Effectiveness of Support for Local Government

Tabled: 26 February 2015

1 Background

1.1 Victoria's councils

Victoria's 79 local councils are responsible for providing a wide range of services to their communities. These include child and family day care services, waste collection, home and community care, planning and recreational services. Councils also build and maintain community assets and infrastructure—such as roads, footpaths and drains—and enforce various laws. The local government sector faces significant challenges and the support individual councils need varies according to factors such as location, size, demographics, capability and capacity.

In Victoria, there are five types of councils. There are 17 inner metropolitan councils, 14 outer metropolitan councils, 11 regional councils, 16 large shire councils, and 21 small shire councils. As of 1 July 2015, a new municipality—Sunbury City Council—will be in place.

1.2 Support for local government

For the purpose of the audit, 'support' is defined as any activity undertaken to assist councils to carry out their duties and obligations to the community, and to facilitate more efficient and effective council operations. Support may include providing advice, advocacy, guidance, and services such as training.

This audit focused on support provided to Victoria's councils by Local Government Victoria (LGV) and the Municipal Association of Victoria (MAV).

However, councils also receive support from a range of other bodies in Victoria and nationally, including various government departments, local government peak bodies and specialist organisations providing training and support in areas including procurement, planning, financial and asset management, and local government service delivery.

1.3 Local Government Victoria

1.3.1 Role and purpose

LGV is now part of the Department of Environment, Land, Water and Planning. It works cooperatively with Victoria's 79 local councils to ensure that Victorians enjoy responsive and accountable local government services, and aims to improve business and governance practices that maximise community value and accountability.

LGV provides policy advice to the Minister for Local Government, who is responsible for administering the following principal Acts:

  • Local Government Act 1989 (LG Act)
  • Local Government (Rural City of Wangaratta) Act 2013
  • Local Government (Brimbank City Council) Act 2009
  • City of Melbourne Act 2001
  • City of Greater Geelong Act 1993
  • Libraries Act 1988
  • Victoria Grants Commission Act 1976
  • Municipalities Assistance Act 1973
  • Municipal Association Act 1907(MA Act)
  • Prahran Mechanics' Institute Act 1899.

The minister also acts as an advocate for local government issues within government and, through LGV, supports and monitors the system of local government. The minister is not directly involved in the detailed management of individual councils.

Figure 1A

LGV's structure

LGV is made up of three business areas, with 32.5 full time equivalent staff in 2014–15, and total funding of $56.34 million.

Sector Development

Provides policy advice relating to sector effectiveness and relations between state and local government in order to benefit communities.

Governance and Legislation

Supports good governance by providing contract and procurement guidelines, as well as providing policy advice to the minister and overseeing local government elections, and preparing legislative proposals and conducting investigations.

Funding Programs

Responsible for policy and funding advice for public libraries, National Competition Policy compliance and the management of the Victoria Grants Commission.

Source: Victorian Auditor-General's Office based on a review of LGV materials.

1.3.2 Main types of support

LGV supports councils to ensure that the system of local government is responsive, accountable and efficient, and that councils comply with the LG Act. The LG Act sets out the basis for local government in Victoria and the primary objective of councils, which is to endeavour to achieve the best outcomes for the local community while considering the long-term and cumulative effects of decisions.

Support is delivered through government programs, grants, better practice guidelines and templates as well as direct instructional circulars and responses to queries and requests for information. LGV also supports the minister with advice on the administration of the LG Act and other Acts the minister is responsible for. LGV's support activities are discussed further in Part 4.

1.4 Municipal Association of Victoria

1.4.1 Origins, role and purpose

MAV was established in 1879 as a membership association and incorporated under the MA Act. MAV's role and purpose is defined in the MA Act as promoting efficient local government throughout Victoria and watching over and protecting the interests, rights and privileges of councils. Under the MA Act, MAV is required to represent all Victorian councils, regardless of whether they are financial members of MAV. However, as MAV has advised, its relationship as a peak organisation with its members is not defined by statute. The MA Act provides for MAV to be constituted by representatives of all Victorian councils who may be appointed by their councils from time to time. Council membership with MAV is discretionary, as is participation in the insurance schemes, financial and procurement arrangements MAV facilitates for the sector and in events and training activities. Incorporation enabled MAV to insure councils through the Municipal Officers Fidelity Guarantee Fund (fidelity fund). This provides insurance to indemnify councils against fraudulent or dishonest acts committed by an employee or third party acting alone or in collusion with others.

