Central Coast Council administrator Rik Hart said the state government should either monitor the NSW council’s restricted funds or get rid of them altogether and leave the councilors and the community decide how to spend their money.
“The Beggars Belief” was how Hart described the Central Coast Council’s change in how it reported restricted funds – a change made without legal advice.
Hart made the comments while talking about the reporting change introduced in 2016, which meant more than $ 88 million in restricted funds were recorded as unrestricted funds at the start of the merger of the former boards of Wyong and Gosford.
In fact, the Council had less than $ 5 million in unallocated funds when it merged, an amount that Hart said was nowhere near enough for a half-billion-dollar company.
But he also said it was an academic argument because the way unrestricted funds were presented in the financial statements was not the way they were accounted for internally by the board.
Internal accounting complied with the law on local authorities.
Until the merger in May 2016, the former councils of Gosford and Wyong, both of which were water authorities, had historically accounted for unrestricted water and sewer liquidity in accordance with the 1993 law. on local governments.
During the merger, the accounting treatment was changed by creating a voluntary accounting policy reported in the financial statements of May 12, 2016 for both boards.
“That this happened without legal advice and was never questioned by anyone is obvious,” Hart said at a special meeting on June 1.
The meeting was called so that the Board could respond to the Auditor General’s qualified opinion on the Board’s 2019-2020 financial statements.
The Board stated that previous reports on restricted and unallocated funds were reporting errors from previous years.
The Auditor General called this a change in policy.
Hart said that unless they are tried in court, the public is left with two legal opinions.
“But call it that way, the Auditor General’s opinion of the Crown Attorney is 95 percent in favor of what we’ve done and five percent in favor of the Auditor General,” he said. .
His report to the meeting noted that: “It is important to note that the voluntary change in treatment of the policy upon merger amounted to a reclassification of over $ 88 million of water and sewer funds in cash. not allocated for the Board.
“It seems like a significant change to make without a formal accounting position paper or legal opinion.
“The notes to the 2016 financial statements identified that the result of the voluntary change in accounting policy was to improve the current unrestricted ratio, which is a key ratio determining whether the merged boards were ‘fit for the future’.
“There is no evidence that the Board ‘advocated’ for the change in accounting policy.
“For this reason, the Board is surprised that, when taking office in 2017, the Accounts Office did not take a closer look at the governance decisions that underpinned this earlier Board decision.
“Particularly since the audit opinion for 2016 provided an opinion disclaimer, as there was not enough appropriate audit evidence to provide a basis for an audit opinion.
In addition, as noted in the management statement in the 2016 financial statements, then-CEO of the Board, Rob Noble, and the responsible accountant, Stephen Naven, were unable to fully attest the completeness and accuracy of the balances contained in the income statement and the classifications of equity in the financial reports.
In addition, a full analysis of the cash balances subject to external restrictions had not been undertaken to enable management to confirm that the balance is correctly indicated in accordance with the relevant legal obligation that gave rise to the restriction. required.
“The Board has no record that a position document supporting any change in accounting policy has been prepared or considered.
“Such a change to an accounting practice usually requires approval from the Board and senior management (CFO) and it has not happened.
“The managing director at the time confirmed to me that he was totally unaware that such an accounting policy had been put in place.
“I am surprised that the Auditor General or the Audit Risk Improvement Committee (ARIC) did not notice this, noting that it has happened for four consecutive years.”
Looking ahead, Hart pointed out that the Local Government Office has recommended that NSW boards no longer be required to report on their unrestricted cash positions.
“If you want to have tight reserves and make it sacrosanct, then you have to, in quotes, control it,” he said.
“I think removing this requirement could cause more councils to violate their tight internal and external funds.
“In my opinion, it would be a good idea for all boards to report quarterly on their unrestricted funds and restricted internal and external funds.
“And the Auditor General, as part of his annual audits of all NSW boards, checks the balance of those funds at the end of the year.
“The Central Coast will report on a monthly basis, income statements and cash flow both through the internet and through board meetings.”
Hart said the government needs to make up its mind on internal and external fund accounts.
If he wanted to keep them, he had to monitor them, the councils had to be required to report on them, and they had to be audited.
“The other option is to withdraw (the earmarked funds),” he said.
“This option would allow the community and the council to decide together how this money is spent and allow democracy at the end of the term, for the community to decide if the councilors have done the right thing with this money. “
Meanwhile, Hart supported the Auditor General’s recommendation calling on the Local Government Office to clarify the legal framework around funding restrictions for water, sewer and drainage.