Reports
Matching skills training with market needs
In 2012, governments across Australia entered into the National Partnership Agreement on Skills Reform. Under the National Partnership Agreement, the Australian Government provided incentive payments to States and Territories to move towards a more contestable Vocational Education and Training (VET) market. The aim of the National Partnership Agreement was to foster a more accessible, transparent, efficient and high quality training sector that is responsive to the needs of students and industry.
The New South Wales Government introduced the Smart and Skilled program in response to the National Partnership Agreement. Through Smart and Skilled, students can choose a vocational course from a list of approved qualifications and training providers. Students pay the same fee for their chosen qualification regardless of the selected training provider and the government covers the gap between the student fee and the fixed price of the qualification through a subsidy paid to their training provider.
Smart and Skilled commenced in January 2015, with the then Department of Education and Communities having primary responsibility for its implementation. Since July 2015, the NSW Department of Industry (the Department) has been responsible for VET in New South Wales and the implementation of Smart and Skilled.
The NSW Skills Board, comprising nine part-time members appointed by the Minister for Skills, provides independent strategic advice on VET reform and funding. In line with most other States and Territories, the Department maintains a 'Skills List' which contains government subsidised qualifications to address identified priority skill needs in New South Wales.
This audit assessed the effectiveness of the Department in identifying, prioritising, and aligning course subsidies to the skill needs of NSW. To do this we examined whether:
- the Department effectively identifies and prioritises present and future skill needs
- Smart and Skilled funding is aligned with the priority skill areas
- skill needs and available VET courses are effectively communicated to potential participants and training providers.
Smart and Skilled is a relatively new and complex program, and is being delivered in the context of significant reform to VET nationally and in New South Wales. A large scale government funded contestable market was not present in the VET sector in New South Wales before the introduction of Smart and Skilled. This audit's findings should be considered in that context.
The Department needs to better use the data it has, and collect additional data, to support its analysis of priority skill needs in New South Wales, and direct funding accordingly.
- funding scholarships and support for disadvantaged students
- funding training in regional and remote areas
- providing additional support to deliver some qualifications that the market is not providing.
The Department needs to evaluate these funding strategies to ensure they are achieving their goals. It should also explore why training providers are not delivering some priority qualifications through Smart and Skilled.
Training providers compete for funding allocations based on their capacity to deliver. The Department successfully manages the budget by capping funding allocated to each Smart and Skilled training provider. However, training providers have only one year of funding certainty at present. Training providers that are performing well are not rewarded with greater certainty.
The Department needs to improve its communication with prospective students to ensure they can make informed decisions in the VET market.
The Department also needs to communicate more transparently to training providers about its funding allocations and decisions about changes to the NSW Skills List.
The Department relies on stakeholder proposals to update the NSW Skills List. Stakeholders include industry, training providers and government departments. These stakeholders, particularly industry, are likely to be aware of skill needs, and have a strong incentive to propose qualifications that address these needs. The Department’s process of collecting stakeholder proposals helps to ensure that it can identify qualifications needed to address material skill needs.
It is also important that the Department ensures the NSW Skills List only includes priority qualifications that need to be subsidised by government. The Department does not have robust processes in place to remove qualifications from the NSW Skills List. As a result, there is a risk that the list may include lower priority skill areas. Since the NSW Skills List was first created, new additions to the list have outnumbered those removed by five to one.
The Department does not always validate information gathered from stakeholder proposals, even when it has data to do so. Further, its decision making about what to include on, or delete from, the NSW Skills List is not transparent because the rationale for decisions is not adequately documented.
The Department is undertaking projects to better use data to support its decisions about what should be on the NSW Skills List. Some of these projects should deliver useful data soon, but some can only provide useful information when sufficient trend data is available.
Recommendation
The Department should:
- by June 2019, increase transparency of decisions about proposed changes to the NSW Skills List and improve record-keeping of deliberations regarding these changes
- by December 2019, use data more effectively and consistently to ensure that the NSW Skills List only includes high priority qualifications
Only qualifications on the NSW Skills List are eligible for subsidies under Smart and Skilled. As the Department does not have a robust process for removing low priority qualifications from the NSW Skills list, some low priority qualifications may be subsidised.
The Department allocates the Smart and Skilled budget through contracts with Smart and Skilled training providers. Training providers that meet contractual obligations and perform well in terms of enrolments and completion rates are rewarded with renewed contracts and more funding for increased enrolments, but these decisions are not based on student outcomes. The Department reduces or removes funding from training providers that do not meet quality standards, breach contract conditions or that are unable to spend their allocated funding effectively. Contracts are for only one year, offering training providers little funding certainty.
Smart and Skilled provides additional funding for scholarships and for training providers in locations where the cost of delivery is high or to those that cater to students with disabilities. The Department has not yet evaluated whether this additional funding is achieving its intended outcomes.
Eight per cent of the qualifications that have been on the NSW Skills List since 2015 are not delivered under Smart and Skilled anywhere in New South Wales. A further 14 per cent of the qualifications that are offered by training providers have had no student commencements. The Department is yet to identify the reasons that these high priority qualifications are either not offered or not taken up by students.
Recommendation
The Department should:
- by June 2019, investigate why training providers do not offer, and prospective students do not enrol in, some Smart and Skilled subsidised qualifications
- by December 2019, evaluate the effectiveness of Smart and Skilled funding which supplements standard subsidies for qualifications on the NSW Skills List, to determine whether it is achieving its objectives
- by December 2019, provide longer term funding certainty to high performing training providers, while retaining incentives for them to continue to perform well.
In a contestable market, it is important for consumers to have sufficient information to make informed decisions. The Department does not provide some key information to prospective VET students to support their decisions, such as measures of provider quality and examples of employment and further education outcomes of students completing particular courses. Existing information is spread across numerous channels and is not presented in a user friendly manner. This is a potential barrier to participation in VET for those less engaged with the system or less ICT literate.
The Department conveys relevant information about the program to training providers through its websites and its regional offices. However, it could better communicate some specific information directly to individual Smart and Skilled training providers, such as reasons their proposals to include new qualifications on the NSW Skills List are accepted or rejected.
While the Department is implementing a communication strategy for VET in New South Wales, it does not have a specific communications strategy for Smart and Skilled which comprehensively identifies the needs of different stakeholders and how these can be addressed.
Recommendation
By December 2019, the Department should develop and implement a specific communications strategy for Smart and Skilled to:
- support prospective student engagement and informed decision making
- meet the information needs of training providers
Appendix one - Response from agency
Appendix two - About the audit
Appendix three - Performance auditing
Parliamentary reference - Report number #305 - released 26 July 2018
Fraud controls in local councils
Many local councils need to improve their fraud control systems, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. The report highlights that councils often have fraud control procedures and systems in place, but are not ensuring people understand them and how they work. There is also significant variation between councils in the quality of their fraud controls.
Fraud can directly influence councils’ ability to deliver services, and undermine community confidence and trust. ICAC investigations, such as the recent Operation Ricco into the former City of Botany Bay Council, show the financial and reputational damage that major fraud can cause. Good fraud control practices are critical for councils and the community.
The Audit Office of New South Wales 2015 Fraud Control Improvement Kit (the Kit) aligns with the Fraud and Corruption Control Standard AS8001-2008 and identifies ten attributes of an effective fraud control system. This audit used the Kit to assess how councils manage the risk of fraud. It identifies areas where fraud control can improve.
