Focus on Finance
Winter 2019

DISCLAIMER
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.

Contributors

Anthony Amato

Kate George

Craig Mudge

President’s Message

Kate GeorgeIt has been a challenging budget process for many of us with supporting new elected members and late changes to the budget from the State Government’s Waste Levy, so I hope everyone has been able to take stock or maybe even had some time off before focusing on year end and the Annual Financial Statements.

Our next event is the AGM, and is free for all members to attend. It is being held at the Stamford Plaza, Adelaide on 30 August 2019. The speaker is Justice Stephen Pallaras QC, who will draw on his diverse experience and speak about courage in decision making, being true to yourself, and other “Lessons from a Life of Crime”.

You will also have received an email from SALGFMG about nominations for the Executive Committee. I would encourage any of our members to consider joining the Executive Committee as it is an excellent way to strengthen your local government networks and to learn from others. One of the best things about the SALGFMG is being able to “steal with pride”, which decreases the time taken to make changes in your own organisation, making your organisation more efficient and effective, and benefits the community.

Members would be aware that there is an Inquiry into Local Government Costs and Efficiency being undertaken by the South Australian Productivity Commission. The FMG made a submission on the methodology being used for the enquiry, which addressed a number of technical aspects that we hope will be a support to the work being undertaken by the Commission. This submission was circulated to members for reference. The SAPC website provides further information about the inquiry including the timeframe being a draft report in August and submissions on the draft report in September. I would encourage members to keep abreast of the progress of this inquiry and take the opportunity to provide a submission on the final report to ensure that your individual Councils concerns and unique circumstances are highlighted.

Also, a discussion paper has been released by the State Government’s Office of Local Government regarding Local Government Reform. The paper covers four streams and is available on their website, with feedback closing 1 November. Following consideration of feedback on the reform proposals contained in the discussion paper, the Government will develop a draft Local Government Reform Bill for release in early 2020.

As always I wish to thank our sponsors for their support of the FMG, enabling our group to be proactive in the industry and to enable us to provide valuable professional development for our members through our workshops and conferences. When you require services for your organisation, I encourage you to consider our sponsors.

I hope to see you all at the AGM on 30 August, and at our upcoming two day workshop and conference to be held Thursday and Friday 5 & 6 December.

Kate George
President

President's Message proudly sponsored by
Local Government Finance Authority
lgfa

Key Dates

30 August
SALGFMG Annual General Meeting. Please refer to our website or see information in this newsletter.

Last date a Council can adopt an Annual Business Plan and Budget for that financial year.

13 September
Last date that financial statements, notes and other financial material must be prepared by a Council.

The Chief Executive Officer and Presiding Member of a Council audit committee to provide certificates of independence with the financial statements.

27 September
SALGFMG Executive Committee Meeting, 9.30 am, City of Salisbury.

30 September – 31 May
A Council 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.

25 October
SALGFMG Executive Committee Meeting, 9.30 am, location determined at September meeting.

29 November
SALGFMG Executive Committee Meeting, 9.30 am, location determined at September meeting.

30 November
Last date that audited financial statements must be submitted to the Minister and the SA Local Government Grants Commission.

30 November – 15 March
A Council must consider a report showing a revised forecast of each item shown in its budgeted financial statements for the relevant financial year compared with the estimates set out in the budget presented in a manner consistent with the Model Financial Statements.

Must also include revised forecasts for the relevant financial year of the Council’s operating surplus ratio, net financial liabilities ratio and asset sustainability ratio compared with estimates set out in the budget presented in a manner consistent with the note in the Model Financial Statements entitled Financial Indicators.

5 & 6 December
SALGFMG Conference and Workshop, Adelaide Oval. Information to be released to members closer to the date.

31 December
Last date that a Council must prepare and consider a report showing the audited financial results of the Council for the previous financial year compared with the estimated financial results set out in the budget presented in a manner consistent with the Model Financial Statements.

Further information for many of the key dates can be sourced via the LGA website: www.lga.sa.gov.au. You will need a members login to access the key dates calendar. Further information can also be sourced from the Local Government (Financial Management) Regulations 2011.

Key Dates proudly sponsored by
LG Solutions
LGsolutions

Dealing with Debt –
A Solution for Councils

normanwaterhousesince

In our recent experience, a letter written on a Norman Waterhouse Lawyers letterhead has resulted in approximately 94%1 of debts being collected in various industries outside of local government, without the need for legal action to be taken. Norman Waterhouse Lawyers offer the service of a ‘free’ letter of demand for simple debt recovery (such as recovery of council rates and debts owing pursuant to invoices).

