Focus on Finance - Summer 2017
Welcome to the Summer 2017 Focus on Finance Newsletter, that is sent quarterly to keep members informed on the current financial issues affecting local government.
The sole purpose of this newsletter is to provide information to members. The contents of the newsletter are limited to that purpose and should not be taken as advice on finance, management or the law. All material contained in the newsletter is subject to copyright of the various authors who contribute to it. Contents of this newsletter may be reproduced in whole or in part only with the prior permission of the South Australian Local Government Financial Management Group who will, where required, seek appropriate permissions from copyright owners or rights holders. The South Australian Local Government Financial Management Group accepts no liability or responsibility whatsoever for or in respect of any use of or reliance on the newsletter by any party. Information contained in this newsletter has partly been provided by third parties. The South Australian Local Government Financial Management Group does not guarantee the information. All interested parties should make their own enquiries to verify the information and to satisfy themselves in all respects.
Hopefully everyone managed to have at least a few weeks off over the Christmas holiday period as we enter the phase where the majority of councils will be finalising their Long Term Financial Plans and working on the new year’s budget. It was great to see such a great turnout at the December workshop and conference “I’m a Financial Professional Get me out of here” with near record numbers attending the workshop and conference and over 100 people attending the dinner.
On 20 December, the LGA published Sabine Schuhrer’s report in a circular (http://www.lga.sa.gov.au/page.aspx?c=74685) and invited comment (via a brief survey or a written submission) from Councils with a view to forming an LGA response to the issues raised. The report and consultation is important as it will potentially have an impact on the future audits of all South Australian Councils. As an FMG member you are encouraged to provide your opinion and/or your Council’s opinion by the 2 March 2017.
As always we have our various working groups progressing though a number of projects such as revising the Better Practice Model – Internal Financial Controls that has recently been out for consultation, the Australian Taxation Office class ruling of GST treatment all fees and charges used by Councils and the evaluation of Long Term Financial Plan models for a future preferred product. In the legislative area we are working to give councils clarification of the requirements of AASB13 Fair Value Measurement, AASB124 Related Party Disclosures while also reviewing the draft SA Model Financial Statements 2017.
I thank all members of the work groups for their dedication and effort and recognise that some are not even FMG members but have common interest and goals in the project work being undertaken.
I look forward to seeing you at the upcoming conference “Limitless” on the 17 March 2017 to be held at the Glen Ewin Estate, Registrations are now open Click here.
President's Message proudly sponsored by
30 September – 31 May
A Council or subsidiary must at least twice consider a report showing a revised forecast of its operating and capital investment activities for the relevant financial year compared with the estimates for those activities set out in the budget in a manner consistent with the note in the Model Financial Statements entitled Uniform Presentation of Finances.
SALGFMG Conference “Limitless”, Glen Ewin Estate.
SALGFMG Meeting, 9:30 am, City of Salisbury.
End of Fringe Benefit Tax year, ensure that log books, declarations and other required documentation are completed by employees.
SALGFMG Meeting, 9:30 am, City of Tea Tree Gully.
Last day to lodge Fringe Benefit Tax returns.
SALGFMG Meeting, 9:30 am, Town of Walkerville.
Earliest date for a Council to adopt an annual business plan and a budget which must be adopted for the ensuing financial year.
SALGFMG Meeting, 9:30 am, City of Charles Sturt.
Review of internal controls completed for 2016/17
SALGFMG Meeting, 9:30 am, City of Prospect.
Grants Commission returns released for completion and return by end of November.
SALGFMG breakfast AGM.
30 August 2017
Last day for adoption of annual business plan and budget.
31 August 2017
Last date for declaring a general rate.
Key Dates proudly sponsored by
March 2017 Conference Preview - Limitless
On the Friday, 17 March 2017 the conference “Limitless” will be held at the Glen Ewin Estate, 43 Lower Hermitage Road, Houghton. The program is sure to be very informative and as usual the event will be a great networking opportunity for all participants. The conference will be facilitated by Lisa McAskill, one of South Australia’s most engaging and respected TV presenters.
