Victorian Auditor-General’s report
18 April 2012

Performance Reporting by Local Government 
Audit summary
Introduction
Councils invest significant resources each year in the delivery of a range of services to their communities. The Local Government Act 1989 (the Act) requires them to use these resources effectively and efficiently by implementing sound financial management, and to provide their services in line with the best value principles to meet the needs of their local community.
Effective performance reporting by councils is essential for assuring they are accountable to local residents and ratepayers. It provides the opportunity to demonstrate value-for-money, the achievement of objectives, and that equitable access is provided to appropriate, cost-effective and good quality services.
Key changes to the Act in 2003 introduced important reforms designed to improve councils’ accountability through more transparent performance reporting. These included the requirement to disclose, within annual reports, progress against strategic objectives set out in four-year council plans, and the results for key strategic activities identified within annual budgets.
Our 2008 audit Performance Reporting in Local Government examined how well councils had implemented these reforms. It found that, for most councils, reporting had limited relevance for ratepayers because it lacked information about the quality of council services, the outcomes being achieved, and how these related to councils’ strategic objectives. The audit recommended councils critically review and improve their performance information. Our 2008 guide Local Government Performance Reporting: Turning Principles into Practice was subsequently produced to assist councils to achieve this.
This audit assessed the effectiveness of existing local government performance reporting arrangements, and the adequacy of statewide initiatives to reform local government performance reporting. 
Conclusions
Performance reporting by councils remains inadequate. It is focused on inputs and operating activities, and offers little insight into the impact of services and the achievement of objectives.
While some improvements were evident at councils since 2008, the progress to date has not been sufficient to satisfy the information needs of residents and ratepayers, to drive continuous improvement, or to deliver timely performance reporting.
These shortcomings continue to impair accountability for performance and represent major obstacles to effectively addressing recurring performance deficiencies at councils.
Ongoing performance challenges in the sector strongly indicate that significant further work towards an appropriate local government performance reporting framework is warranted. 
The Report on Government Services (RoGS), produced by a Productivity Commission Secretariat for the Steering Committee for the Review of Government Services, is a mature model that demonstrates the feasibility of reporting common benchmarks and metrics across disparate jurisdictions. This model offers an opportunity to expedite addressing the longstanding challenge of performance reporting in the sector by building on an authoritative and established approach.
Findings
Recurring performance challenges in the sector
A review of the Victorian Auditor-General’s performance audits of local government between 2000 and 2011 reveals a range of ongoing performance challenges for councils. 
Specifically, a meta-analysis of 16 performance audits identified the recurring themes of:
·	ineffective planning and budgeting
·	inadequate implementation of initiatives and adherence to policies and procedures
·	weak oversight and monitoring of council activities and outcomes
·	inadequate attention to addressing persistent performance issues.
These recurring issues are, in part, a by-product of a lack of accountability for performance due to weaknesses in performance monitoring and related information. Feedback from councils indicates that they are also influenced by ongoing resource constraints, the administrative burden of complying with state and Commonwealth funding and reporting requirements, and by the difficulty of attracting and retaining skilled staff, particularly in regional and rural areas.
These issues typically manifest themselves in:
·	poor asset management 
·	poor financial management and investment decisions
·	poor planning enforcement policies and practices 
·	poor procurement policies and practices
·	inadequate business continuity planning
·	lack of service reviews.
These challenges have persisted over several years and in various council functions. Deficiencies in the quality and availability of relevant performance information to managers and councillors have impeded their capacity to take appropriate and timely corrective action. 
Additionally, the average annual percentage increase in council rates exceeded both the Local Government Cost Index and the Consumer Price Index between 2000 and 2010. While it is important to note that rate increases may be necessary to renew assets, complete essential works and mitigate external budgetary pressures beyond councils’ direct control, deficiencies in performance information prevent councils from identifying internal efficiencies that can moderate the need for such increases, or from adequately demonstrating to their communities why rate increases are necessary. 
The long-term and recurring nature of these challenges also highlights a significant and growing opportunity cost to councils and their communities and, therefore, reinforces the need for more effective performance management and reporting across the sector.
Performance reporting by local government
Improvements to elements of performance reporting practices since 2008 were evident at all 10 councils examined. However, these were limited. No council had developed a set of indicators that adequately measured the impact of services and achievement of objectives.
Improvements to performance reporting practices included:
·	aligning performance information with councils’ strategic objectives—at all councils
·	refining performance information to be more balanced—at Boroondara and Knox
·	strengthening service planning processes to improve accountability for service outcomes in relation to strategic objectives—at Moreland and Knox 
·	introducing new electronic reporting systems that link day-to-day activities with strategic objectives—at Colac Otway.
These developments are encouraging, however, further action is required to establish the foundations necessary for effective performance reporting. 
Key issues compromising the effectiveness of performance reporting at councils were:
·	poorly expressed objectives that cannot be effectively measured
·	indicators that do not comprehensively cover all aspects of councils’ objectives and key strategic activities
·	indicators that do not provide balanced information about quality, efficiency and outcomes
·	a lack of adequate policies for performance reporting 
·	limited training for councillors and staff in performance measurement and management.
