Reports tabled at the Special Meeting of Council on Tuesday date held at the Council Conference and Reception at City Hall, 57 Little Malop Street, Geelong.
Source: |
Strategy & Performance - Financial Services |
Acting General Manager: |
William Tieppo |
Index Reference: |
Financial Management Reporting |
To authorise two Administrators to certify the 2016 Financial Statements and Performance Statement.
The 2015-16 Financial Statement of Accounts and Performance Statement have been prepared and reviewed by the Victorian Auditor General’s Office (VAGO).
These Statements have been prepared in accordance with Australian equivalents to International Financial Reporting Standards.
The 2016 Revaluation of Council owned Land and Buildings and adjusting entries are included in these statements.
The final closing audit report has been received from VAGO and there were no major issues of high risk to Council.
Under Sections 131 and 132 of the Local Government Act 1989, Council is required to pass a resolution giving “In Principle” approval to the Performance Statement and Financial Statements and authorise two Councillors to certify the Statements in their final form.
Following consideration by the Administrators the “Financial Statement of Accounts” and the “Performance Statement”, together with a copy of the Council Resolution that nominates two Administrators and accepts the Statements “In Principle”, will be provided to the Auditor General.
Under Section 134 of the Local Government Act 1989, as soon as practicable after the Annual Report has been sent to the Minister, the Council must hold a meeting to discuss the Annual Report, including the Annual Financial Statements and the Auditors Report.
Kathy Alexander, Chair, highlighted several minor changes to the Appendices pertaining to this report.
L Gardner moved, P Dorling seconded -
That Council:
gives approval in principle to the “Financial Statement of Accounts” (as per Appendix 1) and the “Performance Statement” (as per Appendix 2); and
authorise two Administrators being the Chair, Dr K Alexander and L Gardner to certify the Statements subject to any changes recommended and agreed with the Auditor General.
Carried.
Under Section 131 of the Local Government Act 1989 (LGA), a Council must in respect of each financial year, prepare an Annual Report that includes audited Financial Statements and a Performance Statement for the financial year. These statements must be prepared in the prescribed manner and form and be certified by Council’s auditors. Council’s current auditors are Victorian Auditor Generals Office (VAGO).
Under section 131(4) of the Local Government Act, the Performance Statement must contain the prescribed indicators and measures of service performance outcome, financial performance and sustainable capacity.
In addition to the performance statement, council’s are also required to disclose:
The prescribed indicators and measures of service performance, results achieved and any material variation explanation.
A governance and management checklist.
Along with the Performance Statement indicators, these will also be required to be reported on the State Government ‘Know Your Council’ website.
The draft Financial Statements and Performance Statement have been reviewed by VAGO and there were no major issues of high risk indentified in the draft closing audit report. VAGO representatives attended the Audit Advisory meeting on 5 September 2016 to present and discuss the 2015-16 Audit Management letter.
Under Section 132 of the LGA, Council is required to approve “in principle” the Statements prior to receiving final certification from the Auditor General. Council’s approval requires nominating two Administrators to certify those Statements, together with Chief Executive Officer and Principal Accounting Officer.
The Final Statements may then be subject to any changes recommended and agreed with VAGO. A final audit certification is then issued.
The Financial Statements and the Performance Statement form part of Council’s Annual Report that must be submitted to the Minister within three months of the end of the financial year. Further, Council must also review the Annual Report in a meeting open to the public as soon as possible after the report is sent to the Minister.
The Financial Statement of Accounts 2015-16 (refer Appendix 1) record a satisfactory period of operation with a favourable operating surplus, high closing cash balances and significant asset growth.
COMPREHENSIVE INCOME STATEMENT
The surplus result for 2015-16 of $64.6m includes the following major items:
|
|
$m |
▶ |
Early receipt of 2015-16 Grants Commission entitlement in 2014-15 |
(9.7) |
▶ |
Non capital projects unspent amount |
8.4 |
▶ |
Net Income/expenses |
(1.7) |
Recurrent Surplus |
(3.0) |
|
▶ |
Capital Grants Income/ Dev. Cap |
24.0 |
▶ |
Recognition of Infrastructure less Disposals |
37.9 |
▶ |
Other |
(1.3) |
Non Recurrent Surplus |
60.6 |
|
SURPLUS/(DEFICIT) FOR THE YEAR |
57.6 |
|
Net Asset revaluation (Land & Buildings) increment |
7.0 |
|
TOTAL COMPREHENSIVE RESULT |
64.6 |
|
This surplus result was $1.4m favourable to adopted Budget and included the following favourable and unfavourable income and expenditure items (refer Note 2A - Appendix 1).
