Late Items Agenda of Ordinary Meeting

CONFLICT OF INTERESTS

What is a “Conflict of Interests” - A conflict of interests can be of two types:

Pecuniary - an interest that a person has in a matter because of a reasonable likelihood or expectation of appreciable financial gain or loss to the person or another person with whom the person is associated.

Non-pecuniary – a private or personal interest that a Council official has that does not amount to a pecuniary interest as defined in the Code of Conduct for Councillors (eg. A friendship, membership of an association, society or trade union or involvement or interest in an activity and may include an interest of a financial nature).

Remoteness – a person does not have a pecuniary interest in a matter if the interest is so remote or insignificant that it could not reasonably be regarded as likely to influence any decision the person might make in relation to a matter or if the interest is of a kind specified in the Code of Conduct for Councillors.

Who has a Pecuniary Interest? - a person has a pecuniary interest in a matter if the pecuniary interest is the interest of the person, or another person with whom the person is associated (see below).

Relatives, Partners - a person is taken to have a pecuniary interest in a matter if:

§ The person’s spouse or de facto partner or a relative of the person has a pecuniary interest in the matter, or

§ The person, or a nominee, partners or employer of the person, is a member of a company or other body that has a pecuniary interest in the matter.

N.B. “Relative”, in relation to a person means any of the following:

(a) the parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descends or adopted child of the person or of the person’s spouse;

(b) the spouse or de facto partners of the person or of a person referred to in paragraph (a)

No Interest in the Matter - however, a person is not taken to have a pecuniary interest in a matter:

§ If the person is unaware of the relevant pecuniary interest of the spouse, de facto partner, relative or company or other body, or

§ Just because the person is a member of, or is employed by, the Council.

§ Just because the person is a member of, or a delegate of the Council to, a company or other body that has a pecuniary interest in the matter provided that the person has no beneficial interest in any shares of the company or body.

Disclosure and participation in meetings

§ A Councillor or a member of a Council Committee who has a pecuniary interest in any matter with which the Council is concerned and who is present at a meeting of the Council or Committee at which the matter is being considered must disclose the nature of the interest to the meeting as soon as practicable.

§ The Councillor or member must not be present at, or in sight of, the meeting of the Council or Committee:

(a) at any time during which the matter is being considered or discussed by the Council or Committee, or

(b) at any time during which the Council or Committee is voting on any question in relation to the matter.

No Knowledge - a person does not breach this Clause if the person did not know and could not reasonably be expected to have known that the matter under consideration at the meeting was a matter in which he or she had a pecuniary interest.

Non-pecuniary Interests - Must be disclosed in meetings.

There are a broad range of options available for managing conflicts & the option chosen will depend on an assessment of the circumstances of the matter, the nature of the interest and the significance of the issue being dealt with. Non-pecuniary conflicts of interests must be dealt with in at least one of the following ways:

§ It may be appropriate that no action be taken where the potential for conflict is minimal. However, Councillors should consider providing an explanation of why they consider a conflict does not exist.

§ Limit involvement if practical (eg. Participate in discussion but not in decision making or vice-versa). Care needs to be taken when exercising this option.

§ Remove the source of the conflict (eg. Relinquishing or divesting the personal interest that creates the conflict)

§ Have no involvement by absenting yourself from and not taking part in any debate or voting on the issue as of the provisions in the Code of Conduct (particularly if you have a significant non-pecuniary interest)

RECORDING OF VOTING ON PLANNING MATTERS

Clause 375A of the Local Government Act 1993 – Recording of voting on planning matters

(1) In this section, planning decision means a decision made in the exercise of a function of a council under the Environmental Planning and Assessment Act 1979:

(a) including a decision relating to a development application, an environmental planning instrument, a development control plan or a development contribution plan under that Act, but

(b) not including the making of an order under that Act.

(2) The general manager is required to keep a register containing, for each planning decision made at a meeting of the council or a council committee, the names of the councillors who supported the decision and the names of any councillors who opposed (or are taken to have opposed) the decision.

(3) For the purpose of maintaining the register, a division is required to be called whenever a motion for a planning decision is put at a meeting of the council or a council committee.

(4) Each decision recorded in the register is to be described in the register or identified in a manner that enables the description to be obtained from another publicly available document, and is to include the information required by the regulations.

(5) This section extends to a meeting that is closed to the public.