- GST Review of Fees and Charges - Elizabeth Williams, Acting General Manager Organisation & Culture Lisa Pritchard, CA CTA
- Local Government Audits - Dr Sabine Schuhrer, Associate Lecturer, University of Adelaide Business School
- Financial Sustainability, a means to an end - Debra Just, Chief Executive Officer, Willoughby City Council, NSW
- Amalgamations - Bob Abbot, Bob Abbot Consulting
- What’s the State of our Economy? - Dean Pearson, Head of Industry Analysis, National Australia Bank
- The Fleurieu Aquatic Centre - Victoria MacKirdy, Interim Chief Executive, Alexandrina Council, Kate Jessep, Director Corporate and Community Services, City of Victor Harbor
- Campbelltown ARC - Paul DiIulio, Chief Executive Officer, Campbelltown City Council
- What if people could choose to pay rates? - Jason Kuchel, Chief Executive Officer, Wakefield Regional Council
- Our Limitless Future – Keynote Speaker Steve Sammartino
Costs (including GST)
To register, please head to the ‘Events’ page on our website or click here.
Cancellation from the event must be received in writing five (5) working days prior to date of the conference or refund will be forfeited. Substitutes are welcome.
CAD Interest Invoices & Debenture Instalment Notices
At the LGFA we are constantly seeking ways to improve our products and services to our members and are happy to advise we will be sending the CAD Interest Invoices and then the Debenture Instalment Due Notices automatically via email to your nominated recipient.
Keep watch for your automated statements due at the end of this month.
If you have any comments or suggestions, please contact us anytime to discuss.
Financial Market Conditions
Global Financial Markets experienced some volatility over the last month as participants digested the policies and direction of the new Trump presidency.
The new Trump presidency continued to drive the direction of what is usually a quiet month for Financial Markets. Many were impressed by the US Presidents acceptance speech but now wanted the lower taxes and infrastructure renewal plan brought into action. Over the month Global equity markets tracked higher, with the Dow Jones breaking through 20,000 for the first time and the USD was weaker against most major trading currencies.
Australian Financial Markets were also active over the past month. Australian Equities followed the lead of the US and edged higher. On the 25th of January, the ABS released consumer price index data that showed prices for the December quarter rose by 0.5% which was below market expectations. This took the 2016 inflation rate to 1.5%, a rate well below the RBA’s target range of between 2-3%. The Australian Dollar has appreciated over the past month and is currently trading at around $0.75 USD.
The RBA Board take a holiday each January and don’t have a scheduled meeting. Most market commentators feel that the RBA is no hurry to adjust interest rate policy, a view reflected by current market pricing.
Project / Working Groups Update
Thanks to everyone that used our new on-line system to give feedback on the 1 & 2 December annual workshop and conference titled “I’m a Finance Professional GET ME OUTTA HERE!!” held at the Adelaide Oval, Memorial Drive. The sessions presented by FMG members and the key note speaker Anna Meares were ranked as being the most well-liked.
Have you recently heard a great presenter or would like to hear about a particular topic at a future conference? If so please contact Clive with your suggestion.
Registrations are now open to our 17 March 2017 conference “Limitless” to be held at the Glen Ewin Estate Click here.
Asset Management Group
Review of the LGA Guidance Paper on Fair Value Measurement – John Comrie has provided a draft revision of this Guidance Paper which is currently being reviewed by the work group members with comments to be fed back to John in February. John is also preparing a Land and Building Tender Specification Template for use by Councils, we hope to have a draft by February for review and provision of feedback by the work group.
The group is always seeking topics and issues for discussion, as well as any topics you would like to see at future conferences. All suggestions are welcome and can be sent to Pep Piscioneri.
Fees & Charges Group
The work group are currently undertaking a GST review of Fees & Charges on behalf of all South Australian Councils.
During 2016, BDO with assistance from the work group collated all South Australian Councils’ existing fees and charges into one master list of generic fees and charges. This listing was distributed for review by all Council’s in December 2016 and following feedback, an application for a Class Ruling from the Australian Taxation Office (ATO) was made in late December 2016.
