Ratepayers dudded $4 million as council 'forgets' to bill developers

Four million dollars that was meant to have been paid by developers for the community’s benefit has been discovered missing from the coffers of a Sydney council after a secretive internal investigation.

The missing millions have been quietly investigated by auditors with Georges River Council after it absorbed Kogarah and Hurstville councils during the 2016 amalgamations.

Sydney developer Toufic "Terry" Kayrouz is facing questions over payment of contributions for a project at Kogarah. Credit: Kate Geraghty

Developers contributions, also known as section 94 contributions, must be paid to council when a project is approved to fund essential community infrastructure like footpaths and parks.

According to a confidential report tabled earlier this year and obtained by The Sydney Morning Herald, the auditors have uncovered widespread undercharging of developer contributions by the former Kogarah council.

In some cases, contributions were never paid at all.

Of a variety of errors made by the staff, one of the most serious was the use of “incorrect plans” which shaved $670,908 and $425,000 off the cost of the contributions for two unidentified developers respectively.

In seven cases construction occurred without any contributions being paid, even though the law requires building work cannot usually begin without a certifier having proof of payment.

More than half a million dollars was found outstanding from a finished apartment complex at Kogarah.

Property and company records show it was completed by veteran Sydney developer Toufic “Terry” Kayrouz, who blamed council for failing to cash a bank guarantee he gave them.

Gail Connolly, the general manager of Georges River Council. Credit: John Veage

The auditors found staff abandoned the use of the council’s development contributions register in 2012, despite it being a legal requirement for all councils in NSW.

“A lack of a register has caused numerous administrative difficulties,” the report noted.

The Herald can reveal Georges River Council’s general manager, Gail Connolly, reassured a member of the public of the register’s existence in 2016.

This was despite auditors later finding it had “ceased to exist” at the time.

Community leaders were stunned the matter had been kept hidden and called for a further investigation.

“What concerns me is that it has taken such a long time for the Georges River Council to find out that they have such a large sum unaccounted for,” said Brian Shaw, the president of the St George District Residents Network.

The revelations add to Georges River Council’s woes only a week after reports the ICAC is investigating two of its councillors over a trip to China with a developer.

Council staff are scrambling to claw back the lost contributions revenue, which has been estimated at $4 million.

Further potential sources of missing funds are still being examined.

“Council can confirm that it has pursued all contributions owed to the former Hurstville and Kogarah councils that have been found to be outstanding,” a council spokeswoman said this week.

“Since amalgamation, Georges River commenced rebuilding and auditing the contributions registers from both [councils].

“This work continues to the present day.”

When asked how much of the $4 million had been recovered, the spokeswoman would not directly answer. She noted the amount missing had not been specified “in any public report”.

A councillor was still unaware of the issue when contacted by the Herald this month, despite three audits and an internal review since 2018.

The findings of those investigations were confidentially reported to the council's audit and risk committee in March, which has two councillors among its members.

One of them is Labor councillor Warren Tegg, who was satisfied with staff efforts to address the “historical shortcomings”.

The report does not identify all of the projects where undercharging occurred.

It said $544,000 was outstanding for a completed apartment project by Majenttas Pty Ltd, a company belonging to Mr Kayrouz, a former president of the Maronite Catholic Society.

Mr Kayrouz told the Herald he provided council with a bank guarantee for the contributions before construction began and was unsure why it was never cashed by staff.

"We thought they did," he said.

Mr Kayrouz said he was surprised when he was contacted by council about the outstanding contributions this year.

"A couple of months ago they called, they said they wanted the bank guarantee," he said.

"I said 'it's there, why haven't you cashed it'?"

The completed project at Kogarah for which developer contributions were found to be outstanding in an audit. Credit: Dean Sewell

It appears the first person to realise anything was amiss was a member of the public, Anne Wagstaff, who served as a Hurstville councillor until 2012.

Ms Wagstaff discovered there was no contributions register on Georges River Council’s website in 2016 and sent a letter to Ms Connolly.

“Given the amount and value of development being undertaken ... I believe it is essential that this information is published,” she wrote. “Just like other councils, such as Hornsby, Wollongong and Bega Valley.”

In a November 2016 response, Ms Connolly reassured Ms Wagstaff that both Kogarah and Hurstville councils had kept contributions registers.

However, they were not yet in a state where they could be made available online, she said.

“Upon request, council will run a program to produce a register on the data on contributions received,” she wrote. "The current delivery time for this service is approximately two days."

However, auditors stated the Kogarah Contributions Register "ceased to exist" between 2012 and 2018, meaning council had not complied with legislation, according to a 2019 report.

When asked about the apparent contradiction, a Georges River Council spokesperson said Ms Connolly’s claim the former Kogarah council had a contributions register “remains correct”.

The spokeswoman would not comment on the audit findings, saying audit reports were subject to “commercial-in-confidence and/or copyright provisions”.

Ms Wagstaff said the revelations raised questions as to whether council staff had behaved appropriately. She was also concerned about Georges River Council’s handling of the matter.

“Why hasn’t Georges River Council issued a media release saying that it is chasing after contributions owed by Kogarah developers to help balance the books? After all, it wants its ordinary residents to now pay more rates,” she said.

Georges River Council has been consulting over a proposal to hike rates by 5.8 per cent a year over five years.

A recent report by LSI Consulting named it in the top 10 worst performing merged councils, accumulating nearly $60 million in losses since the amalgamations.

Even after the merger, problems with the developer payments appear to have persisted.

For about 12 months staff continued to use Australian price averages, instead of the higher Sydney price averages, leading to further undercharging.

“In this time, 26 DAs paid their contributions which resulted in a loss of approximately $300,000,” the report said.

As recently as 2018 a developer of apartments at Blakehurst was undercharged $114,000.

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