Fraud can disrupt the delivery and quality of services and threaten the financial stability of councils.
Recent reviews of local government in Queensland and Victoria identify that councils are at risk of fraud because they purchase large quantities of goods and services using devolved decision making arrangements. The Queensland Audit Office in its 2014–15 report 'Fraud Management in Local Government' found that ‘Councils are exposed to high-risks of fraud and corruption because of the high volume of goods and services they procure, often from local suppliers; and because of the high degree of decision making vested in councils'. They also highlight some common problems faced by councils including the absence of fraud control plans and failure to conduct regular reviews of their internal controls. Also, in 2008 and 2012 the Victorian Auditor-General identified the importance of up-to-date fraud control planning, clearly documented related policies, training staff to identify fraud risks and the importance of controls such as third party management.
Investigations into councils by the NSW Independent Commission Against Corruption (ICAC), such as the recent Operation Ricco, show the impact that fraud can have on councils. These impacts include significant financial loss, and negative public perceptions about how well councils manage fraud. The findings of these investigations also show the importance of good fraud controls for councils.
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Operation Ricco In its report on Operation Ricco, the ICAC found that the Chief Financial Officer (CFO) of the City of Botany Bay Council and others dishonestly exercised official functions to obtain financial benefits for themselves and others by causing fraudulent payments from the Council for their benefit. It also identified the CFO received inducements for favourable treatment of contractors. The report noted that there were overwhelming failures in the council’s procedures and governance framework that created significant opportunities for corruption, of which the CFO and others took advantage. It found weaknesses across a wide variety of governance processes and functions, including those involving the general manager, the internal audit function, external audit, and the operation of the audit committee. |
The strength of fraud control systems varies significantly across New South Wales local councils, and many councils we surveyed need to improve significantly.
Most surveyed councils do not have fraud control plans that direct resources to mitigating the specific fraud risks they face. Few councils reported that they conduct regular risk assessments or health checks to ensure they respond effectively to the risks they identify.
There are sector wide weaknesses that impact on the strength of councils' fraud control practice. Less than one-third of councils that responded to the survey:
- communicate their expectations about ethical conduct and responsibility for fraud control to staff
- regularly train staff to identify and respond to suspected fraud
- inform staff or the wider community how to report suspected fraud and how reports made will be investigated.
The audit also identified a pattern of councils developing policies, procedures or systems without ensuring people understand them, or assessing that they work. This reduces the likelihood that staff will actually use them.
In general, metropolitan and regional councils surveyed have stronger fraud control systems than rural councils.
Newly amalgamated councils are operating with systems inherited from two or more pre-amalgamated councils. These councils are developing new systems for their changed circumstances.
Five councils surveyed reported that they did not comply with the Public Interest Disclosure Act 1994.
Observations for the sector:
Councils should improve their fraud controls by:
- tailoring fraud control plans to their circumstances and specific risks
- systematically and regularly reviewing their fraud risks and fraud control systems to keep their plans up to-date
- effectively communicating fraud risks, and how staff and the community can report suspected fraud
- ensuring that they comply with the Public Interest Disclosure Act 1994.
Recommendation:
That the Office of Local Government:
- work with councils to ensure they comply with the Public Interest Disclosure Act 1994.
That the Office of Local Government:
- work with state entities and councils to develop a common approach to how fraud complaints and incidences are defined and categorised so that they can:
- better use data to provide a clearer picture of the level of fraud within councils
- measure the effectiveness of, and drive improvement in councils' fraud controls systems
Appendix one – Response from agency
Appendix three – About the audit
Appendix four – Performance auditing
Parliamentary reference - Report number #303 - released 22 June 2018
Shared services in local government
Local councils need to properly assess the performance of their current services before considering whether to enter into arrangements with other councils to jointly manage back-office functions or services for their communities. This is one of the recommended practices for councils in a report released today by the Auditor-General for New South Wales, Margaret Crawford. ‘When councils have decided to jointly provide services, they do not always have a strong business case, which clearly identifies the expected costs, benefits and risks of shared service arrangements’, said the Auditor-General.
Councils provide a range of services to meet the needs of their communities. It is important that they consider the most effective and efficient way to deliver them. Many councils work together to share knowledge, resources and services. When done well, councils can save money and improve access to services. This audit assessed how efficiently and effectively councils engage in shared service arrangements. We define ‘shared services’ as two or more councils jointly managing activities to deliver services to communities or perform back-office functions.
The information we gathered for this audit included a survey of all general-purpose councils in NSW. In total 67 councils (52 per cent) responded to the survey from 128 invited to participate. Appendix two outlines in more detail some of the results from our survey.
First, not all surveyed councils are assessing the performance of their current services before deciding on the best service delivery model. Where they have decided that sharing services is the best way to deliver services, they do not always build a business case which outlines the costs, benefits and risks of the proposed shared service arrangement before entering into it.
The Office of Local Government should, by April 2019:
Develop guidance which outlines the risks and opportunities of governance models that councils can use to share services. This should include advice on legal requirements, transparency in decisions, and accountability for effective use of public resources.
Appendix one – Response from agency
Appendix two – Survey findings
Appendix three – About the audit
Appendix four – Performance auditing
Parliamentary reference - Report number #302 - released 21 June 2018
Regional Assistance Programs
Infrastructure NSW effectively manages how grant applications for regional assistance programs are assessed and recommended for funding. Its contract management processes are also effective. However, we are unable to conclude whether the objectives of these programs have been achieved as the relevant agencies have not yet measured their benefits, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.
In 2011, the NSW Government established Restart NSW to fund new infrastructure with the proceeds from the sale and lease of government assets. From 2011 to 2017, the NSW Government allocated $1.7 billion from the fund for infrastructure in regional areas, with an additional commitment of $1.3 billion to be allocated by 2021. The NSW Government allocates these funds through regional assistance programs such as Resources for Regions and Fixing Country Roads. NSW councils are the primary recipients of funding provided under these programs.
The NSW Government announced the Resources for Regions program in 2012 with the aim of addressing infrastructure constraints in mining affected communities. Infrastructure NSW administers the program, with support from the Department of Premier and Cabinet.
The NSW Government announced the Fixing Country Roads program in 2014 with the aim of building more efficient road freight networks. Transport for NSW and Infrastructure NSW jointly administer this program, which funds local councils to deliver projects that help connect local and regional roads to state highways and freight hubs.
This audit assessed whether these two programs (Resources for Regions and Fixing Country Roads) were being effectively managed and achieved their objectives. In making this assessment, we answered the following questions:
- How well are the relevant agencies managing the assessment and recommendation process?
- How do the relevant agencies ensure that funded projects are being delivered?
- Do the funded projects meet program and project objectives?
The audit focussed on four rounds of Resources for Regions funding between 2013–14 to 2015–16, as well as the first two rounds of Fixing Country Roads funding in 2014–15 and 2015–16.
The project selection criteria are consistent with the program objectives set by the NSW Government, and the RIAP applied the criteria consistently. Probity and record keeping practices did not fully comply with the probity plans.
The assessment methodology designed by Infrastructure NSW is consistent with2 the program objectives and criteria. In the rounds that we reviewed, all funded projects met the assessment criteria.
