Performance Reporting by Local Government

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

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.
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.
3. Local Government Victoria, councils, and local government peak bodies should adopt the proposed local government performance reporting framework and associated implementation strategy.
4. Local Government Victoria, in consultation with stakeholders, should lead and expedite establishment of the governance structure for implementation.

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.

1.1 Introduction

1.1.1 The role of local government and performance reporting

The Constitution Act 1975 establishes local government as a distinct and essential tier of government with the functions and powers necessary to ensure the peace, order and good government of each municipal district.

Each council is therefore primarily accountable to its local community. The Local Government Act 1989 (the Act) reinforces this by establishing the primary objective of each council as endeavouring to achieve the best outcomes for its local community and having regard to the long-term and cumulative effects of decisions.

Victoria’s 79 councils invest significant resources each year in the delivery of a range of services to their communities. They collectively maintain around $60 billion of community assets and infrastructure. They spend around $1.6 billion each year on capital works, and a further $6 billion annually on a variety of services including waste management, recreation, aged, family and other human services.

While the operating context of each council varies depending on geography, size, demographics, local needs and priorities, all councils have the same obligation to manage their finances responsibly and to assure their services and facilities meet community needs.

Effective performance reporting assures councils are accountable to their local residents and ratepayers for these important obligations. It is critical for demonstrating value-for-money, the achievement of objectives, equitable access to services, and that services are appropriate, of good quality, and cost effective.

1.1.2 Councils’ obligations to their local community

Financial management obligations

The Act was amended in 2003 to include a requirement that councils apply principles of sound financial management to their planning and budgeting. These principles require councils to:

• prudently manage financial risks having regard to economic circumstances
• pursue spending and rating policies that are consistent with a reasonable degree of stability in the level of the rates burden
• ensure that decisions made and actions taken have regard to their financial effects on future generations
• ensure full, accurate and timely disclosure of financial information relating to the council.

Service delivery obligations

The Act also requires council facilities and services to be accessible and equitable and sets out the best value principles that should inform council decisions on services.

The application of these principles aims to improve local government services by making them more affordable and responsive to local needs, and to encourage councils to engage with their communities in shaping services and activities.

The Act identifies the following six principles to guide how a service should be monitored and reviewed on an ongoing basis:

• All services should be responsive to community needs.
• Each service should be accessible to those community members for whom the service is intended.
• A council should achieve continuous improvement in the provision of services to its community.
• A council should develop a program of regular consultation with its community in relation to the services it provides.
• All services provided to the community should meet the cost and quality standards set by the council.

Regular service reviews in accordance with the best value principles enable a council to assess the effectiveness and efficiency of its services, and to take action where necessary to assure its services continue to meet the community’s needs.

Strategic and annual planning obligations

The amendments to the Act in 2003 also introduced new corporate and financial planning requirements that aimed to better align strategic planning with annual planning.

These included the requirement to develop a four-year council plan setting out the strategic objectives of the council, strategies for meeting them and performance indicators for monitoring their achievement. A strategic resource plan underpins the council plan, and identifies the financial and non-financial resources needed to meet the objectives.

Similarly, each council is required to develop an annual budget describing its activities, initiatives and financial requirements for the year. It should also set out how the activities will contribute to achieving the strategic objectives as well as performance measures and targets for a number of key strategic activities.

The terms ‘key strategic activity’ and ‘performance measure’ are not defined in the Act or supporting Local Government (Finance and Reporting) Regulations 2004.

Performance reporting obligations

The Act requires councils to report annually on their performance. Specifically, it requires them to prepare an annual report within three months of the end of the financial year, to provide a copy of this report to the Minister for Local Government, and to make the report publicly available. The Act and regulations require the report to include:

• an acquittal of actual results against the annual financial budget in the form ‘standard’ statements. The format of the standard statement is specified in the Regulations and is independently audited
• a ‘performance’ statement, which acquits actual results against the performance target for each key strategic activity. There is no format specified for the performance statement in the regulations, although they are required to be independently audited
• a report on operations that explains progressive performance against the strategic indicators identified in the four-year council plan. These explanations are not required to be audited.

These important performance reporting obligations were introduced by the 2003 legislative reforms to achieve greater accountability by councils to their communities.

1.2 Previous audit coverage

1.2.1 Performance Reporting in Local Government

Our 2008 audit of Performance Reporting in Local Government examined how well councils had implemented these reforms. Specifically, it assessed whether councils’ publicly reported performance information in their annual reports was useful, and underpinned by a comprehensive and cohesive reporting framework such as policies, guidelines and training.

The audit reviewed the performance statements of all 79 councils and assessed whether the information they contained was relevant, appropriate and fairly presented. It concluded that for most councils reporting had limited relevance to ratepayers, and lacked information about the quality of council services, the outcomes being achieved, and how these related to councils’ strategic objectives. It also found that in most cases, councillors and council staff were not equipped with the knowledge and skills required to fully understand and develop appropriate performance reports, and that policies were either very limited or non-existent.

The audit recommended that all councils critically review and improve their publicly reported performance information, that they document and approve performance reporting policies and standards, and provide councillors and staff with appropriate training. It also recommended that regulations be issued establishing the minimum standards for the form and content of performance statements, however, this has yet to occur.

1.2.2 Local Government Performance Reporting: Turning Principles into Practice

Our 2008 guide Local Government Performance Reporting: Turning Principles into Practice was produced to complement our audit report and assist councils to achieve effective performance reporting.

The guide highlights the key principles of effective performance reporting and provides guidance on their application in the local government context. These principles are summarised in Figure 1A.

Figure 1A
Principles of effective local government performance reporting

Source: Victorian Auditor-General’s Office, Local Government Performance Reporting: Turning Principles into Practice, 2008.

1.2.3 Local Government: Results of the 2010–11 Audits

Our 2011 report Local Government: Results of the 2010–11 Audits performed a high‑level review of 10 council performance statements against the framework set out in our 2008 guide, to assess the adequacy of councils’ actions on performance reporting.

It concluded that limited improvement was evident in the quality of the performance statements produced by councils, and that non-financial performance indicators are of limited relevance to ratepayers and residents. The report further noted that councils continue to adopt a ‘compliance-centric’ approach to performance information, and that they have yet to fully implement previous audit recommendations or to produce performance reports that drive council outcomes and accountability by being relevant and appropriate to stakeholder needs.

1.3 Relevant statewide initiatives

In October 2009, the Essential Services Commission (ESC) received a terms of reference from the Minister for Finance to develop and implement a statewide performance monitoring framework for local government service delivery.

