Commonwealth grants advanced to councils are disguising the extent of the Queensland local government sector’s financial difficulties, according to a new report from the state’s auditor general.

The Queensland audit office found that 35 of the state’s 77 councils generated an operating surplus this year, consistent with  2020–21.

However, it notes that the sector also received a large portion of its Financial Assistance Grants (FAGs) – which make up about half of all local government operating grants in the state – in advance, which favourably skewed operating results.

Without the funding, only 28 councils would have recorded an operating surplus, and at June 2022, 46 councils remained at either a moderate or high risk of not being financially sustainable, the audit said.

“Grant funding received in advance has masked the full extent of the sector’s decline in financial stability,” the report released on Friday says.

The audit also shows expenses for the sector have increased at twice the rate of revenue.

In the 2019–20 and 2020–21 financial years, the local government sector received higher than usual grant funding to help it recover from the financial impacts of Covid.

Seventy-five per cent of FAGs was paid in advance in 2022-23 and Prime Minister Anthony Albanese announced at the Australian Council of Local Governments this month that the government will bring forward the 2023-24 allocations in full as a pre-payment.

Unresolved risk issues

The report  also found councils are taking too long to resolve high risk issues, and fewer councils are getting their financial reporting done on time.

Auditor General Brendan Worrall found 114 unresolved significant deficiencies – issues with major financial or reputational risk for councils – as at 30 June 2022.

Sixty-five per cent of those remain unresolved, he said.

He also found procurement and contract management processes are not up to scratch, with failure to document value for money and poor contract management practices.

Almost two thirds of councils still had significant deficiencies in their information systems, at a time when cyber attacks across the public sector were rising, he said. 

Sixteen of the councils with significant deficiencies did not have an audit committee and 14 lacked internal audit function, in breach of legislation.

Meanwhile, Mr Worrall said fewer councils were planning for early completion of their financial statements.

Only 48 councils planned to certify their financial statements early for the current financial year, compared to 70 in 2019–20.

And In 2021–22, only 32 councils managed to have their financial statements certified at least two weeks before the legislative deadline.

The audit acknowledges the impact of factors including staff shortages and natural disasters, but says councils could do better at managing these issues.