Infrastructure NSW developed probity plans for both programs which provided guidance on the record keeping required to maintain an audit trail, including the use of conflict of interest registers. Infrastructure NSW and Transport for NSW did not fully comply with these requirements. The relevant agencies have taken steps to address this in the current funding rounds for both programs.
NSW Procurement Board Directions require agencies to ensure that they do not engage a probity advisor that is engaged elsewhere in the agency. Infrastructure NSW has not fully complied with this requirement. A conflict of interest arose when Infrastructure NSW engaged the same consultancy to act as its internal auditor and probity advisor.
While these infringements of probity arrangements are unlikely to have had a major impact on the assessment process, they weaken the transparency and accountability of the process.
Some councils have identified resourcing and capability issues which impact on their ability to participate in the application process. For both programs, the relevant agencies conducted briefings and webinars with applicants to provide advice on the objectives of the programs and how to improve the quality of their applications. Additionally, Transport for NSW and the Department of Premier and Cabinet have developed tools to assist councils to demonstrate the economic impact of their applications.
The relevant agencies provided feedback on unsuccessful applications to councils. Councils reported that the quality of this feedback has improved over time.
Recommendations
- By June 2018, Infrastructure NSW should:
- ensure probity reports address whether all elements of the probity plan have been effectively implemented.
- By June 2018, Infrastructure NSW and Transport for NSW should:
- maintain and store all documentation regarding assessment and probity matters according to the State Records Act 1998, the NSW Standard on Records Management and the relevant probity plans
Infrastructure NSW is responsible for overseeing and monitoring projects funded under Resources for Regions and Fixing Country Roads. Infrastructure NSW effectively manages projects to keep them on track, however it could do more to assure itself that all recipients have complied with funding deeds. Benefits and outcomes should also start to be measured and reported as soon as practicable after projects are completed to inform assessment of future projects.
Infrastructure NSW identifies projects experiencing unreasonable delays or higher than expected expenses as 'at‑risk'. After Infrastructure NSW identifies a project as 'at‑risk', it puts in place processes to resolve issues to bring them back on track. Infrastructure NSW, working with Public Works Advisory regional offices, employs a risk‑based approach to validate payment claims, however this process should be strengthened. Infrastructure NSW would get better assurance by also conducting annual audits of compliance with the funding deed for a random sample of projects.
Infrastructure NSW collects project completion reports for all Resources for Regions and Fixing Country Roads funded projects. It applies the Infrastructure Investor Assurance Framework to Resources for Regions and Fixing Country Roads at a program level. This means that each round of funding (under both programs) is treated as a distinct program for the purposes of benefits realisation. It plans to assess whether benefits have been realised once each project in a funding round is completed. As a result, no benefits realisation assessment has been done for any project funded under either Resources for Regions or Fixing Country Roads. Without project‑level benefits realisation, future decisions are not informed by the lessons from previous investments.
Recommendations
- By December 2018, Infrastructure NSW should:
- conduct annual audits of compliance with the funding deed for a random sample of projects funded under Resources for Regions and Fixing Country Roads
- publish the circumstances under which unspent funds can be allocated to changes in project scope
- measure benefits delivered by projects that were completed before December 2017
- implement an annual process to measure benefits for projects completed after December 2017
- By December 2018, Transport for NSW and Infrastructure NSW should:
- incorporate a benefits realisation framework as part of the detailed application.
Appendix one - Response from agencies
Appendix two - Maps of funded projects
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #300 - released 17 May 2018
Grants to non-government schools
The NSW Department of Education could strengthen its management of the $1.2 billion provided to non-government schools annually. This would provide greater accountability for the use of public funds, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.
Non‑government schools educate 418,000 school children each year, representing 35 per cent of all students in NSW. The NSW Department of Education administers several grant schemes to support these schools, with the aim of improving student learning outcomes and supporting parent choice. To be eligible for NSW Government funding, non‑government schools must be registered with the NSW Education Standards Authority (NESA) and not operate 'for profit' as per section 83C of the NSW Education Act 1990 (the Act). Non‑government schools can either be registered as independent or part of a System Authority.
In 2017–18, non‑government schools in NSW will receive over $1.2 billion from the NSW Government, as well as $3.4 billion from the Australian Government. Recently, the Australian Government has changed the way it funds schools. The NSW Government is assessing how these changes will impact State funding for non‑government schools.
This audit assessed how effectively and efficiently NSW Government grants to non‑government schools are allocated and managed. This audit did not assess the use of NSW Government grants by individual non‑government schools or System Authorities because the Auditor‑General of New South Wales does not have the mandate to assess how government funds are spent by non‑government entities.
Conclusion
The Department of Education effectively and efficiently allocates grants to non‑government schools. Clarifying the objectives of grants, monitoring progress towards these objectives, and improving oversight, would strengthen accountability for the use of public funds by non‑government schools.
We tested a sample of grants provided to non‑government schools under all major schemes, and found that the Department of Education consistently allocates and distributes grants in line with its methodology. The Department has clear processes and procedures to efficiently collect data from schools, calculate the level of funding each school or System should receive, obtain appropriate approvals, and make payments.
We identified three areas where the Department could strengthen its management of grants to provide greater accountability for the use of public funds. First, the Department’s objectives for providing grants to non‑government schools are covered by legislation, intergovernmental agreements and grant guidelines. The Department could consolidate these objectives to allow for more consistent monitoring. Second, the Department relies on schools or System Authorities to engage a registered auditor to certify the accuracy of information on their enrolments and usage of grants. Greater scrutiny of the registration and independence of the auditors would increase confidence in the accuracy of this information. Third, the Department does not monitor how System Authorities reallocate grant funding to their member schools. Further oversight in this area would increase accountability for the use of public funds.
The Department effectively and efficiently allocates grants to non‑government schools. Strengthening its processes would provide greater assurance that the information it collects is accurate.
The Department provides clear guidelines to assist schools to provide the necessary census information to calculate per capita grants. Schools must get an independent external auditor, registered with ASIC, to certify their enrolment figures. The Department checks a sample of the auditors to ensure that they are registered with ASIC. Some other jurisdictions perform additional procedures to increase confidence in the accuracy of the census (for example, independently checking a sample of schools’ census data).
The Department accurately calculates and distributes per capita grants in accordance with its methodology. The previous methodology, used prior to 2018, was not updated frequently enough to reflect changes in schools' circumstances. Over 2014 to 2017, the Department provided additional grants to non‑government schools under the National Education Reform Agreement (NERA), to bring funding more closely in line with the Australian Department of Education and Training's Schooling Resource Standard (SRS). From 2018, the Department has changed the way it calculates per capita grants to more closely align with the Australian Department of Education and Training's approach.
The Department determines eligibility for grants by checking a school's registration status with NESA. However, NESA's approach to monitoring compliance with the registration requirements prioritises student learning and wellbeing requirements over the requirement for policies and procedures for proper governance. Given their importance to the appropriate use of government funding, NESA could increase its monitoring of policies and procedures for proper governance through its program of random inspections. Further, the Department and NESA should enter into a formal agreement to share information to more accurately determine the level of risk of non‑compliance at each school. This may help both agencies more effectively target their monitoring to higher‑risk schools.