Income of $369.1m was $4.6m favourable to budget mainly due to:
Unbudgeted rate income ($1.2m favourable);
Unbudgeted discretionary grants received ($0.9m favourable);
Unbudgeted and deferred capital Grants ($2.0m favourable);
Additional recognition of subdivision assets from Developers ($5.7m favourable);
Additional interest income ($1.0m favourable); and
Reduced loss on disposal of assets ($1.2m favourable).
Offset by the following items:
Grants Commission 50% received in June 2015 ($9.7m unfavourable).
Expenditure of $311.6m was $3.2m unfavourable to Budget due to:
Waste costs for utilisation of Wyndham landfill ($3.6m unfavourable).
Offset by the following items:
Reduced interest expense due to deferral of $27.9m loans to 2016-17
($0.6m favourable).
BALANCE SHEET
The Balance Sheet shows that Council has a very strong asset position with over $2.1 billion worth of assets that are used to provide services to the community.
Current Assets are $102m which is predominately due to a slight decrease in cash balances with loans being deferred.
Current liabilities are $61m which is predominately leave provisions and non current liabilities are $47.6m due to the deferral of $27.9m in loans during 2015-16 (total loan balance has decreased to $54.8m).
STATEMENT OF CASH FLOWS
Council’s cash position at the end of the year is $87.2m, a decrease of $4.7m from the prior year. This is due to:
lower than expected Capital and Non Capital project expenditure with loans of $27.9m deferred until 2016-17; and
the early Grants Commission receipt of $9.7m in June 2015.
The cash balance will provide funds to complete Capital and Non Capital projects carried over from 2015-16 and working capital to ensure service provision continues at the same levels in 2016-17.
STATEMENT OF CAPITAL WORKS
Council has an extensive capital works program to renew, upgrade and provide new assets to ensure the continuation and improvement of services provided to the community. Council spent $84.2m on capital works in 2015-16 and included the following highlights:
|
|
$M |
• |
Road replacement and construction |
19.0 |
• |
Geelong Library and Heritage Centre |
8.2 |
• |
Plant and Vehicles |
6.1 |
• |
Shell Road Reserve Masterplan |
3.6 |
• |
Drainage replacement and construction |
3.5 |
• |
Corio Landfill Rehabilitation |
3.1 |
• |
Footpath replacement and construction |
3.0 |
• |
Innovation Drive |
2.4 |
• |
Drysdale Landfill Cell 6 |
1.7 |
• |
Kerb & Channel replacement and construction |
1.5 |
• |
Austin Park Redevelopment |
1.4 |
• |
Building Renewal Works |
1.4 |
• |
Myers St Unifying Streetscape |
1.1 |
• |
Fyans Park Kindergarten |
1.1 |
• |
PABX Replacement |
0.9 |
• |
Lees Road Bridge Replacement |
0.8 |
• |
Lara Recreation Reserve |
0.6 |
• |
IT Asset Replacements |
0.6 |
• |
Land Acquisition NSE Corio |
0.6 |
• |
Melaluka Road Clubroom Upgrade |
0.5 |
• |
Playground Development Program |
0.5 |
Performance Statement as at 30 June 2016
Council is required to prepare and include a performance statement within its annual report. The performance statement includes the results of the prescribed sustainable capacity, service performance and financial performance indicators and measures together with a description of the municipal district and an explanation of material variations in the results. This statement has been prepared to meet the requirements of the Local Government Act 1989 and Local Government (Planning and Reporting) Regulations 2014.
Where applicable the results in the performance statement have been prepared on accounting bases consistent with those reported in the Financial Statements. The other results are based on information drawn from Council information systems or from third parties (e.g. Australian Bureau of Statistics).