In November 2018, the Advertiser reported that Councils are currently carrying $345 million in debts owed to the sector.

The timely payment of rates is critical for the effective operation of councils. The delay in payments of rates affects the Councils’ ability to deliver essential services to the community which is a vital function of the council. The non-recovery of income through anticipated and budgeted cash flow also has a dramatic effect on the Councils’ ability to service its operating and project costs, which in turn affects the borrowing capacity of the Council. Debt is becoming the new political focus.


We understand that a large majority of ratepayers pay their rates as and when they fall due, however, when circumstances affect their ability to pay, or they do not want to pay, it is important for Councils to take action as soon as possible to collect the outstanding rates. Such action ensures that the respective communities are not prejudiced and so that the Councils comply with their obligations to all ratepayers.

Having said that, some ratepayers experience financial hardship and have difficulty in paying their council rates on time. Councils obviously have to assess each matter on its merits as to what action they take in enforcing rights, however, this should not preclude the Council with taking action to recover monies against those who are simply taking advantage of the system. Councils should consider the development of a Hardship Policy, similar to those required by regulated entities, to determine and distinguish an appropriate approach, management and support of those ratepayers in true financial hardship.

What can Councils do to recover outstanding rates, if a letter of demand does not work and the debt is less than 3 years in arrears?

Agreements to pay off debt
A Council can enter into an agreement with a ratepayer regarding their outstanding rates2. Such agreements can be a useful strategy in supporting ratepayers who have encountered financial difficulty or financial hardship. The power under s184(4)(b) of the Act is a discretionary power and, therefore, it is important that Councils have a clear policy and procedures on when the discretion should be exercised to ensure that Councils work with ratepayers in a uniform manner and in accordance with best practice governance standards. Importantly, once an agreement is reached with the ratepayer, it should be reduced to writing and the Council’s financial records (and if applicable, subsequent rates notices) are amended to reflect the arrangement.

It is important Councils have an overdue rate collection policy, endorsed at the Elected Member level to ensure political ownership and buy in, which outlines clear expectations for Council staff that are responsible for monitoring compliance with payment obligations and instructing an external debt collection agency. Such actions provide the relevant officer with guidance on decision making, which allows them to make decisions on applications for extensions in an effective 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.

Commencing proceedings
If a suitable arrangement cannot be reached, then one option available is to commence an action in the Magistrates Court of South Australia to recover the outstanding rates as a debt3. Such an action is commenced by filing a claim that will seek an Order that the ratepayer pays the Council the outstanding rates.

If judgement is obtained, the Council can take the following, amongst other, further action against the ratepayer to enforce the judgement:

  • request that the Court issue an investigation summons, which requires the ratepayer to attend court and provide evidence as to their financial circumstances. If the Court is satisfied the ratepayer has the capacity to make a contribution towards reducing their outstanding rates, the Court will make an Order that requires the ratepayer to pay a specific amount at certain intervals.
  • If the above order is not complied with, the Council can take further enforcement action such as making an application to the Court to have the subject property sold by the Sherriff.

What can Councils do to recover outstanding rates, if a letter of demand does not work and the debt is more than 3 years in arrears?

The most effective and efficient process available is to exercise the power vested in the Council under section 184 of the Act and sell the property by way of public auction. There are a number of procedural steps, such as serving certain notices, that the Council must undertake before the property can be auctioned. During this process, it is very common that ratepayers once faced with the imminent threat of the sale of their property, will likely pay the outstanding rates. It is imperative that the Council, at the Elected Member level endorses a clear policy position on the way in which it will manage sale of property for the non-payment of rates.

Final views

Norman Waterhouse Lawyers have close to 100 years experience in successfully recovering debts for Councils in South Australia.

In our experience, Councils are often perceived as being ‘slow’ in taking recovery action than other commercial creditors. It is for this reason that ratepayers who are experiencing financial hardship may prioritise payment to other, more aggressive creditors, leaving the Council last on the list of creditors paid.

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 that it is preferable for Councils to work with, rather than against, ratepayers to assist them in meeting their obligations, while at the same time ensuring that it is complying with its broader obligations to its community.

Norman Waterhouse and NW Credit Management understand the sensitivities facing councils regarding debt recovery, ensuring efficient and tangible outcomes are achieved for both councils and their community.

For more specific information on any of the material contained in this article, or the services that Norman Waterhouse or NW Credit Management offers, please contact Vas Marinos on 08 8210 1283 or This email address is being protected from spambots. You need JavaScript enabled to view it. or Thomas Burke on 08 8210 1276.


