Accounting for funding under the Natural Disaster Relief and Recovery Arrangements
To provide information on how to account for funding received under the joint State and Australian Government Natural Disaster Relief and Recovery Arrangements (NDRRA).
This bulletin applies to Queensland Local Governments and only covers how NDRRA funding should be accounted for in the Financial Statements of a non-profit entity. It does not cover how to apply for NDRRA funding.
The topics covered in this advice include:
- Explanation of NDRRA
- AASB 1004 overview
- Accounting for NDRRA
- Disclosures required for NDRRA
Between November 2010 and April 2011, Queensland was struck by a series of natural disasters. In response to these events the Queensland Government established the Queensland Reconstruction Authority (QRA), pursuant to the Queensland Reconstruction Authority Act 2011.
Amongst its functions, the QRA was assigned responsibility for administering and authorising the application of Natural Disaster Relief and Recovery Arrangements (NDRRA) funding to State Departments and Agencies, and Local Governments for the November 2010 to April 2011 disaster events.
For all events up until November 2010, funding to Local Governments for the Restoration of Essential Public Assets (REPA) component of the NDRRA is administered by the Department of Local Government and Planning (DLGP).
There are a number of ways in which NDRRA REPA funds may be provided to local governments:
QRA processes include:
- an initial advance upon submission to the QRA. Usually the submission would include a priority project listing of eligible restoration and reconstruction projects and budgeted amounts for those projects. A signed funding agreement is also entered into before the advance is provided. In general, the advance is for 18-30% of the total budget for the reconstruction projects included in the submission. Actual expenditure on the approved works is subsequently acquitted in accordance with the funding agreement.
- subsequent advances of funding on submission of specific project applications, which include detailed costings. Actual expenditure on the approved projects is subsequently acquitted in accordance with the funding agreement.
- reimbursement of actual eligible expenditure incurred on eligible restoration and reconstruction works. This expenditure is still required to be acquitted in compliance with the funding agreement.
DLGP processes include:
- payment for actual costs of completed emergency works on submission to DLGP for approval.
- payments following submission for emergent and restoration works to DLGP for approval. A signed funding agreement must be entered into before progress payments are made. Local governments claim progressively for the reimbursement of actual expenditure on approved works up to 90% of the approved funding. The final 10% is paid on successful completion and certification of works, in accordance with the funding agreement.
- where a local government can demonstrate cash flow constraints, an advance payment constituting 20% of the approved funding may be provided following application to DLGP and execution of the funding agreement. This advance, if approved, may be retained as restoration works progress until payments to council reach 70% of the approved funding. These local governments then make claims for reimbursement of actual expenses incurred, up to 90% of the approved funding, through progress payments. The final 10% is paid on successful completion and certification of works, in accordance with the funding agreement.
- with approved funding based on local governments’ estimated costs to repair damaged assets, recipients are required to submit revised estimates for approval.
AASB 1004 Overview
AASB 1004 Contributions is the Australian Accounting Standard that covers how the NDRRA funding should be accounted for in the financial statements.
AASB 1004 requires contributions received or receivable to be recognised immediately as revenue when:
- the entity obtains control of the contribution or the right to receive the contribution;
- it is probable that the economic benefits comprising the contribution will flow to the entity; and
- the amount of the contribution can be measured reliably.
Control of amounts in the nature of voluntary transfers arises when the transferee can benefit from funds transferred to it and deny or regulate the access of others to those benefits. Therefore control arises when, for example, local governments can use funds granted or transferred to purchase goods and services or retain those funds for future purchases.
This Standard requires contributions to be recognised as income when the transferee local government obtains control over them, irrespective of whether restrictions or conditions are imposed on the use of the contributions.
The receipt of contributions does not give rise to a liability unless the contribution is provided on the condition that the local government is to make a reciprocal transfer of economic benefits to the transferor. Reciprocal transfers are transfers in which the transferor and transferee directly receive and sacrifice approximately equal value. For a transaction to be reciprocal, the transferor must have a right to receive the benefits directly. It is not sufficient that the transferor receives benefits indirectly as a result of the transfer. For example, when a government provides a grant to a local government, it does not receive value directly in exchange, although it (or those it represents) would indirectly receive a benefit as a result of the local government deploying the grant in providing goods or services to beneficiaries that the grantor government represents.
Accounting for NDRRA
Local governments will need to decide when control of the NDRRA funding has passed, in accordance with the provisions of AASB 1004. Once control has passed, the contributions will need to be immediately recognised as revenue. Generally this will be upon receipt of the funds.
In relation to advances, local governments will need to exercise judgement as to whether the criteria for control have been satisfied. The local government's assessment of when control is achieved should be formally documented and retained for audit.
Once control has been determined, the funding received under NDRRA should be accounted for as revenue. A suitable journal entry may be:
|Publication||Type and size||Type and size|
|Initial recognition||Recognise receipt of cash and revenue.||
DR Cash at bank X
Recognising a receivable
Local governments need to consider a number of factors before recognising a receivable for NDRRA funding. In particular, there is a need to assess whether all the relevant eligibility criteria have been complied with and whether it is probable that the QRA (of if applicable DLGP) will approve the funding. Even though a local government may have received initial approval for expenditure on projects, additional supporting evidence may be required prior to reimbursement for expenditure. Local governments should ensure that these requirements have been met prior to recognising a receivable. Documents supporting this conclusion should also be retained for audit.
Return of NDRRA funding
Circumstances may arise where a local government will need to return funds to the QRA or to DLGP, which may warrant the recognition of a liability and expense. For example, this may occur if the local government has breached the conditions of the funding agreement and the QRA or DLGP indicates that the funds will have to be returned.
A liability and expense should only be recognised if it is probable that the funds will have to be repaid, and the amount to be repaid can be reliably measured. There would need to be some evidence to support this conclusion. For example, if a local government were part way through repairing a local road that was damaged in event 1, when event 2 occurred and completely destroyed that road, the QRA or DLGP may require the local government to repay the unexpended funds from event 1, prior to granting funds for event 2. In this instance a letter or other advice from QRA or DLGP, together with the basis for calculating the amount repayable, would be needed to support the recognition of a liability and expense.
Relevant Accounting Standards
The following Accounting Standards are relevant to this bulletin:
- AASB 1004 Contributions
Access the latest versions of these Accounting Standards online.