Agenda of Audit and Risk Committee

Agenda – Audit and Risk Committee Meeting 12 February 2019 Page 1 of 4

5. Report of Officers

5.1 COMPLIANCE AUDIT RETURN 2018

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: LCR02

AUTHOR: Manager Governance

CONTRIBUTOR/S: Nil

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

DATE OF REPORT: 1 February 2019

SUMMARY: The purpose of this report is to present to the Audit and Risk Committee the 2018 Compliance Audit Return for review, and for a recommendation to Council to adopt the 2018 Compliance Audit Return for submission to the Department of Local Government, Sport and Cultural Industries (DLGSC) by 31 March 2019.

BACKGROUND

Previous Considerations

OMC 23 March 2004 Item 9.1.3

OMC 22 March 2005 Item 9.1.2

OMC 11 April 2006 Item 9.1.4

OMC 15 March 2007 Item 10.4

OMC 13 March 2008 Item 10.1

OMC 24 March 2009 Item 10.3

OMC 18 March 2010 Item 10.1

OMC 17 March 2011 Item 10.2

OMC 15 March 2012 Item 9.4.2

OMC 21 March 2013 Item 10.2

OMC 27 February 2014 Item 10.4

OMC 26 February 2015 Item 10.1

OMC 25 February 2016 Item 10.3

OMC 23 February 2017 Item 10.3

OMC 22 February 2018 Item 10.4

Section 7.13(1)(i) of the Local Government Act 1995 requires that each local government carry out a compliance audit for the period 1 January to 31 December each year. The Compliance Audit is an in-house self audit that is undertaken by staff.

In accordance with Regulation 14 of the Local Government (Audit) Regulations 1996 the Audit and Risk Committee is to review the Compliance Audit Return (CAR) and is to report to Council the results of that review. The CAR is to be:

1. presented to an Ordinary Meeting of Council

2. adopted by Council; and

3. recorded in the minutes of the meeting at which it is adopted.

Following the adoption by Council of the CAR, a certified copy of the return, along with the relevant section of the minutes and any additional information detailing the contents of the return are to be submitted to the DLGSC by 31 March 2019.

The return requires the Shire President and the Chief Executive Officer to certify that the statutory obligations of the Shire of Broome have been complied with.

COMMENT

The CAR for the period 1 January to 31 December 2018 continues in the reduced format introduced in 2011 with questions focused on high risk areas of compliance and statutory reporting as prescribed in Regulation 13 of the Local Government (Audit) Regulations 1996. The 2017 CAR was extended to include 7 optional questions relating to Integrated Planning and Reporting and this year has been extended further to include 2 optional questions relating to regulation 17 of the Local Government (Audit) Regulations 1996. It is noted that the question relating to Elections has been removed from the 2018 CAR.

The 2018 CAR includes a total of 94 questions and focuses on the following areas of compliance:

· Commercial Enterprises by Local Governments

· Delegation of Power/Duty

· Disclosure of Interest

· Disposal of Property

· Finance

· Integrated Planning and Reporting (optional)

· Local Government Employees

· Official Conduct

· Tenders for Providing Goods and Services.

The 2018 CAR has been completed in consultation with officers responsible for the various areas contained in the return, and reviewed by the Executive Management Group and the Chief Executive Officer.

The 2018 Compliance Audit reveals a compliance rating of 98.9% with 1 area of non-compliance of the 94 areas audited. The non-compliance related to the omission of details of a contact person for 3 tender advertisements as required under Regulation 14 of the Local Government (Functions and General) Regulations 1996.

This compares to:

2017 Compliance Audit – 0 areas of non-compliance of the 94 areas audited (100%)

2016 Compliance Audit – 1 area of non-compliance of the 87 areas audited (98.8%)

2015 Compliance Audit – 0 areas of non-compliance of the 87 areas audited (100%)

2014 Compliance Audit – 1 area of non-compliance of the 78 areas audited (98.7%)

2013 Compliance Audit – 0 areas of non-compliance of the 78 areas audited (100%)

2012 Compliance Audit – 8 areas of non-compliance of 78 areas audited (89.7%)

2011 Compliance Audit – 1 area of non-compliance of 78 areas audited (98.7%)

2010 Compliance Audit – 1 area of non-compliance of 283 areas audited (99.6%)

2009 Compliance Audit – 4 areas of non-compliance of 347 areas audited (98.8%)

2008 Compliance Audit – 2 areas of non-compliance of 311 areas audited (99.4%

2007 Compliance Audit – 13 areas of non-compliance of 271 areas audited (96.1%)

2006 Compliance Audit – 21 areas of non-compliance of 271 areas audited (92.3%)

2005 Compliance Audit – 23 areas of non-compliance of 306 areas audited (92.5%)

2004 Audit – 18 areas of non-compliance and 147 areas audited (87.8%).

CONSULTATION

Nil

STATUTORY ENVIRONMENT

Local Government Act 1995

7.13 Regulations as to audits

(1) Regulations may make provision –

(i) requiring local governments to carry out, in the prescribed manner and in a form approved by the Minister, an audit of compliance with such statutory requirements as are prescribed whether those requirements are –

(i) of a financial nature or not; or

(ii) under this Act or another written law.