The Class Ruling has been lodged on behalf of the Local Government Association (LGA) and will be for use by all South Australian Councils. This information will be consolidated into a comprehensive matrix to ensure that an ongoing accurate and compliant listing of GST treatment for fees and charges is available.
It is expected the listing will be available for use for the preparation of your Council’s 2017/18 fees and charges.
Financial Management Framework Group
The group’s regular activity each year is to review the Model Financial Statements which is currently underway. Recommendations from the group are presented to the FMG Executive Committee for discussion and are used to provide feedback to the LGA contracted preparer of the Model Financial Statements.
This group also participates in the review of the LGAs’ information papers and other local government financial related working papers along with application of new and/or amended relevant AASBs’.
Internal Controls & Risk Management Group
The work group’s objective is to complete a review of the Better Practice Model – Financial Internal Controls for S.A. Councils (BPM)
The BPM document has been updated including a reformat of the worksheet design. The introduction of the framework has also been rewritten as part of a scope of works with BDO with the focus on providing a clearer roadmap as to a risk based approach in implementing a robust financial internal control environment.
Consultation has taken place in regards to the changes with the local government community.
Newsletter / Website Group
This is our first newsletter for the calendar year, with our next edition scheduled for Autumn 2017. If you have ideas for future articles or areas of interest please contact me and we can see if we can arrange it to be written by one of our knowledgeable sponsors.
Project / Working Groups proudly sponsored by
Key Financial Indicators – What is right for you?
Your Council has Key Financial Indicator targets but are they really right for your Council?
The LGA ‘Financial Sustainability’ Information Paper No. 9: Financial Indicators – Revised May 2015) suggest the following targets:
- Operating Surplus Ratio - average over time of between 0% and 10%
- Net Financial Liabilities Ratio - between 0 and 100%, possibly higher in some circumstances
- Asset Sustainability Ratio - greater than 90% but less than 110% of the level proposed in the Infrastructure and Asset Management Plan (I&).
As your Council starts to prepare for the 2017/18 Annual Business Plans and Budgets it is timely to consider these indicators and what is right for your Council both now and into the future.
Operating Surplus Ratio: If a Council had operating revenue of $30m and operating expenditure of $28.5m leaving a surplus of $1.5m, they would have an Operating Surplus Ratio of 5%. If this was their target and they aimed for this each year, then over 10 years their surplus will accumulate to $15m (ignoring inflation factors).
If the Council has not set this target in order to fund special strategic projects, asset requirements or debt reduction, their ratepayers may be wondering what all this money is for and why rates increase each year. In this case the ratio appears to be set too high.
If the Council has an issue in one or a couple of years (maybe flooding) which results in a deficit, they would be working outside of the target for that time although the average might be ok, and they appear to have spare cash from other profit years which enable them to cope.
This issue highlights the need to consider the ratio over a period of time rather than one single year. The LGA suggested target indicates an average over time and perhaps that average should be set over 10 years and clearly correlate with Council’s Long Term Financial Plan.
Net Financial Liabilities (NFL) Ratio: The average NFL ratio for Councils in South Australia in 2015 (Grants Commission Database) was 18%, with the highest being 103% and the lowest being (159%).
A Council may have a temporary issue that lasts for a few years only, such as a large infrastructure project and that activity may push their debt ratio above the target for this period but the average over time is within targets. If a Council only sets a target for a single year they might decide not to do a project that pushes them outside their target. If they set their target as an average over the term of the LTFP then they can more easily see if a project is affordable for them.
There are also different types of debt. It can be argued that debt for a Council business that generates income is different to debt that doesn’t bring in any corresponding income. For Councils in rural areas that can mean their Community Wastewater Management Systems. Ratepayers with access to these systems pay charges so that the expenditure is offset by the income. Perhaps a different liabilities ratio should be set for this type of debt, compared to debt for infrastructure that doesn’t correlate with additional income, such as roads.
Asset Sustainability Ratio: Is your Council financing it’s I&? There may be years where emergency asset spending due to unplanned events such as flooding or fires requires a different level of asset expenditure which may not be within targets set. So if Council sets its ratio at 100%, there will be some years that it may be higher and some lower. The range that is suggested by the LGA paper works better but considering the ratio over a longer term will make more sense and allow for unforeseen temporary events.
