Extraordinary  Meeting Minutes

Held on Monday, 13 July 2020

at Via Zoom commencing at 10:00am

 

PRESENT Cr Sharon Tapscott, Mayor Cr Russell Fitzpatrick, Deputy Mayor Cr Tony Allen Cr Robyn Bain Cr Jo Dodds Cr Cathy Griff Cr Kristy McBain Cr Mitchell Nadin Cr Liz Seckold

IN ATTENDANCE General Manager, Ms Leanne Barnes Acting Director, Assets and Operations, Mr Chris Best Acting Director,  Community, Environment and Planning, Mr Keith Tull Director, Business and Governance, Mrs Iliada Bolton Manager, Communication and Events, Mr Ian Campbell Project Lead, Recovery, Rebuilding and Resilience, Mr Chris Horsburgh Minute Secretary, Mrs Bec Jones

 

Statement of Commencement of Live Streaming

The Mayor made an announcement about live streaming requirements:

Council meetings are recorded and live streamed to the Internet for public viewing. 

The recording will be archived and made available on Council’s website www.begavalley.nsw.gov.au.

Acknowledgement of Traditional Owners of Bega Valley Shire

The Mayor commenced by acknowledging, on behalf of Bega Valley Shire Council, the Traditional Custodians of the lands and waters of the Shire, the people of Yuin nation, to show respect to elders past, present and emerging.

1.	Apologies
	There were no apologies

 

2.    Declarations

There were no declarations of interest

 

 

 

Public Forum Report by Mayor of deputations heard prior to the meeting

There was one request to address Council at a public forum received from Mr Lucas Scarpin regarding Item 4.1 Update on Quarterly Budget Review Statement - 31 March 2020 , prior to the deadline.   Mr Scarpin was advised that due to this being an extraordinary meeting there are no formal deputations.  However, the Mayor and Deputy Mayor were willing to receive a written submission/deputation. Mr Scarpin provided a written submission on Council’s financial statements (sent direct to Councillors by Mr Scarpin), and a video recording (sent to Executive Assistant).   To respond to his submission, Mr Scarpin met with the Mayor, Cr Fitzpatrick, Cr McBain and the Director Business and Governance yesterday (12/7/20). Mr Scarpin also indicated an offer to provide input into plans moving forward. I thank Mr Scarpin for his professional and committed approach and his input. At the conclusion of the meeting, Mr Scarpin indicated he was confident that Councillors had the paper provided, that Councillors were aware of the issues and challenges before it and had commenced implementing actions to address these issues and Mr Scarpin withdrew his request to address Council. The submission provided is included as Annexure A of these minutes, which will be made available on Council’s website here: http://begavalley.infocouncil.biz/ Cr Allen and Cr Bain indicated they had not received any email or written submission from Mr Lucas Scarpin. Cr Allen requested the submission be provided to him today. The General Manager indicated the submission could be provided to all Councillors, as well as the video recording and asked Councillors to provide their preference for the recording to be shown. All Councillors agreed. The video recording from Mr Scarpin was shown and is available to view on Council’s website here: http://webcast.begavalley.nsw.gov.au/archive.php

A point of order was called by Cr Dodds regarding the discussion not following the Extraordinary Meeting Agenda.

The Mayor ruled in favour of the point of order and moved to the next item in the meeting agenda.

 

	Movement of Item 5.1 to be dealt with prior to Item 4
	A motion was moved Cr Nadin and Allen That Item 5.1 Independent review of financial statements be brought forward to be dealt with prior to Item 4 of the agenda. In favour:             Crs Fitzpatrick, Bain, Nadin, Griff, McBain, Seckold, Tapscott, Dodds and Allen Against:                  Nil

 

 

 

 

3.    Staff Reports – Governance and Strategy

 

3.1	Extraordinary Council Meeting 13 July 2020
143/20	RESOLVED on the motion of Crs Nadin and Bain That Council note the request for an Extraordinary Meeting and the notification and scheduling of this meeting meet the requirements of the Code of Meeting Practice.   In favour:             Crs Fitzpatrick, Bain, Nadin, Griff, McBain, Seckold, Tapscott, Dodds and Allen Against:                  Nil

 