ESC engaged in extensive and in-depth consultation with the sector during the initial development process. In June 2010, ESC released a report that made the following five recommendations for establishing a Victorian Local Government Services Report:

• Features of the report—councils were to report on a set of 17 or 18 service indicators, and between 17 and 20 supporting indicators, subject to applicability, on an annual basis.
• Report integration—councils were to include in their council plans their individual objectives and desired outcomes for the services reported.
• Implementation time lines—a staged implementation process was to be followed with full implementation to be achieved with the release of the 2013 report.
• Enabling legislation—the report was to have been implemented through amendments to the Local Government Act 1989 and the Essential Services Commission Act 2001.
• Other recommendations—consideration was to have been given to:
  • undertaking a review of reporting requirements imposed on councils by state agencies
  • identifying and including financial indicators of council performance in the report
  • providing financial assistance to councils that are financially or resource constrained to assist them in implementing the reporting framework.

In January 2011, consistent with the terms of reference and as part of the phased implementation process, ESC released a prototype report. Prepared with the support of 33 councils who volunteered to participate, the Victorian local government pilot services report 2009–10: Report to the Minister for Finance and Minister for Local Government presented ESC and stakeholders with the first opportunity to refine the services report and the underlying reporting processes.

In September 2011, the Minister for Finance, on request from the Minister for Local Government, advised ESC to not proceed with the 2010–11 report indicating the state was focusing on the strategic framework in which advances to performance reporting can take place. Both ministers expressed appreciation to ESC for its work to date.

1.4 Audit objective and scope

1.4.1 Audit objective

The objective of this audit was to assess the effectiveness of existing local government performance reporting arrangements, and the adequacy of statewide initiatives to reform local government performance reporting.

It examined progress since 2008, the issues impeding effective performance reporting in councils, and the merits of alternative performance reporting models for the Victorian local government sector.

1.4.2 Audit scope

The audit was conducted in the Department of Planning and Community Development, the ESC and the following 10 councils:

• Baw Baw Shire Council
• 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
• Wyndham City Council.

1.4.3 Method

The audit was performed in accordance with the Australian Auditing and Assurance Standards.

1.4.4 Cost of the audit

The total cost of the audit was $480 000.

2.1 Introduction

Councils play a critical role in managing important community assets and services. Effective and efficient management of these resources is vital for meeting the community’s needs.

Unless assets are well managed, roads, buildings and sports grounds will deteriorate. Similarly, ineffective and/or inefficient services reduce value-for-money and can deprive residents and ratepayers from accessing important services and desired outcomes.

Good performance information helps ratepayers and councils to gain important assurance that these critical functions are being performed well. It also helps them identify inadequate performance, and to initiate timely corrective actions.

Our performance audit program provides a unique opportunity to understand how councils are performing in critical areas. We reviewed past performance audits of local government completed between 2000 and 2011. Our review involved a meta‑analysis of recurring performance issues at councils.

It is important to note that while councils undertake a wide range of activities that can involve elements of good practice, the meta-analysis sought to establish whether there were recurrent challenges, and unresolved issues in local government performance over the period reviewed. We also sought to identify whether poor performance information and reporting was associated with identified performance weaknesses

It should also be noted that the meta-analysis focused on the results of previous audits, and does not relate specifically to the 10 councils included in the current audit.

2.2 Conclusion

Successive audits reveal recurring themes of ineffective planning and budgeting, poor implementation of initiatives and shortcomings in management oversight and monitoring.

These issues are due in part to deficiencies in the quality and availability of performance information to managers and councillors, which has impeded their capacity to take appropriate and timely corrective action, thereby imposing a significant opportunity cost on councils and their communities.

2.3 Recurring performance challenges in the local government sector

Major findings from previous audits that demonstrate recurring performance challenges for councils are summarised in Figure 2A, and detailed further in Appendix A.

Figure 2A

Recurring performance issues for councils

Source: Victorian Auditor-General’s Office.

2.4 The role of performance reporting

These performance issues relate to the core of what councils are required by statute to do, specifically:

• strategically plan for the future of the municipal district
• prudently manage finances in consideration of the needs of future generations
• be accountable for decisions and performance.

The recurring nature of the performance issues identified, as evidenced by the audits examined, shows they are an ongoing impediment to councils’ ability to fulfil their statutory obligations. Overcoming these challenges is, therefore, an urgent priority for the local government sector.

Several factors have caused the problems. Ongoing resource constraints, the burden of complying with state and Commonwealth requirements, and the difficulty of attracting and retaining skilled staff, all affect councils’ capacity to address performance issues in a timely way. These factors are compounded in some regional and rural areas where declining rate bases, ageing populations and natural disasters create further challenges.

In addition to these influences, poor performance information also contributes to the sector’s lack of progress in overcoming performance challenges. Councils’ understanding of the efficiency and effectiveness of their activities, and the extent to which they are compliant with relevant legislation is essential if they are to address performance challenges.

Though councils produce large volumes of information for internal and external audiences, both our current and 2008 audits of performance reporting by councils have found that this reporting often lacks information about the timeliness, cost, quantity or quality of council services, and therefore does not adequately position councils to overcome these deficiencies.

Understanding the efficiency and effectiveness of operations is essential for councils to make prudent resourcing decisions, for assuring the equitable distribution of rates, and for justifying these decisions to the community. Rate increases are an issue of considerable concern to communities. As Figure 2B illustrates, the average percentage annual increase in rates exceeded both the Local Government Cost Index (LGCI) and the Consumer Price Index (CPI) across all councils between 2000 and 2010. Each council and its community need specific diagnostic performance data to understand its rating circumstances and where opportunities for improvements may lie.

Figure 2B
Average annual increases in the Consumer Price Index, the Local Government Cost Index and council rates between 2000 and 2010

Source: Victorian Auditor-General’s Office based on information supplied by the Municipal Association of Victoria.

Important differences between the Consumer Price Index and the Local Government Cost Index

Research by the Municipal Association of Victoria (MAV) indicates that local government expenses are different to household expenses. CPI measures price movements in a standard basket of common household goods and services. However, MAV reports that a ‘basket’ of common council services is primarily affected by the growth in construction, material and wage costs, not CPI.

Specifically, the expenses of staff and contractors to deliver human-based services; including staff and materials needed to construct, maintain and upgrade assets and infrastructure means that local government costs are more affected by the Average Weekly Earnings and Roads Construction and Maintenance indexes than CPI.

