Agenda of Special Council Meeting

Agenda

Good evening Councillors, staff, ladies and gentlemen, we wish to acknowledge the traditional custodians of the land we are meeting on, the Whadjuk people. We would like to pay respect to the Elders of the Nyoongar nation, past and present, who have walked and cared for the land and we acknowledge and respect their continuing culture and the contributions made to the life of this city and this region and I invite you to bow your head in prayer:

Lord

We ask for your blessing upon our City, our community and our Council. Guide us in our decision making to act fairly, without fear or favour and with compassion, integrity and honesty. May we show true leadership, be inclusive of all, and guide the City of Wanneroo to a prosperous future that all may share. We ask this in your name.

Amen

Item 1 Attendances

Item 2 Apologies and Leave of Absence

Item 3 Public Question Time

In accordance with Section 7(4)(b) of the Local Government (Administration) Regulations 1996, a Council at a Special Meeting is not required to answer a question that does not relate to the purpose of the meeting. It is therefore requested that only questions that relate to items on the agenda be asked.

Item 4 Reports

Declarations of Interest by Elected Members, including the nature and extent of the interest. Declaration of Interest forms to be completed and handed to the Chief Executive Officer.

Strategic & Business Planning

SCS01-11/18 Annual Report 2017/18

File Ref: 35023 – 18/496791

Responsible Officer: Director Corporate Strategy & Performance

Disclosure of Interest: Nil

Attachments: 1

Issue

To consider the unbranded City of Wanneroo Annual Report 2017/18.

Background

The development of an Annual Report is a requirement of the Local Government Act 1995 (the Act). Section 5.53(1) of the Act requires local governments to develop and publish an Annual Report for each financial year with the required content of the Annual Report specified in section 5.53(2) of the Act.

Section 5.54 of the Act requires that the Local Government accepts the Annual Report for a financial year no later than 31 December after that financial year; the exception being that if the Auditor’s report is not available in time for the Annual Report for a financial year to be accepted by 31 December after that financial year, the Annual Report is to be accepted by the Local Government no later than 2 months after the Auditor’s report becomes available.

Detail

The Annual Report 2017/18 outlines the progress made towards the strategic objectives as set out in the City’s Strategic Community Plan 2017/18-2026/27 and details achievements and performance against the 2017/18 commitments made in the Corporate Business Plan 2017/18 - 2020/21.

The template for the Annual Report was developed based on the learnings and formal feedback on improvement opportunities as received from the Australasian Reporting Awards (ARA) adjudicator in relation to last year’s Annual Report. It has also been enhanced with the inclusion of the Global Reporting Initiative (GRI) standards as well as the Elected Member Profiles. The GRI is a reporting framework with guidelines and measures for organisations to monitor and report performance on economic, environmental, social and governance sustainability and impacts. The aim is to improve each year on sustainability reporting which will enable the City to monitor progress towards sustainability.

Consultation

In preparing the Annual Report, consultation has occurred with Elected Members, Executive Leadership Team, Managers and service specific specialists.

The first draft of the Annual Report was submitted to the Executive Leadership Team on 27 September 2018 for review and feedback. The Audit and Risk Committee reviewed the first draft on 23 October and recommended the final version of the Annual Report on 13 November 2018.

Branding of the Annual Report and production of an interactive PDF version will occur after Council adoption.

Comment

The ARA provides an opportunity for the City to benchmark its report against the ARA criteria, with the purpose being to improve the standards and quality of financial and business reporting. The Annual Report 2017/18 will again be entered into the ARA.

Statutory Compliance

Section 5.55 of the Act requires that Council give local public notice of the availability of the Annual Report once adopted by Council. This will be carried out via advertisements in newspapers, the City's website and notices placed on Council’s Public Notice Boards.

Section 5.27 of the Act states that a General Meeting of the Electors (AGM) is to be held once every financial year and not more than 56 days after the local government accepts the Annual Report.

The AGM is scheduled to be held on 3 December 2018, 6 days after Council adoption; this will ensure that the Annual Report complies with section 5.27 of the Act which requires the report to be submitted to an AGM within 56 days.

Strategic Implications

The proposal aligns with the following objective within the Strategic Community Plan 2017 – 2027:

“4 Civic Leadership

4.2 Good Governance

4.2.1 Provide transparent and accountable governance and leadership”

Risk Management Considerations

Risk Title	Risk Rating
Strategic Community Plan	Low
Accountability	Action Planning Option
Director Corporate Strategy and Performance	Manage

Risk Title	Risk Rating
Integrated Planning and Reporting	Low
Accountability	Action Planning Option
Executive Leadership Team	Manage

Risk Title	Risk Rating
Financial Management	Moderate
Accountability	Action Planning Option
Executive Leadership Team	Manage

The above risks relating to the issue contained within this report have been identified and considered within the City’s Strategic and Corporate risk registers respectively. Action plans have been developed to manage these risks and to support existing management systems.

