims. The Agency responded by making payments weekly instead of fortnightly until the backlog was cleared. Some quality assurance processes were also deferred to enable staff to focus on core decision-making processes.

High cost cases

Each year, a small number of legal aid grants account for a significant amount of legal aid expenditure. These are serious criminal cases, complex civil cases and most Waitangi Tribunal cases.

The Legal Aid Review Programme included a project to develop and implement new procedures for managing potentially high cost cases. Achievements since the project began in June 2010 included:

• development of a policy framework for managing high cost cases

• increased knowledge and awareness of when a case is likely to become high cost

• implementation of a mandatory referral system whereby staff must seek expert legal advice from the National Specialist Adviser team on how to manage the case

• more consistent and more efficient decision-making as a result of more detailed scrutiny of batches of cases by the National Specialist Adviser team.

Legal aid for Waitangi Tribunal proceedings

At 30 June 2011, the Agency was managing 828 open approved cases for the Waitangi Tribunal. As part of the amended legislation and the Legal Aid Review Programme, responsibility for granting legal aid for settlement processes has been transferred to the Office of Treaty Settlements. A streamlined transfer of case files and funding for claimants granted legal aid for settlement negotiations with the Crown is expected as the Office of Treaty Settlements is part of the Ministry.

Following a review in 2009 of the Agency’s Waitangi Tribunal policy, a consultation process was underway at the end of the 2010/11 financial year to confirm or change the current arrangements. This will inform the development of a comprehensive operational policy manual on legal aid decision-making on Waitangi Tribunal proceedings. The main areas requiring attention included the amount of duplication of legal preparation, appearances and other legal work. Treaty claims are heard in ‘district’ hearings, which might involve 400 claimants with overlapping claims, represented by a total of perhaps 30 lawyers between them. Most, if not all, claims overlap with other claims to one degree or another and many lawyers prepare for and appear on a range of overarching Treaty issues.

LEGAL AID DEBT MANAGEMENT

The statutory context in 2010/11 for the management of legal aid debts included legislation passed in 1969, 1991, 2000 and 2006. Another debt management and recovery regime is likely to be introduced during 2011/12 through proposed amendments to the Legal Services Act 2011.

Routine debt management activities include; negotiating repayment plans, recovering debts, registering and releasing securities, processing applications for write-offs of legal aid debt, authorising repayments to legally aided people and determining the financial value of the debt portfolio to the Crown at the end of the financial year.

COMMUNITY LAW CENTRES

A network of 26 independent community law centres continued to deliver community legal services, such as information and legal advice to people in their geographic or demographic communities. The demand for and type of services required has varied over the years with changes in people’s individual circumstances and with economic and social conditions, both nationally and regionally. Community law centres collectively make an important contribution to reducing legal aid expenditure by preventing problems from escalating into bigger problems, which require legal solutions as well as incurring other social costs. In 2010/11, centres recorded the nature of the legal need for nearly 100,000 of their clients. Centres are anticipating that more people may seek their services if the proposed changes in reducing eligibility for grants of legal aid are implemented.


Improved access to community legal services

Access to community legal services has increased steadily since the Agency started implementing its National Funding Policy in 2006/07 and its strategic directions for Community Legal Services for 2007-2010. The Agency has targeted people with insufficient means to pay and the greatest unmet need of legal services. Over the last three years, the percentage of the Agency’s target population with access to a community law centre or outreach service in the territorial local authority area where they live has increased from 89% in 2007/08, to 91% in 2009/10 and 94.34% in 2010/11.

Initiatives

During 2010/11, the Agency undertook a number of initiatives to help centres prepare for the future. These included:

• continuing to strengthen Agency and centre relationships through visits and meetings

• designing a national infrastructure to support future collaborative decision-making on behalf of the network

• starting to draft a strategy through the Legal Aid Review Programme project on Improving access to community legal services

• starting to manage contractual relationships with community law centres under a purchasing model instead of a funding model

• upgrading the information system used by community law centres to complete their reporting obligations.

Funding

Community law centres have traditionally been funded from the New Zealand Law Society Special Fund from interest income on solicitors’ nominated trust accounts. In recent years, special appropriations from Government and reserves held by the Agency have been needed to cover the shortfall in funding available from the Special Fund, as a result of reduced levels of activity in the housing market, and fluctuations in the Official Cash Rate. The Ministry of Justice and the Agency continued to explore options to provide a more secure funding base to support the future operation of community law centres.

In 2010/11, the Agency distributed funding of $10.9 million to community law centres, in accordance with section 88 of the Legal Services Act 2000 and the National Funding Policy approved in 2006/07, after consultation with centres and advice from the Agency’s Public Advisory Committee. Annual funding and performance schedules for individual centres in 2011/12 were finalised on 6 July 2011.

Community law centre performance in 2010/11

The Agency concluded contract negotiations with all 26 independent community law centres between June and August 2010 following extensive negotiations earlier in the year on a new three-year contract. Individual schedules provided clear statements of the funding and total contracted hours against which each centre’s performance could be measured. The contract also placed greater emphasis on collaboration between community law centres and with other providers in their respective communities, and required compliance with new national standards released in May 2010. The standards identify indicators of good quality, best practice, best outcomes for clients and value for money.

Community law centres report quarterly against their contracts. The results of the quarterly reports are included in the Statement of Service Performance.

Other aspects of community law centre performance in 2010/11 were obtained through three full random audits, three time-recording audits, two special audits, two reports from independent contractors, visits by head office staff and continued monitoring of one centre following an earlier review. As a result of this monitoring activity, a range of governance and management issues were identified. Some were resolved easily through additional guidance and support. Others required more intensive processes. The Agency served notice of material breach of contract on three centres, and a temporary manager has been appointed to replace the Board of one of these centres.


EDUCATION AND LEGAL INFORMATION

The Agency has continued to work with many organisations to provide people with accurate information about issues they may face in their daily lives. Partner organisations include community law centres, other justice sector agencies, the New Zealand Law Society, non-government organisations and the wider public sector, the Ministry of Justice, the Courts and the Police. Information from about 150 organisations can be accessed through the Law Access website, which will retain its separate identity after the disestablishment of the Agency.

Activities during the year have focused on:

• developing and starting to promote and distribute information about the Legal Services Act 2011 to specific audiences. For example, pamphlets for people with needs for legal services, an online resource for community law centres, and information presentations for providers of community advice

• attending the Porirua Court Open Day, Te Matatini and the Pasifika Festival to provide information directly to the individuals, iwi and communities who are likely to have higher levels of unmet legal need

• continuing to distribute four of the Agency’s law-related education kits

• deciding to withdraw the Legal Aid and other Legal Assistance Education Kit and the Immigration Law-Related Education Kit as low usage rates suggested updates to reflect legislative changes would deliver few benefits

• promoting client information pamphlets to specific audiences through mail-outs, for example, Legal Aid for Protection Orders on White Ribbon Day, and translated publications on Race Relations Day.

CROSS-AGENCY ACHIEVEMENTS A theme-based approach has been adopted in this section. The first two themes relate to intentions in the Agency’s Statements of Intent over several years. The final themes report on priorities in the Minister’s most recent Letter of Expectations to the Board. These themes are:

• access to justice

• agency health and capability

• stakeholder relationships and communications

• reducing legal aid and administrative costs.

OUTCOME FRAMEWORK

For several years, the Agency has used the outcome framework below to summarise the activities it delivers or funds, and the contribution that these make to the Agency’s objectives and the outcomes of the justice sector. Only minor changes were made to the framework following Dame Margaret Bazley’s review of the legal aid sector in 2009, as the Ministry of Justice was expected to review the objectives, impacts and outcomes of the legal aid system as part of developing its outcome framework for the Ministry’s Statement of Intent 2011-2014.


Legal Services Agency’s outcomes framework

ACCESS TO JUSTICE

There are many dimensions to access to justice. In the legal aid context, access to justice is linked to:

• people’s proximity to a community law centre or outreach service, which can provide a range of community legal services including case work, advice, education and information

• the availability of suitable lawyers at any hour of the day or night through the Police Detention Legal Assistance scheme, to advise people who have been detained or arrested by the Police

• the availability of suitable lawyers through the Duty Solicitor scheme or the Duty Lawyer Service, to represent people at their first appearance in court if they do not have a lawyer


• the availability of suitable lawyers in different parts of New Zealand, to represent people with different legal needs who meet the statutory criteria for grants of legal aid

• clients’ ability to communicate with their lawyers, which can be affected by factors such as the language they speak, where they live, their ability to travel, their need for childcare, their knowledge of legal processes and their mental health.

The Agency has limited ability to influence any of these dimensions of access to justice. It cannot influence where lawyers choose to live. It cannot open and operate new community law centres – it is reliant on finding and negotiating a service delivery contract with a suitable independent organisation. It cannot influence eligibility for legal aid – it can only apply the criteria and exercise the discretion determined by Parliament.

The Agency’s contribution to the justice sector outcome of access to justice results from designing, delivering or funding services that met the needs of clients in three key ways:

• accessible representation: people who have a need for legal services, and insufficient means to pay, can access improved quality legal advice and representation

• accessible advice: people with unmet legal needs, particularly those with insufficient means to pay, have improved access to community legal services

• accessible information: people can more easily find out their basic legal rights and responsibilities, whether they have a legal need and should seek further legal services, and where and how to get the legal services they need.

The Agency makes both direct and indirect contributions to these three outcomes. It makes a direct contribution to accessible representation through the Public Defence Service and by producing and disseminating legal information. It makes an indirect contribution to accessible representation, accessible advice, and accessible advice by contracting or working in other ways with individuals and organisations that have the necessary capabilities to deliver specific services to clients. In its main role of assessing applications for grants of legal aid, the Agency’s primary responsibility is to ensure accurate, timely and consistent decision-making.

It relies on feedback from the New Zealand Police, to identify any gaps in access to justice under the Police Detention Legal Assistance scheme, and from courts staff, to contact the Agency about any shortages in the supply of duty lawyers.

Monitoring of outcomes

The Agency has monitored access to justice in four main ways:

(1) the percentage of the Agency’s target population for community legal services who have access to a community law centre or outreach service in the territorial local authority area where they live

(2) the number of individuals who receive new grants of legal aid

(3) identification of locations with actual or potential risks to access, based on the availability of legal aid lawyers, duty solicitors and lawyers providing Police Detention Legal Assistance services

(4) changes over time in the numbers of listed and active legal aid lawyers with the necessary skills and experience to meet different legal needs (by law type, category and jurisdiction). The main law types are monitored monthly and all types are monitored annually.

Access to community legal services

Access to community legal services has increased steadily since the Agency started implementing its National Funding Policy in 2006/07 and its strategic directions for Community Legal Services for 2007-2010. In 2007/08, 89% of the target population had access to a community law centre or outreach service in the territorial authority area where they live. This increased to 91% in 2009/10 and to 94.34% in 2010/11. Target population is defined as those over 15 years with an income lower than $21,001. Population statistics by territorial authority have been obtained from the Census of Population and Dwellings 2006 data. The Agency considers a population in a particular territorial authority to have access to community legal services if there is a community law centre in the area through its main office or outreach services.


Number of new legal aid grants

A simple, high level measure of access to representation is the number of people who received new grants of legal aid each year. This number has increased steadily since 2007 when new eligibility criteria were introduced as part of the Legal Services Amendment Act 2006. Refer to the Statement of Service Performance, Output Class 2: Legal Aid Services (see pages 31-32), which outlines the number of new grants approved this financial year.

Access to legal aid lawyers

The number of people in New Zealand who are eligible for grants of legal aid at any one time is influenced by a range of economic and social conditions, and changes in policy settings, such as the statutory eligibility criteria for different types of legal aid. No methodology is available for measuring changes in the number of people who are eligible for different types of legal aid at any one time. The Agency saw its primary responsibility as ensuring that all people who were eligible for legal services received these services from suitably qualified and experienced listed legal aid providers. Where no local legal aid lawyer was available to assist the client, the Agency arranged for a lawyer from another location to take the case and paid the associated travel costs.

The concept of accessible representation includes an expectation that people will have reasonable access to the services of suitably experienced lawyers in or near the area where they live. ‘Natural’ geographic access varies by law type because the Agency has no influence over where private lawyers choose to live. In practice, people in need of a lawyer for a straightforward criminal matter have had easier access than people in need of representation from a mental health lawyers, as they tend to be clustered in a small number of locations.

The Agency conducted analysis and published the report “The Supply, Distribution and Assignment to Legal Aid Providers in New Zealand” in 2009/10. The analysis was performed to assist the Agency in identifying areas of risk where there may be a lack of availability of legal services. The review looked at 51 standard locations and was based on analysis of data from the Census of Population and Dwellings 2001.

