By Phil Herrick

Picture this Scenario

A new business launched by an ASX listed company is in financial trouble, so they call in KPMG and a specialised risk consultant to tell them how to get back on track. The consultant’s report, and some risks in the new business have been identified as extreme, with catastrophic financial consequences to the company if they are not fixed.

The Board adopts the consultant’s recommendations and staff are tasked with implementing them.

Over a year passes and losses of the new business, originally forecast at $563,000 a year will now pass $6 million for the year and the CEO tells the Board total losses will pass $50 million over the next 10 years. This leads shareholders to question if the CEO has completed the tasks meant to cut the losses.

What would you expect the Board to do the next time it meets?

 

Sound Familiar?

Swap the company for our local council and you could be describing the rolling financial disaster that is the Bay Pavilions.

In October last year InConsult delivered a risk assessment to council.

An extreme risk was the unsustainable business / service delivery model. The consequence of this risk was catastrophic.

Council is planning a loss of $6.2 million this year at the Pav, but the most recent quarterly performance report showed income is 30% below the annualised target, so losses will balloon further. The predicted catastrophe has arrived.

 

Seeking Answers

The Moruya Mail has been following the story because of the impact the Bay Pavilions losses have on the broader community as council cuts road maintenance and other services to pay for it. The Pav is now on track to consume 10% of the General Fund rates.

Two weeks ago, we asked council for assistance to provide an update to readers on progress being made to improve the financial performance of the Bay Pavilions.

In particular, we asked about some actions recommended by InConsult last year to mitigate risks that were extreme and financial consequences catastrophic.

We hoped the actions were completed and it would be easy for council to respond. We have yet to get a response.

 

The Questions We Asked

InConsult advised: In the absence of Bay Pavilions being able to achieve a positive cashflow and net surplus, Council must set a loss tolerance level and manage the asset accordingly.

The Mail asked: InConsult were very firm on this point, using the word “must” Has the loss tolerance level been determined? What is it?

 

InConsult advised: Conduct a ‘lessons learned’ workshop where Council and Aligned Leisure can discuss strengths and weaknesses in the current arrangement with an objective of minimising the financial exposure to Council.

The Mail asked: Risk 19 on Reputation also recommended a workshop. Was the workshop conducted? Are there any outcomes that have been delivered?

Note: Aligned Leisure (AL) are the company council has contracted to operate the Pavilions.

 

InConsult advised: Currently all expenses are borne by Council and a set management fee is paid to AL. There is no ‘skin in the game’ for AL, no penalties for poor performance and no rewards for improving performance. Council should re-assess the value proposition and in particular how AL can enhance revenue.

The Mail asked: Has the value reassessment been completed? Have enhanced revenue opportunities been put in place? Have poor performance penalties or rewards for improved performance been set?

 

InConsult advised: Investigate the possibility of more flexibility to fees and charges to allow AL to promote the BP more effectively.

The Mail asked: Has any greater flexibility been given to AL? Can AL’s promotion of the Bay Pavilions be measured as being more effective as a result?

 

InConsult advised: Investigate opportunities for AL to work closer with Council’s tourism team to align the Bay Pavilions strategic plan and business plan to Councils and regions tourism strategy.

The Mail asked: Have Tourism and AL started to work together? Any outcomes to date?

 

InConsult advised: Review the Marketing Plan and Business Plan drafted by AL and provided to Council at the start of the Contract to establish realistic marketing and financial targets. At the heart of any future strategy should be key strategies to increase patronage/more users.

The Mail asked: Has council accepted revised Marketing and Business Plans from AL?

 

And finally, we asked about an action plan listed in council’s Sustainability Plan for the Pav:

 

Action: Review and consider renegotiation of current contract with Aligned Leisure.

The Mail asked: Has a renegotiated contract been agreed?

 

We’ll get a Response

We’re confident council will respond in time, but the delay, in itself, raises questions. We hope the recommended actions have all been completed, as well over a year has passed since the councillors passed the consultants recommendations to staff for action.