Altogether now: The ratios should be considered together. An ongoing large surplus for a Council that has little debt and is funding all of its I& requirements doesn’t make sense. This is also true for a Council that is consistently achieving a deficit but has large levels of debt and isn’t funding its I&A requirements.
Align Council’s budgets with Long Term goals: Consider Council’s long term situation, set targets that work for your Council before considering the next year’s budget.
UHY Haines Norton
‘I’m a Finance Professional GET ME OUTTA HERE’ – Conference review
The very successful ‘I’m a Finance Professional – Get me outta here' SALGFMG Conference was held on Thursday 1 and Friday 2 December 2016 with a different venue at the Adelaide Oval, War Memorial Drive, North Adelaide. The Conference committee had a wonderful line up of speakers who covered various topics which were both enlightening and entertaining.
The Financial Management Group would like to thank our sponsors for their continued support of the conferences as they have enabled a program with high calibre speakers. A number of speakers have been generous in allowing their presentation to be available to our members. Click Here (Membership login to the website is first required for the link to function).
Day 1 Workshop
Taxable Payments Reporting for Government Entities
Session covered up-coming requirements, about who and what needs to be reported.
Robert Muscat, Australian Taxation Office (presentation on website)
Price Regulation for Small-scale Water and Sewerage Service Retailers
Overview of ESOSA’s role in regulating the South Australian water sector.
Stuart Peevor, Essential Services Commission of SA (presentation on website)
Model Financial Statements
Review of model financial statements 2016, in preparation for the update for June 2017.
David Maxwell, Coalface Software Solutions
An Auditor’s Perspective of the 2015/16 Financial Statements
Update and “hot topics” covered from the SA Local Government Auditor's Group, following 2015/16 round of audits.
Tim Muhlhausler, Partner, Galpins
Panel Session - Model Financial Statements
Session to provide feedback and raise questions regarding the Model Financial Statements and Council’s Audit.
Facilitator: Tim Muhlhausler, Galpins
David Papa, Bentleys SA,
Geoff Edwards, BDO,
David Maxwell, Coalface Software Solutions
Better Practice Model – Internal Financial Controls Framework
Review/findings of original Internal Controls Implementation (Better Practice Model). Covered risk approach, plus revision of framework to improve model.
Annette Martin, City of Charles Sturt
Kyffin Thompson, BDO (presentation on website)
Risk Manager and Control Manager – Now Live and With More Modules to Follow!
Session covered new key features and the near-future direction of ControlTrack.
Steve Wooding, ControlTrack (presentation on website)
Budgets – Behind the Scenes
Sharing of insights and processes in the budget for City of Salisbury.
Kate George, City of Salisbury (presentation on website)
To cap the end of the first day, events started with pre-dinner drinks, downstairs at the Adelaide Oval, with some overly-adventurous creatures being present, of note a baby crocodile and a snake, in-line with the theme title of this conference. Dinner was upstairs, followed by entertainment from Luke McGregor. The end of the night had a DJ, with reports of copious movement on the dance floor into the late hours of Thursday!
Day 2 Conference
In Conversation with the AASB
Discussion on relevant accounting standards and the impact on Council’s.
Mark Shying, AASB Research Fellow (presentation on website)
Small Councils and Financial Management – When Things Go Bump in the Night
Practical scenario of where vigilance in financial matters is important.
Stephen Rufus, District Council of Orroroo Carrieton (presentation on website)
Rate Capping: Armageddon or Independence Day?
Session covered re-introduction of rate-capping in Victoria and findings on this change.
Graham Sansom, University of Technology Sydney (presentation on website)
Planning for Change – SA’s New Planning System
Covered new planning system and changes to the roles and responsibilities of Councils.
Lisa Teburea, Local Government Association of SA (presentation on website)
You Have Discovered a Fraud – Where to Now?
Covered practical steps and pitfalls when discovering a fraud within the workplace.
Wayne Gilbert, PKF Kennedy (presentation on website)
A Practical Approach to Valuing and Depreciating Road Assets
Sharing of research findings in Local Government. Covered reliable valuation, condition, useful life and depreciation as factors that vary between Councils.
