Local Government investing: a form of gambling?

Local Government investing: a form of gambling?

Local councils in New South Wales (NSW) have the authority to invest ratepayers’ money that is not currently required for any other purpose by the council. At the end of 2006-07 financial year local councils in New South Wales had invested $590 million dollars in structured financial products such as collateralised debt obligations (CDO). By the end of January 2008, six months later, the market value of these investments dropped $200 million to $390 million. Since then the financial investment market has further significantly reduced with the value of the councils’ investments losing many more millions of dollars. In NSW the state government commissioned a review of the financial exposures of NSW local councils to be undertaken by Michael Cole. The Cole Report published in 2008 found that while acting within the parameters of the Local Government Act (1993), local councils had pursued high return high risk investment strategies. This paper reviews and evaluates how the local councils in NSW, identified by Cole as having a high level of exposure to these forms of investments, have disclosed their financial investments in their 2007-08 financial reports; the type of audit opinion expressed on these reports; and the impact of these investment related losses on the ability of NSW local councils to provide current and future services.

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