Council was warned in 2016

2016 Auditor’s Warning:

Fremantle Council was warned by their auditors in 2016 that trouble was brewing with the city’s finances, and that Council needed a change of financial direction to address these concerns.

The audit of the City of Fremantle Annual Financial Statements for the year ended 30 June 2016 was completed by Moore Stephens. The audit was presented to Council at the Audit and Risk Committee on 8 November 2016, with the following comments brought to the Committee’s attention:

The following comments were made in relation to the following three ratios:

  1. Assets Sustainability Ratio: This ratio is below the target level and both Regional and State 4 year averages if the effect of 2014 year was excluded. This ratio indicates that city’s assets may be deteriorating at a greater rate than spending on renewal or replacement.
  2. Debt Service Cover Ratio: This ratio has continued to trend downwards and is below both Regional and State 4 year averages. This ratio indicates that City’s ability to service debt out of its uncommittted or general purpose funds available from its operations is limited and declining.
  3. Operating Surplus Ratio: This Ratio has continued to trend downwards and is below both Regional and State 4 year averages. This ratio indicates that the City doesn’t have a strong operating surplus which will give flexibility in the future in relation to operational service levels and asset base.

The auditor suggested that Council and management need to consider ways to improve the operating position either via increasing revenue or by decreasing expenditure (or a combination of both).

[ARMC Minutes, 8 Nov 2016, pages 7-8]

Fremantle Council did the exact opposite – they sold off several more income producing investment properties and spent $50 million on a new Admin Building they did not need and could not afford.

Fremantle Council ignored the 2016 warnings from its auditors and pushed ahead with asset sales and increased expenditure. It is hardly surprising that the financial situation has become far worse for the City of Fremantle, with the City of Fremantle Financial Ratios show even more alarming trends.

2020 Auditor’s Warning:

The Operating Surplus Ratio, which is a measure of a local government’s ability to cover its operational costs and have revenues available, has been below the Department of Local Govt, Sport & Cultural Industries (DLGSCI) standard for the last 3 financial years which in the Auditor’s opinion indicates a ‘significant adverse trend.’

[A positive ratio indicates that surplus revenue is available]

The “Own source revenue coverage ratio” of less than 1.0 indicates that its operating expenses are greater than the operating revenue it generated – the City of Fremantle is living beyond its means.

[A ratio less than 1 means it cannot cover its own costs from its own revenues]

By 2020 the City of Fremantle’s “Debt service cover ratio” had declined to negative 2.46, indicating that it cannot generate sufficient cash to cover its debt payments.

[A basic standard is achieved if the ratio is greater than or equal to 2. An advanced standard is achieved if the ratio is greater than 5]

This situation is expected to get worse if these cash flow trends continue. The City of Fremantle is in serious financial trouble yet its Councillors are in complete denial of the true extent of the problem, and continue to blame it on everything except their own decision making.

More worryingly, there are no practical solutions being proposed by Council as to how this financial disaster can be turned around.

[CoF Financial Statements FY 2019-20, page 69]