Out of 128 local government areas, Central Coast was the only NSW Council that did not receive an unqualified audit report in 2020-2021.
A qualified report means that the Audit office is unable to give an unqualified, or clean, audit opinion.
An unqualified opinion is issued if the financial statements are presumed to be free from material misstatements.
The report from the Auditor General was released on May 27.
The qualified opinion on Central Coast Council related to two matters.
Council did not conduct the required revaluation to support the valuation of roads.
Council recognised $1.4B of roads, $37.1M of bridges and $99.1M of footpath assets within ‘Infrastructure, property, plant and equipment’ in the Statement of Financial Position at June 30, 2020, however, the Council was unable to provide sufficient evidence to support the carrying value of these assets.
The last valuation of these assets was in the year ended June 30, 2015, and the Council has not conducted a more recent valuation.
“As a result, this is a limitation on the scope of the financial statement audit, which meant our audit was unable to obtain sufficient appropriate audit evidence to demonstrate the roads, bridges and footpath assets were measured at fair value in accordance with AASB 116 in the Statement of Financial Position at June 30, 2020, or determine the impact on the Statement of Comprehensive Income for the year ended June 30, 2020,” the report said.
The Auditor General said Council also disclosed a prior period error relating to restrictions of monies collected for their water, sewer, and drainage operations.
The Auditor General said that “error” should be considered a “change in accounting policy”, based on the NSW Crown Solicitor’s advice.
Originally Council showed total consolidated unrestricted funds of $50.9M at the end of June 2019 for Central Coast Council.
A $93.9M adjustment related to unrestricted funds in the Water Supply Authority that were not reported as Restricted funds in the General Purpose Funds Statement saw the 2019 statements amended.
The statements now show a total consolidated unrestricted funds of minus $43M at the end of 2019.
By the end of June 2020, that sum was minus $170M.
“The Auditor General recommends that the Office of Local Government should clarify the legal framework relating to restrictions of water, sewerage and drainage funds (restricted reserves) by either seeking an amendment to the relevant legislation or by issuing a policy instrument to remove ambiguity from the current framework,” the report said. (See details in separate story.)
Council also got mentioned as one of the eight councils which had to correct errors in their statements for financial errors above $30M.
Council did not update its Crown and community land to reflect the most recent NSW Valuer-General’s valuations as at July 1, 2019, resulting in an understatement of $39.4M.
But it got fixed.
Council received one extreme risk rating for the way its investment reports did not include forecasts of expected cash and investment positions compared to restricted funds.
The extreme risk rating included some repeat findings which were labelled as high risk in the previous year.
“Council spent restricted funds for unrestricted purposes during 2019–20, without the appropriate approvals under the Local Government Act 1993,” the NSW Auditor General’s Report into Local Government said.
“This indicated that the Council’s oversight of its current and forecast cash flow situation was not always effective.
“Council used a monthly ‘Investment Report’ to understand its historical cash and investment position compared to restricted funds.
“However, these reports did not include forecasts of expected cash and investment positions compared to restricted funds, impacting effectiveness of cash flow management.”
Council also received a repeat high risk rating this year for not having a policy document or framework setting out legislative and operational requirements for each category of externally restricted funds.
“Council was unable to provide the basis for some externally restricted funds,” the report said.
The report said the Council submitted its financial statements for the audit on November 13, 2020, one month after the initially agreed date.
“The financial statements 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 report said.
Within IT, the Council was highlighted for privileged user access reviews not being performed for one of the key financial systems and privileged user accounts’ activity logs not being reviewed.
Many other councils have their own problems.
The report said 61 NSW councils required material adjustments to correct errors in previous audited financial statements.
Merilyn Vale