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Guide to Councils

Accountability

The Local Government Act makes provision for councils to be called to account for their actions in the following ways:

  • Financial management
  • Audit committees
  • Contracts and tendering
  • Monitoring performance
  • Entrepreneurial activities.

Financial management

Councils manage significant finances on behalf of their communities. They must responsibly manage these finances in order to provide the services and facilities that are needed.

Section 136 of the Local Government Act provides four principles of sound financial management for councils. All councils are required to implement these principles and establish budgeting and reporting frameworks that are consistent with the principles.

The principles of sound financial management require councils to:

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

The financial risks that must be managed prudently include:

  • level of council debt
  • commercial or entrepreneurial activities
  • management and maintenance of assets
  • management of current and future liabilities
  • changes in the structure of rates and charges.

Audit committees

All councils are required to establish audit committees. These are advisory committees that play a key role in assisting councils to fulfill their responsibilities. Their objectives include:

  • enhancing the credibility and objectivity of financial reporting
  • supporting identification and management of financial and other risks
  • ensuring compliance with laws and regulations.

The audit committee will provide advice on financial management and broader aspects of the council’s operations, particularly where compliance issues and risks are involved.

The audit committee is independent of management and acts independently from the council’s finance committee. The audit committee reports to the council and provides advice to help the council make decisions.

The audit committee should include independent members and must be chaired by an independent person. Council Chief Executive Officers and senior managers should not normally be members of the committee, although they may assist the committee by attending meetings and providing administrative support. The chair may also bring matters to council as a right, without requiring agreement by the Chief Executive Officer. This represents a further check and balance for financial probity and provides additional protection for council governance. 

Contracts and tendering

Councils may enter into contracts for goods or services or for the carrying out of works. Section 186 of the Local Government Act requires that a council must give public notice and invite tenders or expressions of interest before it enters into a contract that has a value of more than $150,000 (for purchase of goods or services) or $200,000 (for carrying out of works).

Councils are not required to accept the best tender but must demonstrate best value.

Monitoring performance

Councils regularly review progress in achieving the directions, goals and financial outcomes contained in the council plan and other strategic documents. The results of these reviews can have an important impact on future council decisions.

The Act requires that at least once a year a council must consider whether its four- year council plan requires any adjustment. The public must be consulted about any changes to the council plan.

Regular financial reports form an important part of any monitoring system. The Local Government Act requires that the Chief Executive Officer must ensure that the council is presented with a statement comparing the actual revenue and expenditure for the financial year with the budget at least quarterly. These financial reports are presented at a council meeting and enable a council to make any adjustments it needs to its annual program.

Each council must appoint an internal audit committee to provide ongoing advice about its financial systems and approach, risk management and compliance with relevant legislation. An external auditor also conducts an annual audit of a council’s finances.

The Chief Executive Officer has a vital role in setting up reporting systems to enable the council to monitor its progress and take any action needed to maintain progress towards its agreed outcomes.

Entrepreneurial activities

The Local Government Act gives councils the power to engage in various types of enterprises - for example, becoming a member of a corporation or partnership, or participating in a joint venture with another body.

The Act places certain requirements on councils to ensure the proper management of risks in such cases. Councils must consider a formal risk assessment report from a suitably qualified person before approving any such venture where the total risk exceeds $100,000 or 1% of council's rate revenue.

If the total risk exceeds $500,000 or 5% of rates income, the council must also obtain the approval of the Minister for Local Government, and if it exceeds $5 million, the Treasurer’s approval is also required.