ORION  Website

The new website has been incredibly popular since being launched in March. There have been 1176 web page visits, 50,000 hits and constant data searching from search engines globally. International search engines account for 15% of the traffic and over half the visits have been from overseas. A total of 44 hours has been spent on www.orionco.net. Please let us know if you have any suggestions for items in the Resource Centre. Please email us on consult@orionco.net            or phone 1300 767 466

Business Management Assistance Program (BMAP) Developments

Timing of QCA payments

Payments are expected to be released mid-June. However, payments for any Business Activities nominated after the scheme commenced several years ago, will be capped at 30% until 2006, because the Reserve Pool is currently heavily overcommitted. However, this will be reviewed after the next round of assessments based on the overall progress in that pool. ORION is pleased to have helped the 24 Councils it has worked with on this in receiving over $5.5 Million this year.

2003/4 Budget

This budget is the last chance Council’s will have to implement the competition policy reforms and still be eligible for Financial Incentive Payments. ORION has developed a method of quickly preparing a tailored spreadsheet model which converts a Council budget spreadsheet into the Full Cost Pricing Format, incorporating all aspects such as overhead allocation, tax equivalents, competitive adjustments, and Community Service Obligations. We have received very favourable feedback from the QCA, who stated that it met all of their requirements. Demand is now so high for these models that ORION now employs two financial modelling experts to assist in their preparation.
An extra requirement which the QCA is now looking for, is the income tax treatment of the profits from Council Business Activities. This is calculated by deducting notional interest costs from the profit figure (based on an assumed gearing of 50% at an interest rate of the 10 year bond rate plus 1%) to get the taxable income figure. Income tax is then calculated at the corporate tax rate of 30%. ORION has incorporated this new requirement into the models for our clients.
Some Council’s have made excellent progress in implementing the competition policy reforms, and may be eligible for the bonus payment. However, the fine print shows that not only do Council’s have to fully implement every aspect of competition policy to their nominated business activities, but they also have to apply full cost pricing to all of their internal activities which provide services to the Business Activities. This has now been automatically incorporated into ORION models for its clients.

Thinly capitalised businesses

In the last newsletter we mentioned that the QCA shifted the goalposts a bit by requiring Businesses with few or no assets to obtain a 10% profit on their full costs. The Local Government Department was requested to prepare a Bulletin to clarify the issue, however it is understood that the Department supports the QCA’s view. Basically this means that businesses which use little or no capital, should aim for a 10% operating cost margin. However, if a business indirectly uses a lot capital (eg a road works business with plant hire) and the hire cost of that capital includes a commercial rate of return or is based on market prices, this requirement does not apply. Such businesses would only need to achieve around a 2% return on turnover to cover working capital. (Again this has been incorporated into the ORION models).

Ongoing compliance

The Local Government Association (LGAQ) has just released a model Ongoing Compliance Policy and Manual for Councils to use, which was developed by ORION. It was being pilot tested in Laidley Shire Council and reviewed by the QCA. A key feature of the policy and manual is the specification of roles and responsibilities of various people in the organisation, as well as an annual checklist to ensure that any relevant changes have been addressed. It is important that Council’s either have this policy in place before the end of financial year or have a robust quarterly performance reporting process to be eligible for the final 10% of Financial Incentive Payment.

Business Management Ongoing Policy and Manual (PDF 236kb)

Water Cross-subsidy guidelines

ORION also wrote guidelines on the calculation of water cross-subsidies, which convert the economic terms used in Departmental guidelines to common accounting terms, so that it should be easier for Councils to prepare. These have also just been released by LGAQ. We are also working on a spreadsheet model to automatically prepare the statement for the Annual Report, which will be soon available from ORION at a nominal cost.

Simplified Water Cross-Subsidy Guide (PDF 76kb)

Trade Waste pricing review

LGAQ has requested ORION to review the new requirements for trade waste pricing. It does not affect the incentive payments to Councils, but this is becoming a hot issue with the National Competition Council and the Ombudsman. Legal advice has been obtained and the LGAQ are now liaising with government agencies to ensure that Council retain maximum flexibility in the way these prices charges are levied.

By David Spearritt Director ORION

End of BMAP

The BMAP officially ends on 30 June 2003. ORION has been the principal technical consultant to this program, which won the Organisational Award in the recent CPA Public Sector Awards, presented by the Queensland Treasurer. Feedback from the National Competition Council and the Queensland Competition Authority is that this program has been an outstanding success, exceeding their expectations, and outperforming all other States. However, it also brings to an end the free mentoring support to Council provided by ORION and the other BMAP consultants.

Local Government Revenue legislation

In the last newsletter we noted that recent amendments to the legislation change the content of the Revenue Policy, and require the policy to be adopted before the beginning of the financial year. Also, the Budget must now contain a Revenue Statement. Regulatory fees can now include a tax component (subject to the LGFS). A Register of Regulatory fees is now required. ORION is assisting Councils in the development of compliant revenue policies and statements. It is important to remember that the Revenue Policy must be adopted before the end of financial year, but can be amended at any time during the financial year, including the budget meeting.

CPA Local Government Day

On March 28, CPA Australia hosted a Local Government Day conference in Brisbane. David presented a paper on the topic "National Competition Policy: from full cost pricing to better business management and decision making." A copy of the paper is available on the ORION website under Publications, and also Queensland Competition Policy or click here.(PPT 240kb)

• How the competition reform agenda applies to Local Government
• Lessons from experiences to date – what worked, what didn’t
• The Business Management Assistance Program
• Using the new processes to solve Local Government problems
• Improving decision-making and business management
• Best Practice examples
• Developments in other States and Countries