In this context, MAV advises that council costs are substantially different to a basket of common household goods and services. Accordingly, MAV’s LGCI uses a combination of established indices that reflect average wages, construction and materials costs that best represent councils’ spending profile.

As Figure 2B illustrates the LGCI typically increases, on average, by around 1 per cent above CPI each year.

Factors influencing annual rate increases

It is important to note that annual rate increases can be influenced by a range of cost pressures impacting on a council’s budget, some of which may be beyond a council’s direct control. For example, some rate increases may be necessary to maintain an acceptable level of asset renewal to minimise the funding impact on future generations.

Similarly, rate increases may also be needed to mitigate external factors, such as the impacts of declining funding from other levels of government, growth in demand for some services, expanding council responsibilities, increased regulations, and growing state levies that are passed on through rates. It should also be noted that increases in the number of new households, particularly in growth areas, can also be an important driver of increases in the total rates levied

Importance of sound performance information

It is important to recognise that some rate increases may be necessary to renew assets or complete essential works. However, gaps in performance information mean that councils may not be able to adequately pursue internal efficiency improvements which can alleviate the need for significant rate increases.

Furthermore, performance information that is comprehensive and underpinned by rigorous short-, medium- and long-term planning can help councils justify resourcing decisions, including rate increases, to communities.

Overcoming the recurring performance issues identified through this meta-analysis depends in part on the availability of quality performance information for diagnosis and continuous improvement. As Part 3 of this report illustrates, such information is currently lacking in the sector.

3.1 Introduction

3.2 Conclusion

Performance reporting by councils remains inadequate. While limited improvements were evident at the examined councils since 2008, none had fully developed a set of indicators that adequately measured the impact of services and the achievement of objectives.

A lack of clarity around councils’ objectives, combined with critical gaps in reporting on the outcomes and efficiency of their services, impede meaningful reporting by councils and reduce their accountability.

These shortcomings also mean that progress to date has not been sufficient to fully address the information needs of residents and ratepayers, to drive continuous improvement, and achieve satisfactory performance reporting.

3.3 Adequacy of performance reporting

Improvements to aspects of performance reporting practices since 2008 were evident at all 10 examined councils. However, these were limited and further action is required to establish the conditions necessary for effective performance reporting.

Notable 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.

Several councils also actively participated in the Essential Services Commission’s (ESC) work to develop a performance reporting and benchmarking framework for local government, further demonstrating their commitment to improving performance reporting. These are encouraging developments. However, the following key issues continue to compromise the effectiveness of performance reporting at councils:

• 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 to fully implement previous audit recommendations and to produce performance reports that adequately meet stakeholder needs.

3.3.1 Comprehensiveness of performance reporting

None of the examined councils comprehensively reported on their performance, either because their objectives were not clear enough, or because existing performance indicators did not adequately demonstrate their achievement.

Clarity of objectives

Effective performance reporting requires well-expressed objectives that clearly articulate the outcomes a council is seeking to achieve. We found that poor expression of objectives compromised the effectiveness of performance reporting at all councils. This applied to the majority of objectives at Baw Baw, Central Goldfields, Horsham, Indigo, Moreland, and Wangaratta.

Figure 3A identifies a sample of strategic objectives from each examined council, and highlights issues of expression which make it difficult to report on their achievement.

Figure 3A
Sample of council objectives that limit comprehensive reporting

Source: Victorian Auditor-General’s Office.

Unclear objectives create a significant impediment to effective performance reporting as they obscure rather than clarify the specific outcomes a council is seeking. In effect, this situation reduces transparency and accountability for performance because ratepayers cannot easily understand the objectives, and their achievement cannot be easily measured and determined.

Some councils advised that when their objectives are read in conjunction with their related strategies, their desired outcomes become clearer, which allows for measurement. They further advised that through measuring council’s progress towards achieving these strategies, it is possible to understand if outcomes have been achieved.

We acknowledge that strategies are valuable for the purposes of describing the activities council will perform in pursuit of its objectives. However, if objectives are not clearly specified at the outset their achievement cannot be transparently assessed based on the implementation of related strategies.

Setting clear and measurable objectives is a critical prerequisite for effective performance reporting. Adopting the completion of ‘strategies’ as de facto indicators of their achievement can have the undesirable effect of masking inadequate performance against objectives if these strategies do not comprehensively address the outcomes sought.

This cannot be detected easily if outcomes are not clearly specified, which reduces transparency and accountability for performance. There is also a risk that actual performance against objectives will be misrepresented under these circumstances by reference to strategies that do not fully address objectives.

This situation has the further undesirable effect of reversing the program logic that should be inherent in any good performance measurement and assessment framework. Specifically, it permits lower level strategies and activities to define the outcome and its achievement, rather than enabling the adequacy and success of strategies to be assessed with reference to a clearly defined outcome in the first instance.

Therefore, in order to reliably assess councils’ performance, comprehensive performance indicators directly linked to clearly specified objectives are needed.

Comprehensiveness of indicators

Performance indicators at all 10 examined councils were either not sufficiently comprehensive or relevant to measure the achievement of objectives. Boroondara, Knox and Wyndham had the most comprehensive indicators of the councils examined. However, the lack of clarity of some of their objectives meant that there was insufficient assurance that indicators adequately addressed all relevant aspects of performance.

Figure 3B highlights issues affecting the comprehensiveness of performance indicators at a sample of the councils examined.

Figure 3B
Issues affecting the comprehensiveness of selected performance indicators

Source: Victorian Auditor-General’s Office.

Gaps in performance reporting

A further issue affecting the comprehensiveness of performance reporting at Horsham, Knox, Moreland and Wyndham was the fact that not all of their strategic performance indicators were reported in their annual reports.

The Local Government (Finance and Reporting) Regulations 2004 require councils to provide a statement on outcomes in their annual reports in relation to their strategic indicators.

However, Horsham’s 2010–11 annual report includes results for only half of its strategic indicators. Similarly, Moreland reported on 35 per cent of its strategic indicators in the same year, and Knox reported on only a quarter.

Knox and Moreland advised that gaps in their reporting were due to the staging and timing of their initiatives reflecting the fact that their strategic objectives are to be achieved over a four-year period. Consequently, they advised it is not always possible or appropriate to report outcomes against all strategic indicators annually. Similarly, Wyndham advised that all of its strategic indicators will be reported on over the four‑year period.