BYRON SHIRE COUNCIL

Late Reports 14.1

Late Reports

Report No. 14.1 Draft 2018/2019 Financial Statements

Directorate: Corporate and Community Services

Report Author: James Brickley, Manager Finance

File No: I2019/1613

Summary:

The Draft 2018/2019 Financial Statements have been prepared and been subjected to external audit. This report recommends to Council the adoption of the Draft 2018/2019 Financial Statements and the completion of the statutory steps outlined in Section 418 to 420 of the Local Government Act 1993.

The External Auditor, being the NSW Auditor General (represented by a Director of Financial Audit from the NSW Audit Office) or their representative firm Thomas Noble and Russell have been invited to this Ordinary Council Meeting, to present on the Draft 2018/2019 Financial Statements, and answer any questions from Councillors on the Financial Statements.

RECOMMENDATION:

1. That Council adopts the Draft 2018/2019 Financial Statements incorporating the General Purpose Financial Statements and Special Purpose Financial Statements.

2. That Council approves the signing of the “Statement by Councillors and Management” in accordance with Section 413(2)(c) of the Local Government Act 1993 and Clause 215 of the Local Government (General) Regulation 2005 in relation to the 2018/2019 Draft Financial Statements.

3. That Council exhibits the Financial Statements and Auditor’s Report and calls for public submissions on those documents with submissions closing on 5 December 2019 in accordance with Section 420 of the Local Government Act 1993.

4. That the Audited Financial Statements and Auditors Report be presented to the public at the Ordinary Meeting of Council scheduled for 28 November 2019 in accordance with Section 418(1) of the Local Government Act 1993.

Attachments:

1 Draft 2018-2019 General Purpose Financial Statements, E2019/76834 , page 12⇩

2 Draft 2018-2019 Special Purpose Financial Reports, E2019/76833 , page 97⇩

3 Draft Byron Shire Council Conduct of the Audit Report 2019, E2019/76920 , page 110⇩

4 Draft Byron Shire Council Audit Report 2019, E2019/76966 , page 116⇩

REPORT

The purpose of this report is to recommend the adoption and exhibition of the Financial Statements for the year ended 30 June 2019. The Financial Statements presented to Council for the financial year ended 30 June 2019 (refer to Attachments 1 to 4) are the final audited results and include the Auditor’s Report. Council has received an unmodified audit opinion for the 2018/2019 financial year.

The Draft 2018/2019 Financial Statements were to be considered by the Audit, Risk and Improvement Committee on 10 October 2019 but as the audit was not finalised by this date the Meeting was cancelled. The Audit, Risk and Improvement Committee is meeting on 14 November 2019 and it will consider the Financial Statements prior to Council Meeting to be held on 28 November 2019.

The External Auditor, being the Audit Office of NSW or someone from their representative firm, Thomas Noble and Russell has been invited to this Ordinary Council Meeting, to present on the Draft 2018/2019 Financial Statements, and answer any questions from Councillors.

The Financial Statements and Auditor’s Reports are a statutory requirement and provide information on the financial performance of Council over the previous twelve-month period.

The Draft 2018/2019 Financial Statements provided in the attachments are broken down into:

- General Purpose Financial Statements – Attachment 1

- Special Purpose Financial Statements – Attachment 2

In previous years, Council also produced Special Schedules that were not audited, however from the 2018/2019 financial year, whilst the Special Schedules are still produced and submitted to the Office of Local Government, they are no longer required to be published as part of Council’s Financial Statements.

Brief explanations for each item follow:

General Purpose Financial Statements

These Statements provide an overview of the operating result, financial position, changes in equity and cash flow movement of Council as at 30 June 2019 on a consolidated basis with internal transactions between Council’s General, Water and Sewerage Funds eliminated. The notes included within these reports provide details of major items of income and expenditure with comparisons to the previous financial year. The notes also highlight the cash position of Council and indicate which funds are externally restricted (i.e. may be used for a specific purpose only), and those that may be used at Council’s discretion.

Special Purpose Financial Statements

These Statements are a result of the implementation of the National Competition Policy and relate to those aspects of Council’s operations that are business oriented and compete with other businesses with similar operations.

Mandatory disclosures in the Special Purpose Financial Reports are Water and Sewerage.

Additional disclosure relates to Council business units that Council deems ‘commercial’. In this regard Council has traditionally reported its Caravan Park Operations being Suffolk Beachfront Holiday Park and First Sun Holiday Park on a combined basis. These financial reports must also classify business units in the following categories:

· Category 1 – operating turnover is greater than $2million

· Category 2 – operating turnover is less than $2million

All of Council’s business units are classed as Category 1 with all having operating turnover greater than $2 million.

