More than half of NSW’s councils are struggling to renew and maintain their infrastructure, according to the state’s auditor who says financial reporting in local government needs to improve.

Auditor-General Margaret Crawford’s first financial audit of local government has found variable financial performance and reporting, poor use of audit committees and lapses in IT security.

NSW councils own and manage $136 billion worth of assets, including infrastructure, property, plant and equity.

But the audit of 139 councils, released on Friday, found that 84 local governments were not meeting benchmarks for managing their infrastructure maintenance backlog, while 70 were not renewing their assets in line with depreciation.

It also identified that 71 councils were not maintaining their assets in accordance with their asset management plans, and 13 councils did not have the required asset management strategy and policy in place.

Ms Crawford also found $145 million worth of land and infrastructure at 24 councils that were not recorded in asset registers or financial statements.

Financial reporting, performance 

Overall, the auditor found that the quality and timeliness of financial reporting in the local government sector needs to improve.

She identified 43 councils that needed to improve the way they prepare their financial statements.

Ms Crawford issued unqualified audit opinions on the 2016−17 financial statements of 136 councils, and qualified audit opinions for three councils. A further 22 councils required material adjustments to correct errors in previous audited statements, she said.

Her report identified 53 councils that did not have an audit committee and 52 that did not have an internal audit function.

“We found that councils can strengthen governance measures by having audit committees and internal audit functions…”

The audit found 18 councils had operating expenses that exceeded their revenue, and a further 20 councils would have also fallen short had it not been for a financial assistance grant they’d received.

Some 59 local governments failed to meet the state’s target of generating 60 per cent of revenue from their own sources, she found.

Gaps in IT strategy, risk

While local government increasingly relies on IT to deliver services and manage sensitive information, the audit found that one in four councils in NSW is without an IT strategy or operational plan, and half do not have an adequate IT security policy.

“Seventeen councils do not have a documented plan to recover from a disaster,” Ms Crawford noted.

“Councils need to develop a plan and periodically review it,” she said. “They also need to periodically test that they can restore backed-up data to ensure business continuity in the face of a system disaster.”

Audit highlights infrastructure struggle: peak

Local Government NSW said the audit confirmed the financial constraints facing councils, which meant they did not have the revenue to meet community needs, particularly to resolve infrastructure backlogs.

The peak’s president Linda Scott said the key financial constraint on councils is the NSW Government’s practice of rate capping.

“We welcome the Auditor-General’s recommendations that councils be given better guidance from the NSW Office of Local Government and note the report identifies opportunities for improvement by some councils in areas such as the valuation of assets, IT governance and internal controls,” she said.

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