Local Government – current & emerging risk landscape

Councils are continuing to have to do “more with less” which is not a new concept, however, communities are also now expecting Local Councils to have sound governance structures in place, while also remaining to be fluid and agile to meet the demands.

Councils continue to focus on providing essentials services such as waste collection, roads & drainage, planning considerations which results in challenges with respect to financial sustainability, community engagement, infrastructure management. However, themes such as environmental sustainability, technological advancements, and demographic shifts further complicate the landscape, necessitating councils to adopt forward-thinking strategies. This in turn impacts financial sustainability, community engagement and infrastructure management.

However, themes such as environmental sustainability, technological advancements, and demographic shifts further complicate the landscape, necessitating councils to adopt forward-thinking strategies.

Key Risk Themes from 2023

Based on our experience in partnering with numerous regional and metropolitan councils we have seen and experienced the following key risks in 2023:

Skills shortages and long-term vacancies in key roles

The increased competition of the job market has compounded difficulties that local government has consistently faced when attracting and retaining key talent. This has resulted in councils carrying forward unfilled rolls across the long-term, placing increased pressure on teams. The most recent Local Government Workforce Skills and Capability Survey recognised 91 per cent of councils experienced skill shortages in FY22, up 5.5 per cent since the last iteration of the report in 2018.

There is currently a focus to attract talent, however it is also critical for councils to continue focussing on retaining key talent. This may prove increasingly difficult for councils, with the rising cost of living and limited housing availability, placing additional pressure on metropolitan councils in more affluent areas to accommodate more flexible and remote roles to maintain sufficient workforce levels.

Cybersecurity and data security

Cybersecurity risk remains prevalent and an area that requires further uplift in the industry, with the latest NSW Auditor-General’s Report finding that 47 per cent of NSW councils haven’t defined a cyber security strategy or plan. Attacks are becoming more sophisticated, as new ways are being discovered to access personal data. The introduction of Artificial Intelligence (AI) is further expediting hacker’s skills and threats.

Lessons from recent public incidents have raised questions as to why personal data was retained for long periods after it was required and general questions around what data is held. Continued improvement around ring fencing is required, however, it would be valuable for councils to understand what data they are holding, whether they still need it, and how long it should be kept.

Given the constant threats, it’s also important councils have robust incident response plans in place to ensure key stakeholders are aware of the correct procedures to following in the event of an incident.

Asset Management

For many years local councils have experienced growing community expectations, while the revenue base has remained largely stagnant. Coupled with dense and growing populations, councils are faced with financial choices when trying to provide core services, while being asked to deliver new facilities and infrastructure. Councils must also consider the costs associated with maintenance of their current asset portfolio, which was reported at $5.6b in FY22 in NSW alone.

Emerging Risk Themes

While the above risks have been experienced in 2023, we are also seeing many emerging risks:

Environmental, Social and Governance Requirements

Environmental, Social and Governance (ESG) requirements continue to grow momentum and are not only becoming a regulatory requirement, but they are also being demanded by the community. Local governments are going to be at the forefront to support the NSW Government’s target of net-zero emissions by 2050.

Innovation and AI

Councils have always needed to ‘do more, with less’, and to achieve this there needs to be consistent innovation, however this can be difficult as upgrading systems and tools is expensive.

AI is becoming readily available and has the potential to lift organisations, including efficiencies. However, it is important that an awareness of the associated risks with AI is cultivated and taken into consideration. While it is not recommended for councils to be early adopters of AI, it is important that they continually monitor how AI could be utilised across various functions, while not compromising the risk environment.

Preparing for the new year

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, 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.