Another feature of the Special Purpose Financial Reports is to build taxes and charges where not physically incurred into the financial results in order that the results can be measured on a level playing field with other organisations operating similar businesses, who are required to pay these additional taxes and charges. These taxes and charges include:

· Land tax – Council is normally exempt from this tax so notional land tax is applied.

· Income tax – Council is exempt from income tax and in regard to these reports, company tax. Any surplus generated has a notional company tax applied to it.

· Debt guarantee fees – Generally due to the low credit risk associated with Councils, Councils can often borrow loan funds at lower interest rates then the private sector. A debt guarantee fee inflates the borrowing costs by incorporating a notional cost between interest payable on loans at the interest rate borrowed by Council and one that would apply commercially.

The Special Purpose Financial Reports are prepared on a non-consolidated basis - in other words they are grossed up to include any internal transactions with the General Fund.

Auditor’s Report on the Financial Statements

Council’s auditor, the Auditor General of NSW (NSW Audit Office) and their representative firm Thomas Noble and Russell, have completed their audit of the Draft 2018/2019 Financial Statements. All matters identified during the audit have been adjusted and included in the Draft 2018/2019 Financial Statements (if required) included at Attachments 1 and 2. The Auditor’s Report is to report on the following:

· A report on the conduct of the audit. This report states the financial statements have been audited with an opinion. For the year ended 30 June 2019 the opinion is expected to be unmodified. In addition, this report outlines any significant audit issues and observations, and includes an analysis of the major aspects of the financial statements.

The Draft Auditor’s Report is included at Attachments 3 and 4.

Specific Items relating to 2018/2019 Draft Financial Statements

The Draft 2018/2019 Financial Statement results have been impacted by the following items that require explanation to Council:

· Operating Result from Continuing Operations

The 2018/2019 financial year has seen a positive overall financial result. Council recorded a $13.022million surplus which, while less than the $35.295million surplus in 2017/2018, is still nevertheless a surplus. This result incorporates the recognition of capital revenues such as capital grants and contributions for specific purposes and asset dedications amounting to $21.109 million compared to $37.314million in 2017/2018. Capital grants and contributions in 2017/2018 were significantly influenced by the transfer of assets to Council from the Old Pacific Highway that was not repeated in 2018/2019.

A more important indicator is the operating result before capital grants and contributions. This result was a deficit of $8.087 million in 2018/2019 compared to a deficit of 2.018million in 2017/2018 representing a decrease of $6.069million between financial years. This indicates Council’s operating expenditures exceeded its operating revenues. Whilst operating revenues excluding capital grants and contributions grew by $2.383million, overall operating expenses grew by $8.452million.

With reference to the Income Statement to the General Purpose Financial Reports included at Attachment 1, the following table indicates the major changes between 2018/2019 and 2017/2018 by line item:

Item	Change between 2018/2019 and 2017/2018 $’000	Change Outcome	Comment
Income
Rates & Annual Charges	+$2,681	Increase	Reflects imposition of the second year of the 7.50% Special Rate Variation and changes in annual charges from Council’s adopted 2018/2019 Revenue Policy
User Charges and Fees	+$626	Increase	Major changes include additional $1,026k revenue for water and sewer user charges, increase in waste fees $229K and a decline in statutory/regulatory fees of $229k. Further information is available in Note 3(b) to Attachment 1.
Interest and Investment Revenue	+$368	Increase	Council’s cash position did not decline as expected which enabled more funds to be invested even though interest rates have continued to decline. Council also realised a $290k fair value gain on its investments.
Other Revenues	-$1,224	Decrease	Increase of $176k for fines, but major change was the once off recognition of share in Richmond Tweed Regional Library $1,157k in 2017/2018 that was not repeated in 2018/2019.
Grants & Contributions – Operating	-$68	Decrease	Overall operating grants increased by $257k including 205k increase in the Financial Assistance Grant but contributions reduced by $325k. Further information is available in Note 3€ and Note 3(f) to Attachment 1.
Grants & Contributions – Capital	-$16,204	Decrease	Capital grants increased $6,767k mainly for roads and bridges funding but capital contributions revenue decreased $22,971k. Reduction in capital contributions is due to reduced asset dedication revenue that was significant in 2017/2018 from the dedication of former Pacific Highway assets.
Total Income Change	-$13,821	Decrease

