Five years to publish Borough’s accounts

Press, 7 March 1984, Page 25

Five years to publish Borough’s accounts

to reply. When we compared the audited financial statements with the nonaudited summary in the grants committee report we found that in no case did the figure for the year’s surplus or deficit agree. The average discrepancy on this item alone was $231,000, which represents about 60 per cent of the average surplus or deficit. This problem, however, is but the tip of the iceberg. One university uses cash accounting, one uses accrual accounting, and one university uses something called the double-account system. All three appear to use the fund accounting method, but none of them appears to use this method consistently for purposes of financial reporting.

A further twist to the non-publication of information is to be found in local government. Under the Local Government Accounting Regulations, councils are required to publish in a newspaper circulating in the district, a statement of payments and related sources of funds applied together with a statement of money owing. In the case of the Akaroa County Council, the payments statement for the year ended March 31, 1983, was published in “The Press” of February 11, 1984, but somehow or other the statement of money owing was not published. Apparently, this phenomenon of being casual in the matter of complying with legal obligations is not at all uncommon.

Public companies as a matter of course, account for all assets, liabilities, revenues and expenditure. Public bodies do not. Local bodies, hospital boards, catchment authorities, for example, are not required to publish balance sheets. This means that the Wellington City Council ratepayer can gaze in wonder at the new Michael Fowler

ton City Council had $27 million in special funds, but beyond stating that fact the accounts say absolutely nothing about what those funds are for, in what form they are held, or what interest was earned by their investment.

Similarly, the Christchurch City Council in 1983 had $12.92 million in special funds. But if we take the opening balance and add and subtract the transfers in and out we are left with an unexplained difference of $3.51M between what the closing balance would appear to be and what it actually is.

A number of public bodies have trust funds. These are often substantial in amount. For example, in 1982 the University of Otago had $8.38M in trust funds. The Auckland Hospital Board in 1983 had $4.42M in trust funds, but neither set of accounts reported what those funds were used for or how much interest was earned on these funds.

Trust moneys, of course, are restricted in terms of the use to which they can be put. Nevertheless, they represent resources under the control of the public body and they should, therefore, be properly accounted for and publicly reported. The present practice in regard to special funds and trust funds means in effect that public bodies are enabled to have secret reserves. This is a practice that was outlawed in the private sector more than 50 years ago. In the private sector the success or failure of a company can normally be measured by its profit. The success or failure of public bodies, by their very nature, cannot be measured in this way. It is possible, and indeed necessary, to measure whether their income exceeds their expenditure, or as is more usually the Case, their expenditure exceeds their income.

of this method is that it will always ensure that the expenditure for the year is equalled by the revenue used to finance that expenditure.

As a consequence, councils could have surpluses or deficits, or as is the case with the Waitaki County Council, fail to live within their income for the last nine years, but the published accounts will always give the misleading impression that the council has performed an economic miracle and broken even. The Audit Office measures compliance with the law. But while the councils report on a cash basis, the Audit Office uses a modified accrual basis to check on compliance with the law. This is akin to judging the quality of apples by inspecting peaches, but it is the inevitable result of the contradictions between the legislation and the regulations. The legislation recognises the ratepayers’ legitimate concern and interest, but the accounting regulations operate on their own separate logic. Even the law is deficient. It imposes an obligation but provides no penalties if the law is broken.

Perhaps the most disturbing deficiency of public body financial reporting lies in the considerable delay in the publication of accounts. The value of any set of financial statements varies inversely with the time taken to publish them. The longer the delay in publication the less relevant they become and the harder it is to take corrective, action over any problems they may reveal. The average New Zealand public company waits only 76 days to have its audit completed and its accounts are usually in the hands of shareholders within 95 days. By contrast, the accounts of the Foxton Borough Council for the 1977 year were fin-