building services authority 2001/2002 annual report report 2001 - 2002.pdf · building services...

Building Services Authority 2001/2002 Annual Report

The foundation to build on

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BSA 4484 A/R 2002 Cover SR-FA 28/10/02 11:41 AM Page e


ABOUT BSA

BSA is a statutory authority, and is part of the portfolio of

the Minister for Public Works and Minister for Housing, the

Honourable Robert Schwarten. Established under the

Queensland Building Services Authority Act 1991, to

regulate the building industry. Our Charter is to regulate the

building industry through licensing of contractors, educate

consumers about their rights and obligations, make

contractors aware of their legal rights and responsibilities,

handle disputes fairly and equitably, protect consumers

against loss through statutory insurance, implement and

enforce legislative reforms and where necessary prosecute

persons not complying with the law.

In 2001/02 BSA’s had 208.75 full time equivalent positions.

Our income was $24.969M and our operating expenditure

was $24.241M. We provided our services to customers

across Queensland through our Brisbane head office and

seven regional offices.

BSA PRODUCTS

BSA has developed comprehensive resources to support

the needs of licensees and homeowners. Fact Sheets,

booklets, brochures and building contracts are available

from all BSA offices, Queensland Government Agent

Program and local authorities throughout Queensland.

BSA’s website contains a vast

wealth of information including

links to other Government and

building industry websites.

OUR VISION

To be recognised as a leading service provider which adds value to the building industry and

effectively protects its consumers.

OUR MISSION

Is to improve standards, equity and confidence in the building industry.

OUR VALUES (see page 14)

1. Customers: provide superior customer service

2. People: respond to staff needs and acknowledge their achievements

3. Partnership: working with our customers towards shared outcomes

4. Performance: continually innovate and improve in a cost effective manner

Bundaberg

Weipa

Thursday Island

Cairns Office

Tully

Townsville Office

Bowen

Mackay OfficeProserpine

Gladstone

Maryborough

Sunshine CoastOffice

(Maroochydore)

Toowoomba Office

Gold CoastOffice

BRISBANEHead OfficeCunnamulla

Charleville

Mt Isa Cloncurry

Longreach

Normanton

Clermont

Charters Towers

Rockhampton OfficeEmerald

LOCATIONS OF BSA OFFICES

BSA 4484 A/R 2002 Cover SR-FA 28/10/02 11:40 AM Page b

1

COMMUNICATION OBJECTIVE

Our communication objective is to report performance,

financial management and progress towards achieving our

vision for the building industry, to our stakeholders, the

Minister for Public Works and Minister for Housing,

Parliament, builders, trade contractors and other building

industry stakeholders including consumers, community

organisations and industry associations.

OUR THEME

2001/02 has produced many significant outcomes and

developments for BSA and its stakeholders. The successful

nature of our home warranty

insurance scheme attracted

considerable interest from those

conducting reviews of home warranty

schemes in other States. Our research

of the needs and aspirations of

licensees and homeowners has

produced a blueprint for service

delivery and improved organisational

performance for the future. A

comprehensive review of our licensing

structure has provided the catalyst for change to the

licensing system in Queensland. Our better use of

technology to enhance access to our services was a

feature. Greater internal focus has enabled us to develop

strategies that will equip our people with the skills and

abilities to better serve our customers and meet the

challenges that lie ahead.

We believe that the progress made in the year has given

us The Foundation To Build On.

STAKEHOLDER FEEDBACK ON 2000/2001 ANNUAL REPORT

We actively seek feedback on our annual report from

stakeholders. The 2000/01 report underwent significant

change compared to previous reports. To that end

stakeholders said:

“Clear and easy to read”, “factual”, “reflects the

plan for the future of BSA”, “more people focussed

than the past”, “easy to follow”, “overall very well

balanced”, “compared to others received BSA is

very good”.

Our 2001/02 report reflects stakeholder

suggestions on how our report could be

improved. We have responded to the

suggestions by incorporating our views

on the future of the industry, giving

readers a more comprehensive section

on the licensing function and focussing

on our staff.

Page

--> Highlights 2

The building blocks of our success

--> Financial Performance 3

Current and historic financial results

--> Corporate Performance 4

Our corporate framework and ourachievements in 2002 against KPMs

--> Chairman’s Review 6

The strategic milestones for 2002

--> General Manager’s Review 8

The operational milestones for 2002

--> Value for Money 10

BSA provides value for money – a comparative analysis

--> The Future 11

Building a sustainable industry

--> Critical Areas and Values 14

Linking our reporting structure and our values; enabling us to achieve our mission and vision

--> Corporate Governance 16

Providing leadership, and a framework with integrity

--> Customers 28

Meeting the needs of our customers and building on customer value

--> People 38

Helping our staff to reach their potential

--> Legislation and Policy 42

The foundation of equitable regulation

--> Financial Management 50

BSA’s financial management capability

--> Leadership 54

Influencing a national position

--> Financial Overview 56

Financial review and analysis of our performance

--> Financial Statements 62

--> Index IBC


Contents

BSA 4484 A/R 2002 Text SR-FA2 28/10/02 11:13 AM Page 1

--> The progress made in the year has given us the Foundation to Build on.


Highlights

2

CORPORATE GOVERNANCE

We fully complied with statutory requirements and

developed strategies to monitor and ensure the long term

health of BSA’s financial position. (Refer to page 16.)

CUSTOMERS

BSA established a Customer Continuum to make customer

value an interactive paradigm throughout the organisation

to strengthen its customer focus and ensure its operational

objectives align with customer needs.

Feedback obtained through focus group consultation and

telephone surveys will be used to develop strategies to

better align services to customer needs and expectations.

(Refer to page 28.)

PEOPLE

A significant improvement of 9.5% was achieved in the staff

satisfaction index. Strong emphasis was placed on

development and training of staff.

A Performance Management and Development Scheme

was introduced with a focus on individual development

complemented by coaching and support. (Refer to

page 38.)

LEGISLATION AND POLICY

BSA’s compliance agenda has been re-developed to

ensure activities address all aspects of legislation that is

under BSA’s control. Re-allocation of resources will ensure

delivery across the full range of compliance activities.

Consultation with industry and analysis of all interstate

initiatives resulted in a discussion paper being delivered

to industry proposing reforms to reduce payment issues.

The initiatives in that paper will progress to legislation in

early 2003. (Refer to page 42.)

FINANCIAL MANAGEMENT

BSA’s consolidated position improved, recording a net

asset position of $5.364M as compared to $4.658M in

2000/01. (Refer to page 50.)

LEADERSHIP

Queensland contractors were the only ones in Australia not

affected by the home warranty insurance crisis which

occurred interstate following the collapse of HIH Insurance.

The Licence Class Review has attracted interest from other

States all of whom are seeking to improve their licensing

systems.

BSA took a lead role in contributing to the National Review

of Builders Warranty Insurance and Consumer Protection

and next year will continue to actively participate in

developing an all-state response to the report. (Refer to

page 54.)


2001/02 2000/01($000) ($000) Change %

Financial Performance

3

COMMENTS

BSA operates two funds being the General Fund and the

Insurance Fund that constitute its consolidated position.

The General Fund operations include licensing, dispute

resolution and building information. The Insurance Fund

covers the operations of BSA’s statutory insurance scheme.

Corporate overheads are apportioned to both funds

according to usage.

There was an improvement of $0.706M in BSA’s

consolidated position during the year. This resulted from

a strong performance by the Insurance Fund, a surplus of

$1.489M, reflecting a buoyant Queensland building industry.

The General Fund recorded a deficit from ordinary activities

of $0.761M brought about by increased service demands,

reduced investment returns and additional legislative

responsibilities. The Fund recorded a net deficit of $0.714M

after the transfer from reserves and with a decrease in

reserves of $0.069M, a total change in equity of $0.783M.

The outlook for 2002–03 is positive at the consolidated level

with the same trend for both funds anticipated to continue.

It is forecast that the Insurance Fund will achieve a surplus

of $1.629M while the General Fund will result in a deficit

of $0.457M.

2001/02 2000/01 1999/00 1998/99 1997/98

Organisational Performance

Financial Management

Profit/(loss) from ordinary activities $M 0.728 (6.952) 2.505 (0.273) (1.882)

Net assets $M 5.364 4.658 11.604 9.168 9.441

Current ratio 1.48 1.51 1.61 1.67 1.57


Operating revenue 24 969 23 723 5.25

Operating expenses 24 241 30 675 (20.97)

Profit/(loss) fromordinary activities 728 (6 952) 110.90

Financial Position

Total assets 88 057 80 746 9.05

Total liabilities 82 693 76 088 8.68

Net assets 5 364 4 658 15.16

Cash Flow

Net cash provided byoperating activities 4 947 (5 714) 186.58

Cash at the end ofthe financial year 9 364 5 952 57.33

Ratios

Current ratio 1.48 1.51 (1.99)

Liabilities/assets ratio 0.94 0.94 -

Liabilities/equity ratio 15.42 16.33 (5.57)

Consolidated Outcomes

2001/02 2000/01($000) ($000) Change %


Operating revenue 13 148 16 432* (19.99)

Operating expenses 13 909 16 460 (15.50)

Transfer to General Fund - -

Operating surplus/(deficit) (761) (28) 2 617.86

Financial Position

Total assets 10 070 8 995 11.95


Net assets 1 853 2 636 (29.70)

* Includes transfer for the Insurance Fund of $5M in 2000/01.

General Fund

2001/02 2000/01($000) ($000) Change %


Operating revenue 11 821 12 291 (3.82)

Operating expenses** 10 332 14 215 (27.32)

Transfer to General Fund - 5 000 (100.00)

Operating surplus/(deficit) 1 489 (6 924) 121.50

Financial Position

Total assets 77 987 71 751 8.69


Net assets 3 511 2 022 73.64

** Insurance Fund operating expenses include claims expenses of$4.484M (2001/02) and $8.377M (2000/01).

Insurance Fund



Corporate PerformanceAgainst 2001–2005 Corporate Plan

4

KPM 2001/02StrategiesGoals

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--> Unqualified audit report

--> No major corporate governance issues

--> Full compliance with statutoryrequirements

--> Over 98% of approved claimants fullycompensated

--> Over 70% of disputes satisfactorilyresolved

--> Positive movement in the CustomerContinuum

--> Customer satisfaction survey (70% rate service above average)

--> Workforce Attitude Survey Index of 850

--> Unlicensed contractors ≥4% of alllicensees checked via site inspections

--> Number of disputes received to be ≥10% of construction notificationslodged 2 years pervious

--> Number of directions to rectify ≥20% of disputes received in same year

--> 60% of directions complied withsatisfactorily

--> Legislative amendments implemented

--> Produce an operating surplus

--> Loss ratio for 2000/01 <100%

--> Improvement in the net asset position

--> Workforce Attitude Survey Factor B>80% agreement

--> Sound progression to nationalconsistency on key issues within theindustry and government

--> Develop strategies by which the Boardand Executive management canmonitor the health of the organisation

--> Working with our customers towardsshared outcomes in a climate ofintegrity, mutual respect and support

--> Continue to improve our position,image and presence in the industrythrough community, industry andgovernment infrastructures

--> Create a positive, stable andprofessional team within a supportive,safe and discrimination-freeenvironment

--> Increase the opportunity for staff tolearn and demonstrate acquiredcompetencies

--> Involve customers in consultativeprocesses

--> Promote understanding of legislationand policy

--> Develop a comprehensive industrycompliance strategy to identify anddeal with breaches of the legislationand policy

--> Monitor and review legislative andpolicy requirements

--> Regularly review the actuarialperformance of the Insurance Fundwith flexibility to respond quickly tothe need for adjustment of premiumsand policy coverage

--> Develop and implement a 5 yearfinancial management plan for theGeneral Fund (income andexpenditure)

--> Implement a leadership culture whichdrives the values of the organisation

--> Develop, drive and achievegovernment and industry policyinitiatives

--> Continually improve in line with AQCbusiness excellence framework

--> To maintain and enhance a risk aversecorporate governance model includinga focus on knowledge management

--> To ensure our customers know,understand and support us and knowwhat we have achieved

--> To establish a people-oriented culturewhere staff are recognised and able toachieve organisational and personalgoals

--> To ensure that customers understandand comply with legislative and policyrequirements and have the ability toinfluence change

--> To ensure the long term viability of theStatutory Insurance Fund and theGeneral Fund

--> To foster a culture of adaptiveleadership so that we are highlyregarded, trusted and visible withinthe industry and community

Lead

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CorporateG

overnanceCustom

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PeopleFinancial M

anagement

Leadership

Desired Outcome 2005KPM 2005Achievement 2001/02

--> Unqualified report

--> No major issues

--> Fully complied

--> 98.7% of approved claimants werefully compensated

--> 71% of disputes were satisfactorilyresolved

--> Customer Continuum Benchmarkpositions for commitment andsatisfaction established

--> 95% of customers surveyed ratedservice above average


--> 6% of licensees checked wereunlicensed

--> DNF’s received were 8.5% of CN’slodged 2 years previous

--> DTR’s were 20.8% of DNF’s received

--> 32.2% of DTR’s were complied withsatisfactorily

--> Legislative amendments implementedin accordance with timetable

--> Operating surplus of $728K

--> Loss ratio 99.1%

--> Net assets increased by $690K

--> Net asset position assets/liability ratioreduced by .03 to 1.48

--> Workforce Attitude Survey Factor Bresult 85%

--> Progression toward NationalConsistency



--> Full compliance with statutoryrequirements

--> Ongoing positive movement in theCustomer Continuum

--> Customer satisfaction survey (75% rate service above average)


--> Unlicensed contractors not more than3% of all licensees checked via siteinspections

--> No. of DNF’s received to be not morethan 7% of CN’s lodged 2 yearsprevious

--> No. of DTR’s over DNF’s received insame year not more than 10%

--> 70% of DTR’s complied withsatisfactorily


--> Average loss ratios since 2001 of <80%

--> Net assets of $9M

--> Administration cost per claim finalised<$2500

--> Average cost per Dispute finalised<$600

--> Average cost per Licence transaction<$50 (application or renewal)

--> Cost neutrality for delivery of definedservices implemented

--> Workforce Attitude Survey Factor B>85% agreement

--> National consistency on key issueswithin the industry and government

--> AQC Quality Award

--> Highly accountable and responsiblefor actions

--> Best practices in corporate governance

--> Recognised as a leading CustomerService Provider

--> Recognised as a people-orientedemployer

--> A better informed, educated andcompliant industry

--> Positive loss ratios

--> Ongoing solvency of the General Fund

--> Reduced Insurance Fundadministration costs

--> Reduced cost structures

--> Best practice organisation

BSA aims to be fully accountable to government, the building industry and stakeholders.

This section of our report records our performance against our Corporate Plan 2001–2005 and the current year’s

projected KPMs and performance against these. KPMs for 2002/03 form part of our 2002–2006 Corporate Plan

and are shown at the end of each critical area report (Corporate Governance – page 27; Customers – page 37;

People – page 41; Legislation and Policy – page 49; Financial Management – page 53; Leadership – page 55).



Chairman’s Review

6

A building regulation system needs an integrated approach

that goes beyond consumer protection to include the

development of a better building industry. Over the past

12 months the Board has worked hard with industry

stakeholders to improve the regulatory environment to

enable better industry performance and provide greater

protection to consumers.

A fundamental element of the regulatory framework is an

effective contractor licence system. Over the past two years

industry has expressed the view that licensing should be

more appropriately aligned to the training agenda and built

on the continual development of all participants in the

framework. In July 2001 the Board responded to this

industry perspective and established a working party to

conduct a comprehensive review of the licensing

framework. The Board’s strategic objectives for the review

were:

• To enhance the technical expertise of building industry

participants;

• To improve the performance standards within the

industry;

• To ensure consumers were provided with greater

protection when engaging contractors.

By late 2001 the working party had developed 21

recommendations. All recommendations were endorsed

by the Board, and this new approach will deliver a

licensing framework that provides better outcomes for both

industry and consumers. Licences will now be aligned to

full trade qualifications under the Australian Qualification

Framework; Certificate II or III for trade contractors and

Certificate IV and up for builders. It is expected that this

will reduce the number of licence classes from 104 to 57.

The introduction of a continuous professional development

framework for licensees is also being contemplated.

The Licence Class Review will also result in greater

legislative clarification on the issue of who needs to be

licensed. It is anticipated that changes will come into

effect in early 2003 where subcontractors who contract to

a licensed trade contractor will no longer be required to

hold a licence. Builders and those individuals who contract

to builders and consumers will continue to be required to

hold a licence. The project is due for completion by

December 2002.

As is the case in most industries, there are a few

unscrupulous or reckless individuals whose actions tarnish

the reputations of the majority. The last 12 months has seen

a greater emphasis on building integrity into the regulatory

model through the development and implementation of

a comprehensive compliance strategy centred on

unlicensed contracting, contractors displaying signs of

financial distress, prosecution of contractors for failure to

rectify defective work, and non-payment of insurance

premiums.

Two state-wide unlicensed contractor blitzes were

performed to remove the unscrupulous operators. The

blitz’s entailed more than 6,400 individual compliance

interviews and through this some 250 cases of suspected

unlicensed contracting were detected. The unlicensed

contracting rate for the year was 6%.

Other compliance activities included conducting 537

financial performance audits of which 418 audits were of

contractors exceeding their annual allowable turnover, as

well as investigations initiated by non-payment of BSA

insurance premiums and non-compliance with the

Domestic Building Contracts Act.

Industry monitoring indicated that adjusting to the financial

requirements over the 1999/2000 and 2000/01 financial

years had created a degree of frustration for the industry.

It is pleasing to report that the reaction to these

requirements has settled and they are starting to have the

desired effect of preventing those individuals with

insufficient equity to sustain operational viability from

entering or continuing to work in the industry.

Some contractors continued to express concern about

the cost of obtaining independent certification and the

bureaucratic process for self-certification. In response to

these concerns, Category 1, 2 and 3 contractors, who are

not required to be audited as their turnover is less than

$10M can elect to change their renewal date to allow them

to provide the appropriate financial information based on

their end of financial year position. This will deliver a

significant cost saving for these contractors.

Since October 2000, contractors with an annual turnover

less than $250,000 have been able to self-certify their

financial position upon licence application and renewal.

This process has required contractors to sign a separate

statutory declaration. A significant number of contractors

continued to experience difficulties in completing the

statutory declaration. In early 2002 a statutory declaration

was incorporated into the application and renewal form

to simplify this requirement.

-->


7

Security of payment has long been a prominent concern

for the Board. The significant challenge has been to

identify a tool that industry can use to protect itself from

non-payment and defend itself when head contractors are

placed in bankruptcy or liquidation. While the majority of

building contractors conduct their business in an ethical

and professional manner, the highly competitive nature of

the building industry has attracted a relatively small

percentage of operators who, seemingly, use the current

legal system to defer or slow payments to subcontractors,

largely using the excuse of defective or incomplete work

as grounds for non-payment. The lack of an appropriate

solution to this problem has prompted the Board to

formulate a new direction to resolve the issue.

In early 2001, BSA released a discussion paper on

payment reforms. The paper proposed the adoption of

legislation based on the New South Wales model that also

incorporated the best aspects of the Western Australian

model. The proposal is centred on delivering improved

payment outcomes for everyone in the construction chain

through a system of rapid adjudication and strong

contractor default provisions.

To date, the discussion paper has been positively received

and substantial progress has been made on developing a

policy position for the State Government’s consideration.

If supported the new legislation proposed in the discussion

paper is expected to be implemented in the 2003 financial

year.

Unlike our counterparts in other states, building contractors

and consumers in Queensland have been protected from

problems that plague private interstate home warranty

insurance schemes. The problems interstate surfaced soon

after Christmas when private home warranty insurance

schemes announced premium increases of up to 150%.

Shortly after, a major underwriter withdrew temporarily

from the market. Interstate contractors were unable to start

building projects until insurance was in place. This situation

created an artificial choke on building activity with many

contractors unable to commence work until they could find

an insurer.

Thankfully these pressures have had no affect on the

operations of the Queensland statutory home insurance

warranty scheme operated by BSA. BSA has the most

effective home warranty insurance scheme in Australia. It

offers Queensland consumers:

• No fault subsidence cover;

• No excess payable on claims;

• Superior benefits for claims arising through non-

completion of a contract.

The Scheme has served Queensland since 1977 under the

Builders Registration and Home-Owners’ Protection Act

and since 1992 under the Queensland Building Services

Authority Act. Over the past 12 months some 62,500

policies with a premium value of $27.792M were written.

Queensland’s scheme has performed very effectively with

99% of claimants in 2001/02 having their losses fully

covered. Insurance cover is given instantaneously to

contractors through Insurance Phone Pay, with policies

forwarded to consumers the same day. In recognition of

the outstanding improvements afforded to industry through

the Insurance Phone Pay introduced 1 July 2000, BSA was

awarded the 2001 Premier’s Award for Excellence in

Public Sector Management.

Uncertainty in the southern home warranty insurance

market, led the Federal Government, to announce in

December 2001, the appointment of consultant Professor

Percy Allan to conduct a National Review of Home

Warranty Insurance and Consumer Protection. Professor

Allan announced his preliminary findings in June 2002

citing the majority of the elements that are already part of

Queensland’s system as the model for success.

I thank my fellow Directors for their support and

commitment throughout the year. The Board

acknowledges the commitment of the experienced

Executive team and all BSA’s staff in making another

outstanding contribution this year.

Many challenges lie ahead. I am confident BSA’s capable

staff are competent to meet them and will continue to

improve BSA’s performance for the benefit of industry and

consumers.

G RossowChairman


8

At the beginning of the 2001/02 year, the Board and BSA,in conjunction with industry, developed our strategicdirection for the next four years. The direction beingpursued is to improve standards, equity and confidencein the industry and focuses on achieving the followingoutcomes:

• A licensing system, aligned with full tradequalifications, that builds on continuous improvement;

• A compliance program that builds integrity into theregulatory framework;

• More readily accessible advice and education forconsumers and licensees;

• Access to affordable, equitable and effective disputeresolution;

• Adequate protection to consumers against problemsnot of their own making; and

• Practical and responsible involvement of the industryin monitoring, assessing and improving the industry’sperformance.

Our operational aims for the last 12 months were built onthis strategic direction and were designed to consolidateand add value to the industry and more effectively protectconsumers. We set the following goals for the year:

• Ensuring our customers know, understand and supportus and know what we have achieved;• Continuing to improve our position, image and

presence in the industry through the establishmentof a customer value framework:

• Working with contractors to develop a betterstandard of workmanship and focusing onsolutions relating to major recurring defects in theindustry.

• Ensuring the long-term viability of the StatutoryInsurance Fund and the General Fund:• Creating a five year financial management plan for

the General Fund;• Working with the reinsurers to maintain a viable

Insurance Fund.• Fostering a culture of adaptive leadership so that we

are highly regarded, trusted and visible within theindustry and community:• Assisting the industry on a national front through

substantial input into the National Review of HomeWarranty Insurance and Consumer Protection;

• Working with Building Licensing Australia to ensuregreater consistency in licensing by Australianbuilding regulators.

• Foster relationships where stakeholders have directinvolvement and influence on strategy development:• Developing a new licence class framework;• Creating legislative reforms relating to the

Subcontractors’ Charges Act 1974;• Researching and developing a payment model

which ensures subcontracting participants withinthe industry have an appropriate tool to remedynon payment and slow payment issues within thecontractual chain.

• Establishing a people oriented culture in which staffare recognised and have available the resources toenable them to achieve organisational and personalgoals:• Learning, fostering and motivating staff through the

development and delivery of an integratedapproach to human resource managementconsisting of a performance management anddevelopment scheme, a leadership developmentprogram and a training and career developmentplan.

The targets set for these goals were in the main eitherachieved or exceeded and the results are highlighted inthe operational section.

Over the past 12 months we have begun developingstrategies to enhance our marketplace reputation anddeliver value to stakeholders that goes well beyond thatwhich we currently provide. Central to achieving thesestrategies is the customer value framework.

The customer value framework we have developedenables customers to define value and staff to developsolutions and initiatives to improve our business. Theframework is based on customer research data collectedby BSA staff through focus groups (qualitative) andtelephone surveys (quantitative). The data is plotted ona value continuum and used to create innovative solutions.

In gathering the research data, 33 focus groups wereconducted throughout the State. The focus groups enabledBSA to engage builders, trade contractors and consumersand develop a clear insight on what issues were importantto them particularly in terms of the drivers of customerloyalty and commitment. The research also highlightedimportant opportunities for BSA to review its processes anddevelop new products and services in the future.

To complement the focus group research BSA carried outa state-wide telephone survey of builders, trade contractorsand consumers to test the findings of the focus groups.


General Manager’sReview

-->


9

Stakeholder feedback identified areas where BSA shouldconcentrate its efforts over the next 12–18 months:

• Provision of timely, accurate information, accessible toall stakeholders;

• Responsible customer focus and services;• Balancing the relationship between all stakeholders;• Positioning BSA as leader in the industry;• Early intervention and extended scope for involvement

in disputes; and• Relationship building.

The research has also provided an insight intostakeholder’s views on BSA’s position and reputation inthe industry. On a 7 point scale where 1 representsindifferent, unknown or don’t care about their relationshipwith BSA and 7 represents being in partnership withBSA, BSA recorded a rating of 3.98 and 4.52 respectivelyfor home owners and licensees.

The statutory home warranty insurance scheme continuedto protect consumers and building contractors.Significantly, the scheme was not exposed to the upheavalimpacting in late 2001 on the home warranty insurancemarkets in other States.

The success of the scheme and its ongoing ability toprovide protection can be attributed to BSA ‘s structure forservice delivery:

• Licensing – responsible for technical and financialregulation of contractors;

• Dispute Management – responsible for disputeresolution between contractors and consumers;

• Statutory Insurance Scheme – providinginsurance of ‘first resort’ in the event of non-completion, defective construction and subsidence; and

• Information and advice – providing consumersand contractors with information, data and contractprotection.

This service model is unique in its application and providesa balance between effective regulation of the buildingindustry and unparalleled consumer protection.

The success of this model has enabled BSA to maintainreinsurance with three highly respected reinsurers, GerlingGobal Re, Munich Re and Employers Re, and has ensuredQueensland consumers and contractors have:

• The most comprehensive home warranty insurancecover in Australia;

• Transparent, cost effective premiums; and• Ease of access to the statutory home warranty

insurance scheme for consumers and contractors.

In 2000/01 the statutory home warranty insurance schemefaced financial pressures settling an unprecedented $18.7Min claims. These claims were largely a result of theintroduction of GST which led to a higher number ofcontractor failures and also the need to pay GST onrectification work.

This financial year has been more pleasing with claimapprovals of $15.781M and premium income of $27.792M.

This result contributed to the stronger net asset positionof BSA, with total assets standing at $5.364M comparedwith $4.658M the previous year.

After a disappointing 2000/01 financial year where anoperating deficit of $6.952M was recorded, it is pleasingto report a surplus of $728,000. The principle reasons forthis result were a buoyant industry, low interest rates, thefirst home owners grant and tighter controls onadministrative expenditure.

Total revenue increased by $1.226M to $24.969M, a 5.25%increase from $23.723M in 2000/01. The major influenceon the operating revenue was the buoyant industry leadingto increased premium income. This in turn has led to anincrease in insurance business of around 20%.

Investment earnings reduced the revenue result throughlower than expected investment returns totalling $13,000only. Total expenditure decreased by $6.434M to $24.241M,a 20.17% decrease from $30.675M in 2000/01. In a buoyantindustry environment with resultant increasing demand forservices it is pleasing to be able to contain any rise inexpenditure to a minimum.

There were 50,100 licensees at the end of the year, 17,600builders and 32,500 trade contractors. This year 2.1% oflicensees exited the Queensland Industry compared with3% in 2000/01. The downturn in the exit rate is attributableto staff working cooperatively with licensees.

Demand for advice and services remained steady. Some11,400 counter enquiries were handled, 5.6M visitorsaccessed the website carrying out in excess of 190,000licence searches, 4,831 dispute notifications were receivedand 1,680 insurance claims were made.

In cooperation with industry stakeholders, BSA focusedon problems associated with paint, plasterboard, wetareas, tiling, flashing, footing and foundation movement.Several working parties were formed during the last 12months and have developed initiatives to reduce theincidence of these defects. These working parties havedeveloped a range of strategies including fact sheets andproposed amendments to the Australian Standards toimprove the technical practices of contractors.

Looking towards 2002/03 it is intended to continue todevelop the business within the customer valueframework, implement payment reforms and a newlicensing framework. Importance will also be placed oncracking down on those who are not complying withlegislation, while continuing to build a licensing regimewith integrity, as well as better informing the public andcontractors to ensure a trouble free building environment.Emphasis will also be on preserving the critical role weplay for the industry and consumers through the operationof the statutory home warranty insurance scheme.

Ian JenningsGeneral Manager


--> Annual licence fees for contractors remain competitive compared tothose in other States. This is despite the fact that BSA provides awider range of services.

10

OPERATIONAL COST EFFECTIVENESS

Insurance

Estimated average administrative cost per insurance

claimant assisted was $3,393 in 2001/02. This represents

a decrease compared with 2000/01 when the average

cost was $3,545. The decrease can be attributed to reduced

demand on the scheme which enabled BSA to reduce the

claims backlog.

From 1 July, 2000 BSA introduced a phone based,

paperless payment system for contractors to take out

statutory insurance.

The cost of issuing a policy in 2001/02 was $26.76

compared to $47.30 per policy in 2000/01.

Disputes

The cost of resolving a dispute has risen from $680 per

dispute in 2000/01 to $923 in 2001/02. The increase in cost

reflects the complexity of disputes being lodged and an

adjustment to the costing model to better reflect true

costs. Generally owner’s expectations are increasing and

disputes are taking longer to resolve. In some cases BSA

engages the services of experts to compile reports on

certain elements of buildings.

Licensing

The average cost per licensee of maintaining the licensing

system has risen marginally from $63 in 2000/01 to $63.30

in 2001/02.

LICENCE FEES

Annual licence fees for contractors remain competitive

compared to those in other States. This is despite the fact

that BSA provides a wider range of services. Queensland

is the only State to charge a user-pays licence fee. Licensees

in Qld with greater annual turnovers pay greater licence

fees than licensees with lower turnovers.

HOME WARRANTY INSURANCE

BSA’s statutory home warranty insurance scheme provides

Queensland consumers with the most comprehensive

Home Warranty Insurance product available anywhere in

Australia. The Queensland scheme provides protection

against non-completion of contract works, rectification of

defects and is the only scheme that provides consumers

with protection against subsidence and settlement.

The scheme is now unique as it is the only non-profit,

statutory scheme of its type in Australia, and provides

benefits which are far superior to other interstate private

schemes. Consumers also benefit as the policies do not

require claimants to pay an excess.