Expenditure
Employee Benefits and Oncosts	+$774	Increase	Increased leave entitlement expenses of $959k reflecting emphasis on controlling leave balances and impact of declining interest rates on present value of liability calculations. There was a decrease of $371k of employee costs capitalised on capital works in 2018/2019 compared to 2017/2018 and gross salary and wages $657k. More information is provided at Note 4(a) to Attachment 1.
Borrowing Costs	-$14	Decrease	Results from Council gradually repaying loans and not borrowing significant new loans. New loans of $7.669million borrowed at end of 2018/2019 financial year. Interest impact of this loan will be realised commencing in 2019/2020 and refinancing of significant sewerage loan in December 2019.
Materials & Contracts	+$6,991	Increase	Raw materials and contracts increased of $6,414k. Major contributor to this was former Mullumbimby Hospital demolition $2,025k, natural disaster works $1,886k and capital expenditure $3,300k not capitalised. Other changes can be found at Note 4(b) to Attachment 1.
Depreciation	+$397	Increase	Respective changes between asset classes are outlined at Note 4(d) to Attachment 1. Essentially small incremental increases in each asset class.
Other Expenses	+$334	Increase	Overall increase but there were variations in line items as disclosed at Note 4(e) to Attachment 1. Most significant item was street lighting $108k.
Net Losses from Disposal of Assets	-$34	Decrease	Reflection of the written down value of assets disposed at the end of financial year and is contingent upon the extent of assets disposed and their written down value at the time of disposal which can vary. For 2018/201, Council has more disposals than gains including the disposal of infrastructure $2,668k, plant and equipment $42k gain and gain on sale of land $308k. Further details can be found at Note 5 to Attachment 1
Net share of interests in associates	+4	Increase	Recognition of Council’s share of the operating result of Richmond Tweed Regional Library for 2018/2019
Total Expenditure Change	+$8,452	Increase

Change in Result	+$22,273	Decrease	Decrease in overall surplus between financial years.

Following from the operating results, are the performance ratios at Note 25 to the General Purpose Financial Statements. These have been derived following the financial assessments undertaken by NSW Treasury Corporation on all NSW Councils in 2012, and are now incorporated into the latest update to the Code of Accounting Practice and Financial Reporting that determines the content of Council’s Financial Statements. These ratios present either a stable or improving result for Council except for the following:

1. Operating Performance Ratio is a reflection of the operating result of Council. The benchmark is to be greater than 0% but in 2017/2018 Council’s ratio was -1.01% and in 2018/2019 it was -7.11%. This ratio was impacted by some one-off items i.e. demolition costs of the former Mullumbimby Hospital, however Council will look to improve this result back towards the benchmark.

2. Outstanding, Rates and Annual Charges – Whilst still well within benchmark ,this ratio has increased given the compounding from the ongoing implementation of the 2017/2018 Special Rate Variation. This means that the increasing annual charges as well as the current economic climate are impacting the capacity of ratepayers to pay. Council also changed its Debt Recovery Policy during the 2018/2019 financial year and this ratio will be closely monitored going forward.

· Asset Revaluations

During 2018/2019, there was no revaluation of assets except for the indexation of Water and Sewerage Assets which is compulsory. Council also indexed the valuation of its buildings even though this was not compulsory.

For the upcoming 2019/2020 financial year, Council will need to consider the revaluation of Roads and Drainage assets given these assets have not been revalued since 2015 and are due for revaluation.

· Asset Recognition

As indicated at Note 10 to the Council’s financial statements, Council expended $27.007million on asset renewals and $9.792million on new assets. The extent of asset renewals is significant and demonstrates ongoing commitment in that area. The depreciation expense of Council’s assets for 2018/2019 was $15.012million so it is pleasing to see the extent of asset renewal recognised was significantly more then the financial realisation via depreciation of the consumption of Council’s assets.

· Cash and Investments

As at 30 June 2019 (detailed at Note 6 to the financial statements) Council has maintained $1.000million in unrestricted cash and investments being a reduction of $0.145million compared to 2017/2018. This is an ongoing pleasing result and Council has been able to maintain another one of its short term financial goals of reaching an unrestricted cash balance of $1million. All other cash and investments totalling $77.370million are restricted for specific purposes. Overall the cash and investment position of Council increased by $0.970million during the year.

· Receivables

As at 30 June 2019 (detailed at Note 7 to the financial statements) Council was due $11.187million in receivables. Of this amount $1.535million was due from Roads and Maritime Services for expenditure claims, $0.866million from the Commonwealth Government for Goods and Services Tax and $1.581million in Government grants and subsidies. Overall receivables increased by $1.083million compared to the 2017/2018 financial year.

