MAV 2011-12 Annual Report by Municipal Association of Victoria

MUNICIPAL ASSOCIATION OF VICTORIA ANNUAL REPORT 2011/12

Purpose To promote the efficient carrying out of municipal government throughout the state of Victoria and to watch over and protect the interests, rights and privileges of municipal corporations. Municipal Association Act 1907

THE VOICE OF LOCAL GOVERNMENT

Published by Municipal Association of Victoria Level 12, 60 Collins Street, Melbourne VIC 3000 GPO Box 4326, Melbourne 3001 Telephone: 03 9667 5555, Facsimile: 03 9667 5550 Email: reception@mav.asn.au, Website: www.mav.asn.au This report is produced on a combination of elemental chlorine-free papers, sourced from sustainably managed forests and 100% recycled paper, and printed using vegetable based inks by an environmentally responsible printer. This reflects the Municipal Association of Victoriaâ&#x20AC;&#x2122;s commitment to environmental sustainability. Editor Eliza Nolan Design Frank Design Pty Ltd Photography Portraits: Chris Kapa MAV Events: 2Vue Imagery Other: Michael Prideaux

CONTENTS

YEAR IN REVIEW

PRESIDENT’S REPORT

MAV BOARD

CEO’S REPORT

10 HUMAN SERVICES AND PUBLIC HEALTH 13 FINANCE AND PRODUCTIVITY 14 PROCUREMENT 16 PLANNING 18 ENVIRONMENT 20 EMERGENCY MANAGEMENT 22 TRANSPORT AND INFRASTRUCTURE 24 GOVERNANCE AND PROFESSIONAL DEVELOPMENT 26 WORKFORCE 28 THE MAV TEAM 30 MAV GOVERNANCE 34 CORPORATE 36 MAV REPRESENTATIVES 37 MAV INSURANCE CHAIR’S REPORT 38 MAV INSURANCE COMMITTEE 40 MAV INSURANCE - LIABILITY MUTUAL INSURANCE (LMI) 42 MAV INSURANCE - OTHER 43 LMI MEMBERS 44 COMMERCIAL CRIME MEMBERS 45 FINANCIAL OVERVIEW 46 GUIDE TO THE FINANCIAL REPORT 49 MAV FINANCIALS 77 MAV INSURANCE FINANCIALS

MAV ANNUAL REPORT 2011/12 > 1

VALUABLE COMMITMENT TO HEALTH

Our detailed costing study informed negotiations that secured a $79 million State Budget commitment for maternal and child health services. This included an eight per cent increase in hourly rates to maintain the 50/50 State-local funding ratio. FUNDING A GOOD BEGINNING

Strong advocacy secured a record $76 million commitment of National Partnership funds for kindergarten infrastructure. Flexible transition to universal access national reforms was advanced with the State committing to fund 10.75 and 15 hour services for 2013.

YEAR IN REVIEW

RIDING THE LIBRARY-COASTER

In the two weeks following the State’s public library funding cut, our high profile ‘Save our Libraries’ campaign persuaded the reinstatement of the library funding and simultaneously secured an extra $3.1 million in recurrent funding for 2012, and a long awaited Ministerial review. COUNCILS’ CARBON UNDERSTANDING

Carbon price analysis of 38 municipalities informed governments and communities of the impacts on council operations and costs. Fifty-one councils attended MAV carbon management training to boost the sector’s carbon understanding and capabilities.

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SAFETY REMAINS CENTRAL

MAV procurement of MECC Central software improved emergency response and recovery capabilities for 74 participating councils. $2 million was also secured to establish fire refuges in high-risk locations where no Neighbourhood Safer Place could be identified. ENCOURAGING VICTORIA’S FUTURE LEADERS

The ‘Stand for Council’ campaign provided leadership and guidance to all prospective candidates. Over 80 candidate information sessions were booked, a new website launched and key resources developed to increase council election candidate numbers.

CARING FOR THOSE IN NEED

An Australian-first Prevention Community Model was developed with the State Government to combat the rise of preventable chronic diseases, and the launch of our leadership statement promotes gender equity and the prevention of violence against women. $10.4 million was also secured to support vulnerable people in emergencies. ENVIRONMENTAL WARRIORS

Securing a refocus of the State landfill levy priorities has seen $15 million reinvested back into local organic recycling initiatives to date. $7.9 million committed over three years will also manage roadside weeds and pests, while the Recycled Roads to Zero Waste initiative continues to improve sustainable council practices.

PROCUREMENT BLITZ

Twelve tenders over a broad range of products were conducted with 100 per cent member participation. Superior suppliers have been engaged, processes streamlined and best value for council dollars ensured. EMERGENCY MANAGEMENT BY THE BOOK

The Improving Emergency Management in Local Government program addressed the increased demands facing councils regarding state and municipal emergency situations. A sector-wide position was achieved and officer induction handbook produced.

ROADS TO RENEWAL

Stronger relationships have been built and local government importance recognized through MAV participation in national advocacy on road infrastructure. $40 million State funding was secured to improve country roads and bridges from Melbourne to regional centers, and the federal Roads to Recovery program was extended until 2019. BUILDING THE NETWORK

We worked hard to initiate and build productive relationships with the new Victorian Government, developing a program of regular meetings with key Coalition Ministers to boost our effectiveness, engagement and capacity to inform and influence government policy.

MAV ANNUAL REPORT YEAR IN REVIEW 2011/12 > 3

PRESIDENT’S REPORT During the year we achieved considerable advancement on many of our key priorities. Our focus was threefold: to engage – with members; to build – better relationships; and to deliver – improved outcomes for the sector. Productive member engagement saw new partnerships formed, committees established and networking opportunities expanded. These actions played a strong role in helping to secure some major wins for the sector, most notably in our human services, environment, planning, emergency management and procurement areas. Previously realised benefits from the MAV’s rural forums led to the introduction of successful metro forums. These have facilitated more connected discussion between metropolitan mayors, CEOs and MAV representatives on critical issues facing the sector. The carbon tax, fire services levy, transport and infrastructure, planning and waste management were addressed through productive debate and sharing of knowledge and experiences. We appreciate opportunities to better engage with members in this way and to work more cohesively as a sector. More than 7 000 registrations at 120 events drove record attendance figures this year. Our breadth of workshops, training, conferences and forums provided diverse resources and development opportunities to all members, and boosted sector engagement. Our ground-breaking, tailored and recognised Company Director’s Course, and the MAV-Swinburne graduate diploma, demonstrate the professionalism and highly valuable opportunities developed to build-up the sector.

