In an exclusive interview with Coast News, former Central Coast Council CEO, Gary Murphy, has accepted responsibility for his actions, says he has been denied “natural justice” and has added his voice to calls for a full inquiry into Council’s financial collapse.
Murphy, who has been blamed by Administrator Dick Persson for presiding over the Council’s financial losses, says he blew the whistle as soon as the problem was uncovered.
He says it was thanks to COVID-19 that consultants found the cash flow problem that highlighted the fact restricted funds were being used for operational purposes.
Murphy has added his voice to those calling for an inquiry in the Council’s finances.
He says that because the impact has been so far-reaching, it is important to understand in detail the why and how it could happen.
He said he has been denied natural justice to correct the record before the administrator published his 30-day report. He tells his side of the story about claims he refused to meet the administrator.
Murphy arrived at Central Coast Council on July 2, 2018, to find the organisation had been without a chief financial officer for almost 12 months.
Within six months, Murphy, the fourth CEO in two years, organised a review of the books to check the Council was financially stable.
He hired PWC, one of Australia’s “big four” consultancies, which gave the Council the green light when the report was delivered in July, 2019.
“Apart from some improvements to asset management planning and better strategic alignment, there were no real surprises,” Murphy said.
The report stated that in the short term (0-3 years) there was “low financial risk”.
The new Chief Financial Officer was given the report and two key tasks; to improve the budget process and develop a robust long-term financial strategy.
In May 2019, the Independent Pricing and Regulatory Tribunal (IPART) issued its determination into Council’s water, sewer and stormwater prices and charges.
The impact of this determination was that Council would receive about $39M less revenue each year for the period 2019 to 2022.
Murphy said that hit to income came on top of a population that was growing faster than the rate base.
He advised councillors in February 2020 that Council would be carrying out a service review.
A service review is a process that looks at all Council’s services to better understand the cost of delivery, the standard or level of the service and the quality of the service.
This had not been done since the formation of the Council in 2016.
“We were required to harmonise rating systems by July 2021, and we knew that this would generate anxiety among ratepayers about inequity and value for money,” Murphy said.
“We also knew that our population was growing at about 0.9 per cent per annum, however our rating base (increase in the number of rateable properties) was only growing at about 0.5 per cent per annum.
“This gap would not be sustainable in the long term.”
In March 2020, COVID-19 made another impact on income and services.
This was off the back of a major flood in February and a series of major bushfires from November 2019 to January 2020.
A Crisis Management Team was established and about 50 per cent of Council staff began to work remotely.
The new Chief Financial Officer left in April 2020, taking up another role in the public service.
Another permanent CFO would not arrive until after the eruption of the crisis that was silently working its way to the surface.
Murphy engaged consultants Grant Thornton on April 17, 2020, to review the budget process.
This included an operational review and potential cost savings and revenue sources.
“We chose Grant Thornton because they had not been engaged previously to provide any financial services and could provide a fresh perspective,” Murphy said.
“We asked Grant Thornton to model the impact of COVID-19 on Council’s finances.”
Grant Thornton developed a range of scenarios with one suggesting that the impact to Council could be as much as $100M.
Some budget principles were developed: Continue to deliver essential services; Minimize job losses; Live within our means; and Stimulate the local economy.
“We also identified a number of budget levers that we could pull such as freezing recruitment, maximizing the opportunity of pooling developer contributions to reduce the drain on the general fund, increasing revenue, deferring capital works and asset sales,” Murphy said.
“We presented this approach to our Audit Risk and Improvement Committee who commended management for a prudent approach.”
On July 16, 2020, a severe storm struck the Central Coast, causing extensive coastal erosion at North Entrance and Wamberal.
It too would mean another hit to Council’s finances as the State Government directed it to take emergency action at the beaches.
Once again, a Crisis Management Team was established to manage this situation on top of the COVID-19 pandemic.
On July 27, the council passed the budget on the Mayor’s casting vote.
Meanwhile, Grant Thornton was surprised to learn during its scenario modelling that Council did not more actively manage and monitor its cash flow.
So, Grant Thornton developed a model.
This was the moment that led to the discovery that would prove so catastrophic.
Grant Thornton identified that Council was “potentially” using internally restricted funds for purposes other than for what they were collected.
“It wasn’t entirely clear, and we needed to do further and deeper investigations,” Murphy said.
“I asked one of the independent Audit Risk and Improvement Committee members for advice on a local government expert who could review the use of restricted funds.
“That led to me engaging DMB Consulting to carry out this review.”
The review took one month.
And DMB finally found what everybody else had missed for years; the use of restricted funds for operational purposes which is unlawful and it appeared nobody recognised they were restricted funds.
“This review uncovered the extent of the use of not just internally restricted funds but externally restricted funds as well,” Murphy said.
Misstatements in three consecutive years of audited financial statements show consecutive errors of $38M, $89M and $129M.
Two of the years were before Murphy was CEO.
“It was shocking and alarming,” Murphy said.
“We then reported this to the councillors, Ministers, the Office of Local Government, the NSW Ombudsman, ICAC and other key stakeholders.”
What happened next is public knowledge.
The Council publicly explained it had uncovered immediate and serious cash flow problems and the State Government stepped in with an advance so Council could pay its staff.
Council immediately began work on a recovery plan and commissioned a forensic audit in order to understand how this had happened, how far back it went and why it happened.
Behind the scenes, Murphy was asked to attend a meeting with the Mayor, Lisa Matthews, on October 9, where he was given an opportunity to resign with full entitlements.
Three days later he submitted his offer of resignation to the Mayor and went on leave.
The offer was discussed confidentially at the Council meeting on October 12 with no resolution and again on October 19 and again on October 26 with no resolution.
Between those (last) two meetings, on October 21, Minister for Local Government Shelley Hancock ordered the Council to explain why it shouldn’t be suspended.
The councillors had a week to defend themselves and handed in a report on October 28.
It cut no ice with Hancock.
On October 30, a Friday, the Minister suspended the councillors and appointed Dick Persson as Administrator.
By Monday, November 2, he was holding a press conference at Wyong chambers.
Murphy said he met with Persson that day, keen to work with him in implementing the recovery plan.
“I was advised that it was ‘not appropriate’ that I remain in the workplace and was advised initially to take personal leave and then I was advised that I was suspended but I was not advised the reasons for my suspension or how long the suspension would last,” Murphy said.
“On November 20, I received an email requesting my attendance at the Council for a meeting with the Administrator.
“It was suggested I bring my lawyer to this meeting.
“I requested an agenda for the meeting.
“I received no response to this request.”
He was then advised by email a week later that his employment had been terminated in accordance with the terms of his contract – no reasons given.
The Administrator has only ever publicly said Murphy twice refused to meet with him.
Murphy said the Administrator’s 30-day report placed the blame for the situation at his feet despite noting that there was a “catastrophic error” made at the time of amalgamation in 2016 with the Council not recognising that it only had $5M of unrestricted cash.
The Council had also inherited $317M worth of debt from the former councils.
“I have since reviewed the report and written to the Administrator pointing out a number of omissions and misstatements,” Murphy said.
He said the Administrator eventually responded on January 29 saying that he would not be responding and that he stood by his statements.
“As the CEO of Central Coast Council, I accept responsibility for my actions and I accept that mistakes were made and things could have been handled differently,” Murphy said.
“Not a day goes by that I don’t think about how I could have done things better.
“I am truly sorry that good people will lose their jobs because of what has happened.
“I am truly sorry that ratepayers will lose some valued services.”