Jeff Roorda, Technology One (presentation on website)
John Comrie, JAC Comrie Pty Ltd (presentation on website)
Special Guest – Anna Meares
Sharing of experiences, covering handling defeats, specifically sharing the journey and determination from a potentially career ending injury.
|We had a visit from a Python named Julia Gillard.||Our inspirational Keynote Speaker Anna Meares.|
Fraud in your business—some things you need to know
Board members and management are responsible for ensuring that robust risk management systems, processes and procedures are in place within an organisation. Further, they need to ensure that these systems, processes and procedures change to meet the needs of the organisation as it changes. Not appropriately addressing the risk of fraud can lead to significant financial losses and in some cases reputational damage.
The findings of the Association of Certified Fraud Examiners (ACFE) in their “Report to the Nations on Occupational Fraud and Abuse” has again emphasised the need for directors, business owners and management to be vigilant when it comes to fraud and corruption.
Some of the more notable finding in the report from those surveyed included:
- Organisations lose 5% of revenues in a given year as a result of fraud;
- Asset misappropriation (cash, inventory and/or plant and machinery) was the most common type of fraud; and
- In over 94% of cases the offenders attempted to conceal the fraud by creating and altering documents.
Common weaknesses we have found when undertaking fraud investigations, and some of which were also observations made in the ACFE report, include:
- Insufficient segregation of duties;
- Lack of management review;
- Poor record keeping practices;
- Failure to sight original documents; and
- “Trust” being a main contributor to a breakdown in process - with trust being placed in employees and management without sufficient controls to prevent or detect fraud if that trust is breached.
It is therefore paramount that directors, business owners and management alike set the appropriate “tone” of their respective organisation. Firstly, through the implementation of policies which promote the values of the organisation and also provide effective internal controls and governance. Secondly, by demonstrating an adherence to those policies and appropriately investigating any ethical concerns raised by employees or suppliers.
The ACFE report also revealed that tips were the most common detection method of fraud. We believe that to further enhance good governance, due consideration should be given by directors, business owners and management in implementing mechanisms that will provide employees and suppliers an avenue to raise ethical concerns without fear of it negatively impacting either their employment or contractual arrangements. An independently run Whistle-blower Hotline service that allows concerns to be raised anonymously and/or confidentially is one such mechanism.
Whilst it is important to ensure that there are appropriate prevention and detection mechanisms in place to both deter and detect fraud it is equally as important that an organisation has a framework in place to respond to identified fraud issues once detected. Not responding to these matters effectively can lead to further losses (litigation, fair work costs) and may have a detrimental effect on the reputation of the organisation.
So, what does an organisation need to do to effectively respond to a fraud issue which has been detected? Some things to think about are listed below:
- Assess the situation—what type of fraud is it
- Seek support and guidance from experts
- Communication—only those within the organisation that need to know what has occurred should be informed. The number of people that need to know will change during the course of the investigation. However, too many people knowing about the issue can jeopardise the investigation.
- Make sure you develop an investigation plan that is consistent with your own Misconduct disciplinary policies and procedures and ensures that natural justice is observed.
- Ensure that evidence is collected in a manner which will give it the best chance to be admitted into evidence at a later date.
- Ensure that when interviewing any alleged perpetrator that your interviewers have the necessary skills to carry out that task—and always ensure that the alleged perpetrator is treated fairly and the principles of natural justice are applied.
Fraud is a risk that needs to be mitigated. Policies, processes and procedures need to change as an organisation changes to ensure that they meet the needs of the organisation. It is important to make sure that prevention, detection and response mechanisms are in place. Ultimately the responsibility for ensuring that this happens rests with directors and senior management. However, we should not forget that all personnel within an organisation have the responsibility to prevent fraud.
Members Profile – Andrew Ngo, City of Mitcham
Andrew has been the Manager of Finance and Rates at the City of Mitcham since 2014. This has been his first posting in Local Government although he has been the auditor-in-charge of Tea Tree Gully, Adelaide, Paramount (California) and Las Vegas (Nevada) during his time with KPMG.
