$6M budget black hole: how did it happen?

COUNCIL will be facing some 'tough' calls in the near future.

COUNCIL: Lismore mayor Isaac Smith looks on as newly-appointed general manager Shelley Oldham announces Lismore City Council's largest budget deficit ever recorded of more than $6 million. Picture: Marc Stapelberg

LISMORE City Council has revealed a "shocking" and "unforeseeable" black hole in its budget equating to a cash deficit of more than $6 million.

It is the largest budget deficit reported by council.

Lismore mayor Isaac Smith and new general manager Shelley Oldham made the "surprising" announcement ahead of council's quarterly budget review statement being reported at last night's council meeting which reveals the cash deficit of $6.1m. In September 2018, the cash deficit was reported as $258,400.

Ms Oldham said the variance was discovered following a two-month due diligence study by independent consultants Grey Advantage that uncovered a series of previously unreported costs.

She said several factors have contributed to the deficit, which include issues within the Northern Rivers Waste compliance, transport and safety costs, Beardow St landslip remediation and Northern Rivers Quarry operating and compliance costs.

Ms Oldham said the governance problems were "across the board" in the organisation, calling the deficit a "failure" of management and governance.

"The due diligence study has revealed a genuine need to look at management practices and address a lack of oversight around our commercial areas of operation," Ms Oldham said.

"We need to modernise our technology and systems, improve our accountability and project management capability, and tighten controls around governance, compliance and risk. Much of what has occurred could have been avoided if we had better project and risk management in place," Ms Oldham said.

She said council would not be sacking staff or increasing rates in the near future, but would need to consider putting in place a staged, 10-year rating strategy. But before revealing when increases to rates would come into place, council would first have to have a "10-year plan" conversation with the community.

"Rate increases are something Council will need to consider - our rates are simply not keeping pace with our expenses. Other Northern Rivers councils have undertaken rate increases of between 20 and 30% in the last decade," Ms Oldham said.

"There is the right amount of staff here for the work that we are delivering at the moment," she said. "One of the failures in governance that we have is we don't have enough project managers because of budget cuts ... so we are looking to retrain people to have greater discipline in the way they manage projects."

The Office of Local Government has chosen not to move the council into administration due to its "quick" response with the remediation plan.

"The Mayor and Councillors will need to put individual agendas aside and work together as a team in the coming months to get Lismore City Council back on track. To date, nine of the 11 Councillors have been briefed and are ready to take immediate action to remediate this issue."

While no-one in upper management has been sacked over the findings, Cr Smith confirmed a senior manager from the waste services department, who would not be named, had chosen to resign.

Cr Smith expressed his concern at the revelations but added he was relieved to have a clear picture of council's financial position. He said the community would rightly expect immediate and direct action.

"We are all deeply concerned at the findings and I know the community will feel the same. We knew we had some financial challenges that we needed to look at, but nothing to this extent," Cr Smith said.

He empathised with the ratepayers and residents.

"I am angry, shocked, frustrated and disappointed," he said.

"Now we have all the facts before us we can make a sensible plan about how to fix our financial position. It is going to be a difficult time and there will be some very tough decisions ahead."

Council will develop a transformation plan with a short-term goal to improve cash flow and a long-term goal to reduce the deficit.

The plan is likely to include:

• A review of plant and fleet usage and maintenance as well as changes to procurement practices to immediately improve cash reserves.
• Deferral or cancellation of projects that are not in the four-year Imagine Lismore Delivery Program or do not have allocated funding.
• A reconfiguration of the organisation and workforce assessment.
• Internal changes including improved project management capability and new governance, reporting, risk and compliance controls. An evaluation of the leadership group and development of a detailed transformation plan.
• The development of a 10-year rating strategy.

Ms Oldham said the council couldn't reveal how much the specific projects outlined would save council until after its March meeting.

She said a reconfiguration of council and a workforce assessment would start next month.

"I ask the community that feel disappointed in council to resist the temptation to lash out," she said.

"What has transpired is not the responsibility of individual staff."