Late Items Agenda of Council - 1 September 2020

6.1.5 Certification of 2019/20 Financial Statement & Unconfirmed Minutes of Audit & Risk Committee Meeting

Attachments: 1 2019-20 Financial Statements ⇩

2 2019-20 Performance Statements ⇩

3 Draft Audit and Risk Committee minutes ⇩

Responsible Officer: Director Corporate Services

Author: Acting Manager Finance & Assets

RECOMMENDATION SUMMARY

THAT Council resolve to:

1. Note the Minutes of the Audit and Risk Committee Meeting held on 20 August 2020.

2. Approve in principle the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

3. Authorise the Principal Accounting Officer to make minor amendments to the Annual Financial Statements and Performance Statement for the year ended 30 June 2020 to meet the Victorian Auditor General’s Office (VAGO) requirements.

4. Authorise Audit & Risk Committee Council representatives, Administrator Lydia Wilson and Administrator the Hon. Bruce Billson to sign-off on the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

5. Authorise the Chief Executive Officer and Principal Accounting Officer to sign-off on the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

6. Authorise the final audited Annual Financial Statements and Performance Statement for the year ended 30 June 2020 to be forwarded to the Minister for Local Government as part of the Annual Report by 30 September 2020.

Brief overview

This report seeks Council approval for adoption in principle of the City of Whittlesea Annual Financial Statements (Attachment 1) and Performance Statement (Attachment 2) for the year ended 30 June 2020 and authorisation of two Administrators to sign the certifications included in the Reports.

As required under Council’s Audit and Risk Committee Charter, this report also presents the Unconfirmed Minutes of the Audit and Risk Committee meeting held on 20 August 2020 (Attachment 3).

rationale for recommendation

· Council is required to submit its audited financial statements and performance statement to the Minister for Local Government by 30 September each year under the Local Government Act 1989 section 131 and the Local Government (Planning and Reporting) Regulations 2014.

· The Financial Statements and Performance Statement have been reviewed by the Audit and Risk Committee and Council’s external auditor at the Audit and Risk Committee meeting held on 20 August 2020 with no audit qualification or high-risk issues identified.

impacts of recommendation

Council will meet its legislative requirements for Council’s Annual Financial Statements and Performance Statement.

what measures will be put in place to manage impacts

The impact is monitored regularly by Finance and presented to the Executive Leadership Team and Council on a regular basis. This is further measured and assessed in accordance with the development of Council’s budget and long-term financial plan.

Report

Background

The Financial Statements (Attachment 1) and Performance Statement (Attachment 2) are required to be certified by Council’s Chief Executive Officer, Principal Accounting Officer and two Administrators on behalf of Council prior to Council’s auditor signing the audit certifications.

The draft Annual Financial Statements and Performance Statement for the year ended 30 June 2020 are firstly presented to Council’s Audit and Risk Committee for review and recommendation for adoption by Council. The review focuses on:

· Accounting policies and practices, including any changes to accounting policies and practices;

· Compliance with accounting standards and other reporting requirements;

· Significant adjustments to the financial report (if any) arising from the audit process; and

· Significant variances from prior years.

As required under Council’s Audit and Risk Committee Charter, this report also presents the Unconfirmed Minutes of the Audit and Risk Committee meeting held on 20 August 2020 (Attachment 3).

aUDIT and RISK cOMMITTEE MEETING 20 AugUst 2020

The Audit and Risk Committee discussed and reviewed the Annual Financial Statements and Performance Statement with a representative of Council’s external auditor, Kathie Teasdale (RSD).

The Committee recommended minor amendments which have been incorporated and are reflected in the attached draft Financial Statements and Performance Statement.

Comprehensive result

The Comprehensive Income Statement includes an amount after the total surplus (deficit) that represents the net revaluation increase of all property and infrastructure assets. Therefore, the total comprehensive result for the year ended 30 June 2020 is $54.061 million.

Council measures its underlying operational result to assist in the determination of whether it is operating in a sustainable fashion or not. The underlying result is an important indicator of Council's long-term financial sustainability. Whilst an underlying deficit in one financial year is not significant, the continued recording of deficits over a sustained period from Council's operations gradually erodes the net assets of Council.