1 This recovery percentage includes payment arrangements entered into by the respective parties
2 Section 184(4)(b) of the Local Government Act 1999 (SA) (Act). Noting s.182(1) of the Act also provides councils with the opportunity to take a flexible approach to the collection of rates.
3 Section 178(3) of the Act

Work Group Updates

Work Groups are formed to assist the Executive Committee to work on specific issues that are of interest or are topical to finance staff in Councils.

All members are welcome to join any work group that may be of interest to them at any time. If you would like further information on one of our work groups, please contact the Chairperson of the relevant work group (details listed below) or contact Patricia Coonan, Secretariat: This email address is being protected from spambots. You need JavaScript enabled to view it..

Further information on the work groups is available from the Executive Committee minutes where updates are provided each meeting.

Asset Management
Katy Bone, Town of Walkerville: This email address is being protected from spambots. You need JavaScript enabled to view it.

Costing Principles
Alex Oulianoff, Mount Barker District Council: This email address is being protected from spambots. You need JavaScript enabled to view it.

Events
Kate George, City of Salisbury: This email address is being protected from spambots. You need JavaScript enabled to view it.

Fees & Charges
Elizabeth Williams, Alexandrina Council: This email address is being protected from spambots. You need JavaScript enabled to view it.

Financial Management Framework
Mark Lague, The Barossa Council: This email address is being protected from spambots. You need JavaScript enabled to view it.

Local Government Price Index
Chris Birch, City of Prospect: This email address is being protected from spambots. You need JavaScript enabled to view it.

Local Government Reform
Kate George, City of Salisbury: This email address is being protected from spambots. You need JavaScript enabled to view it.

Long Term Financial Plan
Kate George, City of Salisbury: This email address is being protected from spambots. You need JavaScript enabled to view it..

Membership & Communications
Craig Mudge, District Council of Mount Remarkable: This email address is being protected from spambots. You need JavaScript enabled to view it.

Rating & Valuation
Simon Zbierski, Campbelltown City Council: This email address is being protected from spambots. You need JavaScript enabled to view it.

March Conference Review -
Great Expectations

great expectations

Members of the South Australian Local Government Financial Management Group gathered at the Adelaide Convention Centre on 15th March 2019 for its ‘Great Expectations’ conference. An excellent line up of speakers had been organised for the event.

After a welcome from President Kate George, the day commenced with David Powell, Managing Director, Powell & Co, presenting on what makes audit committees effective. David discussed the characteristics of audit committees that not only meet its term of reference, but actually adding value to Councils.

Pat McCarthy, Director, Genesis Accounting, then provided an insight into GST and FBT changes, with a focus on tips, tricks and traps for Local Government finance staff.

Davin Lambert from the LGFA and John O’Connor from LG Solutions then gave a sponsors update to members.

Sarah Gibson, PwC Director, Data Assurance, presented on the key findings of participating SA Councils on the Australasian LG Performance Excellence Program. The session then highlighted how collection and transformation of data can be used to tell an insightful story about a Council when it comes to operational effectiveness.

Matthew Strahan, Security Strategist, Content Security, provided members an insight into how hackers think, and showed how a hacker will target Councils, with the tools and techniques they might use and what they could do if they succeed.

Dr Fiona Kerr, Industry Professor, Neural and Systems Complexity, Adelaide University, was the keynote speaker of the conference. Dr Kerr gave an insightful presentation to leading a resilient organisation, how true leaders differ in the way they identify and process relevant information, make complex decisions and deal with ambiguity and complexity.

Following the keynote presentation, Felicity Emmett, Senior Economist, ANZ Research, presented an economic outlook for Australia in 2019. The session focused on the outlook for employment, weak wage growth, Australia’s high household debt and falling house prices.

Our MC Lisa McAskill finished the day with an insight into how the media works and looked at ways that Councils can use the media to better manage public perceptions and to educate and inform previously unengaged residents about the role of Councils and topical issues like rate capping. Lisa also presented tips to help Finance Managers communicate their budgets more effectively.

The SALGFMG would like to sincerely thank all our sponsors for their continued support of the conferences, as once again it enabled a program full of high calibre speakers. Members can access their presentations on the SALGFMG website (login required for access).

We would also like to thank Lisa McAskill for another superb job in providing MC duties.

