City of Bayswater warned of pressure on finances almost two years ago in audit report

It’s currently facing a significant challenge to rein in debt over the next six years but the City of Bayswater first heard of its financial woes almost two years ago in a 2020 audit report. Mayor Filomena Piffaretti told the council last week the city’s financial struggles were first highlighted by financial planners Paxon Group in an audit review report presented to the city’s audit and risk management committee on August 4, 2020. But she believes the steps the committee took after the report was received — or lack thereof — has left her council with “two more budgets and two more years’ worth of issues to uncover”. The city’s audit and risk management committee — at the time chaired by current councillors Lorna Clarke, Giorgia Johhnson and Michelle Sutherland and former Cr Stephanie Grey and mayor Dan Bull — was advised by the city’s administration at the August 4 meeting in 2020 to endorse the Paxon Group report findings and its recommendations. The report formed part of the agenda for the meeting and was publicly available on the city’s website, but the committee deferred the matter so then-chief executive Andrew Brien could provide “management responses” to the Paxon Group report. It wasn’t until November 10 that same year the committee was presented with a city report and a document containing the key findings of the Paxon Group report, alongside a practical implementation plan, but the matter was deferred again. The full Paxon Report was referenced in the city report but was not attached. The committee went against a city recommendation to endorse the “management actions and timeframes” in response to the report and instead voted to just note them at a meeting on February 9 last year. The matter finally fronted a full council at the February 23 meeting that same year, where councillors approved en bloc the committee’s recommendation to note the city’s “management actions and timeframes” in response to the report and that management actions be “monitored and tracked through the city’s audit log”. Cr Piffaretti told the council last week the full Paxon Group report never fronted a full council meeting and the key risks contained in the report should have been communicated to council under a “matter of urgency”. “Instead, after multiple deferrals, by the time the audit and risk management committee referred the item to the ordinary council meeting in February 2021 — six months after they have become aware of the city’s financial suitability problems — the committee’s report to council did not include the Paxton Group report,” she said. “It’s quite clear the council was never provided the Paxon Group report to consider, nor was the Paxon Group findings that decisions had been made for short term benefit but had harm to long term financial sustainability ever highlighted to council.” A city report said the Paxon Group report had been “circulated to key managers involved in the financial sustainability audit”. Ms Piffaretti said the audit report “could have and should have been dealt with by full council”. “None of that was done and now we have two more budgets and two more years’ worth of issues to uncover,” she said. “What has or hasn’t been done in the past — it’s in the past — we can’t go back and do it over, but all we can do is face the problems and get to work on the solutions.” Local Government Minister John Carey weighed into the matter this week, saying long-term financial planning was “absolutely essential”. “It’s something all local governments should be doing and revisiting regularly to ensure they remain viable,” he said. “Most local governments will face financial challenges from time to time and the key thing is to be transparent with ratepayers about those issues and the options to resolve them.” PerthNow exclusively reported last month that leaked documents revealed the city was facing a significant financial challenge to rein in debt. According to its draft Long Term Financial Plan 2023-32 rate-setting statement, the city will face significant deficits from this financial year to 2026-27. It also predicts the city will have to wait until 2027-28 to record a surplus of more than $370,000. But according to the statement, from that period up to 2031-32 the city will garner only surpluses. Perth Now has seen the Paxon Group internal audit review report into financial sustainability — provided to the City in June 2020 — which found the city had been “weakened” by a lack of adherence to its long-term financial plans. “The city has been weakened by decisions, both in service delivery and capital investments, that have been made for short-term benefit without addressing the implications it may have on the long-term financial sustainability of the city,” the report said. “In particular around assets that have or are about to reach the end of their life cycle.” A city report said the audit findings indicated there was “some disconnect between the city’s needs as disclosed in its long-term plans and its current needs as disclosed in its annual budgets”. The Paxon Group report said if the city wanted to be financially sustainable it should look at adopting recommendations around rate setting, implementation of frameworks, cost reduction strategies, exiting of aged care assets and providing adequate resourcing. The report also advised the city create a framework to “support commercial activities”. “The framework would include a business case for each proposal that contains stringent metrics that can demonstrate the social and economic benefit to the city both in the short term and long term,” it said. City acting chief executive Cliff Frewing said the Paxon Report had 29 findings and the City developed a list of 29 recommendations to address them. “The recommendations included seeking alternative streams of income to supplement rates, following a balanced approach to rate setting, accumulating reserve funding, reviewing service charges, addressing asset renewal and strategic land use, as well as seeking opportunities to collaborate with other local governments to share operational costs,” he said. Mr Frewing said the city started implementing these recommendations in February last year. To date, six had been fully implemented and a further nine were in progress. “Two recommendations have not been supported (differential rating and special area rating) and the others are long-term aspirations,” he said. “A number of the recommendations reference the development of a new Long Term Financial Plan as integral to the city’s future financial sustainability, which was recently considered at a councillor workshop held in March 2022.” Bayswater councillors agreed at a meeting last month to spend up to $50,000 on an independent analysis into its financial past to help determine the cause of its debt crisis. Councillors backed a motion from Cr Piffaretti that Mr Frewing prepare an independent analysis of the city’s expenditure, revenue and financial management over the past five years.