Local Government (Audit) Regulations 1996

13. Prescribed statutory requirements for which compliance audit needed (Act s. 7.13(1)(i))

For the purposes of section 7.13(1)(i) the statutory requirements set forth in the Table to this regulation are prescribed.

Table

*Local Government Act 1995*
s. 3.57	s. 3.58(3) and (4)	s. 3.59(2), (4) and (5)
s. 5.16	s. 5.17	s. 5.18
s. 5.36(4)	s. 5.37(2) and (3)	s. 5.42
s. 5.43	s. 5.44(2)	s. 5.45(1)(b)
s. 5.46	s. 5.67	s. 5.68(2)
s. 5.70	s. 5.73	s. 5.75
s. 5.76	s. 5.77	s. 5.88
s. 5.89A	s. 5.103	s. 5.120
s. 5.121	s. 7.1A	s. 7.1B
s. 7.3	s. 7.6(3)	s. 7.9(1)
s. 7.12A
*Local Government (Administration) Regulations 1996*
r. 18A	r. 18C	r. 18E
r. 18F	r. 18G	r. 19
r. 19C	r. 19DA	r. 22
r. 23	r. 28	r. 34B
r. 34C
*Local Government (Audit) Regulations 1996*
r. 7	r. 10
*Local Government (Elections) Regulations 1997*
r. 30G
*Local Government (Functions and General) Regulations 1996*
r. 7	r. 9	r. 10
r. 11A	r. 11	r. 12
r. 14(1), (3) and (5)	r. 15	r. 16
r. 17	r. 18(1) and (4)	r. 19
r. 21	r. 22	r. 23
r. 24	r. 24AD(2), (4) and (6)	r. 24AE
r. 24AF	r. 24AG	r. 24AH(1) and (3)
r. 24AI	r. 24E	r. 24F
*Local Government (Rules of Conduct) Regulations 2007*
r. 11

[Regulation 13 inserted in Gazette 23 Apr 1999 p. 1722‑4; amended in Gazette 1 Jun 2004 p. 1917; 31 Mar 2005 p. 1042‑3; 30 Sep 2005 p. 4418-20; 21 Dec 2010 p. 6758-61; 30 Dec 2011 p. 5579-80; 18 Sep 2015 p. 3813; 26 Jun 2018 p. 2386.]

14. Compliance audits by local governments

(1) A local government is to carry out a compliance audit for the period 1 January to 31 December in each year.

(2) After carrying out a compliance audit the local government is to prepare a compliance audit return in a form approved by the Minister.

(3A) The local government’s audit committee is to review the compliance audit return and is to report to the council the results of that review.

(3) After the audit committee has reported to the council under subregulation (3A), the compliance audit return is to be —

(a) presented to the council at a meeting of the council; and

(b) adopted by the council; and

(c) recorded in the minutes of the meeting at which it is adopted.

[Regulation 14 inserted in Gazette 23 Apr 1999 p. 1724‑5; amended in Gazette 30 Dec 2011 p. 5580-1.]

15. Compliance audit return, certified copy of etc. to be given to Departmental CEO

(1) After the compliance audit return has been presented to the council in accordance with regulation 14(3) a certified copy of the return together with —

(a) a copy of the relevant section of the minutes referred to in regulation 14(3)(c); and

(b) any additional information explaining or qualifying the compliance audit,

is to be submitted to the Departmental CEO by 31 March next following the period to which the return relates.

(2) In this regulation —

certified in relation to a compliance audit return means signed by —

(a) the mayor or president; and

(b) the CEO.

[Regulation 15 inserted in Gazette 23 Apr 1999 p. 1725; amended in Gazette 26 Jun 2018 p. 2386.]

POLICY IMPLICATIONS

Nil

FINANCIAL IMPLICATIONS

Nil

RISK

The Local Government Act 1995 requires that each local government carry out a compliance audit for the period 1 January to 31 December each year. The compliance audit is an in-house self audit that is undertaken by staff and is to be submitted to the DLGSC by 31 March each year.

The risk is Extreme if this date is not met as it results in non-compliance with the legislative requirements of the Local Government Act 1995 and Local Government (Audit) Regulations 1996, and loss of reputation with the DLGSC. The likelihood of this occurring is rare as the Compliance Audit Return has been prepared well in advance for presentation to Council on the 28 February 2019.