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We continued to foster productive relationships with the Victorian Government and reinforced the need for improved dealings with local government when policy reforms impact on the sector. Our hopes for stronger State-local partnerships to improve delivery of Government priorities at the local level has amplified, together with our pursuit of a renewed Victorian state-local government agreement to provide councils with more confidence in state policies and decision-making.

...THESE HAVE FACILITATED MORE CONNECTED DISCUSSION BETWEEN METROPOLITAN MAYORS, CEOS AND MAV REPRESENTATIVES ON CRITICAL ISSUES FACING THE SECTOR... Our resolute advocacy successfully and influentially delivered local government’s message and, in the midst of falling State Government revenue, the 2012 Victorian Budget delivered additional funding for core community services provided in partnership with councils. In a significant win for the sector, $79 million was secured in maternal and child health funding to ensure the continuation of an equal funding partnership between State and local government. The State also allocated $76 million for kindergarten infrastructure to support delivery of the national universal access reforms. Reinforcing local government’s broad roles in reducing preventable diseases, we developed the innovative Prevention Community Model with the Victorian Government. In an Australian-first partnership, 14 Victorian councils are working with community health services and 40 communities to deliver local health and disease prevention programs.

Further collaborative efforts also resulted in the Government agreeing to reinvest landfill levies into local resource and waste recovery initiatives. Long-sought by the sector, the redirection of this funding is a win for councils, the community and the environment. Our short but effective library campaign succeeded in reversing the State’s original decision to cut library funding, secured an extra $3 million in recurrent funding and a much overdue Ministerial Advisory Committee review of public libraries. With the campaign heavily influenced by the MAV’s mobilisation of community involvement driven by social media, it was rewarding to see the sector unite to save our libraries. At the national level, slow and steady progress has moved us closer towards constitutional recognition of local government. We are ready and waiting for the Australian Government to provide its formal response to the expert panel report, which supported our preference for financial recognition of local government. The form of the Australian Government’s commitment will greatly influence our approach to a national ‘Yes’ campaign to ensure we have the best chance of achieving recognition in the Australian Constitution.

As this annual report concludes the four-year term of councillors, I would like to acknowledge the commitment and hard work of our sector’s elected representatives, giving up many hours each week to admirably fulfill your civic duties. Finally, my congratulations and thanks to the MAV team, and Rob especially, for their diligent and untiring efforts to advance outcomes that matter for our members. In tough economic times, we have risen to the challenges and achieved many positive and tangible results. We will continue to represent the collective and influential voice of local government responsibly, ethically and passionately. CR BILL MCARTHUR President

Hard work and effective cooperation also secured the extension of vital Roads To Recovery funding until 2019. This win is further evidence of the power of our collective voice. On a more personal note, as an official ambassador for the White Ribbon campaign, I was proud to launch the Promoting Gender Equity: MAV Prevention of Violence Against Women Leadership Statement. The MAV is supporting the admirable work of councils to focus and improve community intolerance of the unacceptable social issues surrounding violence against women.

MAV ANNUAL REPORT PRESIDENT’S REPORT 2011/12 > 5

MAV BOARD CR BILL MCARTHUR

Golden Plains Shire Council PRESIDENT MAV Audit Committee MAV Insurance Committee Councillor 1991 - 1994 (Grenville), 1996 - present Mayor 2004, 2005 Australian Local Government Association Board Victorian Councillor Service Awards, 15 years White Ribbon Ambassador for the Prevention of Violence Against Women

CR GEOFF GOUGH

CR LISA MAHOOD

CR JEFF AMOS

CR DAVID CLARK

Manningham City Council

Wodonga City Council

Wellington Shire Council

Pyrenees Shire Council

DEPUTY PRESIDENT (METROPOLITAN)

DEPUTY PRESIDENT (RURAL) RURAL NORTH EAST REPRESENTATIVE Deputy Chair, Multicultural Committee Councillor 2000 - present Mayor 2002, 2003, 2004, 2005, 2006 Deputy Mayor 2001 Alternate, Australian Local Government Association Board Victorian Councillor Service Awards, Mayor Emeritus

RURAL GIPPSLAND REPRESENTATIVE

RURAL SOUTH CENTRAL REPRESENTATIVE

Environment Committee Deputy Chair, Professional Development Reference Group Deputy Chair, Planning Committee Councillor 2003 - present Mayor 2004, 2010-2011 Deputy Mayor 2005, 2007 Chair, CEO Performance Review Committee Chair, Remuneration Committee Chair, Strategic Land Use Planning Committee Deputy Chair, Place Names Committee Asset Management Strategic Group Access & Inclusion Advisory Group Chair, WGCMA Catchment Ecosystem Advisory Group RoadSafe Gippsland

Deputy Chair, Environment Committee Deputy Chair, Emergency Management Councillor Reference Group Councillor 1992-1994, 1996-2004, 2008 - present Mayor 1999, 2003, 2004, 2010 Pyrenees Shire Audit Committee Western Highway Action Committee Chair, North Central Catchment Management Authority Chair, Victorian Farm Tree and Land Care Association Treasurer, Conservation Volunteers Australia

METROPOLITAN EAST REPRESENTATIVE Chair, Transport and Infrastructure Committee Councillor 1997 - present Mayor 2002, 2007, 2011 Australian Local Government Association Board Councillor Workcover Committee VITS Language Link Victorian Local Government Sustainability Accord

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CR ROD FYFFE

CR KEN GALE

CR GAETANO GRECO

CR GEOFF LAKE

Greater Bendigo City Council

Moyne Shire Council

Darebin City Council

Monash City Council

RURAL NORTH CENTRAL REPRESENTATIVE

RURAL SOUTH WEST REPRESENTATIVE

METROPOLITAN CENTRAL REPRESENTATIVE

METROPOLITAN SOUTH REPRESENTATIVE

MAV Insurance Committee Chair, Environment Committee Chair, Arts and Culture Committee Professional Development Reference Group Councillor 1996 - present Mayor 2004, 2005, 2011 Ministerial Advisory Council on Libraries State Library Public Libraries Advisory Committee Alternate representative, Australian Packaging Covenant Council Victorian Councillor Service Award, 20 Years

Chair, Human Services Committee Councillor 2004 - present Mayor 2008, 2009 Chair, Rural Councils Victoria Timber Towns Victoria White Ribbon Ambassador for the Prevention of Violence Against Women