The performance statement presents the actual results for the current year and for the prescribed financial performance indicators and measures, the results forecast by the Council’s Strategic Resource Plan. The forecast figures included in the performance statement are those adopted by Council in its Strategic Resource Plan on 28 June 2016 and which form part of the Council plan. The results for 2015-16 are consistent with the results from the previous year.
The following indicators have not been reported on this year on the advice of the external auditor due to the issues with the migration to the MAV Child Development Information System:
MC4 – Participation in the MCH service (defined as the percentage of children enrolled who participate in the MCH service).
MC5 – Participation in the MCH service by Aboriginal children (defined as the percentage of children enrolled who participate in the MCH service).
The Performance Statement results and the Service Performance Indicators prescribed under the Local Government Performance Reporting Framework will be reported on the ‘Know Your Council’ website (www.knowyourcouncil.vic.gov.au).
In accordance with the requirements of Section 132 of the Local Government Act 1989 the nominated Principal Accounting Officer of Council, two Councillors (Administrators) and the Chief Executive Officer are required to sign the Performance Statement.
AUDIT
The external audit, conducted by the Victorian Auditor General’s Office (VAGO), was completed on Friday, 5 August as per the audit plan. There were no major issues affecting the Financial Statements. A closing report summarising the Audit findings has been reviewed by the Audit Advisory Committee.
Incomes and Expenditures on Council’s environmental preservation and enhancement programs are included in the Financial Statements.
As detailed within accompanying financial statements – refer Appendix 1.
Under Section 131 of the Local Government Act the Council must in respect of each year prepare an Annual Report, which includes audited financial statements for the financial year.
Under Section 131 a Council must not submit the Financial Statements to its auditors or the Minister unless it has passed a resolution giving approval “in Principle” to the statements.
Under Section 131 a Council must authorise two Councillors to certify the Statements in their final form after any changes recommended, or agreed to with the auditor.
The actions outlined in this report are aimed at complying with the requirements of the Act.
The Financial Statements and the Performance Statement highlight that 2015-16 Council operations have been managed in a responsible manner. The results contribute to responsible and sustainable financial management as aligned in Council’s City Plan objective on the How We Do Business.
Council staff preparing this report have no direct or indirect interest.
The Statements are released as a draft and are still subject to being signed off by the Auditor General.
The attached report represents a full and open disclosure of the financial position for the benefit of the community.
There are no known positive or negative effects.
The Financial Statement of Accounts and the Performance Statement will be available to the public as part of the published Annual report and accessible via www.geelongaustralia.com.au.
The prescribed indicators and measures of service performance outcome, financial performance and sustainable capacity as per section 131(3) and 131(4) of the Local Government Act 1989 will also be available on the State Government ‘Know Your Council’ website from November 2016.
Source: |
Strategy & Performance - Financial Services |
Acting General Manager: |
William Tieppo |
Index Reference: |
Financial Management Reporting |
To note the increase in Capital and Non Capital project funding in 2016-17 to complete projects carried over from 2015-16, together with the other Budget amendments.
Financial results for 2015-16 highlight a recurrent deficit of ($3.0m) or $14.0m favourable to amended budget and Capital expenditure of $84.2m or $42.2m lower than authorised Capital Program.
These results reflect a number of programs (Capital and Non Capital) that are incomplete and are required to carryover into 2016-17.
In order to avoid unnecessary variance reporting and commentary during 2016-17 relative to project approved funding levels, the 2016-17 Capital and Non Capital project budget are adjusted to include carryover funding required to complete the project.
The incomplete programs, together with favourable operating performance have increased Council’s year end cash balance to a total of $87.2m or $21.9m higher than projected.
A review of the Capital program at 30 June 2016 indicates that $60.2m expenditure and $7.8m income is required to be carried over for completion in 2016-17. The approved funding level for capital projects including other amendments, should therefore be adjusted to $164.2m with $28m assumed to carryover into 2017-18. Capital income of $7.8m was not received by 30 June and will carryover into 2016-17. Total capital income will therefore increase to $30.1m. The Capital program is fully funded and will have no impact on the closing cash position as outlined in the adopted 2016-17 Budget.