STRATEGIC IMPLICATIONS

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

Improved systems, processes and compliance

VOTING REQUIREMENTS

Simple Majority

REPORT RECOMMENDATION:

That the Audit and Risk Committee recommends that Council:

1. Adopts the attached 2018 Compliance Audit Return as the official return for the Shire of Broome; and

2. Requests the Chief Executive Officer to submit the certified return and a copy of the minutes relative to this report to the Department of Local Government, Sport and Cultural Industries prior to 31 March 2019.

Attachments

1.	2018 Compliance Audit Return

Agenda – Audit and Risk Committee Meeting 12 February 2019 Page 1 of 4

5.2 2ND QUARTER FINANCE AND COSTING REVIEW 2018-19

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: FRE02

AUTHOR: Manager Financial Services

CONTRIBUTOR/S: Nil

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

DATE OF REPORT: 6 February 2018

SUMMARY: The Audit Committee is requested to consider results of the 2nd Quarter Finance and Costing Review (FACR) of the Shire’s budget for the period ended 31 December 2018, including forecast estimates and budget recommendations to 30 June 2019.

BACKGROUND

Previous Considerations

OMC 28 June 2018 Item 12.2

OMC 22 November 2018 Item 10.3

Quarter 1 Finance and Costing Review

The Shire of Broome has carried out its 2nd Quarter Finance and Costing Review (FACR) for the 2018/19 Financial Year. This Review of the 2018-2019 Annual Budget is based on actuals and commitments for the first six months of the year from 1 July 2018 to 31 December 2018, and forecasts for the remainder of the financial year.

This process aims to highlight over and under expenditure of funds and over and under achievement of income targets 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 2018/2019 annual budget was adopted at the Ordinary Meeting of Council on 28 June 2018 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 2^nd Quarter FACR is a $207,628 deficit upon the Shire of Broome’s forecast end of year position. This $207,628 of opening deficit relates mainly to the following adopted budget amendments to date:

· $40,000 additional contribution to the Events Economic Tourism Development funding program as per the adopted minutes OMC 26/4/18 to amend 2018-19 budget upon adoption.

· $100,000 towards seed funding payable to the revised Broome Future Alliance Ltd as per the adopted minutes of the OMC on 28 June 2018.

· $187,272 deficit arising from Q1 FACR which included the following high-dollar value expenditure put forward:

o Additional legal fees & Dampier Peninsula NT Appeals - $75,000

o Singapore Flights – $58,000

o FAGS reduction in Aboriginal Access Road grants - $44,000

o Extra plant growing for capital projects - $32,000

o BRAC road base for asbestos mitigation - $26,000

COMMENT

The 2nd Quarter FACR commenced on 30 January 2019. The results from this process indicate a deficit forecast financial position to 30 June 2019 of $127,235 should Council approve the proposed budget amendments.

The net deficit forecasted included the $100,000 towards seed funding payable to the revised Broome Future Alliance Ltd as per the adopted minutes of the OMC on 28 June 2018 and $40,000 additional contribution to the Events Economic Tourism Development funding program as per the adopted minutes OMC 26/4/18 amending 2018-19 budget.

The above 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:

	SHIRE OF BROOME SUMMARY REPORT
	BUDGET IMPACT
	2018/19 Adopted Budget (Income) / Expense	FACR Q2 Overall (Income) / Expense (Org Savings not subtracted)	FACR Q2 Org. Expense/(Savings) (by Department)	FACR Q2 Impact (Income) / Expense (Org Savings subtracted)	YTD Adopted Budget Amendments (Income) / Expense	YTD Impact (Organisational Savings Subtracted)
Executive - Total	0	11,000	25,000	(14,000)		(14,000)
Corporate Services - Total	0	(75,344)	(70,528)	(4,816)		(4,816)
Development and Community- Total	0	(48,790)	(57,700)	8,910		8,910
Infrastructure Services - Total	0	32,741	103,228	(70,487)		(70,487)
Impact of Council approved budget amendments	0	0	0	0	207,628	207,628
Net impact of Organisation Savings/Expenditure	0	0	0	0		0
	0,000*	(80,393)	0	(80,393)	207,628†	127,235

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 ($422,176) the Shire must formulate an action plan to remedy the over expenditure.

FINANCIAL IMPLICATIONS

The net result of the 2nd Quarter FACR estimates is a budget deficit position of $127,235 to 30 June 2019.

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 2019. 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 and Risk Committee recommends that Council:

1. Receives the 2nd Quarter Finance and Costing Review Report for the period ended 31 December 2018;

2. Adopts the operating and capital budget amendment recommendations for the year ended 30 June 2019 as attached; and

3. Notes a forecast end-of-year position to 30 June 2019 of a $127,235 deficit position.

(Absolute Majority Required)

Attachments

1.	2018/19 Q2 Finance and Costing Review Report