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​Figures and facts

1/4/2017

13 Comments

 
Picture
Is Bass Coast Shire almost broke or in good financial shape? It depends on who you ask. While Cr Les Larke insists we are well on the road to financial ruin, Frank Schooneveldt analyses the numbers and concludes that Cr Larke is leading his fellow councillors down the wrong path.

By Frank Schooneveldt
 
COUNCILLORS are responsible for three things in running a council: governance, strategy and growth. In all three areas, they should use highly competent council staff to assist in their decision-making processes.  
 
Since being elected, our Bass Coast councillors have made some appalling decisions. The decision not to proceed with the Cowes refurbishment project comes to mind, as does the decision not to pursue state government funding for the Wonthaggi highball stadium project.
 
These decisions have been based on a narrow view of Bass Coast Shire’s financial position which reveals a clear misunderstanding of their role and the fundamentals of financial management.
 
Many of these decisions seem to be based on the assessments of one councillor, Cr Les Larke, that Bass Coast is in severe financial difficulty.
 
In this week’s South Gippsland Sentinel-Times, Cr Les Larke stated: “I wish to confirm that the Bass Coast Shire Council has incurred and is projected to incur substantial deficits (excess of operating expenses over operational income) for a sustained period of five years as follows:
Year ending 30th June 2013 $3.448M
Year ending 30th June 2014 $8.542M
Year ending 30th June 2015 $2.432M
Year ending 30th June 2016 $5.730M.
Year ending 30th June 2017 $4.233M (Projected)
 
The council’s audited financial statements recorded:
Year ending 30th June 2013 a surplus of $6.573M
Year ending 30th June 2014 a surplus of $2.89M
Year ending 30th June 2015 a surplus of $6.793M
Year ending 30th June 2016 a deficit of $1.225M
 
These are huge discrepancies that Cr Les Larke needs to explain.
 
At 30th June 2016 the Bass Coast had cash and cash equivalents of $26.342M. At the same period in 2015 it was $24.320M, in 2014 $17.076M and in 2013 $17.014M. People of Bass Coast, please note the increasing bank balance!
 
At 30th June 2016, Bass Coast had equity of $576.795M. At the same period in 2015 it was $577.881M, in 2014 $530.525M and in 2013 $491.398M. People of Bass Coast, please note our equity has grown by $85M in the past three years.
 
It is just plain wrong to suggest that Bass Coast is in financial difficulty.
 
I have suggested that councillors calls for a 12-month rolling cash flow forecast that reveals monthly income and expenses and forecasts monthly closing cash and cash equivalent balance. I have also suggested that councillors call for the council’s borrowing capacity.
 
Bass Coast needs to grow because if you don’t grow you wither and die. Think the City of Bass Coast and how we are going to get there.
 
THE POST ASKED CR LARKE TO RESPOND TO MR SCHOONEVELDT’S POINTS. HE DID SO AS FOLLOWS:
 
The operating deficits stated in my letters are confirmed as correct and determined from publicly available annual reports and the December 2016 Financial Report which includes the forecast to 2017. 
 
I suggest Mr Schooneveldt examine published annual reports more closely, particularly the fine print in notes to the accounts in relation to the excess of operating expenditure over operating income - otherwise known as the adjusted underlying result, which highlights sustained operating deficits over the years as outlined. 
 
AND IN AN OPEN LETTER TO MR SCHOONEVELDT:
PictureLong-term Financial Plan, 2017-27
Please find attached the numbers that will explain the basis of operating deficits for the financial years ended 30 June 2013 to 30 June 2016 inclusive.
 
This confirms operating expenditure exceeded operating income over these financial years in excess of $20m, and such a trend is not financially sustainable.
 
That said, I fully respect the difficulty you encountered in interpreting publicly available information, and agree there is a need for more transparency to assist our community further understand and interpret annual reports including financial results.
 
I also confirm my offers to meet, and answer any further questions you may have.
 
TO WHICH MR SCHOONEVELDT RESPONDED:
 
Cr Larke likes to talk while I like to have the figures do the talking, especially in regards to cash flows.
 
There are no notes or schedules to the accounts that alter the audited financial statements as suggested by Cr Larke. For the record, we should only be dealing with figures from the audited financial statements. If Cr Larke states that the audited reports are wrong, then let us call in the Auditor General.    
 
We know from the Bass Coast audited financial statements that the shire’s cash and cash equivalents balance has grown from $17.014M at 30th June 2013 to $26.342M at 30th June 2016. This is an increase of $9.33M.
 