While the staging of initiatives can obviously affect the availability of performance information, this does not negate councils’ statutory obligation to provide a statement of performance against its strategic indicators. Rather than simply omitting an indicator, such a statement should include an explanation of why the results for any strategic indicator are not yet available or reported. This is essential for achieving transparency and accountability for performance.

We found that, although these councils are approaching the last year of their four-year council plans, a notable proportion of indicators have never been reported on—30 per cent at Moreland and 40 per cent at Knox. Though some of these indicators are to be achieved by 2012, reporting interim progress is important to understanding whether a council is on track to achieve the target. In the absence of this information, residents and ratepayers cannot form an accurate and complete picture of council performance.

Limited relevance of performance indicators

The comprehensiveness of councils’ performance reporting was further limited in some cases by an over-reliance on general community satisfaction survey results. As these general indicators lack a clear nexus with specific council objectives they are of limited relevance.

This was the case at Indigo and Wangaratta, where community satisfaction survey results were the main indicators used to assess the achievement of objectives.

Our 2008 report Performance Reporting in Local Government noted that community satisfaction results are important performance metrics for councils. However, they can only provide general measures that do not correlate closely with any particular council activity, or necessarily align with any one objective. They can also be affected by factors outside of a council's direct control and influence that may not relate to the quality of services or effectiveness of the council.

Using a general measure to evaluate a specific activity or set of activities, particularly one based on public perception, is therefore problematic. The lack of specificity in performance data limits its usefulness as a tool for continuous improvement.

3.3.2 Balance of performance indicators

It is unlikely that a single indicator will adequately capture all aspects of performance. Our 2008 guide highlighted that better practice performance reporting consists of a balanced suite of indicators covering the dimensions of output efficiency, output quality and outcome effectiveness.

Some councils have improved the balance of their performance information since 2008. However, they still lack adequate indicators for measuring the efficiency and outcomes of all their key activities.

Improved balance at Boroondara and Knox

Better practice was evident at Boroondara and Knox. Both councils had developed indicators that measured the quality, efficiency, and to a limited extent, the effectiveness of some of their activities.

Each council had reviewed and improved their performance indicators since 2008, taking into account our better practice guidelines. Both also provided useful context for all indicators to support interpretation of their performance, typically through specifying targets and in some instances, reporting trends. Boroondara provides further context for some of its indicators by benchmarking against other councils.

These initiatives are encouraging, but further improvement is needed to achieve a fully balanced suite of indicators.

Boroondara’s indicators are more balanced overall, but require further development to achieve a more complete picture of the effectiveness and efficiency of all council operations. Specifically, while some outcome indicators have been developed they do not yet address most strategic objectives or adequately cover all key strategic activities.

Boroondara provides useful information about the effectiveness and efficiency of services in its best value reports. Making greater use of these metrics when assessing and reporting on the achievement of objectives and key strategic activities in its annual report, would further integrate and strengthen Boroondara’s performance reporting.

Similarly, Knox has developed outcome indicators for all of its strategic objectives. However, they are broad and general in nature and lack any direct nexus between council services and key strategic activities.

For example, outcome indicators against the objective ‘To improve the health and wellbeing of the Knox community’ are:

• population health for men and women to be equal to or greater than the state average (self-assessed)
• a trend over time showing reduction in the overall crime rate.

These indicators measure broad outcomes that the council contributes to, but does not directly control. The direct nexus between the desired outcome and the contributing council services/activity is not immediately clear. It is not possible, therefore, based on these metrics to directly ascertain the impact and adequacy of the council’s related actions.

Outcome indicators, particularly program effectiveness indicators, should provide information on the extent to which council objectives have been achieved as a result of funded activities. This remains a critical gap in the performance information of all councils.

Limited balance of performance indicators

Comparatively less ‘balance’ was evident in the suite of indicators used by Baw Baw, Colac Otway, Horsham, Moreland and Wyndham. These councils had only a limited number of indicators of outcomes, or of the quality and efficiency of their services.

Central Goldfields, Indigo and Wangaratta had the least balanced set of indicators of all the examined councils, with their reporting focusing mainly on the implementation of activities or community satisfaction survey results.

Encouragingly, all councils were committed to further improving the balance of their performance indicators. Knox and Moreland had initiated reviews of their service planning processes designed to improve the linkages between objectives, service activities and related performance information.

3.3.3 Appropriateness

Some councils have improved the appropriateness of their performance information since 2008 by including valuable context to assist the interpretation of performance reporting. Key improvements include:

• setting targets for all indicators associated with both key strategic activities and strategic objectives—at Boroondara, Colac Otway, Horsham, Indigo, Knox, Moreland and Wangaratta
• reporting trends in performance over time—at Boroondara, Colac Otway, Indigo, Knox, Moreland, Wangaratta, Wyndham
• benchmarking results of some indicators against other councils—at Boroondara, Colac Otway, Indigo and Knox
• explaining the variance of results from targets—at Baw Baw, Boroondara, Colac Otway, Horsham, Indigo, Knox, Moreland, Wangaratta and Wyndham.

These are positive developments, however, the quality of contextual information varied. At Colac Otway, Horsham and Knox, explanations of variance did not always provide enough detail to make sense of the result.

Further, the use of trend data and benchmarking was inconsistent and limited across all councils. Specifically, none of the councils that reported trend data did so for all strategic indicators and key strategic activities where relevant. Additionally, benchmarking against other councils was also limited.

At Indigo and Knox, community satisfaction survey indicators and community strength indicators were the only benchmarked indicators, and at Boroondara and Colac Otway, only a single indicator was benchmarked against other councils. Councils highlighted that limited benchmarking by them to date reflected their expectation that ESC’s reporting framework would have addressed this.

3.3.4 Other issues limiting the effectiveness of performance reporting

All examined councils had yet to establish internal policies governing the content, standards and quality assurance arrangements for performance reporting, indicating little improvement on this issue since 2008.

Encouragingly, some progress was evident at Knox which had produced guidelines for staff on developing meaningful performance indicators. Knox also provides training to staff on developing indicators, and works with councillors to develop suitable indicators at key stages during the planning cycle.

Despite this, there was a lack of focused training for councillors on performance indicators and reporting at all councils examined. While Boroondara and Knox briefed councillors at key points during the planning process, there was no dedicated training to build councillors’ understanding of effective performance indicators and reports.

The absence of reporting frameworks, underpinned by approved policies, clear standards, and training for councillors and staff, presents a significant obstacle to improving the effectiveness of council performance reporting.

