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Management Accounting A (ACC281)

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Charles Sturt University

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Budget Report - 2017/

Background The Eastern Regional Libraries Corporation (the Corporation) is a library corporation under section 196 of the Local Government Act 1989. The member Councils are Knox City Council, Maroondah City Council and Yarra Ranges Council. The Corporation is administered by a Board comprising two Councillor representatives from each of the Member Councils. Council officers attend Board meetings as advisors and can in the absence of Councillors act as a substitute member. The Corporation’s Chief Executive reports to the Board and is responsible for the management of the organization. Funding Funding is provided by way of: contributions from the Member Councils; grants from the State Government; and User Charges, Fees and Fines, Investment Income and Asset Sales. Source Amount Percentage Comments of Total Corporation Revenues Councils' Contributions $10,068,934 75% Member Councils continue to bear the substantive costs associated with running a highly regarded public library service. These contributions do not include any indirect costs borne by our Member Councils [e. leasing premises, cleaning and and maintenance]. These indirect costs further increase the percentage of the total costs borne by our Member Councils. Corporation Income $659,827 4% User Charges, Fees & Fines; Sale of Assets; and Investment Income State Government Contribution $2,632,848 19% In the 70s, State Government for a period contributed 50% Growth Factors for Member Councils’ Contributions & State Government Grants Based on feedback from our Member Councils, the estimated 2017/18 increase/decrease in contributions is as follows:  Knox City Council estimated contribution is a decrease of .5% compared to 2016/17. Council’s reduced annual contribution can be sustained due to a change in the Corporation’s staffing levels at Knox Libraries. The reduction in staffing numbers was achieved through redundancies undertaken in 2016/17.  Maroondah City Council’s contribution capped at an increase of 2%.  Yarra Ranges Council’s contribution capped at an increase of 2%. These increases/decreases in contributions are subject to final ratification after our Member Councils have adopted their 2017/18 budgets. For 2018/19 and following years a growth factor of 2% for contributions has been allowed. This growth factor is subject to the level of rate capping imposed for 2018/19 and following years and its impact on our Member Councils’ budgets. Based on the State Government Grant for 2016/17, a conservative approach has been taken in relation to the expected increase for 2017/18 and following years (1%).

Linkage to the Corporate Plan and other Reviews This section describes how the Annual Budget links to the achievement of the Corporate Plan and Member Councils’ reviews in relation to library services and infrastructure within an overall planning framework. 1 Strategic Planning Framework In accordance with the Local Government Act 1989 (the LGA), the Board must approve a Corporate Plan within the period of 6 months after each general election or by the next 30 June, whichever is later. The Corporation has developed a four-year Corporate Plan and Strategic Resource Plan (SRP). The Plans play a vital role in shaping library services to the communities served by the Corporation. The Board develops the Corporate Plan and SRP: by identifying community needs and aspirations through an annual survey; through advice from its officers on broader library services and infrastructure trends; and taking into account the reviews undertaken by its Member Councils in relation to their individual library services and infrastructure. 1 Member Councils’ Reviews of Library Services and Infrastructure Knox City Council undertook an internal service plan review of its library services in 2015/16 and this may impact on future service delivery. There are 26 ‘actions’ to be undertaken as an outcome of the service review. Major infrastructure projects that will impact on the library service include the relocation of Knox City Shopping Centre branch (including colocation with Council’s Youth Services) and reviews of Boronia and Ferntree Gully Community Libraries. Maroondah City Council relocated the Ringwood branch library in 2015 to form part of the fantastic Realm development. This significant development provided an opportunity to review the Corporation’s staffing levels through utilising returns handling RFID infrastructure, and importantly the collocation with Council’s customer services which now handles initial customer contact through its ‘concierge’ model. These changes have improved the types and levels of services offered to Maroondah residents. A major review of the Croydon Civic Precinct is underway and this may also impact on the type and level of services that are delivered on behalf of Council. Yarra Ranges Council has undertaken a review of its library services, both static branches and mobile libraries, and this may also have an impact on the type and level of services to be delivered to its residents. Major infrastructure projects that may impact on the library service include the relocation of Lilydale branch to the Box Hill Institute Campus, and the opening of the refurbished Montrose Town Centre where ERLC will be playing a greater management role. 1 Priorities Action Plan Given the depth of these reviews, Priorities Action Plans will be developed in consultation with each of the Member Councils for the upcoming 12 months. This will ensure that the strategies developed as part of these reviews will be undertaken in conjunction with the Objectives of the Corporate Plan
Corporation Objectives and Priority Actions Implementation of Objectives and Strategies within the Corporate Plan and Priorities Action Plans agreed with Member Councils will be achieved within the context of annual adopted budgets and the SRP. The Board will monitor its achievements and outcomes and holds itself accountable through quarterly reports (financial and performance), the Annual Report and Audited Statements. The Board will review its Corporate Plan and SRP every financial year to consider whether the current Plan requires any adjustment in respect of the remaining period of the Plan and the Priorities Action Plans developed with the Member Councils.
Budget influences In preparing the Budget it has been necessary to make a number of assumptions about the internal and external environment within which the Corporation operates. As there is no internal financial support, assistance has been sought from Knox City Council staff; and the Knox City Council Long Term Financial Guidelines (where relevant) have been used in preparing this budget. 3 External Influences In preparing the 2017/18 budget, a number of external influences have been taken into consideration, because they are likely to impact significantly on the services delivered by the Corporation in the budget period. These include:  The Member Councils have informed the Corporation of their likely contributions for 2017/18. These contributions are subject to final ratification after our Member Councils have adopted their 2017/18 budgets.  For 2018/19 and following years a growth factor of 2% for contributions has been allowed. These contributions are subject to the level of rate capping imposed for 2018/19 and following years and the impact on our Member Councils’ budgets.  Increase in the State Government grant of 1 5% for 2017/18 and later years based on prior year experiences.  The State Government paying the full grant for 2017/18 upfront, which will generate additional investment income for the Corporation.  Investments continuing to return at least 3% per annum for 2017/18.  Escalation factor of a maximum of 2% in Employee Costs (including Oncosts) for 2017/18, including movements within band levels, etc. 3 Internal Influences In order to achieve a balanced budget for 2017/18 the Corporation is proposing to:  To increase its Employee Costs by no more than 2%, including Oncosts.  Where it controls the level of its expenditure, to freeze the level of expenditure.  Where it has external leases/contractors/suppliers, to endeavour to restrict any increase to 2%, or less. There are also a number of other internal influences arising from the 2016/17 year which have an impact on the setting of the budget for 2017/18:

The end of year cash position is estimated to be better than budgeted to reflect the cash flow year to date for the year ended 30 June 2017.
The forecast capital performance for the year ending 30 June 2017 indicates that the budgeted capital works program for the 2016/17 year will be achieved.
There are no significant matters for the 2016/17 year at the time the 2017/18 Budget was prepared based on the year to date position as at 31 January 2017 and projected income and expenses until 30 June 2017.

Analysis of Budgeted Comprehensive Income Statement This section of the report analyses the expected income and expenses of the Corporation for the 2017/18 year. 4 Income 2016/17 2017/18 Variance $ $ $ Grants (Operating): State Government 2,597,778 2,632,848 35, Contributions (Monetary): Member Councils 9,974,661 10,068,934 94, User Charges, Fees & Fines 419,328 419, Proceeds on disposal of Fixed assets 45,500 15,500 -30, Other Income (Interest) 225,000 225, 4.1 State Government Grants (+ $35,070) The estimated State Government’s Grant represents an increase to the Corporation of $35,070 on the 2016/17 grant. With no indication of a significant increase in population for the region it has been decided to estimate the increase the State Government grant at 1% for 2017/18, based on the increase for 2016/17. The Corporation has not been advised of the amount to be received at the time the report was written, nor has a funding agreement been received. Hover, there is a commitment in the State Budget in respect of funding for 2017/18 and later years. 4.1 Member Councils’ Contributions (+ $94,438) Based on the advice received, the Member Council contributions show an increase of $94,272 over 2016/17. Estimated contributions from our Member Councils based on initial feedback are as follows:  Knox City Council estimated contribution is a decrease of .5% compared to 2016/17. Council’s reduced annual contribution can be sustained due to a change in the Corporation’s staffing levels at Knox Libraries. The reduction in staffing numbers was achieved through redundancies undertaken in 2016/17.  Maroondah City Council’s contribution capped at an increase of 2%  Yarra Ranges Council’s contribution capped at an increase of 2%. These contributions are subject to final ratification after our Member Councils have adopted their 2017/18 budgets. 4.1 User Charges, Fees and Fines (No change) User Charges, Fees and Fines have been estimated to remain the same based on previous years’ experiences and the likely outcome for 2016/17. 4.1 Sale of Fixed Assets (- $30,000) Sale of Fixed assets estimated to reduce by $30,000 due to the sale of one of three fleet cars. 4.1 Other Income (No change) Interest on investments has been estimated to remain the same based on: previous years’ experiences; the likely outcome for 2016/17; and investments continuing to return at least 3% per annum for 2017/18.