Value for Money

Qld NSW Vic

Annual Licence Fee $200 $251 $180**

*SC2 – self certification – builders and trade contractors with annualallowable turnover of $250,000

**Victoria charges a fee per licence held.

Comparison of licence fees in financial category SC2*

State Premium2

Qld $431

NSW $770

Vic $580

Tas $660

SA $195*

WA $315*

ACT $545*

1 source National Review of Home Builders Warranty Insurance andConsumer Protection, June 2002.

2 Average Premiums post February 2002

* These schemes provide a lower level of insurance protection.

Comparison of interstate insurance premiums1



The Future

--> Our strategic outputs will continue to be strongly linked to the Whole-of-Government priorities of Community Engagement and a BetterQuality of Life for Queenslanders ...

11

QUEENSLAND’S GOVERNMENT POLICYPRIORITIES

BSA plays a critical role in the building and construction

industry through regulation that provides remedies for

defective building work, and support, education and

advice for both consumers and contractors.

Our strategic outputs will continue to be strongly linked

to the Whole-of-Government priorities of Community

Engagement and a Better Quality of Life for Queenslanders

by focussing on the following objectives:

• Financially viable and better performing contractors;

• Improved industry work standards;

• Improved consumer awareness of and access to

information and advice;

• Protecting consumers against loss through the statutory

home warranty insurance scheme;

• Equitable and effective dispute resolution; and

• Corporate governance that recognises the need to

observe high standards of corporate conduct and

practice.

The industry is a vital element of the Australian and

Queensland economy and has a significant impact on the

efficiency and productivity of other industries. It is an

enabler of investment activity, both relying on and

generating investment and making one of the most

significant contributions to the national economy in terms

of Gross Domestic Product and employment. In 2001 the

industry produced a turnover of $58.4 billion across

Australia and $11.9 billion in Queensland.

We will closely monitor national reforms and changes in

global fiscal policy to enable us to proactively minimise

potential impacts on the industry and our operations. We

will ensure our outputs continue to be strongly linked to

Whole-of-Government priorities.

FEDERAL AND STATE GOVERNMENTPROPOSALS

The First Home Owners Grant has been a catalyst for the

housing industry and the economy since the introduction

of the GST. The amended grant requirements for new

homes continue to be the stimulus in this sector. BSA

anticipates that the gradual phasing out of the grant will

affect the industry and the activities of BSA.

BSA is currently monitoring the progress of the Federal

Government’s National Review of Home Builders Warranty

Insurance and Consumer Protection. Generally, home

warranty insurance provides protection to consumers

constructing new homes or renovating against their

builder’s failure to finish the work or rectify defects.

The unique feature of Queensland’s home warranty

insurance is that it is administered by BSA, whereas all

other states and territories are privately administered.

The review is expected to provide valuable information

on alternative regimes which will give BSA the opportunity

to compare its home warranty insurance scheme’s

performance with the private sector.

Security of Payment has been a contentious issue within

the industry for several years. BSA intends to develop a

government policy position by late 2002 that will ensure

that anyone who carries out ‘construction work’ or

provides related goods or services is entitled to receive and

is able to recover progress payments.

The State Government is conducting a National

Competition Policy Review of the Queensland Building

Services Authority Act 1991. The outcomes of the review,

may have implications for the future conduct of BSA’s

business.


--> The unique feature of Queensland’s home warranty insurance is thatit is administered by BSA, whereas all other states and territories areprivately administered.

12


The Future (continued) ...

POPULATION AND DEMOGRAPHICTRENDS

Queensland’s population growth rate continues to exceed

that of the rest of Australia, due mainly to high interstate

immigration levels.

It is forecast that Queensland’s net interstate migration will

on average constitute nearly half the total population

growth in Queensland for the next 10–15 years, with an

annual increase of 1.74% over the next 5 years to 2007.

The majority of these migrants are of working age, and

directly strengthen Queensland’s labour force.

Queensland is expected to experience considerable change

in the age structure of its population, in line with national

projections, with the most significant impacts emerging

from the older age groups.

In support of continued positive demographic trends,

BSA will concentrate on ensuring its customers understand

and support BSA’s role.

DEMAND FOR CONSTRUCTION INDUSTRY

The Queensland building and construction industry is

extremely diverse in terms of size of firms, type of activity

undertaken, range of skills and technology employed.

In 2001/02 Queensland rebounded from a lull in dwelling

commencements, benefiting from the First Home Owners

Grant and low interest rates. A further upturn is forecast

over the next 3 years to 2004/05, with commencements

expected to reach in the order of 43,400 annually.

The impacts of this upturn on BSA are likely to be

demonstrated by sustained high levels of premiums paid

as well as a fluctuation in dispute management activity.

CUSTOMERS

BSA’s customers are builders, trade contractors and other

members of the building industry including consumers,

community organisations, industry associations,

government entities and staff.

BSA research indicates that industry participants describe

the environment as complex, intensely competitive,

unpredictable and uncoordinated. Though these are

generalisations they are accompanied by intense feelings

of frustration and anxiety in carrying out day-to-day

activities.

Customer understanding, awareness, satisfaction and

involvement with BSA business is critical. BSA is committed

to working in partnership with customers and better

managing the relationships it has with stakeholders.

Carolyn Laurensen, one ofour team of CustomerServices Officers

<--


--> Customer understanding, awareness, satisfaction and involvementwith BSA business is critical. BSA is committed to working inpartnership with customers and better managing the relationships ithas with stakeholders.

13

INNOVATION AND INDUSTRY TRENDS

Innovation and industry trends in Australia over the next

5–10 years will have a stronger emphasis on developing,

adopting and promoting ‘green’ alternatives for

construction.

Green housing developments are already being

constructed and trialed in Queensland.

The Australian Building Codes Board, is currently

developing a new building code for standardised energy

solutions for housing throughout Australia.

Other initiatives include:

• the development of the National Australian Building

Environmental Rating System, which will rate the total

impact of a building on the natural environment;

• the establishment of a new Co-operative Research

Centre for Construction Innovation, administering

Federal funding and in-kind commitments to the value

of $64M over seven years.

Consumers are major drivers of the green push, demanding

environmental outcomes in residential building and major

subdivisions.

BSA will monitor these developments and implement

strategies to enhance industry understanding in the future.

LEGISLATION

BSA’s focus will be on continuing to manage and review

the effectiveness of the legislation administered, specifically

the Queensland Building Services Authority Act 1991, the

Domestic Building Contracts Act 2000 and the

Subcontractors’ Charges Act 1974.

Positive outcomes on a legislative front will be achieved

through consultation and interaction with industry

stakeholders and professional practitioners who are

affected by the legislation and BSA policy.

A consistent issue confronting BSA has been the lack of

compliance by industry with legislation and policy. BSA

will continue to implement a comprehensive industry

compliance strategy and educational initiatives to ensure

industry participants and consumers understand and meet

their statutory obligations.

Anna Metzdorf and Gina Do discussing acompliance initiative

<--

Jeff Pratt analysesrecurring defects in timber

frame construction

-->



Critical Areas and Values

14

4. Performance

Continually innovate and improve in a costeffective manner.

1. Customers

Provide superior customer service.

2. People

Respond to staff needs and acknowledgetheir achievements.

3. Partnership

Working with our customers towards sharedoutcomes.

BSA, as an organisation, has five operational divisions –

Dispute Management, Licensing, Insurance, Building

Information and Corporate Services. This divisional

structure assists in delivery of specific services; however

it is critical to our success that these areas work

cooperatively to achieve corporate goals. Our corporate

plan is structured to assist in this cooperative approach and

--> our reporting processes have been designed to

demonstrate BSA’s performance as a whole, rather than

in parts. The Critical Areas which form the framework of

our Corporate Plan and against which we report are (as

depicted) closely tied to our Values. These are the

corporate drivers which enable us to measure our progress

towards achieving our Vision and Mission.


15

-1

0

1

2

-1

0

1

2

-1

0

1

2

-1

0

1

2

-1

0

1

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-1

0

1

2

Custom

ers

Leadership

People

Corporate

GovernanceLe

gisl

atio

nan

dPo

licy

Financial Managem

ent

Corporategovernance

issues

Audit

report

Compliancewith statutoryrequirements

Net assets

Proft/(loss)

from ordinary

activitiesCu

rrent ratio

Staff

turn

over

Wo

rkfo

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atti

tud

ein

dexPage 28

Page 54

Page 38

Page16

Page

42

Page 50

% o

f app

roved

claiman

t fully

com

pen

sated

% of disputes

satisfactorily

resolvedCustomer

continuum

Customer

continuum

% of customers

surveyed who

rate service

above average

% ofunlicensedcontractorsdetected

Numberof disputesreceived

Numberof directions

issued

Percentage of

directions

satisfactorily

complied with

Legislative

amendments

implemented

Sound

progre

ssion to

national

consis

tency

on

key is

sues

within

the

industr

y and

governm

ent

Wor

kpla

ceA

ttit

ude

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Performance

-1

REDUCED PERFORMANCE

0

INCREASED PERFORMANCE

1

INCREASED PERFORMANCEMET TARGET

2

INCREASED PERFORMANCEMET/EXCEEDED TARGET


Value

--> Performance:Continually innovateand improve in a costeffective manner

Goals

--> To maintain andenhance a risk aversecorporate governancemodel including afocus on knowledgemanagement

Strategies

--> Develop strategies by which the Board andExecutive management can monitor the health ofthe organisation


Corporate Governance

--> To provide us all with the surety and confidence in ouroperations, we aim to be open, transparent, highlyaccountable and responsible for our actions.

16

Ian Jennings

Comments

<-- BSA continued to movetowards a moreproactive approach indealing with corporategovernance issues.Increased attention wasdirected to riskmanagement with theFinance and AuditCommittee revising itscharter to oversee thisissue.

REDUCEDPERFORMANCE

INCREASEDPERFORMANCE



-1

0

1

2

<-- Corporategovernanceissues

TARGETUnqualifiedAudit Report2002 ACTUAL

Unqualified auditreport rceived

<-- Audit report

<-- Compliancewith statuory

requirements

TARGETFull compliance

2002 ACTUALFully complied

TARGETNo major issues

2002 ACTUALNo major issues

--> Achievement

against KPMs 2001/02



Key Performance Measures 2001/02



--> Full compliance with statutory requirements

Achievements 2001/02

--> Unqualified report

--> No major issues

--> Fully complied

17

CORPORATE GOVERNANCE FRAMEWORK

BSA has researched and is adopting Best Practice

Corporate Governance Standards which build on the

Australian National Audit Office’s five principles of

Leadership, Management environment, Risk management,

Monitoring and Accountability with reference to

information.

BSA’s corporate governance framework aims to deliver a

high standard of corporate practice and conduct to ensure

the organisation is highly accountable and responsible for

its actions, complies with statutory requirements,

incorporates an appropriate level of risk into its operations

and is ethical and transparent in its decision making and

treatment of its stakeholders, customers and staff.

Key elements of the corporate governance framework are:

• Legislation

• Board composition

• Strategic planning

• Business planning and budgeting

• Finance, audit and risk committee

• Policy committee

• Performance management framework assessment

• Evaluation and review

The corporate governance framework is facilitated through

the Board and the General Manager.

LEGISLATION

The Queensland Building Services Authority is a Statutory

Authority established under the Queensland Building

Services Authority Act 1991. The Authority is a body

corporate and consists of;

• the Queensland Building Services Board; and

• the General Manager, and the organisational unit

under the control of the General Manager.

Without limiting the above, the General Manager’s

functions and responsibilities include the following:

• administration of the licensing system;

• administration of a system of inspection;

• issuing directions for rectification of building work;

• taking disciplinary and other proceedings;

• assessing and approving payment of insurance claims;

• issuing warnings to the public or any section of the

public;

• providing and promoting consumer education;

• reporting regularly to the Queensland Building Services

Board on the administration of the Act;

• undertaking strategic planning to ensure that BSA’s

resources enable it to maintain the services it is

required to provide;

• providing an advisory service to consumers in relation

to:

• their statutory rights and obligations;

• their contractual rights and obligations under

building contractors;

• insurance claims that may arise about building

work;

• the Authorities role, functions and operating

procedures; and

• any incidental matters;

• providing courses of instruction for:

• persons seeking to obtain licences;

• licensees;

• persons proposing to carry out building work as

owner-builders;

• other persons seeking to acquire knowledge or

expertise in subjects relating to the building industry.



18


Corporate Governance (continued) ...

THE COMPOSITION OF THE BOARD

The Board is appointed by the Governor-in-Council on the

recommendation of the Minister for Public Works and

Minister for Housing.

The Queensland Building Services Board consists of 8

members – 7 voting members who represent builders and

trade contractors (3) consumers (2) the accounting

profession or the insurance industry (1) the building and

constructions unions (1) and a non-voting member who

is a public service officer. The Chairperson is appointed

from among the 7 voting members rather than in addition

to them.

The current Queensland Building Services Board was

appointed effective from 1 October 1999 for a term not

exceeding three years. For the reporting period until 18

October 2001 one consumer representative position and

the public service office position were vacant. Replacement

representatives were approved by Governor-in-Council

from 18 October 2001 for a term that expires in line with

the other members.

Garry Rossow – Chairman

Garry has over thirty-seven years’ experience in the

building construction, property development and

subcontracting industries in Queensland and the USA. He

is a Director of the Building Unions Superannuation

Scheme Queensland (BUSSQ) and several private

companies as well as serving as a State Councillor of the

Queensland Master Builders’ Association (QMBA). He

has served as Queensland Vice President of the Australian

Institute of Building and is a Past President of the QMBA.

Garry is a Fellow of the Australian Institute of Building,

an Associate of the Australian Institute of Arbitrators and

Mediators and a Justice of the Peace.

Jill Lee – Representative of licensed builders

Jill is General Manager (Queensland) of Westminster

Homes Pty Ltd and has over eleven years’ practical

experience in building, administration and site

coordination. She is the immediate Past President of the

Housing Industry Association in Queensland.

Ray Gilmour – Representative of licensed

contractors other than builders

Ray has over twenty years’ experience in business and the

building industry, particularly in the landscape sector. He

has owned and operated companies both in Australia and

overseas. He is President of the Queensland Association

of Landscape Industries and a member of the National

Subcontractors Association, the Building Industry

Subcontractors Association, the Landscape Association of

Australia and the Queensland Nursery Association. Ray is

also a fellow of the Australian Institute of Management and

a member of the Institute of Company Directors.

Jim Russell – Consumer representative

Jim was a member of the Builders Registration Board of

Queensland in 1991 before joining the Queensland

Building Services Board. He is currently one of two

consumer representatives on the Board. He has extensive

experience in the insurance industry and as a Board

Director. He was State Manager of Mercantile Mutual

from 1978 to 1996 and is a Past Chairman of the then Life

Insurance Federation of Australia Queensland Branch.

Jim is Chairman of the Sisters of Charity and Holy Spirit

Health Service Queensland Limited.

Pauline Pender – Representative of the

accounting profession

Pauline is a Fellow of the Institute of Chartered

Accountants in Australia, with considerable commercial

experience in providing internal financial management

strategies and reporting. She is the General Manager,

Finance and Business Development in the Department of

Primary Industries.

Wally Trohear – Representative of building

and construction unions

Wally has been involved with the building industry for over

thirty years. He is State Secretary of the Construction,

Forestry, Mining and Energy Union – Construction Workers

Divisional Branch and Secretary of the Building Trades

Group of Unions. He is Junior Vice Chair of the Australian

Council of Trade Unions Queensland and Chair of the

Workplace Health and Safety Construction Sector Standing

Committee. Wally is also a Director of BUSSQ and a

Director of Q-Leave.

The Board: (left to right) Pauline Pender, Gary May,Tracey Wilson, Ray Gilmour,Garry Rossow, Jim Russell, Jill Lee and Wally Trohear

<--


--> Board members ... are non-executive and their independent andobjective consideration of issues is invaluable in ensuring BSA’sstrategic direction, and organisational performances are aligned tostatutory, government, industry and community objectives.

19

Tracey Wilson – Consumer representative

Tracey has over 22 years’ regional business experience

throughout NT, NSW and Queensland. She owns and

operates her own consultancy, Working Visions Queensland

based in Gladstone, providing community-based research,

training and human resource management services. Tracey

brings to the Board a broad range of skills and expertise

in these areas. Tracey is Education Representative on the

Gladstone JobSkills Bursary Committee, and a member of

the Australian Human Resource Institute, Recruitment and

Consulting Services Association, Gladstone Working

Women’s Network, and the Institute of Sustainable and

Regional Development Committee.

Gary May – Public Service member (non-voting)

Gary is the Deputy Director-General, Department of

Public Works. He has extensive experience in the design

and construction of major capital works and has developed

innovative approaches to the procurement of these

facilities. As the Deputy Director-General, Gary is

responsible for the management of major government

capital works projects and the development and

implementation of whole-of-government policy

frameworks in the area of procurement and asset

management. He is a member of the Australian

Procurement Construction Council and has been closely

involved with major change processes in government

agencies and the building industry within Australia.

REMUNERATION

The Governor-in-Council determines remuneration of

Board members. Allowances paid to the Board members

totalled $19,870 this year up from $17,750 last year. These

figures exclude travel and associated expenses incurred

in the course of their duties.

LEADERSHIP

The Role of the Board

Board members including the Chairperson are non-

executive and their independent and objective

consideration of issues is invaluable in ensuring BSA’s

strategic direction, and organisational performances are

aligned to statutory, government, industry and community

objectives. The composition of the Board ensures an

appropriate mix of experience and skill in industry,

business and consumer issues.

The Board and General Manager establish BSA’s strategic

direction in consultation with stakeholders. Operational

planning for the achievement of corporate goals consistent

with the strategic direction is undertaken with staff input.

BSA’s performance and achievement of target outcomes

is monitored by its Executive management team and by

the Board at its regular meetings. Two committees have

been established to assist the Board in its role – the

Finance, Audit and Risk Committee and the Policy

Committee.

The Role of the General Manager

The General Manager is responsible for the overall

management of the organisation providing leadership

and ensuring conformity with statutory and accountability

requirements and advising the Minister on key issues and

performance. While the General Manager is independent

of the Board, the position reports regularly to the Board

on administration of legislation and must give effect to the

Board’s policies. In conjunction with the Executive

management team, the General Manager communicates

governance principles throughout BSA ensuring the

effective operation of internal checks and balances.

Full Board FA&R Policy

Number of Meetings 12 6 6

Garry Rossow 12 6

Jill Lee 10

Ray Gilmour 9 4 2

Jim Russell 12 6

Pauline Pender 7 6

Wally Trohear 5 1

Tracey Wilson 5*

Gary May 6*

* Ms Wilson and Mr May were appointed from 18 October 2001 andonly had the opportunity to attend seven Board Meetings.

Meetings attended


Ian Jennings

General ManagerCol Wright

Acting DeputyGeneral Manager

Ian White

ExecutiveManager, DisputeManagement

Jason Smith

ExecutiveManager,Licensing

Mandy

McCosker

Acting ExecutiveManager,Insurance

Brad Perry

Executive ManagerBuildingInformation

Lewis Hayes

ExecutiveManager,Corporate Services

20



EXECUTIVE MANAGEMENT TEAM

Ian Jennings is BSA’s General Manager and has over

9 years’ experience in the building industry. Ian previously

held the positions of Deputy General Manager, Q-Leave

for four years and General Manager, Q-Leave for two years

Col Wright who was originally an insurance industry

professional has had 22 years’ experience with BSA and

its predecessor the Builders’ Registration Board of

Queensland specialising in the administration and

development of BSA’s home warranty insurance scheme.

Col is the Acting Deputy General Manager.

Ian White has over 42 years’ experience in the building

industry as a builder and building surveyor. Ian has held

the position of Executive Manager, Dispute Management

for the past 8 years.

Jason Smith has 6 years’ experience as a solicitor

specialising in Building and Construction Law and

Insolvency Law. Jason was appointed Executive Manager,

Licensing in September 2001.

Mandy McCosker has in excess of 20 years’ experience

in the general insurance industry. Mandy has been Acting

Executive Manager, Insurance since August 2001.

Brad Perry has 26 years’ experience in the public

sector specialising in information and educational resource

development, telephone advisory centres, marketing,

media and community consultation. Brad has held the

position of Executive Manager Building Information for

the past 8 years.

Lewis Hayes has over 13 years’ experience managing

corporate service functions in government organisations.

Lewis has held the position of Executive Manager,

Corporate services since October 2001.

Manager,Compliance

ExecutiveManager,DisputeManagement

ExecutiveManager,Licensing

ExecutiveManager,Insurance

Manager,PolicyandLegislation

ExecutiveManager,BuildingInformation

ExecutiveManager,CorporateServices

Organisational Chart

Manager, LegalServices

Manager, Infor-mation Services

FOI Coordinator

Manager,Finance

Manager,Administration

Education Officer

Media and Comm-unications Officer

Manager, HumanResources

Manager, CustomerService Centre

Dispute ServiceManagers (4)

Manager, Researchand Review

Manager, LicensingDevelopment

Manager, LicensingProduction

New BusinessTeam Leader

Manager, Claims Manager, DebtRecovery

GeneralManager

Minister

Deputy GeneralManager

Queensland Building Services Board

BSA Regional Offices:

CairnsTownsvilleMackayRockhamptonSunshine CoastGold CoastToowoomba


--> In conjunction with the Executive management team, the GeneralManager communicates governance principles throughout BSAensuring the effective operation of internal checks and balances.

21

STRATEGIC, BUSINESS PLANNING ANDBUDGETING

Critical issues identified by stakeholders at the annual

Strategic Planning Conference help to determine BSA’s

direction for the coming year. Taking industry feedback

into account, the Board and Executive management team

review the corporate plan and settle on strategic priorities.

An environmental scan, including forecasts for the building

industry, is also taken into consideration when developing

strategic priorities. Executive managers and staff are

charged with planning how these priorities will be

actioned. The budget and operational plans are developed

based on priorities and agreed targets.

BSA enhanced its business planning and resource

management cycle in 2001/02 by ensuring budget and

operations functions had a shared focus and that there was

a greater emphasis on more regular reporting and review.

Budgets and operational plans are developed by the

Executive management team to create a shared

understanding of BSA’s budget and operational priorities.

Monthly reviews on budgets and quarterly reviews on

operational plans are then undertaken throughout the

year. Budgets and plans are adjusted through these regular

performance reviews.

Energy Management

Following the relocation of several staff from temporary to

permanent accommodation, a review of energy purchasing

was commenced. A review was undertaken with other

tenants in the building occupied at the rear of Edmondstone

Street. A tender was published and a new energy supplier

chosen. This will provide savings of around 34%. The

next step will be a review of energy practices and needs

with the aim of minimising consumption.

Information Technology

BSA’s Information Steering Committee (ISC) was

reconvened to ensure that the significant capital investment

associated with information technology generates a high

return through improved customer services and more

efficient work practices. The ISC comprises the Executive

management team, Manager, Information Services and

an external representative. The ISC’s role is to discuss and

decide on information technology and telecommunications

strategies, plans, priorities and major projects.

Major initiatives in 2001/02 included the continued

development and enhancement of BSA’s main business

application, the Contractor Management System (CMS),

redevelopment of the Intranet, development of

management information systems and the implementation

of a new financial management information system,

Finance 1 with a go-live date of 1 July 2002.

Service Delivery Model

Finance, Audit& RiskCommittee

MinisterGeneralManager

QueenslandBuildingServices Board

Compliance

Licensing

DisputeManagement

Insurance

BuildingInformation

CorporateServices

PolicyCommittee

Core businessprogramsplanning andcoordinatingservices

Builders, tradecontractors,industryassociations,consumers,communityorganisationsandGovernment

Customersrequiringquaility services

GeneralManager/Boardprovidingleadership


--> The code (of conduct) provides an ethical framework for behaviour,actions and decisions and plays an integral role in supporting BSAvalues of respect, trust and accountability.

22



The CMS initiative led to the claims, legal and compliance

systems redevelopment and significant work was also

carried out on a debtors sub ledger interfaced to Finance

1. The introduction of these systems streamlined

information flows across BSA and improved the level of

support provided to business processes.

BSA’s Intranet was upgraded to a more efficient technical

environment to enhance the distribution of information

across the organisation. Features of the new Intranet

include text and keyword search facilities for BSA

documents and improved presentation of data and

information.

Management reporting requirements for the Licensing,

Insurance and Dispute Management Program areas were

developed, based on key performance indicators (KPI’s).

The reports, published on the Intranet, allow progress

against the appropriate KPI’s to be monitored on a daily

basis.

BSA’s financial reporting framework will be aligned in

2002/03 to the business requirements of BSA through a

new financial software package, Finance 1. It is expected

that Finance 1 will enable more efficient reporting and

assist with the effective financial management of the

Authority.

Ongoing initiatives include the establishment of remote

computing capability for BSA building inspectors,

upgrading of all desktops to MS Word Office 2000,

implementation of a consistent anti-virus strategy,

upgrading of security in BSA systems, website and Internet

access.

The small number of staff currently able to access BSA’s

network from remote locations will be considerably

extended during 2002/03.

BSA’s standard operating environment was upgraded

during the year to include the latest version of Microsoft

Office 2000. This supports the management goal of

providing staff with the most effective tools for day-to-day

service delivery.

Code of Conduct

The Code of Conduct applies to all Board members and

BSA employees. The code provides an ethical framework

for behaviour, actions and decisions and plays an integral

role in supporting BSA values of respect, trust and

accountability. It ensures that consistent standards and

approaches are adopted in all our dealings. Code of

Conduct awareness sessions were conducted for all staff.

The sessions covered the current Code of Conduct and the

review and redevelopment of the new Code. Following

endorsement by the Executive management team, similar

sessions on the new Code will be run for staff.

FREEDOM OF INFORMATION

The Freedom of Information Act 1992 provides the public

with an enforceable right of access to documents held by

Queensland Government agencies, including BSA. Certain

documents such as material that is commercially sensitive,

subject to legal privilege or relating to the personal affairs

of parties other than the applicant, may be exempt from

access. If applicants do not agree with a decision to

refuse or limit access, they may request an internal review

by another officer and then ultimately by the Information

Commissioner.

Information Services staffdiscussing Finance 1implementation

<--


--> In September 2001, the State Government approved the introductionof an administrative system for all government departments andagencies relating to the collection, storage use and disclosure ofpersonal information.

23

BSA received 199 Freedom of Information applications of

which 154 (77%) were deemed administrative access i.e.

the applicant had a direct interest in the material subject

to the application. There were 42 (21%) applications that

were deemed non-personal and 3 (2%) deemed personal.

Twenty applications were subsequently withdrawn. BSA

considered 36, 505 documents and full access was granted

to 29, 874 (82%) documents and partial access to 3, 744

(10%) documents. Access was refused to 2,886 (8%)

documents. There were 11 applications for internal review

with the original decision upheld in nine cases. There were

five applications for external review with the Information

Commissioner. Two applications were withdrawn and in

a further two cases, the original decision was varied in part.

One application awaits a decision.

To ensure BSA met its statutory obligations under the

Freedom of Information Act 1992, a separate Freedom of

Information unit was formed. Staff were trained in

amendments to the Act and on other Freedom of

Information matters to maintain a high level of quality

control.

Information Privacy

In September 2001, the State Government approved the

introduction of an administrative system for all government

departments and agencies relating to the collection, storage

use and disclosure of personal information. The

requirements are set out in Information Standard 42.

The Information Standard applies to ‘personal information’

which is defined as:

“information or an opinion, whether true or not,

and whether recorded in a material form or not,

about an individual whose identity is apparent or

can be reasonably ascertained from the

information or opinion.”

BSA collects personal information as part of its role in

licensing contractors, managing disputes, providing home

warranty insurance and corporate services.

BSA implemented Information Standard 42 by:

• Reviewing all types of personal information collected

and stored by BSA;

• Reviewing all current agreements with external parties

and developing a standard clause for insertion in all

future contracts to ensure compliance with Information

Standard 42;

• Preparing a Privacy Plan that sets out BSA’s actions for

complying with Information Standard 42. It also gives

guidance to members of the public to assist them on

how BSA manages personal information and how

they can exercise their privacy rights and to BSA staff

who deal with personal information. The Privacy Plan

is published on BSA’s website;

• Preparing a Privacy and Security Statement that is

published on BSA’s website; and

• Preparing a notice that has been added to its

Application and Dispute Notification forms.

Because the Information Standard is linked to the

requirements of the Freedom of Information Act 1992, it

has been included in the Freedom of Information Unit’s

charter. Staff training will be completed in 2002/03. No

applications were received during the year.

Whistleblowers Protection Act 1994

BSA is a ‘public service entity’ as defined by the

Whistleblowers Protection Act 1994. BSA received no

disclosures during the reporting period under this

legislation.

Dian Davidson overseesthe Phonepay database to

ensure information privacy

-->


--> Through regular review process BSA aims to be proactive rather thanreactive.

24



MONITORING, ACCOUNTABILITY ANDRISK MANAGEMENT

There are 2 committees of the Board that complement the

monitoring process built into normal daily operations.

Through regular review process BSA aims to be proactive

rather than reactive.

Finance, Audit and Risk Committee

The Finance, Audit and Risk Committee oversee the

internal audit function, including strategic and annual

audit plans and also considers BSA’s budgets, financial

statements and financial position assessments.

With regard to risk management it assesses the adequacy

of the risk management framework and risk policies and

ensures issues relating to risks and threats to BSA are

incorporated into audit planning. The role of overseeing

risk management allows for greater co-ordination and

control of risk issues which are often linked to the internal

audit agenda. The Committee consists of three Board

members and is chaired by Ms Pauline Pender with other

members being Messrs Jim Russell and Ray Gilmour.

The main areas of focus for the Committee were

oversighting of the annual audit program, consideration

of management responses to recommendations and

progress in implementing recommendations. This ensured

that the full audit review and action cycle was achieved.

The Committee also focused on reviewing the Authority’s

quarterly financial performance and position, provided

feedback to management and reported to the Board. This

achieved an appropriate level of monitoring of BSA’s

financial position on behalf of the Board.

The Committee was assisted by BSA’s General Manager,

Ian Jennings, Acting Deputy General Manager, Col Wright,

Executive Manager, Corporate Services Lewis Hayes and

Manager, Finance Keith Chester.

Policy Committee

The Policy Committee was established to advise the Board

on matters relating to the need for new policies and the

need to review existing policies governing the

administration of the Queensland Building Services

Authority Act 1991. The Committee also advises on the

need for amendments to the legislation administered by

BSA. The Committee provides a valuable conduit between

BSA and its industry and consumer stakeholders.