Capital project nominated borrowing requirements have been reviewed to take into account project status and cash flows, through 2016-17. The review highlights that $30m budgeted borrowings can be deferred to provide interest savings of $0.874m and lower principal repayments of $1.842m. A detailed review of Long Term Debt Strategy will be undertaken in 2016-17.
A review of the Non-Capital program at 30 June 2016 indicates that funding of $8.4m is required to be carried forward for completion in 2016-17. The Non Capital program is fully funded and these amendments will have no impact on the closing cash position as forecast in the adopted 2016-17 Budget.
The combined recurrent expenditure and capital program expenditure will be amended to $464.6m, including $328.4m recurrent expenditure and $136.2 capital expenditure.
L Gardner moved, P Dorling seconded -
That Council amends the adopted 2016-2017 Budget to include the following:
Capital Programs carryover as per Appendix 1, other budget amendments affecting Capital Projects Budget as per Table 1.
Non Capital Programs carryover as per Appendix 2, other budget amendments affecting the recurrent budget as per Table 2.
Proposed 2016-2017 loan borrowings be amended from $50.63m to $20m to reflect latest cash flow projections for nominated projects.
Carried.
At 30 June each year Council reviews the preliminary financial results to determine funded Capital and Non Capital programs that are incomplete and are required to be carried over into the subsequent financial year. These carryover requirements are incorporated as part of the 2016-17 authorised program. This practice avoids unnecessary variance reporting, given there is no impact on the budgeted closing cash position.
The review has been undertaken in the following key areas:
Carryover requirements to complete 2015-16 Capital projects in 2016-17.
Carryover requirements to complete 2015-16 Non Capital projects in 2016-17.
2015-16 Preliminary Financial Results Summary
|
|
Full Year Actual |
Full Year Amended Budget |
Variance Fav / (Unfav) |
|
Recurrent Surplus/(Deficit) |
(3.00) |
(17.01) |
14.01 |
|
Non-Recurrent Surplus/(Deficit) |
60.56 |
65.77 |
(5.21) |
|
Net Surplus/(Deficit) |
57.56 |
48.76 |
8.80 |
|
Capital Expenditure |
84.17 |
126.43 |
42.26 |
|
Closing Net Cash Positive/(Negative) |
87.24 |
64.76 |
22.44 |
Capital Projects Program
Carryover requirements
Of the 303 projects listed in 2015-16, project managers have advised that 141 projects have been fully completed, with 162 projects identified as requiring some carryover funds in 2016-17 to complete works.
During the 2016-17 Budget development the Capital carryover was projected to be $38m. At the end of the 2015-16 financial year a review was carried out to determine the actual Capital Program carryover requirements. The review indicates a net carryover of $52.38m (refer to Appendix 1 for details) comprising of $60.18m expenditure and $7.80m income is required to complete the projects planned for 2015-16. The net variance between actual Net ($52.38m) and estimate included in 2016-17 Budget ($38.00m) is $14.38m.
Main increases are: – Higher carryover than estimated on Corio Landfill Rehabilitation $2.50m and Home for Cycling Pavilion $0.66m. Other incomplete projects – Drysdale/Clifton Springs Sports Precinct $2.78m, Central Road Drainage $1.63m, Geelong Library & Heritage Centre Car Park $1.52m, Geelong Library & Heritage Centre $1.09m, Hendy St Reserve Development $1.17m, Drysdale Landfill Leachate Management $0.93m, Heavy & Dedicated Plant Replacement $1.61m, ACWP – Acquisition Drainage Reserves $0.77m, GREP Landscaping & Wetlands $0.58m, Composting Site Set Up Works $0.57m and Vic Roads Funded Works $0.55m.
A detailed listing of the Capital project and the carryover expenditure and income is included in Appendix 1 together with comments from Project managers.
The following table summarises the authorised 2016-17 Capital program.
The authorised Capital Program will be used for variance reporting in the Monthly Management Report and Quarterly Finance Reports.
