A scathing report from the state's audit office means Narrabri's new mayor has his work cut out for him to get the local council's finances back on track.
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On September 26, Narrabri Shire Council met for some unfinished business regarding the local government's financial statements, which tore councillors apart and cut short their last meeting earlier this month.
Two high-ranking officials from the NSW Auditor-General office attended the latest Narrabri council meeting and put the issue to councillors in no uncertain terms.
"Several significant audit issues came to my attention during the audit of council's financial statements for the year ended June 2022," financial audit director Chris Harper said.
"Due to the pervasive nature of the issues we identified, while council prepared a financial report based on its underlying books and records, councillors and management were unable to verify completeness and reliability of the financial statements taken as a whole."
![Narrabri Shire Council has been deeply divided for months over potential mismanagement of council finances. Picture file Narrabri Shire Council has been deeply divided for months over potential mismanagement of council finances. Picture file](/images/transform/v1/crop/frm/200003594/ccd8beba-017d-4c32-a686-710e1bfbea5f.jpg/r0_0_2940_1960_w1200_h678_fmax.jpg)
Later in the meeting, Cr Ron Campbell stepped aside as mayor as his term had come to an end, and former deputy mayor Cr Darrell Tiemens was elected mayor on the basis he was the only nomination.
Shortly before becoming mayor, Cr Tiemens asked the auditors if their investigation had identified any evidence of fraud in Narrabri's finances.
Assistant Auditor-General Allison Brown said she couldn't say for sure either way.
"Because of the loss of information, I can't tell you categorically one way or the other. If we had that information we could," Ms Brown said.
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The auditor said of particular concern were a lack of records on infrastructure works potentially worth millions of dollars.
"During the 2021-22 financial year, council identified that roads and bridges assets had been damaged during multiple flood events ... however council was unable to provide sufficient evidence to support the adjustments it made to try and record the impact of each of these flood events in its financial statements," Mr Harper said.
"We are unable to verify firstly the carrying value of council's capital work in progress balance, which was around $46 million, carrying value of roads assets of $194 million and bridge assets of $32.6 million,"
"Accordingly, I have been unable to determine whether adjustments might have been necessary in respect to these balances and disclosures."
The lack of sufficient audit evidence led the Auditor-General's office to issue what's known as a 'disclaimer of opinion' after wrapping up its 10-month investigation on August 22.
"I did not express an opinion because I've been unable to conclude whether the financial statements of council present fairly. We issue this type of audit report in instances where we consider the absence of audit evidence could be material and pervasive," Mr Harper said.
"This is not something that should be taken lightly by council. In recent years it's been very limited instances in which the NSW Audit Office has issued this type of audit report in relation to NSW councils."
The auditor said the last two times the Auditor-General's office had to issue a disclaimer of opinion were for audits into Kiama Council in 2021 and Bayside Council in 2019.
While Bayside Council was able to rectify its financial issues, further investigations into Kiama Council discovered it was operating at nearly a $100 million shortfall, with one Kiama councillor calling the council 'insolvent'.
Two years later, Kiama Council's finances are still under heavy scrutiny by the NSW Office of Local Government.
For now, Narrabri Shire Council will be working to fix the issues identified by the Auditor-General's office.
"We will shortly be issuing our management letter, which will detail matters of government interest identified during the audit. This is going to include several high-risk audit findings regarding governance and control issues which led to us issuing the disclaimer of opinion," Mr Harper said.
"It's important that council and management take this seriously and work to address the matters as soon as possible."
The auditor's management letter will not be available to the public, but councillors will be able to view it on request.
Cr Rohan Boehm proposed council undertake a "community engagement and communication process" on Narrabri's "deficient accounting procedures," but the move was rejected in a 5-4 vote.
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