Central Coast Council Public Inquiry: reveals what led to the financial crisis, councillors sacked

A team of disgraced councillors have learned their fate after being sacked by the Local Government Minister. Here is the list of reasons for being booted.

Disgraced Central Coast councillors have been issued a list of reasons why they were sacked for financial mismanagement following a half-a-billion dollar budget blowout that sent the council to the brink of ruin.

Inquiry Commissioner, Roslyn McCulloch, issued direct criticism to elected councillors — as well as senior staff — for their failures in her official report to Local Government Minister Wendy Tuckerman this week, who put a target on the backs of sacked councillors preparing to run for re-election.

Budgets with extreme deficit, lack of financial direction from staff and a reluctance from councillors to undertake training have been highlighted as just some of the reasons for the collapse of Central Coast Council.

In the report released on Thursday which resulted in the immediate sacking of the suspended councillors, Ms McCulloch outlines what went wrong.

Among them are a “sad twist of fate” in the employment of a senior staff member, mysterious disappearance of council’s cash position and the one and only budget that councillors didn’t manage to blow out.

Ms McCulloch gave eight recommendations including the termination of councillors and appointment of an Administrator until the next election as well as running information sessions for future councillors along with mandatory training in areas such as financial management once elected.

She also recommended that consideration be given to removing council as a water authority to allow it to run its water services in line with other NSW councils.

The long awaited reasons for the financial crisis of Central Coast Council have finally been revealed. Picture: Mark Scott

Newly appointed Local Government Minister Wendy Tuckerman said there was no legal way she could stop disgraced councillors from running for re-election.

“There is no power I have as Minister to prevent anyone from standing for office who has not been charged or convicted of a crime under the Act,” she said.

“However, the residents of the Central Coast can now have a full understanding following the publishing of the Commissioner’s report.

“Residents would be well aware of the record of any candidate standing at the next election and will be able to exercise their democratic right wisely — I am very confident that they will recall the events that led to this massive financial collapse.”

NSW Minister for Local Government Wendy Tuckerman. (AAP Image/Mick Tsikas)

Ms Tuckerman said a date had not been set for the Central Coast Council elections.

“I am working with the NSW Electoral Commission to determine the future date of an election for the Central Coast Council,” she said.

“As noted in Commissioner McCulloch’s detailed report, the council should remain under administration until an election can be held. I have accepted this recommendation in-principle.”

So what went wrong? Here's a breakdown of some of the key points

THE MERGER WAS “FAR FROM COMPLETE”

The report concluded that while the merger “added to the financial and political complexities” of the council, it did not cause the crisis.

The report found that when the crisis broke in October 2020, the merger process was “far from complete” with the merged council only operational for three years.

“The constraints on staff changes existed until May 2020 and the rates path freeze until June 2021,” the report stated.

Roslyn McCulloch stated that the merger did not cause the crisis.

Ms McCulloch pointed out that costs of the merger far exceeded the $20m allocated in State Government grants.

“The Council had inherited significant infrastructure backlogs from Gosford City Council and Wyong Shire Council as well as significant, but manageable debt levels. It would be unrealistic and unreasonable to expect efficiencies or financial savings to have been evident by October 2020.”

THE ROLE OF COUNCILLORS IN THE DOWNFALL

The report found that the financial crisis was not the result of the councillors “being ignorant of the financial consequences of its decisions”.

“In my view the budget decisions of the elected body did contribute, and in a significant way, to the financial crisis of Central Coast Council in 2020,” the report states.

Councillors voted through a 2018/19 budget resulting in a $5.1m deficit, 2019-20 budget with a $18.6m deficit – resulting in a $41.6m deficit – and 2020-21 budget with a $13.3m deficit which resulted in the financial collapse.

“The repeated deficit budgets and outcomes were a significant factor in the deterioration of the financial position of Central Coast Council,” Ms McCulloch found.

She said councillors had the means to keep the financial performance of the council under review with investment reports, but “failed to do so adequately”.

Central Coast councillors have been sacked. Troy Marquart and Rebecca Gale had already resigned in 2020 while Greg Best resigned on Wednesday.

The report revealed that former CEO Gary Murphy organised an industrial psychologist to help with the unhealthy relationship between councillors and staff in 2019.

This was a result of “bitter exchanges”, councillor behaviour and regular changes to staff recommendations. The report revealed that code of conduct complaints grew from seven in 2018/19 to 13 in 2019-20.

The psychologist’s findings revealed a “lack of respectful and collaborative efforts between councillors”. This was also highlighted during hearings when councillors spoke of “combatic” behaviour in the chamber.

