Agenda of Audit Committee - 6 December 2017

Agenda – Audit Committee Meeting 6 December 2017 Page 10 of 18

5. Report of Officers

5.1 1ST QUARTER FINANCE AND COSTING REVIEW 2017-18

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: FRE02

AUTHOR: Senior Finance Officer

CONTRIBUTOR/S: Manager Financial Services

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

DATE OF REPORT: 16 November 2017

SUMMARY: The Audit Committee is requested to consider results of the 1st Quarter Finance and Costing Review (FACR) of the Shire’s budget for the period ended 30 September 2017, including forecast estimates and budget recommendations to 30 June 2018.

BACKGROUND

Previous Considerations

OMC 29 June 2017 Item 9.4.4

OMC 19 Oct 2017 Item 9.4.3

Quarter 1 Finance and Costing Review

The Shire of Broome has carried out its 1st Quarter Finance and Costing Review (FACR) for the 2017/18 Financial Year. This Review of the 2017-2018 Annual Budget is based on actuals and commitments for the first three months of the year from 1 July 2017 to 30 September 2017, and forecasts for the remainder of the financial year.

This process aims to highlight over and under expenditure of funds for the benefit of Executive and Responsible Officers to ensure good fiscal management of their projects and programs.

Once this process is completed, a report is compiled identifying budgets requiring amendments to be adopted by Council. Additionally, a summary provides the financial impact of all proposed budget amendments to the Shire of Broome’s adopted end-of-year forecast, in order to assist Council to make an informed decision.

It should be noted that the 2017/2018 annual budget was adopted at the Ordinary Meeting of Council on 29 June 2017 as a balanced budget. There have been further amendments adopted by Council as part of the Annual Financial Statements for the use of additional carried forward surplus. The result of all amendments prior to the first quarter FACR is a nil impact upon the Shire of Broome’s forecast end of year position.

COMMENT

The 1st Quarter FACR commenced on 25 October 2017. The FACR process has identified a surplus of $1,866 and organisational savings of $45,467, attributed predominantly to increased rates interest income on instalments.

The results from this process indicate a deficit forecast financial position to 30 June 2018 of $43,601 should Council approve the proposed budget amendments. This deficit is predominantly associated with Council resolutions to increase expenditure on the BRAC 1 Youth Precinct ($45,130).

It is recommended that the surplus funds identified throughout the FACR process be quarantined to reserve however this will carry a deficit of $43,601 forward to the next FACR meetings to be held in January 2018.

It should also be noted that this figure represents a budget forecast should all expenditure and income occur as expected. It does not represent the actual end-of-year position which can only be determined as part of the normal Annual Financial processes at the end of the financial year.

A comprehensive list of accounts (refer to Attachment 1) has been included for perusal by the committee and summarised by Directorate.

A summary of the results follows:

	BUDGET IMPACT
	2017/18 Adopted Budget (Income) / Expense	FACR Q1 Overall (Income) / Expense (Org Savings not subtracted)	FACR Q1 Org. Savings (by Department)	FACR Q1 Impact (Income) / Expense (Org Savings subtracted)	YTD Impact (Organisational Savings Subtracted)
Executive - Total	0	10,000	10,000	0	0
Corporate Services - Total	0	(40,000)	(40,000)	0	0
Economic & Development - Total	0	63,601	20,000	43,601	43,601
Infrastructure Services - Total	0	(35,467)	(35,467)	0	0
Impact of Council approved budget amendments	0	0	0	0	0
Net impact of Organisation Savings/Expenditure	0	0	0	0	0
	0,000*	(1,866)	(45,467)	43,601	43,601

CONSULTATION

All amendments have been proposed after consultation with Executive and Responsible Officers at the Shire.

STATUTORY ENVIRONMENT

Local Government (Financial Management) Regulation 1996

r33A. Review of Budget

(1) Between 1 January and 31 March in each financial year a local government is to carry out a review of its annual budget for that year.

