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EXTRAORDINARY WYONG SHIRE GOVERNANCE COMMITTEE

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					EXTRAORDINARY WYONG SHIRE
  GOVERNANCE COMMITTEE



       07 October 2009
                                       MEETING NOTICE
      The EXTRAORDINARY WYONG SHIRE GOVERNANCE
                              COMMITTEE
                        of Wyong Shire Council
        will be held in the Tony Sheridan Function Room,
           Wyong Civic Centre, Hely Street, Wyong on
            WEDNESDAY 7 OCTOBER 2009 at 9.30 AM,
             for the transaction of the business listed below:



RECEIPT OF APOLOGIES

1   PROCEDURAL ITEMS
    1.1   Disclosure of Interest........................................................................................................ 4
    1.2   Confirmation of Minutes of Previous Meeting................................................................... 5
    1.3   Wyong Shire Governance Committee Action Plan - 12 August 2009 ............................ 10


2   GENERAL REPORTS
    2.1   2008-2009 Annual Financial Reports ............................................................................. 13




Kerry Yates
GENERAL MANAGER




                                                              -3-
7 October 2009                                                               Procedural Item
To the Extraordinary Wyong Shire Governance                  Corporate Services Department
Committee


1.1        Disclosure of Interest
TRIM REFERENCE: F2008/02304 - D02035171                                           AUTHOR: SW


The provisions of Chapter 14 of the Local Government Act, 1993 regulate the way in which
Councillors and nominated staff of Council conduct themselves to ensure that there is no
conflict between their private interests and their public trust.

The Act prescribes that where a member of Council (or a Committee of Council) has a direct
or indirect financial (pecuniary) interest in a matter to be considered at a meeting of the
Council (or Committee), that interest must be disclosed as soon as practicable after the start
of the meeting and the reasons for declaring such interest.

As members are aware, the provisions of the Local Government Act restrict any member
who has declared a pecuniary interest in any matter from participating in the discussions,
voting on that matter, and require that member to vacate the Chamber.

Council’s Code of Conduct provides that if members have a non-pecuniary conflict of
interest, the nature of the conflict must be disclosed. The Code also provides for a number of
ways in which a member may manage non pecuniary conflicts of interest.



RECOMMENDATION

That Members now disclose any conflicts of interest in matters under consideration at
this meeting.




                                             -4-
7 October 2009                                                        Procedural Item
To the Extraordinary Wyong Shire Governance             Corporate Services Department
Committee


1.2        Confirmation of Minutes of Previous Meeting
TRIM REFERENCE: F2004/07245 - D02035184                                   AUTHOR: SW


SUMMARY

Confirmation of minutes of the previous Wyong Shire Governance Committee Meeting held
on 12 August 2009.



RECOMMENDATION

That the Committee confirm the minutes of the previous Wyong Shire Governance
Committee Meeting held on 12 August 2009.


ATTACHMENTS

1 Minutes of Wyong Shire Governance Committee 12 August 2009      D01997650




                                          -5-
 Attachment 1               Minutes of Wyong Shire Governance Committee 12 August 2009


                             WYONG SHIRE COUNCIL
                                    MINUTES OF THE
                WYONG SHIRE GOVERNANCE COMMITTEE
                   HELD IN WILFRED BARRETT AND TIM FARRELL ROOMS,
                      WYONG CIVIC CENTRE, HELY STREET, WYONG
                            ON WEDNESDAY, 12 AUGUST 2009
                                COMMENCING AT 9:30 AM



                                       INDEX

PRESENT

MR DAVID HOLMES (CHAIRPERSON), COUNCILLORS W R SYMINGTON, S A WYNN, R L GRAHAM AND
MR BRUCE TURNER.


APOLOGY

THERE WERE NO APOLOGIES RECEIVED.



IN ATTENDANCE

GENERAL MANAGER, DIRECTOR CORPORATE SERVICES, DIRECTOR OF SHIRE PLANNING, DIRECTOR
SHIRE SERVICES, COUNCILLORS G P BEST, D P VINCENT (9:40 AM), E M MCBRIDE (10:45 AM),
J J MCNAMARA (11:10 AM), MANAGER DEVELOPMENT ASSESSMENT, MANAGER PLANNING - LEGAL
AND POLICY, INTERNAL AUDITOR, SENIOR INTERNAL AUDITOR, MANAGER FINANCIAL SERVICES,
MANAGER CORPORATE PLANNING, PROJECT DIRECTOR WATER AND WASTE, MR DENNIS BANICEVIC
(COUNCIL’S EXTERNAL AUDITOR), MR DAVID LAWLER ATTENDED FOR DISCUSSION ON ITEM 2.2 – QAR
AND THEN DEPARTED, ACTING MANAGER CORPORATE SERVICES, EXECUTIVE MANAGER SHIRE
SERVICES, MANAGER BUSINESS UNIT AND AN ADMINISTRATION OFFICER.




                                         -6-
 Attachment 1                Minutes of Wyong Shire Governance Committee 12 August 2009

Minutes of the Governance Committee held on 12 August 2009 (contd)


1.1        Disclosure of Interest
TRIM REFERENCE: F2004/07245 - D01968014                                     AUTHOR: MW

GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report and the fact that no disclosures were made be
noted.




1.2        Minutes of Wyong Shire Governance Committee - 13 May 2009
TRIM REFERENCE: F2004/07245 - D01968029

GOVERNANCE COMMITTEE RESOLUTION

That the Committee confirm the minutes of the previous Wyong Shire Governance
Committee Meeting held on 13 May 2009.




1.3        Wyong Shire Governance Committee Action Plan - 13 May 2009
TRIM REFERENCE: F2004/07245 - D01968045                                     AUTHOR: MW


GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report on the Wyong Shire Governance Committee
Action Plan 13 May 2009.




2.1        Executive Summary Report for Councillors
TRIM REFERENCE: F2004/07245 - D01978869                                     AUTHOR: BR

GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report on Executive Summary Report for Councillors.




                                          -7-
 Attachment 1                Minutes of Wyong Shire Governance Committee 12 August 2009

Minutes of the Governance Committee held on 12 August 2009 (contd)



2.2        Internal Auditor's Report
TRIM REFERENCE: F2004/07245 - D01983921                                      AUTHOR: JS

GOVERNANCE COMMITTEE RESOLUTION
That the Charter be amended to note that the Internal Auditor reports functionally to
the Governance Committee and administratively reports to the General Manager as
per current practice.



2.3        Update on Extreme and High Corporate Risks
TRIM REFERENCE: F2004/07245 - D01978895                                     AUTHOR: BR

GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report on Update on Extreme and High Corporate
Risks.




2.4        2008-09 Management Plan - June 2009 Quarter Review
TRIM REFERENCE: F2004/07006 - D01978844                                     AUTHOR: BR

GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report on 2008-09 Management Plan - June 2009
Quarter Review.




2.5        Report on the ICAC Recommendations from the Investigation Into
           Corruption Allegations Affecting Wollongong Council
TRIM REFERENCE: F2004/06381 - D01978095                                     AUTHOR: DD

GOVERNANCE COMMITTEE RESOLUTION

That the Committee receive the report on Report on the ICAC Recommendations from
the Investigation Into Corruption Allegations Affecting Wollongong Council.




                                          -8-
 Attachment 1                Minutes of Wyong Shire Governance Committee 12 August 2009

Minutes of the Governance Committee held on 12 August 2009 (contd)



2.6        Establishment of a Finance Committee
TRIM REFERENCE: F2004/06496 - D01894109                                     AUTHOR: EM

GOVERNANCE COMMITTEE RESOLUTION

That the Committee support Council’s consideration of the formation of a Strategic
Finance Committee.




2.7        Protected Disclosures - Designated Officers to Receive Disclosures
TRIM REFERENCE: F2004/07245 - D01983360


GOVERNANCE COMMITTEE RESOLUTION

That the Committee defer the report until the 11 November 2009 Governance
Committee Meeting.