He is enjoying the challenges of spending more time in influential word document reports instead of excel as well as preparing for, developing and implementing significant process change to assist with the upcoming adoption of Technology One.
For the better part of the previous decade Andrew was the Financial Controller for the Saab Technologies Australia Group. During his time with Saab, Andrew provided vital financial support regarding the negotiations and delivery of the ANZAC Frigate support contract for Defence. He also led the design and implementation of a new ERP system that successfully addressed Long-term Project Accounting and Management requirements.
Prior to Saab, Andrew spent 9 years with KPMG’s Assurance and Advisory division where he attained his Chartered Accountant qualifications, spent 2 years in Los Angeles and managed the Adelaide division’s Training program.
Andrew soon became a member of FMG after joining City of Mitcham and has enjoyed the free-flowing, thought provoking meetings as well as the unreserved sharing amongst the members, a notable difference from most other industries.
When not playing with debits and credits, you may find Andrew training for the next (or healing from the last) Triathlon or Cross-Fit event, though he has also been spotted in film credits, on dance floors and trying to pry cooking secrets from Adelaide’s best restaurants.
When asked what had attracted him to the City of Mitcham and Local Government, Andrew replied, “The energy I felt from Matt (CEO) and Wade (Director of Corporate Services and Innovation) resounded with my own ethos of integrity, dedication and enthusiasm. And I’m glad to see that it runs throughout Local Government.” He has been known to wistfully reminisce about grappling with Corporate Tax issues but enjoys holding over other Managers’ heads the fact that he manages the cash and the majority of the Council’s revenue with Rates, so they better be nice if they are seeking budget expenditure increases!!
Andrew humbly admits that his passionate life balance is due in large to the loving support of his partner, Sarah and his 7 year old son, Edward (despite the fact that they support the wrong football team).
Maloney Field Services has been acquired by JLL
I am pleased to announce that Maloney Field Services has been acquired by JLL. In this exciting new partnership, Maloney Field Services and JLL will bring together more value, growth and opportunity for our clients and our people.
Maloney Field Services is a specialist valuation and property services consultancy providing valuation and associated services to Local Government, State Government and corporations throughout Australia. For over 45 years, the team has gained a strong track record and solid reputation which, together with our carefully selected resources, has allowed us to provide the highest level of service to our clients. Maloney Field Services comprises of three independent but inter-related divisions including Valuation, Land Access and Project Support.
The Maloney Field Services Valuation division has a particular focus on the provision of revaluations for reporting entities, having undertaken hundreds of revaluation consultancies since the public sector moved to accrual accounting in the early-1990s. Since then, Maloney Field Services have progressively developed a reputation and rapport with clients, auditors and Local and State Government bodies who oversee the implementation and interpretation of relevant accounting standards, with our senior Valuers regularly being called upon to carry out presentations and provide feedback on current issues.
Our valuation staff are dedicated to Local Government work and have an excellent appreciation of Local Government assets. Over a number of years we have supported and will continue to support the following organisations:
- Local Government Professionals South Australia (LGPSA)
- Local Government Association (LGA)
- Local Government Financial Management Group (LGFMG)
- Institute of Public Works Engineers Australia (IPWEA)
- Local Government Association of the Northern Territory (LGANT)
All staff will join JLL and continue to operate from our existing offices for the time being however we will continue to provide the same level of professionalism, expertise and service that you have come to expect; whilst providing new opportunities for growth and value through our new partnership.
JLL is a global real estate firm providing a diverse range of services to both owners and occupiers. JLL’s Valuations & Advisory platform is best-in-class and provides services to a range of clients across all major asset classes including office, residential, industrial, health & aged care, hotels & hospitality and retail. JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000.
I will continue to lead the team on a business as usual basis as part of JLL’s national Valuations & Advisory division, under ‘Infrastructure Advisory Services’. Over the coming months, we will be focussed on seamlessly integrating our businesses, our services and our teams to ensure we continue to provide an unmatched service offering to our clients.
We are excited to join the JLL team and welcome the opportunity to build on our excellent track record of providing valuation, land access and associated specialist advice to our clients nationally. We will keep you informed at all times with progress and key updates. I also encourage you to contact myself if you have any questions regarding the new arrangements.
