Armidale Regional Council Interim Administrator Viv May said the long awaited finance reports tabled at the Council Meeting yesterday confirmed his worst fears and were a much needed reality check for Council to move beyond its current woes and gain the respect of the community again.
Two financial reports titled Review of Council Finances and Financial Sustainability were considered at yesterday's Council Meeting.
"I requested this forensic assessment in view of the deterioration of the councils unrestricted cash position since the merger in 2016," Mr May said.
"The review focuses on general fund, over expenditures, unplanned expenditures and the status and utilisation of reserves both pre and post merger."
The Review of Council Finances undertaken by Ms Carolyn Foley from Northern Beaches Council included a desktop review and produced an overview of restricted and unrestricted cash.
From this report Mr Robert Finch a former Local Government Auditor was engaged to complete the review. The summary from the report identifies a decline by $11 million (working capital and reserves) in the first three years of the new Council.
Operating expenditure in the 2017/18 Financial Year exceeded the budget by $11.6 million and put considerable strain on the budget which was already in deficit.
Major capital projects like the new Armidale Library exceeded budget estimates by $4.2 million and Council proceeded with capital purchases without a budget or funding source such as the purchase of land adjacent to the airport.
"The review confirms my worst fears and provides a clear picture of the financial ineptitude that occured particularly in the first three years of the new council," My May said.
"It identifies considerable cost overruns on poorly scoped projects, a significant lapse in oversight and reporting from a financial perspective on project management and control was inadequate.
"The report notes that some projects were initiated in the assumption that reserves existed but in fact they'd been extinguished. This report identifies a significant lapse is financial management in the early years of the merger.
"Many assumptions were made about the existence of cash reserves but they were pure fantasy, they didn't exist. And the proper checks and balances were not being done to keep expenditure on operating and capital to budget forecasts."
Finally Mr May said the review made 11 recommendations.
"The community can be assured that these must be administered under the ministers draft performance order if there is agreement from the appointed financial controller," he said.
"When you read the financial report you will see that the council is not great at scoping projects but that will improve."
The second report presented to the Council meeting by Acting General Manager John Rayner provides information on Council's current financial position and foreshadows a comprehensive improvement plan for Council operations. Section 8A of the Local Government Act sets out guiding principles for Councils including: Spending should be responsible and sustainable, aligning general revenue and expenses; Investing in responsible and sustainable infrastructure and having effective financial and asset management.
"The evidence shows that the guiding principles in the Act have not been adhered to for many years at this council," said Mr May
'In-fact it probably goes back to the management of the former Armidale Dumaresq and Guyra Shire Councils who were both deemed not fit for the future by the Independent Pricing and Regulatory Tribunal (IPART).
"With this legacy from the former councils to deal with, in the development of the new council, it should have been a priority and a major focus to restore financial sustainability, but unfortunately it turned into a spending spree.
"The report also shows a complete lack of judgement in the allocation of funds to implement roads renewal and maintenance. From the 2017/18 Financial Year until now there has been a 50 percent drop from $8.43 million to $4.2 million on local roads maintenance and renewal.
"I urge all residents to go to our website and read this document - it is well worth the time, and it is written for a general read," Mr May said.
"None of it paints a pretty picture."
Mr Rayner also requested council allocate $500,000 from the current budget towards improving its financial governance - a motion Mr May carried.
"This report covers quite a few issues regarding council's financial position and its statutory obligation the council has in providing best value and in financial management," Mr Rayner said.
"It refers to the tenuous financial position council is in also the lack of funds that are going towards basic services and some of the requirements of the minister for local government in her draft performance improvement order.
"If the council is to address these financial and governance issues, there is a need to invest and ensure that we have the right people involved."
On November 19, 2020, the Minister for Local Government, The Hon Shelley Hancock, served Notice of Intention that she plans to issue a Performance Improvement Order (PIO) on the Council. The Draft PIO has an emphasis on financial improvement and management. Elected representatives will be returning on 12 December.
"The PIO sets in place very stringent requirements for council including the appointment of a financial controller who will act as a gate keeper for council spending," said Mr May
"Rest assured that the financial mismanagement of the past will not occur and council will be focused on a back to basics approach of restoring sound governance and financial management.
"The report by the acting general manager is the beginning of the turnaround for this council and a focus on much needed financial discipline."