Forensic audit into Council’s financial issues released

Former Administrator Dick Persson

A summary of a forensic audit into Central Coast Council’s financial issues blames problems before amalgamation and general poor financial management practices.

The report concludes that with the forensic audit finished, Council should focus on improving systems.

The recommendation to the Administrator, Dick Persson, is that Council no longer needs to report to each Council meeting on its progress or on any other action in response to the financial crisis.

It says that there were problems, delays and lack of transparency when integrating the financial systems on amalgamation, and delays and a lack of transparency in establishing a single financial system after amalgamation.

A long term and established practice of relocating funds within the single bank account between the general fund and restricted funds; mismanagement of the single bank account and lack of financial controls along with general poor financial management practices and no early warning mechanisms were also found.

“The current financial circumstances appear to have arisen from legacy issues associated with financial systems, transparency from the time of Council amalgamation and poor financial management practices,” says the summary to the March 9 meeting.

Council engaged Clayton Utz on October 26, 2020, four days before the councillors were suspended, to undertake a legal analysis.

As part of that, Clayton Utz engaged KPMG to undertake the financial forensic analysis.

The purpose of the engagement was to advise Council of any evidence indicating that Council’s liquidity issues, or use of restricted funds in breach of the Local Government Act, were as a result of corruption.

Clayton Utz further requested KPMG undertake a targeted forensic review of a sample fund to gain understanding of Council’s financial accounting practices and adherence to the Office of Local Government Guidelines.

Council’s Domestic Waste Fund (DWF) was selected as a sample fund.

“The review has not identified any evidence that Council’s current liquidity issues or use of restricted funds in breach of the Local Government Act was the result of corrupt conduct,” the summary says.

“Clayton Utz further stated that having regard to the reviews completed to date, it would be reasonable for Council to conclude that further investigation would be unlikely to disclose any new or additional reasons for its current financial circumstances, and resources would be best utilised by focussing on implementing improvements in financial management and reporting,” it continues.

“For this reason, no further Forensic Audit reports are recommended at this time.”

At the previous meeting, on February 23, Council submitted its final report on the progress against its Business Recovery Plan.

At that meeting, council explained that the Financial Tactical Team, which had been created as part of the Business Recovery Plan, would discontinue, and any financial savings would continue as “business as usual”.

Jobs still to be done included reviewing developer contribution plans and model expenditure prediction with a view to minimising expenditure from general revenue, and addressing all recommendations made in the Developer Contribution Audit and ensuring a clear strategy.

It was also going to continue reviewing historical spend to identify funds that may have been expended from incorrect sources: i.e. developer contribution eligible projects that have been funded from general revenue.

It was also going to create a property (land) register including details on the use and return on property and assess the holding costs of all non-income producing assets and the current and future needs (eg. community expectation) strategy for maintaining the property and consider the sale of non-core assets no longer required to pay down debt.

The Q2 Business Report was adopted at the February 23 meeting, showing the financial performance of Council to the end of December 2020.

The main points showed that: The year to date (YTD) operating result (excluding capital grants and contributions) is showing a favourable variance of $21.5M, consisting of an actual surplus of $102.3M compared to a budget surplus of $80.8M; The year to date operating result (including capital grants and contributions) is showing a favourable variance of $23.1M, consisting of an actual surplus of $123.9M compared to a budget surplus of $100.8M; and, The year to date capital expenditure is $90.3M compared to a year to date budget of $104.6M.

Council expects to register a $107.4M loss by the end of the financial year and is undertaking remedial actions, including structural reduction in operating expenditure, seeking special rate variation approval from the Independent Pricing and Regulatory Tribunal, reducing capital expenditure, bank loans, generating additional income and selling under performing assets.

Director Corporate Affairs, Natalia Cowley, said the total Council debt at the end of January was $458M.

This was down from the total of $565M that Administrator, Dick Persson, noted in his 30-Day Interim Report in December 2020.

Merilyn Vale