4 Expenses 2016/2017 2017/18 Variance $ $ $ Employee Costs 8,947,136 8,942,022 -5, Materials and Services 2,465,131 2,518,748 53, Written Down Value of Assets Disposed 200,000 200, Depreciation 1,650,000 1,700,000 50, 4.2 Employee Costs (- $5,114) Employee Costs comprise approximately 67% of the Corporation’s expenditure budget. Salaries for 2017/18 will decrease by $5,114. In order to achieve a balanced budget for 2016/17 the Corporation had to achieve savings of approximately $200,000 in its Employee Costs. The Corporation has managed to sustain these savings in 2017/18. Employee Costs include all labour related expenditure such as wages and salaries and on-costs such as allowances, leave entitlements, employer superannuation, rostered days off, etc. Long Service leave, Superannuation, and Workcover are all statutory requirements and provision for the payment of these items is included in the budget. Employee Costs also include increases in salaries for employees’ movements through salary scales due to length of service. 4.2 Materials and Services (+ $53,617) Materials and Services include the purchases of consumables, payments to contractors for the provision of services and utility costs. Materials and Services are forecast to increase by $53,617 (or approximately 2% overall) compared to 2016/17. These savings have been achieved by: restricting where possible expenditure increases to 2%; not increasing expenditure in some areas such as the events budget, minor furniture repairs; and taking into account expenditure areas that cannot be restricted to an increase of 2% because they are based that are based on agreements, leases, or contracts. For example: Admin Lease 4%. 4.2 Written Down Value of Assets disposed (No change) Written Down Value of Assets Sold has been estimated to remain the same based on previous years’ experiences and the likely outcome for 2016/17. 4.2 Depreciation and Amortisation (+ $50,000) Depreciation is an accounting measure which attempts to measure the usage of the Corporation’s property, plant and equipment (including motor vehicles) and library materials. The budgeted amount is based on the experience of 2016/17 and estimated growth in assets for 2017/18. Refer to section 6. “Analysis of Capital Budget” for a more detailed analysis of the Corporation’s capital works program for the 2017/18 year.

5.1 Payments from Operating Activities (+ $48,504) Salaries for 2017/18 will decrease by $5,114. In order to achieve a balanced budget for 2016/17 the Corporation had to achieve savings of approximately $200,000 in its Employee Costs. The Corporation has managed to sustain these savings in 2017/18. Materials and Services include the purchases of consumables, payments to contractors for the provision of services and utility costs. Materials and Services are forecast to increase by $53,617 (or approximately 2% overall) compared to 2016/17. These factors combined give the net increase of $48,504 in Payments. 5.1 Net Cash Flows provided by Operating Activities (+ $50,839) Cash flows from Operating Activities for capital works is expected to increase by $50,839 to $1 m during the 2017/ year. 5.1 Net Cash used in Investing Activities (No Change) Net Cash used in Investing Activities will remain the same. This level of expenditure ($1) reflects the usage (depreciation) of the Corporation’s property, plant and equipment (including motor vehicles) and library materials at $1. Item 2016/17 2017/ $ $ Books 850,000 850, Audio Visual 600,000 600, eBooks 200,000 200, Motor Vehicles 100,000 100, Capital Projects 150,000 150, Refer to section 6.1 for further information. 5.1 Cash at End of the Financial Year (+ $839) Overall, total cash is forecast to increase by $839 to $6,579,838 as at 30 June 2018. 5.1 Restricted Funds and Working Capital The cash flow statement indicates that the Corporation is estimating at 30 June, 2017 it will have cash and investments of $6 which has been restricted as follows:  Employee Costs (Current) ($2) These funds must be applied for specified statutory purposes in accordance with various legislative and contractual requirements. Whilst these funds earn interest revenues for the Corporation, they are not generally available for other purposes.  Employee Costs (Non-current) ($0) These funds are separately identified as restricted to ensure there is sufficient funds to meet the Corporation’s obligations as set out in the Local Government (Long Service Leave) Regulations 2002.

Analysis of Budgeted Statement of Capital Works This section of the report analyses the planned capital expenditure budget for the 2017/18 year and the sources of funding for the capital budget. 6 Budgeted Standard Capital Works Statement 2016/2017 2017/18 Variance $ $ $ Capital Works Areas Library Materials Books 850,000 850,000 - Audio-visual Materials 600,000 600,000 - e books 200,000 200,000 - Plant & Equipment Motor Vehicles 100,000 100,000 - Equipment 150,000 150,000 - Total Capital Works 1,900,000 1,900, 6.1 Capital Works Areas (No Change) This level of expenditure ($1) reflects the usage (depreciation) of the Corporation’s property, plant and equipment (including motor vehicles) and library materials at $1. For future years the average annual investment in capital works of $1 will endeavour to maintain the current level of the Corporation’s assets. 2017/18 2018/19 2019/20 2020 / $ $ $ $ Total Capital Works 1,900,000 1,800,000 1,900,000 1,800, Depreciation 1,700,000 1,700,000 1,700,000 1,700, Net Movement in Property, Plant & Equipment 200,000 100,000 200,000 100, 6.1 Cash Reserves ($6 at the beginning of the financial year) Net cash flows from Operating Activities for capital works is expected to increase by $50,839 to $1 m during the 2017/18 year. $50,000 will be required for Capital Works, which means the nett cash reserves will remain unchanged at $6.

