Effectiveness of Support for Local Government

Tabled: 26 February 2015

Audit Summary

Victoria's 79 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.

Local Government Victoria (LGV) supports local councils to ensure they are responsive, accountable and efficient, and that they comply with the Local Government Act 1989 (LG Act). The Municipal Association of Victoria (MAV) advocates for local government interests, builds the capacity of councils, facilitates effective networks, initiates policy development and advice, supports councillors and promotes the role of local government. This audit assessed the effectiveness, efficiency and economy of the support provided to councils by LGV and MAV.

The local government sector faces significant challenges and the needs of individual councils vary greatly. In this audit we have defined 'support' 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.


LGV and MAV both have established methods for identifying what support councils need. However, except in a few instances, neither is able to demonstrate whether their support activities are contributing to the effective and efficient operation of councils.

LGV's support programs are generally aligned with identified needs, but are also determined by government policy objectives and linked to the requirements of the LG Act. While LGV internally monitors and reports on projects and initiatives, it could further strengthen the focus on outcomes reporting and program evaluation. Similarly, MAV's support programs are based on an understanding of needs and generally have clear objectives. However, its monitoring, evaluation and reporting is primarily focused on outputs and activity-based information, not outcomes.

While LGV and MAV have worked together to deliver a number of council support initiatives there is scope for them to work more closely to identify council needs, and decide who is best placed to provide support to councils and how. The new Victorian State-Local Government Agreement provides an opportunity to document and formalise how they can work together in the future.

The effectiveness, efficiency and economy of support to councils is significantly compromised by a lack of appropriate legislative and broader governance arrangements applying particularly to MAV. The MAV Board of Management is responsible not only for its own governance but for the good governance of the organisation. The MAV Board needs to take prompt action to address all governance gaps and deficiencies identified in this report.

MAV currently performs a broad range of support functions and it is not clear if all of these functions are within its remit or align with its intended purpose. MAV operates in a unique legislative environment and it is not subject to the range of legislation that applies to many other public sector entities and bodies. The MAV Board has not ensured there are appropriate alternative governance arrangements in place.

MAV does not have sufficiently detailed policies, procedures and processes in place to manage fraud and corruption, conflicts of interest or records. It also lacks formal systems for project management and monitoring staff performance. Weaknesses in MAV's procurement practices not only increase the potential of fraud or corruption, but also bring into question whether these support activities provide councils value for money.

While MAV has some external accountability requirements, there has been little or no independent scrutiny of its activities. This has likely contributed to MAV expanding its focus and service provision to a wide range of activities, without appropriate scrutiny and assurance.

Although it was not intended under the Municipal Association Act 1907 (MA Act) that the minister would have the power to direct MAV, the minister is nevertheless still responsible for the MA Act's administration. LGV does not actively oversee MAV's performance or compliance with the MA Act, nor proactively provide advice to the minister, except when requested to do so. LGV does not monitor whether requirements associated with exemptions granted to councils under the LG Act by the minister have been met.


Municipal Association of Victoria's legislative and governance framework

The MA Act is outdated and contains few explicit powers. It is not clear if all of MAV's current functions are within its remit or align with its intended purpose. MAV currently performs a broad range of functions, including providing procurement and insurance services, governance and legal advice, professional development and advocacy. These are predominantly provided to Victoria's 79 councils, although MAV also currently provides insurance services to Tasmanian councils and water authorities.

The MA Act enables MAV to make Rules that relate to its internal management. The MAV Rules have been used to carry out certain support activities. MAV's recent legal advice, however, suggests that it is arguable that at least one of the Rules may be outside the MA Act. The Rules also contain provisions that are traditionally only found in legislation.

The Rules can be revised at any time with the endorsement of members and the approval of the Governor in Council. Beyond this there is limited external scrutiny or monitoring of the Rules.

MAV is a public statutory authority and in a 2004 case the Supreme Court of Victoria determined that it was a body established for public purposes. There are several Acts that would ordinarily apply to public bodies including the Public Administration Act 2004 (PAA), Financial Management Act 1994 (FMA) and the Public Records Act 1994 (PRA). In the absence of clear and robust statutory oversight, it is the responsibility of the MAV Board to ensure that strong and transparent governance arrangements are in place.

