Financial statements are formal records of an organisation’s financial performance and activities. They provide a comprehensive overview of our current financial condition. As a local government agency, we are committed to transparent reporting on our financial performance throughout the year against the delivery of our Corporate Plan Goals and operational deliverables.

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Where the money is spent 16-17 gifThe purpose of the Community Financial Report is to give community members a plain English, easy to follow summary of Council’s Financial Statements in accordance with Section 179 of Local Government Regulation 2012.

Council’s Financial Statements must be certified by both the Mayor and the Chief Executive Officer as “presenting fairly” the Council’s financial results for the year. They are also required to be adopted by Council – ensuring both responsibility for and ownership of the Financial Statements by management and elected representatives.

In addition, Council’s financial statements are audited by the Queensland Audit Office. The auditor provides an audit report which gives an opinion on whether the financial statements present fairly Council’s financial performance and position.

This report focuses on:

  • Statement of Comprehensive Income
  • Statement of Financial Position
  • Statement of Changes in Equity
  • Statement of Cash Flows
  • Measures of Financial Sustainability

Statement of Comprehensive Income

The Statement of Comprehensive Income is often referred to as the Profit and Loss statement. This statement shows what Council has earned (revenue) and what costs Council has incurred (expenses) throughout the year.

In summary, Council’s result for the reporting period was:

What we have earned (Revenue)    
Recurrent Revenue  305,915
Capital Revenue  70,208
Total Revenue   376,123
What we have spent (Expenses)  
Recurrent Expenses 298,715
Capital Expenses  50,096
Total Expenses 348,811
Net Result 27,312

The Net Result does not necessarily represent surplus cash funds available for general use as certain income items are restricted to specific use. For example, capital grants are generally allocated to maintain or expand the Council’s infrastructure.

Some revenue is of a non-cash nature – for example, contributed infrastructure assets (such as roads, sewerage and water mains) constructed by a developer on behalf of Council in conjunction with land sub-divisions or property developments.

What we have earned

There are two main categories of revenue for the financial year – recurrent revenue and capital revenue.

 What we have earned pie chart 16-17

Recurrent Revenue

Council’s recurrent revenue is money raised which is used to fund the operations of Council. Recurrent revenue is the major source of revenue for Council and primarily earned from sources such as Rates and Fees and Charges. Council also aims to maximise its revenue from other sources by actively pursuing grants and subsidies from the State and Federal Government and investing surplus funds to earn interest.

Recurrent expenses piechart 16-17

What we have spent

Council incurs both recurrent expenses and capital expenses. Capital expenditure is used to renew and expand our asset infrastructure and is therefore added to the carrying value of the assets. Recurrent Expenses are the main expense of Council and represent the day-to-day cost of providing services, operating facilities and maintaining assets. These include employee costs, materials and services, finance costs and depreciation.

Expenses are monitored constantly throughout the year. Detailed estimates are prepared at the beginning of each financial year and performance against these estimates is measured through regular budget reviews to ensure the most efficient use of Council’s funds.

Depreciation and Amortisation Expense makes up nearly one-third of Council’s operating expenses. This item represents an allocation of the use or deterioration of the community assets over the expected life of the assets. How Council’s performance in managing its assets is explained in the Statement of Financial Position and Measures of Financial Sustainability sections of this report.

Statement of Financial Position

The Statement of Financial Position is often referred to as the Balance Sheet and is a snapshot of the financial position of Council at 30 June. The statement measures what Council owns (Assets) and what Council owes (Liabilities). The difference between these two components is the net wealth (Equity) of Council and our community.

In summary, Council’s position at 30 June 2017 was:

Assets (what we own)  4,658,574
Liabilities (what we owe)  342,161
Equity (Community Wealth)  4,316,413

What do we own?

Council’s major asset class is Property and Plant & Equipment. These assets make up 96% of Council’s assets. Road, drainage, water and wastewater infrastructure assets make up the bulk of the property, plant and equipment which provide direct benefit to the community.

What are our assets piecharts

What did we spend on assets?

What we spend to build or enhance our assets is reflected in the Statement of Financial Position as it increases the value of our assets.

A significant amount of Council’s activities is focussed on the maintenance, upgrade and construction of fixed assets to ensure there are adequate infrastructure services for community use. These activities are undertaken in accordance with Council’s long-term asset management plan which covers a period of ten years.

This year Council spent $140M to renew, upgrade and build new assets for the community. The graph below shows the how the money was spent in different asset classes.

