The Lismore City Council ended the 2023 financial year with what councillors generally agreed were encouraging results, given an ongoing disaster recovery, but a reliance on grants.
The council’s report received official sign-off by NSW Auditor-General Delegate Gearoid Fitzgerald, based in Sydney, before councillors approved it for public display last month.
‘Probably the more important number’ in the report, according to a representative for external Lismore-based auditor Thomas Noble and Russell, was ‘the operating result before capital grants and contributions’.
Audited results for the council’s books showed a $13.4 million deficit after more than $60 million in capital grants and contributions were deducted.
But answering questions from councillors, the auditor said near replacement of some council assets were accounted as maintenance expenditure, rather than capital assets investment, leading to significant asset repair costs in the disaster recovery.
The council’s overall position was a total reported income from continuing operations of $202,870 compared to $169,548 in the financial year ending June 2022.
Total expenses from continuing operations were reported at $155,075 compared to $164,482 the previous year.
The reported operating result from continuing operations was $47,795, compared to $5,066 in June 2022.
Post-disaster maintenance bill tops capital investment
The council spent $28.2 million renewing assets versus $26.5 million building new assets, the auditor said.
Most of the expenditure was on roads, water, sewer and other flood damaged infrastructure.
‘We spent another $23.8 million on acquiring new assets, including the Lismore Employment Lands,’ the auditor said.
Timing of grant revenue versus the expenditure was an issue the auditor highlighted.
‘But I think your management team should be able to provide you with a pretty detailed understanding of what influences the general fund result and what might need to be addressed to bring that back into surplus,’ the auditor told an extraordinary meeting of councillors in late January.
‘Good reasons’ for failed state benchmarks, says auditor
A summary of the audited report showed of nine results measured against NSW Office of Local Government (OLG) financial benchmarks, three failed to meet the standards set while the Lismore City Council had met or exceeded six benchmarks.
The council’s ‘operating performance ratio’ ended in the red at -4.09% compared to an OLG benchmark of more than 0%; its ‘own source revenue ratio’ was 46.98% compared to an OLG benchmark of more than 60%; and its ‘infrastructure backlog ratio’ was 12.22% compared to an OLG benchmark of less than 2%.
The auditor said there were ‘pretty good reasons’ for at least two of the results highlighted in red.
A lot of the operating performance ratio was ‘influenced by the receipt and expenditure of grants and contributions, particularly with the monies coming through with the floods, etc.’, the auditor said.
‘Anything that’s maintenance related may have the impact of influencing this ratio as money is recognised in one year but then spent and recognised in the income statement as expenditure in the following year,’ the auditor said.
‘Nevertheless, that ratio is calculated by, basically, net profit divided by revenue with our capital grants and contributions,’ the auditor said, ‘and that is influenced by that deficit in general fund or the overall deficit before capital grants and contributions of $30 million’.
Detailed figures published on the council’s website showed receipt of more than $100 million in grants towards capital and maintenance costs, compared to less than $97 million raised from rates, fees, charges, interest and other revenue.
The auditor said the council faced ‘a challenge’ to try and get the operating performance ratio ‘back into the positive’.
‘We have done it before, we have done it in prior years,’ the auditor said, ‘and hopefully, when things settle down, we can get some stability in that particular area’.
Raising revenue a ‘major dilemma’ for councils
The council’s operating revenue ratio was also highlighted in red in a council staff summary of the auditor’s report, measuring how well the council was ‘generating its own revenue versus total revenue received’, the auditor said.
The auditor said the council’s ratio in 2021 had been above the OLG’s benchmark of more than 60% but had ‘fallen below over the last two years’.
‘Again, that’s been influenced significantly by the amount of grants that we have received,’ the auditor said.
Grant figures had ‘diluted’ the council’s own source revenue versus total revenue, the auditor said, and brought the subsequent figure down.
‘I guess when we stop receiving as much in grant revenues as what we have in the last two years, I would expect that ratio to bump back up above that benchmark of 60%,’ the auditor said.
But raising revenue was also described as a major dilemma for all local government authorities across the state.
The council’s rates, annual charges, interest and extra charges ‘outstanding percentage’ was reported at 9.95% compared to an OLG benchmark of less than 10%, showing little evidence to support a rates increase.
Nearly $60 million in revenue from rates and annual charges was listed in the council’s detailed report, representing more than half of all revenue excluding grants and other contributions.
The report included income statements for various council services ranging from sewage and water to the Lismore crematorium and the Goonellabah sports and aquatic centre.
Nearly all services recorded relatively minor losses compared to the positive revenues after tax reported for the council’s water and sewage services at $43,000 and $1.3 million respectivey.
The council’s waste service, subject of controversy late last year when a council majority voted to partially outsource it, reported a deficit after tax of more than $2 million.
The council’s third failed benchmark related to its infrastructure backlog and wasn’t discussed in detail at the extraordinary meeting.
Beware the grants silver lining, warns mayor
The auditor also commented on the council’s ‘cash expense cover ratio’, which ended at 12.04 months compared to an OLG benchmark of more than three months.
‘So you can see there twelve months worth of cash available to meet our obligations,’ the auditor said, explaining this was owing to ‘a bit of a scenario where operations stopped completely’.
Before councillors present voted unanimously in support of the audited figures and their release to the public, the mayor said he thought it was ‘easy to look at these reports and see healthy numbers and big numbers’.
‘But we have to remember that we are in a silver lining of the cloud of the disaster,’ Cr Steve Krieg said.
‘We need to make sure that we’ve always got an eye on continuous improvement and rigour and improving our systems and making sure that we are strengthening Council so that our financial positions are strong and we’re able to be a strong organisation,’ Cr Krieg said.