Chair, Multicultural Committee Deputy Chair, Arts and Culture Committee Councillor 2008 - present Inner North Training Group Board Chair Bundoora Homestead Board APlus Apprentice and Trainee Services Board Italian Consular Advisory Council for Victoria and Tasmania 2009 McArthur Fellowship Award 2004 Multicultural Excellence Award 2001 Centennial Medal

Councillor 2000 - present Mayor 2002, 2003 Trustee Director, Vision Super Lawyer, Minter Ellison Lawyers

CR MARY LALIOS

CR REID MATHER

CR CORAL ROSS

CR JOHN SIPEK

Whittlesea City Council

Buloke Shire Council

Boroondara City Council

Moonee Valley City Council

INTERFACE REPRESENTATIVE

RURAL NORTH WEST REPRESENTATIVE

METROPOLITAN SOUTH EAST REPRESENTATIVE

METROPOLITAN WEST REPRESENTATIVE

MAV Audit Committee Chair, Emergency Management Councillor Reference Group Councillor 2005 - present Mayor 2008-09, 2009-10 Victorian Bicycle Advisory Committee Yarra Plenty Regional Library Board YMCA (Whittlesea) Plenty Valley Community Health Board 2010 Professional of the Year (awarded by Professions Australia)

Councillor 2003 - present Mayor 2005, 2006, 2007, 2008, 2009 Chair, North Western Municipalities Association Country Fire Authority Board Victorian Councillor Service Awards, Mayor Emeritus

Alternate, MAV Audit Committee Chair, Planning Committee Deputy Chair, Human Services Committee Councillor 2002 - present Mayor 2007, 2008 President Australian Local Government Womenâ&#x20AC;&#x2122;s Association (Victorian)

Chair, Professional Development Reference Group Councillor 2005 - present Mayor 2010-2011 Deputy Mayor 2009 Alternate, Australian Local Government Association Board Chairman, Australian Packaging Covenant Council Metropolitan Waste Management Group Board Director, Qantas Superannuation Plan and Audit Committee Director, ISIS Primary Care

MAV ANNUAL REPORT MAV BOARD 2011/12 > 7

CEO’S REPORT While it’s been an eventful year for local government, we have delivered many tangible outcomes and made significant headway in delivering on key and emerging priority issues facing the sector. The Victorian Government’s mid-year Budget Update confirmed that access to funding programs is constricting. To combat this, the MAV worked tirelessly towards stronger relationships with the Victorian and Australian governments, particularly on delivery of the Coalition’s much promised Victorian State-local government agreement. The maturing of these relationships helped to secure funding wins for fire refuges, maternal and child health services, kindergartens, recycling initiatives, weeds and pests, roads, bridges and more. Our critical activity in the emergency management space continued and we contributed to a once-in-a-generation opportunity to reform emergency management policy and the legislative framework guiding it. Our strong advocacy paid off, with local government’s capacity constraints and concerns about expanding roles being thoroughly explored in Mr Comrie’s final report of the Victorian Floods Review.

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Further endeavours have reduced the pressures facing rural and regional council budgets, through retention of State funding for vital capital infrastructure programs and a further 10 emergency management staff for high bushfire risk councils. At a time when many programs were cut or abolished, these wins are significant.

TO COMBAT THIS, THE MAV WORKED TIRELESSLY TOWARDS STRONGER RELATIONSHIPS WITH THE VICTORIAN AND AUSTRALIAN GOVERNMENTS, PARTICULARLY ON DELIVERY OF THE COALITION’S MUCH PROMISED VICTORIAN STATE-LOCAL GOVERNMENT AGREEMENT. This year the MAV also focused on new ways to achieve sector goals. MAV Procurement’s workload took off as councils embraced the opportunities on offer. Twelve successful tenders achieved 100 per cent member participation and our collaborative procurement programs provided some formidable results. Our efforts have increased the efficiency of local government procurement practices, the quality of service providers, and delivered significant cost savings to our members.

Financially the year was satisfactory. MAV Insurance survived well through international losses, with insurer and reinsurer capital back to peak levels and claims numbers stabilising. Our Liability Mutual Insurance put a stronger focus on risk assessment to ensure individual member needs were effectively covered, particularly as we move into what is expected to be a hardening insurance market. We successfully dealt with a number of large sector-wide issues that arose during the year including landfill levies, the carbon price, and funding for public libraries. The ‘Stand for Council’ campaign reached a large population, with a record 83 candidate information sessions booked across the state and social media expanding our contact with hard-toreach audiences.

The MAV has delivered some great outcomes for members this year. I expect the coming 12 months could prove a tough balancing act for many newly elected councils, but we are ready and eager to work with our members and other levels of government. The momentum built throughout this year will hold us in good stead to influence reforms and respond to challenges in the year ahead. The MAV will continue to champion a sustainable future for local government. ROB SPENCE Chief Executive Officer

A frustrating issue this year emerged within the superannuation space, with the largest shortfall being recorded in the Local Authorities Superannuation Fund’s history. This impacted the MAV budget by $670 000. Supporting our members to respond to this challenge, we commenced a vigorous advocacy strategy to minimise the impact of the superannuation call facing councils and began pursuing options to make the scheme more sustainable into the future.

MAV ANNUAL REPORT CEO’S REPORT 2011/12 > 9

HUMAN SERVICES AND PUBLIC HEALTH PUTTING THE ‘FUN’ IN LIBRARY FUNDING

Victorian Budget cuts to recurrent public library funding were reversed following our influential ‘Victorians Love Libraries’ and ‘Save our Libraries’ campaigns. The MAV convened a library summit to identify a sector-wide position and quickly activated a united response. More than 300 news stories, community petitions and an active social media campaign supported our advocacy efforts. Within two weeks, the Victorian Government agreed to increase library funding in the 2012-13 budget by over $3 million per annum and established a long awaited review of public libraries. The MAV’s input to the State’s Ministerial Advisory Council (MAC) review put councils at the centre of negotiations regarding new directions and investment for libraries. We continue to build the case for sustainable public libraries in the second phase of the review. STRIVING FOR HEALTHIER HOME CARE

The Victorian Government continued to value Victoria’s unique Home and Community Care (HACC) model. Quarterly meetings with the Health Minister secured agreement that local government’s role in HACC planning, delivery and funding will be acknowledged in the reviewed HACC Agreement. The need for adequate indexation and joint planning processes between the three levels of government will also be included. In response to Commonwealth health reforms and the establishment of Medicare Locals, the MAV developed and signed a memorandum of understanding with General Practice Victoria (GPV). Our participation on GPV’s Medicare Locals Transition Committee also promoted local government’s health-related roles to new CEOs of Victorian Medicare Locals. PREVENTION IS THE BEST INVESTMENT

Local government’s innovative work to stop the increase in preventable chronic diseases was boosted through an Australianfirst partnership program. The MAV worked with the State Government to design the Prevention Community Model (PCM), and a Statement of Commitment supporting investment in preventative health was signed by the MAV president, Minster for Health and 14 mayors. The PCM is active on 12 sites, led by local government and delivered through community partnerships. We hosted forums to support senior council staff progress negotiations, introduce the initiative, and develop their 2013 Municipal Public Health and Wellbeing Plans.