The Policy Committee is chaired by Mr Garry Rossow and

includes Messrs Wally Trohear and Ray Gilmour. Non-

Board members of the committee included Messrs Greg

McLean (Executive Director, Queensland Master Builders’

Association), Warwick Temby (Regional Director, Housing

Industry Association, Queensland Division), Doug Foggo

(Building Industry Specialist Contractors Organisation of

Queensland Inc. – as representative of trade contractor

licensees who subcontract to builders and other

contractors), Paul Daly (State Manager, Master Painters

Australia – as representative of trade contractor licensees

who contract directly with consumers) and Ms Cherie

Dalley (President, Queensland Consumers’ Association

Inc.). BSA’s General Manager, Ian Jennings and Clive

Griffin, Acting Manager Policy and Legislation are also

members of the Committee with relevant Executive

managers coopted as required.

The main areas of focus for the Committee during the year

were overseeing the progression of the Licence Class

Review, amendments to the Subcontractors’ Charges Act

1974, consideration of existing security of payment

measures with a view to developing a new payments

model through consultation with the industry, and

monitoring the progress of working parties dedicated to

investigating Top 10 Defects and recommending measures

for improvements in those areas.

Ray Gayton performing areconciliation of BSA’saccounts

<--


--> Internal audit is an independent function responsible for thesystematic review and appraisal of the efficiency, economy andeffectiveness of BSA operations.

25

Internal Audit

Internal audit is an independent function responsible for

the systematic review and appraisal of the efficiency,

economy and effectiveness of BSA operations. It is

instrumental in promoting and improving internal contexts,

accountability and operational efficiency. BSA views

internal audit as a constructive value-adding element in

the administration of the organisation.

BSA’s strategic audit plan which covers a 3 year period and

its annual audit plan are developed according to the

identified risks and issues likely to confront the

organisation. The Executive management team contribute

to the development of the plans which are approved by

the Finance, Audit and Risk Committee.

BSA’s internal audit function is provided by Ernst and

Young. The function is administratively responsible to the

General Manager and reports to the Board through the

Finance, Audit and Risk Committee.

Audits and Investigations

During the year audit reports were received on:

• Freedom of Information processes and controls;

• Processes and controls for the issue of owner builder

permits;

• Processes for calculation of BSA’s FBT liability;

• Administrative practices in place over BSA’s major

committees ie. Board, Finance, Audit and Risk

Committee and Policy Committee;

• Mechanisms by which financial and performance

reports are generated, reviewed and submitted for

the Board;

• Controls in place for Fixed Assets;

• Planning processes and documentation for BSA’s

Business Continuity Plan;

• Debt recovery processes;

• Prosecutions for unlicensed contracting and failure to

rectify through the State Penalties Enforcement Register

Scheme;

• Payroll processes;

• Recovery of claims costs from re-insurers;

• Follow up on previous years audits; and

• Information Technology projects including Claims

System Development, New Financial System,

Compliance / Legal System Development and Records

System Development.

Audit recommendations together with management

responses were reviewed by the Finance, Audit and Risk

Committee. The recurring issue was the need to improve

the documentation of policies and procedures. A number

of other issues and recommendations were also identified

from the internal audit program. The Executive

management team has accepted and agreed to implement

the audit findings.

In addition, to address this issue as raised in particular audit

reviews, all program areas have been required to include

operational policy and procedural issues in their plans for

2002/03.

A bi-annual review is conducted by internal audit to

report to the Finance, Audit & Risk Committee on progress

in implementing audit recommendations.

Priority areas for internal audit in 2002/03 include:

• Information Technology developments including CMS;

• Information Technology security;

• Financial processes including purchasing, accounts

payable, cash management;

• Fixed assets;

• Contract management;

• Human Resource establishment management;

• Licensing renewal; and

• Contractor PIN security and Insurance claims integrity.

BSA will ensure the integrity of the new financial system,

Finance 1, and implementation of associated procedures

including those associated with the administration and

management of assets and information technology

development will be further enhanced.

Building Services Authority 2001/2002 Annual report


--> BSA is now positioned to pro-actively manage debt. Additionalresources will be provided next financial year to allow for better co-ordination of debt recovery.

26



Risk Management

The Finance and Audit Committee’s charter was amended

to reflect greater co-ordination and control of risk issues

which are often linked to the internal audit agenda. The

Committee’s name was changed to the Finance, Audit and

Risk Committee to better reflect its new role. BSA’s risk

profile is reviewed annually in order to determine future

audit programs. The risk review for 2001/02 conducted as

part of the audit programme showed the need to continue

monitoring development of information technology

systems and further assess security. It is also intended to

review new financial procedures developed during the

implementation of the new financial management

information system, Finance 1. Human resource

management processes will also be reviewed together with

the implementation of the Phone Pay facility for licence

renewals.

Freedom of Information was identified as a moderately

high residual risk with regard to non-compliance with

legislation, policies and procedures and inadequate

resources. In response, a separate Freedom of Information

unit was formed, policies and procedures were reviewed

to meet legislative amendments and staff training was

undertaken.

Business continuity and disaster recovery plans were

reviewed and the risks identified in relation to BSA’s

ability to respond. An information technology disaster

recovery site is being established to cope with total

systems failure and services have been identified that are

critical to business recovery in the event of total

disablement of head office.

Policies and procedures for debt management were

reviewed and management and performance reporting

introduced. BSA is now positioned to pro-actively manage

debt. Additional resources will be provided next financial

year to allow for better co-ordination of debt recovery. An

in-house legal officer will be appointed to manage large

recovery issues.

The impact of builder failure and defective work on BSA’s

statutory home warranty insurance scheme is considered

a risk. BSA minimises this risk by reinsuring 75% of the

business.

Alison O’Neil and Alana Ingram reviewingthe Human ResourceStrategic Plan

<--

Gwen Hawkins and Chris Larsen discuss theBusiness Continuity Plan

-->


Planning and Reporting Framework

Corporate Plan Marketing Plan

Operational Plans

Resource AllocationBudget

Monthy Reports Annual Reports

Information,Communicationand TechnologyStrategic Plan

Workforce StrategicPlan

Asset StrategicPlan

EEO ManagementPlan

EnvironmentalScan

What we arefunding next12 monthsand fowardestimates

How we areperformingagainst our plansand targets.

Publiccommunicationof performance

What ourdirections andpriorities arefor the next four(4) years.What are the

critical factorsidentified by ourshareholders?

What issuesshould we beconcernedabout?

Staff Training andDevelopment Plans

--> We intend to build on our corporate governance framework, ensuringaccountability and limited risk exposure to our business. We will workwith the industry in a true partnership to ensure that there are strongstrategic links.

27

INVESTMENTS

The Finance, Audit and Risk Committee assist in

developing investment policies and strategies. It also

monitors the performance of the two fund managers,

Queensland Investment Corporation and Queensland

Treasury Corporation. Funds invested at 30 June 2002 were

$38.579M and returns on investments provided $0.013M

in revenue. The financial year was a difficult one for

investment markets. Equity market returns in particular

were adversely affected by the slowdown in the global

economy, the events of September 11 and the subsequent

continued threat of terrorist activity, falling company

earnings, corporate failure and corporate accounting

scandals (particularly in the United States). Cash

investments performed to market expectations and off-set

the managed fund losses thereby achieving a small positive

return.

The Committee is advised by its actuary and funds

managers in relation to the need to adjust the investment

policy and strategies.

THE FUTURE

We intend to build on our corporate governance

framework, ensuring accountability and limited risk

exposure to our business. We will work with the industry

in a true partnership to ensure that there are strong

strategic links.

KPMs 2002/03


--> Full compliance with statutory requirements



Customers

Brad Perry

Comments

<-- Consumers continue tobe afforded effectiveprotection againstlosses associated withresidential construction.BSA’s customercontinuum project hasidentified areas forimprovement which willform the focus forinitiatives in the nextfinancial year.

28

Values

--> Customers: Providesuperior customerservice

--> Partnership: Workingwith our customerstowards sharedoutcomes

Goals

--> To ensure ourcustomers know,understand andsupport us and knowwhat we haveachieved

Strategies

--> Working with our customers towards sharedoutcomes in a climate of integrity, mutual respectand support

--> Continue to improve our position, image andpresence in the industry through community,industry and government infrastructures

REDUCEDPERFORMANCE




-1

0

1

2

TARGETEstablish baselineposition - customer

commitment2002 ACTUALCommitment

continuum estblished

<-- % of approved

claimant fully

compensated

TARGET>70%

2002ACTUAL

71%

TARGET>70%

2002ACTUAL

95%

<-- % of disputes

satisfactorily

resolved

<-- Customercontinuum

<-- Customercontinuum

<-- % of customers

surveyed who

rate serviceabove average

TARGET>98%

2002ACTUAL98.7%

TARGETEstablish baselineposition - customer

satisfaction2002 ACTUAL

Satisfaction continuumestblished

--> Achievement


--> Community education is an essential ingredient to oursuccess. We will place greater emphasis on strengthening our image and presence in the community.


29

CUSTOMER CONTINUUM

During the year BSA recognised the need to improve the

level of understanding and awareness across Queensland

of BSA’s role and mission and refocus its efforts to deliver

value to customers.

Central to improving customer understanding and support

was the development of a Customer Continuum. The

intention of this project was to make customer value an

interactive paradigm throughout the entire organisation.

BSA used a customer value framework that contained three

elements, being customer research, innovative solution

building and operating excellence. Innovative solutions are

developed, implemented and lead to operating excellence.

Through a series of focus groups and telephone surveys,

customers were given the opportunity to state what they

desired in service delivery while BSA staff were the driving

force behind the solutions and initiatives to improve its

business.

33 focus groups were held throughout Queensland, which

enabled BSA to engage builders, trade contractors and

consumers and work towards a better understanding of

local needs and issues. The data was analysed and

responses to issues and service delivery options developed.

A report back to focus group participants will occur in

September 2002.

To complement the qualitative research, BSA conducted

a state-wide telephone survey of builders, trade contractors

and consumers to test the findings from the focus group

sessions. In excess of 900 telephone surveys were carried

out.

The Customer Continuum project will be ongoing and its

findings will be a key input to BSA’s business planning

cycle and inform key processes such as the Strategic

Planning Conference and Corporate Plan.



--> Over 98% of approved claimants fully compensated

--> Over 70% of disputes satisfactorily resolved

--> Positive movement in the Customer Continuum

--> Customer satisfaction survey (70% rate serviceabove average)


--> 98.7% of approved claimantswere fully compensated

--> 71% of disputes weresatisfactorily resolved

--> Customer ContinuumBenchmark positions forcommitment and satisfactionestablished

--> 95% of customers surveyedrated service above average

7.00

0

1.00

01 Commitment continuum

Partner

Values

2.00

3.00

4.00

5.00

6.00

Verystrong

Relativelystrong

NeitherRelativelyweak

Veryweak

Indifferent/unknown

Licenseesdispute notmentioned

4.01

Licenseesdispute

mentioned4.07

Home ownerdispute notmentioned

3.98

Home ownerdispute

mentioned4.52

7.00

0

1.00

02 Satisfaction continuum

Partner

Values

2.00

3.00

4.00

5.00

6.00

Verystrong

Relativelystrong

NeitherRelativelyweak

Veryweak

Indifferent/unknown

Licenseesdispute

mentioned4.21

Licenseesdispute notmentioned

4.52

Home ownerdispute

mentioned4.93

Home ownerdispute notmentioned

4.60


--> More than 5.6 million visitors accessed BSA’s website during the year,a 22% increase on the previous year. The online licence search facilitywas well patronised with in excess of 191,000 searches undertakencompared to 140,000 in 2000/01.

30


Customers (continued) ...

ADVICE AND INFORMATION

Demand for telephone advice and information decreased

by 17%, from 190,909 calls received in 2000/01 to 156,331.

The decrease was greater in BSA regional offices where

there was a 25% drop in the number of telephone

enquiries.

The decrease was attributed to minimal legislative reform

compared to the previous year when the Domestic

Building Contracts Act 2000, was introduced. There was

a peak in demand for service in August/September 2001,

possibly the result of mailing complications that resulted

in licence renewal notices being sent after the licence

expiry date.

A factor contributing to the decline in calls was

improvements made to the licence renewal form and

renewal process which resulted in a considerable decrease

in the number of renewal inquiries.

Customer Service Centre performance levels were

marginally improved with average telephone wait times

reduced from 80 seconds to 76 seconds.

Over-the-counter enquiries remained consistent with

11,462 customers served at BSA’s Brisbane Customer

Service Centre compared with 11,472 in 2000/01.

Customer service standards were monitored internally

with 93.9% of phone customers and 96.6% of face-to-face

customers rating BSA’s service above average.

More than 5.6 million visitors accessed BSA’s website

during the year, a 22% increase on the previous year. The

online licence search facility was well patronised with in

excess of 191,000 searches undertaken compared to

140,000 in 2000/01. BSA continued to promote its email

subscription news services to builders, trade contractors,

consumers, building certifiers and accountants. The utility

of BSA’s website was tested as part of the customer

continuum project.

Respondents Rating %

--> BSA’s website

‘useful as most’ 27.9

‘more useful than most’ 21.3

‘extremely useful’ 10.6

--> BSA’s email newsletter

‘useful as most’ 26.3

‘more useful than most’ 19.0

‘extremely useful’ 18.1

Customers’ Rating of BSA’s Website and Email Newsletter

BSA’s websitehas provided

5.6 millionvisitors with

easy access toinformation

and services

-->


http://www.bsa.qld.gov.au

--> The media enthusiastically supported both unlicensed contractingblitzes. Most regional daily newspapers and radio stations as well asthe Courier Mail covered the blitzes. Publicity generated prior to thecampaigns helped to substantially lift licence applications state-wide.

31

BUILDING LINKS

Two editions of BSA’s newsletter Building Links were

published (December/June).

The December edition, the largest in the history of the

publication, contained detailed information on the progress

of the 25 recommendations developed at the 2000 Strategic

Planning Conference, the Licence Class Review (including

a tear-out survey form as part of the consultation process)

and proposed amendments to the Subcontractors’ Charges

Act. Two new sections were introduced; Team Talk –

addressing issues and providing advice relating to BSA’s

program areas and Your Say – answering feedback from

licensees.

The June 2002 edition covered the upcoming compliance

strategy, the progress of the Licence Class Review and the

Security of Payment proposals. Another new section,

Apprentice News, was added.

Media releases focused on BSA’s major compliance

activities such as the unlicensed contracting blitzes and the

Security of Payment campaign as well as BSA resources

such as the CD ROM and revamped contracts. BSA issued

various warnings to consumers on unlicensed contractors

and itinerant traders and to contractors on legislative

requirements. The Statutory Home Warranty Insurance

Scheme and Insurance Phone Pay were regularly promoted

to contractors and consumers.

MEDIA

BSA initiated a media campaign to publicise the release

of the Security of Payment discussion paper. The proposals

received substantial media coverage with more than 72

articles appearing in both broadcast and print media

throughout the State during the month-long campaign. The

proposals were also the subject of comprehensive write-

ups in The Courier-Mail’s general news and property

sections as well as various industry publications.

The media enthusiastically supported two unlicensed

contracting blitzes conducted during the year. Most

regional daily newspapers and radio stations as well as The

Courier-Mail covered the blitzes. Publicity generated prior

to the campaigns helped to substantially lift licence

applications statewide. The launch of the CD ROM in

August also received excellent coverage with Brisbane

Extra devoting a whole segment to the product. The

launch also generated articles in Brisbane suburban papers

as well as a number of regional publications.

The new Minor Works Contract also received good

coverage throughout Queensland in January and February.

BSA introduced several publicity and awareness initiatives.

These included the publication of important information

for licence holders forwarded as part of the renewal

process. The introduction of a Member of Parliament

email service enabled parliamentarians to keep abreast of

BSA activities and initiatives.

BSA keeps the industryinformed on current issuesthrough its newsletter,Building Links

<--


Builders make up 37.1% of the licensee database. 21.7% are housebuilders and 15.4% are general builders. BSA believes licenceclasses by profession provides a valuable insight into the size ofthe respective industries in Queensland. The largest tradecontractor profession is carpentry with 14.6% followed byplumbing 7% and painting 5.5%.

32



EDUCATING CONSUMERS

Changes in legislation, together with the need for a better

understanding of the Domestic Building Contracts Act

2000 in particular, also necessitated periodic review and

updating of the complete range of resource material

produced by BSA and the development of new Fact

Sheets on Subsidence and Swimming Pools.

The statewide distribution of information and advice

designed to better inform and protect older home owners

continued to be a major commitment for BSA. This group

remains a prime target for unscrupulous, and frequently

unlicensed, door-to-door contractors. The main activities

focused around the Seniors Week period, and included

advertising and group presentations, participation in

Seniors Week activities around the State, the widespread

distribution of relevant educational material including the

Fact Sheet ‘The Older Persons Guide To The Building

Process’, and assistance to the Home Assist/Secure Unit

of the Department of Housing with the update of their

Home Checklist Book for older home owners undertaking

renovation or maintenance work. As in previous years, the

impact of these BSA initiatives was greatly enhanced by

working in collaboration with ‘partners’ including key

older persons groups such as the National Seniors

Association and the Australian Pensioners and

Superannuants League and the State Government’s Seniors

Card Unit.

There was a need to ensure that prospective owner

builders were adequately informed and equipped for

their project management role. The development of a

revised Owner Builder Course Study Guide was nearing

completion at the end of the financial year. A

comprehensive review of other owner builder

documentation, policy and procedures was carried out.

Changes to legislation and Board policy are expected to

be completed in the coming year.

LICENSEE BASE

The number of licensees increased from 47,718 to 50,190.

The reasons for the increase are:

• From 1 July, 2001 it became compulsory for fire

protection operators in Queensland to hold a BSA

licence. BSA introduced eight new trade contractor

licences for the fire protection industry

• BSA introduced a strategy to reduce the number of

licensees whose licence was about to lapse by

contacting them before cancellation to discuss why

they were leaving the industry. Based on this strategy,

the licensee drop out rate reduced from 9.2% in

2000/01 to 5.7% this financial year.

BSA expects the number of licensed contractors to drop

to 47,500 at 30 June 2003 due to the introduction of new

legislation that will limit the requirement for sub-trade

contractors to hold a BSA licence.

There are 17,667 builders and, 32,523 trade contractors

licensed in Queensland. The number of licensed builders

increased from 17,384 in 2000/01 to 17,667 in 2001/02. The

increase in licensed building contractors is the first since

1998/99 when licensed builder numbers peaked at 18,308.

The number of trade contractors increased from 30,334 in

2000/01 to 32,523 in 2001/02.

03 Licence class by profession

Carpentry14.6%

Builder37.1%

Swimming Pool0.9%

Other 11.2%Plumbing 7%Painting 5.5%Building Restricted 4.6%Concreting 3.6%Plastering 3.4%Bricklaying 3.1%Tiling 2.4%Metal Fabrication 2.3%Fire Protection 2.3%Gas Fitting 2.0%

04 Licensee base by region

Cairns7.3%

Brisbane44.3%

Gold Coast 14.7%Mackay 3.6%Rockhampton 4.0%Sunshine Coast 14.9%Toowoomba 5.8%Townsville 5.4%

-->

74% of licensees are based in South east Queensland with 44.3%based in Brisbane. The number of licensees operating in thecentral coast Regions of Mackay and Rockhampton is expected toincrease over the next financial year based on forecasts ofextensive construction activity in those areas. Distribution oflicensees throughout Queensland remained consistent withprevious years.

-->

Sue Crawford discusses alicence application withJacquii Reeves

<--


60

0

30

45

06 Number of licensed builders and tradecontractors

01/0200/0199/0098/9997/98

15

Builders

Trade contractors

’000

33

LICENCE APPLICATIONS

BSA received 6,709 licence applications (1,202 builder and

5,298 trade contractor the remaining 209 did not proceed

with their application) compared to 6,993 licence

applications in 2000/01. 7,532 licence applications were

finalised compared to 6,087 in 2000/01.

The increase of 1,445 in finalised applications can be

attributed to the separation of the production and

development functions of the Licensing Program and the

introduction of a separate licensing team to handle fire

protection licence applications. Consistently, throughout

the year, BSA finalised more applications per month than

2000/01.

Of the 7,532 licence applications finalised, 6,500 (86.3%)

were approved, 771 (10.2%) were rejected and 261 (3.5%)

withdrawn.

LICENCE CLASSES

BSA has 110 licence classes,104 of which are available to

new applicants. By 30 June 2002, 50,190 licensees held

79,375 active licences with 44% of licensees holding more

than one licence. There are 17,201 active house builder

licences and 12,210 general building licences. At 30 June

2002, there were 49,964 trade contractor licences. Of the

50,190 licensees, 43,212 are individuals and 6,978 are

companies.

FIRE PROTECTION LICENSING

BSA approved 1,810 fire protection licences to 973 entities.

This represented the largest percentage of new applicants

of any licence class. To handle the specialised nature of the

new licence classes, a licensing team was created to process

the applications and handle the large number of enquiries.

A ‘grandfather clause’ allowing fire protection applicants

to become licensed simply by demonstrating between two

and five years relevant experience expired on 30 June

2002. BSA received 490 licence applications in the last

week of June, 280 of these were fire protection

applications.

LICENCE RENEWALS

This year, BSA continued development of its Contractor

Maintenance System (CMS) to improve automation of

licence renewals. Automatic renewals are approved after

the annual licence fee is receipted and the financial

information entered in CMS. For automatic renewal, the

correct fee must have been paid and the renewal form

correctly completed. If either of these are incorrect

licensing staff are required to review the renewal manually

which slows the processing time. The changes have been

successful. In March 2002 automatic renewals increased

from 30% to 62%. By June, automatic renewals were

at 68%.

6,814 licensees were suspended at renewal, 614 for non-

payment of fees, 1,396 for non-provision of financials and

4,804 were suspended for both reasons.

1,982 licensees were cancelled at renewal, 296 for non-

payment of fees, 101 for non-provision of financials and

1,585 were cancelled for both reasons.

800

0

400

600

05 Licensee age vs AATO*

60>51-6041-5031-4021-30

200

Number AATO

20<

16 000

0

8 000

12 000

4 000

Number $’000

The largest demographic is the 41-50 age group in which there are14,110 licensees. BSA has 23 licensees aged 20 years or youngerand 3,090 over the age of 60. The average Allowable AnnualTurnover for licensees 20 years and younger is $105,434.Licensees 60 years and older have an average Allowable AnnualTurnover of $738,479.

Since 1997/98 the number of Licensed Builders and TradeContractors has gradually increased.

-->

-->

Diane Clift and SueCrawford review the new

licence class framework

-->


34



DROP OUT RATES

The Licensee drop out rate measures the number of

licensees that have their licence cancelled throughout

the year. In 2001/02, 2,839 licensees (5.7%) had their

licences cancelled. This is a significant decrease in the drop

out rate compared with 2000/01 when there was a 9.2%

dropout rate.

Cancellations comprised 823 builders (4.7%) and 2,016

trade contractors (6.4%). The drop out rate for 2002/03 is

projected to rise to around 15% due to the impending

introduction of new legislation specifying that sub-trade

contractors do not have to be licensed.

EQUITY IN DECISION-MAKING

In its compliance and licensing decision-making processes,

BSA has continued to reach sound decisions based on the

legislation and information provided. In 2001/02, 80% of

decisions were affirmed by the Queensland Building

Tribunal compared to 74% in 2000/01.

PROTECTING CONSUMERS

Resolving Disputes

4,830 new dispute notifications were received, a decrease

of 801 or 14% on the previous year. BSA was able to

reduce backlog and finalise 4,916 disputes which is 982

or 16% less than the 2000/01 year. The decrease in the

number of disputes finalised was attributed to staff

focussing more on the quality of the outcome and

minimising the need to issue directions to rectify.

Whilst BSA continues to succeed in resolving in excess of

90% of the disputes finalised without recourse to the

Queensland Building Tribunal, a lack of documentation,

particularly regarding variations, continues to impede the

speedy resolution of disputes. It is essential that consumers

and contractors properly record their agreements,

obligations and responsibilities to avoid confusion and the

likelihood of protracted litigation.

07 Regional distribution of dispute notificationsreceived in 2001/02

Brisbane53%

Cairns 3%Townsville 6%Mackay 4%Rockhampton 4%Toowoomba 3%Sunshine Coast 15%Gold Coast 12%

60

0

20

40

08 Dispute notifications received/finalisedcompared with building activity

01/0200/0199/0098/9997/98

Received

Finalised

6

0

2

4

’000

Insurance policiesby construction

year

’000

The percentage breakdown of disputes reported to BSA hasremained constant over the past year with the exception of Cairnswhich has experienced a minimal decrease in dispute notificationsreceived.

Dispute notifications received and finalised compared withbuilding activity has reduced over the past 12 months reflectingthe industry downturn in 2000/01 due to the introduction of GST.Dispute notifications are received with an average lag of between1 and 2 years from when the building work was carried out.

Wendy Moulton and Grant Cotterill review a

building dispute

-->

Leighann Hooperanswering a consumerinquiry

<--

-->

-->

Year %

2001/02 80

2000/01 74

1999/00 73

1998/99 67

1997/98 74

--> Reviews of BSA’s licensing and compliance decisions produced apositive result for BSA of 80%.

% of Tribunal reviews of licensing and compliancedecisions resulting in favourable outcome for BSA


35

Dispute Research and Review:

In co-operation with industry stakeholders, BSA formed

working parties to address the major defect areas of

waterproofing, subsidence, tiling, plasterboard and

paintwork and develop initiatives to reduce their incidence.

Except for the subsidence working party, all working

parties have completed their deliberations and developed

a range of strategies including Fact Sheets to address the

problems. The waterproofing working party has also

submitted a detailed paper to Standards Australia on

recommended improvements to AS340 ‘Waterproofing of

Wet Areas’. Fact Sheets and booklets will be produced on

each of the topics to distribute the findings and promote

best practice in the identified areas. BSA’s website will

contain a defects technical section which is expected to

be online in November 2002.

The subsidence working party is not expected to finalise

its recommendations until December 2002.

Recurrent defects are a major problem within the industry.

Data collected over the past five years has identified that

a number of defect types continue to come to the attention

of BSA. Research indicates that it is most often due to poor

industry practice and lack of supervision.


BSA’s dispute resolution process continued to display

fairness in resolving disputes between consumers and

contractors with 74% of Tribunal reviews affirming BSA’s

decision.

Year %

2001/02 74

2000/01 81

1999/00 85

1998/99 86

1997/98 86

--> Reviews of BSA’s dispute management decisions produced apositive result for BSA of 74%.

% of Tribunal reviews of dispute managementdecisions resulting in favourable outcome for BSA

Defect Number

1. Wall and ceiling internal plasterboard 403

2. Shower recess (waterproofing) 374

3. Footings Slab (foundations) 367

4. Painting – External/internal (application) 305

5. Concrete driveways 269

6. Floor tiling 229

7. Roof flashings 214

8. Termites (chemical barrier) 201

9. Timber windows and doors (installation) 146

10. Aluminium windows and doors (installation) 127

Top 10 defects 2001/02

80

0

40

60

09 % disputes satisfactorily resolved

01/0200/0199/0098/9997/98

20

%

An increase from 64% to 71% was experienced over the past yearand reflects the increased focus on achieving a quality outcome.

60

0

30

45

10 Accrued policies by construction year

01/0200/0199/0098/9997/98

15

’000

Martin Helisma discusses atechnical problem

<--

-->


36



INSURING CONSUMERS

The Queensland home warranty insurance scheme

provides consumers with the most comprehensive home

warranty insurance protection available.

The failure of HIH Insurance and the threatened

withdrawal of another two insurers from the interstate

home warranty insurance market showed privatised

markets to be less than effective.

BSA’s non-profit statutory home warranty insurance

scheme served Queensland contractors and consumers

well, isolating them from the near failure of the interstate

home warranty insurance market which followed the

collapse of HIH Insurance.

Queensland licensees effect insurance through the award

winning Insurance Phone Pay system which provides

them with cost effective insurance within minutes of their

telephone call.

BSA processed 62,506 policies this year with record gross

premium receipts of $27.792M. This represents an increase

of 75% over 2000/01. The higher than expected premium

income was the result of a building industry boom with

a major driver being the First Home Owners Grant.

MANAGING CONSUMER CLAIMS

The focus this year has been on clearing the backlog of

claims resulting from the post-GST building slump and

reviewing operational procedures to improve the efficiency

of the claims process. In March, BSA introduced new

claims processing software with minimal disruption to

processing. By May, the new system had resulted in a

reduction in claims processing periods from a median

46 days to 28 days.

As a result of greater efficiencies in claims processing and

a further reduction in the backlog of prior years, claims

processed exceeded the number received in the year.

The 1,680 claims received this year were below the

expected target of 2,016. This reflects the buoyancy of the

building industry throughout the year and the consequent

lack of insolvencies. In all, 1,636 claims were approved

to the value of $15.781M.

The principal reduction in claims occurred in non-

completion claims, which numbered only 189. This is a

vast improvement from the 384 received in 2000/01. The

value of these claims was $2.87M compared with $6M in

2000/01.

Subsidence continues to be a concern with an increase in

the number of subsidence claim approvals rising from 550

($6.595M) in 2000/01 to 682 ($7.2M) this year. The cost

also reflects the impact of the increase in maximum policy

cover from $50,000 to $100,000 in January 1997 and

$100,000 to $200,000 in October 1999. Subsidence

insurance protection is unique to Queensland and provides

a benefit even when the problem has not arisen from a

construction defect.

BSA is continuing to investigate and improve its risk

management strategy in relation to subsidence claims

and minimise their future impact on the scheme.

The volume of business and premium receipts increased from2000/01. This increase is predominantly attributed to a buildingindustry boom with a major driver being the First Home OwnersGrant.

The buoyant building industry caused a reduction in insolvencynon-completion claims. The defects and subsidence claims wereconsistent with forecast.

30

0

10

20

11 Gross premium receipts

01/0200/0199/0098/9997/98

$M 20

0

10

15

12 Claim payments by type

01/0200/0199/0098/9997/98

5

Non-completion

Defects

$M

Subsidence

Brendan O’Halloranassessing an insurance

claim

-->

-->

-->


37

Approvals for rectification of defective work were

consistent with previous years. There were 1,238 claims

valued at $5.7M in 2001/02 compared with 1,298 claims

valued at $6M in 2000/01 and 1,279 claims worth $4.2M

in 1999/00.

The 65 claims associated with these five contractors

accounted for $1.75M. They represent 3.9% of the number

of claims received and 11% of the total claims expenditure

for the year.

This year, 94% of the 2,141 claims finalised were accepted

with 98.7% of claimants fully compensated for their

insured loss.


BSA’s has continued to demonstrate fairness in determining

insurance claims. This is reflected in an increase in the

number of reviews lodged in the Queensland Building

Tribunal that are resolved in favour of BSA from 73% in

the 2000/01 to 79% in 2001/02.

THE FUTURE

Customer understanding, awareness, satisfaction and

involvement with our business are critical to our success.

