Across New South Wales (NSW) there are 128 local councils, all with the important role of building communities, maintaining infrastructure, and supporting future developments as well as providing a range of social services.
Based on our experience providing services and close engagement with key stakeholders in the sector, below are a few key risk themes from this year and areas of consideration when assessing your operating landscape.
The risks facing local councils can be separated into two broader categories:
- Traditional risks – risks which are well known and councils have been navigating them over the last 12 months.
- Emerging risks – these may be on the agenda for most councils, however, will require greater attention to prepare in the short to medium term.
Traditional Risks
Talent retention and attraction
Local councils employ over 48,000 people in NSW, across a wide range of professions. Many councils are experiencing long periods of high vacancy (over 15 per cent in many instances). This risk is heightened for local councils due to the transferability of skills across employers, creating a transient workforce. All of this is in conjunction with talent seeking greater flexibility, placing considerable upward pressure on wages. It is critical that Councils are looking at new and innovative ways to retain and attract key talent.
Cybersecurity and data governance
Councils may not feel like they are an attractive target for cyber criminals, however, given the broad range of services they typically provide sensitive personal, health and financial information is stored as a result.
As evidenced through recent cyber-attacks, the prevalence and sophistication of cyber risk is constantly increasing. While being the target of an attack is out the control of all organisations, the information that you retain and how it is safeguarded can be controlled and mitigated. Recent events have exemplified the importance of ring fencing key information, with many organisations requiring a greater understanding of the data they hold, and whether it’s still required, with the aim of destroying unnecessary data.
Environmental/natural disasters
Australia has experienced recurring natural disasters over the last four years, ranging from bush fires to floods, all of which are becoming more extreme, less predictable and more common. Councils are being relied upon to respond to these events to restore critical community assets, creating further cost and resource constraints.
Asset Management
The community’s expectation of council assets are continually increasing, while revenue streams to support asset management remain fixed. Coupled with growing, denser populations and an aging asset base, councils are continually required to make difficult financial choices. Persistent weather events (as outlined above) have created additional asset maintenance requirements, further stretching budgets. A strategic and risk-based lens to asset management is critical to ensure funds and resources are directed to provide the most value to the community while also keeping safety top of mind.
Financial Stability
Some councils are struggling financially due to restrictions on the main revenue stream (rates income), poor asset conditions and a heavy reliance on State Government funding. Many councils are experiencing consistent operating deficits with ongoing natural disasters and the COVID-19 pandemic further compounding this issue. Long term financial planning and ongoing monitoring is more important than ever to assist in making strategic decisions and addressing variations to expected financial performance.
Emerging Risks
ESG and Local Councils
Public awareness of Environmental, Social and Governance (ESG) initiatives are more front of mind than ever. Driven by social pressure, industry standards and regulation, communities expect local councils to take the lead in this space and shape a more sustainable future for the community. Many councils have already set ambitious environmental targets and will be required to allocate resources to meet them.
Modern Slavery
As of 1 July 2022, councils are required to take reasonable steps to ensure that goods and services procured by and for the council are not the product of modern slavery within the meaning of the Modern Slavery Act 2018 (NSW). Commencing from the 2022-2023 financial year, each council will be required to undertake more rigorous reporting with respect to suppliers that have been found to have significant issues, as well as the steps taken to ensure procurement was not the product of modern slavery. Deciding the approach, supporting systems, and controls to ensure the process is compliant will be critical over the next financial year.
Increasing cost of materials and contractors
Significant increases in costs of raw materials and contractors will place pressure on councils to deliver large projects and day-to-day services. While weather and access to raw materials/contractors is further exacerbating this issue, councils are risking future community dissatisfaction where promised projects are continually delayed and rolled over into future years.
Moving into 2023
As we approach the end of the calendar year, it is an opportune time to take stock. With ongoing reviews of risk registers and the development of new Internal Audit Plans due shortly, we encourage you to consider the above risks and how they apply to your organisation to ensure that they are incorporated into your risk management activities.
