Draft council financial statements sent for audit

Narrabri Shire Council’s draft financial statements for the 2024/25 financial year have now been referred for independent audit in line with statutory requirements.

The draft statements, tabled at the October meeting, show an accounting deficit of $27.7 million. This is compared with the original budget forecast of a $309,000 surplus.

Council’s interim director corporate and community services Andrew Ireland urged caution when looking at the overall deficit figure as it partially reflects how council records major community investments and changes in available government funding rather than a decline in financial stability.

Almost $17 million of the deficit relates to the way asset upgrades – particularly roads – are recorded. For companies and business, an increase in asset value is good news because it can be sold or realised. For council, however, its assets includes roads, bridges, parks and community facilities. Mr Ireland explained to the meeting that when these assets are upgraded or renewed, the remaining value of the old asset must be written off, which appears as a loss on paper.

“I’m not denying this is a large number, but that’s with a lot of things in life, it has to be taken in context,” Mr Ireland said.

“And with roads, it’s different than with plant because there’s a market for second hand plant. But with roads, there’s no market for roads, because no one wants to buy one. And so we cop that on the chin. And certainly that’s been a very significant number this year.

“It’s one of those conundrums. If you’re going to be a progressive council, which you are, then you’re going to continue to reinvest in your assets and improve them. But you’re going to continue to have this disposal issue going forward because of this accounting standard that says you’ve got to write off the original value of the asset.”

General manager Eloise Chaplain said while council had written off values of old assets, it had invested in new, improved infrastructure for the community.

“We had uplift in our valuations of an astounding amount, like we said, which in any business is a really great thing. That’s great news and strengthens the balance sheet,” she said.

“That means for council, when we do those upgrades, we have to take the hit as well. However, it is a benefit for our community to do that.

“We’re talking about upgrades that might be like out at Womera Creek Road, at Wee Waa. We completed those works, and we took a gravel road to a civil road, which is now a major freight route. There’s more work to be done there.”

Ms Chaplain also urged similar caution about the interpretation of the deficit figure.

“I wouldn’t take it as a bad news story. This means we’re investing in infrastructure across the shire,” she said.

The other major factor is an $8 million reduction in operational grants compared to the previous year. This reflects the conclusion of several one-off funding programs, a general decrease in funding available to local government, and money that has been spent on grant-funded projects this financial year but not yet formally acquitted.

Once these projects are fully acquitted, the funding will be received in the next financial year.

Despite the accounting deficit, the overall financial position remains sound, council said in a statement following the meeting. Independent valuations have increased the value of community assets by $38 million, and liabilities have decreased. During the year, council also completed $36 million worth of new infrastructure and equipment, further strengthening local services and facilities. Council’s investment portfolio totals almost $50 million.

Cr Jocellin Jansson queried if the issue of writing off assets and recording new values was a problem experienced across other councils.

“A layperson looking at those numbers would be alarmed. What’s being done to look at this particular accounting standard, which really does distort an organisation’s performance in a negative way?,” Cr Jansson said.

Mr Ireland said the accounting standards were an opportunity for council, along with other areas, to raise at local government conferences.

Mayor Darrell Tiemens said the matter is frequently raised, with councils essentially unanimous about addressing the issue.

Cr Greg Lamont noted the issues with previous audits and council, and queried where council sat in the eyes of the Minister of Local Government and the Office of Local Government.

Ms Chaplain said council is tracking where it is meant to be in regards to audit processes.

“We are not under the burning eyes of the Office of Local Government. I’m not saying after this, they might not chat to us, but the question you asked about the previous actions in relation to the audit, we are tracking well,” Ms Chaplain said.

Seven councillors voted in favour of adopting the draft annual financial statements for referral to audit, with Cr Lamont voting against the matter.

The draft statements will be reviewed by independent auditors, with the final results to be released.