The MA Act provided for MAV to make Rules for the management of MAV, regulation of its proceedings, fixing annual subscriptions to MAV and for fixing the contribution rate to the fidelity fund. The second reading speech for passing the legislation through Parliament in 1907 noted that the minister would not have the power to direct MAV.

There have been a number of amendments to the MA Act which amended or expanded MAV's legislated mandate in relation to insurance for water and sewage authorities and local government.

MAV provides public liability and professional indemnity insurance through its Liability Mutual Insurance (LMI) Scheme which was established in 1993. The LMI established and maintained by MAV is approved under section 76A(3) of LG Act which requires that councils take out and maintain insurance cover. The fidelity fund is now known as the Commercial Crime Fund (CCF). Both the LMI and CCF are non-discretionary mutual insurance schemes that are intended to exist solely for the purposes of their members. MAV is currently working to become a self-insurance licence holder and has sought the assistance of a third party with the application process.

1.4.2 Current activities

MAV provides a wide range of services across a range of portfolios and interests. These are outlined in Figure 1B.

Figure 1B

MAV's stated role and services

MAV's stated role

  • Advocate local government interests
  • Build the capacity of councils
  • Facilitate effective networks
  • Initiate policy development and advice
  • Support councillors
  • Promote the role of local government.

MAV's services as listed on its website

  • Specialist advice and information
  • Councillor development opportunities
  • Legal advice and insurance protection
  • Chief executive officer (CEO) performance appraisal and recruitment advice
  • Governance support
  • Group procurement.

Source: Victorian Auditor-General's Office.

1.4.3 MAV structure and governance

Management

The MAV Rules provide for the creation of a CEO position, to be appointed by the MAV Board of Management. The CEO's role is to manage the association, deliver its strategic work plan, and to be responsible for the day to day management of MAV. The CEO is subject to direction from the MAV Board, and has approximately 30 staff. MAV also engages a range of consultants and contractors. Work is structured into the numerous business areas identified in Figure 1C.

MAV Board

The MAV Board is comprised of a president, elected by State Council members, and 12 representatives elected by their respective MAV regional groupings. MAV advised that the MAV Board is elected for a term of two years. The MAV Board is empowered by the MAV Rules to set service standards and publish codes of practice and protocols. The MAV Board is made up entirely of elected councillors.

State Council

The State Council is a body consisting of all the representatives of councils that are financial members of MAV. The State Council meets twice annually and its powers include:

  • determining the MAV Rules
  • electing the president and other members of the MAV Board
  • determining MAV's strategic direction
  • appointing an auditor.

MAV's legislative and governance framework is discussed further in Part 2.

Figure 1C

MAV's structure

Legal Governance and Corporate

Includes the Deputy CEO and General Counsel, Governance and Legislation Adviser, MAV Insurance Counsel and corporate services functions.

Insurance

Manages MAV insurance activities and claims services.

Commercial services

Includes MAV Procurement—which undertakes some procurements for MAV itself and group procurements on behalf of Victorian councils—and Events and Training—which provides training for councils and manages MAV events, such as conferences.

Policy

Includes policy areas which support councils including social policy, emergency management, planning, building and infrastructure, environment and economics. Policy areas vary depending on the priorities of MAV.

Communication

Responsible for MAV communication activities such as council communications and website administration.

Hosted organisations

Provides support to organisations including the Public Libraries Victoria Network, Association of Bayside Municipalities, Local Government Information Communications and Technology, and Rural Councils Victoria.

Source: Victorian Auditor-General's Office based on a review of MAV materials.

1.4.4 Overview of funding and financial position

MAV's financial report comprises the economic entity of MAV and its controlled entities—the LMI, the Commercial Crime Fund and MAV Procurement.

Figure 1D provides details of MAV revenue, expenditure and financial position for the combined entity and MAV General—which excludes insurance operations—for the two financial years ending 30 June 2013 and 30 June 2012.