There is a lack of understanding and awareness amongst

the community about our role. We need to strengthen our

image and heighten our presence to ensure that the

community is well aware of our home warranty insurance

scheme, dispute resolution processes and licensing regime.

Community education is an essential ingredient to our

success and we will place greater emphasis over the next

few years on ensuring that home owners are aware of their

rights and obligations. BSA will continue to work closely

with stakeholders and interstate regulators to ensure its

position as market leader in the provision of home

warranty insurance.

Licensee No. of Claims Amount ($)

Hinton, P.D. 13 489,120

King, S.G. 13 445,148

Oceania Building Group Pty Ltd 28 315,288

McKenzie, K. 8 309,275

Wallcol Constructions Pty Ltd 3 193,452

Failed Contractors causing the most significantclaim approvals during the year

Year %

2001/02 79

2000/01 73

1999/00 89

1998/99 82

1997/98 88

--> Reviews of BSA’s insurance decisions produced a positive resultfor BSA of 79%.

% of Tribunal reviews of insurance decisions thatreaffirmed BSA’s decision

Gary Stick inspects anincomplete home

<--

--> Customer understanding, awareness, satisfaction and involvementwith our business are critical to our success.

KPMs 2002/03

--> 5% reduction in termite barrier problems

--> 5% reduction in waterproofing defects

--> 5% reduction in plasterboard defects

--> Customer continuums (positive movement in regionalcustomer continuums for all key stakeholders)



People

--> We are creating an environment at BSA where staff areinformed and involved and our development willenable us to achieve organisational and personal goals.

Mandy McCosker

Comments

<-- A significantimprovement (9.5%)was achieved in the staffsatisfaction index whichreflects the considerableeffort by managementand staff in seeking tocontinually improve theorganisation.

38

Values

--> People: Respond tostaff needs andacknowledge theirachievements

--> Partnership: Workingwith our customerstowards sharedoutcomes

Goals

--> To establish a peopleorientated culturewhere staff arerecognised and able toachieve organisationaland personal goals

Strategies

--> Create a positive, stable and professional teamwithin a supportive, safe and discrimination-freeenvironment

--> Increase the opportunity for staff to learn anddemonstrate acquired competencies

REDUCEDPERFORMANCE




-1

0

1

2

TARGET8502002

ACTUAL949

TARGET<15%

2002ACTUAL14.9%

<-- Workforce

attitude index

<-- Staff turnover

--> Achievement



39

KEY WORKFORCE STATISTICS ANDINDICATORS

The number of full time equivalent staff (FTE) increased

from 200.2 to 208.75 by 30 June 2002. The increase was

due to a number of temporary positions being made

permanent, building of internal capabilities in customer

service, compliance, dispute management, legal, policy and

corporate services.

The staff separation rate was relatively high in comparison

to other public sector benchmarks. Systems including

exit surveys have been introduced to analyse the reasons

for departures. Workforce planning has begun to address

the underlying issues identified and specific career

management strategies will address staff turnover and

the long-term employer of choice objectives.

A framework for effective leadership, relationships and

performance will be the focus for the development of

individual, team and organisational capability next financial

year. Human resource management infrastructure will be

improved through policies covering reward and

recognition and general conditions. Furthering and

maintaining a committed workforce with values of

continuous improvement, learning, respect and trust will

be priorities in 2002/03.

LEARNING AND DEVELOPMENT

BSA continued to foster learning with the aim of

maintaining a motivated, committed and high-performing

workforce. The Human Resource Management function

was reviewed and aligned with best practice approaches

in training and development. A range of learning and

development opportunities were provided with customer

service and performance management training the priority.

390 staff training days were delivered through over 30

training courses in 2001/02. Staff continued to access the

Study and Research Assistance Scheme which provides

generous support for undergraduate and postgraduate

tertiary studies. Financial and other assistance was

extended to 21 staff pursuing relevant tertiary qualifications.

In line with competency-based training frameworks,

specific development opportunities for individual staff

members were enhanced through access to the Certificates

in Government.

A Performance Management and Development Scheme

was introduced. The Scheme focusses on individual

development complemented by manager and supervisor

coaching to support learning. The competency framework

developed as part of the Scheme assists in linking

individuals to organisational performance objectives.






HumanResourcePolicies andPractices

LeadershipDevelopmentProgram

TraningCertificatePrograms(GovernmentandTraineeships)

CareerManagement

Reward andRecognition

ExecutiveLeadershipDevelopmentProgram

PerformanceManagementand Develop-ment Scheme

Training andDevelopmentPlan

LeadershipFramework

Learning and Development Schematic

WorkforceStrategicPlan

Corporate Plan

Learning andDevelopmentStrategy

Study andResearchAssistanceScheme


40


People (continued) ...

EQUAL EMPLOYMENT OPPORTUNITY

A three-year equal employment opportunity management

plan was initiated to support BSA’s continued commitment

to workforce diversity. The number of female employees

as a percentage of the total workforce declined from

55.3% in 2000/01 to 54% in 2001/02. Particular efforts have

been made to increase trainee representation from target

groups such as people with a disability or those from non-

English speaking backgrounds. BSA continued to support

increases in Aboriginal and Torres Strait Islander

representation in the workforce. In particular, BSA built

relationships with communities in the Cairns region by

sponsoring training awards.

WORKPLACE HEALTH AND SAFETY

Nurturing a safe and harassment-free workplace was a

workplace health and safety priority. No major incidents

were reported in 2001/02. The number of working days

lost through compensable accident or injury reduced from

172 days in 2000/01 to 62.2 days in 2001/02. This represents

0.24% of total workdays. One work-related stress incident

was notified and one case involving repetitive strain injury.

WORKFORCE ATTITUDE SURVEY

The previous years trend was continued with a significant

improvement in the staff satisfaction index as assessed

through the workforce attitude survey.

The overall index increased from 866 to 949 and increased

in all 12 factors assessed by survey questions. 10 of the

12 factors rated above 75% (well managed) with the other

2 factors between 68% and 74% (sound management).

The organisational strengths included committed employees,

supportive and approachable managers and team work.

Areas for further development include knowledge sharing,

people development, performance management, reward

and recognition and managing change.

Initiatives to support these organisational issues have

been included in the Workforce Strategic Plan and will be

reported quarterly to staff.

Issues at a divisional or branch level will be managed and

actioned by local managers and staff with support from

the Human Resources Branch if required.

ENTERPRISE DEVELOPMENT AGREEMENT

There were no days lost through industrial disputation. The

Enterprise Development Agreement (EDA) continues to

provide a framework for effective workplace consultation.

A range of agreements on working conditions were

reached by the EDA Committee. Progress was made on

closing the gap between BSA pay rates and conditions and

those enjoyed by core public servants. Full parity is

anticipated by July 1, 2003. The Change Management

Tool Kit was developed to promote effective

communication and workplace consultation remains a

key part of our operations and empowers staff and

managers to understand and participate in organisational

2001/02 2000/01

Women 54.9% (117) 55.3% (115)

Aboriginal and Torres Strait Islander 3 staff 5 staff

People With a Disability 7 staff 6 staff

Non English Speaking Background 16 staff 14 staff

--> BSA is continuing its commitment to diversity in the workforce soit is representative of the community it serves.

Workforce diversity

EEO TargetMale Female Total Groups

Staff as at 30 June 2002

Administration AO1–AO3 17.4 79.85 97.25 15

Officers AO4–AO5 49.7 29.8 79.5 8

Middle Management AO6–AO8 22 4 26 3

Executive Management SO2–SES 6 0 6 0

Total 95.1 113.65 208.75 26

--> Females are well represented as a portion (54%) of BSA’s overall workforce with future efforts focusing on increasing their representation atmanagement level.

Ravi Iyer handling acustomer inquiry

-->


41

change processes. It promotes an acceptance of the need

for service efficiency while fostering an ongoing

commitment to quality outcomes.

ORGANISATIONAL CAPABILITY

BSA has introduced a range of organisational development

strategies to build capability in the context of systems,

organisational culture, people, processes and the needs of

government. These have included a range of reviews, job

redesign and evaluation along with general system

improvements such as the Licensing Phone Pay project.

A Business Improvement Council was initiated, in line with

the Business Excellence Framework, to encourage

innovation and drive improvement in key business

processes and service models.

ACCOMMODATION

The Gold Coast regional office was relocated this year. The

new location at the Robina Convenience Centre is more

accessible to customers and has improved parking facilities.

The Brisbane head office was significantly reorganised. The

existing offices were expanded and administration, records

and receipting staff were relocated from temporary off-site

accommodation to a new area adjoining the existing

office. Legal services, human resources and the disaster

recovery site for the information services area were

relocated to the new section allowing for the expansion

of the licensing, compliance, information services and debt

recovery areas.

THE FUTURE

We intend to move towards a truly people-oriented

organisation that creates trust, opportunity and enables our

people to develop and succeed.

We will take a broad view of our culture and establish an

ethos where people management is one of our main

priorities for success. We will progressively implement an

organisational climate that is accountable and accepts

responsibility for decision making.

2001/02 2000/01 1999/00

Staffing – VER’s, retrenchments and redeployments

VER package taken 0 1 1

Total value of VER’s taken ($) 0 17,621 50,510

Involuntary Retrenchments 0 0 0

Total value of retrenchments ($) 0 0 0

Staff redeployed internally 0 0 0

--> The result for 2001/02 is a continuing trend reflecting BSA’s internal stability.

As at 30 June 2002 2001/02 2000/01 1999/00

Staffing – Separations

Permanent employees 186.7 178.8 168.46

Separations 28 19 20

Resignations 19 12 16

Transfers to other Queensland Public Service (QPS) agencies 7 4 3

Retirements due to ill health 0 0 0

Retirements due to age 2 1 0

Voluntary early retirements 0 1 1

Redundancy 0 0 0

Dismissals 0 1 0

Separation rate (%) 14.9 10.6 11.8

Average tenure of permanent employees resigning or transferring to other QPS agencies 3.8 4.4 5.0

Temporary employees 22.05 21.4 27.34

Separations 28 30 31

BSA is aiming to reduce its separation rate to below 14%.

KPMs 2002/03

--> Workforce Attitude Survey (Index 835)

--> Staff turnover <15%


REDUCEDPERFORMANCE




-1

0

1

2

<-- % of unlicenced

contractors

detected during

site checks

TARGET≤10%

2002ACTUAL8.5%

Amendmentsimplemented

within timeline

<-- Number of

disputes received

as a percentage of

construction.

Notification lodged

2 years previously

<-- Number ofdirections issuedas a percentageof disputesreceived

<-- Percentage ofdirectionssatisfactorilycomplied with

<-- Legislativeamendments

implemented

TARGET≤4%2002

ACTUAL6%

TARGET>60%

2002ACTUAL32.2%

TARGET≤20%

2002ACTUAL20.8%


Legislation and Policy

Col Wright

Comments

<-- BSA’s complianceagenda has beenenhanced by increasinghuman resources. Thishas improved BSA’sresponsiveness toindustry and it’s abilityto meet the needs ofcustomers.

Values

--> Performance:Continually innovatein a cost effectivemanner

Goals

--> To ensure thatcustomers understandand comply withlegislative and policyrequirements andhave the ability toinfluence change

Strategies

--> Involve customers in consultative processes

--> Promote understanding of legislation and policy

--> Develop a comprehensive industry compliancestrategy to identify and deal with breaches of thelegislation and policy

--> Monitor and review legislative and policyrequirements

42

--> Achievement


--> The strong alignment between BSA and industry hasassured legislative amendments and Board Policy aredeveloped for the mutual benefit of industry andcustomers.




--> Unlicensed contractors ≥4% of all licenseeschecked via site inspections

--> Number of disputes received to be ≥10% ofconstruction notifications lodged 2 yearsprevious

--> Number of directions to rectify ≥20% ofdisputes received in same year

--> 60% of directions complied with satisfactorily



--> 6% of licensees checked wereunlicensed

--> DNF’s received were 8.5% of CN’slodged 2 years previous

--> DTR’s were 20.8% of DNF’s received

--> 32.2% of DTR’s were complied withsatisfactorily

--> Legislative amendmentsimplemented in accordance withtimetable

43

FINANCIAL REQUIREMENTS FORLICENSING

The financial requirements, in place since October 1,

1999, require licensees to demonstrate, at licence renewal

stage, that they have a minimum level of Net Tangible

Assets and Liquidity.

The Financial Requirements for Licensing ensure a minium

level of Net Tangible Assets (NTA). Licensees unable to

meet the minimum NTA in their own right are able to rely

on an assurance of net assets from a related entity by

executing a Deed of Covenant and Assurance. The related

entity must be a partner, director, beneficiary or associated

company. As at 30 June 2002 the amount assured to

licensees by related entities was $577.5M. This is an

increase of $449.8M in two years.

The Deed of Covenant and Assurance assisted creditors

in a number of instances this year by providing a greater

pool of funds to increase their final return. An example

of the assistance BSA’s Financial Requirements for

Licensing has given creditors was the liquidation of

Antrend Pty Ltd. Based on a Deed of Covenant and

Assurance, the liquidator was successful in recovering

$129,994 from a director. This recovery led to a 100%

return to creditors.

LICENCE CLASS REVIEW

The Licence Class Review began in July 2001 after calls

from industry to rationalise the licensing system and make

it more relevant.

The Review, due for completion by December 2002 and

implementation by early 2003, focused on the following

issues:

• Licensing only those entities that will ultimately be held

responsible for defective work eg. builders and trade

contractors. An unlicensed person who solely operates

as a sub-trade contractor to a trade contractor will not

be prosecuted for unlicensed contracting. The Review

concluded that these sub-trade contractors are more

employees than business operators.

• Rationalising the licensing system to limit it to licences

requiring full trade qualifications at the certificate 3

level under the Australian Qualification Training

Framework.

• Introducing a compulsory Continuing Professional

Development (CPD) model for all licensees to ensure

they keep up-to-date with emerging building trends.

• Making legislative amendments. This will be in two

parts. In early 2003, changes to licensing requirements

for sub-trade contractors will be introduced. The

second stage, expected to begin in mid 2003, will

involve amendments to regulations to include the

scopes of work for new licence classes.

BSA has consulted extensively with industry on the Review

and will continue to do so during and after implementation

of the recommendations.

CHANGE OF RENEWAL DATE

From 1 January, 2002 all licensees with a turnover greater

than $250,000 were allowed to alter their renewal date at

renewal. This enabled licensees to align their renewal date

to coincide with their 30 June financial information.

Previously, licensees with renewal dates in the first half

of the year were required to see their accountant twice a

year.

The new system allows licensees in financial category 3

to move their renewal date between 1 September and

31October and licensees in financial category 2 to between

1 November and 31 January. In the 6 months to 30 June,

2002, 632 licensees took advantage of this facility and

altered their renewal date.

Financial Category Number

1 39

2 296

3 297

--> BSA expects that, from 1 July to 31 December 2002, a further 500licensees will alter their renewal date.

Number of licensees who altered their renewal dateby financial category


--> ... a strict contractor licensing system plays a critical role in deliveringimproved security of payment outcomes because of its capacity tofilter out those who are not fit to operate in the industry.

44


Legislation and Policy (continued) ...

SUBCONTRACTORS’ CHARGES ACT 1974

From 1 July 2002 amendments were enacted to the

Subcontractors’ Charges Act 1974. The amendments

brought together proposed enhancements which had

been mooted for a number of years. The amendments

were the result of industry stakeholders representing

contractors, subcontractors, legal specialists and

Government working together to further improve security

of payment within the building and construction industry.

The amendments were enacted to aid interpretation of the

Act, which because of its loopholes and complexity had

been the subject of strident criticism by the judiciary,

legal profession and industry. There were also a number

of significant policy initiatives contained within the

amendments, they include:

• Expansion of the categories of persons entitled to

claim a charge under the Act to include manufacturers

of project specific material and suppliers of labour;

• Partial withdrawal of a claim by a subcontractor and

partial acceptance of liability by a contractor; and

• Expansion of the monies available to subcontractors

to include securities held by an employer or superior.

PAYMENT INITIATIVES

A significant problem within the industry is security of

payment. A discussion paper on security of payment was

released in December, 2001. BSA was well placed to

make a contribution to the discussion because of its

appreciation, through the financial audits, of matters

giving rise to payment disputes.

The discussion paper contained extensive research into the

extent of, reasons for, and effect of, partial payment,

non-payment or slow payment to building contractors and

subcontractors. Current legislative measures were

reviewed, including BSA’s licensing regime, and new

legislative initiatives for dealing with security of payment

were recommended.

The discussion paper concluded that the existence of a

strict contractor licensing system plays a critical role in

delivering improved security of payment outcomes

because of its capacity to filter out those who are not fit

to operate in the industry.

While BSA is committed to maintaining a robust licensing

system as a fundamental element in improving security of

payment outcomes, it also acknowledges that licensing

does not ensure payment.

BSA’s licensing system cannot force alleged solvent head

contractors to pay subcontractors. The discussion paper

highlights this issue;

“While the Authority has in place the strongest

licensing regime in Australia, which is achieving its

objective in eliminating from the industry those

contractors who clearly fail to meet the relevant

licensing criteria, it nevertheless should be

recognised that licensing in itself is not an

appropriate vehicle to deliver further improved

security of payment outcomes for subcontractors.

The licensing financial criteria is a ‘snapshot’back

in time that all contractors have to satisfy on

licence application, renewal, or on request by the

Authority under a compliance audit.This process

can never reflect an absolute current position.In the

building and construction industry a lot can change

in one week, let alone 3 months, which is the most

‘current’financial position contractors with a high

turnover have to satisfy. From the Authority’s

perspective, the licensing regime must be coupled

with other initiatives designed to provide improved

payment outcomes for subcontractors.”

In its investigations into payment issues, BSA identified an

emerging trend in Australia and New Zealand toward

law reform relating to construction contracts. In particular

the reforms were designed to facilitate timely payments

between the parties, provide for the rapid resolution of

payment disputes and provide mechanisms for the rapid

recovery of payments.

BSA concluded that payment legislation, similar to the

Construction Industry Payments Bill 2002 soon to be

introduced in Western Australia, should be considered for

implementation in Queensland to support the licensing

regime. During an extensive initial statewide consultation

phase, completed in April 2002, the proposal received

widespread support from stakeholder groups and

contractors.


--> Unlicensed contracting remains a significant industry issue that notonly increases the potential for substandard work but also increasesthe likelihood of payment problems.

45

BSA is well placed to drive security of payment initiatives

because of its ability to provide improved compliance

outcomes by identifying financially distressed contractors.

BSA recognises the benefits industry participants will

derive through access to an affordable and speedy dispute

resolution process for payments.

FIRE PROTECTION LICENSING

From 1 July 2001 it became compulsory for fire protection

operators in Queensland to hold a BSA licence. BSA

introduced eight new trade contractor licences for the fire

protection industry:

• Fire Detection Systems

• Fire Fighting Appliances

• Fire Hydrants and Fire Hose Reels

• Fire Sprinkler Systems (Commercial and Industrial)

• Fire Sprinkler Systems (Domestic and Residential)

• Fire Suppression Systems (Special Hazards)

• Fixed Fire Pump Sets

• Passive Fire Equipment

ANTI-PHOENIX PROVISIONS

In 2001/02 the anti-phoenix provisions of the Queensland

Building Services Authority Act 1991 resulted in 224

builders and trade contractors being categorised as

‘excluded persons’ and barred from the industry for five

years. This represents a 49% percent increase since 2000/01

when 150 licensees were excluded. Of 826 compliance-

related licence cancellations, 176 were directors of failed

companies whose licences were cancelled under the anti-

phoenix provisions.

UNLICENSED CONTRACTING

Unlicensed contracting remains a significant industry issue

that not only increases the potential for substandard work

but also increases the likelihood of payment problems. This

is because unlicensed contractors have limited entitlement

to payment and do not normally meet the financial criteria

required to hold a licence.

BSA continued to pursue unlicensed contracting by issuing

infringement notices under the State Penalties Enforcement

Registry (SPER), conducting site visits, monitoring

advertising, particularly Yellow Pages and conducting

two statewide building sites compliance blitzes to check

the licensing credentials of contractors.

The aim of the compliance blitzes was to cover as many

areas of Queensland as possible. The blitzes were

conducted in August 2001 and March-April 2002. In

August, 3,071 individual interviews were conducted. Of

those 196 instances of suspected unlicensed contracting

were identified. In March 2002, 3,416 individual interviews

were conducted. Of those, 49 instances of suspected

unlicensed contracting were identified. In both blitzes

the majority of suspected unlicensed contractors were

carpenters. Inspections were carried out from Cairns to the

Gold Coast and as far west as Emerald.

An additional 442 unlicensed contracting investigations

were also started in response to complaints received.

Unlicensed contracting will continue to be given high

priority in 2002/03, with increased human resources

devoted to detection.

ACCOUNTABILITY INTERVENTIONS

BSA aims to secure accountability from those associated

with failed businesses where there is evidence of

impropriety. To achieve this, BSA liaises with other

regulatory bodies, particularly, the Office of Fair Trading,

and the Australian Taxation Office (ATO). This year, BSA

provided information and $55,564 in financial support to

liquidators, administrators or bankruptcy trustees when

directors or other relevant persons were thought to have

acted improperly or illegally. This represents an increase

in expenditure of $19,064 over 2000/01. Funding was

provided to improve the prospect of returns to creditors

and to ensure that the appropriate accountability measures

are brought to bear on failed companies and their directors.

Significant actions in this regard included:

• Riaps Pty Ltd. Under a construction management

contract, Riaps Pty Ltd, acting as a principal in the

construction of a unit development at Port Douglas

known as ‘La Pacifique’, went into administration in

June 1999. Initially, under a Deed of Company

Arrangement, the director of the company, proposed

to pay all non-related creditors in full. This arrangement

failed, resulting in the company proceeding to


--> A new case management system was developed and implementedallowing staff to more accurately monitor incoming data for use inunlicensed contracting investigation or financial investigation.

46



liquidation. BSA provided funding to the liquidator

during the 2000/01 year to enable him to conduct a

public examination into the affairs of the company and

to obtain legal advice. During the year BSA agreed to

contribute a further $15,000 to enable proceedings to

be initiated against the director of the company and

her husband for insolvent trading and against her

husband for managing the company while a bankrupt.

• Imagemaster Constructions Pty Ltd. The Sunshine

Coast-based company collapsed leaving dozens of

creditors out-of-pocket with debts of more than $3M.

Before the collapse in October 2001, BSA had begun

an investigation into the company’s ability to meet its

liabilities. This resulted in a stop work condition being

imposed on the company’s licence. BSA worked

closely with the administrator to assist in securing a

Deed of Company Arrangement which will return

creditors 39 cents in the dollar. BSA has provided the

administrator with up to $15,000 to assist with a public

examination of relevant persons. The public

examination will help the administrator to determine

whether any specific actions should be initiated under

the Corporations Act.

BSA’s accountability focus also included the pursuit of

professionals such as accountants when their performance

compromised the integrity of the licensing system. During

the year BSA also started proceedings against an

accountant for allegedly providing false and misleading

financial information.

OTHER INITIATIVES

A new case management system was developed and

implemented allowing staff to more accurately monitor

incoming data for use in unlicensed contracting

investigation or financial investigation. The case

management system allows centralised monitoring of

investigations through an electronic log. This will improve

efficiency as tasks can be allocated to relevant staff

electronically rather than by hard copy memorandums. The

progress of an investigation can also be monitored via the

case management system, improving the timeliness of

responses to customer enquiries.

BSA’s compliance activities have been significantly

expanded. Additional staff allowed investigations to be

launched into the alleged failure of contractors to comply

with advertising and signage requirements contained

under Part 3, Division 10 of the Queensland Building

Services Authority Act,1991. There were 150 investigations

relating to advertising and signage requirements. Additional

staff also enabled continuous monitoring of breaches of

allowable annual turnover stipulated as part of the

Financial Requirements for Licensing. Previously, such

monitoring could only be done at the point of licence

renewal when fresh financial data was provided. A building

inspector allocated to Compliance has enabled unlicensed

contracting allegations to be more promptly investigated.

Previously, requests for site inspections were referred to

the Dispute Management Program.

Jason Smith and Anna Metzdorf discuss

the compliance casemanagement system

-->


47

GOVERNMENT CONTRACTOR FINANCIALAUDITS

BSA acted as an agent for the Government in assessing

the financial capacity of licensed contractors tendering for

capital works projects. There were 309 financial

assessments conducted in 2001/02 resulting in 12.6% of

contractors assessed as unsatisfactory. In 2000/01 559

assessments were conducted with 9.5% of contractors

found to be unsatisfactory. Though fewer assessments

were conducted during the year with a higher proportion

assessed as unsatisfactory this can be attributed to a

tightening in the application of financial assessments for

government tendering. The financial assessment criteria,

although similar in many respects to the Financial

Requirements for Licensing, contain a number of unique

features developed specifically for government tendering.

FINANCIAL INVESTIGATIONS

In attempting to establish whether a contractor was

meeting the financial requirements for licensing priority

was given to financial performance audits on contractors

displaying signs of financial distress.

During a financial performance audit a licensee is afforded

the opportunity to prove that they meet BSA’s rigorous

financial requirements by producing specified financial

records (within a 28 day period). BSA often directly

contacts a licensee’s creditors to verify the information

provided. Failure to provide the requested information may

result in suspension or cancellation of the licence and/or

the imposition of a stop work condition on the licence.

As a result 537 audits were conducted. 396 contractors had

their licences cancelled or suspended. In 141 instances BSA

was given evidence that the licensee did meet the Financial

Requirements for Licensing and no action was taken

against the licence. Often a licensee in financial distress

may initially be suspended and then subsequently

cancelled if the licensee does not prove that they meet

BSA’s Financial Requirements for Licensing.

In deciding whether or not a licensed individual, director

or other person who is in a position to control or

substantially influence the conduct of the company’s

affairs is a fit and proper person to hold a contractor’s

licence or to exercise control or influence over a licensed

company the Authority considers:

• the commercial and other dealings in which that

person has been involved and the standard of honesty

and integrity demonstrated in those dealings;

• any failure by that person to carry out commercial or

statutory obligations and the reasons for that failure;

and

• any other relevant factor.

BSA conducted 3 fitness and propriety audits during the

year, none of which resulted in licence suspension or

cancellation.

Jacquii Reeves reviews acontractor’s financialstatements

<--

Type 2001/02 2000/01 1999/00 1998/99 1997/98 1996/97

Performance audits finalised by type

Financial 537 311 243 308 521 604

Technical 0 0 0 2 15 22

Fitness and propriety 3 0 1 35 85 22

Other 0 0 0 0 8 1

Total 540 311 244 345 629 649

Licence cancellations 396 287 137 182 205 319

% 73 92 56 53 33 49


--> BSA has audited approximately 90% of certifiers on the easternseaboard of Queensland since private certification began in May 1998.

48



PRIVATE CERTIFICATION

BSA continued to provide and deliver services for building

certifier accreditation, complaint investigation and auditing

in line with its legislative responsibility. The Local

Government Association of Queensland’s review into

building certification in Queensland was completed and

provided to the Government in November 2002. As a

member of the review panel responsible for the report,

BSA provided input into the proposed legislative

amendments. It did so as a member of the Building

Reference Group chaired by Building Codes Queensland.

As the primary stakeholder in the Building Reference

Group, BSA allocated significant resources to ensure

quality input was provided. The information provided to

the group was based on the findings of complaint

investigations, audits and general administration of BSA’s

functions as the accrediting body for certifiers.

BSA was a member of a committee charged with reviewing

the Public Benefit Test for the Queensland Building Act

1975 and Regulations. The committee report was tabled

in June 2002. BSA continued to participate in the

formulation of legislative amendments following committee

recommendations.

ACCREDITATION AND AUDITS

At the end of the financial year, there were 371 accredited

building certifiers of which 286 held private certifier

endorsement and 85 held standard building certifier

endorsement only. In 2000/01, there were 378 licensed

building certifiers of which 288 held private certifier

endorsement and 90 held standard building certifier

endorsement only.

Random audits of building certifier’s practices in 2001/02

were conducted in the Mackay region and the South East

corner of Queensland including the North and South

coasts. It was decided to leave audits in the remote areas

of Western Queensland until the 2002/03 financial year so

that resources could be concentrated on the more

populated South East corner. The majority of private

certifiers audited were found to have adequate

administration processes in respect to their certifying

functions. There were a small number of minor departures

from the requirements, however, these were not cause for

concern. BSA provided advice and recommendations in

these instances.

BSA has audited approximately 90% of certifiers on the

eastern seaboard of Queensland since private certification

began in May 1998. Audits focus on the procedural and

administrative functions of a certifier’s practice. Audits have

not uncovered any examples of professional misconduct

but have been able to provide certifiers with a basis to

improve their procedural administrative functions.

In 2002/03 BSA will continue to drive legislative change

to improve standards and education in the area of building

Type 1998/01 2001/02

Finalised Complaints by BSA 220 29

Current Complaints <30 days old 2 0

Current Complaints >30 days old 39 3

Total 261 32

--> The number of complaints received in 01/02 decreased by 50%.

Complaint status

Type 1998/01 2001/02

Town Planning 150 29

Technical (BCA) 20 5

Standard Building Regulation 89 11

Conflict of Interest 9 0

Code of Conduct 6 0

Administration 6 6

Total 280 51

--> Town planning remains the largest source of certifier complaintshowever an increase in SBR complaints has recently occurred.

Complaints received


--> We need to be a superior administrator and ensure that our activities,legislation and policy are consistent with the needs of the industry.

49

certification. This will be achieved through further random

audits, information seminars and publication of material

on BSA’s website. BSA will continue to work closely with

Building Codes Queensland in the development of

legislation as well as education and information strategies.

EDUCATING CONTRACTORS ANDCONSUMERS

Assisting contractors and consumers to better understand

their rights and obligations under the Domestic Building

Contracts Act 2000 was a key exercise throughout the year.

Initiatives included:

• development and installation on BSA’s website of a

Contractor Checklist and a summary of the warranties

provided to home owners under the legislation;

• review and approval of Contract Information

Statements submitted to BSA by industry associations

and private contractors;

• contractor articles published in Building Links

magazine to heighten contractor awareness of their

contractual requirements under the Domestic Building

Contracts Act 2000; and

• development of a Contract Checklist to assist relevant

BSA staff to check compliance of contracts with the

Domestic Building Contracts Act 2000 requirements.

BSA also served as a resource centre for a wide range of

industry associations and provided ongoing information

and advice regarding the requirements and practical

implications of the Domestic Building Contracts Act 2000.

After more than a year of ‘road testing’ BSA introduced a

number of improvements to its contract documentation

designed to better serve its customers. All documents in

BSA ‘One Pack’ Contract Kit were revised and updated

with improvements including changes to terminology

and the payment schedule to make the document more

user-friendly for trade contractors performing renovations

and extensions. An entirely new contract, BSA Contract

for Small Building Projects, was developed specifically to

meet the need for a simplified format documenting

domestic building projects valued at less than the $3,300

threshold of the Domestic Building Contracts Act 2000.