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FRUITION OF KINDERS CAMPAIGN

Councils’ planning for national kindergarten reforms continued to go from strength to strength as a result of the MAV’s advocacy and support. Ongoing meetings with federal and state ministers detailed the need for increased capital funding and staged implementation of 15 hour kindergarten services. The MAV provided input to the Victorian Government Kindergarten Funding Review and stressed the importance of local government’s key roles as major facility owners, planners and cluster managers in a future Commonwealth-State Government Bilateral Agreement. In response to MAV advocacy $76 million in State capital works grants were secured. The majority of funds were allocated to councils with additional grants to support councils to implement the 15 hour services. Change management strategies developed in the Rural Capacity Building project will also help councils with the transition. More than 250 participants attended our planning sessions and workshops on the national quality reforms, workforce and industrial arrangements, leases and licenses, and kindergarten cluster management. BUTTING OUT OUTDOORS

The MAV distributed over $900 000 to councils through the continuing tobacco education and enforcement program with the Victorian Government. This program supports councils educate establishments and tobacco retailers on, and enforce, State tobacco laws. Following the submission of our state-wide framework for smoking in outdoor public places, the MAV’s advocacy continued to work towards the introduction of new State smoke-free laws for public outdoor areas. FUTURE SECURED FOR NEW FAMILIES

The MAV addressed councils’ concerns about the impact of population growth on maternal and child health (MCH) funding, securing an additional $79 million for the MCH program in the 2012 State Budget. Our comprehensive costing study was critical to achieving an eight per cent increase in MCH hourly rates and maintaining the 50-50 State-local funding commitment. We then worked with councils and the Department of Education and Early Childhood Development to finalise the 2012-2015 Memorandum of Understanding (MoU), signed in June. An increased commitment to respond to the needs of vulnerable children and their families underpins the action plan within the MoU.

FEEDING INTO SAFETY REPORTS

The MAV continued to partner with the Department of Health to implement reforms that will make it easier for businesses to comply with food safety regulation. The MAV facilitated the input of local government data in the inaugural Department of Health food safety report and ensured councils’ role in food safety regulation was effectively promoted. The MAV also managed the development of a single registration system for temporary and mobile food businesses. The system will simplify the registration process and give councils access to performance histories of businesses across the state, helping them streamline inspection regimes. As a member of the Victorian Committee of Food Regulators, the MAV signed a revised Memorandum of Understanding towards enhanced Victorian food regulation systems and cooperation. YOUTHFUL PARTNERSHIPS

Following on from our joint research with the Department of Education and Early Childhood Development (DEECD) on council youth services spending, we further examined local government’s work with vulnerable young people. With DEECD grant funding, the MAV held a two-day conference and met with over 50 councils to ascertain current policies, programs and activities developed to respond to community needs. A comprehensive report will be delivered and used to inform State Government responses and programs targeting vulnerable young people. GENDER EQUITY

The Promoting Gender Equity: MAV Prevention of Violence Against Women Leadership Statement was launched to support and encourage council work on preventing violence against women, and the associated health and social impacts. The Statement formed part of the Local Government Prevention of Violence Against Women (PVAW) project, funded by the Office of Women’s Policy, to acknowledge councils’ vital role in creating safe and healthy communities and their capacity to influence gender equity through local policy and programs. We also convened a statewide PVAW network and Executive Leadership Group to help promote the messages in our Leadership Statement.

MAV ANNUAL REPORT HUMAN SERVICES AND PUBLIC HEALTH 2011/12 > 11

CONVERSATIONS ON CULTURAL DIVERSITY

A multicultural committee was established by the MAV to promote and respond to cultural diversity. Forums for members highlighted the benefits of sport in refugee settlement and social inclusion, as well as local government’s role in migrant settlement and multicultural affairs. MAV support also proved integral to the success of a ‘United Nations Alliance of Civilizations’ forum on inclusive integration convened in Melbourne. Continued advocacy, such as our submission to a multicultural policy parliamentary inquiry, continues to strengthened intergovernmental engagement on settlement planning and coordination issues. The MAV took part and encouraged participation in initiatives such as Harmony Day, A Taste of Harmony and Cultural Diversity Week. WORKING WITH NEW DOG LAWS

The Victorian Government’s unilateral decision to change restricted breed dog laws significantly impacted on councils’ workloads. The MAV convened an officers working group, and a series of meetings with councils to share the lessons learned and develop an assessment checklist. The MAV also obtained and provided councils with legal advice on the restricted breed dog declaration procedure and potential liability. Following advocacy from the MAV, the Minister for Agriculture announced $135 000 in funding support for eight councils that experienced an immediate increased workload as a result of the legislative changes.

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FINANCE AND PRODUCTIVITY CASE FOR RECOGNITION BUILDS

A second High Court ruling lent further weight to the case for constitutional recognition of local government. A decision in the Williams case placed further doubt over the Australian Government’s ability to fund organisations outside its direct constitutional responsibility. Advocacy by the MAV and national counterparts led to the Australian Government establishing an Expert Panel to examine options for constitutional recognition. While we support the preferred Panel option for financial recognition, their referendum recommendation depends upon state and territory government support. Victorian councils agreed in principle to contribute voluntary levies towards a national ‘Yes’ campaign. Our input to the national strategy for a referendum at the 2013 federal election continues while we await the Government’s response to the Expert Panel. FIRE LEVY IN LIMBO

Backed by extensive financial modelling, the MAV conducted vigorous advocacy on implementation options to meet the Bushfires Royal Commission recommendation of a new propertybased fire services levy, transitioning from an insurance-based levy. We strongly emphasised councils’ opposition to collecting this State levy. Our analysis of collection costs provides a solid argument for full cost recovery if local government is required through legislation to be the collection agency. A MAV forum provided further member input to the ongoing sector advocacy on this critical State tax reform. Despite committing to pass legislation in early 2012, no Bill was introduced to Parliament by 30 June. INFORMING SUSTAINABLE FUTURES

Ongoing collection and analysis of sector financial data continued to fortify the case for financial assistance reforms for rural councils facing significant sustainability challenges. Steady improvement in financial strength was recorded for almost all councils, with ongoing assistance from the MAV’s asset management and other continuous improvement programs. Detailed costing studies were undertaken for maternal and child health services, carbon tax impacts, public library funding and home and community care. These studies provided critical input to secure better funding outcomes for the sector in negotiations with governments.

