Credit risk Credit risk is the risk that a third party will default on its obligation to the Commission, causing the Commission to incur a loss. In the normal course of business, the Commission is exposed to credit risk from cash and term deposits with banks, and debtors and other receivables. The maximum credit exposure for each class of financial asset is best represented by the total carrying amount of cash and cash equivalents, short-term deposits, and debtors and other receivables (see note 20). The Commission’s only concentration of credit risk is in respect of bank deposits held at New Zealand registered banks, which have Standard and Poor’s credit ratings ranging from A+ to AA-. There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired. Liquidity risk Liquidity risk is the risk that the Commission will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash and the ability to close out market positions. The Commission manages liquidity risk by continuously monitoring forecast and actual cash flow requirements. 22. Explanation of major variances from budget Statement of comprehensive income Revenue was $125,000 more than budgeted as a result of higher interest rates earned on deposits, additional income from a research project and proceeds from an insurance claim not anticipated at the time of budget setting. Excluding costs related to the organisational review, expenses were $170,000 less than budgeted. This was because: a Spending on projects was $607,000 less than budgeted, offsetting the additional costs of the organisational review. This saving on projects was primarily following a reduction of the scale, scope or cost of some projects, and the agreement with the Minister to delay the National Plan of Action. The remaining underspend was due to responsive projects which could not be pre-planned, timing differences between budgeted and actual spend, and some cost savings. b Depreciation and amortisation was $73,000 less than budgeted on a lower asset base than expected during the year. The purchase of an electronic content management system was deferred, as were upgrades to IT equipment and a shift to a permanent office in Christchurch. c Personnel costs were $259,000 more than budgeted because the organisational review was not finalised until after the budget had been approved. d Overheads were $218,000 more than budgeted as a result of procuring specialist expertise to provide advice on an IT strategy and related systems, to review the Commission’s office footprint, to improve business planning processes and to deliver enhanced human resources services. Legal fees and costs for temporary premises for the Christchurch office were also higher than planned. e Travel costs were $33,000 more than budgeted. Costs related to the organisational review were $491,000 more than budgeted. This was due to contract support being required for longer than anticipated and additional resources being procured to mitigate risks during the significant change process. Higher costs were also incurred on staff cessation payments. 93