Policy Implications

Nil

Financial Implications

The cost of developing the Annual Report will be met through the City’s operating budget.

Voting Requirements

Absolute Majority

Recommendation

That Council:-

ADOPTS BY ABSOLUTE MAJORITY the unbranded City of Wanneroo Annual Report 2017/18 as recommended by the Audit and Risk Committee.

Attachments:

1 ⇩.

Attachment 1

18/500143

CITY OF WANNEROO Agenda OF Special Council Meeting 27 November, 2018 5

Transactional Finance

SCS02-11/18 Annual Audited Financial Statements for the period ended 30 June 2018

File Ref: 35363 – 18/495827

Responsible Officer: Operations Manager Business & Finance

Disclosure of Interest: Nil

Attachments: 2

Issue

To consider the Audit and Risk Committee’s recommendation to Council to adopt the City’s Annual Audited Financial Report (the Report) for the year ended 30 June 2018, audited by the City’s Auditors, the Office of the Auditor General (OAG).

Background

In accordance with the Local Government Act 1995 a local government is required to prepare an annual financial report on its operations for the preceding financial year by 30 September and submit the report to its Auditors.

The City submitted its draft Annual Financial Report to its Auditors OAG, through their sub-contracted auditor Grant Thornton, in September 2018. They have completed their audit and issued the Independent Auditor’s Report for the year ended 30 June 2018.

Detail

The Report is per Attachment 1. As part of the City’s audit process, as agreed with OAG, the Audit and Risk Committee is requested to review the Report and authorise the Chief Executive Officer (CEO) to sign the “Statement By Chief Executive Officer” (page 2 of Attachment 1), as required by the Local Government (Financial Management) Regulations 1996 Regulation 51. Subsequent to the receipt of the Report that was signed by the CEO, the OAG issued the Independent Auditor’s Report (Attachment 2).

Consultation

The Report was presented to the Audit and Risk Committee held on 13 November 2018, it was resolved that the Committee:

“1. RECOMMENDS the CEO to sign the “Statement by Chief Executive Officer” (page 2 of Attachment 1), as required by the Local Government (Financial Management) Regulations 1996 Regulation 51; and

2. RECOMMENDS that Council ADOPTS the Annual Audited Financial Report for the City of Wanneroo for the year ended 30 June 2018 as detailed in Attachment 1.”

Comment

It should be noted that within the context of the Report, actual operational results are compared with the original Adopted Budget and not the Revised Budget adopted by Council during the year in review. The Budget document is an evolving document that changes throughout the year as circumstances in the City of Wanneroo change. The changes are recognised and recorded through the process of the Budget reviews approved by Council and the updated Budget is referred to as the Revised Budget. A monthly financial activity statement is provided to Council explaining the year to date Budget variances using the Revised Budget as comparison.

The following commentary is provided to highlight the most critical financial information and to acknowledge areas of financial interest, achievement or concern. In this analysis, all operating budget figures are in accordance with the original Adopted annual Budget and all the budgeted capital expenditures are in accordance with the Revised Budget.

(1) Results from Operations

The result from operations graph shows stable financial results achieved through an increase in income and cost containing programs. Reasons for variance to the Adopted Budget in 2017/18 include the early partial receipt of the 2018/19 Financial Assistance Grant, decreased depreciation charges, lower than anticipated costs associated with material and contracts, savings in consulting fees and lower refuse expenses.

(2) Operating Revenue

The City’s revenue is derived from various sources, including Rates, Fees & Charges, Interest Earnings, Other Revenue & Grants and Subsidies & Contributions. Annual Operating Actual Revenue is compared against the Revised Budgeted Revenue in the graph below.

Operating Revenue continues to track in line with Revised Budget despite the percentage increase in annual rates falling over the last five years. This outcome resulted from an increased number of Rateable properties and improved operational management in the City. Operating Revenue has also experienced increases in the past two years due to the early partial receipt of Financial Assistance Grants from the Department of Local Government, Sport and Cultural Industries (DLGSC) which accounted for $3.5 million in 2017/18.

