Audit identifies “significant adverse trend” in Shire of Carnarvon’s financial position

A damning auditor’s report has revealed the Shire of Carnarvon has failed to meet several key indicators of financial health.

Independent auditor Moore Australia Audit pointed to asset sustainability and operating surplus ratios which have been sitting below the industry standard for the past three years as evidence of a “significant adverse trend” in the Shire’s financial position.

In its financial report for the year ending June 30, 2020, the Shire reported an asset sustainability ratio of 0.14 and an operating surplus ratio of 0.83.

This compares to the ratio standards set by the Department of Local Government, Sport and Cultural Industries of 0.90 and between 0.01 and 0.15 respectively.

Shire president Eddie Smith said the below-benchmark asset sustainability ratio indicated funding for new or renewal of existing assets should be higher to meet recommended standards.

“To increase this ratio, a lot more spending on assets is required, as the reduced spending in the 2020 financial year was the contributing factor to the decline in the ratio, together with the ageing of the assets,” he said.

“Alternatively, the Shire could divest itself of older assets, thereby reducing the amount of funds needed for renewal.”

The auditor also found the Shire had breached the Local Government Act 1995 by failing to report its asset renewal funding ratio in the financial report.

Mr Smith said this ratio could not be calculated as the long-term financial plan was about to be reviewed and the required 10 years of asset renewal costings was not available. He said “constrained income” meant the renewal of existing assets and the purchase of new ones was a “balancing act for funds” for community programs and community assets.

“On a very good note, the Shire has very low borrowings, a result of prudent financial management, which means the Shire has the ability to allocate income to meet the costs of community programs and infrastructure,” he said.