On 19 September 2018, the Victorian Auditor-General (AG) delivered his independent assurance report to Parliament entitled ‘Delivering Local Government Services’ (Report).

The Report follows auditing five Victorian local councils and examining Local Government Victoria (LGV) being an advisory and oversight body within the Department of Environment, Land, Water and Planning (DELWP). The Report’s findings on the 5 audited councils and the LGV are distilled into 9 recommendations, 4 addressed to all Victorian councils and 5 to DELWP.

Background and context

Local councils are required under s 3C(2)(B) of the Local Government Act 1989 to ensure resources are used efficiently and effectively and services are provided in accordance with the ‘Best Value Principles’ to best meet the needs of the local community.

The Best Value Principles are set out at s 208D of the Act. Briefly, they require:

• services to meet specified quality and cost standards
• councils to be responsive to the needs of the community
• services to be accessible to intended members of the community
• councils to achieve continuous improvement in providing services
• councils to develop a program of regular consultation regarding service provision.

The proposed Local Government Bill 2018 will replace these Best Practice Principles with ‘Service Performance Principles’. Although conceptually similar, the new principles will include requiring a complaints policy.

The Report’s focus is on the overall quality of service planning and review. As an example of a service common to all councils, the Report considered the efficiency of council corporate services. Such services accounted for approximately 15 percent of the audited councils’ total expenditure, offering an opportunity for significant cost savings.

Findings

Planning and reviewing council services

The Report found some variance in the approaches taken among the audited councils to service planning and delivery. Although elements of good practice were present, the Report found all councils lacked a comprehensive approach to planning and reviewing services, commenting:

Not all councils know the full cost of their services because they do not accurately and consistently allocate their overheads. This diminishes the ability of councils to make robust decisions about service levels and limits the effectiveness of how they plan to provide effective and efficient services to their communities. It also reduces their capacity to meaningfully compare the costs of their services with other councils.

The Report also found there was scope for LGV to use its advisory role to greater advantage in assisting councils to use the Best Value Principles, including by sharing better practice examples.

Council corporate services

Similarly, although the Report found examples of good practice among all audited councils in examining and acting on opportunities to improve corporate services efficiency, such efforts were described as ‘ad hoc’. None was found to have taken a sufficiently comprehensive approach.

The Report acknowledged councils are hindered in finding efficiencies by a lack of accurate data on corporate expenditure. It is suggested improved data could empower councils to better compare costs and track performance.

Recommendations

In summary, the Report recommends each Victorian council:

1. implement an integrated service planning and review framework, including benchmarking against other councils’ performance and investigating opportunities for alternative service delivery models
2. achieve a better understanding of service costs to inform service planning and budgets, including, where practical, activity-based costing
3. ensure data reported to the Victorian Grants Commission is accurate and appropriately categorised
4. systematically identify and implement opportunities to improve corporate services cost-efficiency.

The Report’s recommendations to DELWP centre on better data collection and opportunities for inter-council benchmarking in accordance with the Best Value Principles.

Conclusion

As all councils will be aware, central to the conversation around service delivery at present are the rate caps introduced by the current Victorian Government from the 2016/17 financial year. The Report acknowledges the inherent tension involved in ensuring services are delivered to the requisite standards and in a cost effective way. Input costs must be minimised while service outputs are maximised.

Arguably, the Report’s recommendations are a necessary corollary to the Fair Go Rates System. With more limited opportunities for revenue growth, councils must meet changing community needs by finding efficiencies in how services are delivered, including increased collaboration and performance benchmarking between councils, overseen by DELWP.

In our opinion, a key part of the picture is likely to involve the use of shared services, particularly corporate services, between councils.