Linkages between service delivery and strategic objectives

A further issue limiting the adequacy of performance reporting at most examined councils was the lack of clear linkages between service delivery performance and strategic objectives.

Only Boroondara and Moreland had established satisfactory linkages. Both councils had service plans in place with explicit links to strategic objectives including relevant performance indicators.

While Colac Otway, Horsham, Indigo and Wyndham had business plans connecting services to strategic objectives, none had developed adequate indicators for assessing impact. Only Wyndham’s plan included performance indicators. However, these were activity focused and thus had limited capacity to offer insights into the impact of services on strategic objectives.

Similarly Baw Baw, Central Goldfields, Knox and Wangaratta had yet to establish service plans for all their services that included performance indicators with a clear nexus to council objectives. The impact of all of their services on objectives therefore cannot be transparently assessed.

Knox intends to develop plans and indicators for all of its services as part of its current service review project.

Effectiveness of other reports

Councils typically produce a range of other reports for internal and external audiences including quarterly reports, monthly expenditure reports, capital works reports and local newsletters. Many are available to the public via council websites, and are an important way for councils to report to their communities about their activities.

However, we found that they typically use the same limited indicators as those in the annual report, which focus mainly on activities rather than outcomes. Therefore, they are not yet comprehensive enough to allow residents to understand how well council objectives are being met.

3.3.5 Challenges to improving performance reporting

Councils advised that a number of challenges impeded their ability to improve performance reporting since 2008.

Resource constraints

Smaller councils in regional and rural areas highlighted resource constraints as a major challenge to developing more comprehensive, balanced and appropriate performance indicators. They indicated that without dedicated planning and reporting resources, the administrative effort required to review and reform performance reporting would draw resources away from council service delivery.

Understandably, councils are reluctant to do this. However, the need to monitor and report on the efficiency and effectiveness of service delivery is particularly important in resource constrained councils to optimise value, minimise wastage, and enable early identification and resolution of emerging issues.

Perceived lack of support from the state

Some councils expressed the view that, with the exception of ESC’s framework, there has been little support from the state to improve council performance reporting.

While our 2008 audit recommended that the Department of Planning and Community Development (DPCD) issue minimum standards on the form and content of council performance statements, this has yet to occur. The results of the current audit indicate that the absence of such standards is a factor contributing to the ongoing variation in the quality of performance information reported by councils.

DPCD indicated that it is working on initiatives for local government that will include efforts to improve performance reporting. These initiatives are currently at an early stage of development.

ESC’s now discontinued performance reporting framework was the main statewide initiative to support councils to improve their performance reporting since 2008. Councils advised that participating in this initiative absorbed considerable administrative effort, which diverted resources away from internal efforts to reform performance reporting.

DPCD and councils also indicated they refrained from introducing parallel improvement initiatives during this period, preferring instead to wait until ESC’s work was completed so they could assess the implications.

Lack of engagement by councillors and communities

Some councils advised that improvements to performance reporting have not been prioritised because councillors are focused on delivering key projects, and on meeting the immediate needs of their communities. As a result, the administrative arrangements for measuring council’s performance tend to be afforded lower priority.

They also advised that a further related challenge is that residents usually seek information about activities that directly impact upon them, and are less interested in wider performance information that conforms to better practice principles.

While these are recognised as substantial challenges, they nevertheless need to be addressed so councils can demonstrate their acquittal of statutory obligations to use their resources efficiently and effectively in accordance with best value principles.

A lack of comprehensive, balanced and appropriate performance information means that councillors and residents cannot be assured that priority actions and ongoing services are being delivered in a timely, efficient and effective manner, or that strategic objectives are being achieved.

The various issues identified in this Part are largely consistent with those of our 2008 audit. Therefore, our previous recommendations to councils to improve their performance reporting practices remain relevant in the current context.

Recommendations

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.

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.

4.1 Introduction

Performance reporting in the Victorian local government sector is mainly limited to reporting on activities and outputs. Important information about outcomes, quality, equity, access and cost-effectiveness are often missing from councils’ annual reports.

To be effective, council performance reporting should provide a holistic picture of performance to stakeholders. It should provide them with critical data to enable assessment of both service delivery performance and the financial management and sustainability of councils.

Achieving meaningful comparative council performance reporting is a significant challenge. Councils are complex organisations that manage significant infrastructure and deliver a diverse range of services to their communities. These characteristics, including differences among local communities, mean that achieving meaningful, holistic performance reporting is not a straightforward task.

In October 2009, the Essential Services Commission (ESC) was directed by the Minister for Finance to develop and implement a performance assessment and benchmarking regime for councils. ESC consulted extensively with councils and released a prototype report in January 2011 before ceasing work on its framework in September 2011 at the minister’s direction.

Recurring performance challenges in the sector strongly indicate that work towards an appropriate local government performance reporting framework should continue. This section of the report proposes an approach for further developing such a framework based on proven models, and which builds upon the insights from ESC’s work.

4.2 Conclusion

ESC’s early work yielded valuable insights into the actions needed to develop a robust performance reporting framework.

The Report on Government Services (RoGS), produced by a Productivity Commission Secretariat for the Steering Committee for the Review of Government Services, sets out a well-established performance reporting framework for government service provision that is highly suited to the Victorian local government sector.

RoGS identifies a useful framework for assessing service outputs and outcomes against objectives. However, the necessary indicators, data sets and quality assurance arrangements are not yet in place at councils.

These gaps pose a significant barrier to effective performance reporting by councils.

4.3 Purpose and architecture of proposed performance reporting framework

This section of the report proposes a comparative performance reporting framework for local government that is outcome focused, based on established models, and capable of implementation without unnecessarily increasing the reporting burden on councils. It is important for the proposed framework to be developed in consultation with the local government sector. Its purpose and architecture are outlined below.

4.3.1 Purpose of proposed framework

The national Steering Committee for the Review of Government Service Provision highlights the importance and benefits of comparative measurement in RoGS.

Specifically, it points out that better performance information improves accountability and contributes to the wellbeing of all citizens by driving better service provision. It also notes that it permits assessment of whether policies are being effectively and efficiently implemented, and whether services are reaching those people for whom they are intended.

Focusing on outputs and outcomes also helps to shift the focus from the level of resources provided to the efficiency and effectiveness with which those resources are used. Meaningful comparative performance reporting also helps to build a repository of balanced, credible information that can assist in:

• verifying high performance and identifying agencies/services that are successful
• enabling agencies to learn from peers that are delivering higher quality and/or more cost effective services
• generating additional incentives for agencies to improve performance.

