Results of 2016–17 Audits: Local Government

Tabled: 29 November 2017

1 Audit context

Victoria's Constitution recognises local government as one tier of government. Democratically elected councillors govern councils, and their operations are managed by a council-appointed chief executive officer. While administered under the Local Government Act 1989, each council operates autonomously and is directly accountable to ratepayers.

In this report, the local government sector refers to the 79 Victorian councils.

The sector includes 79 councils, 10 regional library corporations and 16 associated entities. We classified councils into two categories, made up of five cohorts based on size, demographics and funding—see Figure 1A. These cohorts are consistent with LGV's classification of council types.

Appendix B lists the councils included in each cohort and the results of our audits of each entity.

Figure 1A
Council cohorts in the metropolitan, and rural and regional categories

Cohort

Definition

Number of councils

Metropolitan councils

Metropolitan

A metropolitan council is predominantly urban in character and located within Melbourne's densely populated urban core.

22

Interface

An interface council is one of the nine municipalities that form a ring around metropolitan Melbourne.

9

 

Total metropolitan councils

31

Rural and regional councils

Regional city

A regional city council is urban and partly rural in character.

10

Large shire

A large shire is a municipality with more than 16 000 inhabitants that is predominantly rural in character.

19

Small shire

A small shire council is a municipality with less than 16 000 inhabitants that is predominantly rural in character.

19

 

Total rural and regional councils

48

 

Total councils

79

Source: VAGO.

1.1 Local government sector

The local government sector is primarily funded though rates and charges, and government grants to deliver various services for the local community. Figure 1B shows the funding sources and how the sector spends these funds.

Figure 1B
Overview of the local government sector

Graphic showing and overview of the local government sector

Source: VAGO, based on Local Government Victoria, Victoria Grants Commission—Questionnaire 2015–16 responses from councils.

The two categories of councils—metropolitan, and rural and regional—have different demographics and face separate challenges and opportunities. This is evident, for example, in rural and regional councils' reliance on grants compared to the metropolitan councils.

Figure 1C compares these two categories of councils and provides key sector information.

Figure 1C
Comparison of key elements across the two councils categories

Graphic showing comparison of key elements across the two councils categories

Source: VAGO, based on Local Government Victoria, Victoria Grants Commission—Questionnaire 2015–16 responses from councils; and Australian Bureau of Statistics.

1.2 Sector events

Two recent developments—rate capping and governance interventions—have had or will have a considerable impact on the local government sector.

Rate capping

In 2015, the Victorian Government introduced rate capping legislation in the form of its Fair Go Rates System. This system introduces an annual rate cap, set by the Minister for Local Government, which controls general rate increases for all councils. The 2016–17 financial year is the first year of rate capping, with rate increases capped at 2.5 per cent (2 per cent in 2017–18).

We explore the short- and long-term implications of rate capping for the local government sector in Part 5 of this report.

Governance interventions

Effective governance is essential for maintaining strong internal controls. Although most councils have appropriate controls to govern themselves, there have been a number of recent legal interventions by the state government in response to governance failures. Figure 1D summarises the status of some recent governance issues.

Figure 1D
Current status of governance matters

Council

Description

Ararat Rural City Council

In June 2017, a Commission of Inquiry was appointed. In August 2017, the Minister for Local Government appointed a municipal monitor to observe the council's operations.

Central Goldfields Shire Council

In October 2016, the minister appointed a municipal monitor.

On 18 August 2017, the Local Government Investigations and Compliance Inspectorate released its report Protecting integrity: Central Goldfields Shire Council investigation. Following the release of the report, the state government dismissed the council on 23 August 2017.

On 26 August 2017, the state government appointed an interim administrator.

Casey City Council

In June 2016, a municipal monitor was appointed. The municipal monitor report was received in September 2016.

Darebin City Council

On 25 June 2015, special inspectors were appointed.

Greater Geelong City Council

In December 2015, an independent Commission of Inquiry was appointed.

The state government dismissed the council in April 2016 and appointed three administrators until the council election in October 2017. A new council was elected in October 2017.

Note: Municipal monitors are appointed by the Minister for Local Government to observe governance processes and provide advice to councils that are experiencing governance difficulties. Commissioners are appointed by the Minister for Local Government where there are more serious governance failures.

Source: VAGO.

1.3 Report structure

In this report, we detail the outcomes of the 2016–17 financial audits of Victoria's local government sector. We discuss key matters arising from our audits, and provide an analysis of information included in councils' financial reports.

Figure 1E outlines the structure of this report.

Figure 1E
Report structure

Part

Description

Part 2—Results of audits

Presents results of our audit of local government sector entities for the 2016–17 financial year. This section also provides commentary on:

  • key audit themes for 2016–17
  • quality of financial and performance reporting
  • outcomes of the audits of the 79 councils.

Part 3—Internal controls

Summarises the results of our internal control evaluations of local government sector entities for the 2016–17 financial year.

Part 4—Financial sustainability

Provides an insight into the sector's long-term viability risks, based on our analysis of financial sustainability risk indicators.

Part 5—Rate capping impact assessment

Provides commentary on the impact of rate capping on councils, based on the sector's response.

Source: VAGO.

We undertake our financial audits according to section 8 of the Audit Act 1994 and Australian Auditing Standards. These audits are paid for by each entity.

The results of these audits were used in preparing the report. The cost of preparing this report was $250 000, which is funded by Parliament.

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