Audit finds gaps in councils’ asset systems

Local government must improve their asset management or risk increased management costs or lower service levels, auditor says.

Local government in Victoria needs to develop asset management strategies through consultation with the community that prioritise maintenance and renewal, the state’s Auditor-General says.

In his latest audit of local government finances, released in late December, Andrew Greaves found that 24 councils had $315 million worth of assets not recorded.

This was up from $175 million of “found assets” the year before, he said.

“This recurring issue for the sector needs to be resolved by placing greater emphasis on recording assets when they are acquired, especially those physical assets contributed to councils by developers,” Mr Greaves said.

While the sector’s short-term financial sustainability risk indicators remained strong, local government continues to demonstrate “declining asset renewal and maintenance indicators, highlighting the need to prioritise asset maintenance,” he said.

Collectively Victoria’s councils have $101 billion in infrastructure and assets, according to the latest figures.

His audit concluded that most councils had demonstrated strong financial performance and a sustainable financial position.

But he warned that:

“Longer term, we observe declining asset renewal and maintenance indicators, which can lead to increased asset management costs or lower service levels that would be borne disproportionately by future ratepayers.”

The auditor’s findings echo those of the state’s Local Government Inspectorate, which identified council failures in key areas of asset management in a 2017 report.

Mr Greaves said his review of infrastructure, property, plant and equipment identified that asset management systems were “not complete and accurate” resulting in a significant number of found assets.

“We have previously reported persistent weaknesses in council asset management practices and recommended that councils improve their asset management frameworks and practices, related policies, and plans,” he noted.

“While there is evidence of incremental progress towards better practice over time, this progress has been relatively slow, and weaknesses persist.”

Elsewhere, the auditor found that Victorian residents can expect an average increase of 14 per cent in their annual waste charge due to the additional costs for councils of managing kerbside collection.

Overall, he found the readability of councils’ financial reports had improved, and internal controls to ensure reliable financial reporting were adequate.

“Most councils demonstrated strong financial performance and a sustainable financial position,” the auditor said.

In 2017–18, Victoria’s councils collectively recorded $10.6 billion in revenue, made up of $5.7 billion in rates and $1.7 billion from government grants.

They collectively had an operating expenditure of $8.4 billion, consisting mostly of staff expenses ($3.4 billion), materials and services ($3 billion) and depreciation ($1.5 billion).

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