Jurisdiction Provider coverage Areas identified as at risk

Criminal 26 of the 51 standard locations had an increase in the total number of active criminal providers

Feilding, Kaikoura and Wairoa

Family 23 of the 51 standard locations had an increase in the total number of active family providers

Cambridge, Feilding, Wairoa and Kaikoura

Civil 20 of the 51 standard locations had an increase in the total number of active civil general providers

Gore, Balclutha, Wesport, Feilding, Tokoroa and Kaikohe

Legal aid providers

The Agency completes quality value audits of legal aid providers during the year. There were 100 audits completed during 2010/11, with 87% ranked competent or above. The Agency is currently in the process of establishing a new quality framework, which will be implemented during the 2011/12 financial year.

HEALTH AND CAPABILITY

One of the Board’s key objectives for the Agency’s final year was to ensure that all legal aid back office systems were fit-for-purpose. These developments took place in parallel with the work required to merge the Agency’s information technology, information management, human resources and financial management systems into those of the Ministry.


The Agency’s people

Agency managers, supported by Human Resources staff, completed an unprecedented number of recruitment processes during the year in three main areas:

• recruiting staff to support the expansion of the Public Defence Service and set up the new national office

• engaging project managers and support staff on fixed term contracts to support projects in the Legal Aid Review Programme

• engaging additional grants officers and clerical support officers on fixed term contracts to maintain core granting services during the design and implementation of the Legal Services Management System, to assist in managing the impact of the Christchurch earthquakes and to enable experienced grants staff to be released to assist with developmental initiatives.

The last 18 months have presented Agency staff and managers at all levels with numerous challenges and uncertainties. Standard Agency processes, such as regular internal communications and reporting, were supplemented by targeted strategies and communications designed to meet the needs of specific groups of staff. Other changes were managed by the Legal Aid Review Programme Management Office using the Ministry’s approach to programme and project management.

As part of business as usual, the Agency continued to maintain standards of integrity and conduct as set out in the Agency’s Code of Conduct.

The initiatives outlined above reflect the seven elements of ‘the good employer’, as set out in section 118 of the Crown Entities Act 2004: • leadership, accountability and culture

• recruitment/selection and induction

• employee development, promotion and exit

• flexibility and work design

• remuneration, recognition and conditions

• harassment and bullying prevention

• a safe and healthy workforce.

Through these initiatives, the Agency has attracted and retained staff and helped to build a motivated, competent and skilled workforce reflective of and responsive to the community.

Information technology and information systems

Capability improvements to information technology (IT) and information management systems during 2010/11 fell into two main categories; those designed to support and enhance core legal aid business processes, and those required to operate the Agency’s systems using the Ministry’s IT platform.

Improvements to core business systems included:

• completing the replacement of the Agency’s aging and inflexible grants management system, with a modern and stable system that has the functionality and flexibility to support current and future granting processes and procedures planning further adaptations to implement the requirements of new legislation, regulations, policies and business systems

• selecting a provider to replace the current Public Defence Service case management system (CLO6) with a new system that has the capacity to meet the needs of the expanding service

• developing interim, and then permanent, IT systems to support rotational case assignment

• making improvements to the functionality and performance of the debt management system (CWX) to support operational decision-making and the annual debt evaluation


• resolving issues and implementing enhancements to the reporting system used by community law centres.

The Board has identified a longer term risk for the legal aid system, in that the Legal Services Management System may be unable to support new legal aid processes at an acceptable cost.

Staff from the Ministry, the Agency and the Programme Management Office all contributed to finding ways of operating the Agency’s IT systems using the Ministry’s IT platform.

Relationships and communications

The Agency recognised the importance of improving its relationships with sector stakeholders during 2010/11, to ensure core services were maintained throughout changes to the way that legal aid services would be delivered. Strategies for strengthening relationships with the sector and obtaining their support for the new approaches included more face-to-face meetings, regular updates on progress, a willingness to engage, and a commitment to meaningful discussion and consultation. This was assisted by the strong commitment that the New Zealand Law Society made to strengthening its relationship with the Agency.

The Board Chair, the General Manager and other senior staff have travelled to many parts of New Zealand during the last 18 months to engage directly with many people in the sector – legal aid lawyers, the judiciary, sector representatives, senior partners in law firms, and the staff and Boards of community law centres. Full agreement on future policies and procedures was not always possible, but the Board’s perception is that the sector will enter into the next phase of building relationships with the new team in the Ministry with a better understanding of the Government’s expectations.

OTHER CHANGES IMPACTING ON THE AGENCY IN 2010/11

Changes to the criminal justice system

The Ministry of Justice has several initiatives underway to simplify the criminal jurisdiction and many of these have had, or will have, policy or operational implications for the legal aid system. During 2010/11, Agency staff have commented on proposed legislation, helped develop and test new policies and procedures, and identified implications for information technology and information management systems. One example is the Criminal Procedure (Reform and Modernisation) Bill, which is expected to result in changes to the legal aid quality framework, IT systems, payment systems and the structure and operation of the Public Defence Service.

Supporting the implementation of the Immigration Act 2009

In early 2010, the Agency was identified as the most appropriate body to administer sections of the Immigration Act 2009 relating to Special Advocates. The Act was enacted on 29 November 2010 and a Memorandum of Understanding has been put in place with the Department of Labour to ensure that the Ministry has sufficient internal capacity and contractual relationships to deliver the services required.

PART THREE: STATEMENT OF SERVICE PERFORMANCE AND F INANCIAL STATEMENTS

20 Legal Services Agency | Part Three: Statement of Service Performance and Financial Statements

STATEMENT OF RESPONSIBILITY The Secretary of Justice is responsible for the preparation of the Legal Services Agency’s financial statements and statement of service performance, and for the judgements made in them.

The Secretary of Justice has the responsibility for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting.

In the Secretary of Justice’s opinion these financial statements and statement of service performance fairly reflect the financial position and operations of the Legal Services Agency for the financial year ended 30 June 2011.

Signed Countersigned

Andrew Bridgman Thor Gudjonsson Secretary for Justice and Chief Executive Acting Chief Financial Officer 31 October 2011 31 October 2011

Legal Services Agency | Part Three: Statement of Service Performance and Financial Statements 21

INDEPENDENT AUDITOR’S REPORT

To the readers of the Legal Services Agency’s

financial statements and non-financial performance information

for the year ended 30 June 2011

The Auditor-General is the auditor of the Legal Services Agency (the Agency). The Auditor-General has appointed me, Clare Helm, using the staff and resources of Audit New Zealand, to carry out the audit of the financial statements and non-financial performance information of the Agency on her behalf.

We have audited:

• the financial statements of the Agency on pages 35 to 70, that comprise the statement of financial position, statement of commitments, statement of contingent assets and liabilities as at 30 June 2011, the statement of comprehensive income, statement of movements in equity and statement of cash flows, for the year ended on that date, the statement of accounting policies and the notes to financial statements that contain other explanatory information; and

• the non-financial performance information of the Agency that comprises the statement of service performance on pages 24 to 34 and the report on the outcomes framework on pages 14 to 17.

Opinion

In our opinion:

• the financial statements of the Agency on pages 35 to 70 that are prepared on a disestablishment basis:

o comply with generally accepted accounting practice in New Zealand; and

o fairly reflect the Agency’s:

■ financial position as at 30 June 2011; and

■ financial performance and cash flows for the year ended on that date.

• the non-financial performance information of the Agency on pages 14 to 17 and 24 to 34:

o complies with generally accepted accounting practice in New Zealand; and

o fairly reflects the Agency’s service performance and outcomes for the year ended 30 June 2011, including for each class of outputs:

■ its service performance compared with forecasts in the statement of forecast service performance at the start of the financial year; and

■ its actual revenue and output expenses compared with the forecasts in the statement of forecast service performance at the start of the financial year.

Emphasis of matter – the financial statements are appropriately prepared on a disestablishment basis

Without modifying our opinion, we draw your attention to the accounting policy on page 42 about the financial statements being prepared on a disestablishment basis. The Legal Services Act 2011 disestablished the Agency from 1 July 2011 and vested its assets, liabilities and debts in the Ministry of Justice (the Ministry). We consider the basis of preparation of the financial statements and the related disclosures to be appropriate to the Agency’s circumstances.

Our audit was completed on 31 October 2011. This is the date at which our opinion is expressed.

The basis of our opinion is explained below. In addition, we outline the responsibilities of the Agency’s Board, the Ministry’s Chief Executive, and our responsibilities, and we explain our independence.


Basis of opinion

We carried out our audit in accordance with the Auditor-General’s Auditing Standards, which incorporate the International Standards on Auditing (New Zealand). Those standards require that we comply with ethical requirements and plan and carry out our audit to obtain reasonable assurance about whether the financial statements and non-financial performance information are free from material misstatement.

Material misstatements are differences or omissions of amounts and disclosures that would affect a reader’s overall understanding of the financial statements and non-financial performance information. If we had found material misstatements that were not corrected, we would have referred to them in our opinion.

An audit involves carrying out procedures to obtain audit evidence about the amounts and disclosures in the financial statements and non-financial performance information. The procedures selected depend on our judgement, including our assessment of risks of material misstatement of the financial statements and non-financial performance information, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Agency’s preparation of the financial statements and non-financial performance information that fairly reflect the matters to which they relate. We consider internal control in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Agency’s internal control.

An audit also involves evaluating:

• the appropriateness of accounting policies used and whether they have been consistently applied;

• the reasonableness of the significant accounting estimates and judgements made by the Agency’s Board and the Ministry’s Chief Executive;

• the appropriateness of the reported non-financial performance information within the Agency’s framework for reporting performance;

• the adequacy of all disclosures in the financial statements and non-financial performance information; and

• the overall presentation of the financial statements and non-financial performance information.

We did not examine every transaction, nor do we guarantee complete accuracy of the financial statements and non-financial performance information. We have obtained all the information and explanations we have required and we believe we have obtained sufficient and appropriate audit evidence to provide a basis for our audit opinion.

Responsibilities of the Agency’s Board and the Ministry’s Chief Executive

The Agency’s financial statements and non-financial performance information for the year ended 30 June 2011 have been completed by the Ministry. The Ministry’s Chief Executive has accepted responsibility for completing financial statements and a statement of service performance for the Agency that:

• comply with generally accepted accounting practice in New Zealand;

• fairly reflect the Agency’s financial position, financial performance and cash flows; and

• fairly reflect its service performance and outcomes.

Up until 30 June 2011, the Agency’s Board was responsible for such internal control as is determined necessary to enable the preparation of financial statements and non-financial performance information that are free from material misstatement, whether due to fraud or error. From 1 July 2011, the Ministry’s Chief Executive is responsible for such internal control as is determined necessary to enable the completion of those financial statements and non-financial performance information.

The responsibilities of the Agency’s Board and the Ministry’s Chief Executive arise from the Crown Entities Act 2004 and section 125 of the Legal Services Act 2011.


Responsibilities of the Auditor

We are responsible for expressing an independent opinion on the financial statements and non-financial performance information and reporting that opinion to you based on our audit. Our responsibility arises from section 15 of the Public Audit Act 2001 and the Crown Entities Act 2004.

Independence

When carrying out the audit, we followed the independence requirements of the Auditor-General, which incorporate the independence requirements of the New Zealand Institute of Chartered Accountants.

Other than the audit and the Auditor-General being the auditor of the Ministry, we have no relationship with or interests in the Agency.

Clare Helm Audit New Zealand On behalf of the Auditor-General Wellington, New Zealand

Matters relating to the electronic presentation of the audited financial statements and statement of service performance

This audit report relates to the financial statements and statement of service performance of the Legal Services Agency (the Agency) for the year ended 30 June 2011 included on the Ministry of Justice’s (the Ministry) website. The Ministry of Justice’s Chief Executive is responsible for the maintenance and integrity of the Ministry’s website. We have not been engaged to report on the integrity of the Ministry’s website. We accept no responsibility for any changes that may have occurred to the financial statements and statement of service performance since they were initially presented on the website.

The audit report refers only to the financial statements and statement of service performance named above. It does not provide an opinion on any other information which may have been hyperlinked to or from the financial statements and statement of service performance. If readers of this report are concerned with the inherent risks arising from electronic data communication they should refer to the published hard copy of the audited financial statements and statement of service performance as well as the related audit report dated 31 October 2011 to confirm the information included in the audited financial statements and statement of service performance presented on this website.

Legislation in New Zealand governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.