This one-page, plain-English contract will assist both

contractors and homeowners by helping to reduce the

incidence of disputes associated with small renovation

projects that are often caused by inadequate or poor

documentation.

THE FUTURE

We need to be a superior administrator and ensure that

our activities, legislation and policy are consistent with the

needs of the industry. Compliance will continue to be a

major focus with our aim being to improve the licensing

system integrity for the benefit of consumers and

contractors.

Type 1998/01 2001/02

Not Decided 33 19

Decisions Reversed 17 0

Decisions Upheld 11 0

Total 61 19

--> No decisions have come from the Chief Executive to question thecorrectness of BSA certification determinations

BSA Decisions appealed to Chief Executive

Type 1998/01 2001/02

Random 209 50

Total 209 50

--> BSA is on target to complete an audit of all certifiers within threeyears

Audit Information

KPMs 2002/03

--> Compliance continuum. Positive movement in allinitiatives under the compliance continuum

--> Legislative amendments implemented in accordance withtimetable



Financial Management

Lewis Hayes

Comments

<-- A strong recovery bythe Insurance Fund fromthe 2000/01 positiontogether with a smallerthan forecast deficitfrom the General Fundproduced a soundconsolidated result forthe year.

Values


Goals

--> To ensure the long-term viability of theStatutory InsuranceFund and the General Fund

Strategies

--> Regularly review the actuarial performance of theInsurance Fund flexibility to respond quickly to theneed for adjustment of premiums and policycoverage

--> Develop and implement a 5 year financialmanagement plan for the General Fund (incomeand expenditure)

50

REDUCEDPERFORMANCE




-1

0

1

2

<-- Profit/(loss) fromordinary activities2001/02 $0.728M2000/01 ($6.952M)

TARGETPositive trendin net assets2002 ACTUAL

Increasedperformance

<-- Net assets

2001/02 $5.364M

2000/01 $4.658M

<-- Current ratio2001/02 1.48

2000/01 1.51

NO TARGET

TARGETOperating

Surplus2002 ACTUAL

Target Met

--> We will continue to build on the improvements madeduring the year to our financial management frameworkto enhance our financial management capability.

--> Achievement





--> Produce an operating surplus

--> Loss ratio for 2000/01 <100%

--> Improvement in the net asset position


--> Operating surplus of $728K

--> Loss ratio 99.1%

--> Net assets increased by$690K

--> Net asset position assets/liability ratio reduced by .03 to 1.48

51

The consolidated fund recorded a profit from ordinary

activities of $0.728M compared with the originally forecast

profit of $0.138M and the revised forecast of $0.084M

estimated at the mid-year review. This result is attributable

to the Insurance Fund which recorded a $1.489M surplus

reflecting a buoyant Queensland building industry.

The General Fund recorded a loss from ordinary activities

of $0.761M attributable to an insufficient funding base

resulting from increasing demands for service from

industry, consumers and government, together with

reduced investment returns. However this was still a

better than anticipated result compared to both the original

budget (forecast deficit of $1.028M) and mid-year revised

forecast deficit of $1.225M. Major factors contributing to

the improved position were tighter controls on legal costs,

staff costs and engineering fees and an improvement on

revised revenue forecasts.

GENERAL FUND

Revenue

The General Fund derived approximately 87% of its

revenue from fees for licence renewals and applications.

The original revenue estimates for these fees were revised

down by approximately $1M in the mid-year review when

it became apparent that various indicators used in the

forecasts were optimistic.

The revised revenue targets were achieved with an actual

of $13.148M compared to a revised budget of $13.040M.

Investment returns were marginally downgraded during

the year by $0.060M. Investments for the General Fund

were stable throughout the year as they were in cash funds

which generally performed to market expectations. Other

revenue targets were generally achieved.

Expenses

Legal expenses significantly exceeded budget, however the

mid-year review resulted in a greater emphasis being

placed on the internal delivery of legal services and this

helped to contain the over expenditure. Other expense

control measures introduced as a result of the mid-year

review included tighter control of the staff costs by

introducing new procedures for the creation of positions,

the filling of vacancies and employment of

temporary/casual staff to ensure greater control against

budget, more timely reconciliation of engineering fees

claimable, and a number of corporate overhead reduction

initiatives eg. sourcing of a new power provider for BSA’s

Brisbane office at a rate 34% cheaper than the incumbent

provider.

A number of options will be explored in 2002/03 to

identify a more appropriate funding base for General

Fund operations while continuing to minimise corporate

overheads and other costs.

Actual expenditure decreased significantly by $2.551M

(15%) from 6.460M to $13.909M. This was attributable to

the fact that the Authority was not required to fund the

operations of the Queensland Building Tribunal in 2001/02

($2.345M in 2000/01). Exclusive of this amount expenditure

decreased by $0.206M. Several measures were

implemented during the year to contain expenditure.

DEBT MANAGEMENT

BSA’s debt management team recovered $1.213M in 2001/02

compared to $1.034M the previous year. This represents a

17% improvement and included $1.052M in insurance

claims recovered and $0.101M in Queensland Building

Tribunal (QBT) penalties/Magistrates Court fines recovered.

The balance included legal costs and interest recovered.

Recovery rates for insurance claims are generally around

8% because of the high rate of insolvency for building

contractors involved in large insurance claims payout.

Penalties and fines recovered through QBT and the courts

decreased by $0.199M in 2002, reflecting the successful

introduction during the latter half of the year of the State

Penalties Enforcement Regulatory System (SPERS). The

issuing of SPERS tickets by BSA has resulted in fewer

actions being pursued through the Tribunal and courts and

it also means BSA can action many more apparent

breaches through this resource efficient mechanism. This

trend will continue into 2002/03. To enhance BSA’s

capability in actioning breaches of legislation, staff will be

further trained throughout 2002/03 in issuing SPERS

notices for a number of offences.


--> The buoyancy of the building industry over the past year has seen arecord level of building activity. This has meant a major premiuminjection to the Insurance Fund and its reinsurers.

52


Financial Management (continued) ...

INSURANCE SCHEME VIABILITY

This year has been a time of consolidation, with focus on

securing the long-term viability of the scheme. This has

been necessary following the record breaking 2000/01 year

during which the scheme paid $18.73M in consumer

claims and recorded a loss of $6.862M.

The 2000/01 results impacted on loss ratios for

underwriting years from 1 July1997 to 30 June 2001 with

an average projected loss ratio of 130%. To provide long-

term stability and ensure reinsurer support, BSA, in

conjunction with its actuary and reinsurers, determined it

necessary to increase the amount of premium allocated to

underwriting the scheme. This was achieved by removing

the ‘surcharge’ cross-subsidisation between the Insurance

Fund and General Fund and applying the entire premium

to underwriting and administering the insurance scheme.

The premium was also increased from $5.50/$1,000 of

construction value to $6.00/$1,000.

Back-testing the new premium rate against established loss

ratios from previous years confirmed that had the new rate

been applied to previous years the average loss ratio

would have been no greater than 80%. An 80% loss ratio

is an acceptable industry benchmark.

The buoyancy of the building industry over the past year

has seen a record level of building activity. This has meant

a major premium injection to the Fund and its reinsurers.

In addition to the new premium rates, BSA also introduced

new Policy Conditions Edition 5. This removed liability for

the scheme in relation to non-completion claims from

developers and reduced the maximum policy benefit for

refund of deposit claims to the deposit limits prescribed

in the Domestic Building Contracts Act 2000.

Bob Johnson reconcilinginsurance premiums andclaim payments for BSA’s

reinsurers

-->

Kate Bijerk issuing aninsurance policy to acontractor using Phonepay

<--

125

0

75

100

13 10-year loss ratios

01/0200/0199/0098/9997/98

50

%

25

Loss ratios have been heavily impacted by GST. BSA’s target is an80% average loss ratio.

<--


--> BSA has also enhanced its financial reporting and monitoringcapability which will ensure the integrity and timeliness of financial reports.

53

MANAGING THE SCHEME

As reported last year, the GST legislation and its application

to the General Insurance Industry does not fit the unique

features of BSA’s home warranty insurance scheme with

the result that BSA is unable to claim a decreasing

adjustment that lessens the impact of GST on the statutory

home warranty insurance scheme. This is clearly an

anomaly in the GST legislation and one for which BSA has

unsuccessfully sought a favourable tax ruling from the

Australian Taxation Office (ATO).

This tax liability has increased BSA’s claim expense by the

GST cost, however, BSA has elected to bear this additional

expense whilst seeking a review of the tax ruling rather

than pass the expense on to its reinsurers with consequent

escalation in reinsurance cost.

At the time of reporting, BSA has formally applied for a

peer review of the ATO ruling and if unsuccessful, will

lodge a formal appeal through the Federal Court.

As at 30 June 2002, BSA had funded this GST liability at

a cost of $0.735M and provided $0.453M for its potential

future liability. If the outcome of BSA’s appeal is negative,

consideration will have to be given to revising the

Queensland Building Services Authority Act 1991.

REINSURANCE

With the new premium structure established, a 3-year

reinsurance agreement was negotiated with 75% of the risk

assumed by 3 major international reinsurance companies,

and the remaining 25% by BSA. This long-term reinsurance

agreement was a major coup and avoided BSA from

becoming embroiled in the extreme instability in the

insurance and reinsurance markets that started with the

HIH failure and deteriorated further after the events of

September 11.

THE FUTURE

We will maintain and strengthen our systems to improve

the short and long-term financial viability of the General

and Insurance Funds. Monitoring our operations, and

implementing cost-effective processes, will be a key to our

future success.

BSA will continue with current strategies in maintaining

the viability of the insurance scheme. These include

regularly reviewing the actuarial performance of the

scheme, working with industry to improve building

standards for the most common defects and assessing

annually the financial viability of building contractors as

part of the licensing process. BSA will also maintain the

ongoing review of premiums and policies to identify the

need to adjust premium levels and policy coverage.

As part of developing a five year financial management

plan for the General Fund, options for a more appropriate

fund base will be explored. BSA will also undertake a

review of its significant business processes in order to

achieve greater efficiencies. This will be overseen by a

Business Improvement Council comprising representatives

of all BSA Divisions, all levels of staff, management and

unions.

BSA has also enhanced its financial reporting and

monitoring capability which will ensure the integrity and

timeliness of financial reports. The new system, Finance

1, has a go-live date of 1 July 2002. This will enable

tighter financial control as part of a more rigorous reporting

and monitoring regime for 2002/03.

The basis and process for revenue forecasting has been

reviewed and it is anticipated forecasts for 2002/03 will

be more accurate.

KPMs 2002/03

--> Loss ratio for 2002/03 <110%

--> Improvement in net asset position of General Fund of $1M

--> Net asset position of Insurance fund of >$2M


Values


Goals

--> To foster a culture ofadaptive leadership sothat we are highlyregarded, trusted andvisible within theindustry andcommunity

Strategies

--> Implement a leadership culture which drives thevalues of the organisation

--> Develop, drive and achieve government andindustry policy initiatives

--> Continually improve in line with AQC businessexcellence framework

REDUCEDPERFORMANCE




-1

0

1

2

TARGETProgression

achieved2002 ACTUALProgression

achieved

TARGET80%2002

ACTUAL85%

<-- Sound

progression to

national

consistency on

key issues within

the industry and

government

<-- WorkplaceAttitude IndexFactor B staffagreement with

corporatedirection

54


Leadership

--> BSA and Industry have developed the first licensingregime that aligns training with licensing competencies.

Jason Smith

Comments

<-- BSA continued toprovide input to variousbuilding industryforums throughoutAustralia and keepabreast of emergingissues.

--> Achievement




Key Performance Measure 2001/02

--> Workforce Attitude Index Factor B >80% agreement

--> Sound progression to national consistency on keyissues within the industry and government


--> Workforce Attitude SurveyFactor B result 85%

--> Progression toward nationalconsistency


55

NATIONAL AGENDA

BSA represents Queensland stakeholder interests at the

national level as a founding member of Builders Licensing

Australia (BLA), a body comprising industry regulators from

each State and Territory. BLA was formed to achieve

building regulation uniformity nationwide. At the last

meeting of BLA, held in Hobart in March, the key topic

for discussion was the impact of the HIH Insurance

collapse on building regulators. While the collapse of

HIH Insurance had significant impacts on the home

warranty insurance market in other States, it had no

impact on Queensland, as Queensland remains the only

State with a statutory home warranty insurance scheme.

Of particular interest to BSA was progression of a model

for Continuing Professional Development to ensure that

industry practitioners improve and develop their skills in

accordance with industry trends and emerging technology.

Other topics discussed at the meeting included aligning

licensing qualifications to the Australian Qualification

Training Framework (AQTF). As BSA had already begun

the Licence Class Review Project, rationalising licence

classes and linking them to full qualification under the

AQTF, BSA led this discussion. The meeting also revised

the Building Regulation framework, a matrix that compares

each State’s building legislation.

FEDERAL HOME WARRANTY REVIEW

The upheaval in the home warranty insurance markets

interstate following the collapse of HIH Insurance and the

threatened exit from the market of the remaining home

warranty insurance providers prompted the Federal

Government to appoint an independent consultant to

investigate and report on the cause of this market failure.

As Queensland was the only state not affected by this crisis

BSA took a lead role in advising the consultant, Professor

Percy Allan, on the details of the Queensland system. The

terms of reference required the consultant to make

recommendations to ensure home warranty insurance

provision by the private sector was sustainable, and

adequately serviced the needs of both consumers and

industry. BSA emphasised why its interrelated licensing,

dispute resolution, building information and insurance

systems formed a model for success.

Professor Allan researched both Australian and overseas

jurisdictions before releasing his report in June 2002. The

report was extremely supportive of BSA’s model. Other

states are now considering replicating BSA’s systems and

services in the hope that improved preventative

mechanisms will increase the attractiveness of the provision

of home warranty insurance to insurers in their jurisdictions.

BSA will continue to participate in discussions with

interstate regulators in order to achieve national uniformity

in the future.

REPRESENTATION TO NSW PARLIAMENTJOINT SELECT COMMITTEE ON THEQUALITY OF BUILDING

In 2002, Ian Jennings, (BSA’s General Manager) provided

evidence to the Parliament of New South Wales Joint

Select Committee on the Quality of Building. The

Committee broadly examined the home building industry

in New South Wales, identifying its current strengths and

weaknesses, and capacity to deliver a quality product.

BSA’s evidence focused on the Queensland model and the

success it has achieved in consumer protection and

improving contractor standards within the industry.

THE FUTURE

We will foster an environment of shared and adaptive

leadership so that we are trusted, visible and strategically

focussed within the industry.

Our leadership philosophy will be one of empowering our

people and ensuring they are informed, proactive,

innovative and satisfied.

KPMs 2002/03

--> Implement the leadership framework from 1 January 2003

--> Maintain the current level of % satisfaction in factor B



Financial PerformanceReview

56

Page

--> Purpose and Scope 57

--> Guide to BSA’s Financial Performance Review 57

--> Financial Overview 58Consolidated 2001/02 Outcomes 58Operating Revenue 58Operating Expenditure 58Transfers from Reserves 59Statement of Financial Position 59Capital Expenditure 59Consultancy Expenditure 60General Fund 2001/02 Outcomes and Performance Review 60

--> Insurance Fund 2001/02 Outcomes and Performance Review 61

--> Financial Statements for the year ended June 2002Statement of Financial Performance 62Statement of Financial Position 63Statement of Cash Flows 64Notes to and forming part of the Financial Statements 65Note 1 Summary of Significant Accounting Policies 65Note 2 Licence Renewal and Application Fees 70Note 3 Underwriting 70Note 4 Investment Revenue 71Note 5 Other Revenue 71Note 6 Gain on Disposal of Non-current Assets 71Note 7 Administrative Expenses 71Note 8 Other Expenses 72Note 9 Queensland Building Tribunal Funding 72Note 10 Reserves 72Note 11 Retained Profits 72Note 12 Other Financial Assets 73Note 13 Receivables 73Note 14 Reinsurance and Other Recoveries Receivable 73Note 15 Other Assets 73Note 16 Plant and Equipment 73Note 17 Intangibles 74Note 18 Payables 74Note 19 Provisions 74Note 20 Unearned Premiums 74Note 21 Future Claims and Associated Costs 75Note 22 Commitments 76Note 23 Segment Information 76Note 24 Net Claims Incurred 78Note 25 Contingent Liability 79Note 26 Financial Instruments 79Note 27 Reconciliation of Net Cash Provided by Operating Activities to Operating Profit/(Loss) from Ordinary Activities 81Note 28 Reconciliation of Cash 82Note 29 Provision for GST Payable 82Note 30 HIH Insurance 82

--> Certificate of the Queensland Building Services Authority 83

--> Independent Audit Report 84

Contents


57

PURPOSE AND SCOPE

The Queensland Building Services Authority (BSA) is

constituted under the provisions of the Queensland

Building Services Authority Act 1991 (the Act) and is a

statutory body within the meaning given in the Financial

Administration and Audit Act 1977.

The Financial Statements have been prepared:-

• to satisfy the provisions and prescribed requirements

of the Financial Administration and Audit Act 1977;

and

• to convey information on BSA’s financial performance

for the year and its financial position at the close of

the year to the Minister for Housing, the Queensland

Parliament, contractors, consumer and the broader

community.

The statements are general purpose in nature and provide

a full presentation of all the financial activities of BSA.

Disclaimer

The graphs, tables and captions that appear in the body

of the Annual Report do not form part of the Financial

Statements as certified by the Auditor-General.

GUIDE TO BSA’S FINANCIALPERFORMANCE REVIEW

BSA is self-funded and under its legislation is required to

maintain two funds - the General Fund and the Insurance

Fund. The General Fund meets all operational costs

except those relating to insurance claims and the

administration of the insurance scheme. The General

Fund was no longer required to fund the operations of the

Queensland Building Tribunal (the Tribunal). Section 26

of the Act allows for the transfer of funds from the

Insurance Fund to the General Fund for use in

administering the Act. The maximum amount able to be

transferred is set by regulation at $5.5M.

BSA’s Financial Performance Review comprises:

• Financial Overview; and

• Financial Statements for the year ended 30 June 2002.

The Financial Overview provides a strategic review of

BSA’s financial position at 30 June 2002 and analyses

performance for the financial year 2001/02 in the context

of current issues and historical trends.

The Financial Statements present BSA’s consolidated

financial position and the financial results for 2001/02. At

Note 23 “Segment Information”, the results and financial

position of each Fund are presented.

The Financial Statements comprise:

• the Statement of Financial Performance which details

BSA’s income and expenditure for the year ended 30

June 2002;

• the Statement of Financial Position which reflects the

financial position of BSA at 30 June 2002;

• the Statement of Cash Flows which shows BSA’s cash

receipts and payments for the year ended 30 June 2002;

and

• Notes to and forming part of the Financial Statements.

Items in the Statement of Financial Performance, Statement

of Financial Position and Statement of Cash Flows are

referenced to the Notes, where more detail of balances is

provided. The accounting policies used in the preparation

of the Financial Statements are summarised in Note 1 of

the Notes to and forming part of the Financial Statements.


01 Program cost comparison

Insurance 41.2%

Dispute management 15.7%

Licensing 31.5%

Building information 11.6%

OPERATING EXPENDITURE

The decrease in overall expenditure is attributable to the

following factors:

Administrative expenses decreased by $0.628M (6.8%)

from $9.216M to $8.588M with fluctuations in expenditure

levels across several areas compared to the previous year.

The main movement was a decrease in Engineering and

other commissions fees of $1.131M (87%) from $1.296M

to $0.165M. Two major reconciliations were undertaken

during the year and it was identified were a substantial

proportion of engineering costs were reclaimable from

reinsurers this year. Office rentals and outgoings increased

by $0.418 (41%) from $1.018M to $1.436M. New office

accommodation was required for the Gold Coast regional

office and additional accommodation for the Brisbane head

office where some staff had been housed in temporary

demountable offices.

Underwriting claims expenses decreased by $3.893M

(46.5%). In the previous year there was a record number

of claims, with a high proportion being for contractor

failure. This also resulted in an higher than normal increase

in the amount required to be provided for in 2001/02 for

the provision for future claims liabilities.

With the recovery of the building industry this year there

has been a consequent lack of insolvencies which has

dramatically decreased the number of claims for non-

completion, down to 189 from 384.

BSA was not required to fund the Queensland Building

Tribunal this year. It is now funded by Queensland

Treasury following a Cabinet Budget Review Committee

decision that it be funded from consolidated revenue.

Other Expenses expenditure increased during the year by

$0.993M (59.8%) from $1.662M to 2.655M. The increase

is largely attributable to a change in accounting for the

annual leave provision. This was previously included

with “Salaries and Contract Personnel”. Amortisation

expenses increased by $0.268M from $0.363M to $0.631M

reflecting the continuing investment in business

applications development and the purchase of a new

financial management information system.

58

FINANCIAL OVERVIEW

A strong recovery by the Insurance Fund

from the 2000/01 position together with a

smaller than forecast deficit for the General

Fund produced a sound consolidated result

for the year.

CONSOLIDATED 2001/02 OUTCOMES

BSA’s consolidated financial outcome for 2001/02 was a

profit from ordinary activities of $0.728M compared to a

loss of $6.952M the previous year. This was a significantly

improved result on the originally budgeted profit of

$0.138M and the mid-year forecast of $0.084M profit. This

resulted from an increase in total revenue of $1.246M

(5.3%) and decrease in expenditure of $6.434M (20.9%).

A fall in insurance claims expenses of $3.893M (46.5%)

significantly contributed to the decrease in expenditure

together with the BSA no longer required to fund the

Queensland Building Tribunal ($2.345M in 2000/01).

OPERATING REVENUE

Strong revenue results were recorded for:

Licensing income increased by $2.029M (21.8%) due to

increases in the number of licensees from 47,718 to

50,190, reduced drop out rate of 5.66% compared to 9.2%

in 2000/01 and finalising 7,532 applications compared to

6,087 in the previous year.

Insurance Premiums and Administration Fees increased by

$1.102M (43.9%) and $3.827M (92.4%) respectively. BSA

processed 62,506 policies for the year reflecting a buoyant

Queensland building industry with major drivers being the

First Home Owners Grant and low interest rates.

These increased revenue streams were partially offset by

the decrease in investment revenue which fell by $2.217M

(99.4%) from $2.230M to $0.013M. This resulted from the

poor performance by the BSA’s managed fund investments

which returned approximately -4% or -$0.797M and is

attributable to the poor market in Australian and

international equities. BSA’s cash investments returned

approximately 4.6% or $0.805M for the year.

Other revenue streams generally achieved budget.

The surcharge was phased out from 1 July 2002. Previously

the surcharge formed part of the insurance premium to

provide funding for other BSA activities and the

Queensland Building Tribunal. The surcharge was

removed to allow the full premium to be allocated to

running the insurance scheme. The surcharge shown for

the year is the amount accrued to the year from the

previous financial year.


Financial Performance Review (continued) ...


59

TRANSFERS FROM RESERVES

A contractor and consumer education reserve was

established in 1994/95 for the purpose of encouraging and

assisting education and research related to the building

industry. This is provided for under s25(5) of the

Queensland Building Services Authority Act 1991. In

2001/02 the balance of the reserve reduced by a further

$0.047M following expenditure on publications and

education material including owner builder study guides

and fact sheets.

STATEMENT OF FINANCIAL POSITION

The $0.706M increase in total equity from $4.658M to

$5.364M reflects the sound operating result for the year,

mainly attributable to the performance of the Insurance

Fund. This is a significant reversal on the 2000/01 position

where there was a $6.946M reduction in total equity. The

significant factors were a 46.5% reduction in underwriting

claims expenses together with a 74% increase in insurance

premium and administration fee revenue. BSA was also

no longer required to fund the Queensland Building

Tribunal ($2.345M in 2000/01).

The $7.311M (9.0%) increase in total assets is attributable

to:

• Receivables – an overall increase in recovery debtors

which reflects the flow-on effects from the previous

year when there was a record level of insurance

claims paid.

• Other financial assets – an increase in cash from

insurance premiums and administration fees resulting

from the strong year from the insurance scheme.

• Other – prepayments – increase in the reinsurers

share of unearned income again due to the strong

performance of the Insurance Fund.

• Intangibles – the increase reflects the continuing

investment in business applications development and

the purchase of a new financial management

information system.

The total liabilities increased by $6.605M due to:

• Payables rose due to increased roll fees bought about

by increased licensing income.

16

0

8

12

02 Inflation adjusted comparison of program

01/0200/0199/0098/9997/98

4

Insurance

Dispute management

$M

Licensing

costs

Building information

• Unearned premiums increased by $5.015M due to a

buoyant building industry resulting in 62,506 policies

being produced for the year.

• Future claims (current and non-current) decreased

by $0.421M based on actuarial assessment. The post

GST effects have passed and it reflects the improved

performance by the industry, eg. non-completion

claims have decreased by 195 or 50.8%.

BSA’s ability to discharge short term commitments is

measured by the current ratio (current assets/current

liabilities). The result for the year has caused the ratio to

decline marginally by 0.03 from 1.51 to 1.48 and this

remains a healthy position.

CAPITAL EXPENDITURE

Capital expenditure for the year, net of proceeds from

disposals, amounted to $1.599M compared to $1.054M in

2000/01 and comprised:

• Leasehold improvements $0.302M

• Motor vehicles $0.178M

• Computer software $1.023M

• Furniture and equipment $0.096M

The redevelopment of BSA’s main business application

CMS continued during the year with the major focus

being on new claims, legal and compliance systems and

the creation of a debtors sub-ledger. A new financial

management information system Finance 1 was also

purchased in readiness for 2002/03.

Spending on leasehold improvements increased by

$0.241M from $0.061M to $0.302M with new office

accommodation required for the Gold Coast office and

additional accommodation for Head Office where several

branches had been housed in temporary demountable

offices. This also increased furniture and equipment

expenditure by $0.043M from $0.053M to $0.096M.

BSA has a fleet of 38 vehicles, 58% of which are utilised

by Building Inspectors in the delivery of the dispute

management service.

18

-6

6

12

03 Inflation adjusted comparison of

01/0200/0199/0098/9997/98

0

Operating revenue

Operating expenses

$M

Profit/(loss)

General Fund results


30

-10

10

20


01/0200/0199/0098/9997/98

0

Total revenue

Total expenditure

$M

Operating profit/(loss) before abnormals

Insurance Fund performance

8

0

4

6


01/0200/0199/0098/9997/98

2

Net assets

Cash and investments

$M

General Fund net assets versus cash and investments

60



CONSULTANCY EXPENDITURE

Expenditure on consultants fees increased by $0.074M from

$0.198M to $0.272M. This was largely attributable to

higher use of actuaries brought about by the National

Competition Policy Review and the National Review of

Home Warranty Insurance and Consumer Protection.

Other significant expenditure included consultancies

related to human resource management issues, the

performance of the annual workforce attitude survey and

development of the Authority’s customer continuum

program.

GENERAL FUND 2001/02 OUTCOMESAND PERFORMANCE REVIEW

The General Fund recorded a deficit from ordinary

activities of $0.761M, a net loss of $0.714M after the

transfer from reserves of $0.047M and a total change in

equity of $0.783M after a decrease in reserves of $0.069M.

As a result, net assets reduced by $0.783M from $2.636M

to $1.853M.

Revenue increased in real terms by $1.716M (15%) from

$11.432M to $13.148M exclusive of the transfer from the

insurance fund ($5.000M in 2000/01). This transfer did not

occur in 2001/02 and the increased fees for licences did

not fully meet this shortfall.

Expenditure decreased substantially by $2.551M (15.5%)

with the major reason being BSA was no longer required

to fund the Queensland Building Tribunal ($2.345M in

2000/01). Excluding this funding, expenditure decreased

slightly by $0.206M (1.5%) from $14.115M to $13.909M.

Tighter controls on expenditure and a drive to reduce

corporate overheads helped contribute to the reduction.

The budget performed well relative to the originally

forecast loss of $1.028M and the mid-year forecast loss of

$1.225M.

Revenue of $13.148M was $0.939M under the original

forecast of $14.087M however exceeded the mid-year

forecast of $13.040M by $0.108M.

Investments returned a sound $0.175M against an original

forecast of $0.207M and mid-year forecast of $0.147M.

General fund investments are in cash funds which returned

4.6% for the year and generally performed to market

expectations.

Licensing income ($11.353M) was $0.915M under the

original budget and exceeded the mid-year forecast by

$0.115M. The original forecasts were significantly reviewed

mid-year in relation to drop-out rates for renewals and

number of applications in the various categories.

By the mid-year review in January it was clear that drop-

out rates for licence renewals were significantly higher than

originally forecast. It was also apparent that the number

of applicants in higher fee categories was significantly

down on original forecasts with a greater number of

applicants in the lower fee categories. This resulted in the

mid-year forecasts for licence renewal and application fees

being downgraded by $1.030M from $12.268M to

$11.238M.

Generally, other revenue forecasts were not significantly

altered and budget was achieved.

Expenditure ($13.909M) was $1.206M under original

forecasts and $0.355M under the mid-year forecasts.

Significant savings against forecasts were achieved in

salaries, contract services and commissions and fees and

engineering fees. Savings in salaries and related costs

were achieved through vacancy management. Legal fees

significantly exceeded both the original budget and mid-

year forecast. Control measures such as who could

approve legal work going to an external firm and a

greater emphasis on internal delivery of legal services did

slow expenditure late in the year and will be used in

2002/03 to significantly reduce legal expenditure.


4

0

2

3


01/0200/0199/0098/9997/98

1

$M

administrative costs per claimant assisted

24

0

12

18

08 Inflation adjusted Insurance Fund

01/0200/0199/0098/9997/98

6

Operating expenses

Claims expenditure

$M

Surcharge transferred

expenditure by type

61

INSURANCE FUND 2001/02 OUTCOMESAND PERFORMANCE REVIEW

The Fund recorded a net profit of $1.489M compared to

a loss of $6.924M for 2000/01. As a result, the net asset

position improved by $1.489M. The turnaround reflects a

buoyant Queensland building industry that has recovered

from the post GST effects which influenced the previous

years results. The First Home Owners Grant, continuing

low interest rates, increasing consumer confidence and the

reallocation of collected surcharge to insurance

underwriting significantly contributed to the recovery.

Total revenue fell by $0.470M from $12.291M to $11.821M.

Premium income increased by $1.102M from $2.510M to

$3.612M and administration fee income increased by

$3.827M from $4.142M to $7.969M. 62,506 policies were

processed for the year compared to 43,412 for 2000/01

with an increased average premium value of $444.63

compared to $365.75 in 2000/01.