Maloney Field Services
Effective Management of Overdue Rates
From time to time, some ratepayers experience financial hardship and have difficulty in paying their Council rates on time. There are a wide range of reasons why the ratepayer might be experiencing hardship but common reasons include:
- Loss of employment;
- Change in family situation;
- Economic downturn;
- Prolonged illness.
While these situations are unfortunate for the ratepayer, Councils have an obligation to all ratepayers to collect rates in a timely manner to ensure that adequate services and high quality public infrastructure are provided to the whole community for their benefit and enjoyment. It is for this reason that Councils simply cannot elect to allow ratepayers to drift in meeting their payment obligations and must take a pro-active role in monitoring that rates are paid on time.
Section 182(1) of the Local Government Act 1999 (the Act) provides Councils with the opportunity to take a flexible approach to the collection of rates. Where a ratepayer has encountered financial difficulty, pursuant to this Section of the Act, the ratepayer can enter into an arrangement with the Council which provides for the reduction of the ratepayer’s debt in a timeframe that the ratepayer is capable of meeting having regard to their overall circumstances. Importantly, however, the arrangement must be mutually satisfactory to both the Council and the ratepayer. The Council could act fairly and equitably, and decide to decline a ratepayer’s request to postpone their obligation to pay rates.
It is important Councils have an overdue rate collection policy with clear expectations for Council staff that are responsible for monitoring compliance with payment obligations and instructing an external debt collection agency. A clear and well structured policy provides the relevant officer with guidance on decision making which allows them to make decisions on applications for extensions in a timely manner.
Further, as it is a discretionary power, it is important that Councils have a very clear policy on when the discretion should be exercised to ensure that Councils work with ratepayers in a uniform manner. From a governance perspective, it also provides the officer with comfort in that in exercising their discretion to grant an extension of time to pay outstanding rates, that they are discharging their duties in accordance with the Council’s authority and approval. This also reduces the likelihood of the officer’s decision becoming the subject of any complaint or investigation. For example, it is very important for all ratepayers to be treated equally and fairly. If a community member feels they have not been treated fairly by the Council and lodges a complaint, or an application for review, if the officer can demonstrate their application was considered in accordance with the Council’s policy, the complaint can be dealt with expeditiously and therefore minimise the time occupied by Council management in considering and responding to the complaint. Equally, if an officer decides that it is appropriate to decline an application for an extension of time to pay their outstanding rates and enforcement action is taken, the officer will have the confidence that their decision making process has been in accordance with the Council’s preferred method of dealing with ratepayers’ applications for relief from payment obligations. Irrespective of the outcome of the Council employee’s decision, it is sound practice for the employee to make a brief written record of the reasons for the decision that was made.
We have a long history of acting for Councils to successfully recover outstanding rates. In our experience, Councils are often perceived to be a ‘soft’ creditor because Councils are slower to take recovery action than other commercial creditors, such as credit card providers or ‘pay day’ lenders, and are less aggressive in their stance on collections. It is for this reason that ratepayers who are experiencing financial hardship may prioritise payment to other, more aggressive, creditors leaving the Council towards the end, or last, on the list of creditors they pay. A detrimental consequence for the Council is that it has to bear the cost of funding the shortfall in revenue while the rates are outstanding. The flow-on effect for all ratepayers is that Council’s ability to deliver services is diminished.
Councils are often at the frontline of providing services to those suffering financial hardship and are exposed to the difficulties that some ratepayers face on a daily basis. It is for this reason it is preferable for Councils to work with, rather than against, ratepayers to assist them in meeting their obligations. For example, referring ratepayers to financial counsellors and gaining assistance from the counsellor, can provide the ratepayer with the advice and skills they need to better manage their circumstances to pay all their debts. Another example is that the Council may elect, pursuant to Section 181(9) of the Act, to remit the fine and interest which is automatically payable on overdue rates pursuant to Section 181(8) of the Act. It is steps such as this which help maintain a sound relationship between the Council and the ratepayer.
