2018-19 accounts corrected for “policy change”

Gosford's Council Chambers.

Opinion: This article by Merilyn Vale is her interpretation of some aspects of the Council Report.

Central Coast Council corrected a 2018-2019 financial year “error” in its 2019-2020 financial statements released this week.

Originally Council said it had no restricted funds in the water supply authority and so it showed a total unrestricted funds of $50.9M at the end of June 2019 for Central Coast Council’s consolidated financial statements.

That has now been rewritten to show a restricted amount of $93.9M in the water authority and total consolidated unrestricted funds of minus $43M at the end of 2019.

By the end of June 2020, that sum had grown to minus $170M.

The NSW Audit Office auditor disagreed that it was a correction of an error and said it was a change in accounting policy.

His report was tabled along with the financial statements at Council’s May 11 meeting.

The auditor reported a number of red flags.

He found a “material deficiency in the council’s accounting records”.

These included the lack of daily reconciliation of key accounts and sub-ledgers.

Some reconciliations that should have been performed every day between the general ledger and sub-ledger systems to ensure all transactions were reflected correctly in the general ledger did not happen.

Then, there was no audit trail when manual intervention was performed.

This meant there was no record of: 1/ who did 2/ what and 3/ when it was done, so there was no evidence of review of changes made to these transfers.

The auditor said some monthly account reconciliations were not prepared or reviewed on a timely basis and supporting documentation was not consistently attached.

The criticisms come on top of the extreme risk already identified: that Council spent restricted funds for unrestricted purposes.

The auditor said this indicated the Council’s oversight of its current and forecast cash flow situation was not always effective and he labelled it an extreme risk meaning the matters are most certain to occur and had a very high consequence.

He labelled Council’s documentation of legislative and operational requirements for restricted funds “high risk”.

“Council did not have a policy or framework setting out legislative and operational requirements for each category of externally restricted funds,” his report stated.

“Council was unable to provide the basis for some externally restricted funds.

“The absence of this documentation increases the risk of restricted funds being used for inappropriate purposes in breach of legislation, especially in an environment of high staff turnover.”

He listed other matters of extreme and high risk.

He said Council submitted the financial statements for audit on November 13, one month after the agreed date, and they included significant presentation issues, material misstatements and disclosure deficiencies.

“There was no documented evidence of timely quality review of the financial statements and associated supporting workpapers.”

The auditor noted the general computer controls were high risk.

“Council did not perform privileged user access reviews for one of the key financial systems and did not review privileged user accounts’ activity logs,” he said.

“This means there is an increased risk of users circumventing normal control processes without detection.”

He said the Council didn’t value its roads, bridges and footpaths assets in the financial year as it was meant to.

The last full evaluation occurred in 2014-15 before the former Gosford and Wyong councils merged in 2016.

“The Council was initially planning to perform a full evaluation of these assets in 2019-20 – given the five year gap in valuations – but after June 30, 2020 determined to defer the revaluation to 2020-2021,” the auditor said.

See separate story for detail on Council’s net operating result for the financial year ending June 30, 2020.

Merilyn Vale