By December 2018, the NSW Department of Education should:
- Strengthen its processes to provide greater assurance that the enrolment and expenditure information it collects from non‑government schools is accurate. This should build on the work the Australian Government already does in this area.
- Establish formal information‑sharing arrangements with the NSW Education Standards Authority to more effectively monitor schools' eligibility to receive funding.
By December 2018, the NSW Education Standards Authority should:
- Extend its inspection practices to increase coverage of the registration requirement for policies and procedures for the proper governance of schools.
- Establish formal information‑sharing arrangements with the NSW Department of Education to more effectively monitor schools' continued compliance with the registration requirements.
The Department’s current approach to managing grants to non‑government schools could be improved to provide greater confidence that funds are being spent in line with the objectives of the grant schemes.
The NSW Government provides funding to non‑government schools to improve student learning outcomes, and to support schooling choices by parents, but does not monitor whether these grants are achieving this. In addition, each grant program has specific objectives. The main objectives for the per capita grant program is to increase the rate of students completing Year 12 (or equivalent), and to improve education outcomes for students. While non‑government schools publicly report on some educational measures via the MySchool website, these measures do not address all the objectives. Strengthened monitoring and reporting of progress towards objectives, at a school level, would increase accountability for public funding. This may require the Department to formalise its access to student level information.
The Department has listed five broad categories of acceptable use for per capita grants, however, provides no further guidance on what expenditure would fit into these categories. Clarifying the appropriate use of grants would increase confidence that funding is being used as intended. Schools must engage an independent auditor, registered with ASIC, to certify that the funding has been spent. The Department could strengthen this approach by improving its processes to check the registration of the auditor, and to verify their independence.
The Department has limited oversight of funding provided to System Authorities (Systems). The Department provides grants to Systems for all their member schools. The Systems can distribute the grants to their schools according to their own methodology. Systems are not required to report to the Department how much of their grant was retained for administrative or centralised expenses. Increased oversight over how the Systems distribute this grant could provide increased transparency for the use of public funds by systems.
By December 2018, the NSW Department of Education should:
- Establish and communicate funding conditions that require funded schools to:
- adhere to conditions of funding, such as the acceptable use of grants, and accounting requirements to demonstrate compliance
- report their progress towards the objectives of the scheme or wider Government initiatives
- allow the Department to conduct investigations to verify enrolment and expenditure of funds
- provide the Department with access to existing student level data to inform policy development and analysis.
- Increase its oversight of System Authorities by requiring them to:
- re‑allocate funds across their system on a needs basis, and report to the Department on this
- provide a yearly submission with enough detail to demonstrate that each System school has spent their State funding in line with the Department's requirements.
Appendix one - Response from agencies
Appendix two - NESA's risk-based compliance monitoring
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #299 - released 3 May 2018
Report on Local Government 2017
Under section 421C of the Local Government Act 1993, I am pleased to present our first report on the statutory financial audits of councils, to NSW Parliament.
My appointment as the auditor of local government in New South Wales is the most significant change to the Auditor-General's mandate in nearly three decades.
Moving to the new audit arrangements over the past 18 months has been challenging but rewarding. It has confirmed my appreciation of local government – a sector passionate about the community and focused on delivering local services.
The unique relationship each council has with its community differentiates it from other tiers of government.
Our audits
I am pleased to report that we completed 139 out of 140 financial statement audits for the 2016–17 audit cycle. The remaining council received an extension to lodge its financial statements.
We have also released a performance audit report on council reporting on service delivery. We will soon release another report on fraud controls in local councils and a report on council shared services later this year.
- While the new audit mandate brings immense responsibility, my office has embraced the challenges involved and the objectives that NSW Parliament gave us:
- strengthening governance and financial oversight in local government
- providing greater consistency in external audit
- ensuring reliable financial information is available to assess council performance
- improving financial management, fiscal responsibility and public accountability in how councils use citizens’ funds.
This report
This report is rich in data extracted from the results of the 2016–17 financial audits. For the first time, it presents a consistent view of financial performance across the New South Wales local government landscape. The report also provides guidance and includes recommendations to councils and the Office of Local Government aimed at strengthening financial reporting, asset management, governance and internal controls.
The report will help NSW Parliament understand the common challenges that councils face. It provides points of comparison for councils and signposts matters that will be the focus of future audits. Importantly, this report and the data visualisation that accompanies it, provides comprehensive and accessible information to citizens regarding the management and performance of their councils.
I would like to acknowledge the cooperation of councils throughout the audit process and our partnerships with the contract audit firms that helped us to deliver the audits. Together we can learn from each other and work towards improving outcomes for the community.
| 1. Introduction | |
| Local government sector | NSW has 140 councils: 128 local councils serving a geographic area and 12 county councils formed for a specific purpose. We completed audits of 139 councils' 2016–17 financial statements and eight councils' 2015–16 financial statements. Bayside Council received a lodgement extension from the Office of Local Government (OLG) and has not yet presented their 2016–17 financial statements for audit. |
| Service delivery | Each council provides a range of services, influenced by population density, demographics, the local economy, geographic and climatic characteristics. These differences influence the financial profile of councils. |
| 2. Financial reporting | |
| Quality of financial reporting |
The overall quality of financial reporting needs to improve:
OLG guidance for council year-end financial reporting needs to align with Australian Accounting Standards and be issued earlier. |
| Timeliness of financial reporting | Timeliness of financial reporting needs to improve. Forty councils required lodgement extensions past the 31 October 2017 statutory reporting deadline. |
| 3. Financial performance and sustainability | |
| Operating revenue | Eighteen councils operating expenses exceed current operating revenue. Fifty-nine councils do not meet OLG’s target of 60 per cent for own source operating revenue. |
| Liquidity and working capital | Most councils have sufficient liquidity and working capital. However, there are indicators that:
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| Asset management measures | Reporting against OLG’s asset management performance measures highlights that councils need to consider whether spending on existing infrastructure assets is sufficient to ensure they continue to meet service delivery standards:
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| 4. Asset management | |
| High risk issues | We reported ten high risk issues relating to councils’ asset management and accounting practices. |
| Asset reporting | The accuracy of asset registers requires improvement and all assets need to be reported in the financial statements. At 30 June 2017, 62 councils did not record all rural fire-fighting equipment in their financial statements. A large proportion of rural fire-fighting equipment is not reported in either State government or local government financial statements. |
| Asset valuation | We reported seven high risk matters related to asset valuations, including two that resulted in qualified audit opinions. |
| Asset useful life estimates | We identified that accounting for the useful lives of similar assets varied across councils, resulting in variable depreciation expense for these assets. In addition, the useful lives of assets need to be reviewed annually. This review should be supported by current condition assessments. |
| Asset policy and planning | Thirteen councils do not have an asset management strategy, policy and plan, as required by the Office of Local Government’s Integrated Planning and Reporting Framework. |
| 5. Governance and internal controls | |
| High risk issues | We reported 17 high risk issues relating to governance, financial accounting, purchasing and payables and payroll matters. |
| Governance | There is currently no requirement for councils to have an audit, risk and improvement committee and internal audit function. Consequently, 53 councils do not have an audit committee and 52 councils do not have an internal audit function. The Office of Local Government has incomplete information on the number of entities established by councils. There is no financial reporting framework for the variety of entities established by councils. Councils can strengthen policies and procedures to support critical business processes, practices for risk management and compliance with key laws and regulations. |
| Internal controls | Councils can improve internal controls over manual journals, reconciliations, purchasing and payables and payroll. |
| 6. Information technology | |
| High risk issues | We reported nine high risk issues relating to information technology. |
| Access to IT systems | Controls over user access to IT systems need to be strengthened. |
| Information Technology governance | IT governance benefits from appropriate policies, standards and guidelines across all critical IT processes. We identified that:
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Accurate and timely financial statements are an important element of sound financial management. They bring accountability and transparency to the way councils use public resources. Our financial audits assessed the following aspects of councils’ financial reporting:
- quality of financial reporting
- timeliness of financial reporting.
