Small to medium councils feeling the strain

NATURAL disaster projects are contributing to poor financial controls within Queensland councils because "people or dollars" are being diverted to other areas.

Patrick Flemming, from the Queensland Audit Office, told a parliamentary committee meeting on Wednesday that small to medium-sized councils were least able to absorb the "abnormally large capital works programs".

He said the June 30 deadline to claim Natural Disaster Relief and Recovery Arrangements through the Federal Government was putting a lot of pressure on councils to rush flood recovery projects through.

"While the delivery of those projects appears to be on track the requirement for completion by a strict deadline creates a major challenge for the small and medium-sized councils in ensuring other council services and activities are not adversely affected and accountability not comprised," he said.

"In other words, diverting resources, whether these are people or dollars, from core financial activities to other major projects can create risk to a council's normal business operations and weaken the council's internal control framework.

"Large projects often have unforeseen side effects on those normal business operations, which can often lead to increased number of audit issues being reported to management."

Queensland Auditor-General Andrew Greaves said the NDRRA funding created other vexed issues too when it came to betterment works to reduce natural disaster damage in the future.

He said the commonwealth funding conditions meant they could only restore the assets to pre-disaster state and extra costs had to be absorbed.

"To give you an example, when a council goes out to repair a road, it's in its best interest in terms of value for money to adopt modern engineering standards, which is allowed for under the NDRRA," he said.

"A council might take a quite proper value-for-money, engineering-based decision while they're out there to do some betterment.

"They can't claim the amount of betterment."

Mr Greaves labelled 16 councils at high risk of becoming financially unsustainable, and a further 18 councils at moderate risk, in his report last month.

Many of the high-risk councils are indigenous councils or councils in higher population growth areas.

Mr Flemming told the committee members that to be sustainable councils must "adopt longer-term planning processes to manage future financial risks while maintaining an appropriate level of service to the community."

"Valuation and depreciation of assets remains the most significant financial reporting issue across the sector with high levels of volatility in valuations continuing to be experienced," he said.

"The key asset related figures reported in council financial statements indicate the councils are not replacing their assets as fast as they are being consumed.

"Therefore councils need to urgently reconsider their service delivery options, their service delivery standards or the proposed funding."

Transport, Housing and Local Government Committee chairman Howard Hobbs said the committee would now seek input from other parties on the audit results.

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