These are worthwhile goals. Achieving them can create significant benefits for service funders, managers and users.

4.3.2 Architecture of proposed framework

Building on the lessons from the Essential Services Commission’s work

ESC undertook extensive work during the period 2009–11 to develop a statewide performance assessment and benchmarking framework for local government service delivery. This work offers important insights for future reform initiatives, which are outlined in Figure 4A.

Figure 4A
Insights from the Essential Services Commission’s local government performance assessment and benchmarking framework

Source: Victorian Auditor-General’s Office.

ESC’s framework was a worthwhile initiative designed to improve performance reporting in the sector. Although it still needed to overcome substantial challenges 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 which disparate council objectives and priorities pose to developing meaningful outcome measures common to all councils.

In the following sections we propose a pathway for further developing such a framework building upon the valuable lessons from ESC’s work.

Overview of proposed holistic reporting framework

Importance of linking performance to objectives

Holistic performance reporting by councils requires a focus on both financial and non‑financial performance.

Service delivery reporting should at a minimum cover the effectiveness and efficiency of service delivery relative to objectives taking into account such factors as equity, access, service quality and cost-effectiveness.

Financial performance reporting should convey critical information to enable assessment of the financial management and sustainability of a council. This data is typically available through the audited financial statements required to be included in each council’s annual report under the Local Government Act 1989 (the Act), and is summarised by the financial sustainability data we publish annually.

Figure 4B outlines the main characteristics of the comparative performance reporting framework proposed for Victorian councils.

Figure 4B
Key features of proposed local government reporting framework at a glance

Source: Victorian Auditor-General’s Office.

The following sections further describe the framework.

4.4 Proposed model for assessing service delivery performance

4.4.1 Performance indicator framework

Councils have a statutory obligation to deliver services to their communities that are effective, efficient, accessible and equitable in accordance with the best value principles.

The annual RoGS report managed by the Steering Committee for the Review of Government Services and produced by a secretariat of the Productivity Commission, provides a well-established framework that can assist councillors and ratepayers to gain assurance these obligations are being effectively acquitted.

RoGS acknowledges the importance of assessing service delivery relative to objectives and has been refined over 15 years in consultation with Commonwealth and state agencies. It is therefore a well-developed, rigorous and conceptually sound framework for assessing service delivery performance. Additionally, its use as a comparative performance reporting tool across different jurisdictions makes it highly suited to the local government context.

There are strong reasons for developing local government reporting using such well‑developed concepts rather than inventing a new framework. As RoGS has been extensively tested, its categories of reporting are well understood.

The RoGS framework permits the reporting of performance against the three categories of equity, effectiveness and efficiency. Within this model, outputs are described as services that result when service providers transform inputs in pursuit of objectives. Outcomes describe impacts of these services on individuals, communities or groups, and may be intermediate (short term), or final (longer term).

Figure 4C, reproduced from the 2011 RoGS, sets out the main conceptual elements.

Figure 4C
The Report on Government Services framework

Source: Report on Government Services 2011.

Minimum indicators needed for council performance reporting

The RoGS framework provides for five types of output indicators and three types of outcome indicators. Among these, the most critical indicator types for minimally satisfying the requirements for effective performance reporting in local government are indicators of:

• program effectiveness—measures how well the outcomes of a service achieve the stated objectives of that service
• technical efficiency—measures how well resources (inputs) are used to produce outputs and outcomes, expressed as a ratio of outputs to inputs
• quality—measures the extent to which a service is suited to its purpose and conforms to specifications.

Definitions for all RoGS indicator types are set out in Appendix B.

Implementing a performance reporting framework based on RoGS should be progressive, building where possible from data sets currently available to those that should be introduced.

The need for metrics covering the wider dimensions of access, equity, quality and cost‑effectiveness should be carefully considered but not slavishly pursued in an attempt to simply provide indicators for every RoGS dimension. Where appropriate, these measures should be added over time to supplement the critical set of indicators in a considered way noting that not all of the eight RoGS types may be necessary for all services.

Local Government Performance Reporting: Turning Principles into Practice

Our 2008 guide Local Government Performance Reporting: Turning Principles into Practice outlines a framework consistent with the RoGS model, and provides guidance on how it should be applied in a local government context.

Figure 4D reproduces the service process map from our 2008 guide. It shows the program logic that underpins it, including example indicators for council waste collection and recycling services.

Figure 4D
Service process map

Source: Victorian Auditor-General’s Office.

4.5 Proposed model for assessing financial performance and sustainability

Financial performance reporting by councils is important for acquitting their obligation to demonstrate sound financial management. This is a critical objective of all councils. Related indicators should provide insights into the financial sustainability of councils and the actions needed to achieve it.

Our annual financial sustainability indicators for councils can assist in addressing this requirement. This data could also be complemented with relevant measures of council rating practices including metrics on the sustainable capacity of councils to gain further insight into council sustainability risks and appropriate remedial actions.

VAGO financial sustainability indicators

Our annual financial sustainability tables provide data for all councils on six key metrics together with analysis and commentary highlighting, where appropriate, key areas of concern. These metrics, detailed in Appendix C, have been reported by VAGO since 2008 and could form part of the proposed suite of ‘headline indicators’ and ‘supporting indicators’.

Rating indicators

A holistic council performance report needs to include measures of rating levels and the relationship of rate income to total council expenditure. Information on comparative rating levels is particularly important to ratepayers, and a typical focus of discussion in the community. At the same time, this is an area where accompanying explanation is critical, since high rating levels may represent a council’s efforts to prudently renew expensive assets— rather than waste and extravagance. Comparative reporting of rate information could be misleading without a format that permits explanations to be read alongside comparative rate data.

The following four rating indicators derived from the New South Wales Local Government Comparative Information report are proposed:

• Average rate revenue per assessment—highlights the relative level of a council’s residential, farmland and commercial/industrial rates revenue received.
• Outstanding rates, charges and fees—assesses the effectiveness of a council’s revenue collection. The percentage of rates, charges and fees that are unpaid at the end of a financial year is a measure of how well a council is managing debt recovery.
• Percentage movement in rates and annual charges revenue from previous year—shows the increase or decrease in revenue from rates and annual charges.
• Percentage movement in user charges and fees revenue from previous year—shows the increase or decrease in revenue from user charges and fees.