STATEMENT OF SERVICE PERFORMANCE The Minister of Justice purchased a range of services from the Agency in 2010/11 through three output classes:

• Output Class 1: Administration of Legal Services Agency

This output class includes the Agency’s administrative costs, such as the costs of processing applications for legal aid, administering payments to private legal aid practitioners, managing the recovery of debt and managing contracts for community law centres. Funding for community law centres is also included under Output Class 1.

• Output Class 2: Legal Aid Services

This output class includes payments to private legal aid lawyers and other providers for services under the Legal Aid, Duty Solicitor and Police Detention Legal Assistance schemes, less recovery of debts from recipients of legal aid grants.

• Output Class 3: Public Defence Service

This output class includes the cost of running the Public Defence Service, which provides representation services and advice to people charged with criminal offences through the Legal Aid scheme and the Duty Lawyer Service.

OUTPUT CLASS 1: ADMINISTRATION OF LEGAL SERVICES AGENCY

The main outputs delivered through this output class are:

• managing the decision-making and processing of applications (including the establishment of debt), amendments and claims associated with the Legal Aid scheme

• managing repayments of legal aid debt

• managing the purchase of services from community law centres and monitoring their performance against contracts and national standards.

Measures for the legal aid scheme

The number of legal aid applications received is described as an activity measure because the Agency has no influence over the number of applications received or the timing of their arrival. The number of applications received, however, has a significant influence on the workloads of staff and on their availability for other duties in any particular period.

Throughout the year, these activity measures were reviewed by law type from two perspectives: comparisons with the demand at the same time in the previous year, and comparison with formal forecasts for the current year. The forecasts in the following table are the forecasts presented in the Statement of Intent 2010 to 2011 and may differ from the legal aid forecasts for 2010-14 released by the Ministry of Justice in September 2010.

Activity measures Notes Actual

2010/11 Forecast

2010/11 Actual

2009/10

Number of applications for legal aid processed:

− Criminal A 65,370 83,500-89,500 69,348

− Family (includes mental health) B 27,898 30,000-34,000 27,445

− Civil C 2,757 2,650-3,050 2,961

− Waitangi Tribunal D 123 200 259

Total 96,148 116,350-126,750

100,013


Notes:

A: Number of criminal legal aid applications processed

The number of applications for criminal legal aid cases processed in 2010/11 was 5.7% lower than the number of new applications processed in 2009/10. It was also below the lower limit of the forecast range. This may be due to the success of other justice sector policies and more people using community law centres or other community based centres. There is a small but generally immaterial difference between the number of applications received in any financial year and the number of applications processed. This arises when a particular application is received and processed in different financial years.

B: Number of family legal aid applications processed

The number of applications for family legal aid cases was also below the lower limit of the forecast range and was close to the number of new applications in 2009/10. Reasons for the lower than anticipated demand are thought to include the increasing use of community based centres and other justice sector policies.

C: Number of civil legal aid applications processed

The number of new applications for civil legal aid was within the forecast range and was similar to numbers in 2009/10.

D: Number of Waitangi Tribunal legal aid applications processed

Under the Legal Services Act 2000, legal aid was available for Māori groups to take claims to the Waitangi Tribunal and to advance pre-mandate and settlement cases with the Crown. A Government deadline of September 2008 resulted in a large number of historic claims being lodged with the Waitangi Tribunal at that time. The flow of these claims through initial Tribunal processes (e.g. the decisions on whether or not to accept the claim) led to a peak of 349 applications for legal aid reaching the Agency in 2008/09. The number of applications has declined since then, and in 2010/11, was well below the forecast of 200 cases. The number of new applications is expected to drop further from 1 July 2011, when the Office of Treaty Settlements will become responsible for funding new applications for legal assistance to Māori groups seeking to negotiate settlements with the Crown.

Output performance measures

Agency performance measures Notes Actual

2010/11 Standard

2010/11 Actual

2009/10

Timeliness measures

Percentage of criminal applications processed within the turnaround standard of:

A

− 1 working day1 90.8% 93% 97.6%

− 15 working days 98.2% 95% 99.7%

Percentage of family applications processed within the turnaround standard of:

− 5 working days 67.5% 75% 92.6%

− 15 working days 87.3% 95% 99.2%

Percentage of civil applications, civil family and criminal amendments and claims that are processed within the turnaround standard of:

B

− 5 working days 61.8% 75% 76.1%

− 15 working days 82.7% 95% 91.6%

1 Working day means on the day the application is received.



2010/11 Standard

2010/11 Actual

2009/10

Quality measures

Percentage accuracy of granting decisions for compliance with relevant legislation, regulations and Agency policy

C 94.34% 95% 95.9%

Percentage accuracy of debt recovery decisions for compliance with relevant legislation, regulations and Agency policy

D 96.5% 95% 98%

Efficiency measures

Average direct cost per application administered by law type:

E

− Criminal legal aid $77 $76 $72

− Family legal aid $85 $83 $80

− Civil legal aid $213 $212 $202

Average number of applications processed per assigned FTE (grants staff) per year:

F

− Criminal legal aid 790 900 – 1,000 940

− Family legal aid 337 300 – 400 372

Cost-effectiveness of the Agency’s debt management activities:

− Dollars collected per dollar spent G $8.22 $7.90 New measure

− $ million collected per assigned FTE, per year

$0.78 $0.81 New measure

Notes:

A: Percentage of applications processed within standard turnaround times

The timeliness standards reflect the urgency of the client’s situation and complexity of decision-making. For example, decision-making on family applications tends to be less standardised, and requires more information and the exercise of more discretion than decisions on criminal legal aid. More family files are referred to specialist advisers for recommendations. In 2010/11, the Agency achieved one of its six timeliness standards for these reasons.

The results of the investigation into processing times for different types of applications have confirmed that some processes take longer under the Legal Services Management System than they took under the earlier Legal Aid Office system. New timeliness standards will be developed during 2011/12 as more information is obtained about realistic performance standards following further changes in legislation, regulations, business processes and business systems. Due to the change in the case management system, there was a change in the definition of a working day, from being 24 hours to an application being processed on the day in which it is received.

B: Aggregated timeliness measure for multiple application and granting processes

This aggregated measure was introduced to provide a single timeliness standard for monitoring several different decision-making processes, for example, civil applications, and civil, family and criminal amendments and providers’ invoices. The implementation of the Legal Services Management System in September 2010 and the extent of business change introduced impacted significantly on performance until January 2011. Timeliness for these processes was below standard for much of 2010/11, and special arrangements were made in late 2010 to overcome delays in processing some providers’ invoices.


C: Percentage accuracy of granting decisions

Granting decisions are reviewed for compliance with legislation, regulations and Agency policy standards by a team of experienced staff who convene to review a random sample of closed files on 16 criteria under two main headings: the processing of the initial application and the ongoing management of the grant. The Agency intended to conduct two reviews in 2010/11, but reduced this to one review given other demands on staff. The review covered the period July 2010 to March 2011. The sample of 196 files included files managed under both systems i.e. Legal Aid Office and the Legal Services Management System. The Agency did not meet the target of 95%; however, the result of 94.34% was considered a fairly good result due to the change in case management system and other policy changes.

The figure of 95% has no particular meaning at a statutory level. It does not, for example, provide a measure of how many eligible applicants did not receive legal aid to which they were entitled, or how many applicants received legal aid to which they were not entitled. The measure acts as a standard against which aggregated Agency performance across 16 criteria can be compared on a year-by-year basis. The results for each of the 16 criteria that lead to the aggregated figure help identify aspects of the decision-making process where staff may require more training and support, and/or where changes to business processes within the Legal Services Management System may minimise the risk of errors or inappropriate use of discretion.

D: Percentage accuracy of debt decisions

This programme started in 2008/09. Notes made by staff when working accounts and receiving phone calls are reviewed by team leaders for compliance with Agency policies. Five accounts and five inbound phone calls per staff member were reviewed each month. In 2010/11, the performance standards were achieved.

E: Average direct cost per application by law type

This measure, which was introduced in 2009/10, provides transparency of the variation in the complexity of decision-making required to make decisions on applications for legal aid for different law types. Costs are direct costs and exclude organisation overheads and management costs. Performance has been influenced by the lower than forecast number of applications received and by several other factors impacting on the processing of applications, for example, the two earthquakes. The transfer of some costs associated with employing additional staff on fixed term contracts to maintain core services during the design, testing and implementation of the Legal Services Management System to the project budget means that the true values are likely to be higher than those shown.

F: Average number of applications processed per assigned FTE (grants staff) per year

This measure, which was introduced in 2009/10, provides transparency of the variation in efficiency for processing applications and managing the associated legal aid grants (cases). The measures are targets, not standards or forecasts. A number of planned and unplanned events prevented the Agency from maintaining the levels of efficiency achieved in 2009/10. For example, additional grants staff were engaged on fixed term contracts during 2010/11 to help maintain business as usual services during the preparation, implementation and subsequent development phases of the Legal Services Management System. Efficiency was also affected by unanticipated events such as the Christchurch earthquakes.

G: Cost-effectiveness of the Agency’s debt management activities

This new cost-effectiveness measure was tested in 2010/11. The measure is the ratio between total dollars collected or secured against the cost of managing debt recovery activities, such as collecting money via repayment plans or lump sums, making decisions on applications for write-offs and arranging for securities to be registered against property. The results show that for every dollar spent on managing debt recovery activities, staff in the debt unit collected $8.22. This compares favourably with the target of $7.90.


Measures for the community law services

Details of service delivery by community law centres were included in the Agency’s Statement of Forecast Service Performance for the first time in 2009/10 to formalise reporting responsibilities following the appropriation of additional Crown funding to sustain community law centres during 2009/10 and 2010/11.

In 2010/11, the Agency contracted with 26 independent geographically or demographically-based community law centres to provide community law services to their communities for the 2010/11 year. Each contract specifies the number of service delivery hours required for four specific services including case work, legal information, law-related education and law reform.

Service delivery measures for community law centres Notes Actual

2010/11 Forecast

2010/11 Actual

2009/10

Case work A

Projected service delivery hours by all centres 104,218 96,000 101,702

Number of centres that meet or exceed projected service delivery hours 23 25-27 23

Total number of clients2 49,243 52,000 51,728

Law-related education B



Total number of participants 41,275 25,000 44,269

Legal information Projected service delivery hours by all centres Number of centres that meet or exceed projected service delivery hours

C

30,508

13

34,000

25-27

27,778

20

Law reform D



Cost-efficiency Average cost per hour for all services by all centres

$74

$75

$71

Contractual performance Projected percentage of centres that meet the following contractual requirements:

E

• Performance information is provided to the Agency by due dates (four times per year) 88% 100% 35%

• Performance information is complete according to reporting specifications attached to contracts

58% 100% 25%

• Service delivery hours are consistent with capacities funded and minimum service levels contracted

77% 100% 65%

Number of centres that meet contracted level of service delivery hours 20 25-27 22

2 Clients mean people engaging with lawyers at community law centres.


Service delivery measures for community law centres Notes Actual

2010/11 Forecast

2010/11 Actual

2009/10

Percentage of centres audited that can demonstrate compliance with new national standards

F 40% 100% 100%

Notes:

The above measures are demand driven and are outside of the Agency’s control, and are determined by social needs and economic conditions.

A: Case work

In the community law centre context, case work includes legal representation, legal advice and legal assistance services. These may be provided by community law centre staff, volunteer qualified lawyers or volunteer law students. The service delivery hours shown is for paid staff only.

B: Law-related education

Different centres use different channels for delivering legal information, including over the counter enquiries, telephone enquiries, websites and contacts at expos. The delivery hours for this service had a slight decrease of 4% from the last financial year. A factor contributing to the reduction in service delivery hours, and therefore not meeting the projected service delivery hours, was the slight increase in contracted hours that were based on two months of 2009/10 volumes and ten months of 2010/11 volumes. The other factor was the September 2010 and February 2011 earthquakes, which affected the delivery of service in the Canterbury community law centre.

C: Legal information

The projected delivery hours for this service had a slight increase of 10% from the last financial year. 50% of the centres met or exceeded the projected service delivery hours. A factor contributing to the reduction in service delivery hours and therefore not meeting the projected service delivery hours was the slight increase in contracted hours, which were based on two months of 2009/10 volumes and ten months of 2010/11 volumes.

D: Law reform

There was a 13% increase in the service delivery hours this financial year, compared to last financial year, for this particular service across all community law centres. Almost 60% of centres met or exceeded the projected service delivery hours.

E: Contractual performance

This measure records performance against other contractual responsibilities. The Agency expects community law centres to meet all contractual obligations. Overall, 18 community law centres met their contractual requirements to provide 30% threshold of the services (measured in paid hours) in legal information, law-related education and law reform.

