Performance Reporting in Local Government
1. EXECUTIVE SUMMARY
1.1 Introduction
Performance reporting by councils changed in 2004–05 with the
passage of the Local Government (Democratic Reform) Act
2003.
A new approach to annual performance reporting was introduced by
the Act, based on the concept of ‘key strategic activities’ (KSAs),
as set out in each council’s annual budget. The Act also introduced
the requirement to prepare a four–year council plan, containing
strategic objectives and indicators to measure achievements.
As it has been three years since these reforms were introduced,
it is timely to review their impact on local government performance
reporting.
1.2 Audit objective
The audit objective was to assess the effectiveness of councils’
performance reporting, with particular emphasis on the audited
performance statements included in council annual reports.
In addressing this objective the audit considered whether the
performance information was useful and whether key elements of the
framework established in each council support performance
reporting.
1.3 Key findings
Relevance
Most councils’ non-financial performance data is of limited
relevance to ratepayers and residents, the principal users of that
data.
Performance information is generally not being provided on the
timeliness, cost, quantity or quality of council services, on
achieved outcomes, or on achieving strategic objectives.
The performance indicators being reported are activity-based and
generally only measure one metric—time. In many cases the nexus
between the indicator and the activity is very indirect and of
questionable relevance.
Appropriateness
Most councils are not providing enough appropriate information
to users about the performance measures they have adopted. This
means that users are not able to meaningfully assess councils’
performance.
The lack of clarity around measures and targets; the paucity of
explanation of variances; and the failure to include trend and
benchmark data can indicate that councils have adopted a
‘compliance-centric’ approach to reporting performance information.
They rarely go beyond the legislative imperative and, where there
are no specific requirements, adopt a practice of minimalist
disclosure.
Presentation
The performance measures reported can be reliably measured.
However, this must be considered in the context that many
performance measures are neither relevant nor appropriate.
One inference that can be made is that councils select
indicators because they can be easily measured, not because they
are the right things to measure.
Policies and standards
In contrast to financial reporting, there are no independent,
authoritative standards for performance reporting. There is also no
generally accepted conceptual framework that identifies essential
characteristics of performance reporting.
This situation is mirrored at council level, where the
development of appropriate policies is either very limited or
non-existent.
Organisational capabilities
In most cases councillors and council staff are not equipped
with the knowledge and skills required to fully understand and
develop appropriate performance reports.
1.4 Overall conclusions
The performance statements prepared by councils generally fail
key tests of usefulness. They contain information that is largely
irrelevant and inappropriate to users needs. The failure to include
critical performance information and explanations makes it
difficult for ratepayers and residents to hold their elected
representatives fully accountable.
Through their reporting approaches councils have taken a very
narrow view of their performance reporting obligations—treating the
minimum mandatory legal requirements as the maximum disclosure
standard.
Councils have not established key elements of the frameworks
necessary to support the development of useful performance
information.
1.5 Recommendations
- Regulations be issued establishing minimum
standards for the form and content of performance statements.
(Recommendation 4.1)
- All councils document and approve performance
reporting policies and standards. (Recommendation 4.2)
- Councillors and council staff involved in
performance reporting are given appropriate training on performance
measurement and management. (Recommendation
4.3)
RESPONSE provided by the
Secretary, Department of Planning and Community
Development
My Department, through Local Government
Victoria, will continue to work with the peak bodies to help
councils improve their performance reporting and use of
indicators.
I support the recommendation to
establish minimum standards for the form and content of performance
statements. Regulations are one way to do this, guidelines are
another. Whether or not regulations are the best means of doing
this will need to be subject to consultation with the
sector.