2.8        The Essentials of an Effective Audit Committee - Questions You
           Should Be Asking
TRIM REFERENCE: F2004/07245 - D01984267


GOVERNANCE COMMITTEE RESOLUTION

That the Committee defer the report until the 11 November 2009 Governance
Committee Meeting.



THERE BEING NO FURTHER BUSINESS, THE MEETING CLOSED AT 12.30 PM.




                                          -9-
7 October 2009                                                         Procedural Item
To the Extraordinary Wyong Shire Governance             Corporate Services Department
Committee


1.3        Wyong Shire Governance Committee Action Plan - 12 August 2009
TRIM REFERENCE: F2004/07245 - D02035208                                   AUTHOR: SW


SUMMARY

Confirmation of the Action Plan of the previous Governance Committee Meeting held on
12 August 2009.



RECOMMENDATION

That the Committee receive the report on the Wyong Shire Governance Committee
Action Plan 12 August 2009.


ATTACHMENTS

1 Action Plan 12 August 2009 for review at 7 October 2009 Governance       D01997804
  Meeting




                                          - 10 -
Attachment 1       Action Plan 12 August 2009 for review at 7 October 2009 Governance Meeting




               - 11 -
Attachment 1       Action Plan 12 August 2009 for review at 7 October 2009 Governance Meeting




               - 12 -
7 October 2009                                                               Director’s Report
To the Extraordinary Wyong Shire Governance                     Corporate Services Department
Committee


2.1           2008-2009 Annual Financial Reports
TRIM REFERENCE: F2004/07245 - D02031541                                          AUTHOR: SJG


SUMMARY
Presentation of the Draft 2008-2009 Financial Reports to the Wyong Shire Governance
Committee, including analysis of the financial position and financial performance for the year
as part of the process for Council’s adoption of the Annual Statements.



RECOMMENDATION

That the Governance Committee recommends to the Ordinary Meeting of Council of
14 October 2009 that it consider the adoption of the following resolutions in respect of
the General, Special and Water Supply Authority Accounts:

1        That Council adopt the draft 2008/2009 Financial Reports.

2        That Council refer the Draft 2008/2009 Financial Reports to External Audit.

3        That Council authorise the Mayor, Deputy Mayor, General Manager and
         Responsible Accounting Officer to execute the required Certificates in relation
         to the Draft 2008/2009 Financial Reports as required by relevant legislation.

4        That Council provide a copy of the Financial Reports and Audit Opinion to the
         Department of Local Government and the Australian Bureau of Statistics in
         accordance with Section 417(5) of the Local Government Act 1993.

5        That Council fix 11 November 2009 as the date for the presentation of the
         audited 2008/2009 Financial Reports and External Audit Report in accordance
         with Section 419(1) of the Local Government Act 1993.


BACKGROUND
Council must prepare Financial Reports each year and refer them for audit in accordance
with requirements of the Local Government Act 1993 and the Public Finance and Audit Act
1983.

Requirements include:

       Council to form an opinion on the financial reports.

       Council to present its audited financial reports together with the auditor’s reports
         (Scheduled for 11 November 2009).

       Council’s Water Supply Authority accounts are to be forwarded to the state Auditor
         General for final certification.

The analysis of the 2008-2009 Financial Reports is reported below.




                                               - 13 -
2.1             2008-2009 Annual Financial Reports (contd)


Adoption of Annual Financial Reports
Council plans, implements, and monitors activities in accordance with its Management Plan
and annual budget. Operational performance and capital expenditure are monitored by all
levels of management on a monthly basis and reported to the Governance Committee and
Council, quarterly.

The Financial Reports for the year 2008/2009 present the formal record of the business
performance of all Council activities and are prepared in accordance with accounting
standards and legislative requirements.

In accordance with the requirements of the Local Government Act 1993 (LGA 1993)
Council’s Financial Reports have been prepared and are now presented to Council for their
sign-off and referral to Council’s auditors.

At this stage in the process the Statements do not include the formal audit report. However
Council’s audit has been conducted and completed by Council’s external auditors, Price
Waterhouse Coopers (PWC), who have provided Council’s management with an “in
principle” clearance of the accounts. This means that they have reviewed the statements
and have no issues that require any further adjustment or that would prevent them from
providing an unqualified audit report. This process allows the auditors to complete their
auditing in a timely manner and provide feedback to Council’s staff on accounting treatments
and presentation of the accounts prior to the accounts being presented to Council.

However, the legislation requires Council to formally resolve to refer the accounts to audit,
after which the external auditor will hand over their formal audit opinion. This is the standard
practice and in line with all the requirements.

Council will receive the Audit Opinions immediately following the meeting referring the
accounts to audit (since the audit has already been completed and all audit matters
addressed). The Financial Reports will then be updated with the Audit Opinions and notice of
a public meeting to be held on the 11 November will be given, at which Council can invite the
external the auditor, Dennis Banicevic of Price Waterhouse Coopers, to present.


TECHNICAL ANALYSIS – 2008/2009 FINANCIAL REPORTS
This Technical Analysis aims to provide an overview of the Financial Performance and the
Financial Position of Council as at the 30 June 2009. Key Statements and notes detailed in
this analysis include:

       Income Statement

       Balance Sheet

       Cash Flow

       Statement Of Performance Measures (Note 13 to the accounts)

       Statement of Significant Variations from Budget (Note 16 to the accounts)

       Contingencies (Note 18 to the accounts)

Also included in the Financial Reports, in accordance with Special Schedules determined by
the Local Government Financial Accounting Code (Update 17) is information relating to:

         i   The condition of infrastructure assets (Special Schedule 7 – Condition of Public
             Works), and
                                             - 14 -
2.1           2008-2009 Annual Financial Reports (contd)


       ii   Council’s projected financial position to 2012 (Special Schedule 8 – Financial
            Projections).

       N.B. All Special Schedules are unaudited and only provided in addition to the Annual
       Financial Statements for informational purposes.

Council’s Annual Financial Statements are the annual financial report in the formats required
by Accounting Standards and must conform with the provisions of the Local Government
Code of Accounting Practice issued by the Department of Local Government. Council is a
Water and Sewerage Authority under the Water Management Act 2000 and must produce a
separate report on its water and sewerage business.

Council’s Responsible Accounting Officer and Manager Financial Services have provided a
representation that to their knowledge the accounts have been prepared in accordance with
the relevant legislation and accounting standards. Refer Attachment 3 Management
Representation Letter 2009 - Responsible Accounting Officer and Manager Financial
Services.

In this report the first report is called the “Wyong Shire Council Financial Reports” being
Council’s consolidated statements, and the special report on Council’s Water Supply
Authority is called the “Water Supply Authority Financial Reports”.

This report introduces the principal statements in each of the two reports, comments on
significant items in those statements, and looks at how the change in figures from the last
year to this year reflects on the general financial health and sustainability of Council.

An additional summary of Financial Statements by Fund are included as an attachment.
(Refer Attachment 4 Financial Statements by Fund). Note, the Special Purpose Financial
Reports also report by fund but do not specifically identify a General Fund result.

In 2009-2010 the Department of Local Government introduced an optional proposed report
format for reporting by fund but the proposal required separate balance sheets for restricted
assets such as section 94. Council is currently developing accounting systems to implement
this new Note to the Accounts in future financial years.


INCOME STATEMENT
The Income Statement is a summary of Council’s revenue and expenses for the year and is
displayed in a format determined by Australian Accounting Standards and in-line with the
Department of Local Governments Code of Accounting Practice and Financial Reporting.