  5.     Notices of Motion

5.1

Independent review of financial statements

A motion was moved by Crs Nadin and Bain   1.    That Council commission, as a matter of urgency, a contractor to provide an independent forensic audit of Council’s present financial position (as at 30/6/20) prior to the final annual audit 31/10/2020 but as soon as possible so as to ground-truth a sound future financial commitment in its Long Term Financial Plan, Resourcing Strategy, Delivery and Operational plan for 20/21 financial year (now commenced).  2.    That the audit identify expenditure from all restricted and unrestricted funds and include the financial years 2017, 2018, 2019 and 2020. 3      That Council call for tenders for the appointment of the external contractor and that a subsequent report be presented to Council to appoint the firm to carry out the work. 4.    That council exclude tenders from companies outside NSW, companies in the Bega Valley Shire or the accounting firm Deloittes and the NSW Audit Office/Auditor General that audited Council’s financial statements and therefore has a conflict of interest. 5.    That the independent investigation and audit of Council's present financial position be funded by an initial contribution of $50,000 from General Manager’s legal allocation noting that additional allocation may need to be identified following the tender process. A point of order was called by Cr McBain regarding the timing of Cr Nadin’s questions. The Mayor ruled in favour of the point of order.   A point of order was called by Cr Dodds regarding Cr Nadin mentioning that it could be perceived that Council is cash insolvent. The Mayor ruled in favour of the point of order.   A point of order was called by Cr Dodds regarding Cr Bain’s comment of “paid peanuts you get monkeys” which could reflect upon our staff. The Mayor asked Cr Bain to withdraw her statement.   The motion was put to the vote and it was LOST In favour:             Crs Nadin, Allen and Bain Against:                  Crs Tapscott, Fitzpatrick, McBain, Seckold, Dodds and Griff

 

A motion was foreshadowed by Crs Fitzpatrick and Dodds 1.    That Council note the upcoming Councillor briefing to be held in August covering consideration of reserves and subsequent planned report to Council on reserve movement procedure as part of the 2020 financial statements and refer this to ARIC for consideration. 2.     That Council  appoint a second Councillor representative to the ARIC. 3.     That Council continue in its consideration of the operational plan and budget at the Council meeting on 22 July confident that the financial position of Council has challenges as all local councils do but the process is on track to work to improving Council’s financial sustainability. 4.     That Council approach our local member Minister Andrew Constance to request that the NSW Auditor General and the Office of Local Government fund  a review of Council’s financial positions as at 31 March 2020 and 30 June 2020 and projected at 30 June 2021 particularly focussing on the restricted and unrestricted reserves and the cash position at each point in time.   A point of order was called by Cr Dodds regarding Cr Bain’s comment of “sweeping it under the carpet” and “sick of your points of order”. The Mayor ruled in favour of the point of order.   A point of order was called by Cr Nadin regarding Cr Dodds comments. The Mayor ruled in favour of the point of order.   A point of order was called by Cr Nadin regarding Cr Dodds’ comments about Cr Nadin contacting the media. The Mayor ruled in favour of the point of order.   A point of order was called by Cr Bain regarding Cr Dodds’ comments about Cr Nadin not attending the ARIC meeting. The Mayor ruled in favour of the point of order. The motion was put to the vote and it was CARRIED. In favour:             Crs Tapscott, Fitzpatrick, McBain, Seckold, Dodds and Griff Against:                  Crs Allen and Bain ABSTAINED:             Cr Nadin

144/20

RESOLVED on the motion of Crs Fitzpatrick and Dodds 1.     That Council note the upcoming Councillor briefing to be held in August covering consideration of reserves and subsequent planned report to Council on reserve movement procedure as part of the 2020 financial statements and refer this to ARIC for consideration. 2.     That Council  appoint a second Councillor representative to the ARIC. 3.     That Council continue in its consideration of the operational plan and budget at the Council meeting on 22 July confident that the financial position of Council has challenges as all local councils do but the process is on track to work to improving Council’s financial sustainability. 4.     That Council approach our local member Minister Andrew Constance to request that the NSW Auditor General and the Office of Local Government fund  a review of Council’s financial positions as at 31 March 2020 and 30 June 2020 and projected at 30 June 2021 particularly focussing on the restricted and unrestricted reserves and the cash position at each point in time. In favour:             Crs Fitzpatrick, Griff, McBain, Seckold, Tapscott and Dodds Against:                  Crs Bain and Allen ABSTAINED:             Cr Nadin

 

4.    Staff Reports – Finance

 