· Payables and Provisions

At 30 June 2019 (detailed at Note 11 for payables and Note 12 for provisions) total payables by Council were $10.603million including $4.283million held in security bonds, deposits, retentions, payments received in advance, $0.529million in accrued expenses and $5.791million payable to suppliers. In addition at 30 June 2019, Council has accrued employee leave entitlements valued at $5.852million. Specific employee leave entitlements include $2.044million for annual leave, $3.654million for long service leave and $0.154million for gratuities. In comparison to 2017/2018, total payables increased $0.593million whereas total provisions for employee leave entitlements increased $0.334million.

· Loan Borrowings

During 2018/2019 Council borrowed new loans of $7.669million and continued to make normal loan repayments.

Council’s outstanding loans as at 30 June 2019 are $64.15million. Total loan expenditure for 2018/2019 included interest of $4.252million and principal payments of $2.758million. Total expenditure in 2018/2019 related to loan repayments was $7.010million or 8.20% of Council’s revenue, excluding all grants and contributions.

The outstanding loans by Fund totalling $64.150million are as follows:

· General Fund $21.492million

· Water Fund $0 – Water Fund is debt free

· Sewerage Fund $42.658million

Liquidity

Council’s Statement of Financial Position (balance sheet) indicates net current assets of $63.537million. It is on this basis, in the opinion of the Responsible Accounting Officer, that the short term financial position of Council remains in a satisfactory position and that Council can be confident it can meet its payment obligations as and when they fall due. That is, there is no uncertainty as to Council being considered a ‘going concern’. In addition, Council’s cash expense cover ratio is at 11.02 months whereas the minimum benchmark is 3 months. Council exceeds this benchmark by nearly four times.

Council’s Unrestricted Current Ratio has improved to 3.65 demonstrating Council has $3.65 in unrestricted current assets compared to every $1.00 of unrestricted current liabilities.

On a longer term basis Council will need to consider its financial position carefully. Nevertheless in isolation, the financial results for 2018/2019 continue to present a ‘stable’ financial position. Every effort will be made to manage the trend towards operational deficits before capital grants and contributions.

STRATEGIC CONSIDERATIONS

Community Strategic Plan and Operational Plan

CSP Objective

CSP Strategy

DP Action

OP Activity

Community Objective 5: We have community led decision making which is open and inclusive

5.5

Manage Council’s finances sustainably

5.5.2

Ensure the financial integrity and sustainability of Council through effective planning and reporting systems (SP)

5.5.2.2

Complete annual statutory financial reports

Legal/Statutory/Policy Considerations

Section 413(2)(c) of the Local Government Act 1993 and Regulation 215 of the Local Government (General) Regulation 2005 requires Council to specifically form an opinion on the financial statements. Specifically Council needs to sign off an opinion on the Financial Statements regarding their preparation and content as follows:

In this regard the Financial Statements have been prepared in accordance with:

· The Local Government Act 1993 (as amended) and the Regulations made thereunder.

· The Australian Accounting Standards and professional pronouncements.

· The Local Government Code of Accounting Practice and Financial Reporting.

And the content to the best of knowledge and belief:

· Presents fairly the Council’s operating result and financial position for the year.

· Accords with Council’s accounting and other records.

· Management is not aware of any matter that would render the Financial Statements false or misleading in any way.

Section 416(1) of the Local Government Act 1993, requires a Council’s annual Financial Statements to be prepared and audited within four (4) months of the end of that financial year i.e. on or before 31 October 2019.

Section 417(4) of the Local Government Act 1993 requires, as soon as practicable after completing the audit, the Auditor must send a copy of the Auditor’s Reports to the Departmental Chief Executive and to the Council.

Section 417(5) of the Local Government Act 1993 requires Council, as soon as practicable after receiving the Auditor’s Reports, to send a copy of the Auditor’s Reports on the Council’s Financial Statements, together with a copy of the Council’s audited Financial Statements, to the Departmental Chief Executive before 7 November 2019.

Section 418(1) of the Local Government Act 1993 requires Council to fix a date for the Meeting at which it proposes to present its audited Financial Statements, together with the Auditor’s Reports, to the public, and must give public notice of the date so fixed. This requirement must be completed within five weeks after Council has received the Auditors Reports i.e. prior to 5 December 2019.

Financial Considerations

There are no direct financial implications associated with this report as the report does not involve any future expenditure of Council funds but it is a report advising the financial outcomes of Council during the 2018/2019 financial year which are identified in this report and attachments.

Consultation and Engagement

Section 420 of the Local Government Act 1993 requires Council to provide the opportunity for the public to submit submissions on the Financial Statements. Submissions are to be submitted within seven days of the Financial Statements being presented to the public. In the case of the 2018/2019 Financial Statements, the closing date for submissions will be 5 December 2019.