Ratepayers the losers from Waitaki’s ambiguous accounts

Press, 10 December 1983, Page 25

Ratepayers the losers from Waitaki’s ambiguous accounts

By

DONALD

GILLING

For the last nine years the Waitaki County Council has failed to live within its income. This is a serious matter. If it continues it could well mean that the council will be unable to provide services to its ratepayers or to meet the repayments on its public

The Auditor-General in his last three reports to Parliament has drawn attention to the persistent and serious breach of the law by the council. In his 1982 report he pointed out that over eight years the council had been unable to balance its budget by up to 25 per cent of its annual rates revenue.

The ratepayers will, I am sure, agree with the Audi-tor-General that urgent action is necessary to correct the situation.

In calling for corrective action, however, the ratepayers will not be helped in their understanding of the problem by the council’s annual accounts. The Local Government Accounting Regulations are confusing at the best of times, but in the case of the Waitaki County Council they result in the production of accounts that are almost totally incomprehensible and irrelevant, if not downright misleading. The council’s statement of payments and related

sources of funds applied for the 1981 and 1982 years are presented in accordance with the flow-of-funds accounting method prescribed by the regulations. A feature of this accounting method is that it will always ensure that the expenditure for the year is equalled by the revenue used to finance that expenditure. Given the apparent equality of revenue and expenditure, it would not be surprising if the ordinary ratepayer failed to appreciate that the council does in fact have a problem.

A closer examination of the accounts will reveal the existence of a problem, but it may well result in undesirable confusion as to the nature and dimensions of the problem. Although not described as such, there appears to be an excess of revenue over expenditure in the 1982 accounts of $264,547. On the other hand, the reader of the accounts who concentrated on the revenue and ignored the “application” of loan moneys, special funds, and trust funds would reach the conclusion that there was a deficit of $434,506. To

add further confusion, the Audit Office in its audit report points out that the council is in breach of its legal requirement to provide for its ordinary obligations out of its revenue for the year to the extent of $49,864.

The result of all this is simply that four different ratepayers could quite properly believe that the council has: broken even; produced a surplus; suffered a major deficit; or broken the law by only a small amount. With such confusion, it would not be at all surprising if the ratepayers, and indeed the council itself, were unaware of the need for corrective action.

More important, in such a situation the credibility of the Audit Office itself may suffer, and the value and significance of the warning signals that it is giving may be ignored. There is absolutely no reason to believe that the Audit Office’s calculations are wrong, or that the conclusions reached by the Auditor-General are unjustified. But when the Audit Office’s calculations cannot be reconciled with the figures in the accounts, or are not reinforced by the information in the accounts, there can be little surprise when they appear to be ignored.

The basic problem is that the Local Government Accounting Regulations are utterly irrelevant for the kind of situation in which the Waitaki County Council finds itself. The regulations are a monument to the subtleties and mysteries of accounting, but accounting has no justification other than providing relevant information that will enable the achievements and financial stability and vulnerability of an entity to be understood and reacted to. Any-

thing less means that the accounting process has failed in its task.

Two other matters are worthy of comment. The first is that the format for accounts prescribed by the regulations does not require the production of a balance sheet. This serious deficiency in the regulations means that the financial position of the council is not clearly revealed, other than in the calculation of the movement in general funds during the year. At the beginning of the 1980 financial year, the council had an accumulated deficit on gen-

eral funds of $307,905. By the end of the 1981 financial vear this had risen to $533,469. By March 31, 1983. however, this deficit had been reduced to only $97,175. Clearly, the council is now beginning to get things under control.

But the format of the accounts does not really allow this situation to be appreciated. Given the confusion generated by the. payments statement,' it is almost certain that even the most sophisticated reader of the accounts would fail to spot this most desirable and necessary development. Because of it, ratepayers can be more confident that the bills can be paid and the repayment of public debt can continue, even if the 1982 audited accounts managed to leave out the figure for public debt. Second, leaving aside the deficiencies of the Local Government Accounting Regulations and the confusion generated by the actual accounts, the most disturbing feature of the accounts is their lack of timeliness. The audit of the 1980 accounts was not completed until January 14, 1981 — 289 days after the end of the financial year — even though the treasurer of the council had signed the accounts on September 26, 1980. In 1981, the delay in publishing the accounts was

at least 240 days. In 1982, it was 320 days. At the beginning of December the 1983 accounts had still not been audited and published.

This continual delay is simply not good enough. In a situation where urgent corrective action is required, the accounts that should reveal the success or failure of the council’s actions, and suggest what steps still need to be taken, are not available until long after the time for action is over.

There are some people in local bodies who say that the annual accounts are unimportant and that the annual published estimates are always more important and useful. But estimates talk of intentions; accounts talk of results and achievements. Part of the problem faced by the Waitaki County Council is that in the last four years its actual expenditure has exceeded its estimated expenditure by an average of $280,000 each year.

For corrective action to occur, a dose of cold hard facts is required. The total local-government accounting process, working in mysterious ways its wonders to perform, fails to provide them. The tragedy is that it is the ratepayers of the Waitaki County Council who are the losers.