Councillors had ultimate responsibility, despite staff failures, says Commissioner

The Commissioner Roslyn McCulloch found no single smoking gun but was critical of both staff and councillors in her report into the financial crisis at Central Coast Council (CCC) that became public in October 2020.

The Commissioner concluded “that not all CCC councillors, and perhaps not any, possessed the knowledge and skill to analyse the information provided to them so that they understood what was happening to the Council’s finances from May 2019 until the financial crisis in October 2020”.

“CCC’s response to the financial problems it was facing was too little and far too late,” McCulloch said.

“Ultimately the responsibility for the fate of the Council rests with the councillors but they were not adequately supported by a General Manager who was able (sic) to provide strong leadership of the staff on financial matters at the time it was needed,” McCulloch stated in her report.

The Commissioner said that some staff at CCC failed to adequately perform their duties, resulting in a situation where there was insufficient strategic financial direction and information provided to councillors. 

Like Administrator, Dick Persson, said in his 30-day interim report in December 2020, the Commissioner pointed to the IPART decision in 2019 to reduce water rates as one area where the Council failed to act.

“Instead of reducing capital expenditure, the Council allowed the budget deficit to increase, with the likelihood that the projected figure would not be met due to lack of planning of any proposed “targeted savings”,” Commissioner McCulloch said.

“The IPART determination on 24 May 2019 almost doubled the CCC forecast decrease in revenue and again no changes were made to the draft budget, even though the projected deficit had grown from $7.7M to $18.6M,” the report said.

She referred to the NSW Treasury Corporation’s report, published back in 2013, Steps to Amalgamation, which said break even operating costs were essential.

The Commissioner said the costs of the merger “on any reckoning” far exceeded the merger grants and the merger was far from complete when the councillors were suspended.

“The constraints on staff changes existed until May 2020 and the ‘rates path freeze’ until June 2021,” the Commissioner said.

“The Council had inherited significant infrastructure backlogs from the (former Gosford and Wyong) councils as well as significant, but manageable debt levels. 

“It would be unrealistic and unreasonable to expect efficiencies or financial savings to have been evident by October 2020.”

She said it was “regrettable” that acting CEO Brian Bell disbanded the merger Project Management Office in 2017, without which measurement and reporting on the progress of the merger processes at the whole of Council level no longer occurred.

When councillors did make calls for information about the costs (but not benefits or savings) and progress of the merger it took many months for staff to respond. 

“Eventually, a report was presented to the meeting of CCC on 25 November 2019, however it deferred until early 2020 the provision of information relating to the estimate of costs of the amalgamation,” she said.

“Given the lack of information available to councillors about the progress of and costs associated with the amalgamation it is unsurprising that the governing body did not have a primary focus on efficiencies and financial savings which might have been available from the merger process, particularly when the process was still some years away from completion,” she said.

However, she said the financial crisis which befell CCC in October 2020 was not the result of the governing body being ignorant of the financial consequences of its decisions.

She noted that Council finance staff actively discouraged the councillors from reviewing the budget in the presentation to the councillor briefing on 3 June 2019 and the report to Council on 11 June 2019, even though there was still time to make adjustments. 

“Nevertheless, it was a decision for the councillors, not the staff, to adopt the budget with no significant changes,” she said.

“In my view the budget decisions of the elected body did contribute, and in a significant way, to the financial crisis of CCC in 2020.”

She said the governing body had the means at its disposal to keep the financial performance of the council under review, but it failed to do so adequately. 

“The monthly investment reports were adopted en masse with other information reports, without comment, questions, or debate. 

“The quarterly budget reviews were not used as opportunities to correct adverse trends.”

As for the restricted funds issue, McCulloch said the investment report for October 2019 did not contain any additional comment to alert the reader to the fact that unrestricted cash was in the negative. 

Unrestricted cash remained negative until the Council was suspended in September 2020. 

“At no time was any notation made in an investment report to alert the councillors to that fact,” the Commissioner said.

“Weekly briefings by Council staff were held with those councillors who wished to attend, about various matters, including upcoming reports. 

“The councillors were never informed that the unrestricted funds had been exhausted nor were they warned about the consequences of having no unrestricted funds available.”

She said the staff reports were designed to “obfuscate rather than elucidate”.

But she said the information about the decline in CCC’s finances and the use of restricted funds was there if one knew where and how to look. 

“As Cr Hogan recounted in her evidence, the balance of unrestricted funds could have been calculated by deducting restricted funds from the total of cash and investments as shown in the investment reports,” the Commissioner said.

“The staff of CCC responsible for those reports bear a significant responsibility for the lack of knowledge on the part of the councillors for the unlawful use of restricted funds.”

The Report is 91 pages long and has more details on councillor behaviour.

Coast News will cover this area of the report next week.

Merilyn Vale