Indicators of sustainable capacity

Sustainable capacity refers to a council’s relative ability to raise the revenue required, based on net disposable community income (NDCI), to meet the net operating costs of servicing its community defined as recurrent operating costs less recurrent grant assistance.

The factors impacting on sustainable capacity include population size, density, dispersion, age structure, remoteness, government grant assistance, traffic volumes and NDCI. The last of these is a significant factor in determining feasible rating levels. The following two metrics derived from the May 2010 Whelan report into Local Government Financial Sustainability are relevant to assessing a council’s sustainable capacity and are initially proposed:

• net recurrent operating costs as a proportion of NDCI
• own source revenue as a proportion of NDCI.

These indicators can act as a useful complement to VAGO’s financial sustainability metrics as they examine the financial capacity of the community that supports the council. In this context they can assist users in diagnosing the actions needed to address emerging financial sustainability risks.

Ongoing refinement and development

These financial indicators are proposed for initial inclusion in the framework. Where appropriate, additional metrics could be added over time, in consultation with the sector, to supplement the initial set.

4.6 Actions required to implement the framework

Part 3 of this report and insights from ESC’s work demonstrate that significant weaknesses remain in the quality of performance information reported by councils.

Overcoming these issues will be critical to successfully implementing a comparative performance reporting framework.

The key challenges to be addressed include:

• identifying common services and objectives as the basis for comparative reporting
• developing suitable indicators that permit meaningful benchmarking and meet the principles of effective performance reporting
• implementing appropriate data collection and quality assurance arrangements for common indicators across all councils
• establishing a suitable reporting format that assures meaningful comparisons between ‘like’ councils, but which also recognises differing local priorities and achievements.

The scale of the task, including capacity-building required in some councils to address these issues, is significant and should not be underestimated.

Given the general under-development of existing council performance information and the challenge of coordinating sector-wide improvements, an inclusive, purposeful and iterative approach is needed to build a robust statewide benchmarking framework in consultation with councils.

The following sections propose strategies and actions to address these challenges in consultation with the sector.

4.6.1 Identifying common services

Establishing a comparative performance reporting framework first requires identifying a minimum set of key local government services that all councils deliver and can report on using common indicators.

ESC’s classification of common local government functions should guide the selection of these services.

The need to develop the framework iteratively means the focus should initially be on a small handful of services, with the insights gained progressively applied to additional services over time. Appendix D highlights a range of common local government services within each of ESC’s functional categories. These are services for which councils could have similar objectives, and which could be reported on in a comparative framework.

Therefore, a key initial task in further developing a statewide framework will be to select, in consultation with the sector, a small group of these services across all functions—approximately three to five—as the initial focus.

4.6.2 Establishing common service objectives

Assessing the achievement of objectives is fundamental to effective performance reporting and benchmarking.

It requires strategic and service objectives to be clearly expressed, measurable and aligned. Part 3 of this report indicates that substantial work is needed to improve the clarity of objectives at most councils.

This situation, coupled with the absence of common objectives for key services across councils, presents an obvious and significant obstacle to meaningful comparative reporting.

Critical tasks to be addressed cooperatively within the sector include:

• establishing consensus on common objectives for the initial set of services selected for comparative reporting
• councils reviewing their strategic and service objectives to assure that they are clearly specified, measureable and aligned.

This work will be a critical prerequisite to establishing sound performance indicators.

The establishment of common service objectives should not interfere with a council’s prerogative to determine its own service standards, performance targets and priorities relative to these objectives in consultation with its community.

In this context, the purpose of common objectives is only to enable development of common indicators for comparative purposes.

It is important to recognise that different councils may appropriately perform differently against common objectives reflecting different community expectations about acceptable service levels and targets, including differences in the community’s willingness and capacity to pay.

These are important contextual factors that should be carefully considered when interpreting relative performance between councils on common performance metrics.

4.6.3 Developing comprehensive and balanced indicators

Achieving a comprehensive and balanced set of indicators requires the sector to move from the current focus of reporting on activities to the type of reporting envisaged by RoGS.

Recognising that a local government performance reporting framework will need to develop over time, a first step should be to reach consensus on the proposed financial indicators, and to identify an initial subset of indicators for the selected services that can be implemented relatively quickly and further developed in consultation with councils.

These indicators should be selected judiciously, using the RoGS framework as a guide, to provide information that is meaningful to councillors and ratepayers, and supported by data readily available to most councils.

At the service level, the proposed indicators should initially focus on the three dimensions of performance most critical to minimally satisfy the principles of effective performance reporting for councils namely, program effectiveness, technical efficiency, and quality. Additional indicators covering other RoGS dimensions, where necessary, could be added over time.

The present lack of suitable indicators at councils, as highlighted by this audit and ESC’s work, indicates that this is likely to be a considerable challenge and that new data sets may be required over time.

4.6.4 Improving data quality

A significant challenge to achieving meaningful and accurate reporting relates to data quality. Performance audits since 2000 have repeatedly raised concerns about the quality of data used by councils in strategic, business and operational planning, and have highlighted the need for data quality assurance to be introduced.

This remains a challenge with respect to council performance reporting.

The validity and reliability of any new local government performance reporting framework will be undermined unless appropriate data integrity standards, and quality assurance arrangements are developed and consistently applied by all councils.

These standards should be established progressively with the sector to correspond with developed indicators. Their application by councils can be assessed by VAGO as part of the annual financial audit cycle.

4.6.5 Developing a suitable reporting format

Achieving meaningful reporting

Performance reporting is not an end in itself. It should provide meaningful and purposeful information that assures councils are accountable to ratepayers for their performance. It should also assist councils and their managers to learn from better performing peers and to diagnose performance deficiencies and attend to them.

In this context, a comparative council performance report should enable an understanding of:

• the outcomes achieved by a council, expressed in terms of the effectiveness of services, and the soundness of financial management
• how to improve outcomes via reference to additional supporting diagnostic information relating to the performance of service outputs.

In this context, the outcomes achieved by a council could be presented in the form of a minimum set of ‘headline indicators’, and the output information as part of a broader set of equally important ‘supporting indicators’. Key financial sustainability and rating metrics could also be presented as part of the suite of ‘headline indicators’ and ‘supporting indicators’.

The proposed local government performance reporting framework is summarised in Figure 4E.

Figure 4E
Summary of proposed local government performance reporting framework

Source: Victorian Auditor-General’s Office.

Providing context and explanatory information

A comparative performance report needs to provide sufficient contextual information to aid interpretation of council results, including differences between ‘like’ councils on common indicators.