Table 1 – Authorised 2016-17 Capital Program
|
|
Expenditure |
Income |
Net Expenditure |
|
Council adopted 2016-17 Budget - New Capital Funding (excluding Carryover) |
103,698,096 |
22,292,917 |
81,405,179 |
|
2015-16 Capital Carryover Requests |
60,179,696 |
7,800,510 |
52,379,186 |
|
Other Budget Amendment |
|
|
|
|
Budget submission – Queens Park Sporting complex |
430,000 |
0 |
430,000 |
|
Geelong Soccer Club – Grant application successful |
(100,000) |
0 |
(100,000) |
|
Authorised 2016-17 Capital Program |
164,207,792 |
30,093,427 |
134,114,365 |
|
Planned Carryover into 2017-18 (June 2017) |
(28,000,000) |
- |
(28,000,000) |
|
Forecast 2016-17 Capital Expenditure |
136,207,792 |
30,093,427 |
106,114,365 |
Estimated proceeds of $609,500 on Light, Heavy & Dedicated Fleet sales relating to carried over purchases are also expected in 2016-2017.
Loan Borrowings
A review has been undertaken of the Capital projects to confirm 2016-2017 cash flow and borrowing requirements. The status of required borrowings relative to each project is as follows:
Drysdale Landfill Cell 6 |
Latest estimate |
$5.35m |
This project is completed and the budgeted borrowings $5.35m will be necessary in 2016-17. Currently, the project has been funded out of working capital.
Corio Landfill Rehabilitation Year 2 |
Latest estimate |
$0.46m |
Total remaining budget on the project $11.8m with $4.377m approved borrowings. Forecast carryover into 2017-2018 is $3.918m, therefore borrowing of $0.459m only is required in 2016-17.
Central Geelong Projects |
Latest estimate |
$2.67m |
Projects forecast to be completed in 2016-17 with borrowings $2.67m required.
Central Geelong Action Plan
Forecast expenditure in 2016-17 funded from capital income and defer $4.52m borrowings to 2017-18.
Ocean Grove Infrastructure Plan |
Latest estimate |
$1.25m |
Project was completed in 2015-16 and working capital balances provided opportunity to defer borrowings. Borrowing to be taken up in 2016-17.
Highton Enhanced Children’s Centre - Year 2
Forecast expenditure in 2016-17 funded from capital income and defer $2.6m borrowings to 2017-18.
Leopold Community Hub - Stage 2 Library - Year 2
Project borrowings can be timed in line with construction cash flow. Estimated 2016-17 expenditure to be funded from capital income and loan borrowings of $6m deferred.
Hendy Street Children's Hub Year 2 |
Latest estimate |
$2.8m |
A total of $4.3m borrowings have been budgeted for this project. Forecast cash requirements provides opportunity to defer $1.5 borrowings to 2017-18.
Rosewall Neighbourhood House
Forecast expenditure in 2016-17 is consistent with budget $1.15m and remaining $0.35m expenditure funded via borrowings can be deferred.
Flinders Peak – Redevelopment |
Latest estimate |
$1.8m |
Forecast expenditure in 2016-17 is consistent with borrowing provisions and therefore $1.8m borrowings required.
Drysdale/Clifton Springs Sports Precinct
Forecast expenditure in 2016-17 funded from capital income and defer $3.226m borrowings to 2017-18.
Drysdale Landfill Cell 5 |
Latest estimate |
$3.06m |
Forecast expenditure in 2016-17 at $3.06m highlights $0.54m as carryover into 2017-18. Borrowings of $3.06m are therefore required and $0.54m can be deferred.
GREP - Elcho Drain |
Latest estimate |
$1.368m |
Special Rate and charge scheme requires council contribution over 2 years funded by borrowings. Forecast expenditure in 2016-17 highlights that borrowings of $1.368m will be required.
Armstrong Creek |
Latest estimate |
$1.243m |
DCP projects with forecast expenditure in 2016-17 funded from capital income and $1.243m of borrowings. Opportunity to defer $7.973m borrowings to 2017-18.
The deferral of $30m budgeted loan borrowings provides interest savings of $0.874m and lower principal repayments of $1.842m. Borrowing requirements will continue to be monitored throughout the year relative to cash flows. A detailed review of long term
Debt Strategy will also be undertaken.
Operating Budget Amendments
Non Capital Projects Carryover requirements
In addition to the Capital Program, Project Managers have undertaken a review of the Non Capital Projects budgeted for in 2015-16 that have been requested to be carried over into the 2016-17 financial year.