4.1	Update on Quarterly Budget Review Statement - 31 March 2020
	12:12pm      Cr Nadin left the meeting
145/20	RESOLVED on the motion of Crs Allen and Seckold That Council: 1.    receive and note the updated pages for the March 2020 Quarterly Budget Review Statement (QBRS) attached and; 2.    note the administrative correction relates to the information contained in the ‘Actual 30-Jun-19’ column of the Cash and Investments sheet included in the March QBRS and; 3.    adopt the correction as presented and included in future reporting for FY2020 4.   formally resolve to refer Quarterly Budget Reviews to the Audit Risk and Improvement         Committee for review and consideration of the framework in which they are presented and         review of the mitigation and controls that Council has in place, or are implementing to         improve the  Council discussion of the results of the QBRS. In favour:             Crs Fitzpatrick, Griff, McBain, Seckold, Tapscott, Dodds and Allen Against:                  Cr Bain ABSENT:                    Cr Nadin

  

5.        Notices of Motion

 

Item - 5.1 Independent review of financial statements – was moved to be dealt with prior to Item 4 of the agenda.

 

 6. Questions with Notice

 

6.1	2019 Audited Financial Statements and 2020 March Quarterly Budget Review
	A response to this question was included as a report in the Agenda of 13 July 2020.

 

6.2	March QBR Forecast - Unrestricted Cash
	A response to this question was included as a report in the Agenda of 13 July 2020.

 

  

7.    Confidential Business

There was no confidential business.

8.    Adoption of reports from Closed Session

There was no adoption of reports from Closed Session.

9.    Resolutions to declassify reports considered in closed session

There was no resolutions to declassify reports considered in closed session.

Closure

There being no further business, the Chairperson closed the meeting at 12:17 pm.

Confirmed

Chairperson

Chairperson of the meeting of the Bega Valley Shire Council held on Monday 13 July 2020 at which meeting the signature hereon was subscribed.

Written Submission from Mr Lucas Scarpin

regarding

Item 4.1 Update on Quarterly Budget Review Statement - 31 March 2020

 

Good morning Councillors and staff.

This submission is in relation to Item 4.1 on the Business Paper of the meeting held on July 13, 2020.

I would like to state for the record, that I am a Fellow of the CPA, I am an CPA (Mem #9647824) qualified Accountant with more than 20 years’ experience across a range of Commercial and Government industries. I have more than 13 years’ experience in Local Government accounting, 9 of which were spent with the Bega Valley Shire Council. I spent 5 of those years as Councils Chief Financial Officer and 3 years as Councils Director Strategy and Business. I resigned my employment at BVSC in January 2017. 

I would like to draw the Councils attention to a very serious financial implication that is being presented in todays QBRS business paper.

It is my professional opinion that the Bega Valley Shire Council is in a dire current Cash position. I will illustrate to Councillors, through the documents presented to todays meeting that this position has existed for some time, and is projected to get much, much worse unless Council decides to change its course.

I cannot stress enough, the importance, and the consequence of failing to act at this time.

Council is a very complicated organization. The financial management of which is extremely complicated and difficult to understand. It is very easy to get overwhelmed in the mass of information and data produced. I could spend all day going through the issues in detail but in 5 minutes I must stay as high level as I can and as simple as I can. In order to do that, I am going to focus on Councils physical cash holdings. The money actually in Councils bank account.

Further to that, I have circulated a far more comprehensive document to Councillors (and to any member of the public who wishes to see it) which provides referential evidence to my claims.

I am presenting to Council that at June 30, 2020 and as published in Councils own documents, that Council does not hold enough cash to meet its external obligations.

If you look at Page 15 of your Business Paper. You should be looking at totals of Councils Cash Position. If you accept that Council restrictions come with an obligation to spend that money at some time in the near future.

Section 409 of the NSW Local Government Act (1993):

(1)  All money and property received by a council must be held in the council’s consolidated fund unless it is required to be held in the council’s trust fund.

(2)  Money and property held in the council’s consolidated fund may be applied towards any purpose allowed by this or any other Act.

(3)  However—

(a)  money that has been received as a result of the levying of a special rate or charge may not be used otherwise than for the purpose for which the rate or charge was levied, and

(b)  money that is subject to the provisions of this or any other Act (being provisions that state that the money may be used only for a specific purpose) may be used only for that purpose, and

(c)  money that has been received from the Government or from a public authority by way of a specific purpose advance or grant may not, except with the consent of the Government or public authority, be used otherwise than for that specific purpose.