It includes all revenue received by Council from any source and records all expenditure on
operations, but specifically excludes expenditure on capital assets (eg buildings,
infrastructure, and new assets).

a      Original Budget to Actual Performance
Budget variations are reported to Council quarterly to assist in Council’s budgetary control
and to resolve changes to expenditure. Note 16 of the Financial Reports (p43) details
significant variations from the Original Budget to Actual Performance. The main variations in
the last quarter

Overall, the operating performance of Council remains positive and in line with budget.




                                            - 15 -
2.1           2008-2009 Annual Financial Reports (contd)

The 2008-2009 Management Plan adopted an Original Budget operating deficit of ($19.7m)
before grants and contributions. After revenue for capital works of $55.6m was added this
projected to a $35.8m surplus. The key elements of the revenue from Capital Grants and
Contributions were not realised and an overall actual surplus result $2.5m is shown, refer
detailed analysis below.

The net operating result of $2.5m loss is the statutory reporting of Profit and Loss.

The Management Plan differs in that it is a statement of sources of funds and expenditure
budget and includes, among other things, costs of building new infrastructure assets but
excludes some non cash items like depreciation (“wear and tear”).

Table 1: 2008/09 Income Statement ‐ Budget to Actual Performance 

                                           Actual       Budget        Actual        Variance to 
                                          2007/08       2008/09      2008/09          Budget
                                            $m            $m           $m          Fav / (Unfav)
                                                                                        $m

Income from Operations                         190.5        189.2         190.5              1.3
Expenditure from Operations                    205.7        208.9         205.7              3.2
Net Operating Result Before 
Capital Grants & Contributions                (15.2)        (19.7)        (15.2)             4.5
Plus:  Income From Capital Grants 
and Contributions                              $17.7        $55.6         $17.7            37.9
Net Operating Result (inclusive of 
Capital Income)                                   2.5         35.8           2.5          (33.4)

Other significant Income and Expenditure variations included:


Operating Income against Original Budget:
 Rates and Annual Charges $102.2m compared to original budget $103.7m, a shortfall of
   $1.5m or 1.4%. A $1.3m projected shortfall was reported to Council and adopted in the
   December and March Quarter Budget Reviews which reflected projected reductions in
   Rates $0.3m, Sewer Charges $0.4m, and Domestic Waste Charges $0.6m. Final results
   were in line with revised budget projections, with a less than 1% variation.

 User Charges & Fees $49.0m compared to original budget $50.4m, a shortfall of $1.4m
   (3%). Significant shortfalls occurred in water and sewer usage income $19.2m against
   original budget of $22.6m due to continuation of water restrictions; Holiday Parks due to
   error in overstatement of original budget by $0.5m, and reduced income from childcare
   fees against original budget (off-set by reduced expenditure).

 Interest and investment revenue was $1.8m compared to the original budget of $5.6m, a
   shortfall of $3.8m (67%) which was mainly the result of unrealised capital losses on
   investments in managed funds of $4.0m. Council adopted a retain and hold strategy for
   most of the funds and Council’s investment advisors anticipate that most of the
   unrealised loses will be recouped over time.

 Grants and Contributions Operating income was $23.3m against original budget of
   $27.1m down $3.8m (14%) principally due to a shortfall in environmental grants and
   contributions income caused by timing delays in completion of estuary management
   works.
                                              - 16 -
2.1           2008-2009 Annual Financial Reports (contd)



 Net Gain from Disposal of Assets was $11.3m due to land sales at Warnervale, against
   a zero original budget. When this sale was agreed to Council amended the 2008-2009
   Management Plan to reflect the projected proceeds, the amended Management Plan
   was adopted in November 2008.


Operating Expenditure:
 Employee Benefits and Costs $70.1m against original budget $68.9m, over budget by
   $1.2m (1.7%), the main factor being an additional $0.5m required to cover the increased
   costs of funding the Long Service Leave Provision ie over the last year interest rates fell
   which now means Council has to provide more funds to cover the future cash
   requirements. This amount is determined by an independent actuary using actual
   employee entitlements and projections of future wage indexations and progression,
   investment rates, age profiles and analysis of patterns of eave taken etc.

 Borrowing Costs $9.3m compared to original budget $10.3m, under budget by $1.0m
   due to lower than budgeted loan payments as a result of the timing of the budgeted
   schedule for drawdown of Water and Sewer loans which only occurred in July 2009 and
   budgeted loan repayments against the actual loan repayments schedule.

 Depreciation, a non cash item, was over original budget by $8.3m mainly due to
   increases in water and sewerage asset valuations in the previous financial year
   impacting on higher depreciation charges in the current year.

 Materials and Contracts were under expended against original budget by $15.8m and
   reflects expenditure in drought management projects under budget by $2m due to lower
   than budgeted water purchases and reduced expenditure on the estuary management
   plan projects due to timing delays. Remaining variations were across a broad range of
   programs.


Capital Grants and Contributions
The main variation in performance was unrealised Income from Grants and Contributions
from Capital, which was under Budget by $37.9m due to:

 Original Budget being overstated by $32.1m due to contribution from Gosford City
   Council for capital joint water works, being classified as income. In accordance with the
   accounting standards this amount represents an off-set against Wyong Shire Council’s
   capital project expenditure and is not treated as income.

 $4.0m reduction in Roads to Recovery & Auslink funding due to works on the Link Road
   between Watanobi and Warnervale being deferred in be in-line with development of the
   area.

 $1.5m reduction in Water capital grants due to milestones for the Mardi to Mangrove
   project not being achieved until after 30 June, these funds are anticipated to be received
   in October 2009.


Capital Expenditure Summary:
In addition to variations on the operating income and expenditure, there was significant under
expenditure against the original budget for capital programs predominately in Water and
Sewer funds. Significant variations to original budget include:




                                            - 17 -
2.1             2008-2009 Annual Financial Reports (contd)

 Sewerage Capital Works down from $11 million to $3m due to:

           -    Deferral of the Warnervale Town Centre Main Sewer $1.7m due to the slower
                than forecast development of the Warnervale Town Centre.

           -    Charmhaven Sewerage Treatment Works upgrade that has been delayed due
                to environmental issues and slower than forecast development of the
                Warnervale Town Centre.

           -    Wyong South Sewerage Treatment works upgrade which has been deferred
                indefinitely due to lower future growth predictions and a reduction in biological
                loading associated with Masterfoods sewage treatment plant upgrade.

 Water Works down from $85 million to $12 million – due in the main to the deferral of the
   Mardi to Mangrove project

 Drainage construction down from $14 million to $3 million.

 Secondary Roads Construction (funded by developer contributions) down from $24
   million to $4m - due mainly to planned works at Warnervale being deferred due to slower
   than anticipated development of the area.

Due to timing delays of capital expenditure and unfavourable financial market conditions
water and sewer loan borrowings were reduced to $35m from budgeted $50.9m. Under
these conditions the loan borrowings were deferred to the May-June period with an
agreement reached in June 2009. However due to loan documentation requirements these
proceeds were not drawn down until early July 2009.


b     Income Sources and Year on Year Movement
The income statement (WSC Financial Reports, p 3) shows the income and expenditure
items for the year. Table 1 shows the significant changes in Income compared to last year.


Where does Council’s Income come from?
Chart 1 shows the percentage of total income that is contributed from each category.

                                 Chart 1: Council's Income by Type




                                                            Rates & Annual Charges, $102.2m


                                5%
                                                            User Charges & Fees, $49m
                          9%

                                                            Interest & Investment Revenues,
                    11%                                     $1.8m

                                                            Other , $2.9m
           1%                                49%

           1%
                                                            Grants & Contributions Operating,
                                                            $23.3m
                          24%
                                                            Grants & Contributions Capital,
                                                            $17.7m

                                                            Gain from the Disposal of Assets,
                                                            $11.3m




                                              - 18 -
2.1            2008-2009 Annual Financial Reports (contd)


Additionally, a large proportion of the “consolidated” total income is restricted by legislative
requirements and through Council’s Management Plan process.

