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Independent financial review findings released

News Release

Thursday 8 May 2014


Independent financial review findings released

Rotorua Mayor Steve Chadwick has welcomed the findings of an independent review of Rotorua District Council financial reporting processes since 2011.

“I believe the report reinforces the new financial strategy we’ve recently put in place. It signals again that we have plenty of work ahead to secure sustainable long-term financial management and delivery of services for our community,” says Mrs Chadwick.

A report on the review, undertaken by Price Waterhouse Coopers (PWC), was presented to councillors today [May 8]. The full PWC document will be available on the council website rdc.govt.nz by close of business 9 May 2014.

The $45,000 report was well received by councillors who expressed they had learnt a lot from the review during the session.

“This is the best investment in ensuring the long-term sustainability of the Council as we move forward,” says Mrs Chadwick.

The review focussed on processes and the adequacy of past financial disclosures made to elected members, and those made to the public during previous long-term plan and annual plan processes.

It confirms an overly complex and ineffective RDC financial reporting culture at the time, which hampered decision making against a backdrop of rising costs and reducing revenue.

PWC’s report shows the position was affected further by decisions to adopt lower rate rises than those recommended in the long-term plan, with no clear analysis of the impact of those decisions on debt levels.

The report says the council focused and prioritised too much toward expense, as opposed to only spending what it was able to earn.

It states that Rotorua Airport deficit funding against policy decisions to subsidise and borrow for debt servicing, along with the expectations of third party funding which never eventuated, was unsustainable and should have been addressed earlier by Council.

The report also expresses support for the move by the new council and executive in December 2013 towards a new financial framework.

A major objective of this new framework is to provide optimal financial reporting and analysis of information and trends to ensure greater understanding by councillors and the community of the financial impact of council decisions.

The review, which was not an audit, also makes 16 recommendations for consideration, six of which have already been adopted or progressed by RDC.

These recommendations will form part of an implementation programme and are to be addressed by the council’s Operations and Monitoring Committee in due course.

Earlier this year Mayor Steve Chadwick called for an independent review of the annual financial reporting processes of RDC from 2011 to 2014. This followed an election campaign where the debt of RDC was a constant discussion point and concern for ratepayers and stakeholders. The 2013/14 annual plan also noted “concern in the community around the debt situation” but the review shows this was not communicated with clarity and consistency within Council and to the public.

“Councils are responsible to the communities that have elected them and clearly outlining financial performance every year not only strengthens accountability to communities but also improves transparency,” says Mrs Chadwick

“People told us they wanted change and this report confirms for me that the number one priority moving towards 2016 will be to ensure sustainable infrastructure and affordable, effective council services.”

“For this to happen we need clear and expert advice aligned with sound governance and decision making which will take us to an improved position.”

Mrs Chadwick remains confident the current council will have the capacity to work towards it new Rotorua 2030 vision and goals.

“We are confident with our annual plan for 2014-15 but one of the learnings is we need to be very sharp on next year’s and apply these tools to that.”

“This is where we are, we now know how we got here and we acknowledge we have constraints to how we move on. But I’m confident we will turn this around.

“We have a new council, a new executive and a new direction. We know we have a big challenge in front of us and as a council we have already made some of these changes. The hard decisions will need to continue as we chart a sustainable course that meets the district’s needs.

[ENDS]

Background information:

Debt timeline

• 2004 RDC total debt was approximately $57 million

• 2012-22 Long-term Plan estimated RDC debt to grow to $200 million by 2018

• June 2013 RDC total debt was approximately $160 million

• Forecast for year-end debt 2014 is $168.4m

RDC Sustainable Financial Framework

• Hold debt levels to a minimum and progressively reduce the current level

• Annual rate increase of approximately 3%

• Business differential rate decreased,

• Property sales to balance capital spend

• Capital expenditure ceiling of $22 million (exception in 2014/15).

• A strong efficiency programme to reduce costs and be applied to debt.

RDC is also in the midst of an organisational review that projects to save $3 million in this year and into the 2014/2015 financial year. Staff are currently being consulted on this and it is expected the refocused organisation will take effect on 1 July 2014.

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