Until recently, MAV had insufficient policies, internal mechanisms or processes for assisting staff to manage conflicts of interest. In the absence of a conflict of interest policy it is not clear how MAV could have effectively managed any conflicts of interest in the past. This audit also found insufficient assurance over probity and potential conflicts of interests, which were neither declared nor managed by MAV.

MAV provided fraud awareness training for all staff for the first time in October 2014, and drafted a fraud and corruption policy at the same time. The absence of any training or guidance previously is concerning given MAV manages large procurements and contracts both for itself and on behalf of councils. Concerns over a potential conflict of interest have been addressed in Part 3.

MAV's Gifts, Benefits and Hospitality Policy is marked as having been established in June 2014. MAV advised it had a previous policy, but did not provide a copy to verify this. In any case, a March 2014 internal audit report found that the requirements of the policy were not being followed. It is important to appropriately manage these, particularly where they may relate to support activities delivered for or on behalf of councils.

From 2006 until 2014 MAV relied on an interim document management policy. While a formal records management policy has now been endorsed, MAV had difficulty locating some documents requested by VAGO as part of the audit, and was unable to provide some key documents it relied on to support its claims.

There is no formal performance management system in place for any MAV staff other than the chief executive officer, so it is not clear how staff or managers are held to account for their performance.

MAV also does not have an overarching project management framework. In relation to the delivery of grant funded activities on emergency management, project management was inconsistently applied and—while financial reporting and acquittal to LGV were completed for the projects we reviewed—reporting on project activities was limited.

MAV governance

There is no process in place for assessing the MAV Board's performance. The MAV Board is ultimately responsible for MAV's governance framework, and inadequacies in MAV's governance found in this audit, and previously, are ultimately the MAV Board's responsibility.

MAV established an audit committee in 2004 to monitor internal and external audit activities and advise the MAV Board on its governance framework. As discussed in Parts 2 and 3, internal audit activity has been limited in addressing the gaps in policy and process identified through this audit.

Municipal Association of Victoria's support for local government

MAV has well established processes to capture feedback and identify council support needs. Over the past five years, MAV's Strategic Work Plan has identified between nine and 11 priority areas and there has been carryover from year to year of issues—including kindergarten funding, emergency management, climate change, library funding and transport and planning.

In our survey of councils, 58 per cent gave MAV a good rating, and 25 per cent a moderate rating for how they identified the type of support needed, suggesting councils are satisfied with MAV's identification of their support needs.

We assessed a cross-section of support activities.

Training and events

Councillor development, training and events have been a long standing MAV support activity. MAV delivers an extensive array and large number of events and training activities, and collects feedback on these. It cannot, however, clearly demonstrate its performance against its objective of building the capability of elected members to effectively fulfil their roles.

Emergency management

Emergency management has been identified in strategic work plans for MAV for over 10 years. Focus on this increased in response to the 2009 Black Saturday bushfires. A $2 million program of work funded by LGV was developed and delivered over four years to assist the government response to the findings of the 2009 Victorian Bushfires Royal Commission. No assessment of program impact was undertaken so value for money cannot be determined. Anecdotal feedback provided to MAV at the time of our audit, however, indicated council satisfaction with the work of MAV in relation to their delivery of emergency management projects.


MAV Procurement is an administrative unit within MAV managing tenders for the procurement of goods and services for local councils. However, the procurement of insurance services including Liability Mutual, Commercial Crime and Self Insurance for workers compensation, which are examined in this report, are managed through separate internal processes. MAV is not subject to legislative or other and whole-of-government requirements related to procurement, and it does not have a formal procurement policy in place to guide its procurement activities. Consequently there is limited formal guidance for staff in applying probity standards consistent with established better practice.

A 2013 internal audit report found that controls in place in procurement were generally adequate but that policies and procedures governing the tendering process needed updating and revision. It also called for a formal fraud and corruption policy framework, and training for staff in this area. MAV has not completed nearly half of the recommendations detailed within the report. MAV is not undertaking procurements consistent with the standards required of councils under the LG Act, despite acting on their behalf.