Table 2: 2008/09 Income Statement ‐ Actual Income Year on Year Movement ($ and %) 
 
                                       Actual       Actual             Mvmt
                                      2007/08      2008/09      Increase / Decrease
                                         $m          $m          $m            %
 Income
 Rates & Annual Charges                      97.9      102.2          4.3         4.4%
 User Charges & Fees                         46.0       49.0          3.0         6.5%
 Interest & Investment Revenues               5.7         1.8       (3.9)       ‐68.4%
 Other                                        3.2         2.9       (0.3)        ‐9.4%
 Grants & Contributions Operating            21.9       23.3          1.4         6.4%
 Grants & Contributions Capital              20.2       17.7        (2.5)       ‐12.4%
 Gain from the Disposal of Assets                       11.3        11.3       100.0%
Total Income                                    194.9         208.2          13.3            6.8%


The following is a brief analysis of the year on year movements.

Rates, Annual Charges and User Charges
Taken together, there was an increase from 2007-2008 to 2008-2009 of $7.3m in the amount
received from Rates, Annual Charges, User Charges, and Fees. These categories
accounted for 73% of all Council’s income.

This increase on the previous year reflects increases in rates and charges approved by
council and also growth in properties. In particular the amount raised from Water Usage
Charges was $18.7m, which was an increase of $3.9m or 27%. Although the increase in
charge, from $1.375 per mL to $1.668 per mL was 21.3%, raising an extra $3.2m, there was
an increase in usage compared to the previous year of 427,560mL up 3.9%, which resulted
in additional revenue of $0.7m, partly the result of moving out of critical drought conditions
and slight relaxation of water restrictions.


Rates and Annual Charges
Rates and Annual Charges – are made up of:

         $51.5m Ordinary Rates

         $1.7m Special Rates for Stormwater

         $0.9m Town Improvement Rates for Toukley, The Entrance and Wyong

         $6.5m Water Availability Charges

         $23.9m Sewerage Charges

         $16.7m Domestic Waste

         $1.0m Other Waste.


                                               - 19 -
2.1           2008-2009 Annual Financial Reports (contd)

Of the Rates income 85% comes from residential properties.

Of the Total Rates and Annual Charges only $51.5m is available for general purpose
expenditure. All other revenues are restricted in purpose and must be applied to the
functions of Council for which they were raised.

Rates and Annual Charges increased by $4.3m (4.4%) from 2007-2008. The increase was
due to growth and a “rate pegging” increase of 3.2%, and a CPI increase of 3.0% for Water
Availability and Sewer Availability Charges.


User Charges and Fees
User Charges and Fees for 2008-2009 were $49m which included Water User Charges
$18.6m and Sewerage User Charges $0.8m, Holiday Parks $7.5m, Tipping Fees $8.9m,
Childcare $3.3m, and income from RTA for Works $3.0m. Once again a good portion of
income is restricted in purpose to the function for which it was collected, i.e. Water, Sewer,
Holiday Parks, and Waste.

User Charges and Fees increased by $3.0m (6.5%) from 2008-2009 driven by increases in:
Water User Charges and increased consumption, overall up $3.9m or 27%; increased
income from Property Rents $0.3m, Development Applications $0.2m, External Tipping Fees
$0.2m (excluding Internal Tipping fees which are only an internal transfer between funds),
Holiday Parks $0.5m and Childcare $0.3m. These favourable movements were partly off-set
by a downward movement in income received from the RTA, down ($2.1m).

For purposes of external statutory reporting of Council’s total business only income from third
parties is shown as income. Therefore, any internal fees paid between Council’s business
units are eliminated on consolidation of the “total business”, but are still reflected in the
statements for individual business units eg Tipping Fees.

Interest and Investment Revenue
Council’s Investment portfolio performed relatively well under the impacts of the global
financial crisis and whilst returns were down year on year, Council’s strategy of hold to
maturity has meant Council has not sold assets in an undervalued market. From a statutory
accounting perspective, these losses have been recognised as reductions in income in 2008-
2009, but it is expected that these unrealised losses will be recouped as market conditions
and valuations improve.

Interest and investment returns of $1.8m for 2008-2009 represented 1% of total income and
is made up of:

      Interest on overdue rates and charges $1.0m.

      Interest Income $4.8m.

      Market valuation adjustments decreases of ($4.0m).

Investment revenue as represented in the accounts fell from $5.7m to $1.8m.

The $1.8m figure is arrived at taking into account capital losses, that is, a downward
revaluation of Council’s managed fund investments. Council’s investment advisors have
advised that with a “hold” strategy most of these capital losses will be recovered as markets
improve based on the quality of the underlying assets. Council does not and has never held
any investments in CDO’s (Collatorised Debt Obligations) and Council’s investments are held
in either Cash / Term Deposits or Managed Funds.

Interest earnings were strong but down on budget mainly due to lower cash and investment
balances across the year.
                                             - 20 -
2.1           2008-2009 Annual Financial Reports (contd)

Council’s investment portfolio in 2008-2009 reduced from an opening balance of $116.9m to
$100.4m, however this is before taking into account the loan proceeds of $35.0m which were
not received until after 30 June 2009. Overall deferral of loan borrowings represented a
favourable cash management strategy with interest earnings less than the cost of loan funds.


Grants and Contributions Operating
Grants and Contributions for Operating were slightly up year on year from $21.9m to $23.3m,
up by $1.4m. Significant income items in 2008-2009 included:
      The early payment of the 2009-2010 Federal Assistance Grant for $1.9m and
          Roads component $0.5m overstated 2008-2009 income by $2.4m.
      The Environmental protection grants were also up significantly from $0.6m to
          $3.7m due to federal funding for Council’s Estuary Management Plan in 2008-
          2009 for $3.7m.
      Reductions in the amount other grants received between years and a $0.3m
          shortfall in the June 2007 Storm funding due to exclusion of costs for Cabbage
          Tree Harbour site security and some other minor works.


Capital Grants and Contributions
The amount of money for infrastructure and construction works received from other
government bodies and developers fell from $20.2m last year to $17.7m this year. While
government grants remained constant, the amount of contributions under development plans
fell by $2.7m. This in the main reflects a downturn in new developments following on from the
present general downturn in global economic activity.

The level of capital grants each years is dependent on the nature of the capital works
program and schedule of Development Contribution.

Profit from Sale of Assets
Profit on disposal of assets for the year was $11.3m which was due to Council selling a land
asset at a profit of $11.7m over its book value. This land was held as part of the Wyong
Employment Zone strategy and had been held for employment generating opportunities by
Council and has been sold to promote development in the Warnervale area.

c     Actual Expenses - Year on Year Movement

What makes up expenditure from continuing operations?

                                 Chart 1: Expenditure by Type




                                                           Employee benefits and on-costs,
                        13%                                $70.1m


                                                           Borrowing Costs, $8m

                                          35%

                                                           Materials and Contracts, $49.7m
                24%

                                                           Depreciation , $50.3m

                                           4%
                                                           Other, $27.6m
                              24%




                                            - 21 -
2.1           2008-2009 Annual Financial Reports (contd)


Expenses from Continuing Operations (Operating Expenses) increased by $4.5m in 2008-
2009, driven by increased employee costs (see below) and non-cash depreciation. This
movement was off-set by a reduction in losses from disposal of assets which reflected in
2007-2008 due to transfer of Council’s land under a boundary adjustment with Lake
Macquarie Council.

Table 3: 2008/09 Income Statement ‐ Actual Expenses Year on Year Movement ($ and %) 


                                           Actual       Actual                Mvmt
                                          2007/08      2008/09         Increase / Decrease
                                            $m           $m             $m             %
Employee benefits and on‐costs                 63.8         70.1             6.3         9.9%
Borrowing Costs                                 8.2          9.3             1.1        13.4%
Materials and Contracts                        56.1         48.4           (7.7)       ‐13.7%
Depreciation                                   46.8         50.3             3.5         7.5%
Other                                          23.3         27.6             4.3        18.5%
Loss from the Disposal of Assets                3.0                        (3.0)      ‐100.0%
Total Expenditure                             201.2         205.7            4.5           2.2%

Employee Costs
Employee costs were $70.1m, compared to a figure of $63.7m for the previous year. This
was an increase of $6.4m or 10%.

