Central Coast Council introduces restricted funds policy

Central Coast Council’s financial crisis saw $200m of restricted funds spent without permission. Council has taken steps to make sure that can never happen again.

A policy to help Central Coast Council manage its restricted funds more efficiently has been brought in for the first time.

The issue came before Tuesday’s council meeting where Administrator Rik Hart voted in the policy which he said would “absolutely” help avoid situations where restricted funds are unlawfully used.

The council’s financial crisis, which saw the organisation wrack up a $565m debt over four years, included the unlawful use of $200m in restricted funds.

Mr Hart told the Express said the policy would ensure that the councillors and staff knew exactly what restricted funds are and what they can be used for.

“There can be no excuses for the political body or councillors to ever get into trouble in the future,” he said.

The policy is up for debate at the Central Coast Council meeting on Tuesday. Picture: Mark Scott

Mr Hart will vote on the Restricted Funds policy.

The Public Inquiry findings into the crisis, which saw the sacking of 13 councillors, included eight recommendations to improve council’s financial accountability. Former senior staff who gave evidence to the inquiry maintained they were unaware that restricted funds had been used without the correct permissions.

“It was a breakdown at a governance level, as the Commissioner said, and a breakdown of the senior finance people,” Mr Hart said.

Former Interim Administrator Dick Persson AM, who described the crisis as the greatest financial failure in local government history, previously stated that there was a “key misunderstanding” that lead to the use of restricted funds.

“The key misunderstanding was that at merger they failed to recognise they only had $6m in the bank. At some point people convinced themselves that these large amounts of money in (restricted) accounts were available and they weren’t,” he said.

Former Central Coast Council Interim Administrator Dick Persson AM. Picture: Fiona Killman

Restricted funds were brought in for councils to set aside money for legislative requirements, future projects and financial obligations. They can be external or internal and come from various areas such as cemeteries, tips, sewer and drainage services and developer contributions.

The new Restricted Funds Policy adopted by Central Coast Council was recommended by the Audit Office of NSW.

The council’s report states that the Audit Office “concluded that the absence of a Restriction Policy may increase the risk of externally restricted funds being used for purposes in breach of legislation”.

“The draft ‘Restricted Funds Policy’ provides a framework for the establishment and management of Council’s restricted cash funds,” the report states.

A policy will help the council monitor its restricted funds more efficiently.

“The Policy details what funds Council will place in external and internal restrictions and the purposes for which the restrictions will be applied.”

The policy outlines the rules around the use of restricted funds, reiterating that if council wants to borrow from externally restricted funds, it must receive approval from the Local Government Minister.

The policy also states that every 12 months council will review its internal restrictions. A council resolution is required to reclassify internally restricted funds.

When the council crisis hit in October 2020 and council was unable to pay its staff, councillors asked former Minister Shelley Hancock for permission to use its externally restricted funds.

However it was too late by that stage with Ms Hancock instead suspending the councillors and giving council the money to pay staff. The former councillors have also maintained that they were unaware restricted funds had been spent with the information not coming to a meeting or briefing.

The $200m restricted reserve debt has since been fully paid back through council’s strategies such as asset sales, staff reductions and a rate rise.