Figure 1D

MAV's combined financial details for the 2012–13 financial year

MAV combined financial details

Combined $ million

 

MAV General $ million

2012–13

2011–12

 

2012–13

2011–12

Revenue

59.199

48.482

 

18.019

15.461

Expenses

64.521

52.508

 

17.709

18.206

Net surplus (deficit)

(5.322)

(4.026)

 

0.309

(2.745)

Current assets

91.341

84.682

 

10.274

8.822

Non-current assets

48.806

54.473

 

0.574

0.723

Current liabilities

58.791

49.790

 

5.545

4.696

Non-current liabilities

76.308

78.996

 

1.000

0.855

Total equity

5.047

10.369

 

4.304

3.994

Source: Victorian Auditor-General's Office based on published MAV financial statements.

Figure 1E shows the components of MAV's revenue and expenses.

Figure 1E

MAV combined financial details for the 2012–13 financial year

 

2012–13

($ million)

2011–12

($ million)

MAV revenue

59.199

48.482

MAV general activities

16.892

14.356

Commonwealth and state grants

8.293

4.951

Council subscriptions

2.540

2.411

MAV Insurance revenue

Premiums from scheme members for policy cover

24.187

21.924

Reinsurance and other recoveries related to insurance claims

15.941

8.834

MAV General Fund expenses

17.709

18.206

Grants payments and expenditure on various projects

7.711

7.160

Salary costs

5.746

6.022

MAV Insurance expenditure items

Payments for insurance claims

26.749

14.406

Reinsurance expenses

13.509

13.327

MAV General

Surplus (deficit) on its operations

0.309

(2.745)

Combined entities overall position

Operating loss

(5.322)

(4.026)

Source: Victorian Auditor-General's Office based on published MAV financial statements.

In 2012–13, MAV General achieved a surplus on its operations of $0.309 million, while the combined entities incurred an operating loss of $5.3 million. The difference between the results is mostly from the LMI component. The revenue from LMI was enough to cover its expenses with a surplus of $0.2 million, however, this was not enough to cover the administration and general expenses of $7.7 million. For the three years from 2009–10 to 2011–12 the MAV combined entities had operating losses of around $4.6 million, $0.6 million and $4.0 million respectively. Similar to 2012–13, this is a result of the insurance activities and other income not covering the administration and general expenses. In addition, for 2011–12 MAV General incurred a $2.7 million deficit, largely due to the decreased grant income in comparison to preceding and subsequent years.

1.4.5 Main types of support

Support from MAV to local government is delivered through policy and governance advice, advocacy, training, insurance and procurement across a range of portfolios and interests. MAV's support activities and projects vary from year to year and priority areas are informed by consultation with MAV member councils. Two areas have dedicated business units within MAV—procurement and insurance.

A selection of MAV support activities are discussed further in Part 3.

1.5 Other support organisations

In addition to LGV and MAV, a range of other organisations provide support to local councils in Victoria. These organisations have been consulted in the early stages of this audit but are not subject the subject of this audit.

1.5.1 Local Government Professionals

Local Government Professionals (LGPro) is the peak body for local government professionals in Victoria. LGPro provides advocacy and influences policy direction to the local government sector. LGPro is governed by a Board comprising of 10 officers who are elected by the members for a three-year term. LGPro has collaborated on procurement support with LGV, and produced the Good Governance Guide in conjunction with LGV, MAV, and the Victorian Local Governance Association.

1.5.2 Local Government Finance Professionals

Local Government Finance Professionals (FinPro) is the peak body for finance professionals within the local government sector in Victoria. It has over 400 members from various local government councils, regional library corporations and other organisations. FinPro is affiliated with Certified Practicing Accountants (CPA) Australia and represented on its Public Sector Committee.

FinPro aims to improve standards of accounting and financial management in local government by providing education and training. FinPro also represents its members in policy making fora and advocates on their behalf.

1.5.3 Victorian Local Governance Association

The Victorian Local Governance Association (VLGA) is a peak body linking local government, councillors and community leaders to build and strengthen local governance and democracy through increased collaboration. VLGA's members include local governments, community organisations and individuals. Created in 1994 and incorporated in 1995, the VLGA advocates for democracy and governance at the local government level. It also provides training and advice to the sector through various programs and projects. The VLGA Board manages the overall affairs of the association.

