2002 (No. 10) 2002 PARLIAMENT OF TASMANIA REPORT OF THE AUDITOR-GENERAL GOVERNMENT DEPARTMENTS AND PUBLIC BODIES 2001-2002 PART B - VOLUME THREE Local Government Authorities No. 2 of 2002 - November 2002 Presented to both Houses of Parliament in accordance with the requirements of Section 57 of the Financial Management and Audit Act 1990 By Authority: Government Printer, Tasmania © Crown in Right of the State of Tasmania November 2002 Auditor-General’s reports are available from the Tasmanian Audit Office, HOBART. This report and other recent reports published by the Office can be accessed via the Office’s home page. For further information please contact: Tasmanian Audit Office GPO Box 851 Hobart TASMANIA 7001 Phone: (03) 6233 4030, Fax (03) 6233 2957 Email:- [email protected] Home Page: http://www.audit.tas.gov.au This report is printed on recycled paper. ISSN 1327 2608 TABLE OF CONTENTS VOLUME THREE Local Government Authorities 1 Part 1 City Councils 5 1.1 Burnie City Council 9 1.2 Clarence City council 16 1.3 Devonport City Council 21 1.4 Glenorchy City Council 24 1.5 Hobart City Council 29 1.6 Launceston City Council 35 Part 2 Larger Urban/Rural Councils 42 2.1 Central Coast Council 47 2.2 Circular Head Council 51 2.3 Huon Valley Council 57 2.4 Kingborough Council 62 2.5 Meander Valley Council 66 2.6 Waratah-Wynyard Council 71 2.7 West Tamar Council 76 Part 3 Medium Rural Councils 80 3.1 Brighton Council 85 3.2 Derwent Valley Council 90 3.3 Dorset Council 95 3.4 George Town Council 100 3.5 Latrobe Council 105 3.6 Northern Midlands Council 110 3.7 Sorell Council 114 3.8 West Coast Council 119 Part 4 Smaller Rural Councils 125 4.1 Break O’Day Council 129 4.2 Central Highlands Council 135 4.3 Flinders Council 140 4.4 Glamorgan-Spring Bay Council 145 4.5 Kentish Council 150 4.6 King Island Council 158 4.7 Southern Midlands Council 163 4.8 Tasman Council 168 Part 5 Local Government Business Units 173 5.1 Dulverton Regional Waste Management Authority 179 5.2 Cradle Coast Water 184 5.3 Esk Water Authority 190 5.4 Hobart Regional Water Authority 196 5.5 Kentish/Latrobe Joint Authority 202 5.6 May Shaw Nursing Centre Authority 208 5.7 West Coast Health and Community Services Pty Ltd 212 Appendix 1 Accounting Guidelines for Council Roads 217 Tasmanian Audit Office LOCAL GOVERNMENT AUTHORITIES Local government authorities are governed principally by the Local Government Act 1993 as amended. In addition, there are a number of other Acts that provide specific provisions in relation to rating, building and miscellaneous matters. The authorities are administered by a council consisting of a number of elected members known as Councillors or Aldermen. The major functions of the Councils are set out in Section 20 of the Local Government Act 1993. The Portfolio Minister is the Premier. SIGNIFICANT DEVELOPMENTS Road asset valuation and depreciation On page 267 of Report No 2 for 2000-01, I reported on developments in accounting for road assets, and the issues identified during the audits of financial statements for the 2000-01 financial year. It was found that a small number of Councils were still not adopting component accounting for road asset values or for the calculation of depreciation. It was also found that a number of Councils were adopting a renewals approach to accounting for gravel roads whereby all expenditure on these roads whether capital or maintenance in nature is expensed. Gravel roads were then depreciated over extremely long lives, in some case up to 200 years (or even not depreciated at all). In the case of asset valuations a number of Councils had availed themselves of the transition arrangements associated with the implementation of Australian Accounting Standard AASB 1041 “Revaluation of Non-Current Assets” that allowed Councils to deem the carrying values of their assets to be cost. Under this accounting framework there is no requirement to revalue assets carried at cost, either upwards or in the case of public sector entities downwards, where that cost does not represent fair value. In those Councils where asset values do not represent fair value the asset management decision making processes and the long-term sustainable management of the road networks may be based on faulty data. In my view, long-term asset management decisions and funding arrangements for long-lived infrastructure such as road networks would be enhanced by the adoption of fair values in determining asset values and depreciation charges. 