F: Compliance with national standards

This new quality measure was developed to monitor compliance with the revised contracts that were still under negotiation with community law centres at the time the Statement of Forecast Service Performance was developed. The Agency completed the planned audits of six centres in 2010/11.


Financial Performance Output Class 1

Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Appropriation – Administration 19,101 19,101 19,131

Appropriation – Community Law Centres (CLCs) 4,106 4,106 7,467

New Zealand Law Society 4,097 5,400 4,071

Interest on CLCs funds 60 73 69

Interest – Research and Education Fund 330 300 322

Interest – Administration funds 167 300 313

Other 725 - 6

Total income 28,586 29,280 31,379

Administration expenditure 26,292 19,401 19,344

Legal Aid Review Programme 3,277 - -

Payments to CLCs 11,519 10,970 10,485

Research and Education Fund expenditure 94 300 275

Total expenditure 41,182 30,671 30,104

Surplus/(deficit) (12,596) (1,391) 1,275

The deficit this financial year, and variance to budget and prior year, is largely due to implementation of transition projects into the Ministry of Justice in the Administration Appropriation. The Agency also implemented policy changes derived from Dame Margaret Bazley’s report through the Legal Aid Review Programme. As a result of the merge into the Ministry of Justice, assets that were not to be utilised from 1 July 2011 were written off, including the impairment of the Legal Services Management System.


OUTPUT CLASS 2: LEGAL AID SERVICES

The Agency’s legislative responsibilities under this output class are to:

• make payments to private legal practitioners for services provided under the Legal Aid, Duty Solicitor and Police Detention Legal Assistance schemes

• collect debts established under repayment plans and secured against client assets, and the proceeds of proceedings.

Two types of measures are included in the following tables:

• the projected number of new grants by law type

• the number of Quality and Value Audits to be conducted and the results of those audits.

Activity measures for the Legal Aid scheme

Activity measures Notes Actual

2010/11 Forecast

2010/11 Actual

2009/10

Quantity measures

Number of new grants for criminal cases A 56,421 73,500-78,500 61,659

Number of new grants for family cases B 24,850 27,800-31,800 25,104

Number of new grants for civil cases 1,948 2,000-2,500 2,026

Number of new grants for Waitangi Tribunal cases 139 160-260 253

Total 83,358 103,460-113,060

89,042

Notes:

These activity measures show the number of new grants of legal aid by law-type that the Agency anticipated making in 2010/11 and the number of new grants made. They do not include grants made in earlier years that were still incurring legal aid costs in 2010/11.

A: Number of new grants for criminal cases

The number of new criminal legal aid grants made was below the lower limit of the range forecast and is attributed to factors such as the decline in the number of applications entering the criminal justice system and justice sector policy drives for applicants to use mediation or community based centres.

B: Number of new grants for family cases

The number of new family legal aid grants made was below the lower limit of the range forecast as result of justice sector policy drives for applicants to use mediation or community based centres.

Quality and Value Audits of legal aid lawyers

Measures Notes Actual

2010/11 Forecast

2010/11 Actual

2009/10

Quantity measures

Number of Quality and Value Audits completed by contracted auditors in time for inclusion in the annual summary

A 100 60 20

Percentage of audited legal aid lawyers ranked competent or above in the Quality and Value Audits

B 87% 80% 90%


Notes:

A: Number of Quality and Value Audits

The Agency contracts experienced legal aid lawyers to audit providers’ files for legal correctness, clarity, and effectiveness on key result areas such as preparation of the case, communication with client, and professional obligations. Quality is assessed using a three-point scale. Value-for-money is assessed as Yes/No. An overall assessment is based on a five-point scale. The Agency is accountable for ensuring that these audits are conducted and for following up on any issues identified.

As part of a broader programme to increase public confidence in the legal aid sector, the Agency increased its planned number of Quality and Value Audits from 20 in 2009/10 to 60 in 2010/11. By year end, 100 audits had been completed.

B: Percentage of audited legal aid lawyers ranked competent or above

This measure provides a baseline against which progress towards improving the quality of service provided by legal aid lawyers can be measured. This estimate of quality of service is based on the trial audits conducted in 2008/09. The overall assessment of each provider is based on five files and a five-point scale. The Statement of Intent 2010 to 2011 described this scale as 1 for excellent, 2 for very good, 3 for competent, 4 for as below competent, and 5 as failure. This was subsequently changed so that 1 is now very poor, 2 as poor, 3 as competent, 4 as very good, and 5 as excellent.

The 2010/11 audits showed that 87% of providers were competent or better (90% in 2009/10).


Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Appropriation – Legal Aid

Private providers 141,414 131,824 151,734

Interest on legal aid funds 379 227 342

Total income 141,793 132,051 152,076

Payments to private providers 144,318 155,805 155,904


Surplus/(deficit) (2,525) (23,754) (3,828)


OUTPUT CLASS 3: PUBLIC DEFENCE SERVICE

Under this output class, the Agency:

• provides quality, professionally-independent, criminal representation services to legally aided persons at specified courts

• provides duty lawyer services at specified courts in ways that deliver enhanced value-for-money

• supports the administration of the Duty Solicitor and Police Detention Legal Assistance schemes.

Output performance measures


2010/11 Target

2010/11 Actual

2009/10

Number of locations at which the Public Defence Service operates (30 June)

A 10 11 4

Number of open cases at beginning of financial year

B 1,051 1,400 – 1,800 960

Number of new cases accepted during the year 5,696 5,500 – 6,500 3,279

Number of cases closed during the year (including transfers)

C 4,538 5,000 – 6,000 3,043

Number of open cases at end of financial year 2,209 1,900 – 2,300 1,051

Number of Public Defence Service lawyers audited under the Provider Quality and Value Audit Programme

D 53 6 4

Percentage of audited Public Defence Service lawyers ranked competent or above

100% 100% 100%

Number of duty solicitor hours provided (includes 4,107 hours as duty solicitor supervisor)4

E 10,195 N/A 1,871

Notes:

A: Number of locations at which the Public Defence Service was operating (30 June 2011)

At 30 June 2010, the Public Defence Service was operating at four courts. This number increased in November 2010 when services started operating at the Papakura and Papatoetoe District Courts. It increased again in February/March 2011 when services started at courts in Wellington, Lower Hutt and Porirua, and in May 2011 when services started at Hamilton. Plans to start operating in Christchurch were deferred following the earthquake. The number of locations shown here is for District Courts. The service is also authorised to provide legal aid services at two High Courts, the Court of Appeal, and the Supreme Court (i.e. 14 courts in total).

B: The number of open cases at the beginning of the financial year (1 July 2010)

When drafting the Statement of Intent 2010 to 2011 in April 2010, the Agency anticipated that, on 30 June 2010, the Public Defence Service would be managing between 1,400 and 1,800 open cases. The estimate, an activity measure, took into account differences between targets and actual opening dates of new offices, variability in the number of cases assigned to the Public Defence Service, and the rate at which cases were moving through the courts.

3 There were six audits conducted covering the financial year, however five were completed during the financial year. This was due to provider services ensuring they had coverage of the Public Defence Service throughout the year.

4 This is additional information and is not a Statement of Service Performance measure for 2010/11 financial year.


C: Number of cases closed during the year (including transfers)

The Agency estimated that it would close between 5,000 and 6,000 new cases during the 2010/11 year. The number of cases closed was 4,538. The estimate was based on a number of variables including proposed increases in staffing levels, opening dates for each of the new offices, the number of cases that would be assigned to the Public Defence Service on rotation, the numbers of recipients of legal aid who would prefer a Public Defence Service lawyer, and the number of cases that may be transferred to private lawyers in other parts of New Zealand after the client’s first appearance.

D: Number of public defence lawyers audited

The Agency contracts experienced legal aid lawyers to audit public defence lawyers’ files for legal correctness, clarity, and effectiveness on key result areas such as preparation of the case, communication with client, and professional obligations. Quality is assessed using a three-point scale. Value for money is assessed as Yes/No. An overall assessment is based on a five-point scale. The Agency is accountable for ensuring that these audits are conducted and for following up on any issues identified.

E: Number of duty solicitor hours provided

Due to policy changes, Public Defence Service duty solicitors are now able to take on 33% of all hours in those courts that the Public Defence Service operates in.


Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Appropriation – Public Defence Service 9,890 9,890 7,400

Interest 196 115 83

Total income 10,086 10,005 7,483

Public Defence Service 7,833 8,485 4,282

Expansion Project5 522 - 626


Surplus/(deficit) 1,731 1,520 2,575

Public Defence Service expenditure includes costs for duty lawyers (number of hours are disclosed in the output performance measures) and public defence lawyers operating at the 10 courts. A breakdown of the nature of the expenditure is disclosed in Note 3B of the notes to the financial statements. The Initial Criminal Legal Services unit within Public Defence Service monitors the Duty Solicitor scheme, and the cost of this unit is $206,000 (2010: $145,000).

The Expansion Project are costs associated with project management and administration of increasing capacity and capabilities of the Public Defence Service. This includes travel, design specifications for office layout, recruitment and other expansion related costs.

5 The Actual 2009/10 expansion project costs were previously disclosed as $1.376 million. This figure is corrected above reflecting the true expansion costs.


STATEMENT OF COMPREHENSIVE INCOME For the year ended 30 June 2011

Notes

Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Income

Revenue from the Crown

Administration

19,101 19,101 19,131

Legal Aid

141,414 131,824 151,734

Public Defence Service

9,890 9,890 7,400

Community Law Centres

4,106 4,106 7,467

Total government grant legal aid

174,511 164,921 185,732

Interest 1 1,132 1,015 1,129

New Zealand Law Society Fund

4,097 5,400 4,071

Other 2 725 - 6

Total income

180,465 171,336 190,938

Expenditure

Administration 3A 29,569 19,401 19,344

Legal Aid Private Providers 4 144,318 155,805 155,904

Public Defence Service 3B 8,355 8,485 4,908

Community Law Centres 5 11,519 10,970 10,485

Research and Education

94 300 275

Total expenditure

193,855 194,961 190,916

Operating surplus/(deficit)

(13,390) (23,625) 22

Total comprehensive income

(13,390) (23,625) 22

The accompanying accounting policies and notes form part of the financial statements.

For information on variances against budget refer to Note 19.


STATEMENT OF MOVEMENTS IN EQUITY For the year ended 30 June 2011

Notes

Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Total comprehensive income

(13,390) (23,625) 22

Non-comprehensive income items

Capital contribution from the Crown 60 60 1,052

Public Defence Service - funding of fixed assets from reserves - (700) -

Total capital contributions from the Crown 60 (640) 1,052

Public equity as at 1 July 27,668 31,524 26,594

Public equity as at 30 June 6 14,338 7,259 27,668



STATEMENT OF FINANCIAL POSITION As at 30 June 2011

Notes

Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Public equity

Administration 1,528 10,588 11,044

Legal Aid (2,287) (17,567) 238

Public Defence Service 7,059 4,556 5,328

Community Law Centres 911 1,465 2,817

Research and Education 7,127 8,217 8,241

Total public equity 6 14,338 7,259 27,668

Represented by:

Current assets

Cash and cash equivalents 7 10,217 10,512 19,864

Legal aid debtors 8 8,615 4,585 7,788

Crown funding receivable 51,217 56,139 56,566

Other receivable 3,334 300 694

Total current assets 73,383 71,536 84,912

Non-current assets

Legal aid debtors 8 32,951 20,415 31,395

Property, plant and equipment 9 1,633 2,265 905

Intangible assets 10 2,492 6,626 4,402

Total non-current assets 37,076 29,306 36,702

Total assets 110,459 100,842 121,614

Current liabilities

Creditors and other payables 11 94,593 72,090 61,666

Provisions 12 475 - 38

Employee entitlements 13 1,053 1,078 847

Total current liabilities 96,121 73,168 62,551

Non-current liabilities

Creditors and other payables 11 - 20,415 31,395

Total non-current liabilities - 20,415 31,395

Total liabilities 96,121 93,583 93,946

Net assets 14,338 7,259 27,668




STATEMENT OF CASH FLOWS For the year ended 30 June 2011

Notes

Actual 2011 $000

Budget 2011 $000

Actual 2010 $000

Cash flows operating activities

Cash provided from:

The Crown for:

Administration 19,101 19,101 19,131

Legal Aid 153,034 119,481 150,891

Public Defence Service 9,890 9,890 -

Community Law Centres 4,106 4,106 7,467

Contributions and repayments by legally aided persons 9,799 12,343 7,679

New Zealand Law Society Special Fund 4,119 5,400 4,076

Interest received 1,152 1,015 1,134

Other income 784 6 7

Net Goods and Services Tax (3,029) 1,158 77

198,956 172,500 190,462

Cash applied to:

Payments for Legal Aid (161,220) (155,805) (158,637)

Payments to Community Law Centres (11,519) (10,970) (10,485)

Payments for Research and Education (94) (300) (275)

Payments to Employees (18,688) (17,657) (15,645)

Payments to Suppliers (13,432) (8,270) (5,322)

(204,953) (193,002) (190,364)

Net cash inflow/(outflow) from operating activities 14 (5,997) (20,502) 98

Cash flows investing activities

Cash provided from:

Sale of property, plant and equipment 20 - -

Cash applied to:

Purchase of property, plant and equipment (1,122) (935) (630)

Purchase of intangible assets (2,608) (1,162) (1,953)

Net cash inflow/(outflow) from investing activities (3,710) (2,097) (2,583)

Cash flows financing activities

Capital contribution from Crown 60 60 1,052

Public Defence Service - funding of assets from reserves - (700) -

Net cash inflow/(outflow) from financing activities 60 (640) 1,052

Net (decrease) in cash and cash equivalents (9,647) (23,239) (1,433)

Opening cash and cash equivalents 19,864 33,751 21,297

Closing cash and cash equivalents 10,217 10,512 19,864


The GST component of operating activities reflects the net GST paid and received with Inland Revenue. The GST component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes.