7 Key assumptions In preparing the Budgeted Balance Sheet for the year ended 30 June 2018 it was necessary to make a number of assumptions about assets, liabilities and equity balances. The key assumptions are as follows:  All Council contributions and State Government grants will be received.  Other debtors and creditors are based on previous year’s experiences.  Employee entitlements to be increased by the terms of the Enterprise Agreement only.  No increase in the average rate of leave taken. 8. Impact of current year on 2017/18 Budget This section of the report analyses the variances from the current budget year and assesses whether there will be any significant impacts on the 2017/18 budget. Budgeted Comprehensive Income Statement 2016/ $ Income Grants (Operating): State Government 2,597, Contributions (Monetary): Member Councils 9,974, User Charges, Fees & Fines 419, Proceeds on disposal of Fixed assets 45, Other Income (Interest) 225, Total Income 13,262, Expenses Employee Benefits 8,947, Materials and Services 2,465, Depreciation and Amortisation 1,650, Written Down Value of Assets disposed 200, Total Expenses 13,262, Surplus/(Deficit) for the year 0 8 Operating Performance All grants and contributions have been received to date. The last quarter Member Councils’ contributions will be received on or about 1 April 2017 which will be the last major income source for 2016/17. 8 Cash Performance There are no significant matters that will reduce the estimated end of year cash position ($6). 8 Capital Performance The forecast capital performance for the year ending 30 June 2017 shows that the budgeted capital works program for the 2016/17 year will be achieved. 8 Matters Significant to the 2016/17 budget There are no significant matters for the 2016/17 year at the time the 2017/18 Budget was prepared based on the year to date position as at 31 January 2017, and projected Income and Expenses until 30 June 2017.

Strategic Resource Plan The Corporation is required by the Act to prepare a Strategic Resource Plan (SRP) covering both financial and non- financial resources, including key financial indicators for at least the next four financial years to support the Corporate Plan. 9 Plan Development The SRP takes the Objectives and Strategies as specified in the Corporate Plan and expresses them in financial terms for the next four years. The key objective, which underlines the development of the SRP, is financial sustainability in the medium to long term, whilst still achieving the Corporation’s Objectives as specified in the Corporate Plan. The key financial objectives, which underpin the SRP, are:  Achieve a surplus for 2017/18 and following years.  Maintain a capital expenditure program greater than Depreciation in 2017/18 and strive to improve, circumstances permitting, on the average annual investment in capital works of $1 for 2018/19 and following years.  Achieve a balanced budget on a cash basis. In preparing the SRP, the Corporation has also been mindful of the need to comply with the following Principles of Sound Financial Management as contained in the Act:  Prudently manage financial risks relating to debt, assets and liabilities.  Consider the financial effects of Corporation’s decisions on future generations.  Provide full, accurate and timely disclosure of financial information. The key points from the SRP are as follows: Revenue Strategy (section 10) Member Councils’ contributions for 2017/18 and following years are based on advice from the Member Councils. These contributions are subject to Member Councils’ adopted budgets for 2017/18 and the level of rate capping imposed for 2017/18 and following years and the impact on our Member Councils’ budgets. Capital Works Strategy (section 10) Capital expenditure over the four-year period will total $7 at an average of $1 spent on library materials and technology. The amount invested of $1 for 2017/18 maintains the current level of the Corporation’s assets for 2017/18. The average annual investment in capital works of $1 for 2017/18 and following years should maintain the current level of the Corporation’s assets in the longer term. Service Delivery Strategy (section 10) The key objectives included in the Corporation’s SRP which directly impact the future service delivery strategy are to strive to maintain existing service levels and to achieve a reasonable operating result over the four years. Services levels by way of opening hours will be maintained based the following: the discussions with Member Councils in relation to contributions 2017/18 and following years; self-service is maintained in all branches; and there is no increase in staffing numbers.
FUNDING STRATEGIES In developing the SRP, funding strategies have been developed for revenue, infrastructure and service delivery. 10 Revenue The 2017/18 Budget has been developed using advice from Member Councils as to their contributions for this year and 2018/19 to 2020/21. These contributions are subject to Member Councils’ adopted budgets for 2017/18 and the level of rate capping imposed for 2017/18 and following years and the impact on our Member Councils’ budgets. Given the issues in relation to the State government Grant for prior years, a conservative approach has been taken in relation to the expected increase for 2017/18 and following years (1% pa). Interest on investments has been estimated to remain the same based on: previous years’ experiences; the likely outcome for 2016/17; and investments continuing to return at least 3% per annum for 2017/18 and following years. User Charges, Fees and Fines will rise where appropriate for the service provided. 10 Capital Works A key objective will be to try and maintain or preserve the Corporation’s existing assets at desired condition levels. If sufficient funds are not allocated to asset preservation then the Corporation’s investment in those assets will reduce, along with the capacity to deliver services to the community. The amount invested of $1 maintains the current level of the Corporation’s assets for 2017/18. The average annual investment in capital works of $1 for 2017/18 and following years will maintain the current level of the Corporation’s assets. 2017/18 2018/19 2019/20 2020 / $ $ $ $ Total Capital Works 1,900,000 1,800,000 1,900,000 1,800, Depreciation 1,700,000 1,700,000 1,700,000 1,700, Net Movement in Property, Plant & Equipment 200,000 100,000 200,000 100, The following influences had a significant impact on Capital Works for the 2017/18 and following years:  Projected Member Councils’ contributions.  Estimated State Government Grant for 2017/18 and later years.  The level of cash and investment reserves to fund future capital expenditure programs.

