Sunshine Coast Council's $30 million depreciation error causes $20m budget deficit

Australia Broadcast Center

a day ago

A Queensland council has revealed five years of financial errors that could leave a $20 million hole in its next budget.
The Sunshine Coast Council said it uncovered the financial errors in its own internal reporting.
The errors, calculating the depreciation of council assets, amounted to about $30 million and could increase rates.
Consequently, the council's 2025-'26 budget announcement has been pushed back by two weeks.
The revised meeting date is now July 7.
Sunshine Coast Council chief executive officer John Baker said that while external audits by the Queensland Audit Office found no issues, internal reports presented to the council did not fully reflect the long-term cost of asset ownership and renewal.
"The new chief financial officer and I are leading the review with a focus on ensuring the 2025-'26 budget is built on clear, accurate and reliable financial data," he said.
He said the council was putting "robust financial controls" and "reporting mechanisms in place" to prevent this from happening again.
Mayor Rosanna Natoli said independent and internal reviews were being conducted.
"Together we agreed that the right course of action was to bring in external consultants to conduct a thorough and independent review.
"We also agreed that to ensure the accuracy of our financial data we needed to delay the budget and be transparent with our community and the media."
Ms Natoli declined to say who was responsible for the mistake.
"This review is not about blame. It's about strengthening our systems and making sure this doesn't happen again," she said.
"We are committed to transparency. Once the review is complete we will share the outcomes with our community.
"As we finalise the 2025-'26 budget we are focused on financial stability and delivering the services that matter most to our residents.
"We, as a council, are working hard to minimise any impact on rates."
Stan Gallo, a forensic investigator for business and councils at BDO Australia, has extensive experience working with councils but could not talk directly to the Sunshine Coast Council matter.
He said generally councils managed a wide range of assets such as roads, parks, buildings, drainage, and community facilities, each with different life-spans, maintenance needs, and valuation methods.
Mr Gallo said this makes calculating depreciation and accurately forecasting future asset-related expenses more complex than for a business.
"Depreciation is a book entry, so an initial human error may go unnoticed over a period of time if the underlying internal financials are not properly scrutinised and the underlying figures are simply accepted and thereby included in generated reports," he said.
Mr Gallo said it was a positive step to identify and publicly report it.
"They now need to follow through in appropriately responding to it which should include understanding exactly what happened, how it happened, identifying any underlying issues, and determining what — if any — control failures allowed it to happen," Mr Gallo said.
He said for a council to maintain credibility, and its reputation, a detailed external and independent forensic financial review should be undertaken by professionals prepared to ask difficult questions to drive "good governance".
Logan City Council Mayor Jon Raven said depreciation was crippling for councils.
"At this rate we could be in deficit by the end of the financial year," Cr Raven said.
"$1 million [deficit] might sound like a lot of money, but for a council with a billion-dollar budget it's like a family on a combined $100,000 income only having $100 in the bank at the end of the week.
"We didn't end up here because of budget blowouts or project overruns. It's because the cost of things that council buys the most — power, insurance, construction materials and services — has been soaring.
"[It has been] going up by as much as 25 per cent."
The Logan City Council 2025-'26 budget will be adopted on June 25.
"The biggest hit to our bottom line has been depreciation which was $14 million over the forecast budget of $137.5 million for 2024-'25," Mr Raven said.
"Depreciation is crippling local governments.
"We don't benefit from it like businesses do. Councils must adhere to an accounting standard that's not fit for purpose.
"ABS figures show that local government spends significantly more on maintaining depreciating assets than other levels of government.
"We're doing everything we can to find savings and reduce waste, but ultimately rates will need to go up to pay for depreciation."