STATEMENT OF COMMITMENTS As at 30 June 2011

2011 $000

2010 $000

Non-cancellable operating lease commitments

Not later than one year 1,547 1,730

Later than one year and not later than five years 2,517 1,167

Later than five years 1,296 630

Total non-cancellable operating leases 5,360 3,527

The Agency has long-term leases on its premises throughout New Zealand. The annual lease payments are subject to regular reviews. All leases were transferred to the Ministry of Justice from 1 July 2011.

2011 $000

2010 $000

Non-cancellable operating commitments - other

Not later than one year - 522

Later than one year and not later than five years - 58

Later than five years - -

Total non-cancellable operating commitments - other - 580

There are no non-cancellable operating commitments as at 30 June 2011, as they were legally transferred to the Ministry of Justice prior to balance date.

There are no restrictions placed on the Legal Services Agency by any of its leasing arrangements.

CAPITAL COMMITMENTS

At balance date 2010/11, the Agency had no capital commitments. At balance date 2009/10, the Agency had capital commitments of $0.933 million for the development of a Legal Services Management System.

COMMITMENTS FOR GRANTS OF LEGAL AID

The Agency is required to grant legal aid to any person who successfully meets the eligibility criteria. The Agency provides guidance to legal aid providers on the number of hours that each step in the legal process should take. This forms an integral part of the expenditure approval process, but it is not expected that all grants take the maximum hours and the Agency pays only the number of hours actually worked. In 2009/10, the previous case management system recorded a commitment amount for criminal, civil and family of $69.594 million. The commitment was calculated based on an estimate of the cost of the case and the expected stage where the case is closed less the cost of work completed. Operationally, if a legal aid lawyer breached the dollar amount that was initially approved, a further approval will be sought. In 2010/11, each task in the legal aid process has a maximum hour guidance, however the process does not estimate where the application will be closed. Therefore, a minimum future expenditure cannot be calculated as the Agency cannot determine where a case will be closed in the legal process.


STATEMENT OF CONTINGENT ASSETS AND LIABILITIES As at 30 June 2011

CONTINGENT ASSETS

The Agency has contingent assets of $192,000 (2010: Nil).

The contingent asset is related to an insurance claim under the Agency’s content and business interruption insurance as result of the Christchurch earthquakes. The Agency’s building has been inaccessible due to the risk profile of the surrounding buildings. It is expected access to the building will be obtained in December 2011.

CONTINGENT LIABILITIES

There are some legal aid cases that are currently under appeal through the Legal Aid Review Panel and higher judicial authorities, which may result in additional legal aid or costs being incurred by the Agency. These liabilities are not able to be quantified as legal aid liabilities.

The maximum exposure from legal aid claims by third parties has been assessed and recognised as contingent liabilities where these are able to be quantified.

2011 $000

2010 $000

Contingent liabilities based on legal aid claims by third parties 55 14



STATEMENT OF ACCOUNTING POLICIES For the year ended 30 June 2011

REPORTING ENTITY

The Legal Services Agency (the Agency) is a Crown entity as defined in the Crown Entities Act 2004 and is domiciled in New Zealand. As such, the Agency’s ultimate parent is the New Zealand Crown.

The primary objective of the Agency is to provide services to the public rather than making a financial return. Accordingly, the Agency has designated itself a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The financial statements of the Agency are for the year ended 30 June 2011. The Secretary of Justice authorised the issue of the financial statements on 31 October 2011.

BASIS OF PREPARATION

Disestablishment

In accordance with the Legal Services Act 2011 the Legal Services Agency has been disestablished and its operations merged with the Ministry of Justice with effect from 1 July 2011.

The Legal Services Act 2011 provides for the transfer of staff employment contracts, other contractual arrangements, and existing assets and liabilities to the Ministry of Justice.

The functions, duties and power of the Agency will become the functions, duties and power of the Ministry of Justice, which will be responsible for governing the entire legal aid system.

The disestablishment of the Agency requires the financial statements to be prepared on a disestablishment basis, not the normal going concern basis. However, the services currently delivered will continue to be delivered by the organisational structure put in place by the Ministry of Justice, and therefore the assets and liabilities of the Agency will be relevant to the Ministry of Justice. For that reason, while the financial statements have been prepared on a disestablishment basis, there was one adjustment made as result of the disestablishment basis: disclosing the entire Crown payables liability as current.

Statement of compliance

The financial statements of the Agency have been prepared in accordance with the requirements of the Crown Entities Act 2004, which includes the requirement to comply with New Zealand generally accepted accounting practices (NZ GAAP). Compliance with NZ GAAP means that the financial statements of the Agency comply with NZ IFRS and any other applicable financial reporting standards as applicable to public benefit entities.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

The reporting period for the financial statements is for the year ended 30 June 2011.

Measurement base

The financial statements have been prepared on a historical cost basis unless otherwise stated.

These financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Agency is New Zealand dollars.


SIGNIFICANT ACCOUNTING POLICIES

Revenue

Revenue is measured at the fair value of consideration received or receivable.

Revenue from the Crown

Government grants for legal aid are recognised as revenue following the supply of outputs to the Crown. Government grants for administration, the Public Defence Service and community law centres are recognised in the financial year they are received.

New Zealand Law Society Special Fund

Revenue received from the New Zealand Law Society (NZLS) Special Fund for the funding of community law centres is recognised as revenue when received.

Interest

Interest income is recognised using the effective interest rate method.

Expenditure

Operating costs

Operating costs are recognised on an accrual basis as an expense in the period in which they are incurred, whether paid or not.

Legal aid – private providers

The costs paid and payable to private legal aid providers are recognised as an expense at the date the work is performed less contributions receivable from legally aided persons for the legal aid provided.

The value of work performed by private legal aid providers comprises the value of approved legal aid costs claimed and paid, the value of the work performed that has been billed but not yet approved by the Agency, and the work that has been performed but not yet billed.

Leases

Operating lease

An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term. The Agency has operating leases for office premises and some office equipment.

Finance lease

Finance leases are leases that effectively transfer substantially all the risks and benefits incidental to ownership of the leased item. These leases are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased asset and corresponding lease liabilities are recognised in the Statement of Financial Position. The leased assets are depreciated over the period it is expected to benefit from their use.

All Agency leases are appraised to assess if they meet the criteria of an operating or finance lease.

Financial instruments

Financial instruments comprise financial assets (cash and cash equivalents, short-term investments, receivables) and financial liabilities (payables).


All financial assets and liabilities are initially measured at fair value plus transaction costs.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, and funds in bank deposit accounts with a maturity of no more than three months from date of acquisition.

Short-term investments

Short-term investments are funds in bank deposit accounts with a maturity of between three and 12 months from date of acquisition. The Agency does not have any short-term investments.

Debtors and other receivables

Receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less any provision for impairment. Receivables due within 12 months are recognised at their nominal value unless the effect of discounting is material.

Receivables are made up of the following:

Legal aid receivables

Legal aid receivables are contributions and repayments of legal aid grants due from legally aided persons.

Other receivables

Other receivables are made up of accrued income, interest receivable, prepayments, and GST receivable.

Crown funding receivables

Crown funding receivables represent the funding receivable from the Crown to cover the legal aid liability, legal aid debtors’ receipts in advance and payments to providers less receipts from legally aided persons.

Impairment of financial assets

At each balance date the Agency assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. Any impairment losses are recognised in the Statement of Comprehensive Income.

Creditors and other payables

Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate.

Payables

Payables due within 12 months are recognised at their nominal value unless the effect of discounting is material.

Payables are made up of the following:

Crown payables

All legal aid receivables from legally aided persons are due to the Crown. A Crown payable is recognised to reflect this liability at the date the corresponding legal aid receivable is recognised.

Receipts in advance from legally aided persons

Receipts in advance consist of payments received by the Agency from a legally aided person that is above the current debt level set for the case.


Legal aid expenditure accrual

The legal aid expenditure accrual is the value of approved legal aid costs claimed but unpaid, the value of legal aid work performed that has been billed but not yet approved for payment by the Agency, and legal aid work that has been performed but not yet billed.

Employee entitlements

Employee entitlements are measured at nominal values on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave and time off in lieu earned up to but not yet taken at balance date, and sick leave entitlements.

The Agency recognises a liability for sick leave to the extent that compensated absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that the Agency anticipates it will be used by staff to cover those future absences.

Public equity

Public equity is the Crown’s investment in the Agency and is measured as the difference between total assets and total liabilities. Public equity is separately classified as administration, legal aid, community law centres, research and education reserves, and the Public Defence Service.

Commitments

Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

Contingent assets and contingent liabilities

Contingent assets and contingent liabilities are recognised at the point at which the contingency is evident. Contingent assets are disclosed if it is probable that the benefits will be realised. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote.

Statement of Cash Flows

The following are the definitions used in the Statement of Cash Flows:

Cash is considered to be cash on hand, held in bank accounts, demand deposits and other highly liquid investments in which the Agency invests as part of its day-to-day cash management.

Operating activities include all activities other than investing and financing activities. The cash inflows include all receipts from the Crown, the New Zealand Law Society, legally aided persons, and other sources of revenue that support the Agency’s service delivery. Cash outflows include payments made for legal aid, to community law centres, employees and suppliers, and for taxes.

Investing activities are those activities relating to the acquisition and disposal of non-current assets.

Financing activities are those activities relating to changes in equity and the working capital structure of the Agency.

Goods and Services Tax (GST)

All items in the financial statements are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis.

The net amount of GST recoverable from, or payable to, Inland Revenue is included as part of receivables or payables in the Statement of Financial Position.

The net GST paid to, or received from Inland Revenue, including the GST relating to investing and financing activities, is classified as an operating cash flow in the Statement of Cash Flows.

Commitments and contingencies are disclosed exclusive of GST.


Taxation

The Agency is a public authority in terms of the Income Tax Act 2007 and is exempt from income tax. Accordingly, no charge for income tax has been provided.

Budget figures

The budget figures are those approved by the Agency at the beginning of the financial year, as set out in the Agency’s Statement of Intent 2010 to 2011.

The budget has been prepared in accordance with generally accepted accounting practice and is consistent with those adopted by the Agency for the preparation of the financial statements in prior periods.

Property, plant and equipment

Property, plant and equipment consist of leasehold improvements, computer hardware, office equipment, furniture and fittings and motor vehicles.

Property, plant and equipment are shown at historical cost less accumulated depreciation and impairment.

Additions

The cost of an item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits or service potential associated with the item flow to the Agency and the cost of the item can be measured reliably.

In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition.

Disposal

Gains and losses on disposal are determined by comparing proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the Statement of Comprehensive Income.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Agency and the cost of the item can be measured reliably.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment, other than work in progress. The rates of depreciation will write down the cost of the assets to the estimated residual value over the useful life of the assets. The useful lives and associated depreciation rates of the major classes of assets have been estimated as follows:

Computer hardware 3 years 33%

Motor vehicles 3 years 33%

Office equipment 5 years 20%

Furniture and fittings 5 years 20%

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful lives of the improvements, whichever is shorter.

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end.


Intangible assets

Software acquisition and development

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring the software to use.

Internally generated computer software is capitalised on the basis of the costs incurred to develop and bring to use the specific software.

Costs associated with maintaining computer software are recognised as an expense when incurred.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in the Statement of Comprehensive Income.

