A secretive development arm of Ipswich City Council broke corporate laws, cut questionable property deals and inappropriately donated $10,000 to an elite school attended by the children of three of its directors, according to state government auditors.
Ipswich City Properties (ICP) also struck a poorly conceived deal with a developer that would have left ratepayers up to $29 million worse off by leasing, not owning, new council headquarters, a confidential report found.
The revelations, tabled in parliament on Monday by Local Government Minister Stirling Hinchliffe, came after the ABC last month obtained expert analysis showing the council-owned company had lost ratepayers at least $83 million.
Mr Hinchliffe seized on evidence of “questionable transactions and dud deals that have saddled Ipswich ratepayers with some massive costs” to back his moves to sack a council rocked by separate corruption allegations.
“Ipswich City Properties incurred losses of up to $50 million – all ratepayers’ funds – on an Ipswich CBD redevelopment that never eventuated,” Mr Hinchliffe said.
ICP, the largest of five council-owned companies examined in damning reports by corporate firm McGrathNicol, was set up nine years ago to drive a $150 million facelift of the Ipswich city centre that is yet to materialise.
Elite school given $10k
One report revealed the Queensland Audit Office in December reported ICP to corporate watchdog, the Australian Securities and Investments Commission (ASIC), for breaching the Corporations Act by failing to lodge audited financial statements and prepare a directors report.
The state auditors found ratepayers may have been short-changed by ICP and the “poor outcomes” of its campaign to select a developer to build its new administration building.
The Queensland Audit Office also cited concern about the lack of “independent approval” of spending on a debit card by four officers at another entity, Ipswich City Developments, which created “potential for misappropriation of funds, fraud and consequential reputational damage”.
The council scrapped its original deal with developer EPC to build and lease a new headquarters, after McGrathNicol in January found it held a net present cost to council of $89 million versus $60 million if it retained ownership.
McGrath Nicol recommended council pay EPC $7 million to break a contract that came at a “much higher cost” than the alternatives, even with having to pay $11 million to a new developer.
The state auditors noted ICP’s $10,000 donation to Ipswich Grammar’s Red and White Foundation Limited prompted declarations of conflict of interest from three directors whose children went to the school.
But the donation “does not align with ICP’s objectives as specified in its constitution”, it stated.
The auditors criticised ICP’s failure to obtain competing quotes for purchases over $20,000 in line with its procurement policies.
They also identified shortcomings in financial oversight that “may result in inappropriate transactions not being detected and dealt with in a timely manner”.
Despite the damning audit report, the council last month claimed ICP since 2014 had “received an ‘unqualified audit’ which represents the accounts have been prepared accurately and on a true and fair basis”.
Council’s entities ‘acted as a law unto themselves’, minister says
Mr Hinchliffe said the reports pointed to “multiple breaches of the Corporations Act and maybe sanctions that appropriate authorities would have to look at”.
“For too long Ipswich City Council-owned entities have been acting as a law unto themselves without proper oversight and without proper transparency,” he said.
“It certainly proves that there are deeper and broader issues than just those that have been the subject of the [Crime and Corruption Commission] matters that are out there in the justice system at the moment.”
Councillor Paul Tully, the chairman of ICP, rejected Mr Hinchliffe’s allegations.
“It might be a serious concern if it’s true but … this report that he [Mr Hinchliffe] tabled is a furphy from start to finish,” Cr Tully said.
He said councillors had not been provided with a copy of the McGrathNicol report.
“I know it sounds extraordinary, but this is the way things have been working in the last 12 months,” he said.
“For the minister to say nothing has happened is completely and utterly false.”
He said the council was “currently undertaking a $150 million redevelopment of the Ipswich CBD, involving the former mall area, a new library and a new administration building and whole food precinct and entertainment precinct”.
“I invite the minister on any day of his choosing to come to Ipswich to see what is actually happening,” he said.
Figures from auditor-general’s report
Cr Tully also said in a statement on Tuesday morning stage one of Ipswich’s inner-city development was finished and “valued at $93 million”.
He said all of the figures stated in the minister’s report were extracted from the auditor-general’s audited Financial Report 2017.
“They are public figures,” Cr Tully said.
“There is a $50 million loan to ICP – $30 million of this money has bought land which Council continues to own.
“An accounting procedure sees $34 million used to write down the loan to reflect historical economic conditions and the value of undeveloped land.
“The ICON development has already netted Ipswich City Council $14 million in profit.”
Speaking in Ipswich on Tuesday morning, Mr Hinchliffe confirmed he would forward the latest information to the state’s corruption watchdog.
“I have spoken to the chair of the CCC about these matters and I’m also sending the reports.
“They are now publicly available documents, but I am sending the report specifically to the CCC for them to consider.”
‘Profound scandal’ at Ipswich council
Four former ICP directors – two former mayors and two former council chief executives – face unrelated corruption charges brought by the CCC.
Former state finance minister and Ipswich MP Rachel Nolan said the reports pointed to a “profound scandal that cut to the heart of maladministration in Ipswich”.
She said the ill-fated deal to lease council’s new headquarters was “spectacularly more expensive than the other options” and part of an unrealised development plan that “utterly destroyed the CBD, chasing out businesses and literally knocking down the heart of the town”.
“Basically this quantifies that ICC signed up to a really bad deal and then tried to pay $7 million in secret to get out of it,” she told the ABC.
Griffith University’s head of accounting Reza Monem told the ABC the report backed his observation that ICP was “technically bankrupt”, noting four consecutive years of reported net liabilities of between $4.7 million and $33 million.
He said the cost to ratepayers was $49 million in operating losses, and a $34 million loan to ICP that council had “forgiven”.
The council last month disputed Mr Monem’s analysis, saying its operating losses were only $15.5 million.
It said it was of the “firm view” the 20-year project would ultimately come at no cost to taxpayers.