Wanneroo and Gingin urged to improve some financial ratios

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The City of Wanneroo and Shire of Gingin have both failed to meet some local government financial ratios in recent years. File picture

THE City of Wanneroo and Shire of Gingin are among a number of councils not complying with local government guidelines for some financial ratios.

Neither council is breaking any laws as the ratios are guidelines and not something the Department of Local Government, Sport and Cultural Industries (DLGSC) or the Local Government Minister David Templeman can enforce.

Nevertheless in the City of Wanneroo’s case a department spokeswoman said the department would anticipate that the city’s audit committee would review any actual ratio results that were below standards set by its long term financial plan and provide guidance to the council on the matter.

The department spokeswoman said it was not a compliance matter, but in 2017-18 Wanneroo was one of 12 local governments which had a current ratio below the advised standard of 1.00.

“The City of Wanneroo 2013-14 long term financial plan (from website) under key performance indicators (pages 36 to 39) indicates the working capital ratio (current ratio) should meet the basic standard,’’ she said.

A report on the Shire of Gingin’s 2018-19 Audit Report said the operating surplus ratio had been below the department’s standard for the past three years.

The report prepared for the council’s December 17 meeting said concerns about the operating surplus ration were not new and the matter had been the subject of a significant amount of council discussion in the past.

“Discussions with respect to options such as identifying alternative revenue sources (including increasing income from rates) or decreasing operating expenditure (reducing services) will continue as we approach the period for budget preparation,’’ the officer’s report said.

“Administration will further review depreciation rates for shire assets as part of Budget deliberations and in response to the asset management plan which is due for review.’’

Gingin chief executive officer Aaron Cook said the department would never be able to have a system of ratios that suited all local governments.

President Wayne Fewster said regional councils struggled with ratios as they did not have the funding they needed.

A DLGSC spokeswoman said the department was aware a number of local governments including Gingin had been identified by the Auditor General as having significant adverse trends in their ratios.

“DLGSC has been actively ensuring local governments compliance with the Act in reporting these trends since the 2017-18 financial year,’’ she said.

“DLGSC is currently reviewing the effectiveness of financial ratios as performance indicators and expects that local governments will incrementally improve towards achieving the benchmark ratios set by the DLGSC.’’

At its December 3 meeting the City of Wanneroo (CoW) included a report on its 2018-19 Audit Report, which outlined the continuing adverse trends of the current ratio and asset sustainability ratio as both have been below the department standard for the past three years.

The report then went on the say that the council had to state what action it had taken or intended to take in relation to each matter.

In relation to the current ratio CoW said it had a deliberate strategy to improve its cash backed reserves balances to enable financially sustainable and responsible management of the deliverability of large multi-year projects and long term liabilities.

The officer’s report said the strategy enabled CoW to ensure it had the capacity to manage future general rate rises or declines.

The council had the ability to transfer funds from a number of restricted reserves (eg strategic projects-initiatives reserves) to unrestricted cash holdings should the need arise.

So although the council did not meet the DLGSCI guidelines it was by choice to ensure it had appropriate reserves which would help smooth general rate rises or declines in the future.

In relation to the asset sustainability ratio CoW said about 85 per cent of its total asset base was at or below condition 3 (a rating of zero represented a new asset and a 10 represented an asset that had failed.)

Less than 1 per cent of the asset base is at or above 8, which represents assets that require attention.

CoW said with its mix of old and new assets and continued high growth a lower than average asset sustainability ratio was expected and the current condition of assets and level of renewal expenditure confirmed this position.

The council said taking a long term outlook, the level of asset stock and renewal necessitated the development of strategies to address the future impact and ensure the council could continue to grow and maintain its assets in a financially sustainable manner.

It said given that renewal expenditure was lower than the depreciation being charged and that certain years experienced significant spikes in demand a specific asset renewal reserve had been established.