The increase in salaries and wages alone was $4m or 8%, from $49.6m to $53.6m. $3m of
this increase is due to award increases and progression along salary scales. The other $1m
is mainly due to falling vacancy levels with Council’s full time equivalent staff increasing from
986 in 2007-2008 to 1,039 for 2008-2009.

In addition to increased direct employee costs there was 12% increase in employee on-
costs. The most significant components were superannuation contributions and increases in
leave liabilities.

There was a $1.2m increase in employer superannuation contributions from 2007-2008
$4.3m to 2008-2009 $5.5m. This increase is attributable to the phased in reduction in the
defined benefits superannuation holiday in 2008-2009. Whilst 2008-09 still received some
reduction, it was effectively double the contribution required in 2007-2008. Ie 2007-2008
rates were (0.95 x Employee Contribution + 1.25% basic benefit) which was increased from
1/7/08 to (1.9 x Employee Contribution + 2.5% basic benefit). In 2009-2010 the holiday has
ceased altogether and from 1/7/09 will be (3.8 x Employee Contribution + 5% basic benefit).
It is estimated to be an additional $2m for 2009-2010 which has been included in the 2009-
2010 Management Plan.

There was a $1.9m increase in the value of employee leave entitlements. The increase partly
reflects increased pay levels and a restatement of the amount required to cover future Long
Service Leave payments which required an additional $0.5m to put into the provision. This
adjustment to long service leave is due to a fall in interest rates which means Council needs
to put more aside to cover this future expenditure.




                                             - 22 -
2.1           2008-2009 Annual Financial Reports (contd)

Borrowing Costs
Borrowing costs remained constant year on year, with a small reduction in 2008-2009 down
$0.2m. Council’s level of borrowings fell from $123.1m to $115.5m which reflects the loans
being paid down in 2008/09.


Materials and Contracts
This expenditure item reduced from the previous year by $7.7m or about 14% - from $56.1m
to $48.4m. In 2007-2008 there had been some significant one off costs which significantly
impacted on the reported expenditure. This included in 2007-2008 a $ 2.4m write off of
desalination plant expenses and a $2.5m contribution to Hunter Water for the cost of the
Hunter Link pipeline.


Depreciation
Depreciation charges increased by $3.5m which was the result of new capital purchases -
$16m, and also the result of a cost of living revaluation of water and sewerage assets in the
previous financial year. Changes in depreciation charges have also occurred due to the
componentisation of building assets as part of the strategic asset management project. This
now allows assets to be broken down into components, and then the condition of each
component is assessed and the useful life and remaining life is calculated, from which
depreciation charges are calculated. Depreciation is a non-cash item and is outside
Council’s Management Plan reporting structure.


Other costs
Other costs increased from $23.3m to $27.6m, an increase of 18.5%. The dollar increase is
$4.3m and the most significant component was an increase of $3.2m in levies paid to the
Environmental Protection Agency. These payments total $8.7m compared to $5.5m the
previous year. This is a reflection of increased activity at Council’s tip facility, some of which
is the result of a clean up at council’s own sites and treatment plants.


Loss on disposal of assets
In 2008-2009 Council has recognised gains on disposal of assets, however 2007-2008
included a transfer of park land (valued at $2.6m) to Lake Macquarie Council as part of a
boundary adjustment.


BALANCE SHEET
A balance sheet lists the best estimate of the value of what Council owns (“assets”) and what
council owes (“liabilities”). Within these headings “current” means that an amount is due to
be paid or likely to be paid, within the next 12 months. “Non current” indicates an asset or
liability that is longer term in nature.

Table 4 indicates the principal components in the Council’s consolidated balance sheet.
(Annual Financial Statements, p4.)




                                              - 23 -
2.1           2008-2009 Annual Financial Reports (contd)

Table 4: 2008/09 Balance Sheet Summary ‐ Total Wyong Shire Council 

                                         June 2008 June 2009                 Mvmt
                                                                      Increase / Decrease
                                             $m           $m           $m            %
Assets
Current Assets                                  152           130         (22)       ‐14.5%
Non Current Assets                             1684          1724           40         2.4%
Total Assets                                   1836          1854          18          1.0%
Liabilities
Current Liabilities                                68           66         (2)        ‐2.9%
Non Current Liabilities                           140          137         (3)        ‐2.1%
Total Liabilities                               208           203          (5)        ‐2.4%
Net Equity                                     1628          1651          23
Retained Earnings                              1216          1207          (9)        ‐0.7%
Revaluation Reserve                             412           443          31          7.5%
Net Equity                                     1628          1651        23.0          1.4%

The significant changes from last year are in current assets, non current liabilities and the
revaluation reserve.

Non-current liabilities decreased by $3m which principally represents the amount of loans
repaid during the year.

Current assets fell by $22m. This is primarily the result of a $3m fall in amounts receivable
and a $17m fall in cash and investments due to timing of drawdown of loans held over to
July.

Significant changes in amounts receivable were a $2m fall in Government Grants receivable,
a $1m fall in Accrued Revenues and a $1m fall in other receivables.

The revaluation reserve increased by $31m which was the result of a cost of living based
increase in the written down value of water and sewerage assets to reflect current
construction costs.


CASH FLOW STATEMENT

The main components of the consolidated cash flow statement (Annual Financial
Statements, p 6) are listed in Table 5:




                                             - 24 -
2.1           2008-2009 Annual Financial Reports (contd)

Table 5: 2008/09 Statement of Cash Flows Summary ‐ Total Wyong Shire Council 

                                          Actual       Actual               Mvmt
                                         2007/08      2008/09        Increase / Decrease
                                           $m           $m            $m            %
Cash flows from Operations:
 Receipts                                     197.0        209.0          12.0             6%
 Payments                                   (154.0)      (167.0)        (13.0)             8%
Cash Flows from Investing Activities         (60.0)       (27.0)          33.0           ‐55%
Cash Flows from Financing Activites 
Activities                                     28.0         (8.0)       (36.0)         ‐129%
Net Cash Flows                                 11.0           7.0        (4.0)           ‐36%


Operating Cash Flows
Receipts overall rose in line with Council’s approved increases in rates and charges and also
reflected a $0.8m increase in water charges income resulting from increased water usage.

On a full accounting basis costs of paying employees and associated overhead costs
increased by $6.5m (see “Employee Costs” above”) but the actual rise in cash payments was
only $3.9m. This difference is accounted for partly by an increase of $1.5m in the value of
leave entitlements, or in other words, additional future payments to employees for which
council has already incurred a liability.

Goods and services payments overall (Materials and Contracts, and Other) rose from $80.9
million to $88.4 million. The majority of this movement is timing on payments for creditors,
which represents a $10m year on year variation. Other significant factors were a $3.2m
increase in tip levy payments to the State Government.


Investing Activities
Net cash outflows from investing activities declined from $60.6m to $27.8m. This decrease of
$32.8m is mainly the result of three factors - $11.1m inflows from land sales, a decline in the
amount spent on construction of infrastructure and building assets of $16.5m, and also an
increase of $14.4m in the net amount of investments sold in the year.

There were net investment sales of $7.7m in the previous year compared to $19.4m this
year. Investment sales were due to deferral of loan borrowing with loan proceeds received in
July 2009.


Financing Activities
There were cash inflows of $28.6m last year, compared to outflows of $8.2m this year.

This reflects a borrowing of $37.7m in 2007-2008 compared to only $0.5m (Holiday Parks
loan) this year. A planned loan of $35m this year was only taken up after the end of the
financial year.