The annual two-day Conference and Workshop will be held at Adelaide Oval on Thursday 5th and Friday 6th December 2019. Information will be provided to members closer to the date.

katybMembers Profile

KATY BONE

I started working in Local Government at the Town of Walkerville as Group Manager Corporate Services in 2018 after working in State Government for 16 years in various Departments such as Health, Water, Treasury and Finance.

Working for the smallest metro Council has its challenges, with limited resources, has meant that I have had to be multi-skilled. I have found it very beneficial being part of the FMG (which I became a member of in 2018) for this reason.

I am also the Chair of the Assets Management working group. Working with councils interested in making a difference on how asset management plans are developed and implemented, understanding all that goes with that.

I enjoy being on the FMG committee, the topics discussed are relevant and give opportunity to find out what other Councils are doing with issues that we may be facing. It also is a place to network and learn from each other.

Outside of work I am busy with my five beautiful children with my oldest being 17 and youngest being 11 years old. One of my biggest achievements was completing True Grit three years in a row.

Should Councils be Maintaining a Petty Cash System?

uhy

Petty cash has been around forever. However, is it still an appropriate method of procurement in our modern day? This article weighs up the risk vs reward of petty cash. Maybe it is time to end the dinosaur of accounting for Councils. Many businesses have already left Petty Cash far behind.

The Risks of Petty Cash

Petty cash is usually considered to be low in value and, therefore, not considered a high-risk area for internal audit. However, there are several risks involved in Petty Cash systems.

Theft – Cash is easy to steal.

  • Controls such as locking the petty cash tin and keeping it in a secured place and limiting access to it alleviate the likelihood of cash being stolen.
  • Reducing the float level, and the amount that employees can seek for reimbursement lessens the consequence levels.

Error

Petty Cash management tends to be very manual, with handwritten dockets and basic spreadsheets or book used for tracking and balancing petty cash. This type of system is prone to error.

Waste of Resources

This is the typical workflow involved in a Petty Cash System:

  • Employee incurs a reimbursable cost;
  • The employee fills in a Petty Cash Claim docket, fills out details of claim and cost code;
  • The employee goes to the supervisor to get the Petty Cash Claim Docket authorised;
  • The employee goes to Petty Cash Custodian to submit the claim docket and receipt;
  • The Petty Cash Custodian interrupts their regular work to get the secured petty cash tin and check the docket for correct authorisation and that there is a cost code, check the receipt against the docket and issue the exact amount of cash;
  • When Petty Cash gets low, the Petty Cash Custodian has to manually or spreadsheet tally all the costs reimbursed and reconciled against dockets and cash on hand;
  • Petty Cash Custodian fills in a form for reimbursement of the petty cash tin up to the maximum float level. The form has to include all the cost codes and appropriate costs;
  • Petty Cash Custodian submits the form for reimbursement with the breakup of how cash is required;
  • Accounts Payable processes reimbursement as a cheque for cash;
  • An Employee goes to the bank (maybe part of normal banking process) to submit the cash cheque to receive the cash;
  • Cash is provided to the Petty Cash Custodian who must check the cash and sign as having received the money and place into petty cash tin and enter into the manual petty cash book or spreadsheet that $xxx was received and now there is a $xxx balance in the till.

Fraud

Fraud can occur when opportunity exists. Receipts used to claim petty cash are often very simple, from easily purchased receipt book by small retailers. If an employee purchased their own receipt book, filled in receipts for small amounts and intermittently submitted these claims, they would likely easily go through, even at the authorisation stage as they are of low value. In this situation, a pattern could be difficult to identify.

The Reward of Petty Cash

When really considered there are limited rewards in using Petty Cash:

  • Petty cash is deemed to be easy. The discussion in ‘Waste of Resources’ earlier, would indicate that a petty cash system is not as easy as it first appears;
  • Employees can get their reimbursements quickly.

Do we need Petty Cash at all?

Councils have several purchasing methods:

  • Store accounts for local stores for purchasing items such as milk, tea, coffee, etc;
  • Accounts with standard suppliers that produce a monthly bill or statement for payment;
  • Fuel cards held in Council pool vehicles for purchasing fuel.

An analysis of the typical claims made through petty cash should determine the type of supplies that are getting reimbursed and whether there is already another system such as those above that should be used or whether there is another local supplier where a corporate store account needs to be considered.

Employee Expense Claim System

Many businesses are acknowledging the risks of petty cash but more importantly recognising the waste of resources involved in managing a petty cash system.