Investment income fell by $2.119M (108%) from $1.957M

to -$0.167M. This resulted from the poor return on BSA’s

managed fund investments which returned -$0.797M (-4%).

This is attributable to the poor performance of Australian

and international equities. Cash investments returned

$0.630M (4.6%).

40

0

20

30


01/0200/0199/0098/9997/98

10

Net assets


$M

Insurance Fund net assets versus cash and investments

Total income of $11.821M exceeded the original and

mid-year forecasts by $1.350M and $0.153M

respectively. By the mid-year review, it was apparent

that the building industry had made a better than

expected recovery and revenue forecasts were

substantially increased .

Total expenditure fell by $8.883M from $19.215M to

$10.332M. There was no longer the requirement for the

transfer to the General Fund ($5.0M in 2000/01). The

full premium collected is now directed to the Insurance

Fund.

Underwriting Claims expenses decreased by $3.893M

from $8.377M to $4.484M through a reduction in claims

approved during the year and the amount required to

be provided for in 2001/02 for the provision for future

claims liabilities.

20

0

10

15

07 Inflation adjusted Insurance Fund income

01/0200/0199/0098/9997/98

5

Underwriting plus admin fees

Investment and other income

$M

Surcharge collected

by type


62


2002 2001Note $000 $000

Operating revenues from ordinary activities

Licence renewal and application fees 2 11 353 9 324

Underwriting premiums 3 3 612 2 510

Investment revenue 4 13 2 230

Administration fees 3 7 969 4 142

Surcharge collected 3 127 3 719

Other revenue 5 1 895 1 798

Total operating revenues from ordinary activities 24 969 23 723

Operating expenses from ordinary activities

Administrative expenses 7 8 588 9 216

Underwriting claims 3 4 484 8 377

Salaries and contract personnel 8 708 9 075

Other expenses 8 2 655 1 662

Queensland Building Tribunal funding 9 (194) 2 345

Total operating expenses from ordinary activities 24 241 30 675

Profit/(loss) from ordinary activities 11 728 (6 952)

Transfer from reserves 10 47 90

Net profit/(loss) 775 (6 862)

Increase/(Decrease) in Reserves:

Asset revaluation reserve 10 (22) 6

Contractor and consumer education reserve 10 (47) (90)

(69) (84)

Total changes in equity other than those resulting

from transactions with owners as owners 706 (6 946)

The above Statement of Financial Performance is to be read in conjunction with the Notes to and forming part of the Financial Statements.

for the year ended 30 June 2002

Statement of Financial Performance

BSA 4484 A/R 2002 Fins SR-FA2 28/10/02 11:18 AM Page 62

63

2002 2001Note $000 $000

Current assets

Cash 1(p) 644 (501)

Receivables 13 2 562 1 533

Reinsurance and other recoveries receivable 14 10 708 10 476

Other financial assets 12 38 578 36 698

Other – prepayments 15 7 721 4 082

Total current assets 60 213 52 288

Non-current assets


Plant and equipment 16 1 708 1 836

Intangibles 17 1 919 1 527

Total non-current assets 27 844 28 458

Total assets 88 057 80 746

Current liabilities

Payables 18 14 174 12 167

Provisions 19 1 662 1 636

Future claims and associated costs 21 14 799 15 710

Unearned premiums 20 10 140 5 125

Total current liabilities 40 775 34 638

Non-current liabilities

Provisions 19 840 862


Total non-current liabilities 41 918 41 450

Total liabilities 82 693 76 088

Net assets 5 364 4 658

Equity

Reserves 10 606 675

Retained profits 11 4 758 3 983

Total equity 5 364 4 658

The above Statement of Financial Position is to be read in conjunction with the Notes to and forming part of the Financial Statements.

Statement of Financial Positionas at 30 June 2002


64


2002 2001Note $000 $000

Cash flows from operating activities

Received from roll fees 13 070 8 687

Surcharge collected 127 2 987

Received from administration fees 6 842 3 118

Received from interest 336 555

Received from other revenue 1 295 1 542

GST receipts 2 915 4 396

24 585 21 285

Payments to creditors (7 041) (8 111)

GST payments (2 850) (4 244)

Payments to employees (9 589) (9 097)

(19 480) (21 452)

5 105 (167)

Received from premiums 17 509 5 871

Payments to reinsurers (15 245) (7 291)

Claims paid (15 458) (17 516)

Received from reinsurers 13 036 13 389

(158) (5 547)

Net cash provided by operating activities 27 4 947 (5 714)

Cash flows from investing activities

Payments for plant and equipment and intangibles (1 964) (1 247)

Proceeds from sale of investments 64 -

Proceeds from sale of plant and equipment 365 130

Net cash used in investing activities (1 535) (1 117)

Net increase/(decrease) in cash held 3 412 (6 831)

Cash at the beginning of the financial year 5 952 12 783

Cash at the end of the financial year 28 9 364 5 952

The above Statement of Cash Flows is to be read in conjunction with the Notes to and forming part of the Financial Statements.


Statement of Cash Flows


65

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements are general purpose financial reports that have been prepared in accordancewith applicable Australian Accounting Standards and other mandatory professional reportingrequirements (Urgent Issues Group Abstracts) and the requirements prescribed by:

– the Queensland Building Services Authority Act 1991;

– section 46F of the Financial Administration and Audit Act 1977; and

– the Financial Management Standard 1997

The financial statements are prepared in accordance with the historical cost convention and do not take into account changing money values. The accounting policies adopted are consistent with those ofprevious years unless otherwise stated. Comparative information is reclassified where appropriate toenhance comparability.

The Queensland Building Services Authority (BSA) is comprised of a General Statutory Fund and anInsurance Fund as stipulated by Sections 25 and 26 of the Queensland Building Services Authority Act1991. The financial statements of the Authority have been prepared as a consolidation of both Funds.The balances and effects of transactions between the Funds included in the consolidated financialstatements have been eliminated. Note 23, shows the results and financial position of each Fund as at 30 June 2002.

Having regard to the nature of the general insurance business conducted by the Authority, certaindisclosures have been made in the Statement of Financial Performance and Statement of FinancialPosition, which are additional to those required by the Financial Management Standard 1997.

(b) Ministerial portfolio

The BSA is a statutory body within the portfolio of the Minister for Public Works and Minister forHousing. The principal place of business for the BSA is 11 Edmondstone Street, South Brisbane,Queensland.

(c) Premium revenue

Insurance premiums comprise amounts charged to policyholders. The earned portion of premiumsreceived is recognised as revenue. Premium is treated as earned from the date of attachment of risk.

The pattern of recognition of income over the policy of indemnity period is based on time, where thisclosely approximates the pattern of risk underwritten. Unearned premiums are determined byapportioning the premiums written in the year, using the one twenty-fourth method for reinsurancebusiness, over the period of indemnity from the attachment of the risk.

(d) Outward reinsurance

Premiums ceded to reinsurers are recognised as an expense in accordance with the pattern ofreinsurance services received. Accordingly, a portion of outward reinsurance premiums is treated at thebalance date as a prepayment.

Notes to and forming part of the Financial Statementsfor the year ended 30 June 2002


66


NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

(e) Claims

Claims expenses and a liability for outstanding claims are recognised in respect of direct insurancebusiness. The liability covers claims reported but not yet paid, incurred but not reported (IBNR) and theanticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by reviewof individual claim files and estimating changes in the ultimate cost of settling claims, IBNR’s andsettlement costs using statistics based on past experience and trends. Outstanding claims relating to“long-tail” classes are subject to independent actuarial assessment. “Long-tail” classes refer to claims notsettled within one year of the incidence of risk.

The liability for outstanding claims for “long-tail” classes is measured as the present value of theexpected future payments. These payments are estimated on the basis of the ultimate cost of settlingclaims, which is affected by factors arising during the period to settlement such as inflation. Suchestimates are subject to uncertainty due to variations of both a random and non-random nature, whichmay affect components of the estimates. The expected future payments are discounted to present valueat the balance date using market determined, risk adjusted discount rates. The details of rates appliedare included in Note 21.

The liability for outstanding claims is calculated using a “best estimate” methodology, which is a centralestimate of likely future claim payments. This central estimate is intended to be neither optimistic norpessimistic about the development of claims in the future.

Goods and services tax (GST) on claims expenditure

The Authority incurs GST for which it is currently unable to claim an input tax credit on all claimsettlements made from and including 1 July 2000.

For claims settled after 30 June 2000 for events which occurred before 1 July 2000 the Authority is ableto claim a percentage of the GST paid (in accordance with the participation rates as detailed in Note 3)from its reinsurers.

A percentage of the GST paid cannot be passed to the reinsurers for claims for which the eventoccurred after 30 June 2000.

(f) Reinsurance and other recoveries receivable

Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid and IBNR’s arerecognised as revenue. Recoveries receivable are assessed in a manner similar to the assessment ofoutstanding claims. Recoveries receivable in relation to “long-tail” classes are measured as the presentvalue of the expected future receipts, which are calculated on the same basis as the liability foroutstanding claims.

The details of discount and inflation rates applied are included in Note 21.

(g) Receivable and revenue recognition

Insurance claims recoverable from licensed builders are recognised when a claim paid to a consumer isfinalised. Tribunal fines receivables are recognised when an order from the Tribunal is issued in favourof the Authority. Magistrates Court fines receivables are recognised when a conviction from theMagistrates Court is issued in favour of the Authority. Appraisals of government contracts receivable arerecognised when the services provided by the Authority are invoiced at the end of each month.

Debtors are reviewed on an ongoing basis. Debts, which are known to be uncollectable, are written off.A provision for doubtful debts is raised where some doubt exists and in any event where the debt ismore than 180 days overdue.



67


(h) Non-current assets

The carrying amount of non-current assets is reviewed to determine whether they are in excess of theirrecoverable amount at balance date. The recoverable amount of an asset is the amount expected to berecovered through the net cash inflows arising from its continued use. If the carrying amount of non-current assets exceeds the recoverable amount, the asset is written down to the lower amount. To theextent that a revaluation decrement reverses a revaluation increment previously credited to, and stillincluded in the balance of, the asset revaluation reserve, the decrement is debited directly to thatreserve. Otherwise, the decrement is recognised as an expense in the Statement of FinancialPerformance. In assessing recoverable amount the relevant cash flows have not been discounted to thepresent value. The threshold for recognising non-current physical assets in the financial statements onacquisition is $1,000.

Plant and equipment is valued at cost.

Change in Accounting Policy

In accordance with the transitional provisions provided for in AAS 38 Revaluation of Non-Current Assetsthe brought forward carrying value of plant and equipment as at 1 July 2001 is taken to be the deemedcost of these assets. The change in accounting policy has no financial effect in the current or priorfinancial years.

(i) Operating leases

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor,are charged as expenses in the periods in which they are incurred.

(j) Depreciation and amortisation

Depreciation and amortisation are provided as appropriate on all non-current assets, other than land,using a straight line method of calculation at rates determined by the estimated useful life of the assetsto the economic entity commencing from the time the asset is held ready for use. Estimates of remaininguseful lives are made on a regular basis for all assets, with annual reassessment for major items.

Depreciation commences from the date an asset is controlled, serviceable and ready for use. The rates of each class of asset are:

Office Furniture and Equipment 15%–33.33%Motor Vehicles 15%Computer Equipment 33.33%

Leasehold Improvements depreciated over the life of the applicable leaseagreement or the estimated useful life of theimprovement to the economic entity, whichever is theshorter. The rates are varied between 16% -50%.

Gains or losses arising from the sale or disposal of non-current assets are brought to account in thedetermination of the operating result for the year in which the sale or disposal took place.

(k) Investments

General Statutory Fund investments, excluding government and semi-government stock, are recorded atcost.

Government and semi-government stock and Insurance Fund investments are measured at their netmarket value at each balance date.

Changes in the net market values of investments (or cost of acquisition, if acquired during the financialyear) are recognised as revenue or expenses in the Statement of Financial Performance.

Investment revenue is brought to account on an accrual basis.

Income derived from investments is brought to account when earned.



68



(l) Employee leave and retirement benefits

Wages, salaries, annual leave and sick leave

The provisions for employee entitlements to wages, salaries, annual leave and sick leave represent theamount which the Authority has a present obligation to pay resulting from employees’ services providedup to the balance date. The provision has been calculated at nominal amounts based on current wageand salary rates and includes related on-costs.

Long service leave

The liability for employee entitlements to long service leave represents the present value of theestimated future cash outflows to be made by the Authority resulting from employees’ services providedup to the balance date.

Liabilities for employee entitlements which are not expected to be settled within twelve months arediscounted using the rates attaching to national government securities at balance date, which mostclosely match the terms of maturity of the related liabilities.

In determining the liability for employee entitlements, consideration has been given to future increasesin wage and salary rates, and the Authority’s experience with staff departures. Related on-costs have alsobeen included in the liability.

The long service leave provision also takes into account recognition of employees’ prior services inother state, local or federal government entities. Recognition of prior services has been agreed as part ofthe Enterprise Development Agreement for the Authority.

Superannuation fund

Superannuation contributions made by the Authority are contributed to an employee superannuationscheme and to other funds on behalf of its Board Members as required under applicable awardlegislation. These contributions are charged as expenses when incurred. The Authority has no obligationto cover any shortfall in any of the funds’ obligations to provide benefits to employees on retirement.

(m)Payables

These amounts represent liabilities for goods and services provided to the economic entity prior to theend of the financial year and which are unpaid. The amounts are unsecured and are usually paid within30 days of recognition.

(n) Intangible assets and expenditure carried forward

Costs associated with the computer systems redevelopment project are deferred and amortised on astraight-line basis over the period of their expected benefit, which is five years. The CD Romdevelopment costs are amortised over three years.



69


(o) Reserves

A contractor and consumer education reserve has been established for the purpose of encouraging andassisting education and research related to the building industry as allowed under the QueenslandBuilding Services Authority Act 1991, subsection 25(5). Transfers to this reserve are determined by theGeneral Statutory Fund’s profits.

(p) Cash

Cash balances in BSA’s General and Insurance bank accounts are cleared to QTC Cash Fund overnightto maximise investment returns. Consequently, period end Cash at Bank may reflect a negative balancedue to the timing of unpresented cheques. BSA does not have an overdraft facility and is precludedfrom doing so by legislation.

For purposes of the statement of cash flows, cash includes deposits at call which are readily convertibleto cash on hand and are subject to insignificant risk of changes in value.

(q) Goods and Services Tax (GST)

Revenues (including earned premiums), expenses and assets are recognised net of the amount of GSTunless (in relation to expenses and assets) the amount of GST incurred is not recoverable from theAustralian Tax Office (ATO). In these instances the GST is recognised as part of the amount of theexpense or is recognised as part of the cost of acquisition of the asset.

Receivables and payables are recognised inclusive of the amount of GST that is receivable or payable.An allowance for GST payable on future claims has been included in the provision for future claims.

Cash flows are included in the Statement of Cash Flows on a gross basis with the GST components ofthe cash flows shown as separate line items. The GST components of cash flows arising from investingand financing activities which are recoverable from, or payable to, the ATO are classified as operatingcash flows.

(r) Income taxation

The Authority is exempt from income taxation pursuant to Division 1AB, Subdivision A Sections 24AK to24AV of the Income Tax Assessment Act 1936.

(s) Rounding

Amounts have been rounded to the nearest thousand dollars, except where otherwise indicated.



70


2002 2001Note $000 $000

NOTE 2 LICENCE RENEWAL AND APPLICATION FEES

Renewal fees 9 939 8 430

Application fees 1 414 894

11 353 9 324

NOTE 3 UNDERWRITING

3.1 Underwriting premiums

Premiums received 19 464 8 037

Less: Outward reinsurance premium expense 14 594 6 025

Loss year distribution paid to reinsurers - 203

Authority’s share of premiums 4 870 1 809

Less: Unearned premiums at end of year 20 2 539 1 281

Total premiums received and earned during the year 2 331 528

Add: Unearned premiums at beginning of year 1 281 1 982

Underwriting premiums 3 612 2 510

Underwriting claims

Claims approved and charged 15 391 25 920

Less: Reinsurance and other recoveries revenue 10 907 17 543


Loss on underwriting (872) (5 867)

Participation in the Insurance Scheme

Date Authority Brokers/Reinsurers

Pre – 01/07/91 10% 90%

01/07/91 – 30/06/98 25% 75%

01/07/98 – 30/09/99 30% 70%

01/10/99 – 30/06/02 25% 75%

3.2 Administration fees

Administration fees received 7 938 3 826

Movement in the provision for future claims processing 31 316

Administration fees after provision for future claims processing 7 969 4 142

3.3 Surcharge collected 127 3 719

Previously a surcharge was collected and transferred to the General Fund. This is now retained by the

Insurance Fund and is reflected in Administration Fees which are collected for the administration of the

Insurance Scheme.

General Fund operations were supplemented by the restructuring of licence fees and the cessation of the

requirement to fund the Queensland Building Tribunal (refer Note 9).



2002 2001Note $000 $000

NOTE 4 INVESTMENT REVENUE

Interest 336 498

Changes in net market value of investments

– realised (323) -

– unrealised - 1 732

13 2 230

NOTE 5 OTHER REVENUE

Court fines awarded 645 502

Search fees 281 245

Owner builder fees 453 342

Gain on sale of non-current assets 6 16 7

Appraisal of Government Contracts 213 398

Other 287 304

1 895 1 798

NOTE 6 GAIN ON DISPOSAL OF NON-CURRENT ASSETS

Proceeds from sale of non-current assets 365 130

Carrying value of non-current assets sold or disposed (349) (123)

Gain on disposal 5 16 7

NOTE 7 ADMINISTRATIVE EXPENSES

Equipment maintenance 253 325

Information Systems Maintenance 404 695

Computer lease rentals 515 511

Miscellaneous office equipment 111 106

Office rentals and outgoings 1 436 1 018

Legal fees 1 459 1 382

Engineering and other commission fees 165 1 296

Consultants fees 272 198

Printing and stationery 689 752

Travelling expenses 168 130

Motor vehicle expenses 142 181

Postage and telephones 822 846

Superannuation 819 704

Payroll tax 509 461

Fringe benefits tax 80 75

Advertising 94 83

Other 650 453

8 588 9 216


71


2002 2001Note $000 $000

NOTE 8 OTHER EXPENSES

Auditors remuneration – audit of financial statements (i) 4 42

Board members’ fees and functions 43 31

Premium acquisition costs and sighting fees 70 295

Doubtful debts and bad debts 323 208

Depreciation 698 576

Amortisation 631 363

Long service leave 26 157

Annual leave 860 (10)

2 655 1 662

(i) Audit fees of $31 900 for 2002 were not accrued as at 30 June 2002

NOTE 9 QUEENSLAND BUILDING TRIBUNAL FUNDING

(194) 2 345

The Authority is no longer required to provide funding for the

running of the Tribunal.

The negative expense of $194 000 reflects the reversal of an

over-accrual made as at 30 June 2001.

NOTE 10 RESERVES

Consumer and contractor education reserve 1(o) 82 129

Asset revaluation reserve 524 546

606 675

Contractor and consumer education reserve

Balance at beginning of year 129 219

Add: funds transferred from retained profits - 15

Less: funds transferred to retained profits (47) (105)

Balance at end of year 82 129

Asset revaluation reserve


Add: Revaluation of assets - 52

Less: decrement on write down of assets (22) (46)

Balance at end of the year 524 546

NOTE 11 RETAINED PROFITS

Balance at beginning of year 3 983 10 845

Profit/(Loss) from ordinary activities 728 (6 952)

Transfer from reserves 47 90

Balance at end of the year 4 758 3 983



72


Leasehold Plant &Improvements Equipment Total

2002 2001Note $000 $000

NOTE 12 OTHER FINANCIAL ASSETS

On call and overnight deposits and cash trust investments 8 720 6 453

Government and semi-government stock – at market value 29 858 30 245

38 578 36 698

NOTE 13 RECEIVABLES

Current

Sundry debtors 23 506 15 843

Less: Provision for doubtful debts 20 944 14 310

2 562 1 533

NOTE 14 REINSURANCE AND OTHER RECOVERIES RECEIVABLE

Current

Reinsurance and other recoveries receivable 10 708 10 476

Non-current


NOTE 15 OTHER ASSETS

Current

Prepayments 120 238

Prepayments – outward reinsurance on unearned premiums 20 7 601 3 844

7 721 4 082

NOTE 16 PLANT AND EQUIPMENT

At independent valuation 30 June 1998 - 1 659

At cost 3 791 1 691

3 791 3 350

Less: Provision for depreciation 2 083 1 514

1 708 1 836

Movement in carrying amount of plant and equipment

Carrying amount at beginning of year 577 1 259 1 836

Acquisitions 302 639 941

Disposals - (349) (349)

Write downs - (22) (22)

Depreciation (294) (404) (698)

Carrying amount at end of year 585 1 123 1 708


73


2002 2001Note $000 $000

NOTE 17 INTANGIBLES

Non-current

Computer systems redevelopment costs 1(n) 3 227 2 206

Less: Amortisation 1 330 710

1 897 1 496

CD Rom development costs 1(n) 33 31

Less: Amortisation 11 -

22 31

1 919 1 527

NOTE 18 PAYABLES

Current

Sundry creditors 8 022 6 806

Accruals 698 1 306

Roll fees 5 175 3 806

GST collected on premiums 279 249

14 174 12 167

NOTE 19 PROVISIONS

Current


Annual leave 973 910

1 662 1 636

Non-current


Provision for GST payable 29 453 453

840 862

NOTE 20 UNEARNED PREMIUMS

Authority’s share 3 2 539 1 281

Outward reinsurance 15 7 601 3 844

10 140 5 125



74


75

2002 2001$000 $000

NOTE 21 FUTURE CLAIMS AND ASSOCIATED COSTS

Expected future claims payments 65 696 66 023

Discount to present value (9 819) (9 725)

Liability for outstanding claims 55 877 56 298

Current 14 799 15 710

Non-current 41 078 40 588

55 877 56 298

Represented by:

Future claims provision 49 622 50 012

Future claims processing provision 6 255 6 286

55 877 56 298

The following average inflation rates and discounts rates

were used in the measurement of outstanding claims:

For the succeeding year

Inflation rate 3.5% 3.5%

Discount rate 6.0% 6.0%

For subsequent years


Discount rates 6.0% 6.0%

The weighted average expected term of settlement of the

outstanding claims from the balance date is estimated to be: 3.0 years 2.9 years



76


2002 2001$000 $000

NOTE 22 COMMITMENTS

Operating lease commitments

Total operating lease expenditure contracted for at balance

date but not provided for in the accounts, payable:

– not later than one year 1 697 1 569

– later than one year and not later than five years 4 651 3 813

– later than five years - 83

6 348 5 465

The Authority leases property, plant and equipment under operating leases expiring from 1 to 5 years.

Property leases generally provide the Authority with a right of renewal at which time all terms are

renegotiated.

NOTE 23 SEGMENT INFORMATION

As stated in Note 1(a), the Authority is comprised of a General Statutory Fund and an Insurance Fund. The

General Statutory Fund derives the majority of its revenue from fees received from building industry

contractors to obtain and renew licences required under the Queensland Building Services Authority Act

1991. The Insurance Fund derives its revenue from underwriting premiums and administration fees from

operating the insurance scheme.



77

General Insurance ConsolidatedStatutory Fund Fund Entity

2002 2001 2002 2001 2002 2001Primary Reporting Segements $000 $000 $000 $000 $000 $000

General Insurance Elimin- ConsolidatedStatutory Fund Fund ations Entity



Revenue

Revenue from external sources 13 148 11 432 11 821 12 291 24 969 23 723

Internal transfers of funds - 5 000 - - (5 000) - -

Total segment revenue 13 148 16 432 11 821 12 291 24 969 23 723

Expenditure

Expenditure from external sources 13 909 16 460 10 332 14 215 24 241 30 675

Internal transfers of funds - - - 5 000 (5 000) - -

Total segment expenditure 13 909 16 460 10 332 19 215 24 241 30 675

Segment results from

ordinary activities (761) (28) 1 489 (6 924) 728 (6 952)

Transfer from reserves 47 90 - - 47 90

Net profit/(loss) (714) 62 1 489 (6 924) 775 (6 862)

Increase/(decrease) in reserves (69) (84) - - (69) (84)

Total changes in equity other

than those resulting from

transactions with owners

as owners (783) (22) 1 489 (6 924) 706 (6 946)

Assets

Segment assets 10 070 8 995 77 987 71 751 88 057 80 746

Liabilities

Segment liabilities 8 217 6 359 74 476 69 729 82 693 76 088

Net Assets

Segment net assets 1 853 2 636 3 511 2 022 5 364 4 658

Other

Acquisition of non-current

segment assets 1 798 1560 166 45 1 964 1605

Depreciation and amortisation of

Non-current segment assets 1 287 939 42 - 1 329 939

Other non-cash segment expenses 114 (20) 6 520 (1 921) 6 634 (1 941)


78


2002 2001Current Prior Current Prior

Year Years Total Year Years Total$000 $000 $000 $000 $000 $000

2002 2001Note $000 $000

NOTES 24 NET CLAIMS INCURRED

Current period claims relate to risks borne in the current reporting period. Prior period claims relate to a

reassessment of the risks borne in the previous reporting period.

Gross claims incurred and related

expenses – undiscounted 9 041 6 465 15 506 7 447 20 142 27 589

Reinsurance and other recoveries

– undiscounted (6 017) (4 456) (10 473) (4 965) (13 666) (18 631)

Net claims incurred – undiscounted 3 024 2 009 5 033 2 482 6 476 8 958

Discount and discount movement

– gross claims incurred (1 784) 1 669 (115) (1 294) (376) (1 670)


– reinsurance and other recoveries 1 186 (1 316) (130) 861 91 952

Net discount movement (598) 353 (245) (433) (285) (718)

Total discounted net incurred claims 2 426 2 362 4 788 2 049 6 191 8 240

Other recoveries undiscounted

Claims recoverable from Licensees 15 425 16 260

Provision for doubtful debts (14 243) (16 117)

1 182 143

Reinsurer’s portion (878) (280)

Total undiscounted recoveries 304 (137)

Total discounted net incurred claims 4 788 8 240

Less: other recoveries undiscounted 304 (137)




79

NOTE 25 CONTINGENT LIABILITY – CONSOLIDATED REVENUE GRANT

During the 1998/99 financial year the Authority received a $1.45M grant from the State GovernmentConsolidated Revenue. The grant was made to provide short-term funding support for BSA pendingresolution of BSA’s long-term funding strategy through the Government’s Better Building Industry reforms.The grant was treated as income in the Authority’s accounts and as a general expense in the Government’saccounts for 1998/99. As a result of a subsequent Cabinet Decision, the Government requires the grant tobe repaid on a future date. Treasury advice is that the funds are to be repaid as a dividend, with the timingof this repayment dependent upon BSA’s capacity to do so and to be examined in subsequent annualbudget development processes.

As at 30 June 2002, the value of the contingent liability remained at $1.45M. Provision for payment of thecontingent liability, in full or part, was not made in the 2002/03 BSA budget.

NOTE 26 FINANCIAL INSTRUMENTS

The Authority invests in Queensland Investment Corporation (QIC) Cash Trust, QIC Investment Trust andQueensland Treasury Corporation (QTC) Cash Fund.

The investment managers of the pooled investment vehicles have invested in a variety of financialinstruments, including derivatives, which expose the Authority’s investment to a variety of investment risks,including interest rate risk, credit risk, market risk and currency risk.

The Authority obtains regular reports from each investment manager on the nature of the investment madeand the associated risks and returns. The Authority seeks information from the investment managers of eachproposed collective investment, and may also seek independent advice from other qualified persons, so asto determine the nature and extent of risk, and expected returns associated with each investment prior todetermining its suitability as an investment for the Authority. This includes the receipt of a formal RiskManagement Statement from each manager.



80


2002 2001Floating Non- Floating Non-interest interest interest interest

rate bearing Total rate bearing Total$000 $000 $000 $000 $000 $000

NOTE 26 FINANCIAL INSTRUMENTS (CONTINUED)

a) Interest rate risk exposures

The Authority’s exposure to interest rate risk and the effective weighted average interest rate for each

class of financial assets and financial liabilities is set out below.

Financial assets

Cash - 644 644 - (501) (501)

Receivables - 2 562 2 562 - 1 533 1 533

Investments

– At call deposits 8 720 - 8 720 6 453 - 6 453

– QIC stock 29 858 - 29 858 30 245 - 30 245

38 578 3 206 41 784 36 698 1 032 37 730

Weighted average interest rate 0.3% 5.85%

Financial liabilities

Payables - 14 174 14 174 - 12 167 12 167

Net financial assets (liabilities) 38 578 (10 968) 27 610 36 698 (11 135) 25 563

b) Credit risk exposures

The credit risk on financial assets of the Authority that have been recognised on the Statement ofFinancial Position is generally the carrying amount, net of any provisions for loss.

The Authority does not have any material credit risk exposure to any single debtor, or group of debtors,under financial instruments entered into by the Authority. The credit risk exposure does not take intoaccount the value of any security held in the event other parties fail to perform their obligations under afinancial instrument.

c) Net fair value of financial assets and liabilities

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets andfinancial liabilities approximates their carrying value.

The net fair value of other monetary financial assets, being Queensland Investment Corporation Stock isbased on the quoted market price provided by QIC.



81

2002 2001$000 $000

NOTE 27 RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO OPERATING PROFIT/(LOSS) FROM ORDINARY ACTIVITIES

Net cash provided by operating activities 4 947 (5 714)

Non-cash items in operating surplus:

Provisions for doubtful debts (6 634) 1 941

Provision for employee entitlement (4) (147)

Depreciation and amortisation (1 329) (939)

Net gain on sale of plant and equipment 16 7

Changes in net market value of investments (323) 1 675

Net change in operating assets and liabilities:

Increase/(decrease) in receivables 6 377 2 147

Increase/(decrease) in other current assets 522 (2 082)

(Increase)/decrease in sundry creditors and accruals (638) 1 478

(Increase)/decrease in roll fees (1 369) 637

(Increase)/decrease in accrued claims 421 (6 709)

(Increase)/decrease in unearned premiums (5 016) 2 485

Increase/(decrease) in deferred acquisition costs - (240)

Increase/(decrease) in prepayments – outward reinsurance 3 758 (1 783)

Payment from provision for GST - 292

Profit/(loss) from ordinary activities 728 (6 952)



2002 2001Note $000 $000

NOTE 28 RECONCILIATION OF CASH

For the purposes of the Statement of Cash Flows, cash includes cash

on hand and on deposit with financial institutions for operating

activities. Cash at the end of the financial year as shown in the

Statement of Cash Flows is reconciled to the Statement of Financial

Position as follows:

Cash 1(p) 644 (501)

Deposits at call 8 720 6 453

Total cash and cash equivalents 9 364 5 952

As stated in Note 1(a), the Act requires the cash and cash equivalents

to the General Statutory Fund and Insurance Fund to remain separate.