These issues were evident at all examined councils, demonstrating they have yet either to fully implement previous audit recommendations or to produce performance reports that adequately meet stakeholder needs.
Further issues identified at a subset of councils were:
·	a lack of connection between strategic objectives and service objectives—at Baw Baw, Central Goldfields, Indigo and Wangaratta
·	reports that did not include results for all indicators identified within council plans—at Horsham, Knox, Moreland and Wyndham
·	an over-reliance on limited community satisfaction metrics for assessing services, which do not provide a sufficiently comprehensive and balanced view of performance—evident at Baw Baw, Indigo and Wangaratta.
Better practice was evident at Boroondara and Knox. Both councils reviewed their practices following our 2008 audit and introduced new indicators resulting in more balanced performance reporting overall, compared to the other councils examined.
However, further development of outcome and efficiency indicators is required to consolidate and build on these improvements to achieve effective performance reporting. 
Councils identified a number of challenges that affected their capacity to improve performance reporting processes. These included:
·	the administrative requirements of contributing to work by the Essential Services Commission (ESC) on developing a reporting framework, which diverted attention away from related internal improvement initiatives
·	resource limitations, particularly at regional and rural councils
·	councillors and communities assigning lower priority to addressing performance information issues. 
These challenges need to be addressed so councils can acquit their statutory obligations to use their resources efficiently and effectively in line with best value principles, and to mitigate the significant opportunity cost currently borne by ratepayers. 
Statewide local government performance reporting initiatives
The ESC undertook extensive work during the period 2009–11 to develop a statewide performance assessment and benchmarking framework for local government service delivery.
This was a positive initiative designed to improve performance reporting in the sector. 
ESC proposed the progressive implementation of a framework for council reporting based on a set of 17 or 18 service indicators, and between 17 and 20 supporting indicators, subject to applicability each year. 
The initial set of indicators was chosen following an extensive review of performance information in the sector that highlighted the low maturity of existing performance indicators, and the relative absence of outcome-based measures linked to council objectives—a situation affirmed by both this audit and our 2008 report. 
ESC intended to refine and improve its initial set of indicators in consultation with councils over time to address these gaps. However, the early discontinuation of this initiative meant ESC was unable to fully implement its plan and therefore achieve its intended goal.
Although ESC’s framework required further development at the time it was discontinued, ESC’s work offers valuable insights on the way forward.
In summary, key lessons include:
·	the need for an iterative approach to improving the maturity of council performance information
·	the importance of consultation and engagement with the sector
·	the need to focus on a common core set of council services as identified by ESC’s classification
·	the need to recognise and address the significant challenge that disparate council objectives and priorities pose to developing meaningful outcome measures common to all councils.
These are important insights for future reform initiatives.
Proposed framework for local government performance reporting
The cessation of ESC’s initiative, coupled with recurring performance challenges in the sector, highlights the need to produce and embrace a statewide performance reporting framework.
The framework should provide a holistic picture of financial and non-financial performance that is outcome focused, based on established models, and capable of implementation without unnecessarily increasing the reporting burden on local government.
RoGS provides a blueprint for developing indicators that is consistent with our 2008 principles. However, the necessary indicators—including data sets and quality assurance arrangements—are not yet in place at councils, and considerable work remains to address these gaps. 
This report outlines a pathway for further developing a sound local government performance reporting framework based on the RoGS model, and building on the valuable insights from ESC’s work.
Recommendations
Number	Recommendation	Page	
1.	All councils should:
·	review their strategic and service objectives to assure they are clearly expressed, measurable and aligned
·	critically review the performance information in their annual reports to assure it is relevant, balanced, appropriate and clearly aligned with their objectives
·	document and approve performance reporting policies and standards
·	provide training for councillors and staff on effective performance measurement, management and reporting.	25	
2.	The Department of Planning and Community Development should seek the approval of the Minister for Local Government to develop regulations establishing minimum standards for the form and content of performance statements.	25	
3. 	Local Government Victoria, councils, and local government peak bodies should adopt the proposed local government performance reporting framework and associated implementation strategy.	44	
4. 	Local Government Victoria, in consultation with stakeholders, should lead and expedite establishment of the governance structure for implementation.	44	

Submissions and comments received
In addition to progressive engagement during the course of the audit, in accordance with section 16(3) of the Audit Act 1994 a copy of this report was provided to the Department of Planning and Community Development, the Essential Services Commission, Baw Baw Shire Council, the City of Boroondara, Central Goldfields Shire Council, Colac Otway Shire, Horsham Rural City Council, Indigo Shire Council, Knox City Council, Moreland City Council, Wangaratta Rural City Council and Wyndham City Council with a request for submissions or comments.
Agency views have been considered in reaching our audit conclusions and are represented to the extent relevant and warranted in preparing this report. Their full section 16(3) submissions and comments however, are included in Appendix E.