More than 81% of the City’s operating revenue is attributable to Rates. While the proportion of Rates income is consistent with previous years, there is a greater focus on increasing alternative revenue sources through Grants, Subsidies & Contributions and Fees & Charges. Initiatives currently in place to assist with this intent include proactive work to secure grant funding to support delivery of the City’s projects, establishment of a Revenue Review Committee and a review of all Fees & Charges (in conjunction with determining accurate costs of services).

(3) Operating Expenses

Operating Expenses consist of Employee Costs, Materials & Contracts, Utilities, Depreciation, Interest Expense and Insurance. Annual breakdown is shown as follows:

Operating expenses over the past five years have been tracking in line with or below the Adopted Budget. The achievement of operating expenditure below the Adopted Budget is a result of containing costs through the introduction of cost-saving initiatives and processes across the City. The achievement of lower Operating Expenditure in 2017/18 was mainly due to containing expenses in Materials & Contracts and reductions within Consultancy Fees due to lower than anticipated requirements, lower Refuse Expenses and a decrease in Depreciation charges. Additionally, Employee Costs decreased in 2017/18 as a result of the reduction in workers’ compensation insurance provisions following considerable improvement in injury management at the City over the past two years.

Ninety two percent of the City's Operating Expenses are captured within three categories being; Employee Costs, Materials & Contracts and Depreciation. In reviewing the results of the three categories and when compared to recent financial years, they are consistent and reflective of the City's continued and stable levels of growth.

(4) Statement of Financial Position

Description	2013/14	2014/15	2015/16	2016/17	2017/18		Variance
	Actual	Actual	Actual	Actual	Revised Budget	Actual	% to actual
	$000	$000	$000	$000	$000	$000	% to actual
Total assets	1,852,617	2,364,686	2,477,868	2,911,518	2,328,992	2,731,825	-6.2
Total liabilities	92,874	97,386	101,916	112,630	97,636	109,637	-2.7
Net assets	1,759,743	2,267,300	2,375,952	2,798,888	2,231,356	2,622,189	-6.3

A decrease in Assets is the result of revaluations within Property, Plant and Equipment.

The City was required to undertake revaluation of Land and Building and Furniture and Fittings as at 30 June 2018. This process is in accordance with Local Government Financial Management regulation 17A(2), which requires Plant, Property and Equipment to be shown at fair value.

Upon completion of the valuation exercise, the carrying amount of Land and Building and Furniture & Fittings decreased by $228.2 million which partially offsets the previous increase in the Revaluation Reserve of same class of asset in Equity.

Total liabilities have experienced moderate increases over the past few years though in 2017/18 there was a decrease of 2.7% as a result of continued improved management of provisions.

It is noted that while $53.1 million was spent on capital programs in 2017/18, an additional $21.4 million of infrastructure assets were constructed by developers as part of subdivisional development and handed over to the City. Developer-contributed assets included roads, pathways, stormwater drainage and parks (the upkeep and maintenance of which is now the City’s responsibility).

(5) Capital Expenditure

Capital spend has been tracking below the Revised Budget in the past five years. The capital program is developed with the aim of balancing the demands for new infrastructure against the need to maintain, renew, upgrade and replace existing assets. While the original Adopted Budget totalled $83.2 million, it should be noted that changes made to capital Budgets throughout the year resulted in a revised total Budget of $75.1 million, against which actual expenditure amounted to $53.1 million. Of the Revised Budget, an estimated $16.2 million was carried forward to 2018/19. Underspend in 2017/18 reflects slippage in a number of projects including: light vehicle plant replacement; Kingsway Olympic Sports clubrooms; and Enterprise Finance System renewal.

The following table illustrates the Capital spend aligned to financial programs.

The two main categories of capital project expenditure relate to Transport, and Recreation and Sport (totalling 57%). The Corporate category reflects extension of the Civic Centre Administration building.

(6) Reserve Balances

To ensure the effective management of municipal funds the City has a number of Reserve accounts created for specific purposes. These funds are systematically invested to maximise their use until required, as identified in the Long Term Financial Plan (LTFP). Indicated below are the total balances of Reserves recorded to account for the past three financial years and Adopted Budgeted balance for 2018/2019 (Note 12 of Attachment 1).

