Amalgamation led to financial gaps  for council, audit finds

A regional NSW council that experienced gaps in financial management and governance following amalgamation faces ten years in the red, a report has found.

NSW Auditor General Margaret Crawford.

In 2016 Gloucester Shire, Greater Taree City and Great Lakes Council became MidCoast Council under the then state government’s program of forced amalgamations. MidCoast futher merged with MidCoast Water in 2017.

Today, it covers around 10,000 square kilometres on the state’s mid north coast and has a population of 96,500.

In FY2020–21, MidCoast Council ranked 11th in New South Wales for revenue and ninth for expenditure. The Council managed around $346 million income and around $266 million in expenses. It received around $57 million in grants and contributions.

Legislative, policy requirements not met

An assessment by auditor general Margaret Crawford investigated whether MidCoast’s financial management arrangements were adequate for councillors and management to fullfil their responsibilities as financial stewards.

She found MidCoast had not met all its legislative and policy requirements for long-term financial planning, with gaps in financial management and governance identified in 2019-20. Some of these have since been addressed, Ms Crawford noted.

However, the council would continue to operate in deficit for at least another ten years, the report says.

“MidCoast Council experienced significant challenges in its implementation of a consolidated financial management system following amalgamation in 2016 and the merging of MidCoast Water in 2017. This led to gaps in finance processes and data quality,” the report concludes.

“Since 2020, and throughout 2021 and 2022, MidCoast Council has identified a need to focus on developing strategies for financial sustainability following the projected operating deficit for its general fund over the next ten years.”

Impact of amalgamation

General manager Adrian Pannuccio said the amalgamation that created MidCoast occurred with limited notice and minimal community consultation.

“This significantly impacted the ability of the former Councils to work together to ensure critical business functions were transitioned in a planned manner,” Mr Pannuccio said.

After amalgamation, Council continued to use four separate financial management systems until the introduction of a consolidated ERP system in 2021, the report found.

While the new system was being implemented – at a cost of $5 million – MidCoast experienced significant problems with change management, user functionality and configuration.

This meant that “the Council did not ensure that all of its staff were using (the system) effectively and efficiently, which led to gaps in finance processes and data quality, and delays in delivering integrated and automated financial processes across the amalgamated Council,” Ms Crawford said.

In some cases this resulted in manual or duplicated work by finance staff, data input errors and staff performing processes outside the system.

The report also found MidCoast didn’t have formalised governance arrangements for key financial and budget decisions by its executive until February 2021, and lacked policies and procedures to guide its approach to financial management until October 2022.

Midcoast says it is currently implementing improvements to the system which will cost it $21 million over five years.

Responding to the audit, Mr Pannuccio said Ms Crawford’s recommendations were consistent with the improvement path Council has been on since 2021.

Ms Crawford said while the report focused on MidCoast Council, the findings should be considered by all councils “to better understand the challenges and opportunities when addressing financial sustainability and financial management needs”.

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