Agenda of Audit and Risk Committee - Thursday, 11 November 2021

Agenda – Audit and Risk Committee Meeting 11 November 2021 Page 1 of 2

5. Report of Officers

5.1 1ST QUARTER FINANCE AND COSTING REVIEW 2021-22

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: FRE02

AUTHOR: Director Corporate Services

CONTRIBUTOR/S: Nil

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

SUMMARY:

The Audit and Risk Committee is requested to consider results of the 1^st Quarter Finance and Costing Review (FACR) of the Shire’s budget for the period ended 30 September 2021, including forecast estimates and budget recommendations to 30 June 2022.

BACKGROUND

Previous Considerations

OMC 24 June 2021 Item 9.3.1

Quarter 1 Finance and Costing Review

The Shire of Broome has carried out its 1^st Quarter Finance and Costing Review (FACR) for the 2021-22 financial year. This review of the 2021-22 Annual Budget is based on actuals and commitments for the first three months of the year from 1 July 2021 to 30 September 2021, 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, to assist Council to make an informed decision.

It should be noted that the 2021-22 annual budget was adopted at the Ordinary Meeting of Council on 24 June 2021 as a balanced budget.

COMMENT

The Quarter 1 FACR commenced on 18 October 2021. The results from this process indicate a deficit forecast financial position of $48,746 should Council approve the proposed budget amendments. Council should note this net result excludes an organisational expense (deficit) of $55,326. The overall result indicates a total deficit position to 30 June 2022 of $104,073.

While officers make every effort to ensure the net impact of each FACR is minimal, the net deficit forecast mainly relates to the following proposed amendments:

· a $185,000 increase in revenue from anticipated Rates interest and admin fees

· a $227,000 reduction in budgeted Western Australian Local Government Grant Commission Road Grants (Local Roads component of FAGS)

· a $172,000 increase in commercial lease rental income

· a $238,000 amendment required to address budget upload errors identified through the process.

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, summarised by Directorate.

A summary of the results is as follows:

	SHIRE OF BROOME SUMMARY REPORT
	BUDGET IMPACT
	2021/22 Adopted Budget (Inc) / Exp	FACR Q1 Overall (Inc) / Exp (Org Savings not subtracted)	FACR Q1 Org. Exp / (Org Savings) (by Dept)	FACR Q1 Impact (Inc) / Exp (Org Savings subtracted)	YTD Adopted Budget Amendments (Inc) / Exp	YTD Impact (Org Savings Subtracted)
Executive - Total	0	77,956	37,956	40,000		40,000
Corporate Services - Total	0	44,471	44,471	15,000		15,000
Development - Total	0	0	0	0		0
Infrastructure - Total	0	(75,545)	(27,101)	(48,444)		(48,444)
Council approved budget amendments	0	0	0	0	42,190	42,190
	0,000*	61,882	55,326	6,556	42,190	48,746

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

Nil.

It should be noted that according to the materiality threshold set at the budget adoption, should a deficit achieve 1% of Shire’s operating revenue ($395,334) the Shire must formulate an action plan to remedy the over expenditure.

FINANCIAL IMPLICATIONS

The net result of the Quarter 1 FACR estimates is a budget deficit position of $48,746 to 30 June 2022.

This net result excludes an organisational expense (deficit) of $55,326.

The overall result indicates a total deficit position to 30 June 2022 of $104,073.

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 2022. 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 ASPIRATIONS

Performance – We will deliver excellent governance, service and value, for everyone.

Outcome Eleven – Effective leadership, advocacy and governance:

11.2 Deliver best practice governance and risk management.

Outcome Thirteen - Value for money from rates and long term financial sustainability:

13.1 Plan effectively for short and long term financial sustainability.

VOTING REQUIREMENTS

Simple Majority

REPORT RECOMMENDATION:

That the Audit and Risk Committee recommends that Council:

1. Receives the Quarter 1 Finance and Costing Review Report for the period ended 30 September 2021;

2. Adopts the operating and capital budget amendment recommendations for the year ended 30 June 2022 as attached;

3. Notes a forecast net end-of-year deficit position to 30 June 2022 of $48,746, noting an organisational expense (deficit) of $55,326, resulting in an overall deficit position of $104,073.

Attachments

1.	2021-22 Quarter 1 Finance and Costing Review