Auditor-General’s report on councils confirms need for reform: Fraser

19 April 2007

Auditor-General’s report on councils confirms need for reform: Fraser

The Queensland Auditor General’s report on the Results of Local Government Audits released today provides overwhelming proof the Beattie Government is on precisely the right track in undertaking state-wide structural reform of councils.

Local Government and Planning Minister Andrew Fraser said the report into the finances of councils for 2005-06 showed 59 Queensland councils had audit issues in the moderate or high risk categories.

“The report shows that long term financial viability remains a significant issue for the local government sector with an aggregate deficit of $290.09 million for 68 councils in the period,” Mr Fraser said.

“The Auditor General further found that 'a continuation of deficit results is not sustainable in the longer term’.” (Auditor General’s report, page 19)

“This is confirmation that local government in its current structure in Queensland cannot be allowed to continue and that is why the State Government has established the Local Government Reform Commission to ensure that structural reform is in place by the time of the next elections in March 2008.”

The Auditor General’s report makes it clear that councils with a wide ratepayer base are in stronger financial positions and the ability of smaller councils to improve their finances are constrained by the small scale of their operations.

Mr Fraser said the report also makes it clear that options to improve local government sustainability include amalgamations, significant boundary changes and resource sharing.

“This is unambiguous confirmation of the situation and it supports the government’s position.

“The Auditor General makes is perfectly clear that what is required is change.

“Local government throughout the state was given the opportunity to make this change voluntarily through the Size, Shape and Sustainability program but after two years of that program it’s obvious that what it is going to deliver is nought.

“And that’s why the government has stepped in to deliver what the Auditor General says we require – reform.

“Any reasonable reading of this report confirms what the Australian Local Government Association knows, what local government itself knows, what the Queensland Treasury Corporation knows.

“Reform is the only course of action open to achieve a sustainable system of local government and stability for local government employees and for ratepayers.”

The Minister has tabled the Queensland Treasury Corporation advice on Financial Sustainability Reviews which informed the government's decision to cease the voluntary process.

Extracts from the Auditor General’s report:

“Long term financial viability remains a significant issue for the sector with an aggregate deficit of $290.09m for 68 councils recorded for 2005-06. Reviews undertaken in other states indicate that financial viability issues are not unique to Queensland. Astute financial management and strategic asset management are integral to assisting councils in making informed decisions in relation to long term viability.” (p7)

“Based on the nature of the audit issues raised and observations made during 2005-06 and their similarity to matters reported in my two previous reports on local government audits, I am not convinced that the standard of governance across the local government sector is at an acceptable level. There were 59 councils which had audit issues in the moderate or high risk categories as assessed by audit.” (p9)

“Accuracy, completeness, existence and valuation of local government non-current assets continue to be problematic for many councils. In excess of 100 audit issues have been reported in these areas across 45 councils. Based on the audit findings, I am not convinced that all councils can effectively achieve a whole-of-asset life and strategic management approach to significant property, plant and equipment items.” (p11)

“Failure to maintain a robust framework therefore may result in adopting short term initiatives such as the deferral of key infrastructure replacement and may ultimately impact on a council’s delivery of infrastructure and its ability to continue as a going concern if funds are not readily available at the time the replacement of the infrastructure asset becomes critical.” (p12)

“Sixty-eight councils disclosed an operating deficit in their respective Income Statements for the financial year ended 30 June 2006. The aggregate of these deficits was $290.09m. While these local governments had sufficient equity to cover these losses, a continuation of deficit results is not sustainable on the longer term.’ (p19)

“The ability of smaller councils to improve their financial outcomes is constrained by a lack of growth in their community (and hence rate base) and the small scale of their operations from which other revenue can be obtained.” (p19)

“These councils are potentially building a liability for infrastructure expenditure that will have to be funded by future ratepayers.” (p21)

Media Contact Chris Taylor 0419 710 874