The useful lives and associated annual amortisation rates of major classes of intangible assets have been estimated as follows:

Computer software 4 years 25%

Internally generated computer software 4 years 25%

Impairment of non-financial assets

Property, plant and equipment and intangible assets that have a finite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

Value in use is depreciated replacement cost for an asset where the future economic benefits or service potential of the asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the Agency would, if deprived of the asset, replace its remaining future economic benefits or service potential.

Intangible assets that have an indefinite life are not subject to amortisation and are tested annually for impairment. An intangible asset that is not yet available for use at balance date is tested for impairment annually.

Critical accounting estimates and assumptions

In preparing these financial statements, the Agency has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Fair value of receivables under the 2000 and 2006 Legal Services Acts

The fair value of legal aid receivables is determined using an actuarial valuation model. This has been applied to debt established under the Legal Services Act 2000 and the Legal Services Amendment Act 2006. An assessment of impairment for the receivables is made based on their shared characteristics and historical performance. This model derives the net present value of projected future cash flows. Forecast expected repayments are estimated from an analysis of past repayment data, deducting an estimate of servicing costs, and discounting at a suitable discount rate. Data used in the model is extracted from the Agency’s debt management system and includes:

• secured and unsecured debts


• outstanding debt figures, aggregated by year or quarter from year 2000

• debt repayment aggregated by year or quarter from year 2000

• assumptions relating to the repayment rates and rates of estimated credit losses.

Assumptions are made that all interim repayments which are set up in the legal aid system exist in the debt system and that all debts that have been secured are recorded correctly in the debt system.

Further, assumptions are made regarding unsecured debt – that the unsecured outstanding debt not only reduces by payments received, but is subject to higher levels of write-offs and adjustments.

The derivation of a suitable effective interest rate

The effective interest rate adopted in the valuation model as at 30 June 2011 was derived by determining the sum of two components. These are:

• the “risk-free” rate

• a risk premium to allow for the riskiness of the asset.

The risk-free rate is the return that an investor could achieve without risk and is taken to be the yield on government bonds. The risk-free rate used is the five-year government bond yield at 30 June 2011 of 5.08% (2010: 4.23%)

The risk premium has been estimated by finding traded risky debt with a comparable default rate to the default rate of the outstanding debt, and determining a risk premium based on that debt. The risk premium used is 2.75% (2010: 5.04%)

Adding the risk-free rate and the risk premium together gives a discount rate of 7.83% (2010: 9.27%).

A decrease in the carrying value of the receivables from legally aided persons is recognised as a ‘provision for doubtful debts and discount for the period of time debts are outstanding’. Correspondingly, there is a reduction in the amount payable to the Crown.

Fair value of receivables under the 1969 and 1991 Legal Services Acts

The Agency has legal aid receivables established by the Legal Services Act 1969 and the Legal Services Act 1991.

The 1969 Act receivables were purchased from the Ministry of Justice. The purchase price reflected the valuation of the receivables secured against property. The fair value of these receivables is recognised at cost less receipts to date. The same rate of impairment has been applied to secured debt as for secured debt determined by the actuarial model as applied to 2000 and 2006 Act debt.

The 1991 Act receivables comprise both secured and unsecured debt. This has been impaired on the same basis as the receivables valued through the actuarial model. The unsecured portion has been further impaired on the basis of the age of the debt and the known collection rates.

A decrease in the carrying value of the receivables from legally aided persons is recognised as a ‘provision for doubtful debts and discount for the period of time debts are outstanding’. Correspondingly, there is a reduction in the amount payable to the Crown.

Legal aid accrual

At each balance date, the Agency uses an independently developed actuarial model to calculate an accrual figure for the three law types; criminal, family and civil. The assumptions adopted are as follows:

• the application references open cases no greater than two years old

• the last invoice from the provider was received within that two year period


• the cost of service still to be incurred is based on the date of the last invoice and the expected average case cost.

At each balance date the Agency produces an accrual for Waitangi cases. It is known that the Agency is not invoiced for work completed on a regular basis. On this assumption, the Agency cannot process the accrual through the actuarial model. The Agency accrues for Waitangi cases based on either external confirmations from providers or on certified payments made after balance date.

Impairment of Legal Services Management System (LSMS)

The Agency’s case management system, Legal Services Management System (LSMS), has been impaired as at 30 June 2011 on the following basis:

• utilising the budgeted expenditure for future policies and decisions to be incorporated within LSMS

• reviewing the costs that were capitalised and identifying elements that would not have occurred and created a cost if the system was implemented on time.

Cost allocation

The need to allocate administration costs to the Public Defence Service has arisen since the service moved from a pilot to a permanent service in October 2008. Prior to this, the pilot service did not have its own output class. Since being made permanent, the Public Defence Service has its own output class.

The Agency has determined the cost of the Public Defence Service using the cost allocation system outlined below.

Direct costs of Public Defence Service are directly allocated. Indirect costs are those costs that cannot be identified in an economically feasible manner to the Public Defence Service. Depreciation is allocated on the basis of asset use. Property and other premises related costs are allocated on the relative floor area occupied by the Public Defence Service. Other indirect costs are charged based on the proportion of full time equivalent employees.

Comparatives

When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

Changes in accounting policy

There have been no material changes in accounting policies since the date of the last audited financial statements for the year ended 30 June 2010.

Early adopted amendments

The Agency has adopted the following revisions to accounting standards during the financial year, which have had only a presentational or disclosure effect:

• NZ IFRS 7 Financial Instruments: Disclosures – The effect of early adopting these amendments is the following information is no longer disclosed:

o the carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated

o the maximum exposure to credit risk by class of financial instrument if the maximum credit risk exposure is best represented by their carrying amount.

• NZ IAS 24 Related Party Disclosures (Revised 2009) – The effect of early adopting the revised NZ IAS 24 is:

o more information is required to be disclosed about transactions between the Agency and entities controlled, jointly controlled, or significantly influenced by the Crown

o commitments with related parties require disclosure


o information is required to be disclosed about any related party transactions with Ministers of the Crown.

Standards, amendments, and interpretations issued but not yet effective that have not been early adopted, and which are relevant to the Agency, are:

• NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following three main phases: Phase 1 – Classification and Measurement, Phase 2 – Impairment Methodology, and Phase 3 – Hedge Accounting. Phase 1 on the classification and measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 30 June 2014. The Agency has not yet assessed the effect of the new standard and will not be early adopting due to the integration of the Agency into the Ministry of Justice.


NOTES TO FINANCIAL STATEMENTS For the year ended 30 June 2011

NOTE 1: INTEREST INCOME

2011 $000

2010 $000

Administration 167 313

Legal aid 379 342

Public Defence Service 196 83

Community law centres 60 69

Research and education 330 322

Total interest income 1,132 1,129

NOTE 2: OTHER INCOME

2011 $000

2010 $000

Disposal of property, plant and equipment 20 4

Other income 703 -


Total other income 725 6

NOTE 3A: ADMINISTRATION

2011 $000

2010 $000

Depreciation and amortisation expense 1,510 1,000

Impairment of intangible assets 2,500 -

Loss on disposal 121 -

Audit fees for financial statement audit 146 137

Additional audit fee related to previous financial year 25 9

Salaries and wages 12,303 11,857

Other personnel 1,825 348

Travel and accommodation 457 264

Board/LARP/PAC fees 455 477

Information services costs 1,813 1,242

Professional services 1,433 1,048

Rental and photocopy leases 1,242 1,100

Legal Services Management System 415 667

Other expenses 984 1,195

Transition Projects 907 -

Legal Aid Review Programme 3,277 -

Earthquake recovery 156 -

29,569 19,344


NOTE 3B: PUBLIC DEFENCE SERVICE

2011 $000

2010 $000

Depreciation and amortisation expense 162 91

Loss on disposal 15 -

Salaries and wages 5,124 2,604

Other personnel 78 67

Travel and accommodation 109 44

Information services costs 149 61

Professional services 36 3

Rental and photocopy leases 583 286

Other expenses 632 359

Other operating expenditure 945 767

Public Defence Service Expansion Project 522 626

8,355 4,908

NOTE 4: LEGAL AID PRIVATE PROVIDERS

2011 $000

2010 $000

Legal Aid – Criminal 72,958 78,437

Legal Aid – Family 53,141 54,719

Legal Aid – Civil 6,995 7,664

Legal Aid – Waitangi 16,350 16,410

Duty Solicitor and Police Detention Legal Assistance 10,944 11,260

160,388 168,490

Less: contributions and repayments due from legally aided persons (33,290) (31,090)

Movement in Crown payables/receivables (4,010) 6,623

Receivables written-off 1,008 2,639

Net impairment and fair value write-down movements of receivables 20,222 9,242

144,318 155,904


NOTE 5: COMMUNITY LAW CENTRES

2011 $000

2010 $000

Auckland Disability Law Service 224 223

Baywide Community Law Service 440 421

Community Law Canterbury 1,164 1,065

Community Legal Advice Whanganui 384 384

Dunedin Community Law Centre 464 464

Grey Lynn Neighbourhood Law Centre 603 585

Hamilton District Community Law Centre Trust 462 424

Hawkes Bay Community Law Centre 360 332

Hutt Valley Community Law Centre 371 405

Manawatu Community Law Centre 372 359

Mangere Community Law Centre 450 451

Marlborough Community Law Centre 305 305

Nelson Bays Community Law Centre 365 362

Nga Ture Kaitiaki ki Waikato Community Law Centre 381 384

Ngai Tahu Maori Law Centre 265 248

One Double Five Whare Roopu Community House 318 321

Otara Community Law Centre 380 283

Rotorua District Community Law Centre 305 305

Southland Community Law Centre 365 365

Tairawhiti Community Law Centre 343 312

Taranaki Community Law Centre 378 378

Wairarapa Community Law Centre 205 205

Waitakere Community Law Centre 533 511

Wellington Community Law Centre 505 445

Whitireia Community Law Centre 358 380

Youth Law Tino Rangatiratanga Taitamariki 538 515

Community Law Centres o Aotearoa 594 -

Community Law Centres Other Operating 65 14

Community Law Centres Reporting Project 22 39

11,519 10,485


NOTE 6: PUBLIC EQUITY

2011 $000

2010 $000

General funds

Opening balances

Administration 11,044 10,828

Legal aid 238 4,066

Public Defence Service 5,328 1,813

Community law centres 2,817 659

Research and education 8,241 9,228

27,668 26,594

Net surplus/(deficit) for the year

Administration (9,576) 104

Legal aid (2,525) (3,828)


Community law centres (3,256) 1,122


(13,390) 22

Capital contribution from the Crown

Administration 60 112

Public Defence Service - 940

60 1,052

Transfers

Research and education (1,350) (1,036)

Community law centres 1,350 1,036

- -

Closing balances

Administration 1,528 11,044

Legal aid (2,287) 238


Community law centres 911 2,817

Research and education 7,127 8,241

14,338 27,668


NOTE 7: CASH AND CASH EQUIVALENTS

2011 $000

2010 $000

Cash on hand and at bank 10,217 9,180

Cash equivalents – term deposits

Administration - 2,012

Legal aid - -

Community law centres - 2,000

Research and education - 4,714

Public Defence Service - 1,958

- 10,684

Total cash and cash equivalents 10,217 19,864

Weighted average effective interest rates

Cash equivalents – term deposits 0.00% 4.10%

The carrying value of deposits with maturity dates of three months or less approximates their fair value.


NOTE 8: LEGAL AID DEBTORS

2011 $000

2010 $000

Nominal value 111,526 93,420

Adjusted due to initial fair value recognition and impairment 69,960 54,237

Total carrying value 41,566 39,183

Movement in fair value

Opening balance 39,183 27,647

Amount advanced in current year 30,369 31,906

Fair value write-down on new advances (17,136) (12,069)

Repayments made in current year (9,604) (7,401)

Interest unwind 4,996 -

Impairment (charge)/reversal (5,127) 1,739

Write-off (1,115) (2,639)

Net decrease in other movements (6,242) (900)

Carrying value legal aid debtors 41,566 39,183

Current and non-current apportionment

Legal aid debtors – current 8,615 7,788

Legal aid debtors – non-current 32,951 31,395

Total legal aid debtors 41,566 39,183

Movements in impairment

Opening balance (19,756) (9,494)

Impairment losses recognised 14,629 (10,262)

Closing balance (5,127) (19,756)

Current and non-current apportionment

Current (281) (158)

Non-current (4,846) (19,598)

Total impairment (5,127) (19,756)

2010/11 Gross debt

$000 Impairment

$000

Fair value write-down

$000 Interest unwind6

$000 Net

$000

Secured 46,932 (2,712) (25,022) 2,317 21,515

Unsecured 64,594 (2,415) (44,807) 2,679 20,051

Total 111,526 (5,127) (69,829) 4,996 41,566

6 The Agency’s debt model was redesigned during the financial year to provide further information on interest unwind and the ageing profile of the debt. Consequently, comparative figures for 2010 are not available.


