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Shared services in local government

Local Government
Internal controls and governance
Management and administration
Shared services and collaboration

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. 

Conclusion
Most councils we surveyed are not efficiently and effectively engaging in shared services. This is due to three main factors. 
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.
Second, some governance models used by councils to share services affect the scope, management and effectiveness of their shared service operations. Not all models are subject to the same checks and balances applied to councils, risking transparency and accountability. Councils must comply with legislative obligations under the Local Government Act 1993 (NSW), including principles for their day-to-day operations. When two or more councils decide to share services, they should choose the most suitable governance model in line with these obligations. 
Third, some councils we surveyed and spoke to lack the capability required to establish and manage shared service arrangements. Identifying whether sharing is the best way to deliver council services involves analysing how services are currently being delivered and building a business case. Councils also need to negotiate with partner councils and determine which governance model is fit for purpose. Planning to establish a shared service arrangement involves strong project management. Evaluating the arrangements identifies whether they are delivering to the expected outcomes. All of these tasks need a specialised skill set that councils do not always have in-house. Resources are available to support councils and to build their capability, but not all councils are seeking this out or considering their capability needs before proceeding.  
Some councils are not clearly defining the expected costs and benefits of shared service arrangements. As a result, the benefits from these arrangements cannot be effectively evaluated.
Some councils are entering into shared service arrangements without formally assessing their costs and benefits or investigating alternative service delivery models. Some councils are also not evaluating shared services against baseline data or initial expectations. Councils should base their arrangements on a clear analysis of the costs, benefits and risks involved. They should evaluate performance against clearly defined outcomes.
The decision to share a service involves an assessment of financial and non-financial costs and benefits. Non-financial benefits include being able to deliver additional services, improve service quality, and deliver regional services across councils or levels of government. 
When councils need support to assess and evaluate shared service arrangements, guidance is available through organisations or by peer learning with other councils.
The governance models councils use for shared services can affect their scope and effectiveness. Some councils need to improve their project management practices to better manage issues, risks and reporting. 
Shared services can operate under several possible governance models. Each governance model has different legal or administrative obligations, risks and benefits. Some arrangements can affect the scope and effectiveness of shared services. For example, some models do not allow councils to jointly manage services, requiring one council to take all risks and responsibilities. In addition, some models may reduce transparency and accountability to councils and their communities.
Regardless of these obligations and risks, councils can still improve how they manage their shared services operations by focusing on project management and better oversight. They would benefit from more guidance on shared service governance models to help them ensure the they are fit for purpose.
Recommendation
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

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