Council’s decision to delay drawdown of loans until towards the end of financial year was due
to timing delays in actual expenditure for water and sewer capital, and difficult financial
markets.




                                             - 25 -
2.1           2008-2009 Annual Financial Reports (contd)

Net Cash
The net change in cash this year was an inflow of $6.9m which resulted in closing cash of
$18.7m. This is against an opening balance of $11.7m from last year.

Note, Cash for this purpose only includes bank and at call deposit accounts.

In addition to this Council holds significant funds under investment totaling $81.8m as at 30
June 2009, down from last years investments of $105.3m (refer Note 6(c) for details).

In order to view Council’s overall cash position, both Cash and Investment funds need to be
taken into account.


Net Cash & Cash Equivalents (Investments) (Note 6(c) p27).
Note 6(c) provides a summary of Council’s Cash and Investments and provide details of any
restrictions upon their use.

Overall Total Cash and Investments fell from $116.9m to $100.4, down $16.5m.

This downward cash movement is mainly due to timing delays in the drawdown of 2008-2009
water and sewer loans which were finalized in early July 2009 in respect of the 2008-2009
financial year.

Taking into account these loan proceeds, Council’s adjusted closing balance would have
been $135.4m which would have been a net increase in cash and investments of inflow of
$18.5m. These funds were received and invested by Council on the 14 July 2009.

Major factors behind this net increase are:

      Deferred water and sewerage projects - $12.2m

      Land sales funds - $11.1m

      Unexpended grants - $3m

      Reduction in Section 94 funds – (5.6m)


Because cash and investments were lower than planned as at 30 June 2009, a temporary
reduction in Council’s Internally Restricted Funds was required. This effectively represented
a temporary internal advance to Council’s Water and Sewer business pending the draw-
down of the loan. This is reflected as an Advance in the Water Supply Authority Statements
(refer Water Supply Authority Accounts page 26).

As at 30 June the internal restrictions for Land Development Reserve $10.9m and Developer
Contributions Paid in Advance $6.3m were temporarily reduced pending replenishment of
Council’s cash from loan proceeds. These internal reserves are not externally restricted.


OTHER REPORTS

We describe briefly some other schedules in the Annual Financial Statements.

STATEMENT OF PERFORMANCE MEASURES (Note 13, p39)
This report shows various indicators mandated by the Department of Local Government.
The following indicators provide a ‘snap shot’ of Financial Performance and satisfy the
accounting concepts of comparability between councils.


                                              - 26 -
2.1            2008-2009 Annual Financial Reports (contd)

The ratios reported for 2008-2009 were:

Table 6: 2008/09 Statement of Performance Measures ‐ Financial Ratios 

Ratios                                2006      2007           2008      2009    Target* Result


Unrestricted Current Ratio              1.63            1.82      1.96      1.46 > 1.00    

Debt Service Ratio                    11.15%      10.25%        9.96%      8.80% < 10%     

Rate Coverage Ratio                   49.71%      44.88%       50.24%     49.11% > 50%     

Rates Outstanding Percentage           6.49%       6.35%        7.34%      7.26% < 5.0%    
Building & Infrastructure Renewals 
Ratio                                                    1.4      1.48      0.82 > 100%    


The “target” figures for the indicators reported represent the Department of Local
Government’s benchmarks. In evaluating performance against these targets consideration
should be given to Wyong’s situation as a multi-purpose authority with growth, i.e. continuing,
significant, green field development.

Unrestricted Current Ratio - demonstrates that enough unrestricted current assets are
available on hand to meet unrestricted current liabilities. A ratio of less than 1:1 is
unsatisfactory; A ratio above 1:1 shows Council has sufficient liquid assets on hand to meet
its short term liabilities. Council’s ratio of 1.46 falls within the satisfactory range.

“Unrestricted” means money not earmarked for a special purpose, e.g. developer
contributions, RTA contributions, water and sewerage contributions, special purpose grants,
and domestic waste management charges.

The ratio moved from 1.96 (2007/08) to 1.46 (2008/09) but remains within benchmark. This
reduction reflects the reduction in current assets due to reduced cash and investments (down
by $20.7m) as at 30 June 2009, pending loans.

Debt Service Ratio - assesses the degree to which revenues from Continuing Operations
are committed to the repayment of debt. It is generally higher for Councils in growth areas
where loans have been required to fund infrastructure.

Council’s water and sewerage charges are regulated by the Independent Pricing and
Regulatory Tribunal (IPART) and are set in such a way that non-operational costs such as
new pipelines have to be funded from loans with costs distributed across the future periods.

Council’s Debt Service Ratio improved to 8.80% from 9.96% in 2007-2008 in line with loan
repayment schedules, however water and sewer loans of $35m planned for 2008/09 were
arranged in June but proceeds not drawn down until July 2009 (due to timing delays in
execution of loan agreements). During the year the borrowings were deferred due to poor
delays in the Mardi to Mangrove project cash requirements, poor liquidity in financial markets
and anticipated reductions in interest rates. The loans were actioned in the period May –
June.

Had Council’s loans being actioned in the middle of the financial year, the approximate debt
ratio would have been 10.53%.




                                               - 27 -
2.1           2008-2009 Annual Financial Reports (contd)

This deferral of borrowing has temporarily resulted in this ratio reducing but forecast capital
expenditure and loan requirements across 2009 to 2012 will see this ratio first increase and
then gradually reduce. These planned borrowings predominately relate to water and sewer
capital and is in accordance with IPART’s pricing methodologies for these businesses which
require assets to be funded by loans and paid for across generations. The long term
projections for inclusive of Water & Sewers borrowing requirements (as per the 2009-2010
Management Plan) are a debt service ratio of between 11.07% 2009-2010 ranging up to
12.51% in 2012-2013 then reducing to 9.77% in 2020-2021.


Rate Coverage Ratio – to assess Council’s degree of dependence on rate and annual
charges revenue against “other non-property related income”, which provides and
assessment on the security of Council’s income.
A higher ratio indicates a higher dependence on rate revenue and the greater the certainty of
total revenue.

Some factors affecting this indicator are:
 Levels of Council’s entrepreneurial and investment activity,
 Socioeconomic characteristics of the area,
 Relative level of Federal/State funding and the rate of new development.

Council’s result this year was marginally below the recommended level, at 49.11% but
remained relatively stable year on year. This represented a slight decrease from last years
result of 50.24%, however the 2008-2009 revenues included a one-off profit of $11.3 due to
land sales (at Warnervale), excluding this the ratio would have been 51.9% ie relatively
static.


Rates and Annual Charges Outstanding (Arrears) Percentage Ratio - assesses the
effectiveness of Council’s revenue collection. The lower the percentage, the less income is
tied up in receivables and the more cash is available for working purposes.

The Department of Local Government benchmark is a ratio of 5%. Council’s 2008/09
operational target was 6.5% or less, based on the Council’s past observed stable trend up
until 2006-2007. However in 2007-2008 Council experienced a marked increase of 0.9%
which has been the focus of action for 2008-2009. These ratios have reflected Council’s
debt recovery practices on pensioner arrears and the Shire’s socio-economic demographic.

Outstanding rates and annual charges are a charge against the property (i.e. effectively
secured) with Council recovering all monies when a property is sold. Additionally, all
outstanding balances were charged 10% interest and provided Council with an attractive
return, achieving higher than Council’s current investment returns.

Council’s Rates and Annual Charges Outstanding at the end of 2008-2009 at 7.26%
represented only a minor improvement on the previous year’s result of 7.36%. This result
does not reflect all of the improvements to collection practices implemented from November
2008 which has been a focus on increasing the number of accounts with arrangements to
pay.

As at 30 June 2009 Council had $8.1m in outstanding rates and charges against a total
collectible of $111.4m. Excluding accounts with arrangements to pay, Council’s balance
outstanding was $5.3m which represents 4.78% of the collectible.