| Observation | Conclusion or recommendation |
| 2.1 Quality of financial reporting | |
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Qualified audit opinions
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The councils that received unmodified audit opinions prepared financial statements that fairly present their financial position and results. |
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We issued modified (qualified) opinions on the:
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Councils with modified opinions should address the issues that give rise to the audit qualification. |
| Significant audit matters We reported 39 significant matters in 29 councils. They included material accounting issues and significant deficiencies in internal controls. Seventy-seven per cent of the matters related to assets. |
Significant issues with the quality of financial reporting delayed the completion of a number of audits. Improving the reporting on assets should be a priority. |
| Prior period errors We found 33 material errors worth $9.1 billion in the previous audited financial statements of 22 councils. These all required prior-year audited balances to be corrected. Eighty eight per cent of these were asset related. |
The high number of asset-related prior-period errors reinforces the need for councils to improve the way they value and account for assets. |
| Financial statements We reported 43 moderate risk findings where councils can improve the way they complete their financial statements. |
Recommendation Councils can improve the quality of financial reporting by reviewing their financial statements close processes to identify areas for improvements. |
| Of the councils that had an audit, risk and improvement committee, 55 per cent of these did not review the financial statements before audit. | Recommendation Councils can improve the quality of financial reporting by involving an audit, risk and improvement committee in the review of financial statements. |
| OLG guidance To support councils in preparing 30 June 2017 financial statements, OLG issued guidance documents in June 2017 and September 2017. This limited the time councils had to prepare financial statements in the prescribed form and resolve financial reporting and audit issues. |
Recommendation The Office of Local Government should release the Local Government Code of Accounting Practice and Financial Reporting and the End of Year Financial Reporting Circular earlier in the audit cycle, ideally by 30 April each year. |
| The Code applicable for the 2016–17 financial reporting period provided options and guidance that in some instances did not fully align with Australian Accounting Standards. | Recommendation The Local Government Code of Accounting Practice and Financial Reporting should align with Australian Accounting Standards. |
| 2.2 Timeliness of financial reporting | |
| Statutory deadlines One hundred councils submitted audited financial statements to OLG by the statutory deadline of 31 October 2017. Thirty-nine councils received reporting extensions up to 28 February, including 16 of the 20 newly amalgamated councils. Bayside Council received a reporting extension to 31 May 2018 and has not yet presented their financial statements for audit. |
Councils need to improve their financial reporting processes in order to lodge their financial statements by the statutory reporting deadline. |
| Early close procedures Councils currently do not use early close procedures to resolve accounting issues before the end of the financial year. |
Recommendation The Office of Local Government should introduce early close procedures with an emphasis on asset valuations. |
3 The Auditor‑General was appointed statutory auditor of eight councils for the 2015–16 reporting period at the specific request of councils, due to the failure by councils to appoint an auditor, or the inability of the previous auditor to complete the audit due to external investigation or auditor retirement.
Strong and sustainable financial performance provides the platform for councils to deliver services and respond to the needs of their community. This chapter outlines our audit observations on the performance of councils against the Office of Local Government's (OLG) performance indicators, grouped in three areas:
- operating revenue performance measures
- liquidity and working capital performance measures
- asset management performance measures.
Our analysis indicates that some councils face challenges in meeting these performance and sustainability measures.
| Observations | Conclusions |
| 3.1 Operating revenue performance measures | |
|
Operating performance Another 20 councils would not have met OLG’s operating performance benchmark without the receipt of 2017–18 financial assistance grants which was recorded as revenue during 2016–17. Eleven councils have not met OLG’s operating performance benchmark for the last three years. |
It is important that councils have financial management strategies that support their financial sustainability and ability to meet OLG’s operating performance benchmark over the long term. |
| Operating performance measures how well councils contain operating expenses within operating revenue. OLG has prescribed a benchmark of greater than zero. | |
|
Own source operating revenue |
Rural councils have high-value infrastructure assets that cover large areas with smaller populations and less capacity to raise revenue from alternative sources compared with metropolitan councils. |
| Own source operating revenue measures a council’s fiscal flexibility and the degree to which it can generate revenue from own sources compared with total revenue from all sources. OLG has prescribed a benchmark of more than 60 per cent of total revenue. | |
| 3.2 Liquidity and working capital performance measures | |
|
Unrestricted current ratio |
Most councils can meet short-term obligations as they fall due. |
| The unrestricted current ratio represents a council’s ability to meet its short-term obligations as they fall due. OLG has prescribed a benchmark of greater than 1.5 times. | |
|
Debt service cover ratio Regional councils have 56 per cent of the value of all borrowings in the sector. |
Most councils have sufficient operating cash available to service their borrowings. Regional councils borrow more heavily than metropolitan councils to deliver water and sewerage infrastructure. Metropolitan councils do not have the responsibility to provide water and sewerage infrastructure. |
| The debt service cover ratio measures the operating cash available to service debt including interest, principal and lease payments. OLG has prescribed a benchmark of greater than two times. | |
|
Rates and annual charges outstanding These councils also did not meet the infrastructure backlog ratio. |
Most councils are collecting rates and annual charges levied. Councils with higher levels of uncollected rates and charges can experience increased pressure on the working capital available to fund operations. |
| The rates and annual charges outstanding measure assesses the impact of uncollected rates and annual charges on a council’s liquidity and the adequacy of debt recovery efforts. OLG has prescribed a benchmark of less than five per cent for metropolitan and less than ten per cent for other councils. | |
|
Cash expense cover ratio |
Most councils have the capacity to cover more than three months of operating expenses. |
| The cash expense cover ratio indicates the number of months a council can continue paying its expenses without additional cash inflows. OLG has prescribed a benchmark of greater than three months. | |
|
This measure does not exclude externally and internally restricted funds. If externally restricted funds are excluded, all councils would still meet OLG’s benchmark. If both externally and internally restricted funds are excluded:
|
Councils with a higher proportion of restricted funds may have less flexibility to pay operational expenses than the cash expense cover ratio suggests. However, councils can resolve to lift internal restriction if required. |
|
3.3. Asset management performance measures (not audited) |
|
|
Building and infrastructure renewals ratio Most councils included expenditure related to work-in-progress in calculating this ratio. OLG are of the view that work-in-progress should be excluded and as a result identified that a further 23 councils do not meet the benchmark. |
These councils appear to not be renewing assets in line with the rate they are depreciating them. This raises questions as to whether council asset management plans are adequate to determine whether assets are being kept up to agreed standards. Uncertainty on the inclusion of work-in-progress assets does need to be is clarified in order to ensure consistency in determining whether councils are adequately renewing their assets. |
| The building and infrastructure renewals ratio represents the rate at which assets are being renewed relative to the rate at which they are depreciating. OLG has prescribed a benchmark of greater than 100 per cent. | |
|
Infrastructure backlog ratio |
These councils may not be maintaining their infrastructure backlog at a manageable level. |
| The infrastructure backlog ratio represents the proportion of infrastructure backlog relative to the total net book value of a council's infrastructure assets. OLG has prescribed a benchmark of less than two per cent. | |
|
Asset maintenance ratio |
These councils’ maintenance expenditure may be insufficient to sustain their assets in a functional state so they reach their predicted useful life. |
| The asset maintenance ratio represents the rate at which assets are being maintained relative to the rate at which they are required to be maintained. OLG has prescribed a benchmark of greater than 100 per cent. | |
|
Costs to bring assets to agreed service level |
There is variability between councils in the amount of outstanding renewal works to be completed. |
| This ratio represents the estimated cost to renew or rehabilitate existing infrastructure assets that have reached the condition-based interval level adopted by a council, relative to the gross replacement cost of all infrastructure assets. OLG has not prescribed a benchmark for this performance measure. | |
OLG’s benchmarks for financial performance and sustainability
Each local council has unique characteristics such as its size, location and services provided to their communities. These differences affect the nature of each council's assets and liabilities, revenue and expenses, and in turn the financial performance measures against which it reports.