The 2015-16 Recurrent Operating result was favourably impacted by $8.44m of incomplete Non Capital programs as per Appendix 2.
Requested Non Capital Program Carryover:
|
|
Expenditure |
Income |
Net Expenditure |
|
Council adopted 2016-17 Budget - Non Capital Program |
11,248,572 |
2,600,360 |
8,648,212 |
|
2015-16 Non Capital Carryover Requests |
8,838,772 |
402,251 |
8,436,521 |
|
Authorised 2016-17 Non Capital Program |
20,087,344 |
3,002,611 |
17,084,733 |
The net 2016-17 Non Capital Program is noted as $17.08m to reflect the additional $8.44m carried over from 2015-16.
Other Budget Amendments
The revised borrowing program provides Interest expenditure savings of $0.87m.
Other operating budget amendments Fav/(Unfav):
Final advise from Victorian Grants Commission indicates an additional $0.13m relative to estimates included in the adopted 2016-17 Budget.
City Vision and Transformation Projects – Executive Lead ($0.24m).
Vision Program – community engagement additional cost ($0.28m).
Resource Allocation for Community Engagement and Continuous Improvement ($0.375m).
Regulatory Requirements, Policy and Research and Urban Design Services ($0.435m).
Community Update reinstatement – ($0.13m).
G21 Netball Strategy Project cancelled - $0.015m.
The impact of the requested Non capital program carryover along with the other budget amendments that affect the recurrent position 2016-17 Surplus/(Deficit) Refer Table 2 below.
Table 2 – Authorised 2016-17 Recurrent Surplus/(Deficit)
|
|
Expenditure $ |
Income $ |
Surplus/(Deficit) $ |
|
Council adopted 2016-17 Budget - Recurrent surplus/(Deficit) |
319,028,263 |
320,858,618 |
1,830,355 |
|
2015-16 Non Capital Carryover Requests |
8,838,772 |
402,251 |
(8,436,521) |
|
Other Budget Amendments |
|
|
|
|
Interest Paid Savings |
(873,212) |
0 |
873,212 |
|
Grants Commission increase |
0 |
130,250 |
130,250 |
|
City Vision and Transformation Projects |
235,000 |
0 |
(235,000) |
|
Vision Program |
280,000 |
0 |
(280,000) |
|
Resource allocation for Community engagement & continuous improvement |
375,000 |
0 |
(375,000) |
|
Regulatory Requirements, Policy & Research and Urban Design Services |
435,000 |
0 |
(435,000) |
|
Community Update |
130,000 |
0 |
(130,000) |
|
G21 Netball Strategy Project |
(65,000) |
(49,894) |
15,106 |
|
Authorised 2016-17 Recurrent Surplus/(Deficit) |
328,383,823 |
321,341,225 |
(7,042,598) |
The adoption of the 2015-16 carryover program recognises the required funding to complete the environmental programs previously approved as part of the 2015-16 Budget.
There are no funding implications associated with this report, with higher than projected cash balances as at 30 June 2016 funding additional budgeted expenditure in 2016-17.
The program variances and carryover requests are detailed within the accompanying financial reports (refer Appendices 1 & 2).
Section 144A part 1 of the Local Government Act states “A Council must prepare a revised budget if circumstances arise which cause a material change in the budget and which affect the financial operations and position of Council.”
In the context of the total budget the recommended variation to the budget is not considered material.
This report contributes to responsible and sustainable financial management as aligned in Council’s City Plan objective on How We Do Business.
Council staff preparing this report have no direct or indirect interest.
Capital projects by their nature are susceptible to delays for a large variety of reasons including weather, delays in approvals (i.e. Special Rates & Charges programs) contractor availability, performance, etc.
The carryover Capital Program (refer to Appendix 1) will result in a gross capital program for 2016-17 of $136.2m.
The adoption of the 2015-16 carryover program provides the required funding to complete the social programs previously approved as part of the 2015-16 Budget.
No positive or negative impacts.
Project Managers have submitted requests for carryover and will be advised of the outcome pending consideration of this report by Council.
As there was no further business the meeting closed at 3:35pm. Tuesday, 6 September 2016.
Signed: _________________________________________
Dr Kathy Alexander - Chair
Date of Confirmation: _____________________________
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