These changes in debt recovery processes have been implemented in economic conditions
that deteriorated across the financial year. Council’s focus has been on increased legal
action, quicker turn-around of court actions and on implementing arrangements to pay.
These strategies will see an on-going improvement in 2009-2010.

                                             - 28 -
2.1           2008-2009 Annual Financial Reports (contd)

Council’s normal debt recovery process was previously based around two Statement of
Claims processes per annum (October and April), followed by entering into Judgement and
then Writs of Execution. From 2009-2010 Council will be filing Statement of Claims on a
more frequent basis. It has also been Council’s policy that legal action is not taken against
properties where a pensioner concession exists due to the significant legal costs incurred
and on-charged, on the basis that the revenue will be collected when the property is sold.
This policy may be reviewed in the future depending on impacts of aging population trends.


Buildings and Infrastructure Renewal Ratio – indicates how well Council is looking after
its working assets. A ratio of 1 or more is desirable, that is, Council needs to be renewing its
assets at a level higher than the estimated yearly loss through wear and tear, as reflected in
the Depreciation charge.

The 2008-2009 ratio of 0.82% would indicate an under expenditure on capital renewal. It
should be noted that currently Council’s Roads and Drainage assets, are reported based on
historical cost, not their “Fair Value”. Hence the current depreciation estimates do not reflect
“current dollars” and are in effect a mixture of both current and historic costs (given that
water and sewer assets have been re-valued and are depreciating at fair value). It is
anticipated that this ratio will be significantly restated in 2009-2010 once the fair value of
Roads and Drainage assets have been taken into account.

The move to valuing assets based on their fair value (i.e. market price where a market exists
or their current replacement value) and calculating the depreciation charges based on
condition assessments has been mandated by the Department of Local Government as part
of initiatives for improved information on assets. The implementation has been phased over
2006/07 thru to 2011/12. In addition to this, Council is also implementing Strategic Asset
Management and is currently in the process of developing long term asset management
forecasts.

The long term asset management plan will then be updated to reflect the determination of
Council’s service level plans as part of the development of Council’s Four Year Delivery Plan
which is being aligned to the Shire Strategic Vision, Council’s Community Plan.


Note 16 – Variations to Budget (p44)
Variations to budget were reported to Council as part of the June Quarter budget review
presented to Council on 19 August 2009.

The interim results presented in August were before the accounts were finalised.

The main items not previously reported were the final employee leave adjustments as these
are prepared by an independent actuary and cannot be copmpleted until after 30 June and
weren’t available until after the report cut-off for the August Governance meeting. The final
year end valuations of leave entitlements are now known and there has been a $1.5m
movement in the value of leave entitlements. In the “accounting code” format the employee
budget was $68.9m compared to an actual spending of $70.1m and the rise in entitlements is
a significant part of the explanation for the overspending. Additionally, there was a timing
difference in the drawdown of loans and documentation and proceeds not being finalised
until July 2009.

Additionally, since the time the interim reports were produced a number of final adjustments
for accrued income and expenses have been posted, and the entries for restricted assets
have now been finalized. This has resulted in a temporary reduction of internally restricted
assets for land and prepaid developer contributions (not externally restricted) to cover a
temporary cash advance of $20m to the Water Supply Authority, pending the proceeds of
loans being received in July. These internally restricted funds have now been replenished
and will be reported in the September 2009-2010 Quarterly report.
                                             - 29 -
2.1           2008-2009 Annual Financial Reports (contd)

Note 18 – Contingencies (p53)
Contingent liabilities are amounts or claims that Council may have to pay, but are not certain
enough to be included in the balance sheet.

Notable among the contingent liabilities disclosed in the report are various potential liabilities
regarding Council’s Waste Management activities at some council landfill sites and treatment
works.


Special Schedule 7 (p 94)
Special Schedule 7 Condition of Public Works has been developed by the Department of
Local Government to provide information on what the current condition of Councils
infrastructure is and what the projected costs of maintaining are.

The report indicates compares the amount actually spent on maintaining assets against what
Council’ believes should be being spent to maintain them. Where significant gaps exist
between current levels of expenditure and the “required” level of expenditure then this may
indicate an area that Council may need to look at conducting further analysis to determine
risks and priority, and where necessary address thru budget allocations. In the case that
Council is spending above requirements this may indicate an area of overservicing.

The definitions within Special Schedule 7 remain grey on “what represents a satisfactory
standard” and each Council is left to determine this for their own community. This reflects
that different communities may have different expectations and requirements of community
assets.

The concept of Satisfactory Standard relates only to existing services, not an improved one.
The limitation of this is interpretation is that it does not address an issue if an existing asset
no longer delivers what the community wants, ie an enhanced service level. Two simplistic
examples would be a wooden bridge or outdoor pool in need of major repair, against what
constitutes a modern community requirement ie dual carriage way concrete bridge to handle
increased traffic or an indoor heated aquatic facility.

For 2008-2009 Council has adopted the following condition codes as adapted from the
IPWEA-NAMS.AU, Practice Note 3 (June 209) (with thanks):

1.    Excellent - no defects as new
2.    Good – no major defects, does not require major maintenance
3.    Average – assets are functional but show signs of moderate wear and tear
4.    Poor – assets have significant defects
5.    Failed – assets are not functional

Council has determined for this assessment that a condition level of 3 Average (as above)
represents “Satisfactory Standard”. At any one point in time Council’s individual assets may
fall below or above average. The assessment of the overall class is based on the average of
the Asset Class. For example, whilst Council’s Asset Classes all show as being either a 2
Good or 3 Average, within any class could be a derelict asset or assets which are not
satisfactory, but overall the group of assets rates well.

Council’s currently developing a strategic asset management plan which will provide
enhanced information on long term asset management costs. This may impact on future
estimates in special schedule 7.

For the purposes of special schedule 7 Maintenance includes routine maintenance, planned
maintenance, and refurbishment projects. The estimated required level of expenditure
reflects a five year average.


                                              - 30 -
2.1            2008-2009 Annual Financial Reports (contd)

Table 7: 2008/09 Special Schedule 7 ‐ Condition of Public Works 

Special Schedule 7                       Est.Cost to         Required    Current Annual     Annual 
                                          bring to            Annual      Maintenance  Maintenance 
                                        Satisfactory        Maintenance     Expense      Over / (Under) 
                                                             Expense                        spend

                                             $m                    $m                     $m                    $m
Public Buildings                                      4.7                    2.8                     2.2               (0.6)
Public Roads                                      131.6                      9.3                   11.1                   1.8
Water                                                 ‐                      5.4                     5.4                  0.0
Sewer                                                 ‐                      5.6                     5.6                  0.0
Drainage                                            14.4                     1.3                     1.9                  0.6
Total                                            150.7                    24.4                     26.2                  1.8

For the 2008-2009 year Council spent $26.2m on annual maintenance against an estimated
required level of expenditure of $24.4m, ie an “over spend” of $1.8m. This was
predominately on Local and Minor Road where the estimated five year average required
expenditure is $3.7m and actual expenditure for 2008-2009 was $5.1m. In any one year
works are prioritized based on condition assessments and included in rolling works programs
as required.

Currently Council’s Water and Sewer assets are assessed as a level 2 Good and there is no
estimated gap on levels of annual maintenance expenditure.

Overall Council’s Total Estimated Cost to bring to a “Satisfactory Standard” is $150.7m.
Public Roads represents $131.6m or 87% of the total. Based on current levels of
expenditure Council could expect to maintain the assets and incrementally reduce the overall
required level of expenditure.

Council’s ongoing enhancement of strategic asset management plans will provide Council
with information on “intervention points” for maintenance which will focus Council’s
management of assets on whole of life. This may impact on the manner in which works are
prioritized in the future.