Cr Larke needs to provide a detailed reconciliation of his stated deficit of $20.15M from 2012-16 and the Bass Coast Shire audited surplus of $15.03M – a variance of $35.18M – and the increase in the Bass Coast cash and cash equivalents of $9.33M – a variance of $29.48M.
 
In other words, how was Cr Larke’s suggested deficit of $20.15M funded?
 
At 30th June 2012 the shire had borrowings of $7.82M, which had grown to $12.53M at 30th June 2016, an increase of $4.71M. Obviously the $20.15M deficit was not funded from an increase in borrowings. When you know the bank balance increased by $9.33M, it begs the question how this $20.15M deficit was funded?
 
As ratepayers, our role is to ask questions. I am all for developing much-needed infrastructure that supports and underpins the development of the shire and, one day, city status.
 
I wonder what Cr Larke’s vision is for Bass Coast?
 
Wonthaggi artist Frank W Schooneveldt is a former finance director of the A G Coombs group, one of Australia’s biggest building services contractors. 
 
Cr Les Larke is a former general manager of State Trustees. His election campaign focused on alleged financial mismanagement of the council.

13 Comments
Cr Les Larke
2/4/2017 10:12:30 am

Open letter to Mr Schooneveldt
Firstly, let me thank Mr Schooneveldt for his various emails and articles, insights and contribution to a very public debate on Council’s finances which has been long overdue for the benefit of our community.
However, as indicated, operating deficits of more than $20 million over the financial years ended 30 June 2013 to 30 June 2016 inclusive were incurred by Council. Council incurred more on operating expenditure than it received by way of operating income, and this has had two main consequences:
1. Underperforming capital expenditure for new assets/infrastructure because of insufficient funds available from operations due to the deficits; and
2. Underperforming renewal and upgrade capital expenditure for existing assets/infrastructure, again, because of insufficient funds available from operations due to the deficits.
In other words, if you incur a trend of deficits (where expenditure exceeds income), there is insufficient funds available from operations to fund assets/infrastructure at the appropriate levels.
Our community understands these matters from a non-accounting and less complicated perspective, and that is:
• a continuing trend of operating deficits (in this instance, more than $20 million over several financial years in a row) equals
• insufficient funds available for new assets/infrastructure projects; plus
• insufficient funds available for renewal of existing assets such as roads, footpaths and bridges etc.

I fully respect Mr Schooneveldt when he says he a numbers man, and refer him to the Victorian Auditor-General’s Report Local Government: 2015–16 Audit snapshot (November 2016), where he can confirm the underperformance of Council in the critical areas of capital replacement and asset renewal.
Thank you
Les Larke FCPA
Fellow Certified Practicing Accountant – CPA Australia

Reply
Ray McNamara
2/4/2017 11:27:19 am

It is good to see a debate happening on BCSC finances. I think that the arguments put forward by both Cr Les Larke and Mr Schooneveldt contain information and conclusions that are right and wrong.
It is therefore very hard to get the real financial picture of Council's financial health.
For example, the BCSC document cited by Cr Larke "Long-term Financial Plan, 2017-27" is a great display of how hard it is to get the "financial facts". It claims to be a summary of Council's Income. It is not. It is a mish-mash of actual cash flows ($ in and $ out) combined with non-cash adjustments to the carrying value of assets (depreciation and revaluation), which are not "cash in/out" or real income/expense figures.
So, we need to get down to what Council "earns" and what Council "spends". This is the same as business accounting - Profit/Loss before Tax, Depreciation.
If we can get to that "bottom line", then we can talk about Capital Investment and borrowings.
At the moment, the Council financial figures do not give us that picture unless you delve into the Schedules of the Budget.
For many years, BCSC has adopted the State Government financial reporting methodology, and so the budgets get a tick from the auditor.
The awful truth is that the Government's methodology looks nothing like "business" methodology.
So, can our 2 correspondents get their accounting heads together and give us a simple analysis of Council's Profit/Loss actual and forecasts the same as we would need to provide to a bank to get a loan? The value of assets (roads, parks, buildings) has nothing to do with profit/loss. It just informs lenders of our ability to meet our debts if there is a need in the future for a fire sale.

Reply
Frank W Schooneveldt link
2/4/2017 02:14:27 pm

Thank you Ray for your excellent and positive points.
I hope we both get the answers we are looking for so we can move forward for the greater good of the Bass Coast Shire.
Frank W Schooneveldt


Reply
Frank W Schooneveldt link
2/4/2017 02:04:40 pm

Thank you for your response Cr Larke.
To move forward on these matters I believe that what is needed are figures that show the true financial position of the Bass Coast Shire such as a simple explanatory statement that provides a detailed reconciliation of your stated deficit of $20.15M and the Bass Coast Shire last audited surplus of $15.03M a variance of $35.18M.
It is this kind of variance that causes me concern. And, as previously stated my ultimate concern is how Bass Coast Shire can provide much needed infrastructure to underpin current and future development.
Frank W Schooneveldt

Reply
Garry Busowsky
2/4/2017 09:02:23 pm

I have run my own private business (19 staff) for over 30 years and its survivability depends on making sure that your income +cash on hand exceeds allowances for depreciation (actually putting that money aside) and loan servicing (interest on borrowings) + operational expenses.

