Delivering Local Government Services

Tabled: 19 September 2018

Audit overview

Victoria's 79 local councils deliver wide-ranging services, such as health, social welfare, waste, recreation, infrastructure, planning and emergency management. Services vary across councils, depending on the demographics, size, location and priorities of each community. Councils are required to provide some services by law, and there are others they choose to provide.

Councils' frontline service delivery is supported by corporate services functions, such as revenue, finance, payroll, human resources, information technology (IT), legal, governance, communications, records management and customer service.

Section 3C(2)(b) of Victoria's Local Government Act 1989 (the Act) requires that councils use their resources efficiently and effectively, and that they ensure their services meet community needs. Section 208B of the Act sets out the Best Value Principles that councils must apply to the services they provide.

The introduction of the Fair Go Rates System (FGRS) in 2015, in which annual rate caps constrain revenue growth, added to councils' statutory obligation to ensure their services are cost effective. Councils need to be able to demonstrate that they have the right balance between the standard of service they aim for—volume, quality, access, timeliness—and the cost to ratepayers and residents of achieving these standards.

Delivering cost-efficient services requires councils to plan effectively. Councils need to understand the current and future needs of their communities; identify the resources needed to achieve desired levels and quality of service; compare these to the resources available; and make informed, rational decisions about how to best allocate their scarce resources.

It also requires that councils design and operate their services to be as economic and efficient as possible by minimising input costs—such as labour and materials—while maximising service outputs.

In this audit, we assessed whether selected councils effectively plan for and deliver cost-efficient services that meet community needs. We also benchmarked councils' expenditure on corporate services and examined how councils look for and achieve efficiencies in corporate services.

We audited Bayside City Council (Bayside), City of Wodonga (Wodonga), Indigo Shire Council (Indigo), Moira Shire Council (Moira), and Wyndham City Council (Wyndham).

We also examined the role of Local Government Victoria (LGV)—part of the Department of Environment, Land, Water and Planning (DELWP)—in providing support and guidance to councils on efficient service delivery.

Conclusion

Each council we audited has some good elements of service planning, review and evaluation. But none are sufficiently comprehensive or systematic to be assured that their service mix and costs meet the needs of their community.

More needs to be done to better understand and attribute full costs to frontline services—in particular, the indirect costs or overheads necessarily incurred in supporting service delivery. These are often invisible in internal and external reporting, so councils do not adequately consider them when deciding on their service mix.

The lack of a comprehensive approach to service planning and review is evident in how councils manage their corporate services. Although all the audited councils can provide some examples of projects that have resulted in efficiencies, none has holistically sought to improve its corporate services' efficiency. As a result, councils miss opportunities to achieve cost savings that could be redirected to improving or expanding frontline service delivery, or to constraining rate increases.

Benchmarking is an essential part of planning and reviewing corporate services and driving efficiencies. DELWP—which holds a detailed dataset about councils—has missed an opportunity to assist councils to do this effectively by not ensuring the reliability of its data. Better benchmarking would increase transparency about council costs and allow councils, and the wider community, to compare efficiency over time.

Findings

Planning and reviewing council services

A comprehensive approach combines both the planning and review of services. Although we found some good examples of both planning and service reviews, no council has an approach that fully addresses both elements. Bayside is closest to achieving this—it has a structured service review process and is about to implement a four-year costed service planning method.

Service planning

Bayside and Indigo have centralised service planning processes that use a common template to define services and outline performance objectives. Wyndham also demonstrates good practice by using a service catalogue to list key information for each council service, including service levels, target customers and performance indicators. In contrast, the approach to service planning at two of the audited councils—Wodonga and Moira—is not consistent or conducted with the same rigour across all parts of the council. Wodonga has recognised this issue and is in the process of developing a standardised service planning approach.

Clearly and consistently defining services is challenging, and each council has a different understanding of what constitutes a distinct 'service'. For example, Moira outlined 52 different services within its building and planning department, including 'registering and filing permits' and 'staff performance review'. These are activities, not services. In contrast, Bayside considers 'building surveying and asset protection' as one service. The lack of a common understanding or definition of what constitutes a service makes it hard in practice for councils to compare performance and difficult to share resources about service planning.

Another important element of service planning is its link to asset management. Councils need to ensure they have the right facilities to deliver services. Bayside and Indigo link service planning to asset management through their service plan templates. Wyndham is currently implementing a service planning and asset strategy that aims to ensure that infrastructure projects support service delivery. Wodonga's planned approach to service planning intends to link to asset management plans. Moira does not currently link service and asset planning in a structured way.

Service reviews

A service review is a formal process that considers the cost, quality and efficiency of a council service, and assesses whether the current mode of delivery is appropriate.

Councils need to review services regularly to ensure they continue to achieve their objectives.

According to the Australian Centre of Excellence for Local Government (ACELG), local councils should review services as part of business-as-usual strategic planning, and they should do this frequently enough to consider relevant financial, environmental and community changes.