A monthly claim form by employees would have the following workflow:

  • The employee incurs a reimbursable cost;
  • The employee keeps the receipt/s;
  • At the end of the month, the employee compiles all receipts and fills in a reimbursement form which details the cost, purpose and cost allocation for the purchase/s;
  • Supervisor signs the reimbursement form;
  • Reimbursement Form submitted to Accounts Payable;
  • Accounts Payable processes Reimbursement Form along with Supplier invoices in regular payment runs and processes payments through EFT system;
  • The employee receives reimbursement straight into their bank account.

Advantages

  • Less work involved than petty cash for everyone involved;
  • Patterns of potential fraud more easily detected;
  • No cash and no risk of cash being stolen;
  • Encourages employees to use purchasing systems already in place.

Disadvantage

  • Employees are out of pocket until the next payment run.

So, are you ready to make the change and have one less thing for your internal auditors to audit?

Annual General Meeting

The Boulevard Room 375

The Annual General Meeting of the South Australian Local Government Financial Managers Group Inc will be held on Friday 30th August 2019 in the Boulevard Room of the Stamford Plaza, Adelaide.

Commencing at 7.45 am for breakfast, the morning will be highlighted with Stephen Pallaras QC as Guest Speaker. Stephen has enjoyed a 40-year career in courtrooms across the country and across the world, and was the Director of Public Prosecutions in South Australia between 2005 and 2012.

For further information and for registrations, please click here: http://www.salgfmg.com.au/index.php/2019-agm

Registrations close on Friday 23rd August 2019. The event is free for members.

 

Executive Committee Nominations Open!

The SALGFMG Executive Committee comprises of up to 26 members elected from the membership every year at the Annual General Meeting.

We are now calling for nominations for Executive Committee members for 2019/2020. Meetings are generally held on the last Friday of every month at various Council locations across the state.

The Office Bearers of the Group shall be the President, Vice President, Secretary and Treasurer who shall be elected by the Members at the Annual General Meeting prior to the election of the remainder of the Executive Committee Members. The Office Bearers shall have at least 12 months standing as a Member of the Executive Committee and Executive Committee Members must have been a Member of the Group for at least 12 months.

It is important to note that if you are an existing Executive Committee Member, you must re-nominate if you are wanting to be re-elected to the Executive Committee.

Nominations are now open and close at 5.00 pm on Tuesday 20th August 2019. For further information on the Executive Committee and to nominate, please click here: http://www.salgfmg.com.au/index.php/committee/executive-committee-nominations-now-open

LGFA Financial Markets Update – Financial Market Conditions

lgfa

Global financial markets experienced some volatility over the past month as markets continued to grapple with the US-China trade dispute and concerns about lower Global economic growth as a result of the dispute.

The US-China trade dispute saw no meaningful steps towards resolution in June. Many were hoping that a scheduled meeting between US President Trump and Chinese President Xi at the G20 in Japan would see an end to the dispute but it seems that neither side were willing to yield ground. Late in the month US gross domestic production data (GDP) showed that the US economy grew by a healthy 3.1% over the first three months of this year, however, economist noted that most of the growth was driven by government spending. The US Federal Reserve met late in the month and noted that they may need to cut rates even as early as July to counteract the effects of the US-China trade dispute, a view reflected by US interest rate futures pricing. The prospect of a lower cash rate in the US saw long term bond yields fall and a flight to equity markets around the globe, highlighted by the US Dow Jones Industrial Average rising by around 7% over the past month.

2019 Final Winter Newsletter 17

Australian financial market also experienced some volatility over the past month, however, most of the volatility was driven by external factors. The Australian equity markets saw large gains over the past month which most commentators attributed to investors chasing yield in the current low interest rate environment. Property markets in Sydney and Melbourne saw some stabilisation in both clearance rates and price over the past month as looser prudential lending controls by APRA, lower interest rates and the recent Federal election result provided more certainty to property markets. The Australian unemployment rate remained steady at 5.2% in June despite the economy adding an extra 42,000 jobs. Despite the RBA cutting the cash rate by 0.5% over the past 2 months the Australian Dollar has been extremely resilient and is currently trading at around $0.70 USD.

On the 2nd of July the RBA cut the official cash rate by 0.25% to a record low of 1%. In the accompanying statement the RBA stated that they cut the cash rate to help make further inroads into spare capacity within the economy. This move was already factored into market pricing and many commentators are now predicting that the RBA will continue to cut rates if they don’t see lower unemployment and higher wage growth over the next year. Interest rate futures market pricing currently predicts that the official cash rate is likely to cut the cash rate by another 0.25% at the RBA’s December meeting.

Implied RBA Cash rate as at 28/06/2019:

2019 Final Winter Newsletter 18

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