I find it hard to understand how audited deficits can occur and at the same time as cash on hand increases. I have observed how public accounting practises have run assets down and not built up the infrastructure and viability of public enterprises.

I have to side more with Frank as I know exactly where he is coming from... Phillip Island infrastructure needs to improve and facilities need to be built to make it a vibrant and viable place to live and visit.

Garry Busowsky

Reply
Frank W Schooneveldt link
4/4/2017 06:31:04 am

Thank you Gary,
From my memory as I am currently in Japan, The Bass Coast EBITDA (earnings before interest tax depreciation and amortisation) over the past four years was around $50M. You ask good questions on how this was spent.
I would think that there are a number of items in the figures of a non recurring nature that would increase the EBITDA.
We live in a time of historically low interest rates so it is a good time to lock in interests rates,increase some debt and build infrastructure for the benefit of the people of Bass Coast.
For Cr Les Larke to say that the council is in financial difficulty is just plain wrong.
I wander what is our current crop of councillors vision ifor the people of Bass Coast. They need to use words like can,do and how.
Cheers from Osaka Japan, sister City to Melbourne and Melbourne is the world's most liveable city by a long shot.
Frank W Schooneveldt.

Reply
Geoff Ellis
12/4/2017 07:56:40 pm

Folks, everything is OK*

I commend the BCP for providing an unrestrained forum with underlying intent to inform an oft' alarmed populace.

I also note the admirable diligence exhibited by the writers of this article and the commentators it has inspired. I trust that every contribution has been made with the best interests of our Shire in mind and that there is no ego or malice at play.

Mr Schooneveldt advises (in predictably repetitious comments) that councillors should learn the meaning of words such as "do’, ‘can’ and ‘how’ because it is actions that speak greater than words" and I wonder if he envisages that such sneering platitudes set up a positive dialogue. They don't.

I trust that he will act on his own advice when nominations open in 2020 but hope that he can find a decent copywriter to espouse his vision of "City of Bass Coast" which currently mystifies me. Is it like the Jetsons?

Speaking of quixotic campaigns, fiscal enlightenment seems to be high on the agenda these days and I really admire people who want to give it a go. Really.

There is a thin line between information and education and folks these days want short answers to long questions.

My two bob's worth? We're OK* We just need to be prudent.

*in my opinion.





Reply
Frank W Schooneveldt
13/4/2017 10:32:39 am

Geoff,
Thank you for your comments. But to repeat myself, I believe that all is not ok when the Shire fails to provide or upgrade infrastructure to meet the existing and growing needs of Bass Coast communities.

Cheers
Frank W Schooneveldt

Reply
Geoff Ellis
13/4/2017 10:27:08 pm

I appreciate the tautological satire but your erroneous assertion re infrastructure is clearly lacking substantive analysis. Still waiting to hear about Astro and Elroy.

Frank W Schooneveldt
15/4/2017 06:50:45 am

Geoff, I do not know how to respond to your comments and reference to a 1960s TV program except to ask what is Cr Geoff Ellis' vision for the Bass Coast Shire?
My vision is clear based on an analysis of the publicly available figures of the Bass Coast Shire which I have previously stated.
Cheers
Frank W Schooneveldt

Reply
Geoff Ellis
16/4/2017 09:08:44 pm

Good Evening Frank,

Sorry that my threadbare whimsy was inexplicable.

I was referencing earlier comments regarding your advice to "Think City of Bass Coast" and hoping for further inspiration.

My vision?

I am part of a team working hard to help shape a better Bass Coast. The draft of our four year plan - based on an intense and extended conversation with the population of Bass Coast - will soon be available for public scrutiny.

Kind Regards
GjE

Reply
Frank W Schooneveldt
17/4/2017 07:39:20 am

Geoff,
I look forward to reading the plan and trust it will address issues such as the provision of infrastructure for the Bass Coast.
Cheers
Frank W Schooneveldt.

Reply
Phil Westwood link
25/6/2017 10:31:25 am

Frank is broadly right in his comments, the figures show that Bass Coast Shire has a significant operating surplus which must be the envy of many councils. The big surplus may cause some ratepayers may question why there is a need to increase rates.

Reply



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