MAV ANNUAL REPORT FINANCE AND PRODUCTIVITY 2011/12 > 13

PROCUREMENT PROCUREMENT POSSIBILITIES REALISED

MAV Procurement continued to support members to achieve better value for money, minimize compliance risks and improve procurement practices. This service was developed after the Local Government Victoria and Ernst and Young Local Government Procurement Strategy identified potential sector-wide savings in excess of $350 million per annum. MAV Procurement seized upon opportunities to deliver 35 collaborative tenders, equating to more than 900 individual tenders. Having sourced the most competent service providers and best value for members, we now manage more than 160 contracted suppliers for councils. COLLABORATION DELIVERS

Twelve tenders this year delivered significant value and efficiency gains to all 78 member councils involved. Collaborative tenders covered a broad scope of materials and deliverables including building and construction equipment, public maintenance vehicles, IT and administration systems, and work wear. Through the National Procurement Network (NPN), MAV Procurement established strong links with other state and territory Local Government Association procurement divisions. This relationship realised some outstanding savings for our members by aggregating council requirements nationally, particularly in the fleet and heavy equipment areas. TENDER OPPORTUNITIES

The 12 successful tenders conducted by MAV Procurement this year were: > Electricity for Contestable Sites, Green Power and Street Lighting > Microsoft Whole of Local Government Software Licensing > Incident Management System (MECC) > Corporate Wardrobe (NPN Contract) > Small Plant and Machinery (NPN Contract) > Road and Bridge Making Equipment (NPN Contract) > Earth Moving and Material Handling Equipment (NPN Contract) > Workwear and Personal Protective Apparel (NPN Contract) > Park and Playground Equipment > IT Policy System > Gas and Buildings and Facilities > Bill Payment Services

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PROCURING A SAFER SYSTEM

MAV Procurement managed the development and roll-out of the MECC Central Incident Management System to 74 councils. This project implemented a common emergency management system providing ongoing improvements to the operation of Municipal Emergency Coordination Centres. Originally funded through a $250 000 grant from the Victorian Natural Disaster Resilience Grant Scheme, additional funding provided by the Department of Human Services will further enhance the system’s functionality during 2012-13.

PARTNERSHIPS LIGHTEN THE BULK CHANGE

Plans are underway to realise cost savings and reduce greenhouse gas emissions by making the change to more energy efficient street lighting. While replacements are available for most street lights, changing to these energy efficient options takes time, large expense and complex negotiations with suppliers, retailers and distributors. A partnership between MAV Procurement and consultants Ironbark Sustainability provided councils with technical and practical advice, and offered bulk purchasing or tendering options to help manage the change process. This project will be ongoing over the next three years.

SAVINGS INFORM TECHNOLOGY

A joint procurement process between MAV Procurement and the Local Government Information Communications Technology Committee (LGICT) sourced a provider to assist councils develop and manage their IT policies. The successful contracting of Kaon Security delivered significant cost savings to all participating councils and provided access to a wide range of IT policies, which councils are adapting to reflect their individual needs. BOOSTING PERFORMANCE AND PRACTICE

Sector-wide procurement capabilities continue to be advanced by MAV Procurement. Working with a consultant, we developed a best practice contract management guide and training program for councils to implement better and more consistent contract management processes. A Doing business with local government guide was produced to educate contractors and encourage potential suppliers to form profitable, long-term partnerships with councils. MAV Procurement implemented innovative procurement systems to deliver a robust and efficient process for suppliers and councils. A Vendor Panel quotation management system ensured a fair and competitive process and increased the usage of preferred suppliers. It also provided unprecedented transparency and governance over the procurement process.

EVENTFUL YEAR

MAV Procurement events helped to inform and develop councils’ understanding on procurement opportunities, policy and projects. These included: Procurement Policy workshop - Revised the Model Procurement Policy initially developed in 2009 and discussed procurement issues faced by councils. MECC Central workshops - Facilitated sessions to assist in the development of councils’ understanding of the MECC Central system through hands-on training and role playing. Evaluation Insight training - Focused on qualitative tender evaluation and covered value for money, quantitative evaluation and determining risk profiles. Fleet Contracts information session - Provided an overview of the contracts and engagement process for councils accessing MAV-NPN fleet contracts. Electricity Tender information session - Informed participants of the procurement process, carbon tax implications and other pricing considerations for the supply of Electricity for Contestable Sites, Green Power and Street Lighting tender. Energy Efficient Street Lighting information session - Provided further detail on the MAV street lighting project, including support services provided through this process, the legislative framework, and opportunities for council collaboration. Contract Management Guidelines forum - Launched the contract management guidelines, discussed training opportunities available, and heard from both the private and public sector on key topics related to contract management.

MAV ANNUAL REPORT PROCUREMENT 2011/12 > 15

PLANNING STEPPING INTO TIME AND COST SAVINGS

Councils in the MAV’s STEP planning process improvement program (STEP Planning) delivered significant improvements to permit assessment. Consistency of timeframes increased and the time required to process straightforward applications reduced by 30 to 50 per cent, also reducing application backlogs. The 2012 annual forum enabled STEP Planning councils to share their improvement ideas with the sector. As participation increased, the MAV reviewed delivery options and went to the market to improve member value. STEP Planning data supported many MAV submissions including two Productivity Commission reviews into performance benchmarking of planning systems and local government as a regulator. PLANNING REFORM NOW

Extensive member consultation informed the MAV’s submission to the Ministerial Advisory Committee on the Planning System. We argued for improved governance, greater accountability and stronger spatial resolution of State policy. The Committee’s report drew heavily on local government and MAV submissions. It focused on achieving a stronger and simpler system that rewards good strategic planning and reduces reliance on the permit process to deal with conflicting policy objectives. The MAV also coordinated local government input into the development of new bushfire planning provisions and supported funding bids to assist with implementation. Contributions were made to the Victoria Planning Provisions in car parking, wind farms and community development. Councils’ direct participation in the long awaited review of developer contributions was supported by the MAV and benefits of that process are expected in the next year.

