On 17 March, the Minister for Local Government recommended that “all civic offices at Central Coast Council be declared vacant, effective immediately”. This decision removed local democracy from the Central Coast.
Read below for my comments in response
Click here to view my submissions to the Public Inquiry
This action followed a report from the Public Inquiry into Central Coast Council. The removal of local democracy appeared to be a pre-determined outcome from the Inquiry. One expert in local government, Adjunct. Prof Graham Sansom, said that the Terms of Reference were “clearly written by someone who was wanting a conclusion that the Councillors be dismissed...they were very selective terms of reference”.
The Public Inquiry provided very few answers for our community and has perhaps raised even more questions.
Changing in accounting practice
A change in accounting practice back in 2016 resulted in Council thinking that it had more “unrestricted” cash than it really did. None of the 4 CEOs, the Administrator (Reynolds), Council’s financial staff, the financial experts on the Audit, Risk & Improvement Committee (ARIC) or the NSW Audit Office recognised the impact that this had on Council’s financial reports—until October 2020. The Crown Solicitor’s advice is that this money may not need to be repaid.
In 2019, an IPART decision on water charges reduced the income that Council was budgeting for 2019/2020. IPART released a draft determination in April 2019 and then a final determination in May 2019.
The Commissioner states that “no adjustments were made to the draft budget after the IPART determination was announced”. This is contrary to the information provided to Councillors at the time.
A presentation to Councillors on 3 June 2019 on the IPART decisions (draft and final) included the impact on budget. It included the following:
- Changes to the Mardi to Warnervale pipeline project
- Reduction in budget for stormwater drainage
- Reduction in service levels for some maintenance works
- Deferring some drainage and detention basin projects
- Deferral of capital works projects to value of $11.9M
Many of these adjustments were made in consultation with IPART’s consultants.
Poor advice from Council staff
The Commissioner suggests that there was a lack of financial direction from Chief Financial Officers (CFO) between August 2017 and October 2020. In particular, the CFO appointed in 2019 “may have facilitated the lack of information flowing to councillors about the situation and lack of action to counteract the downward trend of CCC’s cash position.”
The Commissioner also comments that “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….. At no time was any notation made in an investment report to alert councillors to that fact.”
“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”.
“The financial information provided to councillors was not easy to read and was sadly lacking in attention to trends.”
The Commissioner identifies staff that should have been able to provide an accurate picture of the Council’s finances—and did not.
The Commissioner identifies a staff member that could have answered relevant questions—but then indicates that she did not question him “as he was not able to be located”. (A recent search suggests that he may now be working for the NSW government).
“The investment reports from October 2019 until the financial crisis, were designed to obfuscate rather than elucidate. 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 lax practices (together with a lack of cash flow reporting) have resulted in over $60 million of internally restricted funds being utilised for general purposes without the approval of the Councillors. “ (Grant Thornton Consultancy)
The Commissioner has made no recommendations in her report regarding Council staff or the lax practices.
Grant Thornton consultancy
In April 2020 the then CEO engaged a consultancy, Grant Thornton, to review council’s COVID response, its budget processes and longer-term financial planning. Grant Thornton provided a Phase 1 report to Council’s Executive Team on 5 June—this included warnings about cash flow and use of restricted funds. While staff received the report—Councillors did not.
Grant Thornton provided a briefing to Councillors on 13 June 2020. It highlighted significant concerns and uncertainty about the impact of COVID on Council’s budget. It did not include the warning of negative cash flow and the use of restricted funds.
The presentation identified 8 levers to improve Council’s financial position—including increasing income and reducing expenditure. It also provided scenarios about the budget and the impact of COVID.
The Commissioner’s report suggests that Councillors did not intend to alter its draft Budget 2020/2021. This is not accurate.
When the draft budget was considered at a Council meeting on 23 March 2020, it was noted in debate and the decision of Council that there would be impacts and further updates would be needed after exhibition.
After the presentation from Grant Thornton on 13 June 2020, “Council staff were asked to go away and work on the details for the cash levers totalling $233M”.
Further briefings included discussions about deferring capital works and the need for further changes in quarterly reviews once grant funding and the true impact of COVID was known.
The main changes between the exhibited draft Operational Plan 2020-21 and that ultimately adopted by the Council were:
- decrease capital expenditure by $23.3M
- decrease operating expenditure by $10.8M
It was not until 6 October 2020 that Councillors were made aware of the unauthorised use of restricted funds.
Council’s Audit, Risk & Improvement Committee (ARIC)
The Commissioner recognises the expertise of Independent members of ARIC but then suggests that it was not within their role to notice any of the financial issues of Council.
This does not stand up to scrutiny. In ARIC meetings, committee members interrogated and discussed details of the draft Audit reports with the Auditor. Each year, ARIC recommended that Council sign the Audited Financial Statements. ARIC missed the issues that resulted from the change of accounting practice.
The big number—$565 million
The figure of $565 million has been thrown around in the community. It should be noted that:
- $317M of the $565M of debt owed by CCC in October 2020 had been inherited from WSC and GCC. This is not viewed as “bad debt”. (Most Councils have debt that they are paying down).
- about $200M was restricted funds which were used unlawfully and without Councillors’ knowledge or approval. The advice of the Crown Solicitor in 2020 has cast doubt on whether these funds were used unlawfully and need to be repaid.
- The remaining amount are budget deficits.
In relation to the budget deficits, the following comments were made to the Public Inquiry from the Independent experts on the ARIC:
“… deficit budgets. If I had been asked at the time, I probably would have not been overly concerned on a short-term basis, because, at times when you’re trying to rebuild, of if you’re trying to do things, sometimes you have to go into deficit”… (Millington)
“...in reviewing the financial statements...I certainly agree with the sentiment: you cannot continue to run operating budget deficits and not pay the price, but in the short to medium term you can run deficits at the moment.” (Gordon)
“...So I’m not saying I’m happy with having $500million worth of debt, but when we came into this and you are asking me about the three years accounts, there is nothing in those accounts in terms of debt, in terms of operating result, that is a concern to me as an independent professional”. (Gordon)
Did Local Democracy need to be removed?
There is no doubt that issues of long term financial management existed at Central Coast Council and needed to be addressed - but did local democracy need to be removed?
There were other options available to the Commissioner:
- Reinstate the Councillors with a Performance Improvement Order that is binding on achieving outcomes
- Appoint an independent financial expert and a Human Resources advisor (as the Minister promised on 6 Oct 2020)