The Office of Local Government prescribes performance indicators for council reporting
The analysis in this chapter is based on performance measures prescribed in OLG’s Code of Accounting Practice and Financial Reporting (the Code). Councils report against these measures in their annual report, which includes the audited financial statements and other unaudited information. In the audited financial statements, councils report performance against six financial sustainability measures:
- operating performance
- own source operating revenue
- unrestricted current ratio
- debt service cover ratio
- rates and annual charges outstanding percentage
- cash expense cover ratio.
Councils also include the unaudited Special Schedule 7 'Report on Infrastructure Assets' in their annual reports. In this schedule, councils report to OLG on performance against four further measures:
- building and infrastructure renewals ratio
- infrastructure backlog ratio
- asset maintenance ratio
- cost to bring assets to agreed service level.
Each audited measure and three of the four unaudited measures has a prescribed benchmark. OLG’s benchmarks are the same for metropolitan, regional, rural and county councils, with the exception of the rates and annual charges outstanding percentage. Regional, rural and county councils have a different benchmark to metropolitan councils for this measure.
Three rural councils did not meet three of the audited OLG benchmarks
Most councils met OLG’s benchmarks for at least five or all of the six audited performance measures. Eight rural, four regional, four metropolitan and two county councils did not meet OLG’s benchmarks for two out of the six audited performance measures. Three rural councils did not meet OLG’s benchmarks for three out of the six audited performance measures.
The following table summarises how the councils performed across the six audited performance measures.
| Number of OLG benchmarks met by councils | Number of councils | |||
| Metropolitan | Regional | Rural | County | |
| 6 | 12 | 12 | 29 | 5 |
| 5 | 17 | 21 | 17 | 5 |
| 4 | 4 | 4 | 8 | 2 |
| 3 | -- | -- | 3 | -- |
| Not available* | 1 | -- | -- | -- |
| Total | 34 | 37 | 57 | 12 |
Source: Audited Financial Statements for 2016–17.
Appendix ten lists the performance of each council against all performance measures.
NSW councils own and manage a significant range of assets, including infrastructure, property, plant and equipment with a total value of $136 billion.
Many of the issues that our local government audits identified related to asset management. This chapter discusses some of the asset accounting issues we found, focusing on five areas:
- overall asset management issues
- asset registers
- asset valuation
- recognition and asset useful life estimates
- asset policy and planning.
| Observations | Conclusion or recommendation |
| 4.1 High risk issues | |
|
Significant matters reported to those charged with council governance |
High risk issues affect council’s ability to maintain their assets in the condition required to deliver essential services. |
| 4.2 Asset reporting | |
|
Accuracy of asset registers |
Maintaining accurate asset records is important as it enables councils to manage their assets effectively and report on finances appropriately. |
|
Unrecorded land and infrastructure assets |
Assets not captured in council records is at risk of not being subject to their care and control, nor recorded in the financial statements. |
|
Rural fire-fighting equipment |
Recommendation In doing so, the Office of Local Government should work with NSW Treasury to ensure there is a whole‑of‑government approach. |
|
4.3 Asset valuation |
|
|
Restricted assets Nine councils corrected the land values in their 2016–17 financial statements, reducing the reported value of community land and land under roads by $12.1 billion. |
The valuation of community land and land under roads should reflect the physical and legislative restrictions on these assets as required by Australian Accounting Standards. The impact of restrictions can be significant. Councils should consider engaging experts to assist with the determination of asset fair values, as necessary. |
| Asset revaluations Our audits found many cases where councils did not review valuation results, comply with applicable codes, or work effectively with valuers to obtain accurate asset valuations. |
Valuing large infrastructure assets is a complex process. Councils would benefit if the process is started earlier and there is a clear plan to ensure valuations are appropriately managed and documented. |
|
4.4 Asset useful life estimates |
|
|
Asset useful life estimates In some cases, the useful lives of assets are not reviewed annually or supported by regular condition assessment. |
Depreciation is a significant expense for councils and therefore impacts on reported financial results and key performance indicators. To comply with Australian Accounting Standards, councils need to reassess the useful lives of all assets annually. Regular condition assessments are essential to identify maintenance requirements and maintain service delivery. |
|
4.5 Asset policy and planning |
|
| Asset management strategy Thirteen councils do not have an asset management policy, strategy and plan, as required by OLG's Integrated Planning and Reporting Framework. Newly amalgamated councils have until 30 June 2018 to implement this. |
An effective asset management strategy, policy and plan helps councils to manage their assets appropriately over their life cycle and to make informed decisions on the allocation of resources. |
Asset overview
NSW councils own and manage a significant range of assets, including infrastructure, property, plant and equipment.
At 30 June 2017, the combined carrying value of NSW council assets was as follows.
Good governance systems help councils to operate effectively and comply with relevant laws and standards. Internal controls assist councils to operate reliably and produce effective financial statements.