The underlying result from operations excludes transactions which are either 'non-recurring' or not operational in nature. These items are frequently unpredictable and typically can change from one year to the next. The best examples of these items are assets (roads, footpaths, drains, land reserves, etc) that are given to Council by developers once a new subdivision is completed. There are also other accounting adjustments for when existing assets are revalued.

The aim of an underlying result is to determine whether Council's operational costs/income result is a surplus or deficit outcome. In this way, Council can, in long-term financial planning, aim for an outcome where pure operational outcomes assist Council in achieving a sustainable organisation.

The table below shows the underlying operational result for the year ended 30 June 2020.

Comprehensive Result from Comprehensive Income Statement	$54.061M
Less Other comprehensive income:
Asset revaluation increment (decrement)	($50.327M)
Surplus for the year from Comprehensive Income Statement	$104.388M
Less Non-operating income and expenditure
Grants – capital (non-recurring)	$1.673M
Contributions – cash (developer contributions)	$17.658M
Contributions - non-monetary assets	$79.547M
Underlying surplus (deficit)	$5.510M

While showing a total comprehensive result of $54.061 million, the table above shows that the City of Whittlesea’s underlying operating result for the year ended 30 June 2020 is a surplus of $5.510 million.

Financial sustainability indicators

The Victorian Auditor-General’s Office publishes Council’s result against a range of indicators used to assist in measuring performance and financial sustainability. The estimated result of the 2019/20 indicators are presented in the table below.

RATIO	2019/20	COMMENTS
Net Result (Net result / total revenue)	33% Green	This ratio measures Council’s ability to fund operations and asset renewal. Operating deficits cannot be sustained in the long term. A less than -10% (deficit) is deemed high risk (red) and a positive result is desirable (green).
Adjusted underlying result (Adjusted underlying surplus (or deficit) / Adjusted underlying revenue)	2.47% Amber	Indicator of the broad objective that an adjusted underlying surplus should be generated in the ordinary course of business. A surplus or increasing surplus suggests an improvement in the operating position. A result of less than 0% is deemed as high risk (red) and a result higher than 5% is desirable (green).
Liquidity (Current assets / current liabilities)	3.18 Green	This ratio measures Council’s ability to pay existing liabilities in the next 12 months. A result of less than 0.75 is deemed as high risk (red) and a result higher than 1 is desirable (green).
Internal financing (Net operating cash flows / net capital expenditure)	127% Green	This ratio measures Council’s ability to replace assets using cash generated from operations. A result of less than 75% is deemed as high risk (red) and a result higher than 100% is desirable (green).
Indebtedness (non-current liabilities / own-sourced revenue)	5.6% Green	This ratio measures Council’s ability to cover its non-current liabilities with its own sourced revenue. A result of more than 60% is deemed as high risk (red) and a result lower than 40% is desirable (green).
Capital replacement (Cash outflows for property, plant and equipment / Depreciation)	1.81 Green	Comparison of the rate of spending on infrastructure with its depreciation. A result lower than 1 is deemed high risk (red) and a result higher than 1.5 is desirable (green).
Renewal gap (Renewal and upgrade expenditure / depreciation)	0.89 Amber	Comparison of the rate of spending on existing assets through renewing, restoring and replacing existing assets with depreciation. A ratio lower than 0.5 is deemed high risk (red) and a result higher than 1 is desirable (green).
Overall assessment for long-term financial sustainability	Green	The City of Whittlesea remains low risk (green) for its long-term financial sustainability.

RATIO

2019/20

COMMENTS

Net Result

(Net result / total revenue)

33%

Green

This ratio measures Council’s ability to fund operations and asset renewal. Operating deficits cannot be sustained in the long term.

A less than -10% (deficit) is deemed high risk (red) and a positive result is desirable (green).

Adjusted underlying result

(Adjusted underlying

surplus (or deficit) /

Adjusted underlying revenue)

2.47%

Amber

Indicator of the broad objective that an adjusted underlying surplus should be generated in the ordinary course of business. A surplus or increasing surplus suggests an improvement in the operating position.

A result of less than 0% is deemed as high risk (red) and a result higher than 5% is desirable (green).