Whilst the 2017/2018 Adopted Budget provided for a net outflow from Reserves of $19.1 million to meet operational and capital project funding requirements, an improvement in the end of year operating results and capital expenditure delays resulted in a net inflow to Reserves of $20.2 million. Whilst the total net reserve transfer for 2017/18 presented a $39.3 million difference from original Budgets the more significant movements are as follows:

Reserve	2017/2018		Comment
	Net Reserve Transfer
	Actual	Adopted Budget
Strategic Projects/ Initiatives Reserve	$10,246,064	-$22,241,797	Improved result from operations
Yanchep/Two Rocks Coastal Corridor Community Facilities reserve	$27,218	$2,792,792	Developers land sales less than anticipated
	$27,218	$2,792,792	Developers land sales less than anticipated
Carry Forward Capital Projects Reserve	$4,667,264	$0	Capital expenditure delayed
Asset Replacement Reserve	$1,209,320	-$250,827	Capital expenditure delayed
Domestic Refuse Reserve	$134,459	-$1,020,040	Project completed with significant savings due to a change in scope
Neerabup Development Reserve	$691,767	-$1,252,299	Capital expenditure delayed

(7) Ratios

Each year a number of financial ratios are prepared as part of the statements, to help further analyse financial results. The City has maintained above benchmark results in all but two ratios.

A description of the purpose of each ratio and explanation for variations to benchmark ratios has been provided in the following pages.

Financial Ratios	2015/2016 Actual	2016/2017 Actual	2017/2018 Actual	Benchmark

Liquidity Ratio
1. Current Ratio
(Current Assets - Restricted Current Assets)	0.88 : 1	0.86 : 1	0.85 : 1	>1 : 1
(Current Liabilities - Liabilities Associated with Restricted Assets)

Debt Ratio
2. Debt Service Cover Ratio
(Operating Surplus before Interest and Depreciation Expense)	13.75 : 1	14.86 : 1	14.92 : 1	>2 : 1
(Principal and Interest Repayments)

Coverage Ratio
3. Own Source Revenue Coverage Ratio
(Own Source Operating Revenue)	1.04 : 1	1.00 : 1	1.05 : 1	>0.4 : 1
(Operating Expense)

Financial Performance Ratio
4. Operating Surplus Ratio
(Operating Revenue - Operating Expense)	0.09 : 1	0.09 : 1	0.11 : 1	>0.01 : 1
(Own Source Operating Revenue)

Asset Management Ratio
5. Asset Consumption Ratio
(Depreciated Replacement Cost of Depreciable Assets)	0.74 : 1	0.72 : 1	0.72 : 1	>0.5 : 1
(Current Replacement Cost of Depreciable Assets)

6. Asset Sustainability Ratio
(Capital Renewal and Replacement Expenditure)	0.45 : 1	0.32 : 1	0.34 : 1	>0.9 : 1
(Depreciation Expense)

7. Asset Renewal Funding Ratio
(NPV of Planned Capital Renewals over 10 years)	1.01 : 1	1.10 : 1	0.91 : 1	>0.75 : 1
(NPV of Required Capital Expenditure over 10 years)

Ratio Description (Local Government Operational Guidelines – Number 18)

Current Ratio This ratio is designed to focus on the liquidity position of a local government that has arisen from past year's transaction.

Debt Service Cover Ratio This ratio is the measurement of a local government's ability to repay its debt including lease payments; the higher the ratio, the greater the borrowing capacity.

Own Source Revenue Ratio This ratio is the measurement of a local government's ability to cover its costs through its own revenue efforts.

Operating Surplus Ratio This ratio is a measure of a local government's ability to cover its operational costs and have revenues available for capital funding or other purposes.

Asset Consumption Ratio This ratio measures the extent to which depreciable assets have been consumed by comparing their written down value to their replacement cost.

Asset Sustainability Ratio This ratio indicates whether a local government is replacing or renewing existing non-financial assets at the same rate that its overall asset stock is wearing out.

Asset Renewal Funding This ratio is a measure of the ability of a local government to fund its projected asset renewal/replacements in the future.

Specific Ratio Result Explanations

Current Ratio The Standard has not been met primarily as a result of the internal restrictions of municipal funds. Most of the municipal funds are kept in special purpose cash backed Reserves.

Debt Service Cover Ratio The Standard has been met by the City. However, this ratio does not take into account 'interest only' loans, in circumstances where the Principal is to be repaid in a future year. The City has a provision in the Loan Repayment Reserve for the repayment of its Treasury funded debt by 2026.

Own Source Revenue Ratio The City has met the benchmark for 2017/18 due to its own source operating revenue exceeding operating expenses, with Rates income being the significant contributor. Capital program funding is in part drawn from the City’s own source revenue

Operating Surplus Ratio The City has consistently exceeded the benchmark due to substantial own source operating revenue to cover both operating and capital expenses.

Asset Consumption Ratio The Standard has been met consistently as the City’s assets are in new to very good condition.