Ms McCulloch also found that very few councillors attended professional development courses due to work and life commitments. There was also a lack of written direction from council management as to what courses might be best to attend.

“The funding for councillor training was generous, yet this was one budget within the Council which was not blown, at least not during Mr Murphy’s term as GM,” the report stated.

As a result, Ms McCulloch stated that “councillors, and perhaps not any, possessed the knowledge and skill to analyse the information provided to them so that they understood what was happening to the Council’s finances from May 2019 until the financial crisis in October 2020.”

FORMER SENIOR STAFF MEMBERS

Ms McCulloch said the process of hiring former chief executive officer Gary Murphy was “fair”, however pointed out “he may not have been the best person for the position given the events which the council was about to experience”.

“His background was in engineering, and he had previously been the GM of two much smaller councils,” she stated in the report.

Former Central Coast Council CEO Gary Murphy. Picture: Sue Graham

“He had no experience with a merged council and a reported dislike of conflict. His lack of financial qualifications or experience in an equivalent sized organisation, combined with the absence of a permanent CFO for most of his term, created a situation in which there was no strong financial direction or oversight.”

The report states that Mr Murphy was responsible for the “ill-fated appointment of Mr Craig Norman as CFO in May 2019”.

“Mr Norman was an accountant with no background in local government who never took control of the council’s finances,” she said.

“It is a sad twist of fate that the current CFO, Ms (Natalia) Cowley, who has demonstrated an ability to re-float the sinking ship that was CCC, was looked over for the CFO position.”

LACK OF FINANCIAL DIRECTION

The report says former CEO Gary Murphy relied heavily on advice received from finance staff in the drafting of the budgets, in particular the 2019 IPART water pricing decision which resulted in an income loss of $39m over three years. The 2019/20 budget was not altered after this decision was handed down resulting in an $18.6m deficit.

“CCC’s response to the financial problems it was facing was too little and far too late,” the report read.

“Ultimately the responsibility for the fate of the council rests with the councillors but they were not adequately supported by a GM who was able to provide strong leadership of the staff on financial matters at the time it was needed.”

Central Coast Council’s current CFO Natalia Cowley was overlooked for the position in 2019.

During the Inquiry hearings, Mr Murphy gave evidence that the budget process at the council was “fraught”. He said when he became aware of the dire situation at the council, he acted quickly to order an investigation.

In the report, Ms McCulloch also highlighted an “emblematic” factor in the council’s crisis with an exchange between former CFO Craig Norman and a councillor.

“Mr Norman expressed to the councillors his preference was for a “long-term future where there would be either small surpluses or small deficits”. An unnamed councillor responded to that suggestion by saying words to the effect of “as government, we are here to run deficits”. That exchange is emblematic of one of the problems which beset CCC.”

Former CFO Craig Norman gave evidence to the Inquiry.

The report says Mr Norman “did not direct or lead the councillors in any meaningful way and at least some of the councillors behaved recklessly in the management of CCC’s finances”.

“CCC suffered from a lack of financial direction from the time of Mr Naven’s departure in August 2017 until the time of the appointment of Ms Cowley in July 2020.”

During the Inquiry hearings Mr Norman said in his evidence that the job “wasn’t a good fit for me” and said he had noticed a “disconnect” between the finance and the business section of the organisation.

MYSTERIOUS DISAPPEARANCE OF UNRESTRICTED FUNDS FIGURE

A key point in time in the crisis was the investment report for October 2019 when a change in format saw the row which outlined council’s unrestricted funds disappear. Ms McCulloch stated that this was the time when the figure fell into negative.

“The investment report for October 2019 did not contain any additional comment to alert the reader to the fact that unrestricted cash was in the negative,” the report read.

The unrestricted cash position was in negatives from October 2019 until the crisis broke in October 2020. Picture: Sue Graham

“Unrestricted cash remained negative until the council was suspended in September 2020. At no time was any notation made in an investment report to alert the councillors to that fact.

“The investment reports from October 2019 until the financial crisis, were designed to obfuscate rather than elucidate. The staff of Central Coast Council responsible for those reports bear a significant responsibility for the lack of knowledge on the part of the councillors for the unlawful use of restricted funds.”

Ms McCulloch said Mr Norman admitted that should have known the unrestricted funds had fallen into the negative. She stated that while Mr Norman was there for a short time, it was a “crucial period”.

During his evidence, Mr Norman said he wasn’t aware “unrestricted funds” had been removed from the report.

“I accept it was signed off under my signature,” he said.

He said he was also unaware that the funds had become negative, however should have known”.