WHO IS RESPONSIBLE FOR FINANCE?
The council is ultimately accountable for the financial management of the local government. While it should not have a hands-on role in financial management, the council needs to have sufficient information to satisfy itself that the finances are in order and that budgetary and financial planning goals are being met. The difference between the role of the council and the administration is important in this area.
ROLE OF COUNCIL
Councillors, sitting as council, have an overall accountability for the council’s finances.
Under Section 126 of the Local Government Act 1989, the council is required to prepare and periodically review its longer term financial plan, the Strategic Resource Plan (SRP).
Section 127 of the Act also specifies that council should prepare and adopt the annual budget.
The council must insist on regular financial reporting by the administration and ask questions that will provide it with the information it requires to meet its financial accountability responsibilities. The council should not, however, micro-manage the finances.
At the very minimum, a council must receive quarterly financial reports comparing actual and budget revenues and expenses as specified in Section 138 of the Act. More regular financial reports allow any necessary corrective action to be undertaken on a timely basis.
Six months into the financial year, the council should ensure that a rigorous review of the current financial position is carried out. The review should include a reforecasting of the budget based on the known performance over the first six months of the financial year. The report should cover both general operations and capital expenditure on major works and projects.
ROLE OF THE CEO AND CFO
A key accountability of the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) is financial management. While council has the overall accountability, the administration and its key players have critical responsibilities for financial planning and management, and for providing regular reports to council.
ROLE OF AUDIT COMMITTEE
Section 139 of the Local Government Act 1989 states that councils are also required to appoint an audit committee. These committees play a very important role in ensuring that an appropriate governance regime is nurtured and maintained.
Typical duties undertaken by an audit committee will help council to:
- properly discharge its financial management and reporting responsibilities
- develop and maintain adequate risk assessment procedures and management of those risks
- comply with applicable laws and regulations
- manage the various internal and external audit processes
- provide general advice on specific matters which may be referred to them by council
- advise council that the annual financial and performance statements are able to be signed off.
While audit committees have broader responsibilities than just finances, they can assist with the financial governance of the council, both through the committee’s activities and its existence as a source of review and comment.
Most audit committees include external members and individual councillors. In certain circumstances the committee can be used as a sounding board for sensitive issues. Section 139 of the Act requires that the chairperson of an audit committee be a suitably qualified person who is not a Councillor or member of staff. Audit committee chairs have a specific power to require that any report prepared by the committee be tabled at the next Council Meeting.
Local Government Victoria’s publication Audit committees: A guide to good practice for local government looks at this topic in greater depth. To obtain a copy contact Local Government Victoria.
WHAT IS NEEDED FOR GOOD FINANCIAL MANAGEMENT?
In order to fulfil its financial management role, council must ensure that the following staff, systems and functions are in place:
- modern and robust computer-based financial systems
- suitably qualified and experienced staff available to manage the finances
- suitably qualified and appropriately independent internal audit functions and/or audit committee are operating.
Council is ultimately accountable for all of this.