An audit of Queensland councils shows they’ve taken a big hit from Covid with one in three at risk of becoming financially unsustainable.
Auditor-General Brendan Worrall says 70 per cent of councils in the state spent more than they earned in 2020, 25 per cent worse than the figure for the previous year.
He found that as of 30 June 2020, 25 of the state’s 77 councils were at a high risk of not being financially sustainable, four more than in 2019.
However, the local government financial audit report says the deteriorating financial sustainability isn’t surprising.
Travel restrictions and lockdowns
“Financial sustainability continues to deteriorate, however, this was not unexpected,” Mr Worrall says.
“Due to the pandemic, councils earned lower revenue and incurred more expenditure as they supported their communities.”
Travel restrictions, lockdowns and initiatives to support communities all contributed to the grim picture, as well as reduced revenue and reduced patronage at public facilities.
At the same time they incurred extra costs such as bringing forward capital projects, increased cleaning costs and maintaining quarantine facilities and border controls.
Reliance on grants
The audit found that before the pandemic, most councils that relied heavily on state and federal grants had suffered losses every year for the last five years.
These councils often had weak strategic planning and poor asset and financial management, but the existing year-by-year grant funding model wasn’t helping.
“The department of local government could assist councils by providing greater baseline funding certainty with multi‑year grant programs,” Mr Worrall says.
“The department could also work with councils to improve financial and asset management capability.”
Need to strengthen governance
The audit found that councils’ financial statements were reliable. But there was still room for improvement around governance, procurement and information systems.
“We found inappropriate user access to systems, unauthorised installation of applications on council networks, inadequate segregation of duties, and poor password practices,” Mr Worrall said.
Some councils didn’t keep a contract register, which exposed them to “various financial and reputational risks, including the risk of their suppliers not delivering on agreed terms,” the report says.
LGAQ welcomes recommendations
Local Government Association of Queensland (LGAQ) Head of Advocacy Alison Smith says the report highlighted just how tough COVID-19 has been on councils and communities already struggling with budget challenges.
“Councils need greater funding certainty, and we welcome the Auditor-General’s recommendation for more long-term programs to be provided to help local governments plan for the future,” she said.
A key problem was small rate bases, particularly for rural, remote and Indigenous councils.
“For almost half of Queensland’s 77 councils, the amount they collect in rates amounts to less than 15 per cent of their annual budget,” she said.
More information about individual councils is available on the QAO’s interactive dashboard.
Comment below to have your say on this story.
If you have a news story or tip-off, get in touch at editorial@governmentnews.com.au.
Sign up to the Government News newsletter
In theory, amalgamation was supposed to reduce the “unit cost” of doing business with Councils. Instead, when “gross revenue” of the surviving Council went up, that opened the flood gates for increased “employee entitlements”, and best explained away as a percentage of “new gross revenue”. Front line managers were simply able to tagged “increased responsibility” to size of new “gross revenue” income, and therefore rewarded with new salary levels. When Councillors salaries were pegged to those of MP’s, it made it difficult to keep employees out of the cycle.
Unfortunately all Councils simply operate as a “monopoly” on common services. To increase revenue is simply a matter of increasing rates and charges, but not by any productivity increases. Main revenue base is restricted only to those rate payers on Council books. Might only be 50% of the total population in any particular District.
Councils need to live within the financial means of local rate payers and return to basics.
All “fringe services” that are now being offered by Councils, need to be shafted back to State and Federal Governments responsible for collecting taxes and royalties designed to cover the costs of regional “fringe services”. It not for regional Council to be playing “Santa Clause” with rate payers money.
The world currently suffers with declining resources, and therefore we must all learn to live within our means. Rate payers are only one canter short – of being a “dead horse”.