Monitoring, evaluation and reporting

While MAV undertakes a wide range of reporting on support activities to members—and almost half of councils were satisfied with this reporting—it does not provide sufficient information to demonstrate the achievement of intended objectives, outcomes and continuous improvement.

MAV primarily relies on membership levels and participation rates in support programs, as well as member endorsement of its strategic work plans, to determine council satisfaction with its support provision. This is not a reliable or appropriate measure of whether objectives or intended outcomes are being achieved. MAV has acknowledged this deficiency in some areas, and is revising its approach.

In addition—with the exceptions of MAV Procurement, MAV Insurance, grants and events—MAV cannot link sources of funding with its work activities. Therefore it is difficult to determine how effectively funding has been applied to its intended purpose.

Local Government Victoria's support for councils

LGV has a range of consultation methods in place to inform the development of its support programs and initiatives for councils. Its program of sector guidance is detailed in its business plan, and linked to the relevant objective.

As well as specific programs and guidance, LGV also intervenes where council issues arise, for example, where councillors request administrative support, or where ministerial intervention is required, such as financial administrators, or dismissal of councils.

Thirty-one per cent of councils surveyed as part of this audit rated LGV as good, 43 per cent as moderate, and 12 per cent as poor, in terms of the way they identify the type of support their council needs. A question about LGV's assessment of the level of support needed indicated a similar pattern—with 28 per cent of councils providing a good rating, 20 per cent a poor rating, and 37 per cent moderate.

Main support programs

LGV has funded and delivered programs and initiatives under the Local Government Reform Strategy focused on assisting the local government sector to be more efficient and productive. It also provides additional programs and initiatives aimed at building capacity within the sector.

Our survey found a high level of satisfaction with LGV's:

  • knowledge of policy and legislative frameworks—more than 80 per cent
  • relevance of guidance material—80 per cent
  • technical advice—more than 70 per cent.

Councils were less satisfied with LGV's engagement with councils about the effectiveness of support programs during delivery and after program completion, and the relevance of capacity building programs—all less than 40 per cent.


LGV has objectives, project and task delivery targets in its latest Business Plan 2014–15 and reports under the State Government Budget Papers. However a strengthened focus on outcome measures beyond the limited Budget Paper reporting is required to better understand whether LGV's objectives and outcomes are being achieved.

Monitoring, evaluation and reporting

LGV does not formally report against or measure achievement of its objectives and does not have established and consistent reporting on all of its support programs and guidance. Without this, LGV cannot be assured that it is on track to achieve its objectives and outcomes.

While LGV has established practices for reviewing the progress of individual initiatives and programs, it does not have a formal outcome evaluation framework that it applies to all initiatives. While evaluations report outcomes in some cases, others consist of mainly output-based reporting. Although monitoring occurs as a component of weekly management processes, LGV should enhance the evaluation of its support programs to ensure robust analysis of outcomes and the effectiveness of support activities is understood.

Collaboration to support councils

There have been numerous instances where LGV and MAV have worked collaboratively to deliver support programs in areas such as procurement, planning and reporting, and asset management. Despite these collaborations, there are no established mechanisms to identify opportunities for collaboration.

Past VAGO audits have identified overlap in LGV and MAV support for councils. Our survey of councils found a significant number of councils—23 of 70—believed LGV and MAV duplicated each other's work, suggesting there is potential for them to be more effective by adopting a more collaborative and coordinated approach.

In September 2014, the Minister for Local Government signed the Victorian State‑Local Government Agreement. The agreement commits to the delivery of an agreed annual work plan which provides an opportunity to document and formalise how and on what initiatives LGV and MAV will work together in the future.

Monitoring of the Municipal Association of Victoria

LGV does not proactively monitor MAV's performance or compliance with the MA Act, or advise its minister on their accountability for the administration of the MA Act. LGV has advised it would only do so at the request of the minister, or in relation to a program delivered by MAV which has been funded by the state. LGV advised it limits its support to briefing the minister in relation to rule changes and the tabling of annual reports, as MAV is considered an independent entity governed by its own MAV Board. The lack of proactive monitoring of MAV means that MAV has essentially had no government scrutiny of its activities.

