Internal Loans

[susiejones]

Hi,
does anyone know what legislation is around to regulate internal borrowing from different funds?
I know the water fund has to comply with best practice to declare a dividend, but can they still make a loan?

[ken]

Hi Susie,

Section 410 of the NSW Local Govt Act "Alternative use of money raised by special rates or charges" states:

"(3) Money that is not yet required for the purpose for which it was received may be lent (by way of internal loan) for use by the council for any other purpose if, and only if, its use for that other purpose is approved by the Minister.

(4) In granting such an approval, the Minister must impose conditions as to the time within which the internal loan must be repaid and as to any additional amount, in the nature of interest, that is to be paid in connection with that loan."

Note that:

1. These Internal Loans then have to be reported at Year End within the Special Schedules at Special Schedule No. 2(b) Statement of internal loans (Section 410(3) LGA 1993)

2. They will of course be eliminated in the YE General Purpose financial Reports - as they are all internal balances & the YE Accounts only reprorts external transactions & balances!!

Your next move...

a. Maybe contact the DLG Finance section & ask them what information they need from Council & in what form it should take (I imagine a formal letter).

b. As well, maybe clarify if Council needs to formally adopt a Council resolution on any Internal Loan - either before or after any correspondence with the Minister !?

Best of luck...

[susiejones]

Thanks Ken,
thats really helpful

[ken]

.
Hi Susie,

Section 410 of the LG Act covers off on Internal Loans from "Special Rates & Charges" monies (ie. from Water & Sewer Fund).

S410 (3) "Money that is not yet required for the purpose for which it wasreceived may be lent (by way of internal loan) for use by the council for any other purpose if, and only if, its use for that other purpose is approved by the Minister."

S410 (4) "In granting such an approval, the Minister must impose conditionsas to the time within which the internal loan must be repaid and asto any additional amount, in the nature of interest, that is to bepaid in connection with that loan."

So next step would be do seek approval from the Minister via the DLG.

Hope this helps !!