Figure B1 lists the entities included in this report. It details the date an audit opinion was issued to each entity for their 2016–17 financial report and performance statement and the nature of that opinion.

Figure B1
Audit opinions issued to the local government sector for 2016–17

Accountability

Responsibility of public entities to achieve their objectives in reliability of financial reporting, effectiveness and efficiency of operations, compliance with applicable laws, and reporting to interested parties.

Adverse opinion

An audit opinion expressed if the auditor has sufficient appropriate audit evidence and concludes that misstatements, individually and in aggregate, are both material and pervasive in the financial report.

Figure F1 lists the indicators used in assessing the financial sustainability risks of local councils in Part 4 of this report. These indicators should be considered collectively, and are more useful when assessed over time as part of a trend analysis.

Our analysis of financial sustainability risk in this report reflects on the position of each local council.

Figure F1
Financial sustainability risk indictors

Figure E1 shows the IT control deficiencies for each council.

Figure E1
IT control deficiencies for each council

Figure D1 shows the risk ratings applied to management letter issues raised during a financial audit.

Figure D1
Definitions of risk ratings for issues reported in audit management letters

Upcoming changes accounting standards over the next three years may require substantial adjustments by not-for-profit organisations, including councils.

Figure C1 shows a time line of changes impacting the sector.

Figure C1
Time line of upcoming changes in accounting and auditing standards

We have consulted with DELWP and the councils named in this report, and we considered their views when reaching our audit conclusions. As required by section 16(3) of the Audit Act 1994, we gave a draft copy of this report, or relevant extracts, to those agencies and asked for their submissions and comments. We also provided a copy of the report to the Department of Premier and Cabinet.

Responsibility for the accuracy, fairness and balance of those comments rests solely with the agency head.

Responses were received as follows:

In 2015, the Victorian Government introduced rate capping legislation in the form of its Fair Go Rates System. This system controls general rate increases for all councils. The annual rate cap is set by the Minister for Local Government.

We assessed local councils' response to the rate capping regime in the short term and their budgeting process from a medium- to long-term perspective.

In this part, we analyse the financial sustainability risks that local councils face, including the impact of emerging funding challenges due to rate capping and reduced government grants.