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City's Financial Health -Audit and Risk Management Committee - 21 April 2021

Updated: May 8, 2021

Dear Ratepayer and Residents, many of you may not know that I sit on the Audit and Risk Management Committee. I have come to recognise that this is a huge responsibility because the information is about audit and risk management for our City.


On page 3 of the Meeting Attachment document

https://www.fremantle.wa.gov.au/sites/default/files/Attachments%20-%20ARMC%20-%2021%20April%202021.pdf

The following points were tabled:

  1. The City has actually made a net loss for FY20 of $8,483,120 compared to a loss in FY19 of $2,800,465

  2. In addition, land and buildings have also been devalued by $24,403,166 during FY20

  3. The total comprehensive loss for FY20 is a staggering $32,886,286

  4. None of these loss figures are mentioned or explained in the agenda commentary.

  5. The following comments are made in relation to these losses:

  6. Throughout the past year the monthly OCM financial information presented did not give indications that we would be making such significant losses.

  7. What has triggered the devaluations from 2019 to 2020 to have such a net adjustment of $24,403,166. As noted on page 37 titled Revaluation Surplus – there is a land devaluation of $59,526,111 giving the City a balance of $83,244,847 as at 30 June 2020 compared to 30 June 2019 of $142,772,958. A $59.5m devaluation is not a small figure.

  8. Where is the explanation for these changes in valuation? To my recollection there has been a lack of transparency provided in the Ordinary Council Meetings throughout 2020 and 2021.

  9. Why have we lost 42% in our land valuation when the market is robust?

Prima facie, it is my view that the financial information presented in Item ARMC2104-1 is not easily digested and come to meaningful conclusions. For me, there is a lack of transparency in the figures which has a bearing on my decision making. As an elected member who has a duty of oversight on behalf of the ratepayers and residents this situation is not appreciated.

For the year ending 30 June 2020 the city is downplaying the poor financial ratios by imputing $13.2m as one-off non-cash operating expenditure (page 6 Agenda).


The $13.2m consists of:

  • Loss on the sale and demolition of assets of $6.8m as shown in the Asset Description (information only came to light when I queried at the last OCM) and

  • Fair value adjustments in investment property $6.4m. However, there is little detail provided on this loss item as way of explanation. What property is it, who did the valuation and where is the report? This item is simply handled as a one-off paper adjustment. This is important as investment property has been and will be required to be sold to repay borrowed funds and in my view is not correct to simply dismiss as a one-off.

To continue on page 7 of the Agenda we have the City now revising the audited financial ratios accompanied with a large green tick.

Table 1: Results after one-off adjustments

2020

2019

2018

Standard between 2-5

Actual

Actual

Actual

Imputed Debt Service Ratio - City

3.2

2.89

+0.57

Debt Service Ratio - Audited

-(2.4)

+ 0.99

+0.57


Table 2: Results after one-off adjustments

2020

2019

2018

Standard between 2-5

Actual

Actual

Actual

Imputed Operating Surplus Ratio - City

0.005

(0.02)

-

Operating Surplus Ratio - Audited

-(0.19)

-(0.08)

-(0.02)


The City has taken the $13.2m (made up of $6.8M + $6.4M) and deducted the $8.5m net loss for FY20 and you now have an imputed net profit of $4,751,771.

The loss of $8.5m has now been turned into a profit by simply making a one-off adjustment. No explanation on the $6.4m, no formulas. Just a better result.


The fact that this one-off adjustment is a paper one is no less significant. Keep doing these one-off paper adjustments and in time you will ultimately have to sell your assets to cover the debt. This type of accounting passes the debt onto the next generation of people may struggle with unemployment and lack of opportunity in our City.


Together with all the information system weaknesses identified by the auditor, my confidence in the City’s accounting is shaken as the gaps are significant.




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