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BUILDING COOPERATION

The MAV supported councils to undertake their building control functions through our participation on project committees, direct representation and work with the Victorian Municipal Building Surveyors Group (VMBSG). The MAV successfully broadened the Victorian Home Pool and Spa Safety Committee’s strategy to improve pool safety. We contributed to the Destination Excellence group’s pragmatic and cooperative response to the Victorian Auditor General’s audit into building permit compliance. This audit led to a focus on improved information exchange between councils and the Building Commission, a more effective audit program and better documentation. The MAV continues to provide feedback to Local Government Victoria about their Building Site Management project. Work is ongoing to deliver practical resolutions to councils’ concerns and uncertainty about onerous requirements for public place of entertainment occupancy permits.

DREAMING OF BETTER CITIES

The Government’s Housing Growth Requirements project wound up in the first half of the year despite the data and other products not yet being released. However, the MAV published a case study report that showcased metropolitan councils’ innovative housing projects to help other councils facing similar challenges. With local government eager for the commencement of the new metropolitan planning strategy, the MAV held two ‘Melbourne I Dream’ events to stimulate broader community debate. The forums explored the challenges of growth in Melbourne, best practice metropolitan planning, and highlighted the importance of councils in building strong communities. A Metropolitan Planning Strategy Councillor Reference Group was established to develop a cohesive sector view on local government priorities.

OUT IN THE REGIONS

The MAV’s persistence on long standing rural and regional issues helped to achieve better rural council support, fewer restrictions for farming uses in farming zones, and a joint program to address wind farm compliance. Our quarterly rural planning forums advanced the rural policy platform and enabled broader government and private sector engagement. Research was conducted into the effects of settlement patterns on council infrastructure and service provision costs. This work informed regional growth plans, supported councils’ strategic work and provided an evidence base for further sector advocacy. Councils and affected property owners look set to receive real benefits through a streamlined process to fix rural planning schemes where the land use, subdivision and strategic intent don’t match the current zone. Following MAV advocacy, the Department of Planning and Community Development is considering including this process in the implementation of Regional Growth Plans. Through the scoping, funding and coordination of the Port Phillip Bay Coastal Adaptation Pathways project we progressed member concerns on coastal planning.

MAV ANNUAL REPORT PLANNING 2011/12 > 17

ENVIRONMENT MANAGING CARBON PRICING IMPACTS

The financial effects of the carbon price on Victorian councils were analysed, showing a modest impact across the sector. We hosted emissions management and reduction training for 140 representatives from 51 councils, based on the MAV’s updated Victorian local government guide to reducing carbon emissions. Six case study videos were produced highlighting local government’s successful management and reduction of its carbon footprint. Twenty-eight councils and four Waste Management Groups benefited from two technical workshops on landfills and carbon price liability run by the MAV and the Clean Energy Regulator. Members briefs on the carbon price framework, carbon price liability and landfills kept councils informed throughout the transition and introduction of the carbon price. GREEN STREET LIGHTING

The MAV hosted a procurement information workshop and engaged a technical advisor to assist councils upgrade to energy efficient streetlights. Victorian councils were awarded $6.4 million for green street lighting through the Community Energy Efficiency Program following our 2010-11 campaign encouraging the Australian Government to fund energy efficient street lighting. The MAV Public Lighting Customer Innovation Committee is the first of a two-part process reviewing public lighting technology in Victoria. Over 50 technologies, including over 30 LED lights were assessed. Six of these technologies were recommended for councils’ use, with the tender for lights and installation to commence in 2012-13. SHIFTING ROADSIDE WEEDS

Lobbying by the MAV for a fair deal on roadside weed and pest management saw councils awarded $7.9 million over three years in the May 2012 State Budget. However, the funding is intended to be tied to legislative changes that make local government responsible for noxious pests and weeds on local roadsides. The MAV made strong representations in the media and to the Government that any new responsibilities on councils must be directly contingent on State provision of commensurate long-term funding.

18 > MAV ANNUAL REPORT ENVIRONMENT 2011/12

MEETING CLIMATE CHANGE CHALLENGES

The study Supporting Victorian Local Government Manage Climate Risks and Plan for Change enhanced the sector’s understanding of successful climate change adaptation responses, also identifying key needs and barriers. Eleven coastal climate adaptation workshops were run for over 200 council representatives focusing on coastal challenges, areas of risk, planning and building, and health impacts. A comprehensive submission was developed for the Productivity Commission’s inquiry into barriers to climate change adaptation. The Australian Government provided $500 000 to conduct economic assessments of adaptation responses at five sites around Port Phillip Bay. The MAV also helped to improve spatial mapping for coastal councils; this included boating infrastructure, coastal action plan locations, coastal management boundaries and defining a coastal line. GROWTH IN NATIVE VEGETATION

The significant negative financial implications for local government were highlighted in the MAV’s submission to the Australian Government on its proposed reforms to the Environment Protection and Biodiversity Conservation Act 1999. A partnership with the Victorian Government also delivered forums on native vegetation offsetting. A local government working group was established, meeting regularly to facilitate the establishment of council-owned offset schemes. Another fruitful partnership with the State instigated the Two Million Trees program that supports local government tree planting projects.

WASTE-LESS FUTURE

Over 120 people participated in the annual environment policy forum, helping to shape local government’s 20-year vision for waste management. MAV advocacy persuaded the State to refocus its landfill levy reinvestment, with $11 million announced for recycling initiatives and another $3.87 million to assist rural and regional councils meet Environment Protection Agency (EPA) landfill standards. The relationship between EPA Victoria and local government was strengthened by the MAV Environment Committee and our participation on the EPA Business Reference Group. In response to State Council motions, the MAV also made two key submissions to the Packaging Impacts Consultation Regulatory Impact Statement. ROADSIDE BUSHFIRE ASSESSMENT TOOL

In response to the Bushfires Royal Commission, the MAV formed the Local Government Native Vegetation Reference Group with the Victorian Government. The group identified a consistent approach to bushfire mitigation works on roadsides and sought to modify the guidelines. A risk assessment tool was developed and planning exemptions negotiated, ensuring more efficient allocation of council resources and improved community safety outcomes. The MAV engaged with road management agencies to assess and apply the guidelines, and to develop work plans. Continued support is being provided to councils where findings impact on municipal road management.