This chapter highlights the high risk issues we found and reports on a range of governance and control areas. Governance and control issues relating to asset management and information technology are covered in separate chapters.
| Observation | Conclusion or recommendation |
| 5.1 High risk issues | |
| Significant matters reported to those charged with council governance | |
| Our 2016–17 audits identified 36 high risk governance and internal control deficiencies across 17 councils. | Asset practices accounted for the highest number of high risk issues and information technology accounted for the largest overall number of control deficiencies. These matters are covered in chapters four and six respectively. |
We reported:
|
High risk issues affect council’s ability to achieve their objectives and increase the risk of fraud and error. |
| 5.2 Governance | |
| Audit committees | |
| Councils are currently not required to have an audit, risk and improvement committee. Consequently, 53 councils do not have an audit committee. |
Proposed legislative changes will require councils to establish an audit, risk and improvement committee by March 2021. Recommendation |
|
Internal audit |
Recommendation |
|
Council entities |
Recommendation |
| The Local Government Act 1993 does not stipulate a financial reporting framework for council entities. |
Recommendation |
|
Policies and procedures |
It is important there are current policies, standards and guidelines available to staff and contractors across all critical business processes. |
|
Legislative compliance frameworks |
Councils can improve practices in monitoring compliance with key laws and regulations. This includes implementing a legislative compliance framework, register and policy. |
|
Risk management |
Council risk management practices are enhanced when there is a fit-for-purpose risk management framework, register and policy to outline how risks are identified, managed and monitored. |
| 5.3 Internal controls | |
|
Financial accounting We identified 51 high and moderate risk issues across 39 councils where reconciliation processes need to improve to support the preparation of accurate financial statements |
Sound financial accounting processes include controls to ensure:
|
| Purchasing and payables We found 102 high and moderate risk deficiencies in purchasing and payable controls across 64 councils. Sound purchasing controls are important to minimise error, unauthorised purchases, fraud and waste. |
As councils spend a substantial amount each year to procure goods and services, strong controls over purchasing and payment practices are critical. These include:
|
|
Payroll Managing excess annual leave balances was a challenge for 32 councils. |
Effective payroll controls are important because employee expenses represent a large portion of council expenditure. These controls include segregation of duties in the review of payroll master file data, timesheets, leave forms, payroll exception reports and termination payments. Excessive annual leave balances can have implications on employee costs, disrupts service delivery and affect work, health and safety. Excess annual leave balances should be continuously monitored and managed. |
Like most public sector agencies, councils increasingly rely on information technology (IT) to deliver services and manage sensitive information. While IT delivers considerable benefits, it also presents risks that councils need to address.
Our review of council IT systems focused on understanding the processes and controls that support the integrity, availability and security of the data used to prepare financial statements. This chapter outlines issues in three broad areas:
- high risk issues
- access to IT systems
- IT governance.
| Issues | Conclusion |
| 6.1 High risk issues | |
| Significant matters reported to those charged with council governance | |
| Our 2016–17 audits identified nine high risk IT control deficiencies across seven councils. The issues related to user access controls, privileged access controls and user developed applications. | High risk issues affect council’s ability to achieve their objectives and increase the risk of fraud and error. |
| 6.2 Access to IT systems | |
| User access controls We identified 107 issues across 56 councils where user access controls could be strengthened. |
Inadequate IT policies and controls around user access, including privileged access, increases the risk of individuals having excessive or unauthorised access to critical financial systems and data. |
|
Privileged access |
|
|
User developed applications Our audits found 22 councils using spreadsheets for business operations, decision making and financial reporting that were not adequately secured, with changes that were not tracked, tested or reviewed. We also identified five councils where finance staff and senior management use database query tools to directly modify financial data, circumventing system-based business process controls. |
It is important councils are aware of all circumstances they are relying on UDAs to limit the risk of errors and potential misuse. This allows councils to:
|
| 6.3 IT Governance | |
|
Strategy, policies and procedures Sixty-six councils do not have an adequate information security policy. |
IT governance is enhanced where there is:
|
|
Disaster recovery and business continuity The ability to restore data from backups is critical to ensure business continuity in the face of a system disaster. We also found that 15 councils do not periodically test their ability to restore backups of data relevant to financial reporting. |
Sound management of disaster recovery and business continuity includes:
We expect to focus on these areas in our future audits. |
Appendix one - Response from the Office of Local Government
Appendix two - List of recommendations
Appendix three - Sources of information and council classifications
Appendix four - Councils amalgamated in 2016
Appendix five - Status of audits
Appendix seven - OLG’s performance indicators from the audited financial statement - Descriptions
Appendix eight - OLG’s performance indicators from the unaudited special schedule 7 - Descriptions
Appendix nine - Financial information
Council reporting on service delivery
New South Wales local government councils’ could do more to demonstrate how well they are delivering services in their reports to the public, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. Many councils report activity, but do not report on outcomes in a way that would help their communities assess how well they are performing. Most councils also did not report on the cost of services, making it difficult for communities to see how efficiently they are being delivered. And councils are not consistently publishing targets to demonstrate what they are striving for.
I am pleased to present my first local government performance audit pursuant to section 421D of the Local Government Act 1993.
My new mandate supports the Parliament’s objectives to:
- strengthen governance and financial oversight in the local government sector
- improve financial management, fiscal responsibility and public accountability for how councils use citizens’ funds.
Performance audits aim to help councils improve their efficiency and effectiveness. They will also provide communities with independent information on the performance of their councils.
For this inaugural audit in the local government sector, I have chosen to examine how well councils report to their constituents about the services they provide.
In this way, the report will enable benchmarking and provide improvement guidance to all councils across New South Wales.
Specific recommendations to drive improved reporting are directed to the Office of Local Government, which is the regulator of councils in New South Wales.
Councils provide a range of services which have a direct impact on the amenity, safety and health of their communities. These services need to meet the needs and expectations of their communities, as well as relevant regulatory requirements set by state and federal governments. Councils have a high level of autonomy in decisions about how and to whom they provide services, so it is important that local communities have access to information about how well they are being delivered and meeting community needs. Ultimately councils should aim to ensure that reporting performance is subject to quality controls designed to provide independent assurance.
Councils report extensively on the things they have done, but minimally on the outcomes from that effort, efficiency and performance over time.
Councils could improve reporting on service delivery by more clearly relating the resources needed with the outputs produced, and by reporting against clear targets. This would enable communities to understand how efficiently services are being delivered and how well councils are tracking against their goals and priorities.
Across the sector, a greater focus is also needed on reporting performance over time so that communities can track changes in performance and councils can demonstrate whether they are on target to meet any agreed timeframes for service improvements.
The degree to which councils demonstrate good practice in reporting on service delivery varies greatly between councils. Metropolitan and regional town and city councils generally produce better quality reporting than rural councils. This variation indicates that, at least in the near-term, OLG's efforts in building capability in reporting would be best directed toward rural councils.
Recommendation
By mid-2018, OLG should:
- assist rural councils to develop their reporting capability.
The Framework which councils are required to use to report on service delivery, is intended to drive good practice in reporting. Despite this, the Framework is silent on a number of aspects of reporting that should be considered fundamental to transparent reporting on service delivery. It does not provide guidance on reporting efficiency or cost effectiveness in service delivery and provides limited guidance on how annual reports link with other plans produced as part of the Framework. OLG's review of the Framework, currently underway, needs to address these issues.
Recommendation
By mid-2018, OLG should:
- issue additional guidance on good practice in council reporting, with specific information on:
- reporting on performance against targets
- reporting on performance against outcome
- assessing and reporting on efficiency and cost effectiveness
- reporting performance over time
- clearer integration of all reports and plans that are required by the Framework, particularly the role of End of Term Reporting
- defining reporting terms to encourage consistency.
The Framework is silent on inclusion of efficiency or cost effectiveness indicators in reports
The guidelines produced by OLG in 2013 to assist councils to implement their Framework requirements advise that performance measures should be included in all plans. However, the Framework does not specifically state that efficiency or cost effectiveness indicators should be included as part of this process. This has been identified as a weakness in the 2012 performance audit report and the Local Government Reform Panel review of reporting by councils on service delivery.