Asset Sustainability Ratio The benchmark has not been met as 85% of the City’s assets are in new to very good condition and less than 1% requiring immediate attention.

Asset Renewal Funding The Standard has been met as the ratio is greater than the 75% target.

Asset Sustainability Ratio

The Department of Local Government, Sport and Cultural Industries Asset Management Framework and Guidelines publication provides the following explanation in respect to the Asset Sustainability Ratio (ASR):

"If capital expenditure on renewing or replacing assets is at least equal to depreciation on average over time, then the local government is ensuring the value of its existing stock of physical assets is maintained. If capital expenditure on existing assets is less than depreciation then, unless a local government’s overall asset stock is relatively new, it is likely that it is underspending on renewal or replacement."

A large percentage of the City's assets are in new to very good condition with approximately 85% of the total asset base at or below condition 2 (a rating of ‘0’ represents a new asset and a ‘10’ represents an asset that has failed). Less than 1% of the asset base is at or above condition 8, which represents assets that require intervention.

With the City's current mix of old and new assets and continued high growth, a lower than average ASR is expected, and the current condition of assets and level of renewal expenditure confirms this position. As the stock ages and renewal expenditure incrementally increases the ratio should increase, however continued growth may keep it relatively lower than the industry standard.

Taking a long term outlook, the level of asset stock and renewal demand necessitates the development of strategies to address the future impact and ensure that the City can continue to grow and maintain its assets in a financially sustainable manner. Given that renewal expenditure is lower than the depreciation being charged and that certain years’ experience significant spikes in demand, a specific Asset Renewal Reserve has been established.

Summary

As demonstrated by the financial data available for each of the key indicators above, the 2017/2018 financial results for the City present a prudent and sustainable financial position that reflects the City's focus on effective and efficient financial management.

Statutory Compliance

Local Government (Financial Management) Regulations 1996 regulation 36 specifies the information that is to be included in the Annual Financial Report.

The Local Government (Audit) Regulations 1996 prescribes the following compliance matters in respect to the Audit Report:

"10. Report by auditor

(1) An auditor’s report is to be forwarded to the persons specified in section 7.9(1) within 30 days of completing the audit.

(2) The report is to give the auditor’s opinion on —

(a) the financial position of the local government; and

(b) the results of the operations of the local government.

(3) The report is to include —

(a) any material matters that in the opinion of the auditor indicate significant adverse trends in the financial position or the financial management practices of the local government; and

(b) any matters indicating non‑compliance with Part 6 of the Act, the Local Government (Financial Management) Regulations 1996 or applicable financial controls in any other written law; and

(c) details of whether information and explanations were obtained by the auditor; and

(d) a report on the conduct of the audit; and

(e) the opinion of the auditor as to whether or not the following financial ratios included in the annual financial report are supported by verifiable information and reasonable assumptions-

(i) the asset consumption ratio; and

(ii) the asset renewal funding ratio.

(4) Where it is considered by the auditor to be appropriate to do so, the auditor is to prepare a management report to accompany the auditor’s report and to forward a copy of the management report to the persons specified in section 7.9(1) with the auditor’s report."

Strategic Implications

The proposal aligns with the following objective within the Strategic Community Plan 2017 – 2027:

“4 Civic Leadership

4.2 Good Governance

4.2.1 Provide transparent and accountable governance and leadership”

Risk Management Considerations

Risk Title	Risk Rating
Financial Management	Moderate
Accountability	Action Planning Option
Executive Management Team	Manage

The above risk relating to the issue contained within this report has been identified and considered within the City’s Corporate risk register. Action plans have been developed to manage this risk to support existing management systems.

Policy Implications

Nil

Financial Implications

As detailed in the Report

Voting Requirements

Absolute Majority

Recommendation

That Council:-

1. ADOPTS BY ABSOLUTE MAJORITY the Annual Audited Financial Report for the City of Wanneroo for the year ended 30 June 2018 as detailed in Attachment 1 as recommended by Audit and Risk Committee; and

2. ADOPTS BY ABSOLUTE MAJORITY the Independent Auditor's Report from the Office of the Auditor General as detailed in Attachment 2.

Attachments:

1 ⇩.	Financial Statements - City of Wanneroo - For year ended 30 June 2018 - Stamped by OAG with cover	18/495938	Minuted
2 ⇩.	OAG Audit Opinion - City of Wanneroo - For year ended 30 June 2018	18/494853	Minuted

CITY OF WANNEROO Agenda OF Special Council Meeting 27 November, 2018 16

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