1.5.4 Australian Centre for Excellence for Local Government

The Australian Centre for Excellence for Local Government (ACELG) is a national local government research and policy institution funded by the Commonwealth Government. ACELG's mandate is to enhance professionalism and skills in local government, showcase innovation and facilitate policy debate. It provides support in a broad range of areas including research and policy foresight, innovation and best practice, governance and strategic leadership, organisation capacity building, rural-remote and Indigenous local government, and workforce development.

1.5.5 Institute of Public Works Engineers Australasia

The Institute of Public Works Engineers Australasia (IPWEA) is an association of council engineering professionals and provides guidance and training in asset management, sustainability, road safety, land development, and fleet and plant management.

1.6 Previous VAGO audits

VAGO has undertaken 10 audits over the past five years that have focused specifically on issues in the local government sector. These have highlighted weaknesses in current local government arrangements, and opportunities for councils to receive additional support to assist them in achieving their objectives.

Shared Services in Local Government, May 2014

This audit found that LGV had delivered shared services grant programs, and provided a range of support and guidance to the sector to facilitate shared services initiatives, mainly in relation to procurement. Procurement activities had generally been positive and promoted collaboration among councils. The audit also found that LGV could build on its existing work to assist the sector to realise the benefits of shared services. The audit recommended that LGV should continue to improve the evaluation of its programs and the collection and sharing of information.

Asset Management and Maintenance by Councils, February 2014

This audit found that LGV provides a range of guidance to assist councils in asset management practices. LGV guidance on asset management was found to be out of date, and did not address common challenges. The audit recommended that LGV should review and update its guidance and supplement it with other initiatives and types of support. It found that LGV and MAV could improve their joint work in asset management.

Organisational Sustainability of Small Councils, June 2013

This audit found that LGV provided a range of general guidance and support to councils, and it had implemented actions to assist small councils at high risk of sustainability issues. It found that LGV monitors and reports on the sustainability of councils and has implemented actions to address specific issues at small councils that are in critical situations, and although it provides a range of guidance and support related to sustainability, it could more proactively target small councils with appropriate support and advice before their situation becomes critical.

Rating Practices in Local Government, February 2013

This audit found that LGV did not proactively support councils on their rating practices, or monitor and report on their performance in this area, including their compliance with the LG Act. While LGV provided a range of guidance on rating practices, it required updating. The audit found that there was not a good understanding of the role of LGV on the behalf of councils, and clearer communication was needed. Since this audit LGV has revised its guidance material and in 2014 published revised guidance in the form of the Local Government Better Practice Guide – Revenue and Rating Strategy.

1.7 Audit objective and scope

The objective of this audit was to assess the effectiveness, efficiency and economy of support provided to councils. Specifically whether LGV and MAV:

  • have governance arrangements that clearly identify roles, responsibilities and accountabilities for providing support to councils, and that these are consistent with their organisational purpose
  • effectively identify and assess the needs of councils, and this informs the planning and delivery of support programs and activities
  • effectively coordinate the development and delivery of support programs and activities, where appropriate
  • effectively monitor, evaluate and report on the performance of support programs and activities to demonstrate the achievement of intended objectives and outcomes.

1.8 Audit method and cost

The audit included interviews with LGV and MAV staff, and a review of business planning, project planning and implementation documents, the relevant legislation and Budget Papers. A survey of all of Victoria's 79 councils focusing on the effectiveness of support provided by LGV and MAV was also undertaken. The survey had an 89 per cent response rate. Appendix A provides an overview of the survey results.

The audit was conducted in accordance with section 15 of the Audit Act 1994 and Australian Auditing and Assurance Standards. Pursuant to section 20(3) of the Audit Act 1994, unless otherwise indicated, any persons named in this report are not the subject of adverse comment or opinion.

The cost of this audit was $540 000.

1.9 Structure of the report

The report is structured as follows:

  • Part 2 examines MAV's legislative and governance framework
  • Part 3 examines MAV's support for local government
  • Part 4 examines LGV's support for local government
  • Part 5 examines collaboration and oversight
  • Appendix A provides an overview of the statewide survey results.

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