Review of 2016 Annual Financial Statements and prospective changes to the 2017 Model Statements – a brief precis.
The following is a brief precis of the presentation given by David Maxwell to the FMG Workshop on 1 December 2016.
Overall there was continued improvement in the standard of preparation of 2016 Annual Financial Statements, although there are some areas that continue to cause problems, notably the unwinding of present value discounts.
Points to watch
- Try to achieve a consistent type size (particularly Note 7).
- Remove irrelevancies – a number of upcoming standards will not take effect until the 2018/19 year – is this too far ahead to have a material effect on the interpretation of the 2016/17 reports?
- No need to show nil notes or sections.
- Do need to show the actual date of authorisation for issue of the statements in Note 1.
Land – operational land (generally fair value level 2) and community land (generally fair value level 3) should probably be split in Note 7.
Highest and Best Use – whenever AASB 13 Fair Value Measurement refers to “highest and best use” of assets, it does so in an absolute sense. To claim, as some Councils did, that all assets are used for their “highest and best use” for AASB 13 purposes is a nonsense. The statement must be qualified to refer to the purpose of the Council, and a suggested wording is included in the Model Statements.
FAGs Grants – the example disclosure included in the 2016 Model Statements seems to have met with general approval, but I welcome suggestions for further improvement.
Employee Leave Liability – the Auditors have reported that there is confusion at a number of Councils concerning the calculation of this liability at balance date. I will prepare an article for inclusion in a later edition of this newsletter.
Amounts in Advance – The recording of amounts in advance as a liability is basically only permitted where the services are to be supplied DIRECTLY to the payer. In all other instances, AASB 1004 requires recognition as income upon receipt or entitlement. This applies to all grants and contributions.
AASB 9 – Financial Instruments & AASB 7 – Financial Instruments – Disclosures - do not apply until the 2018/19 financial year, and for Councils whose investments are solely with LGFA will not involve any changes to the amounts to be disclosed.
AASB 15 – Revenue from Contracts with Customers – now does not apply to not-for-profits until the 2019/20 financial year (from 1 January 2018 for all others) and is unlikely to have any effect on the amounts disclosed by most Councils.
AASB 1058 (formerly ED 180 / ED 260) – Income for Not-for-Profit Entities – affects accounting for special purpose grants, was approved 20 December 2016, and takes effect from 1 January 2019 – i.e. the 2019/20 financial year.
AASB 16 - Leases - The IASB expects that this change will impact an estimated USD 3.3 trillion leasing commitments of listed entities, so there must be potential for slippage in the commencement date. Currently the application date is set for 1 January 2019 (i.e. the 2019/20 financial year). Whether there will also be specific clauses for NFPs and peppercorn rentals is not known. The 2017 Model Statements will include some preliminary information on its requirements, but full details will be deferred until closer to the commencement date.
Changes in the 2017 Model Statements
New standard to be adopted early - AASB 2016-4 Recoverable Amount of Non Cash-Generating Specialised Assets of Not-for-Profit Entities was authorised in June 2016 and commences from 1 January 2017, although early adoption is permitted.
The standard means that AASB 136 does not apply to non cash-generating specialised assets of not-for-profit entities where those assets are carried at fair value. Most infrastructure assets meet those requirements.
The early adoption of this standard will mean that these asset classes will not need to be tested for impairment – probably not a major issue, but at least it is a task that will not need to appear on the list.
Related Party Disclosures
Although Councils have previously been exempt from the application of AASB 124 – Related Party Disclosures, AASB 2015-6 terminated that exemption from 1 July 2016, and the standard first applies to the 2016/17 financial statements. It has now been determined that comparative figures will NOT need to be shown.
The key terms are “related party”, “control, “joint control”, “significant influence”, key management personnel”, and “close members of a family or person”. Disclosures are required of relationships, transactions and outstanding balances, including commitments”. Comprehensive information on these terms was included in the 2016 Model Statements.
The 2017 Model Statements will include a “skeleton” format for the disclosure Note, and a number of example wordings for common types of situations involving key management personnel and related parties. Councils will be able to copy and paste these wordings from the Model Statements before amending them as necessary.
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