Local government financial key performance indicators – not so relevant, reliable and accountable

Abstract

Purpose

Local government in Australia has a complex system of accountability, part of which includes the publication of financial comparative performance measures. The purpose of this paper is to demonstrate how questionable financial figures not only distort the reported “bottom line” of local councils but can also be included in a number of financial key performance indicators (FKPIs) upon which council performance is judged. Valuation and depreciation of transport infrastructure assets form the basis for the evaluation.

Design/methodology/approach

A longitudinal study of all New South Wales (NSW) councils (170) from 1999‐2000 to 2002‐2003 was conducted using archival research combined with in‐depth case study analysis and interviews (New South Wales (NSW) is the largest of Australia's eight states and territories). This paper provides detailed analysis of 28 local government councils classified as being on “financial watch” by the Department of Local Government and a comparative sample of 28 councils not classified as at risk but reporting figures considered to be contestable (At risk, or financially challenged councils, are defined as “having issues of concern with their financial operations”).

Findings

Of the 170 councils in NSW, up to 98 per cent recorded an error in depreciation of some component of transport infrastructure during 1999‐2000 and 2002‐2003. The error margin ranged from 11 to 73,520 per cent significantly impacting on the three targeted FKPIs.

Practical implications

Future research will examine preparation of possible alternative policies for local government addressing the issue of internal benchmarking and external performance measures.

Originality/value

This research offers some reparation for the relative lack of empirical research literature on local government FKPIs and, in particular, those that do not meet the underlying accountability focus of performance measurement.

Citation

Pilcher, R. (2005), "Local government financial key performance indicators – not so relevant, reliable and accountable", International Journal of Productivity and Performance Management, Vol. 54 No. 5/6, pp. 451-467. https://doi.org/10.1108/17410400510604584