A showdown is looming between local and state governments over who is financially responsible for nearly $150 million worth of Rural Fire Service trucks and firefighting equipment in New South Wales, the so-called “red fleet”.
On one side are 68 local governments who argue the law that puts those trucks and equipment onto their financial books is outdated and unfair. They say it doesn’t reflect the reality, which is that they have no control over the purchase, use or sale of the assets.
On the other side is a state government that refuses to consider changing the law, which would bring it into line with conditions for other similar services.
In the middle is the NSW auditor-general, Margaret Crawford, who is ostensibly doing her job by insisting the rogue councils adhere to the law and amend their reports or risk severe financial repercussions.
“To me, it just doesn’t pass what they call the ‘pub test’,” says Ken Keith , mayor of Parkes Shire Council, which is one of the councils objecting to the status quo. “They buy the asset, they own the asset and they sell the asset at the end, and they control it for a fair bit of the time as well, so why are we met with having to put that asset on our books?”
The origins of this disagreement go back to 1997, when the Rural Fires Act became law and laid the foundations for today’s Rural Fire Service (RFS), the largest volunteer firefighting organisation in the world.
The act also established the NSW Rural Fire Fighting Fund – an account within Treasury – to which local government, state government and insurers contribute, and which pays for all the RFS’s firefighting equipment, including trucks and vehicles.
The purchase of new equipment using the fund theoretically involves a discussion between the local RFS and their local government, but in reality, says Darriea Turley, president of Local Government NSW and a Broken Hill City Council councillor, “a lot of the mayors say to me, ‘A new fire truck arrives in town, we don’t know anything about it until we see a photo of the minister and the local fire service with it’.”
Despite this, the act specifies that the equipment is vested with the council on whose behalf it is purchased. This differs from Fire and Rescue NSW or the NSW State Emergency Service, whose assets are vested with the state government.
The RFS brigades’ use of those council-owned assets is governed by individual rural fire district agreements made between local councils and the local RFS . They also cover taking those assets outside the local government area, which in theory the local RFS brigade must seek permission from their local council to do.
The news they were in fact financially responsible for the RFS red fleet assets in their local government area apparently came as a surprise to many councils, who learnt of this only when the auditor-general took over responsibility for auditing local governments in 2016 and realised the discrepancy between the law and practice.
As the NSW deputy auditor-general, Ian Goodwin, told budget estimates on September 7: “It just became obvious that there was an issue when the auditor-general took over the mandate to audit the local councils and identified that there was a large portion – in excess of $100 million – of pretty critical equipment that was not being accounted or booked in any government records. The question was asked: Who does control it?”
In June this year, the Audit Office of NSW released its “Local Government 2021” report, which brought the issue to a head. It highlighted that 68 of the more than 100 councils with rural fire service brigades did not record rural firefighting equipment on their books, representing about $145 million of unclaimed assets. The auditor-general recommended that the errant councils do a stocktake and put those assets in their financial reports. It has warned individual councils that they face being given a qualified audit if they don’t comply.
A qualified audit – a label meaning there are unresolved errors in the accounts – could have serious repercussions for councils, limiting their ability to get loans and grants, and could provide fodder for political opponents.
Despite the threat, the 68 councils and Local Government NSW – an independent organisation representing the interests of local governments – have dug in. They are arguing councils don’t control the assets so they shouldn’t be listed in councils’ financial reports.
“It’s very difficult to account for assets that you don’t see, control, didn’t buy, didn’t sell, don’t even know if [they] necessarily exist,” says Matthew Hansen, deputy chief executive of Berrigan Shire Council, which is refusing to include the assets on its books.
He cites the Local Government Code of Accounting Practice and Financial Reporting, which states that councils need to assess whether they control any rural firefighting equipment and, if they do have assets under their control, recognise those in their financial statements.
“Legal ownership doesn’t necessarily mean you control them, and you include assets in your financial statements if you actually have control,” says Hansen.
Dr Michael Eburn, an expert in emergency services and emergency management law, says the arrangement is a historical anomaly that doesn’t reflect the reality of how the Rural Fire Service operates now. “Before the current Rural Fires Act, in the days of the Bushfires Act – and it’s still the case in Western Australia – councils owned and operated the fire brigade,” Eburn says. “But they don’t anymore.”
Now there is the Rural Fire Service, along with NSW Fire and Rescue and the NSW State Emergency Service – all agencies of the state government. “They’re not separate legal entities, they’re departments within the state government, so state government owns them,” Eburn says.
Some councils have expressed concerns they will have to include the depreciation costs of that equipment in their financial reports, imposing an extra financial burden on councils already struggling with the cost of natural disasters such as the recent floods. Depreciation is recorded as expenditure in financial reports.
However, as Goodwin pointed out in his recent estimates testimony, it doesn’t actually represent a cash loss for councils because the assets are effectively gifted to councils at no expense in the first place. “The depreciation is booked against the revenue that’s already been booked into the accounts, so the accounting consequence is zero.”
Councils argue that the depreciation is still on their books. For example, Lismore City Council would have to report about $177,000 worth of depreciation each year, for firefighting equipment worth an estimated $3.3 million. Blue Mountains City Council, which incurs an annual depreciation cost of $482,000 on a fleet worth $13.9 million, has described the state government’s position as “a cynical financial sleight-of-hand abdicating the NSW government’s responsibilities at the cost of local communities”.
Until the auditor-general highlighted the issue, RFS brigades and local councils ensured the red fleet was maintained and updated using money from the Rural Fire Fighting Funds, but questions of ownership were not raised.
Local Government NSW says the solution is to amend the original Rural Fires Act so that the assets are vested with the state government rather than with councils. As Darriea Turley says: “We’re saying to the government, ‘Act responsibly, this is your asset, amend the act to ensure that it is within the Rural Fire Service Act, and release councils of this responsibility’.”
With a state election scheduled for next year, some councils are taking their case to the opposition in the hope of getting support for a change to the act. Parkes Shire Council has resolved to renegotiate its service agreement with the district RFS and to explicitly state in that new agreement that the assets are not listed on its books.
Hansen says the current regulations, in which hundreds of millions of dollars of assets are scattered across more than 100 councils, all maintaining them in slightly different ways, create an untenable situation.
“[It] cannot be the most effective way to manage the RFS portfolio of assets which is,” he says, “in the end, responsible for protecting the lives and property of two or three million people in rural regional New South Wales.”
This article was first published in the print edition of The Saturday Paper on September 24, 2022 as "The red f leet".
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