We are entering a ‘brave new world’ of heightened accountability for council financial planning with demands for new and improved performance and accountability that were long overdue and are now compulsory, says Larry Mitchell – Principal CPR Consultants.
Standards for financial budgets and plans now include new management techniques such as financial benchmarking and the use of statistically based data analytics.
These modified Long Term Plan (LTP) obligations can, in large part, be attributed to widespread public discontent that arose from huge increases (some over 20 percent) in rates last year and expenditure budgets that have lacked sufficient support and authority for their financial projections. And, let’s be honest, most current council financial LTP processes are currently lacking because the annual iterations of LTP expenditure budgets often are little more than rough estimates based on last year’s dollars plus an inflation allowance.
Orders to implement this new approach have come from on high, no less than directly from the Prime Minister and Local Government Minister at the 2024 Local Government Conference.
The Local Government Minister at the time, Simeon Brown, referred to the Transport Authority, which has already implemented benchmarking, to point out the applicability of benchmarking within councils.
“In transport, we’ve implemented benchmarking for all road-controlling authorities, including NZTA, to ensure value for money,” he said.
“As mayors and councillors, you deserve confidence that every dollar you manage is spent wisely.”
Christopher Luxon added, “Cabinet has agreed to investigate performance benchmarks for local councils, similar to the approach some Australian states apply to their local authorities.
“In theory, the Local Government Act establishes the accountability of local authorities to the communities they serve. But, in reality, it’s difficult to get consistent, easily accessible and comparable information about how councils are actually performing.
“The performance measures we’re looking to introduce are in areas councils should already be monitoring closely, such as financial performance and customer service delivery.”
The implementation of these words coincided with the appointment of the new Local Government Minister, Simon Watts, who was appointed specifically to lead these sweeping sector-wide reforms. Councils are now expected to engage in this comprehensive performance improvement and management regime in time for their 2025 LTPs.
It is understood that these requirements will soon be legislated for because they will affect, as they do, the structure, development and reporting included in the next LTP. In any event, and to meet the usual annual LTP deadline, these new processes involve systems of heightened accountability and financial methodology, so they realistically should be in place during the first half of 2025. This means council staff (particularly IT and financial specialists) responsible for financial planning and management need to get their skates on to meet a very demanding schedule.
Implementing these new obligations will demand the development of specialist financial supporting data analytics coupled with the benchmarking of all financial performance data, concentration on developing an improved process, and accountability of financial performance reporting to satisfy auditors’, management’s and the public’s expectations.
And, of course, we, as financial management service providers, now need to incorporate these new mandated settings into LTP expenditure budget management. One way to achieve a managed outcome for practitioners is to seek assistance from agencies and professionals qualified with specialist IT and other tools to support the development of the new LTP financial processes.
For example, using Council Expenditures as one application of the new settings, this should include
· A defined and understandable fit-for-purpose process covering all 16 standard Council Significant Activities;
· Support from forecast financial data and related analytics (financial ratios, trends, graphs, tables, templates and the like);
· Direct development from the council’s own database of at least five prior years of expenditure covering the whole of the council sector and extrapolated according to observable trends plus;
· Full validation from direct contacts and investigations performed face-to-face with each activity’s line manager, given their more intimate knowledge of their section of council operations;· An estimate of future expenditure that, unlike what we have at present, comes from a process that is completely defensible.
While this example focuses on a Council Expenditure case study, comprehensive coverage is necessary for all council finances, including both the Statements of Performance and Position. LG