10 Service delivery The key objectives included in the Corporation’s SRP (referred to in Section 9) are to strive to maintain existing service levels while achieving a reasonable operating result over the four years. Overall service delivery will be dependent on: Member Councils’ contributions, grants from the State Government; and the income generated by the Corporation from charges, fees fines and investment income. The service delivery outcomes measured in financial terms are shown in the following table. Resource Plan Projections Indicator 2017/18 2018/19 2019/20 2020 / $’000 $’000 $’000 $’ Operating result 0 0 7 19 Cash and investments 6,579 6,680 6,687 6, Cash flow from operations 1,900 1,900 1,907 1, Capital works 1,900 1,800 1,900 1, Employee Costs 8,942 9,120 9,303 9, Employee numbers (EFT) 89 89 89 89 10 Matters that Impact on the Funding Strategies Financial sustainability will be maintained if:  Member Councils’ contributions and State Government grants are as projected.  Wages growth is 2% (including Oncosts) for 2017/18 and following years.  Cost increases can be capped at 2% (or no increase) for all expenses other than those determined by agreements, contracts or leases.  Cash and investments remain constant as forecasted over the four-year period. The general matters affecting all operating revenue and expenditure include the following: Resource Plan Projections Indicator 2017/18 2018/19 2019/20 2020 / % % % % Council contribution increases Various 2 2 2 Government funding 1 1 1 1. Wages growth 2 2 2 2 Cost Escalation Factor* 2 2 2 2 Investment Return 3 3 3 3 *Increases restricted to 2% unless otherwise determined by agreement, lease or contract.

Appendix A Budgeted Standard Statements This appendix presents information in regard to the Budgeted Standard Statements. The budget information for the years 2017/18 to 2020/21 has been extracted from the Strategic Resource Plan. The appendix includes the following budgeted information:  Budgeted Comprehensive Income Statement  Budgeted Balance Sheet  Budgeted Statement of Cash Flows  Budgeted Statement of Capital Works

Budgeted Comprehensive Income Statement For the four years ending 30 June 2021. 2017/18 2018/19 2019/20 2020 / $ $ $ $ Income Grants (Operating): State Government 2,632,848 2,668,391 2,704,415 2,740, Contributions (Monetary): Member Councils 10,068,934 10,270,312 10,475,719 10,685, User Charges, Fees & Fines 419,328 423,078 423,078 423, Proceeds on disposal of Fixed assets 15,500 500 500 500 Other Income (Interest) 225,000 215,000 205,000 200, Total Income 13,361,609 13,577,281 13,808,711 14,049, Expenses Employee Benefits 8,942,022 9,120,862 9,303,280 9,489, Contract Payments, Materials and Services 2,518,748 2,555,941 2,598,103 2,641, Depreciation and Amortisation 1,700,000 1,700,000 1,700,000 1,700, Written Down Value of Assets Disposed 200,000 200,000 200,000 200, Total Expenses 13,360,770 13,576,803 13,801,382 14,030, Surplus/(Deficit) for the year 839 478 7,328 19,

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