City Of Fremantle Minutes – SMRC RRRC WCF Odour Issue – 8 November 2006
SGS0611-8 SOUTHERN METROPOLITAN REGIONAL COUNCIL SEPTEMBER 2006 QUARTERLY FINANCIAL REPORT
DataWorks Reference: 038/012
Disclosure of Interest: Nil
Previous Item: C0607-8
Responsible Officer: Glen Dougall, Director Corporate Services
Actioning Officer: Glen Dougall, Director Corporate Services
Decision Making Authority: Council
Agenda Attachments: SMRC Financial Forecast for 30 June 2006 SMRC Quarterly Financial Statements for 30 September
2006
PURPOSE
To review the financial reports for the first quarter of 2006/07 provided by the Southern Metropolitan Regional Council.
EXECUTIVE SUMMARY
At the July Ordinary meeting Council resolved to support the increase in the loan facility for the Southern Metropolitan Regional Council (SMRC) from $47.5 million to $55 million on the provision that quarterly meetings are held with the member
local governments starting from October 2006.
The first meeting was held on Monday 23rd October 2006 and the financials for the period ended 30 September 2006 were provided to the group. At this meeting a copy of the financial result (unconfirmed) for the period ended 30th June 2006 and financial statements for the first quarter of the current financial year were provided.
These documents are now provided for Council information and record. The group discussed issues associated with the documents making suggestions to improve the format and information to increase understanding and made suggestions to
review issues such as the Assets Management Program, Loan Reduction Strategy and Service Cost calculations at future meetings.
BACKGROUND
In early 2006 the SMRC approached all member local governments to inform that due to maintenance and other operating issues it estimated that it was going to make a greater operating deficit than it had budgeted with a total operating deficit in the vicinity of $2.6 million. This was on the back of a previous year operating deficit of around $1.8 million
that was still in the process of being audited. Most of the increase in costs increases or revenue decreases came from the Waste Composting Facility. During discussion on this issue Council was advised that the SMRC would need to revise its gate fees on the various services by around double the current charges to ensure that future deficit operating results did not continue. This detail for this information was reported in item C0607-8 in July 2006 and is reiterated within this report.
COMMENT
End of Year Cash Result 2005/06
The first attachment provides the unconfirmed position at 30 June 2006. This identifies an end of year cash operating deficit of $2,680,233 with the main components of this deficit being made up in the following areas;
Recycling $ 512,236 (cash operating deficit)
Composting $2,304,000 (cash operating deficit)
The composting facility deficit was identified to be made up from three main areas;
Power consumption $152,000
Disposal of non organic waste $620,200
Major breakdown maintenance $931,800
Other facilities made various surpluses to arrive at the total cash budget deficit.
The auditors have completed their review of the accounts and we have been advised they are in the process of finalising the audit certificate. Whilst no date of delivery was advised it is considered to be in the next month.
The accumulated members assets show a deficit of $4.7 million. This is identified as significant and resulted in the amendment to charges to address the operating deficits. This is also exclusive of non cash items such as depreciation. It is noted that the report contains information relating to the financial ratios for the SMRC at year end. Your attention is drawn to the second last ratio provided as Untied Cash to Trade Creditors. This ratio indicates a 0.26:1 ratio at 30 June 2006. This ratio best represents the SMRC trading position at year end. From this we can ascertain that the SMRC was not
operating in a solid financial short term position at year end. A ratio of under 1 represents that obligations are in excess of cash flow. This result has been carried forward from 2005 where the ratio was -0.13:1. In future meetings this ratio will be requested so that a picture of the year is better understood. For an organisation to be able to meet its short term obligations the ratio should be at least 1:1.
2006/07 September Quarterly Report.
Attachment 2 is the financial statements to date for the current year. It is broken into business unit category with further supporting notes to explain the figures. It is the understanding of the Director Corporate Services that not all costs have been apportioned to the end of September for the SMRC as they have recently upgraded their accounting software and are still implementing some of the program. As a result some of the above estimated surplus provided is actually overstated as additional costs also need to be applied. The Column titled Full Year Forecast is also showing original budget detail even where changes have been made or suggested. It was requested that this be amended for the next meeting review.
Waste Composting Facility
The budget indicates that it is anticipated that 84,000 tonnes of material will be processed this year. To date 26,000 tonnes has been processed this is 5,000 tonnes more than budget. Whilst the report indicates that the first quarter surplus is up on
budget (ie $212,133 compared to budget of $106,000) The Director Corporate Services has been advised that costs are still to be applied to this area. It is anticipated this is close to $60,000 which would provide a tonnage rate of $90 per tonne rather than the $86.78 per tonne quoted in the report. This would also have the surplus at around
$152,133.
Materials Recycling Facility
Year to date actuals in this area are also up providing a larger surplus than originally budgeted for at the end of the first quarter. The report indicates that tonnages received are up on last year and income from sale of product is also up, giving a quarter surplus of $204,000 compared to the budget of $120,000 for this time. Most of this surplus is the
additional revenue of sales of $160,000 as processing costs generally increase in the same proportion as the tonnages processed (ie no economies of scale).
Green Waste Facility
The processing cost per tonne for this area is up on the budget forecast. It is currently $50 per tonne compared to budget estimates of $37 per tonne. This translates into an operating deficit of $28,000 when the budget indicates a surplus at this time of the year to be $86,000 – a difference of $112,000. Whilst not stated in the report the reason
provided to the Director Corporate Services is that high maintenance costs are being incurred which were unforseen. It was advised that it is not anticipated this will be a long term issue.
Governance
Other costs to make note of in the report is that wages and salaries costs are well done on estimates for the first quarter. This is offset by greater costs than estimated in contract labour. The review was advised that recruitment has been an issue recently for the SMRC and they have chosen to bring in labour agency staff to fill the void. Some of
these staff are given permanent work if they are seen to be suitable for positions available.
CONCLUSION
The Regional Finance Managers Group meeting (as it has been called) will continue on a monthly basis to ensure each local government is better informed as to the financial position of the SMRC in the future. The group have suggested some formatting changes to the report to aid in its readability and understanding. The group have also sought for more specific information at future meetings to discuss issues such as asset management, loan reduction strategies and determination of costs for the different programs.
It is intended that this report be provided as part of the monthly information report in the future with only the detailed contained in the comment part of this report provided on a monthly basis, with the financial reports from the SMRC attached.
STRATEGIC AND POLICY IMPLICATIONS
The SMRC assists the City of Fremantle achieve is waste minimisation strategies, this report is more for the City to ensure it is informed of the SMRC financial performance on a regular monthly basis.
TRIPLE BOTTOM LINE IMPLICATIONS
Economic
Nil, Governance issue.
Environmental
Nil, Governance issue.
Social
Nil, Governance issue.
BUDGET IMPLICATIONS
No budget implications to report on at this time.
LEGISLATIVE AND LEGAL CONSIDERATIONS
This report is provided as a result of Council resolution C0607-8.
PRECINCTS AND OTHER COMMITTEES RECOMMENDATIONS PLUS OTHER CONSULTATION
Nil.
VOTING AND OTHER SPECIAL REQUIREMENTS
Simple majority required.
COMMITTEE AND OFFICER’S RECOMMENDATION
MOVED: Mayor, Peter Tagliaferri
The Southern Metropolitan Regional Council Quarterly Financial Report for the period ended 30 September 2006 and the estimated year end report for the period 30 June 2006 be received.
For Against
Mayor, Peter Tagliaferri
Cr Steve Gorman
Cr Geoff Graham
Cr Brad Pettitt
Cr Doug Thompson
CARRIED: 5/0
