Councils steer clear of ‘perfect storm’

An end-to-end service view is among the approaches local government teams are adopting to ensure financial sustainability, write Ben Smith and Ash McIntosh.

  • This is the third in a series of articles by Ben Smith on the ‘interconnected council.’ The first focused on the challenges facing councils while the second looked at optimising asset management.

In our previous Government News articles we have explained that the challenges highlighted by the recent NSW Auditor General’s report into local councils are in fact endemic across the country, and should not be tackled in isolation as they are interconnected. This article looks at the area of financial performance and sustainability.

Financial performance is simply the ability of a council to run as a healthy business, with sufficient revenue, liquidity, working capital and asset management measures in place.

Sustainability has now made its way into mainstream government consciousness, driven in part by public demand as well as by council employees. In our view, this not only relates to the sustainability of the council as an organisation but also its impact on the environment and energy utilisation.

Councils require accurate and timely financial reporting, supported by a modern finance technology solution in order to understand true financial performance and derive the insights required to optimise service delivery and meet community needs.

The combination of rate capping and the increasing cost of doing business has created a perfect storm for Australian councils. Customer demands are increasing.

As a result, many council expenses exceed revenue over the longer term, creating a reliance on external sources such as grant funding and requiring them to take a fresh look at the way they operate.

Rural and country councils do not have the same access as metropolitan councils to generate revenue in addition to rates, such as car parking, childcare and infringement notices.

As today’s finance functions work hard to provide even deeper value to their councils, they are shifting focus outward to activities that support better decision making and performance.

They must create efficiencies to gather and process basic financial data, and continue to deliver traditional financial outputs – while at the same time redeploying limited resources to strategic activities. It is these that ultimately improve service delivery and customer-centricity.

This involves finance resources working closely with functions across councils to gather and support financial, operation and customer data analysis to generate insights to drive improved financial outcomes.  Leading finance teams within councils across Australia are bringing cross-functional teams together and supporting programs of work to reduce expenditure, including:

  • facilitating an end-to-end service view across the council to enable the ability to accurate cost and measure the performance of key services and inform the best way to deliver these services in the future.
  • technology rationalisation and transitioning to the cloud, reducing application and infrastructure spend;
  • optimising expenditure on asset maintenance to increase useful life, delaying future capital upgrade outlays;
  • refreshing financing and leasing arrangements; and
  • cost optimisation identification across council utilities.

The cumulative effect of these programs of work is positioning such councils to be financially sustainable for the long term.

Here are four key points for local government leaders to consider and discuss:

  1. Review and align the council’s operating model to financial targets and strategic objectives. A back-office review will reveal optimisation opportunities in governance, people and process.
  2. Identify, quantify and prioritise efficiency opportunities across the council, to drive cost reduction and or free up funds for investment.
  3. Can we leverage a neighbouring council’s practices, through knowledge and/or cost sharing?
  4. Do our finance, enterprise performance management and asset management systems provide the council with sufficient insight to optimise our return on investment, financial performance and sustainability? Invest in the latest cloud-based, integrated technology to get the most out of your systems.

The next article in this series will focus on governance and internal controls.

Ben Smith and Ash McIntosh are directors at KPMG Enterprise.

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