(2A) The review of an annual budget for a financial year must —

(a) consider the local government’s financial performance in the period beginning on 1 July and ending no earlier than 31 December in that financial year; and

(b) consider the local government’s financial position as at the date of the review; and

(c) review the outcomes for the end of that financial year that are forecast in the budget.

(2) Within 30 days after a review of the annual budget of a local government is carried out it is to be submitted to the council.

(3) A council is to consider a review submitted to it and is to determine* whether or not to adopt the review, any parts of the review or any recommendations made in the review.

*Absolute majority required.

(4) Within 30 days after a council has made a determination, a copy of the review and determination is to be provided to the Department.

Local Government Act 1995

6.8. Expenditure from municipal fund not included in annual budget

1) A local government is not to incur expenditure from its municipal fund for an additional purpose except where the expenditure —

(a) is incurred in a financial year before the adoption of the annual budget by the local government;

(b) is authorised in advance by resolution*; or

(c) is authorised in advance by the mayor or president in an emergency.

(1a) In subsection (1) —

“additional purpose” means a purpose for which no expenditure estimate is included in the local government’s annual budget.

POLICY IMPLICATIONS

2.1.1 Materiality in Financial Reporting

It should be noted that according to the materiality threshold set in Policy 2.1.1 Materiality in Financial Reporting, should a deficit achieve 1% of Shire’s operating revenue ($376,296) the Shire must formulate an action plan to remedy the over expenditure.

FINANCIAL IMPLICATIONS

The net result of the 1^st Quarter FACR estimates is a budget deficit position of $43,601 to 30 June 2018 should the organisation savings of $45,467 be transferred to the Drainage Reserve.

RISK

The Finance and Costing Review (FACR) seeks to provide a best estimate of the end-of-year position for the Shire of Broome at 30 June 2018. Contained within the report are recommendations of amendments to budgets which have financial implications on the estimate of the end-of-year position.

The review does not, however, seek to make amendments below the materiality threshold unless strictly necessary. The materiality thresholds are set at $10,000 for operating budgets and $20,000 for capital budgets. Should a number of accounts exceed their budget within these thresholds, it poses a risk that the predicted final end-of-year position may be understated.

In order to mitigate this risk, the CEO enacted the FACRs to run quarterly and executive examine each job and account to ensure compliance. In addition, the monthly report provides variance reporting highlighting any discrepancies against budget.

It should also be noted that should Council decide not to adopt the recommendations, it could lead to some initiatives being delayed or cancelled in order to offset the additional expenditure associated with running the Shire’s operations.

STRATEGIC IMPLICATIONS

Our People Goal – Foster a community environment that is accessible, affordable, inclusive, healthy and safe:

Effective communication

Affordable services and initiatives to satisfy community need

Our Prosperity Goal – Create the means to enable local jobs creation and lifestyle affordability for the current and future population:

Affordable and equitable services and infrastructure

Key economic development strategies for the Shire which are aligned to regional outcomes working through recognised planning and development groups/committees

Our Organisation Goal – Continually enhance the Shire’s organisational capacity to service the needs of a growing community:

An organisational culture that strives for service excellence

Sustainable and integrated strategic and operational plans

Responsible resource allocation

Improved systems, processes and compliance

VOTING REQUIREMENTS

Absolute Majority

REPORT RECOMMENDATION:

That the Audit Committee recommends that Council:

1. Receive the 1st Quarter Finance and Costing Review Report for the period ended 30 September 2017;

2. Adopts the operating and capital budget amendment recommendations for the period ended 30 June 2018 as attached;

3. Transfers $45,467 of identified Organisational Savings to the Drainage Reserve; and

4. Notes a forecast end-of-year position to 30 June 2018 of a $43,601 deficit position.

(Absolute Majority Required)

Attachments

1.	QUARTER 1 FINANCE AND COSTINGS REVIEW REPORT 2017-18