MAV ANNUAL REPORT ENVIRONMENT 2011/12 > 19

EMERGENCY MANAGEMENT FACING FLOODS

Extensive consultation informed MAV submissions to two major flood reviews conducted by the State Government. The Victorian Floods Review agreed with the MAV view that formal municipal emergency management roles no longer reflect the capacity or reality of modern municipalities and need revising. The MAVâ&#x20AC;&#x2122;s long-held position that the Stateâ&#x20AC;&#x2122;s Natural Disaster Financial Arrangements require review was also supported. In our submission to the State Parliament Environment and Natural Resources Committee (ENRC) Inquiry into Flood Mitigation Infrastructure we recommended a review of the legislation to clarify responsibilities for waterways maintenance, and other essential water management and flood mitigation infrastructure. During the 2011-12 floods, the MAV continued to represent councils on the State Emergency Management Team and provided assistance to flood-affected councils, with resource support as requested. SUCCESSFUL STAFFING IN EMERGENCY MANAGEMENT

Funding was secured to assist councils implement new responsibilities arising from the 2009 Victorian Bushfires Royal Commission. We coordinated the recruitment and induction process for 25 State-funded Emergency Management (Fire) Coordinator positions for high bushfire risk councils, and negotiated flexibility for councils to target assistance where it was needed most. Further lobbying resulted in another 10 positions being funded in May 2012, with a broadened scope from fire to emergency management. The funding for 35 coordinators is now being shared across the 64 councils covered by the Country Fire Authority Act as a direct outcome of MAV advocacy.

20 > MAV ANNUAL REPORT EMERGENCY MANAGEMENT 2011/12

SUPERIOR INCIDENT MANAGEMENT SYSTEMS

MECC Central incident management software was procured by the MAV to provide councils with a better operational and management system for Municipal Emergency Coordination Centres. The software improves task tracking, financial reporting, and resource and record management. It also supports councils to establish emergency relief centres and manage the delivery of recovery services. Seventy four councils have purchased MECC Central, improving council resource-sharing capabilities in an emergency. ROLES REDEFINED

Following valuable member consultation, the MAV produced a position paper on the role of local government in emergency management. The paper was submitted to the State Government for consideration in their reform agenda for emergency management, and served as a key input for defining the sector’s future in this changing environment. To ready ourselves for the next stage of reform we reviewed Australian and international legislation to look for better models, surveyed councils to ascertain the true cost of delivering emergency management services, and researched ways for better performance measurement.

BY THE BOOK

To assist councils’ emergency services delivery, efforts were focused on creating tangible capability-building resources. The Local government emergency management handbook was extensively reviewed and reissued with funding from the Australian Government’s Natural Disaster Resilience Grants Scheme. It provides an overview of councils’ emergency management obligations; guidance on council emergency management planning, structures and roles; and assistance to select and develop the right emergency management personnel. The MAV also established an e-library for council emergency management practitioners, making a wide range of guidelines, templates, proformas and other documents easily accessible.

MAV ANNUAL REPORT EMERGENCY MANAGEMENT 2011/12 > 21

TRANSPORT AND INFRASTRUCTURE POSITIONING TRANSPORT POLICY

The need for a Victorian Transport Plan remains a core theme of our advocacy to Government. We defined the sector’s vision for transport infrastructure investment and policy through the MAV Transport Position Paper (TPP). The TPP identified actions to achieve the vision, and is a strong statement to the Victorian Government discussing major challenges for our transport system. Our TPP calls for the renewal of a partnership between all levels of government, led by the State Government. As a collaborative project with members, the TPP was endorsed as a ‘living document’ by the MAV Board for review annually. ROADS TO FURTHER RECOVERY

The case was successfully put by the MAV and Australian Local Government Association (ALGA) to secure an extension of the national Roads To Recovery (R2R) program from 2014 to 2019. Funding of $350 million annually will be maintained, with Victorian councils to receive $71.2 million in 2012-13. R2R, together with $40 million from the Victorian Government’s Country Roads and Bridges program, helped to fill the gap in council budgets to cover the growing costs to maintain 129 000 kms of local road networks. The Federal Budget included specific R2R commitments for the 2014-15 and 2015-16 financial years, as well as funding over the forward estimates until 2018-19.

22 > MAV ANNUAL REPORT TRANSPORT AND INFRASTRUCTURE 2011/12

ELECTRIC LINE CLEARANCE

Negotiations continued with Energy Safe Victoria (ESV) on the acceptance of a risk-based approach to electric line clearance that balances safety considerations with environmental and amenity values. The model developed for use by councils in low bushfire risk areas has been further refined following its application in two municipalities. Through discussions with ESV and participation on the Electric Line Clearance Consultative Committee, the MAV continued to pursue an empirically and scientifically sound regulatory regime that takes into account the real economic, social and environmental benefits of street trees to communities. COUNT ON COUNCIL SUSTAINABILITY

A joint application from the MAV and Department of Planning and Community Development secured Federal Government funding to undertake the Local Government Reform Fund program. All 79 councils were involved in the Regional Asset Management Planning project and the Financial Sustainability project that the MAV delivered as part of this program. The latter project highlighted the nature and scope of the financial challenges facing local government, identifying an enormous asset renewal backlog. Options arising from the project will help councils to manage their $2.75 billion unfunded liability to maintain council assets over the next 15 years.

IDENTIFYING THE STRATEGIC ROUTE

Significant impacts of heavy freight vehicles on local roads led to a MAV project that created a web-based route assessment tool and guidelines for councils to identify roads suitable for higher productivity freight vehicles use. The Performance Based Standards (PBS) Route Assessment Tool was funded by the Department of Infrastructure and Transport, National Timber Councils Association, Victorian Department of Transport, Port of Melbourne Corporation and VicRoads. The MAV managed the project and tool development. A pilot to be rolled out to specific councils in early 2012-13 is expected to then expand nationally. Our work also continues to prepare councils for the advent of the National Heavy Vehicle Regulator in January 2013. VEHICLES POWERING AHEAD

The MAV established a Local Government Working Group to identify key issues to progress council use of electric vehicles, which are forecast to constitute 10 per cent of new vehicle sales by 2020. On behalf of the sector, we became involved in the State Government Electric Vehicle Trial Planning Group. Challenges and benefits of switching vehicle fleets to electric have been pinpointed, and guidelines created to simplify transition.

