MODEL BUDGET TEMPLATE FOR LOCAL GOVERNMENT

The District Council of Streaky Bay initiated a project in late 2006 to improve the quality of its budget reporting.

The Council always had recognised that its budget was a fundamental instrument of accountability and an essential prerequisite to deciding the annual rate impost on its community. However, the Council management was concerned that there was a lack of consistency between the cash based accounting treatments and disclosures in the Council’s budget when compared with the accrual based reporting in the Council’s financial statements. More generally, the benefits of accrual accounting and modern accounting standards were not flowing through to the information systems and management reporting practices of the Council.

The thirteen councils in the LG System Group decided to get behind the Streaky Bay project and committed to creating a shared budget template which would, over time:-

ensure a focus on the level and cost of delivering services to the community rather than focusing on detailed inputs to the process;
support the preparation of the core budget statements in accordance with the LGA’s / FMG’s Model Financial Statements including the Uniform Presentation of Finances document as a consistent high level summary of budgets;
remove use of the outdated ‘Rates Determination Statement’ given that it provided no information about the financial sustainability and inter-generational equity of a council’s budget decisions;
enable elected members to focus on service standards and outputs / outcomes that individual councils were aiming to achieve;
support the preparation and analysis of key indicators of a council’s financial performance and position using indicators developed by the FMG. In turn, develop specific targets or target ranges for each indicator;
highlight whether projected operating revenue is sufficient to meet projected operating expenses, and thus allow elected members to consider inter-generational ratepayer equity when determining expenditure priorities and rating effort.
provide information for the software re-write and chart of accounts construction within the LG System new n-dimensional General Ledger.

In November 2006 the Local Government Association (LGA) advised that its Local Government Research and Development Scheme would provide a grant of $11,000 to support the project. It is worth noting that some councils in the group traditionally had begged, borrowed or stolen a budget reporting format!

The CEO of the LG System Group (Peter Moore) was appointed project manager and a project committee consisting of officers from three councils in the LG Systems Group and a LGA representative was established.

The budget template developed by the committee (with input from all thirteen councils in the LG System group) was informed by some ground breaking work undertaken in the early 2000’s by the Victorian Division of the Institute of Chartered Accountants and some practitioners working in the Local Government sector in that State. Several metropolitan councils in South Australia have prepared their budget reports along those lines in recent years. However, the content of the template developed by the committee is very much simpler and includes several key conceptual differences. These include the treatment of capital outlays and, in particular, the deliberate proposal to keep the funding of activities of a council separate and distinct from how the net impact of those activities will be financed. In addition, the committee drew heavily on the material in the final report of the LGA’s Financial Sustainability Inquiry. As part of the project, a spreadsheet was developed which allows for trial balance data to be summarised so as to automatically populate tables in the template.

Although the budget template is designed for small rural councils (which typically do not have specialist accounting / finance staff), it is suggested that most of the contents of the template may have application in larger metropolitan and provincial city councils.

A number of councils in the LG System group are piloting the template for their 2007-08 budget – in full or in part. However, both the District Council of Streaky Bay and the committee acknowledge that significant additional work on the template needs to occur over the next year or two to improve its functionality. To a large extent, the current template should be regarded as “work in progress”.

The template can be downloaded from the attached link ………. The template also was provided to the LGA for posting on its website and any council is welcome to make use of it.

The financial assistance for the project from the LGA’s Local Government Research and Development Scheme has been greatly appreciated as has the encouragement and professional input from the Office for State/Local Government Relations.