2009/10 Gross debt

$000 Impairment

$000

Fair value write-down

$000 Interest unwind7

$000 Net

$000

Secured 39,062 (7,457) (12,873) - 18,732

Unsecured 54,358 (12,299) (21,608) - 20,451

Total 93,420 (19,756) (34,481) - 39,183

Ageing profile of legally aided debtors 2011 $000

2010 $000

Not due 83,140 -

Past due

Less than six months 4,052 -

Six to 12 months 2,031 -

One to two years 5,341 -

Greater than two years 16,962 -

Total past due 28,386 -

Total debtors - gross 111,526 -

% past due 25% -

Discount rate

Risk-free rate 5.08% 4.23%

Risk premium 2.75% 5.04%

Effective interest rate – secured7 9.76% -

Effective interest rate – unsecured7 11.37% -

Impact on surplus if 0.1% per quarter increase in secured repayment assumptions7 600 -

Impact on surplus if 0.1% per quarter decrease in secured repayment assumptions7 (800) -

Impact on surplus if 0.1% per quarter increase in unsecured repayment assumptions7 1,200 -

Impact on surplus if 0.1% per quarter decrease in unsecured repayment assumptions7 (1,600) -

Impact on surplus if 0.1% increase in discount rate in last four quarters7 34 -

The sensitivity analysis shows the impact on net surplus if repayment assumptions or discount rates move by 0.1%.

Legal aid receivables represent the debts that have been set as a result of a grant of legal aid. These debts have been set by legal aid legislation and comprise:

• 2000 and 2006 Act debt

• 1991 Act debt

• 1969 Act debt.

An actuarial model is used to value debt. The model takes the gross debt for secured and unsecured debt and impairs the debt based on the repayment history for that type of debt.

7 The Agency’s debt model was redesigned during the financial year to provide further information on interest unwind and the ageing profile of the debt. Consequently, comparative figures for 2010 are not available.


This debt has been impaired inside of the actuarial model based on an assessment of the recoverable amount. This assessment takes into account whether the debt is secured against property and receipts to date against the debt.

NOTE 9: PROPERTY, PLANT AND EQUIPMENT

Leasehold improvements

$000

Furniture and fittings

$000

Office equipment

$000

Computer hardware

$000

Motor vehicles

$000

Work in progress

$000 Total $000

Cost

Balance at 1 July 2009 760 1,303 228 2,084 55 - 4,430

Additions 122 336 35 140 - 88 721

Disposals - (12) (75) (270) (29) (88) (474)

Balance at 30 June 2010 882 1,627 188 1,954 26 - 4,677

Balance at 1 July 2010 882 1,627 188 1,954 26 - 4,677

Additions 3 342 41 195 86 454 1,121

Disposals - (142) (104) (984) - - (1,230)

Balance as at 30 June 2011 885 1,827 125 1,165 112 454 4,568

Accumulated depreciation and impairment losses

Balance at 1 July 2009 (409) (891) (201) (1,990) (55) - (3,546)

Depreciation expense (151) (209) (13) (233) - - (606)

Eliminate on disposal - 7 75 269 29 - 380

Balance at 30 June 2010 (560) (1,093) (139) (1,954) (26) - (3,772)

Balance at 1 July 2010 (560) (1,093) (139) (1,954) (26) - (3,772)

Depreciation expense (16) (394) (20) 132 (15) - (313)

Eliminate on disposal - 136 100 914 - - 1,150

Balance as at 30 June 2011 (576) (1,351) (59) (908) (41) - (2,935)

Carrying amounts

At July 2009 351 412 27 94 - - 884

At 30 June and 1 July 2010 322 534 49 - - - 905

At 30 June 2011 309 476 66 257 71 454 1,633

The Agency does not have any impairment losses on property, plant and equipment.

There are no restrictions over the title of the Agency’s property, plant and equipment, nor are any property, plant and equipment pledged as security for liabilities.


NOTE 10: INTANGIBLE ASSETS

Acquired software

$000

Internally generated

software $000

Work in progress

$000 Total $000

Cost

Balance at 1 July 2009 3,775 - 1,992 5,767

Additions - - 1,954 1,954

Disposals (88) - - (88)

Balance at 30 June 2010 3,687 - 3,946 7,633

Cost

Balance at 1 July 2010 3,687 - 3,946 7,633

Additions 128 5,273 1,728 7,129

Disposals (2,263) - (5,123) (7,386)

Impairment - (2,500) - (2,500)

Balance at 30 June 2011 1,552 2,773 551 4,876

Accumulated amortisation and impairment losses

Balance at 1 July 2009 (2,831) - - (2,831)

Amortisation expense (484) - - (484)

Eliminate on disposal 84 - - 84

Balance at 30 June 2010 (3,231) - - (3,231)

Accumulated amortisation and impairment losses

Balance at 1 July 2010 (3,231) - - (3,231)

Amortisation expense (399) (960) - (1,359)

Eliminate on disposal 2,206 - - 2,206

Balance at 30 June 2011 (1,424) (960) - (2,384)

Carrying amounts

At 1 July 2009 944 - 1,992 2,936

At 30 June and 1 July 2010 456 - 3,946 4,402

At 30 June 2011 128 1,813 551 2,492

The Agency has developed a new system, Legal Services Management System that went live on 27 September 2010, to replace the Legal Aid Office system. The Agency has planned releases in 2011/12 financial year with the first expected to go live on 1 July 2011.

There are no restrictions over the title of the Agency’s intangible assets, nor are any intangible assets pledged as security for liabilities.

An impairment of $2,500,000 (2010: Nil) was recognised for the Legal Services Management System. The impairment is due to the decrease in expected service performance and useful life as a result of policy changes that require changes to the rules and processes in the system.


NOTE 11: CREDITORS AND OTHER PAYABLES

2011 $000

2010 $000

Current

Other creditors and accruals 1,810 1,827

Legal aid – accounts payable (10) 7,113

Crown payable 41,566 7,788

Receipts in advance by legally aided persons 1,428 1,061

Legal aid expenditure accrual 49,799 43,877

Current payables 94,593 61,666

Non-current

Crown payable - 31,395

Non-current payables - 31,395

Creditors and other payables are non-interest bearing, therefore the carrying value of other creditors and accruals approximated their fair value.

NOTE 12: PROVISIONS

Lease make-good

$000

Restructure/ disestablishment

$000

Earthquake related costs

$000 Total $000

Balance at 1 July 2009 46 - - 46

Additional provision made - - - -

Amount used (8) - - (8)

Unused amount reversed - - - -

Discount unwind - - - -

Balance at 30 June 2010 38 - - 38

Balance at 1 July 2010 38 - - 38

Additional provision made - 348 89 437

Amount used - - - -

Unused amount reversed - - - -

Discount unwind - - - -

Balance as at 30 June 2011 38 348 89 475

Lease make-good provision

In respect of a number of its leased premises, the Legal Services Agency is required at the expiry of the lease term to make good any damage caused to the premises and to remove any fixtures or fittings installed by the Legal Services Agency. In many cases, the Legal Services Agency has the option to renew these leases, which affects the timing of expected cash outflows to make-good the premises.

Restructuring and disestablishment provision

Due to the merger with the Ministry of Justice, the restructuring will commence from July 2011. The restructuring plan and associated payments are expected to be completed by October 2011. The provision represents the estimated costs for redundancy payments and transition employee payments arising from the restructure.


Earthquake related cost provision

During the year, Christchurch had a number of earthquakes that caused damage to the Legal Services Agency’s Christchurch office. This provision represents the estimated costs relating to the earthquakes.

NOTE 13: EMPLOYEE ENTITLEMENTS

2011 $000

2010 $000

Accrued salaries and wages - 36

Performance pay accrual - 5

Annual leave 1,007 760

Sick leave 46 46

1,053 847

There are no accruals for the salaries and wages this financial year. As a result of the planned merger, the Agency paid out all staff a final pay on 30 June 2011.

NOTE 14: RECONCILIATION OF THE NET SURPLUS FROM OPERATIONS WITH THE NET CASH FLOWS FROM OPERATING ACTIVITIES

2011 $000

2010 $000

Net surplus/(deficit) from operations (13,390) 22

Add non-cash items and non-operating items:

Gain on sale of assets (20) -

Loss on sale of assets 136 -

Impairment of intangible assets 2,500 -

Depreciation and amortisation 1,672 1,090

(9,102) 1,112

Add/(less) movements in working capital items:

(Increase)/decrease in receivables 3,088 (15,373)

(Decrease)/increase in payables (626) 14,618

Increase/(decrease) in employee entitlements 206 (267)

Increase/(decrease) in provisions 437 8

Net working capital movements 3,105 (1,014)

Net cash flow from operating activities (5,997) 98


NOTE 15: RELATED PARTY INFORMATION AND KEY MANAGEMENT PERSONNEL

The Agency is a wholly owned entity of the Crown. The Government significantly influences the role of the Agency, as well as being its major source of revenue.

Significant transactions with government related entities. The Agency has received funding from the Crown of $174.511 million (2010: $185.732 million) to provide services to the public for the year ended 30 June 2011.

The Agency entered into a number of transactions with government departments and state-owned enterprises on an arm’s length basis, and where those parties only acted in the course of normal dealings with the Legal Services Agency.

In conducting its activities, the Agency is required to pay various taxes and levies (such as GST, FBT, PAYE, and ACC levies) to the Crown and entities related to the Crown. The payment of those taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. The Agency is exempt from paying income tax.

The Agency also purchases goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown.

Purchases from these government-related entities on cash-basis for the year ended 30 June 2011 (in $000s):

Crown organisation Income Expenditure Debtor/

accruals Creditor/ accruals Nature

Accident Compensation Corporation

- 78 - 78 Employer levies

Air New Zealand - 387 - 46 Travel

Audit New Zealand - 171 - 10 External audit

Genesis Energy - 55 - - Electricity

Meridian Energy - 6 - - Electricity

Ministry of Justice

186,749

859

41,566

51,217

Appropriation/ secondment/ occupancy

Ministry of Social Development

- 193 - - Secondment

New Zealand Post Limited - 14 - - Postage

State Services Commission 165 - - 74 Superannuation


Purchases from these government-related entities on cash-basis for the year ended 30 June 2010 (in $000s):

Crown organisation Income Expenditure Debtor/

accruals Creditor/ accruals Nature

Accident Compensation Corporation

- 50 - 50 Employer levies

Air New Zealand - 253 - - Travel

Audit New Zealand - 146 - 99 External audit

Genesis Energy - 71 - - Electricity

Meridian Energy - 7 - - Electricity

Ministry of Justice 186,815 137 56,570 39,183 Appropriation/ secondment

Ministry of Social Development

- - - 26 Secondment

New Zealand Post Limited - 82 - - Postage

State Services Commission 153 - - - Superannuation

Key management personnel

During the year, the Agency purchased the following services from the following organisations in which Board members have an interest:

Services Organisation Related party Nature of transaction

Outstanding amount at

balance date $

2011 $

2010 $

Legal services Alister James Barrister

Alister James, Board member

Firm provided legal aid

- - 37,308

Electricity supply

Mercury Energy

Carole Durbin, Chair of the Board

Mercury Energy

- - 4,299

ACC levy Accident Compensation Corporation

Jane Huria, Board Member

ACC Levy - 78,292 -

The former Chief Executive was a member of the Ministry of Justice Audit and Risk Committee. The Ministry of Justice provides funding to the Agency. The General Manager has been seconded from the Ministry of Justice.

Key management personnel, includes the Board, General Manager, and the five members of the Management Team. The Legal Services Agency does not employ any close family members of key management personnel.

No provision has been required, or any expense recognised for impairment of receivables from related parties.

2011 $000

2010 $000

Salaries and other short-term employee benefits 1,120 1,272

Termination payments - 286

Other long-term benefits - -

Total key management personnel compensation 1,120 1,558


NOTE 16A: BOARD REMUNERATION

2011 $000

2010 $000

Carole Durbin (Chair to November 2009) - 13,333

Sir John Hansen (Chair from December 2009) 87,750 78,000

Alister James (to November 2009) - 6,667

Pare Keiha (to November 2009) - 6,667

Jane Taylor (to November 2009) - 6,667

Ross Tanner (from September 2009) 16,000 12,485

Jane Huria (from September 2009) 16,000 12,485

John Spencer (from December 2009) 12,800 7,600

Total 132,550 143,904

Sir John Hansen’s role was in part Executive Chair, which required additional time to meet with the legal profession, judiciary and community law centres.