The Framework and supporting documents provide limited guidance on reporting
Councils' annual reports provide a consolidated summary of their efforts and achievements in service delivery and financial management. However, OLG provides limited guidance on:
- good practice in reporting to the community
- how the annual report links with other plans and reports required by the Framework.
Further, the Framework includes both Annual and End of Term Reports. However, End of Term reports are published prior to council elections and are mainly a consolidation of annual reports produced during a council’s term. The relationship between Annual reports and End of Term reports is not clear.
OLG is reviewing the Framework and guidance
OLG commenced work on reviewing of the Framework in 2013 but this was deferred with work re‑starting in 2017. The revised guidelines and manual were expected to be released late in 2017.
OLG should build on the Framework to improve guidance on reporting on service delivery, including in annual reports
The Framework provides limited guidance on how best to report on service delivery, including in annual reports. It is silent on inclusion of efficiency or cost effectiveness indicators in reporting, which are fundamental aspects of performance reporting. Councils we consulted would welcome more guidance from OLG on these aspects of reporting.
Our consultation with councils highlighted that many council staff would welcome a set of reporting principles that provide guidance to councils, without being prescriptive. This would allow councils to tailor their approach to the individual characteristics, needs and priorities of their local communities.
Consolidating what councils are required to report to state agencies would reduce the reporting burden and enable councils to better report on performance. Comparative performance indicators are also needed to provide councils and the public with a clear understanding of councils' performance relative to each other.
Recommendations
By mid-2018, OLG should:
- commence work to consolidate the information reported by individual councils to NSW Government agencies as part of their compliance requirements.
- progress work on the development of a Performance Measurement Framework, and associated performance indicators, that can be used by councils and the NSW Government in sector-wide performance reporting.
Streamlining the reporting burden would help councils improve reporting
The NSW Government does not have a central view of all local government reporting, planning and compliance obligations. A 2016 draft IPART ‘Review of reporting and compliance burdens on Local Government’ noted that councils provide a wide range of services under 67 different Acts, administered by 27 different NSW Government agencies. Consolidating and coordinating reporting requirements would assist with better reporting over time and comparative reporting. It would also provide an opportunity for NSW Government agencies to reduce the reporting burden on councils by identifying and removing duplication.
Enabling rural councils to perform tailored surveys of their communities may be more beneficial than a state-wide survey in defining outcome indicators
Some councils use community satisfaction survey data to develop outcome indicators for reporting. The results from these are used by councils to set service delivery targets and report on outcomes. This helps to drive service delivery in line with community expectations. While some regional councils do conduct satisfaction surveys, surveys are mainly used by metropolitan councils which generally have the resources needed to run them.
OLG and the Department of Premier and Cabinet have explored the potential to conduct state-wide resident satisfaction surveys with a view to establishing measures to improve service delivery. This work has drawn from a similar approach adopted in Victoria. Our consultation with stakeholders in Victoria indicated that the state level survey is not sufficiently detailed or specific enough to be used as a tool in setting targets that respond to local circumstances, expectations and priorities. Our analysis of reports and consultation with stakeholders suggest that better use of resident survey data in rural and regional areas may support improvements in performance reporting in these areas. Rural councils may benefit more from tailored surveys of groups of councils with similar challenges, priorities and circumstances than from a standard state-wide survey. These could potentially be achieved through regional cooperation between groups of similar councils or regional groups.
Comparative reporting indicators are needed to enable councils to respond to service delivery priorities of their communities
The Local Government Reform Panel in 2012 identified the need for ‘more consistent data collection and benchmarking to enable councils and the public to gain a clear understanding of how a council is performing relative to their peers’.
OLG commenced work in 2012 to build a new performance measurement Framework for councils which aimed to move away from compliance reporting. This work was also strongly influenced by the approach used in Victoria that requires councils to report on a set of 79 indicators which are reported on the Victorian 'Know your council' website. OLG’s work did not fully progress at the time and several other local government representative bodies have since commenced work to establish performance measurement frameworks. OLG advised us it has recently recommenced its work on this project.
Our consultation identified some desire amongst councils to be able to compare their performance to support improvement in the delivery of services. We also identified a level of frustration that more progress has not been made toward establishment of a set of indicators that councils can use to measure performance and drive improvement in service delivery.
Several councils we spoke with were concerned that the current approaches to comparative reporting did not adequately acknowledge that councils need to tailor their service types, level and mix to the needs of their community. Comparative reporting approaches tend to focus on output measures such as number of applications processed, library loans annually and opening hours for sporting facilities, rather than outcome measures. These approaches risk unjustified and adverse interpretations of performance where councils have made a decision based on community consultation, local priorities and available resources. To mitigate this, it is important to
- adopt a partnership approach to the development of indicators
- ensure indicators measure performance, not just level of activity
- compare performance between councils that are similar in terms of size and location.
It may be more feasible, at least in the short term, for OLG to support small groups of like councils to develop indicators suited to their situation.
Based on our consultations, key lessons from implementing a sector-wide performance indicator framework in Victoria included the benefits of:
- consolidation of the various compliance data currently being reported by councils to provide an initial platform for comparative performance reporting
- adopting a partnership approach to development of common indicators with groups of like councils.
Appendix one - Response from agency
Appendix two - Service delivery categorisation
Appendix three - Reporting targets and performance over time
Appendix four - Performance auditing
Appendix five - About the audit
Parliamentary reference - Report number #296 - released 1 February 2018
Volume Nine 2012 focusing on Education and Communities
In New South Wales in 2011, around 20 per cent of public school teachers were under 35 and less than 10 per cent were under 30. Nothing has changed during 2012. We need to do more to attract and retain young teachers to a profession that is essential for our children and our future prosperity.
Volume Eight 2012 focusing on Transport and Ports
We issued unqualified audit opinions on the transport entities’ 30 June 2012 financial statements.
Some of the findings of the report include:
-
government funding to the public transport operators totalled $4.4 billion in 2011-12 ($3.7 billion in 2010-11)
-
passenger services revenue only covered 20 per cent of RailCorp's operating costs
-
Transport for NSW has formalised a protocol to mitigate the risk of potential conflicts of interests
-
At present, no sustainability framework exists for the transport agencies around environment and sustainability. Transport for NSW should complete its Environment and Sustainability Policy Framework by June 2013 and should publicly report its results annually
-
Transport patronage continued to grow with 510 million journeys on train, bus and ferry services
-
CityRail had two peak hour periods where only 36 per cent and 39 per cent of services were on time
-
On-time running performance for Sydney Ferries was above the NSW 2021 plan target of 98.5 per cent for most routes in 2011-12
-
Customer surveys by transport agencies no longer specifically address crowding on public transport. Transport for NSW should observe and report on crowding on all transport modes
-
Over 2,500 transport staff, or 8.3 per cent of the workforce, have excessive leave balances. All transport entities should do more to reduce excessive annual leave balances to ensure they will comply with new targets set by the Premier.
Volume Six 2012 focusing on Environment, Water and Regional Infrastructure
Last year it was reported that the cost to remediate contaminated sites in New South Wales is largely unknown and that remains the case today. It is noted that this is unlikely to change because parties responsible for contaminated sites can choose not to provide remediation costs, for sites regulated by EPA. The complexity and uniqueness of each contaminated site adds to the difficulty of accurately estimating costs.