Special Schedule 8 (p 96)
Based on current budgeted figures, each year for the next 3 years we will be making an
accounting loss before capital grants and contributions are taken into account. This is after
the non cash depreciation has been accounted for.

Both Operating Income and Expenses are trending within inflationary and growth
expectations. The financial year 2009-2010 will see the culmination of some new projects
including the Mardi to Mangrove Link (water) together with the Warnervale town centre and
associated road developments.

Council will spend an average of $30m a year on the renewal of existing assets.




                                                  - 31 -
2.1            2008-2009 Annual Financial Reports (contd)

Graph: 2008/09 Special Schedule 8 ‐ Financial Projections 


                         Financial Projections (Special Schedule 8)
                                             $m

  300



  250



  200



  150



  100



      50



      0
                 2009                   2010                   2011                    2012

           Expenses from continuing operations   New capital works    Replacement of existing assets




Council is currently developing a comprehensive service delivery plan against the Shire
Strategic Vision which has been developed over 2007-2009 periods in consultation with the
community and other key stakeholders. This will allow Council to develop a new Four Year
Delivery Plan based on agreed service levels.

Additionally, Council has been working to implement long term asset management and will
be aligning this to the strategic service drivers as determined in the Shire Strategic Vision
and the Four Year Delivery Plan.

Combined these plans will drive a comprehensive Long Term Financial Plan.


WATER AND SEWERAGE AUTHORITY FINANCIAL STATEMENTS

These accounts have been circulated as a separate booklet.

Balance sheet (Water and Sewerage Authority Annual Financial Statements, p4)
There is a net increase of $26m in the value of non current assets, from $997m to $1,024m.
Contributing to this are a $31m cost index based revaluation of infrastructure assets, new
assets costing $17m, offset by depreciation charges of $26m.


                                                 - 32 -
2.1             2008-2009 Annual Financial Reports (contd)

Current Assets have remained roughly constant at $56m compared to $62m. It is important
to note that that the year’s loan borrowing was not drawn down until early July the following
financial year ($35m) and a temporary cash advance of $20m was received at the end of
June from council’s General Fund.

Non current liabilities fell by about $7m, from $112m to $105m. This reflects loan
repayments.

Income statement (Water and Sewerage Authority Annual Financial Statements, p3)
Both this year and last the operation made a loss - $22m this year and $24m last year. This
reflects the preference of the Independent Pricing and Regulatory Tribunal (IPART) to fund
water and sewerage replacement infrastructure from loan borrowing rather than from
retained earnings. Effectively, the losses are very approximately equivalent to depreciation
charges for which no offsetting cash revenue is raised.

Revenue from two income categories was reduced compared to last year. Interest income
fell from $2.4m to $0.7m – due to capital losses on council’s managed funds portfolio – and
government grants fell from $7.6m to $6.6m. However there was an increase of $4.4m in
user charges but an overall increase in all income of only $3.1m only – from $55.8m to
$58.9m.

Goods and services costs of $33.5m compared to last year’s figure of $34.2m (Materials and
Contracts, and Other expenses) – last years figures included a $2.4m write off of
desalination plant expenses but this year there was a figure of about $1m needed for
environmental cleanup at Council’s treatment plants.

Other cost rises included employee costs ($1.8m) due to increased costs of long service
leave and general salary and wage increases.


Cash flow statement (Water and Sewerage Authority Annual Financial Statements, p6)
Net Cash flow from operations improved slightly from the previous year – from a deficit of
$2.8m to a surplus of $2.6m.

Infrastructure acquisitions were $17.7m compared to $19.3m for last year. The figure this
year is significantly under budget because of timing delays in the commencement of
construction on the Mardi to Mangrove project.


OVERALL SUMMARY
In the past financial year, Council suffered a number of adverse effects relating to the global
economic downturn:

       The value of council’s investments was written down by about $4.0m,

       Employee costs rose due to reduced vacancy rates, increased costs of defined
         benefit superannuation due to phased implementation of cessation of super
         contribution holiday, and increased provision for long service leave based on an
         actuarial assessment in part due to lower investment returns.

       Developer contributions fell by $2.5m reflecting level of applications.

Council’s cash position was down by $20.2m due to loan proceeds of $35.0m not being
received until after 30 June. Overall the required borrowings were lower than originally
budgeted due to timing delays with major capital water and sewer projects.



                                               - 33 -
2.1           2008-2009 Annual Financial Reports (contd)

Council’s Interest returns of $5.7m (including cash and investments and interest on overdue
accounts) were in line with the adopted Management Plan interest. This reflected the quality
of the underlying investments and investing strategies.       Council’s proactive strategy to
minimize any capital losses has resulted in the realized losses being minimised in 2008-2009
to $0.46m. This loss was mainly due to the termination of the ING fund which was outside
Council’s control). The balance of losses of $3.5m remained unrealised as at 30 June but in
accordance with accounting standards has been brought to account in 2008-2009 financial
year. Post June the Investment portfolio valuations have continued to improve.

Overall, Council’s risk adverse investment policy and prudent loan borrowing policies have
mitigated the effects of the global financial crisis.

Other significant impacts adversely affecting Council include the need to meet state
environmental (EPA) standards, and this has significantly increased Council’s present and
future cost structures, both for general activities and in its water and sewerage business.

Council’s recent development of the Shire Strategic Vision and current development of the
new four year Delivery Plan and Long Term Financing Strategy will provide improved
strategic direction and drive intensive review of Council’s Service Delivery Plans.



ATTACHMENTS

1 Draft 2008/2009 Wyong Shire Council Financial Report               Enclosure D02041347
  (Distributed under separate Cover)
2 Draft 2008/2009 Wyong Shire Council Water Supply Authority         Enclosure D02035419
  Financial Report (Distributed under separate Cover)
3 Management Representation Letter 2009 - Responsible                            D02041501
  Accounting Officer and Manager Financial Services
4 Financial Statements by Fund                                                   D02040628




                                            - 34 -
Attachment 3   Management Representation Letter 2009 - Responsible Accounting
                                       Officer and Manager Financial Services




                               - 35 -
Attachment 4                                                                       Financial Statements by Fund


                                                Wyong Shire Council

                                                INCOME STATEMENT
                                          for the year ending 30 June 2009

                                                                 Consol-
                                                                  idated      Water       Sewer         General
                                                                   Fund       Fund         Fund           Fund
                                                                  Actual      Actual       Actual         Actual



                                                                   2009        2009         2009           2009
                                                                   $'000       $'000        $'000          $'000

  Income from continuing operations:

  Rates and annual charges                                       102,235       6,703       23,987         71,545
  User charges and fees                                           49,012      18,756        1,255         29,001
  Interest and investment revenue                                  1,817         370          383          1,064
  Other                                                            2,900         905          172          1,823
  Grants and contributions operating                              23,264         590          653         22,021
  Grants and contributions capital                                17,699       4,621          522         12,556
  Net gain from the disposal of assets                            11,267                                  11,267
  Total Income from continuing operations                        208,194      31,945       26,972        149,277



  Expenses from continuing operations:
  Employee benefits and on-costs                                  70,082       7,680        7,188          55,214
  Borrowing costs                                                  9,306       5,723        1,623           1,960
  Materials and contracts                                         48,420       7,148        3,360          37,912
  Depreciation                                                    50,331      12,550       12,929          24,852
  Other                                                           27,600       3,515        8,035          16,050
  Overheads                                                                    7,650        4,150        (11,800)
  Net loss from the disposal of assets
  Total expenses from continuing operations                      205,739      44,266       37,285        124,188



  Net operating result for the year                                2,455     (12,321)     (10,313)        25,089

  Attributable to:
  Wyong Shire Council                                              2,455     (12,321)     (10,313)        25,089




  Net operating result for the year before grants and
  contributions provided for capital purposes                    (15,244)    (16,942)     (10,835)        12,533




                                                        - 36 -

				
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