No Board member received compensation or other benefits in relation to disestablishment (2010: Nil).

The Legal Services Agency has provided a deed of indemnity to Board members for activities undertaken in the performance of the Legal Services Agency’s functions.

NOTE 16B: EMPLOYEES’ REMUNERATION

Number of employees

Remuneration band ($) 2011 2010

100,000 to 109,999 7 5

110,000 to 119,999 3 4

120,000 to 129,999 4 4

130,000 to 139,999 4 1

140,000 to 149,999 - 1

150,000 to 159,999 3 3

160,000 to 169,999 2 2

170,000 to 179,999 - -

180,000 to 189,999 - -

190,000 to 199,999 - -

200,000 to 209,999 - 2

210,000 to 219,999 2 1

25 23

During the year ended 30 June 2011, five employees (2010: nine) received compensation and other benefits in relation to cessation totalling $41,000 (2010: $314,338).

The General Manager’s remuneration and benefits were within the $210,000 to $219,999 band (2010: Nil). In 2010, the General Manager joined the Agency part way through the financial year.

The Chief Executive’s remuneration and benefits was Nil (2010: $200,000 to $209,999).

The Chief Executive left the Agency in December 2009. A General Manager on secondment from the Ministry of Justice was appointed at that time.


NOTE 17: COMMITTEE MEMBERS’ FEES

Committee and Panel members earned the following fees (gross of any withholding tax payable) during the year:

Legal Aid Review Panel 2011 $000

2010 $000

Julian Maze (Convenor to December 2009) - 36,083

Andrew Beck (Convenor from January 2010) 103,120 39,140

Bill Calver 6,006 5,180

Brian Brooks 3,696 -

John Consedine 1,806 -

Deborah Hart 4,144 -

Jeremy Johnson 1,407 -

David Laurenson 4,305 -

Kathryn Snook 1,022 -

Nandor Tanczos 2,996 -

Nicky Darlow 5,257 3,577

Anne Gambrill - 224

Lee Lee Heah 1,435 3,315

Sue Lane - 4,732

Leigh Langridge 9,814 7,077

Geoffrey Melvin - 11,596

Patrick Molloy - 3,542

David More 10,388 15,890

Andrew Ogilvie 7,637 10,976

DJ O’Rourke 26,173 19,565

Dawn Patchett 5,320 6,552

Joan Rotherham - 7,518

John Smith 3,059 3,108

Tania Tetitaha 2,499 8,249

Cordelia Thomas 21,616 11,130

Elizabeth Toomey 6,503 5,754

Clive Trotman 4,557 6,573

Wendy Aldred 378 2,030

Douglas Ewen 7,224 6,720

Anthony Finnigan 5,061 5,726

Iain Fraser 7,609 9,303

Chris Gallavin - 12,887

Dean Knight 2,240 6,321

Miriam Long 9,310 4,816

Susan Lyall - 1,561

Ken Mackinnon - 1,162


Legal Aid Review Panel 2011 $000

2010 $000

Janet Macpherson 16,730 13,020

Laurence Withy 10,598 15,834

Michelle Wilkinson-Smith 3,661 3,115

Linda Kaye 7,854 11,529

303,425 303,805

Public Advisory Committee 2011 $000

2010 $000

Jim Guest (Co-Chair from November 2007) - 2,234

John Hancock (Co-Chair from November 2007) - 2,845

Emily Maea - 3,278

Denise Lormans 2,038 935

Margaret Powell 942 775

Rubina Nawabi - 735

Api Rongo-Raea 1,845 2,270

Colleen Tuuta 1,590 2,897

Dayle Takitimu 799 2,621

Jean Park 2,758 2,730

Ross Brereton 6,938 5,157

Evelyn Weir 2,445 3,037

19,355 29,514

NOTE 18: CATEGORIES OF FINANCIAL ASSETS AND LIABILITIES

2011 $000

2010 $000

Loans and receivables - -

Cash and cash equivalents 10,217 19,864

Debtors and other receivables 93,195 96,443

Total loans and receivables 103,412 116,307

Financial liabilities measured at amortised cost - -

Creditors and other payables 93,165 93,061

Total financial liabilities 93,165 93,061


NOTE 19: EXPLANATION OF MAJOR VARIANCES AGAINST BUDGET

Statement of Comprehensive Income

Revenue

Revenue from the Crown – Legal aid (actual: $141.414 million / original budget: $131.824 million)

Actual legal aid funding is determined by payments made to legal aid providers, offset by payments received from legally aided people. Crown funding to the Agency is net of receipts from legally aided persons received directly by the Agency. In 2010/11, the original budget was increased to $165.954 million in response to demand for legal services and a reforecast of the appropriation requirements. An explanation for this increased demand is outlined below under Expenditure – legal aid private providers.

New Zealand Law Society Conveyancers Special Fund – Community law centres (actual: $4.097 million / budget: $5.400 million)

Revenue from this fund is dependant on the housing market and interest returns on solicitors trust accounts. At the time the budget was set, the volume of house sales and interest rates were expected to be better than they were. Income received from the New Zealand Law Society Conveyancers Special Fund remains at a low level due to the low depressed property market and low interest rates. The Official Cash Rate on average was at 2.5%. During March 2011, the rate has again reduced to 2.5%.

Expenditure

Administration (actual: $29.569 million / budget: $19.401 million)

The administration spend was significantly greater than the budget. The Agency spent $0.426 million over budget on depreciation, due to implementation of Legal Services Management System and the Agency’s decision to reduce the useful life of the system from seven years to four years.

The Agency spent $3.1 million on transition projects that were implemented due to the merge into the Ministry of Justice. A further $3.8 million was spent on the Legal Aid Review Programme. This was to implement policy changes derived from Dame Margaret Bazley’s report.

$2.6 million was for impairment, write-offs and provisions for the Legal Services Management System and other assets that will not be utilised from 1 July 2011.

Legal Aid – private providers (actual: $144.318 million / budget: $155.805 million)

The variance is attributed to a lower accrual amount due to a refinement of the assumptions underlying the application of the legal aid expenditure accrual model and a reduction in the number of legal aid applications approved. The Agency is unable to quantify the value attributed to the refinement of assumptions.

Statement of Financial Position

Assets

Crown funding receivable – current (actual: $51.217 million / budget: $56.139 million)

The Crown funding receivable decreased due to a refinement of the assumptions underlying the application of the legal aid expenditure accrual model. As a result, the legal aid accrual was lower than budgeted.

Debtors and other receivables – non-current (actual: $32.951 million / budget: $20.415 million)

This is higher than expected due to debt being higher, which was driven by the higher number of applicants that meet the criteria for establishing debt.


Intangible assets (actual: $2.493 million / budget: $6.626 million)

The original budget anticipated that the cost of the new Legal Services Management System would be capitalised under intangible assets. An impairment of $2.5 million for the Legal Services Management System was booked. This impairment is based on the current costs of Legal Services Management System work around and a reflection of the costs of change requests required going forward.

Creditor and other payables – current (actual: $94.593 million / budget: $72.090 million)

There are no outstanding accounts payables; the Agency has paid all creditors at 30 June 2011.

The Crown payable reflects the legal aid debtor which is not an asset of the Agency, the asset belongs to the Crown and all repayments will be used to fund future and current legal aid payments. Due to the merger with the Ministry of Justice, all payables are current.

Creditor and other payables – non-current (actual: Nil / budget: $20.415 million)

This reflects the non-current net debt balance which is payable to the Crown upon receipt. Due to the merger with the Ministry of Justice, all payables are current.

Statement of Cash Flows

Legal aid funding from the crown (actual: $153.034 million / budget: $119.481 million)

The original budget for legal aid funding reflected the forecast for legal aid spending. This was later reforecast. The higher level of funding reflected the actual legal aid spend and change in funding arrangements with the Ministry.

New Zealand Law Society Special Fund (actual: $4.119 million / budget: $5.400 million)

The budgeted cash flow reflects the budgeted receipts of $5.400 million. Income received from the New Zealand Law Society Special Fund remains at a low level due to the current property market condition.

Payments for legal aid (actual: $161.220 million / budget: $155.805 million)

The variance of $5.400 million this financial year resulted from paying all providers on 30 June 2011. This resulted in having a nil balance in legal aid accounts payable.

Payments to suppliers (actual: $13.432 million / budget: $8.270 million)

The increase of $5.200 million in supplier payments is due to the transition projects and the Legal Aid Review Programme.

NOTE 20: FINANCIAL INSTRUMENT RISKS

The Agency has policies providing risk management for interest rates, operating and capital expenditure denominated in foreign currency, and concentration of credit. The Agency is risk averse and seeks to minimise its exposure from its treasury activities. Its policies do not allow any transactions that are speculative in nature to be entered into.

Credit risk

Credit risk is the risk that a third party will default on its obligation to the Agency, causing the Agency to incur a loss. Financial instruments, which potentially subject the Agency to risk, consist primarily of cash, short-term investments, legal aid receivables and trade receivables.

The Agency has a minimal credit risk in its holdings of various financial instruments, which include cash and cash equivalents, and short-term investments. However, the Agency bears some risk in relation to non-recovery of legal aid receivables. The majority of the receivables are secured by charges over property, registered under the Land Transfer Act 1952, and recovery occurs when the secured asset is


sold. The Agency discounts the value of the receivables in accordance with the period of time that the recovery is estimated to take.

The Agency places its bank deposit with Westpac Bank to meet the credit rating requirements of section 158 of the Crown Entities Act 2004. The Agency does not require any collateral or security to support financial instruments.

There is no significant concentration of credit risk. The maximum amount of credit risk for each class of financial instrument is the carrying amount in the Statement of Financial Position.

Currency risk

The Agency has no exposure to currency risk.

Interest rate risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. There are no interest rate options or interest rate swap options in place. The Agency’s policy is to hold those financial instruments subject to interest rate fluctuations, such as short-term investments, for a term not exceeding 95 days. The Agency believes that this policy reduces the risk of any loss that could arise from its investment activities.

Cash flow interest rate risk

Cash flow interest rate risk is the risk that the cash flows from a financial instrument will fluctuate because of changes in market interest rates. Term investments and deposits issued at variable interest rates expose the Agency to cash flow interest rate risk.

The Agency’s investment policy requires a spread of investment maturity dates. This limits the Agency’s exposure to short-term interest rate movements as investments mature.

The Agency does not consider that there is any significant interest exposure on the Agency’s investments.

Liquidity risk

Liquidity risk is the risk that the Agency will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Agency aims to maintain flexibility in funding by keeping committed credit lines available.

In meeting its liquidity requirements, the Agency maintains a target level of investments that must mature within specified timeframes.

Fair value hierarchy

The carrying amounts of financial instruments included in the Statement of Financial Position reflect the fair values of the financial instruments at balance date. These have all been determined by using a valuation technique according to the following hierarchy:

• Valuation technique using observable inputs (level 2) – Financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in active markets and financial instruments valued using models where all significant inputs are observable.


NOTE 21: CAPITAL MANAGEMENT

The Legal Services Agency’s capital is its equity, which comprises accumulated funds and revaluation reserves. Equity is represented by net assets.

The Legal Services Agency is subject to the financial management and accountability provisions of the Crown Entities Act 2004, which impose restrictions in relation to borrowings, acquisition of securities, issuing guarantees and indemnities, and the use of derivatives.

The Legal Services Agency manages its equity as a by-product of prudently managing revenues, expenses, assets, liabilities, investments, and general financial dealings to ensure the Legal Services Agency effectively achieves its objectives and purposes.

NOTE 22: POST BALANCE DATE EVENTS

The Legal Services Agency was disestablished as at 30 June 2011 and merged into the Ministry of Justice, effective from 1 July 2011.

There are no other significant post balance day events that have occurred between the balance date and date of signing these financial statements that materially affect the financial statements.

CONTACT DETAILS

On 1 Ju ly 2011 the Legal Serv ices Agency was in tegrated in to the Min is t ry of Just ice.

Contact deta i ls are now:

Min is t ry of Just ice SX10088

Wel l ington New Zealand

Ph: (04) 918 8800 Fax: (04) 918 8820

www. just ice.govt .nz

CLOSURE REPORT - Ministry of Justice · (1)(a) (2)(d). This Closure Report is also the final Annual...

Documents

Transcript of CLOSURE REPORT - Ministry of Justice · (1)(a) (2)(d). This Closure Report is also the final Annual...