Mayor Neil Reilly and CEO Jane Stroud have begun the difficult task of explaining to residents of the Blue Haven Independent Living Units (ILUs) that their deposit money they thought was in a trust has been used over many years for other purposes, including building Blue Haven Bonaira.

Mayor Reilly says their message is, “We will do everything we can to ensure their future is going to be as they planned it.”

While a total of $122 million is unaccounted for, residents have been assured that now the truth is known serious steps are being taken to improve the situation.

Details were first outlined in Council’s draft Long Term Financial Plan, endorsed at last week’s extraordinary meeting. It was through asking questions about that plan that The Bugle became aware of the extent of the problem through an interview with the Mayor and CEO.

Meetings had already been arranged with residents to discuss the situation.

“Being honest about it for the first time in our Long Term Financial Plan is both controversial and difficult, but absolutely necessary because now we know about it we don’t want to hide this from anybody,” says Mayor Reilly.

“How can we fix it if we just keep it under the covers?

“We want to come out of this with a couple of objectives achieved – one is to make sure we put in place plans that are not only going to remedy this but avoid decisions being made by others, for example an administrator. 

“The other is that we have a plan in place to pay people back when we need to, including our ILU residents and TCorp [Council’s banker].”

At the end of the 2021 financial year, $92.5 million was owed for the ILUs and $29.5 million was owed for the Residential Aged Care Deposits (RAC).

All of this is now showing up in the balance sheet as a current liability, with the figure of over $122 million being shared with the public for the first time.

Of this, only $4.4 million is held currently in restricted reserves for the RAD scheme, but RADs, unlike ILUs, are underwritten by the Federal Government.

Although no retirement facility holds all of its deposits available, there are usually records to show how it is being used, and clear policies that let consumers know what money is held and where money is to be spent. At Blue Haven, there has been no money held separately for the ILU deposits, to refund when required and to be used for repairs, maintenance and renewal.

The exception is for those ILUs built at the Blue Haven Bonaira facility, where the TCorp loan required all sales deposits and payments to be withheld for the loan repayment.

“Council’s Aged Care Prudential Standards Policy painted the picture of the money that Council was paid in deposits being held in a trust, and that picture resulted in a belief by our ILU residents that we hold and have retained their deposits. This is not the case.

“As we know now that not to be the case, the question of where the deposit monies been spent is a really good one and a lot more work needs to be done to be able to answer that in detail.”

The answer may never be completely known.

Mayor Reilly talking to some of the residents protesting against the possible sale of Blue Haven

“It has become clear that over the years the money has just gone into one pot,” says Mayor Neil Reilly.

“At some times Council has subsidised Blue Haven, particularly in relation to the construction of Blue Haven Bonaira, and at other times Blue Haven as contributed back to Council.

“Because it all came back into one bucket it is almost impossible for us to tell how that has come about. Now we have the Forensic Report, and KPMG has been working with our team to give us a picture of what has happened.

“Along the way, the community and the councillors and a lot of staff have been misled and misdirected as to the financing of the building of Blue Haven Bonaira and some of our overall operations.

“First of all there was a blanket statement made within the last five years that said that Blue Haven and Council were separate business entities, and no ratepayer’s money had ever been used on Blue Haven, and vice versa. That wasn’t right.

“The accounts were artificially extracted from Council’s main account. We were told they were the official accounts, and they are just not.”

The process underway to separate the books is proving difficult, but is still on track to have standalone ledgers for 1 July and the new financial year.

Blue Haven Bonaira during construction

Most recently, some of the $122 million appears to have been used to assist in the construction of Blue Haven Bonaira, which overran its initial budget of $59 million to come in currently at $107 million.

“It is also quite clear that some of the $122 million has gone towards funding Council’s operations,” says Ms Stroud.

In August next year, a further $45 million needs to be paid back to TCorp, although Council is seeking to renegotiate the terms.

“Considering a sale of Blue Haven is more to do with the on-going losses [at the Residential Aged Care Facility],” says Mayor Reilly, after a loss of $3.9 million in its first year and $3.6 million this year.

“I think we were given a business model that was out of date way before we even started to build Blue Haven [due to the Royal Commission and aged care reforms] and we have stuck with that business model and been advised all the way that this was a going concern.

“To some extent those artificially extracted reports revealed that everything was quite good.”

Amongst other things, a number of operational costs were never factored into the plan and there was no asset management plan to predict and manage what could be substantial on-going costs.

Even without the extra costs associated with COVID, it has been a difficult period for aged care providers.

“There is a reason why so many aged care operations owned by councils have been disposed of,” says Mayor Reilly.

“Even some major providers of aged care have had to rationalise because they are all experiencing troubles. That isn’t unique to Blue Haven. What is unique is it is owned by Council and hasn’t been run like a proper business should.

“Separating the books is just the start of it. Then we are going to have to make a business plan for it for the councillors to consider should Council be in aged care as a core part of our business?

Other councils across NSW have said not.

“I think if our community is going to have to lose an enormous amount of services to support Blue Haven, we won’t be doing our job.”

A valuation of Blue Haven Illawarra’s worth is yet to be done, with only the insured value being used in the ten year projections despite it being sold as a going concern.

In another example of how restricted reserves have been used for other than their proper purpose, the March Ordinary Meeting of Council also transferred $4.8 million back into the developer contributions fund where they rightly belong.

“My job and the whole job of the Council is to get us in the position that we are a going concern and are comfortable we can pay our bills,” says Mayor Reilly.

A story on the budget for 2022/3, where $3 million needs to be shaved off the current $7.4 million deficit, will follow tomorrow.