Only two councils—Wodonga and Bayside—have robust approaches to service reviews, ensuring that all of their services are reviewed on a rolling basis. Wodonga has a five-year program for conducting reviews of all service areas. Bayside also has a structured service review program and has a performance target in its council plan to complete four service reviews per year.

Although Indigo and Moira have completed service reviews, both lack a structured approach that ensures they regularly assess all services. Without a structured approach, these councils may miss opportunities to find efficiencies across all their services.

Until 2017, Wyndham had a structured service review program but decided to pause the program after an internal review found that not all service reviews resulted in recommended change. Wyndham advised that it has shifted its focus to refining its service catalogue, to ensure that its future decisions about service provision are based on robust evidence. Although the catalogue is a useful planning tool, Wyndham needs to ensure it does not miss opportunities to improve service performance and cost. Without structured reviews, it may be difficult for Wyndham to assess the value of alternative service delivery models, such as shared services or outsourcing.

Balancing the need for objective analysis with the cost of engaging external consultants is a key challenge for councils when conducting service reviews. An internal review team, particularly one that is currently delivering the service under review, may not be in the best position to consider alternative modes of service delivery, such as outsourcing, or to examine whether to discontinue a service.

At Moira, service area managers were responsible for conducting most reviews and making recommendations. Wodonga also relied on internal staff to conduct many of its service reviews, though it attempted to improve the objectivity of reviews in some cases by including staff from other service areas. Although this builds capability and takes advantage of internal knowledge, these councils cannot assure themselves that reviews are objective and complete. Bayside is best able to balance these competing considerations because it has established cross-organisational review teams led by managers outside the areas under review.

Understanding the cost of service delivery

All audited councils could make better use of cost information. Understanding the full cost of service delivery—including direct costs and overheads—assists councils to find efficiencies in service provision. Budgeting and service planning processes, as well as service reviews, should reflect these costs to ensure more accurate long-term financial planning, decision-making and continuous improvement.

The Department of Treasury and Finance's 2013 Cost Recovery Guidelines recommend using an activity-based costing (ABC) method to allocate overheads. The ABC method allocates overheads by identifying relevant cost drivers for each corporate activity.

Although all the audited councils consider the full cost of services when conducting service reviews, only Wodonga and Wyndham currently allocate overheads and consistently use an ABC method. Moira and Indigo do not consistently apply overheads as part of the budgeting process, while Bayside is in the process of adapting the costing model it uses in service reviews—which attributes overheads to service costs—for use in future budgets.

Without accurately and consistently allocating corporate overheads, councils do not understand the full cost of each of their services. This reduces their capacity to meaningfully compare the costs of their services with comparable organisations, including other local councils and the private sector. It also means councils risk not making fully informed decisions when considering alternative options such as increasing, decreasing or withdrawing services or outsourcing certain work.

Guidance and support for councils

LGV does not offer guidance to councils on how to plan or review services, or use the Best Value Principles to support service delivery. Previously, councils received guidance through LGV's Best Value Commission, but the commission was abolished in 2007 after a review found councils had a robust approach to service planning and review. A decade later, this is no longer the case—councils would benefit from clear guidance on how to plan and review services, and how to implement the Best Value Principles.

Although reporting on the Best Value Principles to the community is mandatory under the Act, the audited councils do not report in a meaningful way. Four of the audited councils reported on the principles in 2016–17 but provided a very limited description of how they met them. One council—Wodonga—provided no information about the principles.

LGV does not monitor or advise the Minister for Local Government on whether councils comply with the Best Value Principles. Without proper monitoring and guidance, there is a risk that the principles will not have a meaningful impact on how councils plan and deliver services. The Local Government Bill 2018 proposes to replace the Best Value Principles with Service Performance Principles. These strongly resemble the current principles, and councils' obligations would not change significantly.

Although LGV does not provide guidance on service planning and reviews, it does provide support to improve councils' financial management. In 2016–17, LGV established the Finance and Accounting Support Team (FAST) program. The program includes grants for regional and rural councils to gain access to expert financial support and support for shared services, procurement and service improvements.

Two of the program streams provide direct and tailored support to individual councils. Although this may improve the capability of the recipient councils, LGV needs to ensure that any insights generated are shared across the sector.

Council corporate services

VAGO benchmarking survey

During this audit, we conducted a survey to benchmark corporate service costs across Victorian councils. The 58 councils that responded reported that they collectively spent more than $1 billion on corporate services during 2016–17.

On average, these councils spent approximately 15 per cent of their total expenditure on corporate services. This is in line with a 2013–14 consultant's report that surveyed Australian federal and state public sector entities and found that small- and medium-sized entities spend on average 14 per cent of total expenditure on corporate services.

However, our survey indicated that expenditure varies widely, with councils spending between 9 and 26 per cent of their total expenditure on corporate services. The variance did not relate to either council location or population size. This is significant because it suggests that councils, regardless of size, can achieve efficiencies.

