A tier 5 regional council in Queensland · Financial Health Check
Finding $1.5m in a council's operating result
A new CFO inherited three years of operating deficits and an audit letter questioning financial sustainability. Councillors wanted to know whether the problem was spending, revenue or the way the numbers were being calculated.
$1.5m a year: $1.2m of depreciation overstated by road useful lives set below the council's own condition data, and $0.3m from two fee categories not indexed for four years.
Insight
The ratios were being dragged down less by spending than by assumptions. Road network useful lives were set well below the council's own condition data, so depreciation ran about $1.2m a year higher than the assets justified, and two fee categories had not been indexed in four years.
Advice
Review road useful lives against condition data before the next revaluation, index the two stale fee categories, and move three low-priority capital projects out a year so renewal spending matched the asset management plan.
Opportunity
Correcting the useful-life assumptions and indexing fees moves the forecast operating result by about $1.5m a year, and gives councillors ratios that describe the real position rather than an accounting artefact.
Results
The council adopted all three actions in its next budget. The forecast operating result moved from a $2.1m deficit to a $0.6m deficit, and the audit committee had a baseline to track against.