This will require reporting against targets and, where applicable, trends over time, including defining suitable groupings of ‘like’ councils for the purpose of benchmarking. These groupings may differ depending on the service being examined, and should be devised in consultation with councils following consideration of a range of factors beyond simply geographical location.

Possible clusters include growth areas, or municipalities facing high tourism impacts, natural disasters or declining populations. These differences between councils will influence their priorities and performance targets for common services, and need to be considered when selecting councils for benchmarking purposes.

A comparative reporting framework should not interfere with a council’s prerogative to determine its own targets in consultation with its local community, as this would be inconsistent with councils’ primary accountability obligation to ratepayers.

The ESC Pilot Services Report provided a format in which some explanatory information specific to councils could be included and this needs to be part of any new performance reporting regime.

4.6.6 Minimising the reporting burden

An important feature of any new performance reporting framework is that it should not add unnecessarily to the reporting burden faced by councils.

Currently, councils are required to prepare a large number of reports to state and Commonwealth agencies focusing on the acquittal of grants and service agreements. The new reporting framework should not increase this requirement and, ideally, should create an opportunity to eliminate or replace some current mandatory reports. Achieving this will require the cooperation of relevant agencies.

In this way the new framework could serve to reduce councils’ reporting burden, or improve the quality of reported information.

In addition to these requirements, the Act requires councils to produce auditable performance statements, and to report their performance against strategic objectives. The best value provisions of the Act also require councils to report to ratepayers on the outcome of service level reviews.

The reporting framework proposed here presents an opportunity to streamline these diverse and uncoordinated reporting requirements. It could be used to acquit existing statutory performance reporting obligations, including accountability requirements to other agencies with equivalent or better metrics. Local Government Victoria (LGV) supports these goals and is committed to helping achieve them, where possible, in consultation with all departments.

4.6.7 Training and support

Overcoming the barriers to effective performance reporting will be a significant task for local government. It is important that the sector is appropriately supported and able to comprehensively implement the framework so that its full benefits can be realised at each council.

Training for councillors and council staff will be an important component of this. As the framework is developed, associated training programs covering the components of the framework should also be prepared, and can build upon training provided to councillors and council staff around the broader importance of effective performance reporting recommended in Part 3 of this report.

4.7 Proposed implementation strategy

4.7.1 Sector engagement and task force

Our proposed framework has been developed with valuable input from key stakeholders including Local Government Finance Professionals, Local Government Professionals, the Municipal Association of Victoria, the Productivity Commission, and the Victorian Local Governance Association and related experts.

It is important to continue to engage the local government sector in the further development and refinement of the proposed framework.

The sector has also devoted considerable effort to developing ESC’s Pilot Services Report in recent years and is supportive of a reasonable performance reporting framework while apprehensive of the compliance costs associated with an inappropriate framework.

An implementation task force drawn from the sector could best inform future developments. The task force could play a lead role in implementing solutions to the preceding challenges in consultation with councils.

This would include identifying the initial set of common services, objectives and related indicators, including provision of information and training to councils about the framework.

4.7.2 Proposed governance structure

The task force could be established and overseen by a project steering committee with overall responsibility for the initiative comprising the following members:

• Local Government Finance Professionals
• Local Government Professionals
• Local Government Victoria
• The Municipal Association of Victoria
• Victorian Local Governance Association.

The committee could collectively review and approve the work of the task force. It could also oversee the progressive establishment of the framework, and play a facilitating role to the task force, as needed, to resolve key blockages.

LGV’s role is to work co-operatively with councils and to ensure a strong and accountable local government sector. This means it has a natural leadership role to establish the proposed steering committee, facilitate consultation with other members, and reach agreement on future implementation priorities, including roles and responsibilities.

LGV advised that it was concerned that significant support and resources beyond VAGO’s proposed role may be required to address the implementation challenges and to assist councils overcome barriers to participation.

As previously outlined, we agree that addressing the implementation challenges will require an inclusive, iterative and coordinated response from the broader local government sector, beyond simply VAGO’s and LGV’s role.

Accordingly, it will be important for the proposed steering committee and LGV to further analyse and demonstrate the nature and extent of additional support and resources required. This analysis should be undertaken at the outset to further inform planning and strategies for future implementation.

4.7.3 Role of VAGO

Framework development and comparative reporting

Consistent with our vision to be a catalyst for continuous improvement in the accountability and performance of the public sector, we intend to leverage our audit efforts to contribute to the improvement of performance reporting by councils.

Specifically, we can contribute to the work of the task force by:

• participating on the steering committee in a consultative, non-decision-making capacity
• assessing the consistency of proposed indicators with better practice performance reporting principles
• assessing the implementation of actions against the framework
• producing a sector-wide comparative performance report in three years once the framework is implemented across all councils.

The first public comparative report can build upon and form part of our existing report on the results of local government financial audits. Its format can be developed in consultation with stakeholders, and based on the insights from a pilot report produced in consultation with the steering committee within the first two years.

Timing and focus of future audits

In our report Local Government: Results of the 2010–11 Audits tabled in Parliament in November 2011 we advised that, from 30 June 2013, we intended to move to express an opinion on the relevance and appropriateness of the indicators reported upon in council performance statements.

However, recognising the low maturity of existing performance information across the sector, and the scale of improvement actions required to achieve relevant and appropriate performance indicators, we now propose to revise this plan.

Specifically, we now intend to implement this approach over a three-year period. In the years ending 30 June 2013 and 2014, we propose conveying our opinion on the relevance and appropriateness of performance indicators to councils via management letters to encourage their further development, while continuing to express a public opinion on their fair representation.

We will also provide an update each year on the sectors’ progress in implementing the framework in our annual report on the results of local government financial audits.

In the third year councils will be expected to have fully implemented the reporting framework, providing a suite of measures that are relevant and appropriate for assessing the council’s performance and that fairly represent that performance. From that year the public audit opinion will address the relevance and appropriateness of the indicators and whether they fairly present performance. Where this standard is not met, a qualified audit opinion may be issued on the performance statement.

This transitional approach will require the support of LGV and the goodwill of councils to achieve the desired outcome—more transparent and meaningful reporting on council performance to the community.

Recommendations

1. Local Government Victoria, councils, and local government peak bodies should adopt the proposed local government performance reporting framework and associated implementation strategy.
2. Local Government Victoria, in consultation with stakeholders, should lead and expedite establishment of the governance structure for implementation.