This is the second in a series of article to arise from the graph published as part of the General Manager’s column in the Advocate. Part one of this can be found here.
Our resident ‘financial wizard’, Rob Steurmann, continues to analyse the GM’s Coffs Coast Advocate column of November 2.
In the first article, linked in the opening paragraph above, above, it was explained the outcome was influenced by revenue and the expenditure.
Essentially I argued that to improve a result for any year it is necessary for an organisation to;
- Increase revenue,
- Reduce costs, or
- Do both of the above.
It was shown in my first article that residents had contributed sufficient funds over five years to achieve the net operating result as at 30 – 6- 2019.
Council was therefore not required to do anything of an unusual nature.
References that follow are to page numbers contained within the council document which can be found at this URL link.
At the end of 2017 Council prepared its annual statement and, as required under law, two councillors, Addendorf and Strom, the General Manager and the responsible officer, Mark Grifficen, “signed off” on the report (see page 211).
The Council’s independent auditor also cast an eye over the accounts and made numerous footnotes to accompany the document.
So, residents have every right to believe Councillors Adendorf and Strom, the General Manager and the auditor performed some sort of check to validate the accounts.
Residents could be forgiven for thinking the accounts were accurate. The box ticking had been done. We had a $19.6M surplus.
In the published article in the Advocate of 2 November, the graph, (pictured below), shows a massive spike for the 2017 year ($19.6M). On face value it supports the General Manager’s assertion that we have strong financials. But there is no real evidence tendered and astute readers can see the result was not maintained the in the next year. It fell away by close to $20 M.
In order to verify the figure’s quoted in the GM’s column the following things were looked at;
(See pg 212)
|Figures in 000s||2016||2017||Difference*|
|Outcome before capital grants||3076||19591||22667|
*( ) = less than previous year
So what went wrong? The following went wrong; income did not increase, costs went up and capital grants fell by a massive $43 M.
However, if the table is correct, we were somehow better off by $22.7M.
It must be a joke to be better off when grants of a capital nature fall by $43M. Why would you apply for any further grants in the future?
To take it to the extreme residents would be better off had the assets not been sold during the year. The accounts show an increased loss (net $12.307 M) yet to keep the assets would remove the loss and residents would be ‘better off’ to the tune of $35M. This seems highly improbable Mr General Manager.
In the published report the net operating result for the year before grants and contributions provided for capital purposes is $19.591M (see p212). These are the figures used in the graph in the GM’s 2 November Advocate column and are arguably a figure that could mislead ratepayers and residents.
Leave out the grants for capital purposes and the new income for 2016 is $160,231 and for 2107 $184, 867. Now it makes more sense. Income increases by $24. 636. Is this possible?
Changes in income 2016 and source
|Rates / charges||85.968||91.319||5.351||Residents|
|User charges / fees||30.012||35.319||5.307||Residents|
This is enough to substantiate the published result but is it actually correct?
Buried on page 33 of the accounts, (or pg p242 of the link to the Council meeting agenda where they were presented above), of the auditor’s notes is the listing of other revenue. It includes sales of food and drinks at the stadium, airport parking, banana sales from a reuse trial and a host of other items. They total $29.227 M. By far the biggest amount comes from assets recognised for the first time $17.8M.
There is no explanation as to how an asset becomes revenue.
So, given that Councillor Adendorf, Councillor Strom and the General Manager and the local auditor all signed off on the accounts one wonders if they should be asked to explain this anomaly?
Is the real position a surplus of $6.8 M and falling?
What else might be wrong?
That gets us back to residents and users putting in $10.6 M, less $2M extra, in costs. This $8.6M is almost sufficient to cover a movement from a $3M deficit to a $6.8 M surplus, (grants for operating purposes are omitted from calculations).
In addition grants for operating purposes as shown on the statement total $22.063M (audit report p3) but see note 3(e).
Total grants as listed by the auditor are $16.773 M. This is $5.29M short of the sum in the statement. Of interest is that some items are shown as being of a capital nature ($9.34 M). Included in this column was $1.8M for the Jetty4shores (p213). So, should the surplus actually be $4.51M? It’s hard to tell as there was no further explanation given in the accounts.
But we do know this; to date there is doubt over $23.1 M of so-called “income”.
Now, to add to the mess, not all grants received are spent in the one financial year.
Some grants from previous years are held in trust. Council includes a grant as income in the year it is received and at the bottom of what I believe is erroneously called an ‘income statement’ it deducts the grants received for capital purposes.
The question remains as to why they were included as ‘income’ in the first place when a grant is actually a ‘gift’.
Take the following two statements (p245) and note G&C means ‘Grants and Contributions’:
G & C received and not spent in the prior reporting period (2016 yr) $16.884
G & C reported (in earlier years) but spent in current period (2017 yr) $8.213
Does this mean $8.671M has been on hand for two years and not spent?
And there is a further statement to show a further $15.813 M was received in 2017 and is yet to be spent.
By my reckoning that is $24.4M in ‘income’ not spent. Yet there is no break-up (capital or current) of any outstanding projects. Remember only the capital component has been removed.
Of the amount held for future reporting periods some $4.7M is from specific purpose unexpended grants. It is a rise of $3.849 M. If it is all for capital projects then there is no problem but any amount relating to current work will change the operating result.
So Council here is my question; “What really is the right operating result?” It could be another $3.85M overstated. Or the claimed $19.5 M might well be as small as $0.65M.
There is good reason to exclude grants and contributions from an income statement. The grants and contributions came from donors and developers. State government is by far the biggest (in $ terms) donor but there is no consolidated register (that can be found) for their aggregate donations.
So, how much of the $4.7M came from the State Government and is therefore not actually real ‘income’?
Dare I say everything does not seem to be as strong as the General Manager has made out in his ‘healthy financials’ 2 November column?
In the very next year, as the graph accompanying his column very clearly shows, the “sustainability” is not maintained. Council went backwards by $7M.
There appears to be inconsistent treatment within the Coffs Harbour City Councils accounting system which should have been picked up on. That inconsistency apparently is still present.
Could it be done so as to enhance Council’s claim they are ‘fit for the future’ as required by the State Government?
There was also a revaluation of Infrastructure, Property, Plant and Equipment (refer p213) in the accounts linked to this article. An attempt will be made to discuss the implications of this in the next instalment.
Rob Steurmann, Outlook’s financial sleuth, is a retired forensic auditor who previously worked for the federal government.