1 Tasmanian Audit Office To this end I hosted a 2 day seminar and workshop in March 2002 with the objective of achieving consensus between accountants, engineers and auditors on some of the more contentious issues associated with accounting for road assets. The more important issues addressed were: • Asset components and segments • Road condition assessment and its impact on useful life • Useful lives and residual values of components, and • Gravel road components and useful lives. As a result of the seminar an advisory committee consisting of accounting and engineering representatives was assembled to assist with the preparation of revised accounting guidelines for council roads. The final guidelines are included in this Report at Appendix 1. A number of Councils have undertaken road asset revaluations using the revised guidelines. A small number of Councils are still to review asset valuation and depreciation practices. I will continue to monitor the general standard of road asset accounting in coming years, particularly the level of detail included in asset registers to support asset condition and remaining useful lives. AUDIT OF LOCAL GOVERNMENT Pursuant to the Local Government Act 1993, I have determined conditions under which Councils can appoint private sector auditors. The system provides that the working papers of the private auditors are subject to review by this Office and for the report on the financial statements to be issued by the Auditor-General. Since 30 June 1996, all Councils have had the opportunity to appoint auditors from the private sector. As the contracts expire, Councils have the option of retaining/reappointing my Office or calling tenders for the conduct of their financial statement audits. The financial statements of 5 Councils (2001, 6) were audited by private sector auditors for the year ended 30 June 2002. These Councils were Brighton, Hobart City, Kingborough, Launceston City and Waratah-Wynyard. 2 Tasmanian Audit Office AUDIT OF THE 2001-02 FINANCIAL STATEMENTS The following is a summary as at 8 November 2002 of the audit status of the financial statements for the 29 Councils for the 2001-02 year. In 2001-02, 6 Councils had not submitted signed financial statements by 1 October 2002. Those Councils comprised: Council Date Received Brighton Council * 11 October 2002 George Town Council * 8 October 2002 Glamorgan/Spring Bay Council 1 November 2002 Glenorchy City Council * 4 October 2002 Sorell Council 30 October 2002 Tasman Council 25 October 2002 * Draft accounts received by 1 October 2002 Results of audits: - Audits completed and Unqualified Opinions issued 28 Audits completed and Qualified Opinions issued 1 Audits not completed 0 FINANCIAL RESULTS The following sections of this chapter provide comparisons and commentary on groups of Councils as follows: City Councils Larger Urban and Rural Councils Medium Rural Councils Smaller Rural Councils, and Local Government Business Units. In addition to the comparisons of current year financial information for each group of Councils there is a five-year comparative analysis of financial information for each Council with appropriate commentary. Where necessary amounts have been reclassified in order to maintain consistency. Information from unaudited financial statements has been included where necessary. 3 Tasmanian Audit Office OTHER MATTERS Financial Statements to 30 June 2001 On page 270 of Report No 2 for 2000-01, I indicated that with the exception of two Councils, audits had been completed and the audit reports issued. The audits of those two Councils have since been finalised and unqualified audit reports issued as follows: Council Statements Audit Report Received Issued Glamorgan/Spring Bay Council 11 January 2002 15 January 2002 Tasman Council 13 March 2002 25 March 2002 4 Tasmanian Audit Office 1 CITY COUNCILS INTRODUCTION Local government authorities are governed principally by the Local Government Act 1993 as amended. In addition, there are a number of other Acts that provide specific provisions in relation to rating, building and other miscellaneous matters. This section of the report deals with the relative performance of the following city councils: • Burnie City Council • Clarence City Council • Devonport City Council • Glenorchy City Council • Hobart City Council, and • Launceston City Council. RESPONSIBLE MINISTER The Portfolio Minister is the Premier. FINANCIAL RESULTS FINANCIAL PERFORMANCE Burnie Clarence Devonport Glenorchy Hobart Launceston $'000s $'000s $'000s $'000s $'000s $'000s Rates, fees and charges 21 507 31 714 23 256 37 397 63 366 57 995 Grants 4 508 2 395 2 615 5 617 3 837 8 871 Other operating revenue 622 4 582 1 761 2 111 3 577 3 461 Non-operating revenue 5 138 6 202 703 32 053 5 604 13 977 Total Revenue 31 775 44 893 28 335 77 178 76 384 84 304 Borrowing Costs 317 1 460 1 028 1 798 869 646 Depreciation 7 379 11 658 7 529 8 989 20 152 15 544 Other operating expenses 16 957 28 613 19 801 37 000 56 235 51 995 Non-operating expenses 833 0 274 596 4 512 4 878 Total Expenses 25 486 41 731 28 632 48 383 81 768 73 063 Result from Ordinary Activities 6 289 3 162 ( 297) 28 795 ( 5 384) 11 241 5 Tasmanian Audit Office Comment Apart from Devonport, all city councils recorded significant items of Non-operating revenue in the past year.