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Local councils provide a wide range of
services to their communities, often for a fee or charge. These
user fees and charges are a significant source of income for
councils each year totalling around $900 million; on average, 14
per cent of all council revenues.
The report found that the councils
examined were not effectively managing the full costs of the
services they provide. Further they are not basing their fees and
charges on any clear understanding of these costs, or of the other
societal, economic and legal factors that should be taken into
account when establishing prices for community services.
None of the four councils had adequate
policies on service costing and fee setting, and none provided
sufficient guidance to staff on the procedures required to achieve
good practice.
While all councils had financial systems
that captured the direct cost of services, only Campaspe had a
system for systematically identifying and allocating all its
indirect costs to service areas to establish their full cost.
This situation, coupled with weak
costing and monitoring practices means that most councils do not
understand the true cost of their services and the extent to which
they subsidise them.
There is little assurance that councils
are setting their fees strategically to optimise cost recovery
following consideration of competitive neutrality obligations
including the principles of equity, accessibility, affordability
and allocative efficiency. Better documentation of the evidence
supporting fee setting decisions is required to demonstrate they
are soundly based.
Council oversight of the efficiency of service delivery also
needs to be improved to include information on full costs and
service efficiency.
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