Liquidity

(Current assets / current liabilities)

3.18

Green

This ratio measures Council’s ability to pay existing liabilities in the next 12 months.

A result of less than 0.75 is deemed as high risk (red) and a result higher than 1 is desirable (green).

Internal financing

(Net operating cash flows / net capital expenditure)

127%

Green

This ratio measures Council’s ability to replace assets using cash generated from operations.

A result of less than 75% is deemed as high risk (red) and a result higher than 100% is desirable (green).

Indebtedness

(non-current liabilities / own-sourced revenue)

5.6%

Green

This ratio measures Council’s ability to cover its non-current liabilities with its own sourced revenue.

A result of more than 60% is deemed as high risk (red) and a result lower than 40% is desirable (green).

Capital replacement (Cash outflows for property, plant and equipment / Depreciation)

1.81

Green

Comparison of the rate of spending on infrastructure with its depreciation.

A result lower than 1 is deemed high risk (red) and a result higher than 1.5 is desirable (green).

Renewal gap

(Renewal and upgrade expenditure / depreciation)

0.89

Amber

Comparison of the rate of spending on existing assets through renewing, restoring and replacing existing assets with depreciation.

A ratio lower than 0.5 is deemed high risk (red) and a result higher than 1 is desirable (green).

Overall assessment for long-term financial sustainability

Green

The City of Whittlesea remains low risk (green) for its long-term financial sustainability.

Proposal

It is proposed that Council:

1. Note the Minutes of the Audit and Risk Committee Meeting held on 20 August 2020.

2. Approve in principle the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

4. Authorise Audit & Risk Committee Council representatives, Administrator Lydia Wilson and Administrator The Hon. Bruce Billson to sign-off on the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

5. Authorise the Chief Executive Officer and Principal Accounting Officer to sign-off on the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

Consultation

Consultation has been conducted with the relevant Council departments and external service providers as necessary through the course of the audit.

Critical Dates

Council is required to submit its audited financial statements to the Minister for Local Government by 30 September each year.

Financial Implications

The cost of the annual audit by VAGO is included within Council’s annual budget.

Policy strategy and legislation

Local Government Act 1989 section 131 and the Local Government (Planning and Reporting) Regulations 2014.

link to strategic risks

Strategic Risk Financial Sustainability - Inability to meet current and future expenditure

This report provides Council with an oversight of the City of Whittlesea’s key financial information and performance obligations to enable monitoring and to ensure City of Whittlesea’s financial position is sustainable.

Links to whittlesea 2040 and the CoUNCIL Plan

Goal High-performing organisation

Key Direction More cost-effective investment through better return on investment, efficiency and an engaged workforce

Declarations of Conflicts of Interest

Under section 80C of the Local Government Act 1989 officers providing advice to Council must disclose any interests, including the type of interest.

The Responsible Officer reviewing this report, having made enquiries with the relevant members of staff, reports that no disclosable interests have been raised in relation to this report.

Conclusion

The Unconfirmed Minutes of the Audit and Risk Committee meeting held on 20 August 2020, (Attachment 3) are presented for information.

The Financial Statements and Performance Statement have been reviewed by the Audit and Risk Committee and Council’s external auditor at the Audit and Risk Committee meeting held on 20 August 2020 with no audit qualification or high-risk issues identified.

Two Administrators are required to sign the certification of the Annual Financial Statements and Performance Statement once clearance is obtained from the Victorian Auditor-General and after the Principal Accounting Officer has signed his certification.

In accordance with usual practice, it is proposed that the Administrators on the Audit and Risk Committee be authorised to sign the certification on behalf of Council after the necessary clearance has been obtained.

If late changes are made to the Annual Financial Statements or Performance Statement, including those required after the VAGO review, it is also proposed that the approval given to the Administrators be extended to enable them to sign the certification after the necessary changes have been made.

RECOMMENDATION

THAT Council resolve to:

1. Note the Minutes of the Audit and Risk Committee Meeting held on 20 August 2020.

2. Approve in principle the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.

5. Authorise the Chief Executive Officer and Principal Accounting Officer to sign-off on the Annual Financial Statements and Performance Statement for the year ended 30 June 2020.