Independent auditor fears termination bonuses hiding council wrongdoing

The independent auditor has warned about the seismic effect of bonuses to outgoing local government employees, which could be used to hide wrongdoing.

Generic image of a ‘golden handshake’. Picture: Bruce Long

The independent auditor has flagged concerns over undocumented golden handshakes within local governments, which is costing Queenslanders millions of dollars.

The Queensland Audit Office’s annual report identified bonuses considered “over and above” what was in employment contracts were paid to outgoing executives across 10 local governments in the previous financial year.

$6.4m was awarded to executives through ex-gratia payments in that period, but the total amount of termination bonuses to council staff who were not key personnel did not need to be disclosed, and were not part of that figure.

Although the state government was required to disclose the amounts in termination bonuses through financial statements, local governments were not bound by the same rules.

The auditor said it suspected these undisclosed payments could be awarded to hide wrongdoing within local governments.

It urged for clearer financial recording to protect councils that were vulnerable to large turnover following elections, and said “extra safeguards” were needed such as an audit committee.

After the local government election last March, more than a third of local councils’ chief executive officers were appointed while 61 per cent elected new mayors.

Termination payments included accrued leave and long service, but also severance payments for early termination.

“The nature of these agreements means the term of the payment cannot be discussed or shared without permission,” the auditor said.

“There may be legitimate reasons why these agreements are made, but they do decrease transparency and increase the risk of fraud and wrongdoing.”

Townsville City Council tightened its rules for termination benefits last December in what was considered “first of its kind” for local councils after the auditor revealed it signed off $2.6m in termination bonuses – almost half of what was identified across all local governments.

This was a 1100 per cent increase in Townsville City Council’s termination benefits compared to the year previous.

Despite calls from councillors for transparency, the council did not release details on who had approved the payments but focused instead on tightening its policy.

Termination benefits that were beyond contract terms could only be given if requested in writing or backed by external legal advice, while all decisions and communication required documentation for record keeping.

Bonuses given to an outgoing CEO would require the approval of a councillor led committee.

The auditor also shared concerns of local governments being vulnerable to fraud because of accounting weaknesses, after a fraudster tricked a local government out of $2.8m.

It identified a fraudster changed contact and bank details of a legitimate supplier through written requests and phone conversations.

An investigation showed this happened because of lack of documentation to support changes, and non-compliance with the council’s supplier policies.

Originally published as Independent auditor fears termination bonuses hiding council wrongdoing