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Friday
Jan302015

Financial Finangling

It has always staggered me just how councils are apparently able to get away with financial manipulation of their accounts that on the surface are supposedly in compliance with the requirement of International Accounting Standards. It seems that they are able to do this at the whim of the Auditor General.

I mention by way of example the manner in which depreciation on our ESWP (Eastern Seaboard Waste-water Plants) was able to be adjusted based on the 'proportion' of the plants capacity in use in any one year. I simply ask the question - would the Securities Commission be similarly amenable to such a suggestion by any corporate entity?

It is of far greater concern to me that the TYP current projections are totally opaque when it comes to any explanation regarding the timing and means by which the $46m transferred from Development Contribution to ratepayer liability is to be implemented through rate increases. The only hint came during CEO Hammond's self-congratulatory spiel at the time of the adoption of the Draft Plan when he let slip that incorporation into rates would "mainly occur from 2020/21" - after the 2019 election!

This explained why I was unable to locate any reference in the Financial Statements earlier than that date - it is just an 'intention' in other words.

Further close further examination the statements showed under the page headed 'Prospective Statement of Financial Position" which includes the line - "Other Financial Liabilities." Commencing from 2014/15 these track as follows over the ten years:

2014/15 - $57m, $50m, $56m, $54m, $54m, $50m, (2020/21) - $41m, $30m, $20m, $12m, $3m.

Then under (Gains/Loss) on Property Revaluation the following:

2014/15 - $25m, $19m, $28m, $22m, $30m, $25m, (2020/21) - $37m, $31m, $47m, $52m, $58m.

Now does anyone else out there notice a pattern here balancing the ledger, and thus perhaps providing an explanation as to why there is nothing in the rates break-up indicating repayment of this $46m debt?

For starters, would some accounting guru be prepared to tell me that I am wrong in suggesting that our esteemed accounting people who have compiled these statements have avoided having to reveal the extent of the effect on rates by the simple expedient of adopting the revaluation assumptions above that are  derived out of thin air. How else can they explain a 131% gain over the ten year period when there has been little or no increase in capital investment. And there is is a consequential 30.5% increase in total equity in this same period. 

That is what I mean why I state quite seriously that this Council is prone to overuse of 'smoke and mirrors', and that it is high time that the Auditor General took a far closer look at the means by which it achieves its objectives. The total absence of a satisfactory explanation of just how these major changes are to be accomplished is deplorable, if not downright dishonest.

Here is how Leach characterised the reduction in external debt within the last half hour:

"Meanwhile the reduction of our external debt over the next decade to a level of only $4M or less ( a reduction of $50M since 2010), and the steady building of infrastructure reserves, puts us in a sound fiscal position so that if there are any exceptional risks or surprises, we can deal with it," says Mayor Glenn Leach."That's just good common sense."

One can only hope that the Office of the Auditor General takes a particularly close look before approving these draft Statements for consultation as to just how this reduction is to be accomplished (mainly from 2020 you will note), and just how infrastructure reserves are to be "built."

It is easy to make these projections based on conjecture five years hence, and particularly easy to alter same in the 2018 and 2021 LTPs in the light of "changed circumstances". Meanwhile, just keep "smiling and waving!" (with apologies to "Madagascar"!), and trust that no-one asks awkward questions.

Hammond also claims in this same self-congratulatory presser that the new ratepayer liability accounts for only 1.8% of the 3.57% 2015/16 projected rate increase without any explanation, or attempt to extrapolate this figure over the ten year period, even while admitting the relatively insignificant rating effect in the first year.   

Can they really get away with this? I guess so - no-one has held them to account to date, After all - "That's just good common sense".

Oh well, I suppose we can all just go back to sleep then!

 

 


 

 


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