Our survey also found that the average corporate services area within a council had 75.8 full-time equivalent (FTE) staff members, or approximately 18 per cent of total staff. Finance and rates was the corporate services area with the most employees, followed by customer service and support—which includes councillor and executive support—and IT. The area with the largest expenditure was IT.

Benchmarking corporate services

All audited councils have benchmarked their corporate services costs and processes against neighbouring or similar-sized councils on an ad hoc basis. This usually occurs when a specific corporate services function is the focus of a service review by external consultants. However, we found that infrequent benchmarking is insufficient because it does not enable councils to monitor and compare their costs over time.

Over the past 10 years, the Victoria Grants Commission (VGC) has collected detailed expenditure and revenue data from all councils, including information about corporate services. Councils input data on corporate services inconsistently, and VGC does not monitor or address this issue. VGC collects this data on behalf of other organisations such as the Australian Bureau of Statistics (ABS) and uses it to allocate financial assistance grants, but it has missed an opportunity to maximise the benefit of this rich dataset. An improved VGC dataset would enable councils to benchmark effectively, providing better insights for councils and their stakeholders, including residents.

Corporate services efficiency

All audited councils provided some examples where a specific project or initiative has improved the efficiency of corporate services. However, none have systematically examined all their corporate services to determine whether they are operating efficiently and effectively to support staff to deliver frontline services.

Bayside and Wyndham demonstrate the strongest commitment to continuous improvement and successfully used process-mapping methodologies to achieve efficiencies. Wodonga's service review program aims to review all services within five years, which also provides an opportunity to identify efficiencies within all corporate services areas.

Wyndham also has the most robust framework for monitoring the impact of improvements. The other audited councils do not have a consistent approach to quantifying the benefits of their actions, which is usually done on a project‑by‑project basis, rather than systematically whenever an improvement is implemented.

Shared corporate services

All audited councils have considered using shared services or outsourcing to improve the cost efficiency and quality of corporate services functions. However, only Indigo and Moira have established some shared corporate services.

The audited councils advised that there are barriers to successful shared services, such as different service expectations and priorities, incompatible technology, different software expiration dates, and different risk profiles.

The limited use of shared services by audited councils reflects sector-wide practices. Our corporate services survey found that 60 per cent of the councils that responded did not use any outsourcing or shared service arrangements. The most common functions that councils outsourced or shared were rates collection, debt collection and valuations. Across council categories, large shires reported the lowest rate of shared services or outsourcing, with only three out of 15 large shires using this approach to service delivery.

Recommendations

We recommend that each Victorian council:

1. implement an integrated service planning and review framework that:

  • includes a clear relationship between the services the council delivers and the objectives outlined in its council plan
  • links service objectives to identified community needs
  • describes how services will be supported with appropriate assets and infrastructure
  • identifies service standards and performance measures
  • includes benchmarking to enable comparison with other councils' performance
  • investigates ways to achieve cost efficiencies through alternative service delivery models, such as shared service arrangements or outsourcing
  • includes mechanisms to ensure that the level of service and mode of service delivery are regularly reviewed (see Sections 2.2, 2.3, 2.4, 3.3 and 3.5)

2. achieve a better understanding of service costs to inform service planning and budgets using activity-based costing or, where impractical, elements of this (see Section 2.5)

3. ensure that data it reports to the Victoria Grants Commission is accurate and categorised according to its guidance (see Section 3.3)

4. systematically identify and implement opportunities to improve the cost efficiency of corporate services functions (see Section 3.4).

We recommend that the Department of Environment, Land, Water and Planning:

5. work with the Victoria Grants Commission to improve the quality of data collected from councils, including:

  • providing clearer instructions and support to councils on how to comply with the categorisations
  • quality testing the data to ensure its accuracy
  • making the data publicly available in a user-friendly format to help councils benchmark themselves against other similar councils (see Section 3.3)

6. continue to support councils through the Finance and Accounting Support Team program, including taking steps to ensure that insights generated are shared with all Victorian councils (see Section 2.6)

7. collate and publish available better practice resources on how councils can use the Best Value Principles, showcasing examples of council service planning and reviews (see Section 2.6)

8. advise the Minister for Local Government whether councils are using the Best Value Principles—or, if proposed legislation is passed, the Service Performance Principles—and, where necessary, identify areas for improvement (see Section 2.6)

9. develop a measure for corporate services as part of the Local Government Performance Reporting Framework (see Section 3.3).

Responses to recommendations

We have consulted with DELWP, Bayside, Indigo, Moira, Wodonga and Wyndham, and we considered their views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report to those agencies and asked for their submissions or comments. We also provided a copy of the report to the Department of Premier and Cabinet.

The following is a summary of those responses. The full responses are included in Appendix A. following is a summary of those

Bayside, DELWP, Indigo, Moira and Wodonga have accepted the recommendations and outlined how they will address the issues we identified. While Wyndham has accepted the recommendations and developed an action plan, its response notes its preference for a continuous improvement approach to achieving efficiencies, rather than service reviews.

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