New frameworks for governance in local government

The 2019 Edelman Trust Barometer has shown that amongst the general public, trust in institutions – whether business, media, government or NGOs – is in sharp decline.

  • This is the third in a series of articles on the ‘interconnected council’. The next installment, to be published in April, focuses on IT. Previous articles have looked at optimising asset management and financial reporting. 

The most high profile demonstration of poor governance in recent times is of course the Hayne Royal Commission into banking. However, there have also been other notable cases involving councils. Operation Ricco, in 2017, involved an investigation by the NSW Independent Commission Against Corruption (ICAC) into allegations that the Chief Financial Officer of the City of Botany Bay Council had misused his position for financial gain.

In Victoria, public examinations into allegations of serious corruption involving Victorian vocational education and training and transport sectors were held by the Independent Broad-based Anti-Corruption Commission (IBAC) in Melbourne in 2018.  Both the NSW and Victorian investigations revealed serious breaches.

Every organisation needs effective governance frameworks to thrive and survive. These rules and guidelines determine an organisation’s direction and also provide mechanisms through which people are held to account. They also ensure economic efficiency and growth and enhance stakeholder confidence.

Governance in local government is different to the operation of a company with a board of directors and management team; there is additional complexity and consideration with a council of elected representatives who are the governing body. These individuals enter local government as community representatives with a strong sense of purpose around the issues that matter to their community. However, understanding of good governance can be at varying levels across Councils.

The essential elements to good governance are:

  • Transparency
  • Accountability
  • Stewardship
  • Integrity

There is no single model to good governance and no one-size-fits-all, so it’s important for each council to work out an approach that enables it to effectively govern and monitor operations. In that regard, over-complexity and getting tangled in a red tape minefield should be avoided. It’s also necessary to examine cultural norms established over time that may encourage certain practices and behaviours.

Such frameworks are particularly useful for local government. Local councils across Australia are experiencing rapid change and challenges in their ability to meet the demands of changing customer demographics, whilst maintaining a focus on operating costs.

The Victorian Auditor-General’s Office (VAGO) suggests that good corporate governance is partly achieved by a Three Lines of Defence model, which can equally apply to a local government context:

  • 1st Line of Defence – Operational management and internal controls. These manage the risks and establish mechanisms to demonstrate that controls are working effectively.
  • 2nd Line of Defence – Risk management strategies and compliance practices. Here, first-line control and management of risk practices are monitored, reviewed and tested to ensure effectiveness.
  • 3rd Line of Defence – Internal and external audit. This independently evaluates and reports on the adequacy and effectiveness of both first-line and second-line risk management approaches.

Local governments can adopt this model and also tap into innovative solutions to Third Line of Defence protocols, including the use of sophisticated data and analytics, which councils may well be implementing already as they embark on their digital and ICT transformation process.

They can also enlist the help of Fraud and Corruption expertise and adopt the Compliance Compass, an online self-directed tool that enables organisations to rapidly assess their alignment to international compliance standards and review their compliance maturity against other sectors as well as their own.

These fundamental attributes of transparency, accountability, stewardship and integrity are not only the building blocks of effective, long-lasting local government management, but instil trust and confidence in the citizens Councillors have been elected to serve.

Sarah Cain is a partner with KPMG Enterprise and Toni Jones is partner with KPMG Local Government Leader.

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