Furthermore, the NSW Local Government Accounting Code states:

Unspent grants and contributions – external restrictions Certain grants and contributions are obtained by NSW Council on the condition they be spent in a specified manner due to externally imposed restrictions.

This QBRS states that at June 30, 2020 Council predicts that it will have $65.69m in the bank. However, the sum of its restrictions equal $86.66m. This means that Council has accepted money that comes with an obligation to spend of $86.66m, but it only holds $65.692m in its bank account.

 

 

In any commercial setting this would be grounds to raise questions around the solvency of that entity. Councils do not operate in a commercial setting; however, this alone should be grounds for Council to want to investigate how this came to be?

 

 

 

 

 

 

 

To further provide evidence that Council must investigate this matter, I draw your attention to the timeline of cash movements published in this report.

On the same page as previously directed, the QBRS states that at 30 June 2019, Council finished the year with a negative unrestricted cash position of $8.79m. You may ask yourselves; how does someone have negative cash? The answer is you cannot. There is no such thing.

The negative cash represents the Council organization saying that it had physically used $8.8m more in cash than it held in its unrestricted funds.

During the 2019 audit. Councils auditors advised Council that it, and I quote from the Council report in this Business Paper:

“As part of the finalisation of the FY2019 Financial Statements Council were required to reduce its internal restrictions as there was insufficient cash to support the level of documented restrictions. These internal restrictions are still recorded in the cash and investment sheet prepared for the March QBRS which provides the current information; the intent is for Council to formally review its internal restrictions to inform the FY2020 Financial Statements.”

If Councillors were able to see the Reserves note from the adopted and submitted 2019 Financial Statements (page 28 for any of you that might have them handy),

You will see that the Auditors balanced the negative cash of $8.79m against the Internal Reserves of Council, which was valued at $12.03m, resulting in the Internal Reserve position of Council being reduced to $3.24m in the financial statements.

That is a reduction in internal reserves of Council by more than 70%. Those internal reserves include community funds for committees, environmental management, recreational facilities, use of SRV funds, and many others. Your adopted Financial Statements state that Council has used those funds to balance its negative cash position.

As indicated by staff in their report, only Councillors can resolve to release internal restricted funds, that is the law.

The NSW Local Government Accounting Code states:

Internal restrictions shall include those assets, the uses of which are only restricted by a resolution of the elected council. These assets are disclosed with details of the nature of the internal restrictions.

To this date, that report has never been brought before Council. Council staff state they intend to bring it before Councillors, but this action was taken more than a year ago. Why hasn’t Council resolved its reserve position before now?

You have a problem in that your Financial Statements as published are not accurate as they include an allocation of restrictions that has no Council resolution to authorize that movement. Which Staff acknowledge should have happened but hasn’t.

Furthermore, the negative unrestricted cash as presented in todays reports estimates the negative cash grows from $8.8m at the start of the year to $21m at June 30, 2020.

My statement to Councillors is, if you had been presented with a report from staff attached to the 2019 financial statements and audit that stated that due to a cash overspend, Council had to release $8.8m or 70% of the Councillors internal reserves to balance the books, that that action and corresponding debate would have flagged to Councillors that there was a significant problem with Councils operational spending. Further to that point, the omission of that report and the resulting debate it would have created has created an environment that allowed the cash deficit to grow to $21m. To the point now that Council does not have enough money in the bank to meet its external obligations.

Councillors, I need to stress the importance of what I am saying. You have a cash spending problem. This problem was brought to the organisations attention back in 2019 and during the failure to resolve this issue that problem has now grown to $21m. Further to this point, your exhibited LTFP states that that cash deficit will rise to more than $50m by 2024. It is not being fixed. It is being increased.

You must act quickly. This is not an accounting problem. This is a real-world cash problem. You are already in default of your external obligations, that alone is enough evidence that an independent investigation is required. If you adopt this QBRS, you are resolving that you agree with the cash position of Council. You are on a path that leads to the financial ruin of this council. However, it is not too late. It can be resolved. But the first step is to admit you have a problem. Then get to work fixing it, not perpetuating as is being put to the community at this time.

I must also state for the record that as a CPA member, I have an obligation to report adverse financial matters as I see them. Regardless of Councils action at todays meeting, I feel I have no choice but to report my claims to the appropriate regulatory authority, which in this case is the Office of Local Government. I extend an offer to explain my concerns in detail for any Councillors who would like to hear them.

Thank you for your time.

Lucas Scarpin

CPA Member #9647824