The cash and cash equivalent balance of the two funds as at

30 June 2002 is:

General Statutory Fund

Cash 194 (232)


Insurance Fund

Cash 450 (269)


NOTE 29 PROVISION FOR GST PAYABLE

Building contractors pay the insurance premiums on behalf of consumers. However, the Australian TaxationOffice (ATO) has ruled that contractors are able to claim an input tax credit in respect of GST paid on thepremium. However, as consumers, not contractors, are the beneficiaries of claim settlements, there is abreak in the “chain of supply” which prevents BSA from being able to claim a decreasing adjustment inrespect of its claims expenditure. BSA is seeking an amendment to the GST legislation to address thisanomaly. In the event that it succeeds, BSA will incur a GST liability in regard to new insurance businesswritten during the period 2 December 1998 to 8 July 1999. A provision of $0.453M was made at 30 June 2002 for this potential liability. (Refer Note 19).

NOTE 30 HIH INSURANCE

The Authority has notified HIH Insurance of 5 circumstances which could give rise to professionalindemnity claims.

As at 30 June 2002 only one of the circumstances had an amount (of $25,000 actual) attached.

The Authority is unable to assess the amount of the potential liability attaching to the other four claims.



82


83

We have prepared the following consolidated financial statements pursuant to the provisions of the FinancialAdministration and Audit Act 1977, Financial Management Standard 1997 and other prescribed requirementsand certify that in our opinion:

(a) the prescribed requirements in respect of the establishment and the keeping of accounts have beencomplied with in all material respects;

(b) the Statement of Financial Performance has been drawn up so as to present a true and fair view of theresults of the Authority for the year ended 30 June 2002;

(c) the Statement of Financial Position has been drawn up so as to present a true and fair view of theAuthority’s financial position as at 30 June 2002; and

(d) the Statement of Cash Flows has been drawn up so as to present a true and fair view of the cash flowsof the Authority for the year ended 30 June 2002.

Garry Rossow Ian Jennings

Chairman General Manager

Brisbane

19th September 2002

Certificate of the Queensland Building Services Authority


84


Scope

I have audited the general purpose financial statements of the Queensland Building Services Authorityprepared by the Authority for the year ended 30 June 2002 in terms of section 46F of the FinancialAdministration and Audit Act 1977. The financial statements comprise the Statement of FinancialPerformance, Statement of Financial Position, Statement of Cash Flows, Notes to and forming part of thefinancial statements and certificates given by the Chairperson and the General Manager.

The Queensland Building Services Authority is responsible for the preparation and the form of presentationof the financial statements and the information they contain. I have audited the financial statements inorder to express an opinion on them.

The audit has been conducted in accordance with QAO Auditing Standards, which incorporate theAustralian Auditing Standards, to provide reasonable assurance as to whether the financial statements arefree of material misstatement. Audit procedures included the examination, on a test basis, of evidencesupporting the amounts and other disclosures in the financial statements and the evaluation of accountingpolicies and significant accounting estimates. These procedures have been undertaken to form an opinionwhether, in all material respects, the financial statements are presented fairly in accordance with prescribedrequirements in Australia which include Australian Accounting Standards so as to present a view which isconsistent with my understanding of the Queensland Building Services Authority's financial position, and theperformance as represented by the results of its operations and its cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In accordance with section 46G of the Financial Administration and Audit Act 1977 I certify that I havereceived all the information and explanations I have required and, in my opinion –

– the prescribed requirements in respect of the establishment and keeping of accounts have beencomplied with in all material respects; and

– the statements have been drawn up so as to present a true and fair view, in accordance with prescribedaccounting standards and other mandatory professional reporting requirements in Australia, of thetransactions of the Queensland Building Services Authority for the financial year 1 July 2001 to 30 June 2002 and of the financial position as at the end of that year.

J P BEH, CPA

Director of Audit Queensland Audit Office

(Delegate of the Auditor-General) Brisbane

Independent Audit ReportQueensland Building Services Authority


PageIndex Page

--> People 2, 4, 14, 38Accommodation 41Enterprise Development Agreement 40Equal Employment Opportunity 40Key Workforce Statistics and Indicators 39Learning and Development 39Workforce Attitude Survey 40Workplace Health and Safety 40

--> Policy (Legislation and) 2, 4, 14, 42--> Population and Demographic Trends 12--> Private Certifiers

Accreditation and Audits 48Certification 48

--> Queensland Government Policy Priorities 11--> Reinsurance 53--> Representation to NSW Parliament Joint Select

Committee on the Quality of Building 55--> Risk

Management 26Monitoring Accountability and Risk Management 24

--> Staff (See People)--> Strategic Business Planning and Budgeting 21--> Subcontractors’ Charges Act 1974 44--> Value for Money 10--> Values IFC, 14--> Vision IFC--> Whistleblowers Protection Act 1994 23--> Workplace Health and Safety 40

Diagrams

--> Corporate Performance - Bird’s Eye 14--> Learning and Development Schematic 39--> Map of BSA Office Locations IFC--> Organisational Chart 20--> Planning and Reporting Framework 27--> Service Delivery Model 21

Graphs

01 Customer Continuum – Commitment Continuum 2902 Customer Continuum – Satisfaction Continuum 2903 Licence Class by Profession 3204 Licensee Base by Region 3205 Licensee Age vs AATO 3306 Number of Licensed Builders and Trade Contractors 3307 Regional Distribution of Dispute Notifications

Received in 2001/02 3408 Dispute Notifications Received/Finalised

Compared with Building Activity 3409 Disputes Satisfactorily Resolved 3510 Accrued Policies by Construction Year 3511 Gross Premium Receipts 3612 Claim Payments by Type 3613 10-year loss ratios 52

Financial Performance Review Graphs

01 Program Cost Comparison 5802 Inflation Adjusted Comparison of Program Costs 5903 Inflation Adjusted Comparison of General

Fund Results 5904 Inflation Adjusted Comparison of General

Fund Net Assets Versus Cash and Investments 6005 Inflation Adjusted Comparison of Insurance Fund

Performance 6006 Inflation Adjusted Comparison of Insurance

Fund Net Assets Versus Cash and Investments 6107 Inflation Adjusted Insurance Fund Income by Type 6108 Inflation Adjusted Insurance Fund Expenditure by Type 6109 Inflation Adjusted Comparison of Administrative

Costs Per Claimant Assisted 61

Tables

--> % of Tribunal Reviews of Dispute Management Decisions Resulting in Favourable Outcome for BSA 35

--> % of Tribunal Reviews of Insurance Decisions that Reaffirmed BSA’s Decision 37

--> % of Tribunal Reviews of Licensing and Compliance Decisions Resulting in Favourable Outcome for BSA 34

--> Comparison of Interstate Insurance Premiums 10--> Comparison of Licence Fees in Financial Category SC2 10--> Consolidated Outcomes 3--> Customers’ Rating of BSA’s Website and

Email Newsletter 30--> Failed Contractors Causing the Most Significant

Claim Approvals During the Year 37--> General Fund 3--> Insurance Fund 3--> Meetings Attended by Board Members 19--> Number of Licensees Who Altered Their Renewal

Date by Financial Category 43--> Performance Audits Finalised by Type 47--> Private Certification – Audit Information 49--> Private Certification – BSA Decisions Appealed to

Chief Executive 49--> Private Certification – Complaint Status 48--> Private Certification – Complaints Received 48--> Staff as at 30 June 2002 40--> Staffing – Separations 41--> Staffing – VER’s, Retrenchments and Redeployments 41--> Top 10 Defects 2001/02 35--> Workforce Diversity 40

--> Anti-phoenix Provisions 45--> Audits and Investigations 25--> Board

Composition of the Board 18Finance, Audit and Risk Committee 24Policy Committee 24Remuneration 19Role of 19

--> Budgeting (Strategic Business Planning and) 21--> Building Links 31--> Chairman’s Review 6--> Claims

Equity in Decision Making 37Managing Consumer Claims 36

--> Code of Conduct 22--> Construction Industry - Demand for 12--> Consultancy Expenditure 60--> Consumers

Educating 32, 49Insuring 36Payment Initiatives 44Protecting 34Unlicensed Contracting 45

--> Contractors – Educating 49--> Corporate Governance 2, 4, 14, 16

Framework 17--> Corporate Performance 4--> Critical Areas and Values 14--> Customers 2, 4, 12,

14, 28Advice and Information 30Continuum 29Educating 32,49

--> Debt Management 51--> Defects – Top 10 35--> Disputes

Equity in Decision Making 35Research and Review 35Resolving 34

--> Energy Management 21--> Executive Management Team 20--> Federal and State Government Proposals 11--> Financial

Guide to BSA’s Financial Performance Review 57Investigations 47Management 2, 4, 14, 50Performance 3Performance Review 56Ratios 3

--> Freedom of Information 22--> Future 11, 27, 37,

41,49, 53, 55

--> General Fund 51Expenses 51Revenues 51

--> General ManagerReview 8Role of 19

--> Government Contractor Financial Audits 47--> Highlights 2--> Industry Trends (Innovation and) 13--> Information Privacy 23--> Information Technology 21--> Innovation and Industry Trends 13--> Insurance

Home Warranty Insurance 10Managing Claims 36Managing the Scheme 53Scheme Viability 52

--> Internal Audit 25--> Investments 27--> Leadership 2, 4, 14,

19, 54--> Legislation 13, 17

Legislation and Policy 2, 4, 14, 42--> Licence

Applications 33Class Review 43Classes 33Fees 10Renewals 33

--> Licensee Base 32--> Licensing

Accountability Interventions 45Change of Renewal Date 43Drop out Rates 34Equity in Decision Making 34Financial Requirements 43Fire Protection 33, 45Other Initiatives 46

--> Media 31--> Mission IFC--> National Agenda 55--> National Review of Home Warranty Insurance and

Consumer Protection 55--> Operational Cost Effectiveness 10--> Organisational Capability 41--> Payment Initiatives 44

BSA 4484 A/R 2002 Cover SR-FA 28/10/02 11:40 AM Page c

B R I S B A N E11 Edmondstone StreetSouth Brisbane QLD 4101Telephone (07) 3225 2800

Facsimile (07) 3225 2999PMB 84 Coorparoo DC 4151

C A I R N S181 Aumuller StreetWestcourt QLD 4870Telephone (07) 4031 6828

Facsimile (07) 4031 6831PO Box 211B Bungalow QLD 4870

G O L D C O A S TSuite 7 Robina Convenience Centre86 Robina Town Centre Drive Robina QLD 4230Telephone (07) 5575 7999

Facsimile (07) 5575 7666PO Box 3816Robina Town Centre QLD 4230

M A C K AY25 River StreetMackay QLD 4740Telephone (07) 4957 4477

Facsimile (07) 4953 4151PO Box 1254 Mackay QLD 4740

R O C K H A M P T O N164 Berserker Street (Cnr Elphinstone Street)North Rockhampton QLD 4701Telephone (07) 4926 1922

Facsimile (07) 4926 1377PO Box 6337 Central Qld Mail Centre QLD 4702

S U N S H I N E C O A S TUnit 7 WIN Television CentreCnr Baden Powell Street and Maroochydore RoadMaroochydore QLD 4558Telephone (07) 5479 8500

Facsimile (07) 5479 8555PO Box 218 Maroochydore QLD 4558

T O O W O O M B AClestrain Mall 131A Herries StreetToowoomba QLD 4350Telephone (07) 4632 9455

Facsimile (07) 4638 1917PO Box 107 Toowoomba QLD 4350

T O W N S V I L L EAAMI Building 287 Ross River RoadAitkenvale QLD 4814Telephone (07) 4725 2588

Facsimile (07) 4725 3401PO Box 140 Aitkenvale QLD 4814

W E B S I T Ewww.bsa.qld.gov.au

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BSA 4484 A/R 2002 Cover SR-FA 28/10/02 11:40 AM Page d


Financial PerformanceReview

56

Page

--> Purpose and Scope 57

--> Guide to BSA’s Financial Performance Review 57

--> Financial Overview 58Consolidated 2001/02 Outcomes 58Operating Revenue 58Operating Expenditure 58Transfers from Reserves 59Statement of Financial Position 59Capital Expenditure 59Consultancy Expenditure 60General Fund 2001/02 Outcomes and Performance Review 60

--> Insurance Fund 2001/02 Outcomes and Performance Review 61

--> Financial Statements for the year ended June 2002Statement of Financial Performance 62Statement of Financial Position 63Statement of Cash Flows 64Notes to and forming part of the Financial Statements 65Note 1 Summary of Significant Accounting Policies 65Note 2 Licence Renewal and Application Fees 70Note 3 Underwriting 70Note 4 Investment Revenue 71Note 5 Other Revenue 71Note 6 Gain on Disposal of Non-current Assets 71Note 7 Administrative Expenses 71Note 8 Other Expenses 72Note 9 Queensland Building Tribunal Funding 72Note 10 Reserves 72Note 11 Retained Profits 72Note 12 Other Financial Assets 73Note 13 Receivables 73Note 14 Reinsurance and Other Recoveries Receivable 73Note 15 Other Assets 73Note 16 Plant and Equipment 73Note 17 Intangibles 74Note 18 Payables 74Note 19 Provisions 74Note 20 Unearned Premiums 74Note 21 Future Claims and Associated Costs 75Note 22 Commitments 76Note 23 Segment Information 76Note 24 Net Claims Incurred 78Note 25 Contingent Liability 79Note 26 Financial Instruments 79Note 27 Reconciliation of Net Cash Provided by Operating Activities to Operating Profit/(Loss) from Ordinary Activities 81Note 28 Reconciliation of Cash 82Note 29 Provision for GST Payable 82Note 30 HIH Insurance 82

--> Certificate of the Queensland Building Services Authority 83

--> Independent Audit Report 84

Contents


57

PURPOSE AND SCOPE

The Queensland Building Services Authority (BSA) is

constituted under the provisions of the Queensland

Building Services Authority Act 1991 (the Act) and is a

statutory body within the meaning given in the Financial

Administration and Audit Act 1977.

The Financial Statements have been prepared:-

• to satisfy the provisions and prescribed requirements

of the Financial Administration and Audit Act 1977;

and

• to convey information on BSA’s financial performance

for the year and its financial position at the close of

the year to the Minister for Housing, the Queensland

Parliament, contractors, consumer and the broader

community.

The statements are general purpose in nature and provide

a full presentation of all the financial activities of BSA.

Disclaimer

The graphs, tables and captions that appear in the body

of the Annual Report do not form part of the Financial

Statements as certified by the Auditor-General.

GUIDE TO BSA’S FINANCIALPERFORMANCE REVIEW

BSA is self-funded and under its legislation is required to

maintain two funds - the General Fund and the Insurance

Fund. The General Fund meets all operational costs

except those relating to insurance claims and the

administration of the insurance scheme. The General

Fund was no longer required to fund the operations of the

Queensland Building Tribunal (the Tribunal). Section 26

of the Act allows for the transfer of funds from the

Insurance Fund to the General Fund for use in

administering the Act. The maximum amount able to be

transferred is set by regulation at $5.5M.

BSA’s Financial Performance Review comprises:

• Financial Overview; and

• Financial Statements for the year ended 30 June 2002.

The Financial Overview provides a strategic review of

BSA’s financial position at 30 June 2002 and analyses

performance for the financial year 2001/02 in the context

of current issues and historical trends.

The Financial Statements present BSA’s consolidated

financial position and the financial results for 2001/02. At

Note 23 “Segment Information”, the results and financial

position of each Fund are presented.

The Financial Statements comprise:

• the Statement of Financial Performance which details

BSA’s income and expenditure for the year ended 30

June 2002;

• the Statement of Financial Position which reflects the

financial position of BSA at 30 June 2002;

• the Statement of Cash Flows which shows BSA’s cash

receipts and payments for the year ended 30 June 2002;

and

• Notes to and forming part of the Financial Statements.

Items in the Statement of Financial Performance, Statement

of Financial Position and Statement of Cash Flows are

referenced to the Notes, where more detail of balances is

provided. The accounting policies used in the preparation

of the Financial Statements are summarised in Note 1 of

the Notes to and forming part of the Financial Statements.


01 Program cost comparison

Insurance 41.2%

Dispute management 15.7%

Licensing 31.5%

Building information 11.6%

OPERATING EXPENDITURE

The decrease in overall expenditure is attributable to the

following factors:

Administrative expenses decreased by $0.628M (6.8%)

from $9.216M to $8.588M with fluctuations in expenditure

levels across several areas compared to the previous year.

The main movement was a decrease in Engineering and

other commissions fees of $1.131M (87%) from $1.296M

to $0.165M. Two major reconciliations were undertaken

during the year and it was identified were a substantial

proportion of engineering costs were reclaimable from

reinsurers this year. Office rentals and outgoings increased

by $0.418 (41%) from $1.018M to $1.436M. New office

accommodation was required for the Gold Coast regional

office and additional accommodation for the Brisbane head

office where some staff had been housed in temporary

demountable offices.

Underwriting claims expenses decreased by $3.893M

(46.5%). In the previous year there was a record number

of claims, with a high proportion being for contractor

failure. This also resulted in an higher than normal increase

in the amount required to be provided for in 2001/02 for

the provision for future claims liabilities.

With the recovery of the building industry this year there

has been a consequent lack of insolvencies which has

dramatically decreased the number of claims for non-

completion, down to 189 from 384.

BSA was not required to fund the Queensland Building

Tribunal this year. It is now funded by Queensland

Treasury following a Cabinet Budget Review Committee

decision that it be funded from consolidated revenue.

Other Expenses expenditure increased during the year by

$0.993M (59.8%) from $1.662M to 2.655M. The increase

is largely attributable to a change in accounting for the

annual leave provision. This was previously included

with “Salaries and Contract Personnel”. Amortisation

expenses increased by $0.268M from $0.363M to $0.631M

reflecting the continuing investment in business

applications development and the purchase of a new

financial management information system.

58

FINANCIAL OVERVIEW

A strong recovery by the Insurance Fund

from the 2000/01 position together with a

smaller than forecast deficit for the General

Fund produced a sound consolidated result

for the year.

CONSOLIDATED 2001/02 OUTCOMES

BSA’s consolidated financial outcome for 2001/02 was a

profit from ordinary activities of $0.728M compared to a

loss of $6.952M the previous year. This was a significantly

improved result on the originally budgeted profit of

$0.138M and the mid-year forecast of $0.084M profit. This

resulted from an increase in total revenue of $1.246M

(5.3%) and decrease in expenditure of $6.434M (20.9%).

A fall in insurance claims expenses of $3.893M (46.5%)

significantly contributed to the decrease in expenditure

together with the BSA no longer required to fund the

Queensland Building Tribunal ($2.345M in 2000/01).

OPERATING REVENUE

Strong revenue results were recorded for:

Licensing income increased by $2.029M (21.8%) due to

increases in the number of licensees from 47,718 to

50,190, reduced drop out rate of 5.66% compared to 9.2%

in 2000/01 and finalising 7,532 applications compared to

6,087 in the previous year.

Insurance Premiums and Administration Fees increased by

$1.102M (43.9%) and $3.827M (92.4%) respectively. BSA

processed 62,506 policies for the year reflecting a buoyant

Queensland building industry with major drivers being the

First Home Owners Grant and low interest rates.

These increased revenue streams were partially offset by

the decrease in investment revenue which fell by $2.217M

(99.4%) from $2.230M to $0.013M. This resulted from the

poor performance by the BSA’s managed fund investments

which returned approximately -4% or -$0.797M and is

attributable to the poor market in Australian and

international equities. BSA’s cash investments returned

approximately 4.6% or $0.805M for the year.

Other revenue streams generally achieved budget.

The surcharge was phased out from 1 July 2002. Previously

the surcharge formed part of the insurance premium to

provide funding for other BSA activities and the

Queensland Building Tribunal. The surcharge was

removed to allow the full premium to be allocated to

running the insurance scheme. The surcharge shown for

the year is the amount accrued to the year from the

previous financial year.




59

TRANSFERS FROM RESERVES

A contractor and consumer education reserve was

established in 1994/95 for the purpose of encouraging and

assisting education and research related to the building

industry. This is provided for under s25(5) of the

Queensland Building Services Authority Act 1991. In

2001/02 the balance of the reserve reduced by a further

$0.047M following expenditure on publications and

education material including owner builder study guides

and fact sheets.

STATEMENT OF FINANCIAL POSITION

The $0.706M increase in total equity from $4.658M to

$5.364M reflects the sound operating result for the year,

mainly attributable to the performance of the Insurance

Fund. This is a significant reversal on the 2000/01 position

where there was a $6.946M reduction in total equity. The

significant factors were a 46.5% reduction in underwriting

claims expenses together with a 74% increase in insurance

premium and administration fee revenue. BSA was also

no longer required to fund the Queensland Building

Tribunal ($2.345M in 2000/01).

The $7.311M (9.0%) increase in total assets is attributable

to:

• Receivables – an overall increase in recovery debtors

which reflects the flow-on effects from the previous

year when there was a record level of insurance

claims paid.

• Other financial assets – an increase in cash from

insurance premiums and administration fees resulting

from the strong year from the insurance scheme.

• Other – prepayments – increase in the reinsurers

share of unearned income again due to the strong

performance of the Insurance Fund.

• Intangibles – the increase reflects the continuing

investment in business applications development and

the purchase of a new financial management

information system.

The total liabilities increased by $6.605M due to:

• Payables rose due to increased roll fees bought about

by increased licensing income.

16

0

8

12

02 Inflation adjusted comparison of program

01/0200/0199/0098/9997/98

4

Insurance

Dispute management

$M

Licensing

costs

Building information

• Unearned premiums increased by $5.015M due to a

buoyant building industry resulting in 62,506 policies

being produced for the year.

• Future claims (current and non-current) decreased

by $0.421M based on actuarial assessment. The post

GST effects have passed and it reflects the improved

performance by the industry, eg. non-completion

claims have decreased by 195 or 50.8%.

BSA’s ability to discharge short term commitments is

measured by the current ratio (current assets/current

liabilities). The result for the year has caused the ratio to

decline marginally by 0.03 from 1.51 to 1.48 and this

remains a healthy position.

CAPITAL EXPENDITURE

Capital expenditure for the year, net of proceeds from

disposals, amounted to $1.599M compared to $1.054M in

2000/01 and comprised:

• Leasehold improvements $0.302M

• Motor vehicles $0.178M

• Computer software $1.023M

• Furniture and equipment $0.096M

The redevelopment of BSA’s main business application

CMS continued during the year with the major focus

being on new claims, legal and compliance systems and

the creation of a debtors sub-ledger. A new financial

management information system Finance 1 was also

purchased in readiness for 2002/03.

Spending on leasehold improvements increased by

$0.241M from $0.061M to $0.302M with new office

accommodation required for the Gold Coast office and

additional accommodation for Head Office where several

branches had been housed in temporary demountable

offices. This also increased furniture and equipment

expenditure by $0.043M from $0.053M to $0.096M.

BSA has a fleet of 38 vehicles, 58% of which are utilised

by Building Inspectors in the delivery of the dispute

management service.

18

-6

6

12


01/0200/0199/0098/9997/98

0

Operating revenue

Operating expenses

$M

Profit/(loss)

General Fund results


30

-10

10

20


01/0200/0199/0098/9997/98

0

Total revenue

Total expenditure

$M

Operating profit/(loss) before abnormals

Insurance Fund performance

8

0

4

6


01/0200/0199/0098/9997/98

2

Net assets


$M

General Fund net assets versus cash and investments

60



CONSULTANCY EXPENDITURE

Expenditure on consultants fees increased by $0.074M from

$0.198M to $0.272M. This was largely attributable to

higher use of actuaries brought about by the National

Competition Policy Review and the National Review of

Home Warranty Insurance and Consumer Protection.

Other significant expenditure included consultancies

related to human resource management issues, the

performance of the annual workforce attitude survey and

development of the Authority’s customer continuum

program.

GENERAL FUND 2001/02 OUTCOMESAND PERFORMANCE REVIEW

The General Fund recorded a deficit from ordinary

activities of $0.761M, a net loss of $0.714M after the

transfer from reserves of $0.047M and a total change in

equity of $0.783M after a decrease in reserves of $0.069M.

As a result, net assets reduced by $0.783M from $2.636M

to $1.853M.

Revenue increased in real terms by $1.716M (15%) from

$11.432M to $13.148M exclusive of the transfer from the

insurance fund ($5.000M in 2000/01). This transfer did not

occur in 2001/02 and the increased fees for licences did

not fully meet this shortfall.

Expenditure decreased substantially by $2.551M (15.5%)

with the major reason being BSA was no longer required

to fund the Queensland Building Tribunal ($2.345M in

2000/01). Excluding this funding, expenditure decreased

slightly by $0.206M (1.5%) from $14.115M to $13.909M.

Tighter controls on expenditure and a drive to reduce

corporate overheads helped contribute to the reduction.

The budget performed well relative to the originally

forecast loss of $1.028M and the mid-year forecast loss of

$1.225M.

Revenue of $13.148M was $0.939M under the original

forecast of $14.087M however exceeded the mid-year

forecast of $13.040M by $0.108M.

Investments returned a sound $0.175M against an original

forecast of $0.207M and mid-year forecast of $0.147M.

General fund investments are in cash funds which returned

4.6% for the year and generally performed to market

expectations.

Licensing income ($11.353M) was $0.915M under the

original budget and exceeded the mid-year forecast by

$0.115M. The original forecasts were significantly reviewed

mid-year in relation to drop-out rates for renewals and

number of applications in the various categories.

By the mid-year review in January it was clear that drop-

out rates for licence renewals were significantly higher than

originally forecast. It was also apparent that the number

of applicants in higher fee categories was significantly

down on original forecasts with a greater number of

applicants in the lower fee categories. This resulted in the

mid-year forecasts for licence renewal and application fees

being downgraded by $1.030M from $12.268M to

$11.238M.

Generally, other revenue forecasts were not significantly

altered and budget was achieved.

Expenditure ($13.909M) was $1.206M under original

forecasts and $0.355M under the mid-year forecasts.

Significant savings against forecasts were achieved in

salaries, contract services and commissions and fees and

engineering fees. Savings in salaries and related costs

were achieved through vacancy management. Legal fees

significantly exceeded both the original budget and mid-

year forecast. Control measures such as who could

approve legal work going to an external firm and a

greater emphasis on internal delivery of legal services did

slow expenditure late in the year and will be used in

2002/03 to significantly reduce legal expenditure.


4

0

2

3


01/0200/0199/0098/9997/98

1

$M

administrative costs per claimant assisted

24

0

12

18

08 Inflation adjusted Insurance Fund

01/0200/0199/0098/9997/98

6

Operating expenses

Claims expenditure

$M

Surcharge transferred

expenditure by type

61

INSURANCE FUND 2001/02 OUTCOMESAND PERFORMANCE REVIEW

The Fund recorded a net profit of $1.489M compared to

a loss of $6.924M for 2000/01. As a result, the net asset

position improved by $1.489M. The turnaround reflects a

buoyant Queensland building industry that has recovered

from the post GST effects which influenced the previous

years results. The First Home Owners Grant, continuing

low interest rates, increasing consumer confidence and the

reallocation of collected surcharge to insurance

underwriting significantly contributed to the recovery.

Total revenue fell by $0.470M from $12.291M to $11.821M.

Premium income increased by $1.102M from $2.510M to

$3.612M and administration fee income increased by

$3.827M from $4.142M to $7.969M. 62,506 policies were

processed for the year compared to 43,412 for 2000/01

with an increased average premium value of $444.63

compared to $365.75 in 2000/01.

Investment income fell by $2.119M (108%) from $1.957M

to -$0.167M. This resulted from the poor return on BSA’s

managed fund investments which returned -$0.797M (-4%).

This is attributable to the poor performance of Australian

and international equities. Cash investments returned

$0.630M (4.6%).

40

0

20

30


01/0200/0199/0098/9997/98

10

Net assets


$M

Insurance Fund net assets versus cash and investments

Total income of $11.821M exceeded the original and

mid-year forecasts by $1.350M and $0.153M

respectively. By the mid-year review, it was apparent

that the building industry had made a better than

expected recovery and revenue forecasts were

substantially increased .

Total expenditure fell by $8.883M from $19.215M to

$10.332M. There was no longer the requirement for the

transfer to the General Fund ($5.0M in 2000/01). The

full premium collected is now directed to the Insurance

Fund.

Underwriting Claims expenses decreased by $3.893M

from $8.377M to $4.484M through a reduction in claims

approved during the year and the amount required to

be provided for in 2001/02 for the provision for future

claims liabilities.

20

0

10

15

07 Inflation adjusted Insurance Fund income

01/0200/0199/0098/9997/98

5

Underwriting plus admin fees

Investment and other income

$M

Surcharge collected

by type


62


2002 2001Note $000 $000

Operating revenues from ordinary activities

Licence renewal and application fees 2 11 353 9 324

Underwriting premiums 3 3 612 2 510

Investment revenue 4 13 2 230

Administration fees 3 7 969 4 142

Surcharge collected 3 127 3 719

Other revenue 5 1 895 1 798

Total operating revenues from ordinary activities 24 969 23 723

Operating expenses from ordinary activities

Administrative expenses 7 8 588 9 216


Salaries and contract personnel 8 708 9 075

Other expenses 8 2 655 1 662

Queensland Building Tribunal funding 9 (194) 2 345

Total operating expenses from ordinary activities 24 241 30 675

Profit/(loss) from ordinary activities 11 728 (6 952)

Transfer from reserves 10 47 90

Net profit/(loss) 775 (6 862)

Increase/(Decrease) in Reserves:

Asset revaluation reserve 10 (22) 6

Contractor and consumer education reserve 10 (47) (90)

(69) (84)

Total changes in equity other than those resulting

from transactions with owners as owners 706 (6 946)

The above Statement of Financial Performance is to be read in conjunction with the Notes to and forming part of the Financial Statements.


Statement of Financial Performance


63

2002 2001Note $000 $000

Current assets

Cash 1(p) 644 (501)

Receivables 13 2 562 1 533


Other financial assets 12 38 578 36 698

Other – prepayments 15 7 721 4 082

Total current assets 60 213 52 288

Non-current assets


Plant and equipment 16 1 708 1 836

Intangibles 17 1 919 1 527

Total non-current assets 27 844 28 458

Total assets 88 057 80 746

Current liabilities

Payables 18 14 174 12 167

Provisions 19 1 662 1 636


Unearned premiums 20 10 140 5 125

Total current liabilities 40 775 34 638

Non-current liabilities

Provisions 19 840 862


Total non-current liabilities 41 918 41 450

Total liabilities 82 693 76 088

Net assets 5 364 4 658

Equity

Reserves 10 606 675

Retained profits 11 4 758 3 983

Total equity 5 364 4 658

The above Statement of Financial Position is to be read in conjunction with the Notes to and forming part of the Financial Statements.

