The Victorian Auditor-General John Doyle has tabled the Local Government: Results of the 2013–14 Audits report.
The report presents the outcomes and observations from the 2013–14 financial audits of the 79 local councils, 11 regional library corporations and 13 associated entities in Victoria.
The report noted that 21 local councils reported underlying operating deficits in 2013–14 as opposed to eight in 2012–13.
A key reason for this change was the Commonwealth government’s decision not to pay financial assistance grants in advance.
John Doyle said local councils continue to face the challenges of delivering quality services to their community, maintaining their existing assets and funding future capital works.
“To do this effectively, local councils will need to effectively prioritise spending and determine sustainable rates for services provided within the government’s proposed rate capping policy, effective from 2016–17.”
The report highlighted an increase in financial sustainability risks this year, with five local councils assessed as high risk in 2013–14, compared to two in 2012–13.
Three out of the five local councils with a high financial sustainability risk were in part due to delays in accessing borrowings via the Local Government Funding Vehicle (LGFV).
The Local Government Funding Vehicle was established by the Municipal Association of Victoria (MAV) to provide longer-term debt financing for local councils, and originated as a result of the $406 million shortfall in defined benefit superannuation plans in 2011–12.
A total of $240 million was borrowed by 30 local councils.
John Doyle said that these borrowings require interest only repayments until maturity of the debt in five or seven years.
“This means the total interest paid will be higher than what they would have paid had the principal been gradually reduced over the term of the loan.
“There is also a risk that local councils will not have the funds available to fully repay the loan when the debt matures.”
The MAV responded that this does not reflect the true financial position of those councils, which adopted short-term borrowings while the LGFV was being established, and temporarily increased their current liabilities.
The report also highlights that improvements can be made both to creditor and grant management policies and practices.
In particular, attention is required to strengthen the processes around community grants issued by local councils.
“Disappointingly, 61 percent of our previous year audit findings relating to high and medium risk internal control deficiencies are yet to be rectified,” said Mr Doyle.
“That these control deficiencies should remain un-remedied is a very poor reflection on both the management and governance of these councils.
“Local councils need to accelerate the rate at which they are resolving our audit findings.
“My audit team will again follow up the status of the outstanding internal control deficiencies as part of the 2014–15 audit cycle.”