The Minister for Local Government granted an approval to councils for an exception under section 186(5)(c,) of the LG Act for contracts entered into through MAV Procurement on the basis that economies of scale and a competitive process would be achieved by them on the councils behalf. There was no monitoring of the basis on which this exception was granted, nor whether it would be achieved.

LGV recommended that the minister approve this on the basis that the contract through MAV Procurement will provide councils access to suppliers selected through a competitive process, and that leveraging the combined purchasing power of councils will result in economies of scale and savings. However, LGV does not monitor or seek assurance over MAV's procurement activities on the basis it is the responsibility of councils. Our audit found issues with the competiveness of its procurement processes, which also bring into question whether value for money is being achieved.


That the Department of Environment, Land, Water and Planning:

  1. as a priority, reviews and determines the Municipal Association of Victoria's functions, roles, responsibilities, powers and obligations through an analysis of its existing legal framework and:
  • ensures this is reflected in the Municipal Association Act 1907
  • ensures contemporary standards of governance and accountability are met, including the role, function and make‑up of the Municipal Association of Victoria's Board
  • consults with relevant departments to consider whether the Public Administration Act 2004, Financial Management Act 1994 and Public Records Act 1973 should apply to the Municipal Association of Victoria either directly or through its enabling legislation
  • assures itself, following any review, that all activities undertaken by the Municipal Association of Victoria are clearly within its power.

That the Municipal Association of Victoria:

  1. reviews its policies and controls relating to conflict of interest, corruption and fraud, and gifts, benefits and hospitality to align with better practice, and trains its staff accordingly and proactively monitors the application of these policies and controls

  2. develops and implements a performance management framework for its Board and staff that is aligned with better practice

  3. develops and implements a project management framework aligned with better practice covering all project phases from initiation to completion

  4. reviews and updates its records management policy to align with better practice

  5. reviews its internal audit program and ensures it routinely covers all key procedures and controls associated with all aspects of procurement, conflict of interest and fraud and corruption.

  6. as a priority, reviews and updates its procurement policies and procedures, so that:

  • they comply with better practice
  • high probity standards and appropriate controls around conflicts of interest are applied to all phases of procurements
  • it actively monitors compliance with updated policies and procedure
  1. improves the monitoring, evaluation and reporting of its support activities, including developing relevant and appropriate performance measures, and publicly report its progress and performance
  2. improves councillor development, training and events evaluations to clearly measure and demonstrate their impact on participants and on council performance.

That Local Government Victoria:

  1. improves its monitoring, evaluation and reporting on support activities to demonstrate the achievement of intended objectives and outcomes, including in relation to its business plan, and ensures it has relevant and appropriate performance measures, and publicly reports its progress and performance

  2. develops processes to seek feedback from councils on the use of its guidance material and website information to identify opportunities for continuous improvement.

That Local Government Victoria and the Municipal Association of Victoria:

  1. review and document how and when they should work together to ensure the efficient, effective and economic delivery of support to councils, including clarifying roles and responsibilities for support activities, and communicate this to councils

  2. undertake regular joint strategic planning to:

  • share knowledge and intelligence on council needs
  • agree on council support priorities and areas of collaboration
  • agree on a program of work to be reflected in the agreed annual work plan between state and local government, and local government peak bodies.

That Local Government Victoria:

  1. routinely monitors the performance of the Municipal Association of Victoria including its compliance with the Municipal Association Act 1907, and advises the Minister for Local Government accordingly

  2. actively monitors entities that have been granted approvals under section 186 of the Local Government Act 1994, to ensure they comply with any requirements specified in the approval, and advise the Minister for Local Government accordingly.

Submissions and comments received

We have professionally engaged with the Department of Environment, Land, Water and Planning and the Municipal Association of Victoria throughout the course of the audit. In accordance with section 16(3) of the Audit Act 1994 we provided a copy of this report, or relevant extracts to those agencies and requested their submissions or comments.

We have considered those views in reaching our audit conclusions and have represented them to the extent relevant and warranted. Their full section 16(3) submissions and comments are included in Appendix B.

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