Capital expenditure by asset class

What do we owe?

Liabilities are the amounts Council owes to suppliers, employees and lenders both now and in the future. This also includes provisions for future entitlements which comprise of money which will pay our employees in the future (e.g. Long Service Leave); and amounts set aside to fund the future rehabilitation of our refuse and quarry sites.

Long-term loans are taken out to undertake the construction and purchase of community assets. Council reviews its loan requirements on an annual basis. No loans were drawn down during the year. Total liabilities as at 30 June 2017 were $342M.

What do we owe piechart

Statement of Changes in Equity

The difference between assets and liabilities is the total community equity or the net wealth of the Council. The Statement of Changes in Equity shows the overall change in Council’s “net wealth” over the year. At 30 June 2017 this was an amount of $4,316M (that is, Assets of $4,659M less Liabilities of $342M).

This community equity consists of an asset revaluation reserve and retained surpluses which increased by $10.6M and $27.3M respectively this year.

The asset revaluation surplus comprises amounts representing the change in the value of Council’s assets over time. Asset revaluations are completed on a cyclical basis per asset class.

Council’s retained surplus represents amounts available to be invested into assets (now or in the future) to provide services to the community. With good planning, surpluses can be used to place less reliance on loans and withstand any unforeseen financial shocks or adverse changes to our business, as seen this financial year with the reduction in the Financial Assistance Grant income. A portion of our retained surplus is cash-backed by an appropriate level of internally imposed restrictions to limit amounts available for future use.

Equity (net worth) piechart 16-17

Statement of Cash Flows

The Statement of Cash Flows shows where Council’s cash came from and how it was spent throughout the year. This differs from the earlier reports as “non-cash items”, such as depreciation and donated assets, are excluded.

Opening Balance   155,242
Plus Cash Received  394,379
Less Cash Spent  385,294
Cash Available at End of Year  164,327

Cash available is used to invest and utilise for future outlays. Much of this is restricted for specific purposes, such as future infrastructure. Council’s cash is wisely invested in accordance with our investment policy, so the interest earned contributes to the funding of operational expenses.

Financial Sustainability Measures

The financial sustainability statement and the associated measures (ratios) provide evidence of Council’s ability to continue operating and provide an acceptable level of service and infrastructure to the community both now and into the future. Section 169 (5) of Local Government Regulation 2012 outlines the three relevant measures of financial sustainability on which Council must report. In addition, the Department of Local Government, Community Recovery and Resilience sets target ranges for each of these measures. As part of Council’s 2014-2019 Corporate Plan we aim to implement sustainable financial management. Council’s performance in these three key measures is an indication of whether we are delivering on this goal. 

1. Asset Sustainability Ratio

This indicates if Council is renewing or replacing existing infrastructure assets at the same rate that the assets are wearing out. The target for 2017 is a ratio of greater than 90%. If the target ratio is not reached over the medium to long term, Council may face a reduction in the asset’s service levels and/or useful lives which would create a burden on future ratepayers.

Asset sustainability ratio graph

A higher proportion of new and upgrade projects, such as the Toowoomba City Library, Highfields Sports Park, and road projects relating to the Second Range Crossing have been undertaken this financial year. This has resulted in a lower amount of renewal projects being undertaken and the current year result of 44.27% being below the target range. Council believes that its assets are being renewed at an appropriate time.

Integration of Council’s current focus on asset management planning and continued long-term financial planning will improve Council’s ability to make informed decisions regarding asset management into the future.

Net Financial Liabilities Ratio

Indicates the extent to which operating revenue raised by Council can cover what it owes (i.e. net liabilities). The target ratio over the longterm is less than 60%. A ratio above the target level over a long-term is indicative of a Council that is undertaking or has undertaken significant infrastructure investment. Ratios over the target levels for a long period can be maintained with Council’s sound financial management systems and the ability to service current and projected debt levels.

Net financial liabilities graph 16-17

2. Operating Surplus Ratio

Indicates the extent to which revenue raised by Council (excluding capital grants and contributions) covers its operational expenses. The target range for this ratio is between 0% and 10%. Should the target ratio not be maintained over the medium to long-term, Council may be unable to withstand unexpected financial events without needing to significantly increase rates, borrow money or reduce capital expenditure programs.

Operating surplus ratio graph 16-17

Council’s result this year was 2.35%, slightly higher than the original budget of 0.1%, as operating income was higher than operating expense, due to an early receipt of payment of the 2017/18 Financial Assistance Grant.

Toowoomba Regional Council