Statement of Financial Positionas at 30 June 2002


64


2002 2001Note $000 $000

Cash flows from operating activities

Received from roll fees 13 070 8 687

Surcharge collected 127 2 987

Received from administration fees 6 842 3 118

Received from interest 336 555

Received from other revenue 1 295 1 542

GST receipts 2 915 4 396

24 585 21 285

Payments to creditors (7 041) (8 111)

GST payments (2 850) (4 244)

Payments to employees (9 589) (9 097)

(19 480) (21 452)

5 105 (167)

Received from premiums 17 509 5 871

Payments to reinsurers (15 245) (7 291)

Claims paid (15 458) (17 516)

Received from reinsurers 13 036 13 389

(158) (5 547)

Net cash provided by operating activities 27 4 947 (5 714)

Cash flows from investing activities

Payments for plant and equipment and intangibles (1 964) (1 247)

Proceeds from sale of investments 64 -

Proceeds from sale of plant and equipment 365 130

Net cash used in investing activities (1 535) (1 117)

Net increase/(decrease) in cash held 3 412 (6 831)

Cash at the beginning of the financial year 5 952 12 783

Cash at the end of the financial year 28 9 364 5 952

The above Statement of Cash Flows is to be read in conjunction with the Notes to and forming part of the Financial Statements.


Statement of Cash Flows


65

NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of preparation

The financial statements are general purpose financial reports that have been prepared in accordancewith applicable Australian Accounting Standards and other mandatory professional reportingrequirements (Urgent Issues Group Abstracts) and the requirements prescribed by:

– the Queensland Building Services Authority Act 1991;

– section 46F of the Financial Administration and Audit Act 1977; and

– the Financial Management Standard 1997

The financial statements are prepared in accordance with the historical cost convention and do not take into account changing money values. The accounting policies adopted are consistent with those ofprevious years unless otherwise stated. Comparative information is reclassified where appropriate toenhance comparability.

The Queensland Building Services Authority (BSA) is comprised of a General Statutory Fund and anInsurance Fund as stipulated by Sections 25 and 26 of the Queensland Building Services Authority Act1991. The financial statements of the Authority have been prepared as a consolidation of both Funds.The balances and effects of transactions between the Funds included in the consolidated financialstatements have been eliminated. Note 23, shows the results and financial position of each Fund as at 30 June 2002.

Having regard to the nature of the general insurance business conducted by the Authority, certaindisclosures have been made in the Statement of Financial Performance and Statement of FinancialPosition, which are additional to those required by the Financial Management Standard 1997.

(b) Ministerial portfolio

The BSA is a statutory body within the portfolio of the Minister for Public Works and Minister forHousing. The principal place of business for the BSA is 11 Edmondstone Street, South Brisbane,Queensland.

(c) Premium revenue

Insurance premiums comprise amounts charged to policyholders. The earned portion of premiumsreceived is recognised as revenue. Premium is treated as earned from the date of attachment of risk.

The pattern of recognition of income over the policy of indemnity period is based on time, where thisclosely approximates the pattern of risk underwritten. Unearned premiums are determined byapportioning the premiums written in the year, using the one twenty-fourth method for reinsurancebusiness, over the period of indemnity from the attachment of the risk.

(d) Outward reinsurance

Premiums ceded to reinsurers are recognised as an expense in accordance with the pattern ofreinsurance services received. Accordingly, a portion of outward reinsurance premiums is treated at thebalance date as a prepayment.



66



(e) Claims

Claims expenses and a liability for outstanding claims are recognised in respect of direct insurancebusiness. The liability covers claims reported but not yet paid, incurred but not reported (IBNR) and theanticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by reviewof individual claim files and estimating changes in the ultimate cost of settling claims, IBNR’s andsettlement costs using statistics based on past experience and trends. Outstanding claims relating to“long-tail” classes are subject to independent actuarial assessment. “Long-tail” classes refer to claims notsettled within one year of the incidence of risk.

The liability for outstanding claims for “long-tail” classes is measured as the present value of theexpected future payments. These payments are estimated on the basis of the ultimate cost of settlingclaims, which is affected by factors arising during the period to settlement such as inflation. Suchestimates are subject to uncertainty due to variations of both a random and non-random nature, whichmay affect components of the estimates. The expected future payments are discounted to present valueat the balance date using market determined, risk adjusted discount rates. The details of rates appliedare included in Note 21.

The liability for outstanding claims is calculated using a “best estimate” methodology, which is a centralestimate of likely future claim payments. This central estimate is intended to be neither optimistic norpessimistic about the development of claims in the future.

Goods and services tax (GST) on claims expenditure

The Authority incurs GST for which it is currently unable to claim an input tax credit on all claimsettlements made from and including 1 July 2000.

For claims settled after 30 June 2000 for events which occurred before 1 July 2000 the Authority is ableto claim a percentage of the GST paid (in accordance with the participation rates as detailed in Note 3)from its reinsurers.

A percentage of the GST paid cannot be passed to the reinsurers for claims for which the eventoccurred after 30 June 2000.

(f) Reinsurance and other recoveries receivable

Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid and IBNR’s arerecognised as revenue. Recoveries receivable are assessed in a manner similar to the assessment ofoutstanding claims. Recoveries receivable in relation to “long-tail” classes are measured as the presentvalue of the expected future receipts, which are calculated on the same basis as the liability foroutstanding claims.

The details of discount and inflation rates applied are included in Note 21.

(g) Receivable and revenue recognition

Insurance claims recoverable from licensed builders are recognised when a claim paid to a consumer isfinalised. Tribunal fines receivables are recognised when an order from the Tribunal is issued in favourof the Authority. Magistrates Court fines receivables are recognised when a conviction from theMagistrates Court is issued in favour of the Authority. Appraisals of government contracts receivable arerecognised when the services provided by the Authority are invoiced at the end of each month.

Debtors are reviewed on an ongoing basis. Debts, which are known to be uncollectable, are written off.A provision for doubtful debts is raised where some doubt exists and in any event where the debt ismore than 180 days overdue.



67


(h) Non-current assets

The carrying amount of non-current assets is reviewed to determine whether they are in excess of theirrecoverable amount at balance date. The recoverable amount of an asset is the amount expected to berecovered through the net cash inflows arising from its continued use. If the carrying amount of non-current assets exceeds the recoverable amount, the asset is written down to the lower amount. To theextent that a revaluation decrement reverses a revaluation increment previously credited to, and stillincluded in the balance of, the asset revaluation reserve, the decrement is debited directly to thatreserve. Otherwise, the decrement is recognised as an expense in the Statement of FinancialPerformance. In assessing recoverable amount the relevant cash flows have not been discounted to thepresent value. The threshold for recognising non-current physical assets in the financial statements onacquisition is $1,000.

Plant and equipment is valued at cost.

Change in Accounting Policy

In accordance with the transitional provisions provided for in AAS 38 Revaluation of Non-Current Assetsthe brought forward carrying value of plant and equipment as at 1 July 2001 is taken to be the deemedcost of these assets. The change in accounting policy has no financial effect in the current or priorfinancial years.

(i) Operating leases

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor,are charged as expenses in the periods in which they are incurred.

(j) Depreciation and amortisation

Depreciation and amortisation are provided as appropriate on all non-current assets, other than land,using a straight line method of calculation at rates determined by the estimated useful life of the assetsto the economic entity commencing from the time the asset is held ready for use. Estimates of remaininguseful lives are made on a regular basis for all assets, with annual reassessment for major items.

Depreciation commences from the date an asset is controlled, serviceable and ready for use. The rates of each class of asset are:

Office Furniture and Equipment 15%–33.33%Motor Vehicles 15%Computer Equipment 33.33%

Leasehold Improvements depreciated over the life of the applicable leaseagreement or the estimated useful life of theimprovement to the economic entity, whichever is theshorter. The rates are varied between 16% -50%.

Gains or losses arising from the sale or disposal of non-current assets are brought to account in thedetermination of the operating result for the year in which the sale or disposal took place.

(k) Investments

General Statutory Fund investments, excluding government and semi-government stock, are recorded atcost.

Government and semi-government stock and Insurance Fund investments are measured at their netmarket value at each balance date.

Changes in the net market values of investments (or cost of acquisition, if acquired during the financialyear) are recognised as revenue or expenses in the Statement of Financial Performance.

Investment revenue is brought to account on an accrual basis.

Income derived from investments is brought to account when earned.



68



(l) Employee leave and retirement benefits

Wages, salaries, annual leave and sick leave

The provisions for employee entitlements to wages, salaries, annual leave and sick leave represent theamount which the Authority has a present obligation to pay resulting from employees’ services providedup to the balance date. The provision has been calculated at nominal amounts based on current wageand salary rates and includes related on-costs.

Long service leave

The liability for employee entitlements to long service leave represents the present value of theestimated future cash outflows to be made by the Authority resulting from employees’ services providedup to the balance date.

Liabilities for employee entitlements which are not expected to be settled within twelve months arediscounted using the rates attaching to national government securities at balance date, which mostclosely match the terms of maturity of the related liabilities.

In determining the liability for employee entitlements, consideration has been given to future increasesin wage and salary rates, and the Authority’s experience with staff departures. Related on-costs have alsobeen included in the liability.

The long service leave provision also takes into account recognition of employees’ prior services inother state, local or federal government entities. Recognition of prior services has been agreed as part ofthe Enterprise Development Agreement for the Authority.

Superannuation fund

Superannuation contributions made by the Authority are contributed to an employee superannuationscheme and to other funds on behalf of its Board Members as required under applicable awardlegislation. These contributions are charged as expenses when incurred. The Authority has no obligationto cover any shortfall in any of the funds’ obligations to provide benefits to employees on retirement.

(m)Payables

These amounts represent liabilities for goods and services provided to the economic entity prior to theend of the financial year and which are unpaid. The amounts are unsecured and are usually paid within30 days of recognition.

(n) Intangible assets and expenditure carried forward

Costs associated with the computer systems redevelopment project are deferred and amortised on astraight-line basis over the period of their expected benefit, which is five years. The CD Romdevelopment costs are amortised over three years.



69


(o) Reserves

A contractor and consumer education reserve has been established for the purpose of encouraging andassisting education and research related to the building industry as allowed under the QueenslandBuilding Services Authority Act 1991, subsection 25(5). Transfers to this reserve are determined by theGeneral Statutory Fund’s profits.

(p) Cash

Cash balances in BSA’s General and Insurance bank accounts are cleared to QTC Cash Fund overnightto maximise investment returns. Consequently, period end Cash at Bank may reflect a negative balancedue to the timing of unpresented cheques. BSA does not have an overdraft facility and is precludedfrom doing so by legislation.

For purposes of the statement of cash flows, cash includes deposits at call which are readily convertibleto cash on hand and are subject to insignificant risk of changes in value.

(q) Goods and Services Tax (GST)

Revenues (including earned premiums), expenses and assets are recognised net of the amount of GSTunless (in relation to expenses and assets) the amount of GST incurred is not recoverable from theAustralian Tax Office (ATO). In these instances the GST is recognised as part of the amount of theexpense or is recognised as part of the cost of acquisition of the asset.

Receivables and payables are recognised inclusive of the amount of GST that is receivable or payable.An allowance for GST payable on future claims has been included in the provision for future claims.

Cash flows are included in the Statement of Cash Flows on a gross basis with the GST components ofthe cash flows shown as separate line items. The GST components of cash flows arising from investingand financing activities which are recoverable from, or payable to, the ATO are classified as operatingcash flows.

(r) Income taxation

The Authority is exempt from income taxation pursuant to Division 1AB, Subdivision A Sections 24AK to24AV of the Income Tax Assessment Act 1936.

(s) Rounding

Amounts have been rounded to the nearest thousand dollars, except where otherwise indicated.



70


2002 2001Note $000 $000

NOTE 2 LICENCE RENEWAL AND APPLICATION FEES

Renewal fees 9 939 8 430

Application fees 1 414 894

11 353 9 324

NOTE 3 UNDERWRITING

3.1 Underwriting premiums

Premiums received 19 464 8 037

Less: Outward reinsurance premium expense 14 594 6 025

Loss year distribution paid to reinsurers - 203

Authority’s share of premiums 4 870 1 809

Less: Unearned premiums at end of year 20 2 539 1 281

Total premiums received and earned during the year 2 331 528

Add: Unearned premiums at beginning of year 1 281 1 982

Underwriting premiums 3 612 2 510

Underwriting claims

Claims approved and charged 15 391 25 920

Less: Reinsurance and other recoveries revenue 10 907 17 543


Loss on underwriting (872) (5 867)

Participation in the Insurance Scheme

Date Authority Brokers/Reinsurers

Pre – 01/07/91 10% 90%

01/07/91 – 30/06/98 25% 75%

01/07/98 – 30/09/99 30% 70%

01/10/99 – 30/06/02 25% 75%

3.2 Administration fees

Administration fees received 7 938 3 826

Movement in the provision for future claims processing 31 316

Administration fees after provision for future claims processing 7 969 4 142

3.3 Surcharge collected 127 3 719

Previously a surcharge was collected and transferred to the General Fund. This is now retained by the

Insurance Fund and is reflected in Administration Fees which are collected for the administration of the

Insurance Scheme.

General Fund operations were supplemented by the restructuring of licence fees and the cessation of the

requirement to fund the Queensland Building Tribunal (refer Note 9).



2002 2001Note $000 $000

NOTE 4 INVESTMENT REVENUE

Interest 336 498

Changes in net market value of investments

– realised (323) -

– unrealised - 1 732

13 2 230

NOTE 5 OTHER REVENUE

Court fines awarded 645 502

Search fees 281 245

Owner builder fees 453 342

Gain on sale of non-current assets 6 16 7

Appraisal of Government Contracts 213 398

Other 287 304

1 895 1 798

NOTE 6 GAIN ON DISPOSAL OF NON-CURRENT ASSETS

Proceeds from sale of non-current assets 365 130

Carrying value of non-current assets sold or disposed (349) (123)

Gain on disposal 5 16 7

NOTE 7 ADMINISTRATIVE EXPENSES

Equipment maintenance 253 325

Information Systems Maintenance 404 695

Computer lease rentals 515 511

Miscellaneous office equipment 111 106

Office rentals and outgoings 1 436 1 018

Legal fees 1 459 1 382

Engineering and other commission fees 165 1 296

Consultants fees 272 198

Printing and stationery 689 752

Travelling expenses 168 130

Motor vehicle expenses 142 181

Postage and telephones 822 846

Superannuation 819 704

Payroll tax 509 461

Fringe benefits tax 80 75

Advertising 94 83

Other 650 453

8 588 9 216


71


2002 2001Note $000 $000

NOTE 8 OTHER EXPENSES

Auditors remuneration – audit of financial statements (i) 4 42

Board members’ fees and functions 43 31

Premium acquisition costs and sighting fees 70 295

Doubtful debts and bad debts 323 208

Depreciation 698 576

Amortisation 631 363


Annual leave 860 (10)

2 655 1 662

(i) Audit fees of $31 900 for 2002 were not accrued as at 30 June 2002

NOTE 9 QUEENSLAND BUILDING TRIBUNAL FUNDING

(194) 2 345

The Authority is no longer required to provide funding for the

running of the Tribunal.

The negative expense of $194 000 reflects the reversal of an

over-accrual made as at 30 June 2001.

NOTE 10 RESERVES

Consumer and contractor education reserve 1(o) 82 129

Asset revaluation reserve 524 546

606 675

Contractor and consumer education reserve


Add: funds transferred from retained profits - 15

Less: funds transferred to retained profits (47) (105)

Balance at end of year 82 129

Asset revaluation reserve


Add: Revaluation of assets - 52

Less: decrement on write down of assets (22) (46)

Balance at end of the year 524 546

NOTE 11 RETAINED PROFITS

Balance at beginning of year 3 983 10 845

Profit/(Loss) from ordinary activities 728 (6 952)

Transfer from reserves 47 90

Balance at end of the year 4 758 3 983



72


Leasehold Plant &Improvements Equipment Total

2002 2001Note $000 $000

NOTE 12 OTHER FINANCIAL ASSETS

On call and overnight deposits and cash trust investments 8 720 6 453

Government and semi-government stock – at market value 29 858 30 245

38 578 36 698

NOTE 13 RECEIVABLES

Current

Sundry debtors 23 506 15 843

Less: Provision for doubtful debts 20 944 14 310

2 562 1 533

NOTE 14 REINSURANCE AND OTHER RECOVERIES RECEIVABLE

Current


Non-current


NOTE 15 OTHER ASSETS

Current

Prepayments 120 238

Prepayments – outward reinsurance on unearned premiums 20 7 601 3 844

7 721 4 082

NOTE 16 PLANT AND EQUIPMENT

At independent valuation 30 June 1998 - 1 659

At cost 3 791 1 691

3 791 3 350

Less: Provision for depreciation 2 083 1 514

1 708 1 836

Movement in carrying amount of plant and equipment

Carrying amount at beginning of year 577 1 259 1 836

Acquisitions 302 639 941

Disposals - (349) (349)

Write downs - (22) (22)

Depreciation (294) (404) (698)

Carrying amount at end of year 585 1 123 1 708


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2002 2001Note $000 $000

NOTE 17 INTANGIBLES

Non-current

Computer systems redevelopment costs 1(n) 3 227 2 206

Less: Amortisation 1 330 710

1 897 1 496

CD Rom development costs 1(n) 33 31

Less: Amortisation 11 -

22 31

1 919 1 527

NOTE 18 PAYABLES

Current

Sundry creditors 8 022 6 806

Accruals 698 1 306

Roll fees 5 175 3 806

GST collected on premiums 279 249

14 174 12 167

NOTE 19 PROVISIONS

Current


Annual leave 973 910

1 662 1 636

Non-current


Provision for GST payable 29 453 453

840 862

NOTE 20 UNEARNED PREMIUMS

Authority’s share 3 2 539 1 281

Outward reinsurance 15 7 601 3 844

10 140 5 125



74


75

2002 2001$000 $000

NOTE 21 FUTURE CLAIMS AND ASSOCIATED COSTS

Expected future claims payments 65 696 66 023

Discount to present value (9 819) (9 725)

Liability for outstanding claims 55 877 56 298

Current 14 799 15 710

Non-current 41 078 40 588

55 877 56 298

Represented by:

Future claims provision 49 622 50 012

Future claims processing provision 6 255 6 286

55 877 56 298

The following average inflation rates and discounts rates

were used in the measurement of outstanding claims:

For the succeeding year


Discount rate 6.0% 6.0%

For subsequent years


Discount rates 6.0% 6.0%

The weighted average expected term of settlement of the

outstanding claims from the balance date is estimated to be: 3.0 years 2.9 years



76


2002 2001$000 $000

NOTE 22 COMMITMENTS

Operating lease commitments

Total operating lease expenditure contracted for at balance

date but not provided for in the accounts, payable:

– not later than one year 1 697 1 569

– later than one year and not later than five years 4 651 3 813

– later than five years - 83

6 348 5 465

The Authority leases property, plant and equipment under operating leases expiring from 1 to 5 years.

Property leases generally provide the Authority with a right of renewal at which time all terms are

renegotiated.

NOTE 23 SEGMENT INFORMATION

As stated in Note 1(a), the Authority is comprised of a General Statutory Fund and an Insurance Fund. The

General Statutory Fund derives the majority of its revenue from fees received from building industry

contractors to obtain and renew licences required under the Queensland Building Services Authority Act

1991. The Insurance Fund derives its revenue from underwriting premiums and administration fees from

operating the insurance scheme.



77

General Insurance ConsolidatedStatutory Fund Fund Entity


General Insurance Elimin- ConsolidatedStatutory Fund Fund ations Entity



Revenue

Revenue from external sources 13 148 11 432 11 821 12 291 24 969 23 723

Internal transfers of funds - 5 000 - - (5 000) - -

Total segment revenue 13 148 16 432 11 821 12 291 24 969 23 723

Expenditure

Expenditure from external sources 13 909 16 460 10 332 14 215 24 241 30 675

Internal transfers of funds - - - 5 000 (5 000) - -

Total segment expenditure 13 909 16 460 10 332 19 215 24 241 30 675

Segment results from

ordinary activities (761) (28) 1 489 (6 924) 728 (6 952)

Transfer from reserves 47 90 - - 47 90

Net profit/(loss) (714) 62 1 489 (6 924) 775 (6 862)

Increase/(decrease) in reserves (69) (84) - - (69) (84)

Total changes in equity other

than those resulting from

transactions with owners

as owners (783) (22) 1 489 (6 924) 706 (6 946)

Assets

Segment assets 10 070 8 995 77 987 71 751 88 057 80 746

Liabilities

Segment liabilities 8 217 6 359 74 476 69 729 82 693 76 088

Net Assets

Segment net assets 1 853 2 636 3 511 2 022 5 364 4 658

Other

Acquisition of non-current

segment assets 1 798 1560 166 45 1 964 1605

Depreciation and amortisation of

Non-current segment assets 1 287 939 42 - 1 329 939

Other non-cash segment expenses 114 (20) 6 520 (1 921) 6 634 (1 941)


78


2002 2001Current Prior Current Prior

Year Years Total Year Years Total$000 $000 $000 $000 $000 $000

2002 2001Note $000 $000

NOTES 24 NET CLAIMS INCURRED

Current period claims relate to risks borne in the current reporting period. Prior period claims relate to a

reassessment of the risks borne in the previous reporting period.

Gross claims incurred and related

expenses – undiscounted 9 041 6 465 15 506 7 447 20 142 27 589

Reinsurance and other recoveries

– undiscounted (6 017) (4 456) (10 473) (4 965) (13 666) (18 631)

Net claims incurred – undiscounted 3 024 2 009 5 033 2 482 6 476 8 958


– gross claims incurred (1 784) 1 669 (115) (1 294) (376) (1 670)


– reinsurance and other recoveries 1 186 (1 316) (130) 861 91 952

Net discount movement (598) 353 (245) (433) (285) (718)

Total discounted net incurred claims 2 426 2 362 4 788 2 049 6 191 8 240

Other recoveries undiscounted

Claims recoverable from Licensees 15 425 16 260

Provision for doubtful debts (14 243) (16 117)

1 182 143

Reinsurer’s portion (878) (280)

Total undiscounted recoveries 304 (137)

Total discounted net incurred claims 4 788 8 240

Less: other recoveries undiscounted 304 (137)




79

NOTE 25 CONTINGENT LIABILITY – CONSOLIDATED REVENUE GRANT

During the 1998/99 financial year the Authority received a $1.45M grant from the State GovernmentConsolidated Revenue. The grant was made to provide short-term funding support for BSA pendingresolution of BSA’s long-term funding strategy through the Government’s Better Building Industry reforms.The grant was treated as income in the Authority’s accounts and as a general expense in the Government’saccounts for 1998/99. As a result of a subsequent Cabinet Decision, the Government requires the grant tobe repaid on a future date. Treasury advice is that the funds are to be repaid as a dividend, with the timingof this repayment dependent upon BSA’s capacity to do so and to be examined in subsequent annualbudget development processes.

As at 30 June 2002, the value of the contingent liability remained at $1.45M. Provision for payment of thecontingent liability, in full or part, was not made in the 2002/03 BSA budget.

NOTE 26 FINANCIAL INSTRUMENTS

The Authority invests in Queensland Investment Corporation (QIC) Cash Trust, QIC Investment Trust andQueensland Treasury Corporation (QTC) Cash Fund.

The investment managers of the pooled investment vehicles have invested in a variety of financialinstruments, including derivatives, which expose the Authority’s investment to a variety of investment risks,including interest rate risk, credit risk, market risk and currency risk.

The Authority obtains regular reports from each investment manager on the nature of the investment madeand the associated risks and returns. The Authority seeks information from the investment managers of eachproposed collective investment, and may also seek independent advice from other qualified persons, so asto determine the nature and extent of risk, and expected returns associated with each investment prior todetermining its suitability as an investment for the Authority. This includes the receipt of a formal RiskManagement Statement from each manager.



80


2002 2001Floating Non- Floating Non-interest interest interest interest

rate bearing Total rate bearing Total$000 $000 $000 $000 $000 $000

NOTE 26 FINANCIAL INSTRUMENTS (CONTINUED)

a) Interest rate risk exposures

The Authority’s exposure to interest rate risk and the effective weighted average interest rate for each

class of financial assets and financial liabilities is set out below.

Financial assets

Cash - 644 644 - (501) (501)

Receivables - 2 562 2 562 - 1 533 1 533

Investments

– At call deposits 8 720 - 8 720 6 453 - 6 453

– QIC stock 29 858 - 29 858 30 245 - 30 245

38 578 3 206 41 784 36 698 1 032 37 730

Weighted average interest rate 0.3% 5.85%

Financial liabilities

Payables - 14 174 14 174 - 12 167 12 167

Net financial assets (liabilities) 38 578 (10 968) 27 610 36 698 (11 135) 25 563

b) Credit risk exposures

The credit risk on financial assets of the Authority that have been recognised on the Statement ofFinancial Position is generally the carrying amount, net of any provisions for loss.

The Authority does not have any material credit risk exposure to any single debtor, or group of debtors,under financial instruments entered into by the Authority. The credit risk exposure does not take intoaccount the value of any security held in the event other parties fail to perform their obligations under afinancial instrument.

c) Net fair value of financial assets and liabilities

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets andfinancial liabilities approximates their carrying value.

The net fair value of other monetary financial assets, being Queensland Investment Corporation Stock isbased on the quoted market price provided by QIC.



81

2002 2001$000 $000

NOTE 27 RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES TO OPERATING PROFIT/(LOSS) FROM ORDINARY ACTIVITIES

Net cash provided by operating activities 4 947 (5 714)

Non-cash items in operating surplus:

Provisions for doubtful debts (6 634) 1 941

Provision for employee entitlement (4) (147)

Depreciation and amortisation (1 329) (939)

Net gain on sale of plant and equipment 16 7

Changes in net market value of investments (323) 1 675

Net change in operating assets and liabilities:

Increase/(decrease) in receivables 6 377 2 147

Increase/(decrease) in other current assets 522 (2 082)

(Increase)/decrease in sundry creditors and accruals (638) 1 478

(Increase)/decrease in roll fees (1 369) 637

(Increase)/decrease in accrued claims 421 (6 709)

(Increase)/decrease in unearned premiums (5 016) 2 485

Increase/(decrease) in deferred acquisition costs - (240)

Increase/(decrease) in prepayments – outward reinsurance 3 758 (1 783)

Payment from provision for GST - 292

Profit/(loss) from ordinary activities 728 (6 952)



2002 2001Note $000 $000

NOTE 28 RECONCILIATION OF CASH

For the purposes of the Statement of Cash Flows, cash includes cash

on hand and on deposit with financial institutions for operating

activities. Cash at the end of the financial year as shown in the

Statement of Cash Flows is reconciled to the Statement of Financial

Position as follows:

Cash 1(p) 644 (501)


Total cash and cash equivalents 9 364 5 952

As stated in Note 1(a), the Act requires the cash and cash equivalents

to the General Statutory Fund and Insurance Fund to remain separate.

The cash and cash equivalent balance of the two funds as at

30 June 2002 is:

General Statutory Fund

Cash 194 (232)


Insurance Fund

Cash 450 (269)


NOTE 29 PROVISION FOR GST PAYABLE

Building contractors pay the insurance premiums on behalf of consumers. However, the Australian TaxationOffice (ATO) has ruled that contractors are able to claim an input tax credit in respect of GST paid on thepremium. However, as consumers, not contractors, are the beneficiaries of claim settlements, there is abreak in the “chain of supply” which prevents BSA from being able to claim a decreasing adjustment inrespect of its claims expenditure. BSA is seeking an amendment to the GST legislation to address thisanomaly. In the event that it succeeds, BSA will incur a GST liability in regard to new insurance businesswritten during the period 2 December 1998 to 8 July 1999. A provision of $0.453M was made at 30 June 2002 for this potential liability. (Refer Note 19).

NOTE 30 HIH INSURANCE

The Authority has notified HIH Insurance of 5 circumstances which could give rise to professionalindemnity claims.

As at 30 June 2002 only one of the circumstances had an amount (of $25,000 actual) attached.

The Authority is unable to assess the amount of the potential liability attaching to the other four claims.



82


83

We have prepared the following consolidated financial statements pursuant to the provisions of the FinancialAdministration and Audit Act 1977, Financial Management Standard 1997 and other prescribed requirementsand certify that in our opinion:

(a) the prescribed requirements in respect of the establishment and the keeping of accounts have beencomplied with in all material respects;

(b) the Statement of Financial Performance has been drawn up so as to present a true and fair view of theresults of the Authority for the year ended 30 June 2002;

(c) the Statement of Financial Position has been drawn up so as to present a true and fair view of theAuthority’s financial position as at 30 June 2002; and

(d) the Statement of Cash Flows has been drawn up so as to present a true and fair view of the cash flowsof the Authority for the year ended 30 June 2002.

Garry Rossow Ian Jennings

Chairman General Manager

Brisbane

19th September 2002

Certificate of the Queensland Building Services Authority


84


Scope

I have audited the general purpose financial statements of the Queensland Building Services Authorityprepared by the Authority for the year ended 30 June 2002 in terms of section 46F of the FinancialAdministration and Audit Act 1977. The financial statements comprise the Statement of FinancialPerformance, Statement of Financial Position, Statement of Cash Flows, Notes to and forming part of thefinancial statements and certificates given by the Chairperson and the General Manager.

The Queensland Building Services Authority is responsible for the preparation and the form of presentationof the financial statements and the information they contain. I have audited the financial statements inorder to express an opinion on them.

The audit has been conducted in accordance with QAO Auditing Standards, which incorporate theAustralian Auditing Standards, to provide reasonable assurance as to whether the financial statements arefree of material misstatement. Audit procedures included the examination, on a test basis, of evidencesupporting the amounts and other disclosures in the financial statements and the evaluation of accountingpolicies and significant accounting estimates. These procedures have been undertaken to form an opinionwhether, in all material respects, the financial statements are presented fairly in accordance with prescribedrequirements in Australia which include Australian Accounting Standards so as to present a view which isconsistent with my understanding of the Queensland Building Services Authority's financial position, and theperformance as represented by the results of its operations and its cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In accordance with section 46G of the Financial Administration and Audit Act 1977 I certify that I havereceived all the information and explanations I have required and, in my opinion –

– the prescribed requirements in respect of the establishment and keeping of accounts have beencomplied with in all material respects; and

– the statements have been drawn up so as to present a true and fair view, in accordance with prescribedaccounting standards and other mandatory professional reporting requirements in Australia, of thetransactions of the Queensland Building Services Authority for the financial year 1 July 2001 to 30 June 2002 and of the financial position as at the end of that year.

J P BEH, CPA

Director of Audit Queensland Audit Office

(Delegate of the Auditor-General) Brisbane

Independent Audit ReportQueensland Building Services Authority


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