Local Council Financial Management: Assessing the Impact of Policy Change and Proposed Almagamations

By Jones, Greg; Bowrey, Graham et al. | Australasian Journal of Regional Studies, September 2016 | Go to article overview

Local Council Financial Management: Assessing the Impact of Policy Change and Proposed Almagamations


Jones, Greg, Bowrey, Graham, Beattie, Claire, Smark, Ciorstan, Australasian Journal of Regional Studies


1. INTRODUCTION

Policy (and changes to policy) have the capacity to significantly influence the actions of councils. This paper considers the impact that changes in investment policies had on the behaviour of councils prior and subsequent to the GFC. The policies governing the types of products which councils were allowed to invest in have changed over time. From 2000 through to 2007 (the time of the GFC) the policies concerned with the products in which NSW councils were permitted to invest gradually became more relaxed. Accordingly councils were able to choose the level of risk that they were willing to embrace. Following the GFC the policies were tightened and councils were only allowed to invest in capital secured products, primarily within government backed term investments such as term deposits in the big four banks. Behaviour of investment managers within councils varied substantially over that time, primarily due to either their personal preferences, or the internal policies of their respective councils. The state government investment policies established the outer boundaries, yet within individual councils, acceptance of risk by finance managers, or those that determine individual council policies, either added further constraints to investment practices or meant that investments on the edge of state government constraints were pursued. This phenomenon is examined through the lens of Bourdieu's (1977) habitus. We suggest that the differing habitus within councils served to influence each body's level of risk acceptance. Further, it is likely that habitus in some councils also provided differing levels of governance of actions by the finance officers.

This paper also reviews how the current rhetoric by the state government, in respect to the financial management of local councils, has influenced behaviour and actions of those charged with financial management duties. NSW councils have been warned that those councils whose financial performance is assessed as unfit may be faced with forced amalgamation. This assessment has been conducted by the Independent Pricing and Regulatory Tribunal (IPART, 2015). Councils have therefore been incentivised to consider ways that they can improve their financial performance (or at least the perception) and avoid amalgamation. We speculate that accounting has been used to shape the perceptions of the users of financial reports and has also been implicated in influencing the behaviour of officers within local councils.

A primary function of financial reports is to provide decision useful information for the users of the reports (AASB, 1990). This relies on the information in the financial reports being relevant and reliable. If the reports are inaccurate or information is omitted, then the decision usefulness is diminished. This means that those charged with governance who are seeking to make informed decisions will make them without the proper knowledge. Strategic decisions rely on accurate information to develop both short and long term plans. It is important that financial reports are free from error or confusion to properly inform the decision making process.

2. ROLE OF COUNCILS

Local councils in Australia hold a unique position in the Australian political arena. They have no statutory authority or power of their own, yet they are tasked with providing a wide range of services to their communities. Such communities are both metropolitan and regional in nature. While federal and state governments have their authority ensconced within the constitution, with their power to operate and raise funds clearly established, local councils in all Australian state and territory jurisdictions exist and operate solely under the authority of their respective state/territory governments. Local councils are able to operate with some degree of autonomy, yet at the same time their actions are also constrained by limits determined by the state/territory government. …

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