MAV ANNUAL REPORT TRANSPORT AND INFRASTRUCTURE 2011/12 > 23

GOVERNANCE AND PROFESSIONAL DEVELOPMENT EFFECTIVE ELECTORAL SERVICES

Following the success of a single electoral services tender in 2008, another tender was conducted for the provision of electoral services for the October 2012 local government elections. The MAV provided a standard suite of documentation including specifications of core and additional electoral services, required tenders, and contract terms and conditions. The 54 participating councils were provided with an evaluation and assisted to finalise the contract with the preferred service provider. PANELS UP, COSTS DOWN

Conduct panels were established in response to 10 requests from Councillor Conduct Panel Registrars. The frequent referral of matters reinforced the need for amendments to the Victorian Civil and Administrative Tribunal (VCAT) Act, which stipulates that a council be responsible for proceedings costs unless VCAT orders otherwise. Continued representations to the Minister on this issue contributed to amendments proposed in the Local Government Legislation Amendment (Miscellaneous) Bill 2012, which lessen councilsâ&#x20AC;&#x2122; cost issues. Ongoing guidance was provided to the sector on issues relating to the councillor conduct panel application processes. COUNCILLORS COVERED

Councillors and CEOs continued to source councillor workcover advice from the independent service provider appointed by the MAV, with additional professional advice provided upon request. The 24/7 injury reporting line has ensured early management of injuries, resulting in good outcomes for councillors and little financial impact on councils. Additional information packs have also been provided to councillors and CEOs on a needs basis.

24 > MAV ANNUAL REPORT GOVERNANCE AND PROFESSIONAL DEVELOPMENT 2011/12

AGREEING ON A SOLID STATE-LOCAL RELATIONSHIP

The current Victorian state-local government agreement remains in place while the Government undertakes the review it promised in the lead up to the 2010 state election. The State’s consultation with local government, was welcomed. However, work continues to ensure the proposed agreement provides an effective overall framework for managing the future relationship between the State and local government, and includes appropriate consultation where State decisions impact local government. The MAV is currently awaiting further consultation with the Minister on this matter. ACCREDIT WHERE CREDIT’S DUE

The MAV developed an accredited training program for councillors, which we’ve aligned with Government Skills Australia’s development of a new Diploma of Local Government. The process has seen national agreement from the other state’s local government associations. Once accreditation from the national training authority is achieved in early 2012-13, the proposal will underpin all future MAV councillor training opportunities. PREPARING CANDIDATES FOR COUNCIL

The ‘Stand for Council’ campaign was launched with an updated website in May 2012 to increase the interest and diversity in nominating for council elections. All members were supplied with campaign kits and the MAV commissioned advertising in regional and rural papers to supplement a media partnership with Leader Newspapers. We booked and commenced a record 83 community and candidate briefing sessions across the state. Sessions for the Ethnic Communities Council of Victoria and Aboriginal Affairs Victoria were also coordinated to broaden opportunities for community participation. The Citizen to councillor guide was updated and 2 000 copies distributed to potential candidates. Social media played a critical role to strengthen and extend the campaign’s reach to younger audiences.

FORGING FURTHER OPPORTUNITIES

The Professional Development Reference Group reviewed current professional development opportunities to ensure ongoing relevance, while partnerships with a variety of providers expanded the traditional development opportunities on offer. The MAV and registered training organisation, BEST Community Development, joined forces to deliver a specific local government accredited training program. The MAV signed memorandums of understanding with Open Universities Australia and the Australian Institute of Company Directors to develop a specialist mayors program. UPDATING DEVELOPMENT

The MAV Councillor Competency Framework was reviewed and updated by the Professional Development Reference Group to guide all future professional development opportunities. The framework also provided a platform for discussion and negotiation regarding accreditation of a nationally recognised councillor training package. A councillor survey to better understand the drivers and challenges facing elected representatives informed content for the MAV’s community and candidate information sessions. The survey findings were published in a series of exclusive Leader Newspaper stories supporting the Stand for Council campaign, focusing on hard to reach groups. A FUTURE DEFINED

The MAV’s innovative Future of Local Government (FOLG) program was formed in 2005 in response to an identified need for the sector to lead the strategic change process rather than react to decisions made by other levels of government. The 2012 FOLG summit focused on identifying new solutions to issues emerging in local government and agreed on future actions to deliver a cooperative sector strategic plan by 2013-14.

MAV ANNUAL REPORT GOVERNANCE AND PROFESSIONAL DEVELOPMENT 2011/12 > 25

WORKFORCE DEFINED BENEFIT EXEMPTION

Unlike other public sector schemes, since 1997 councils have been required to fully fund the Defined Benefit Plan (DBP) of the Local Authorities Superannuation Fund. This resulted in several significant shortfalls that required funding from employers and has led to increasing sector concern about future shortfalls. An actuarial review conducted as of 31 December 2011 and finalised in June 2012 found the largest shortfall in the fund’s history. This was primarily due to deteriorating global market investment performance, changed actuarial standards, and a reduction in the expected earning rate. The MAV briefed the Commonwealth and Victorian governments on the shortfall and consulted the Australian Prudential Regulation Authority, with the objective of raising awareness of the shortfall and its unsustainable effect on communities. We are pursuing options to remove future uncertainty for councils, including the return to an exempt public sector fund; allowing exemptions from contributions tax and WorkCover premiums; and mechanisms to reduce the cost of borrowing to help councils repay the shortfall due in 2013. BENCHMARKING HUMAN RESOURCES

Forty five councils participated in the MAV’s third annual benchmarking survey. This valuable management tool assists councils to make comparative assessments with like councils, identify human resources issues and develop relevant responses. The MAV analysed data from 2009-2011 and reported on trends in workforce retention, age groups and work safety, helping to inform councils’ workforce strategies.

26 > MAV ANNUAL REPORT WORKFORCE 2011/12

SECURING SKILLED STAFF

Australia faces a decreasing supply and increasing demand for skilled labour, local government must identify ways to attract and retain a skilled workforce. The MAV partnered with the Australian Centre of Excellence for Local Government and other key stakeholders to develop the 2012-2020 National Local Government Workforce Strategy. National minimum data sets for local government will also be established and relevant data analysed on a state and national level. The strategy is expected to be finalised during the second half of 2012 to help boost and diversify the council workforce.

TRENDY RETIREMENT

Research by the MAV found that local government in Victoria has an aged workforce and faces substantial risks in the future as many staff move into retirement age. About 40 per cent of councils’ current employees will be older than the Australian-wide average retirement age within a decade. However, with more employees transitioning to retirement through part-time work, it provides an opportunity for councils to secure the service of experienced workers and reduce the risk of workforce shortages. Workforce trends analysis informed our advocacy to other levels of government about policies that result in expansion of sector responsibilities.

IMPROVING ABORIGINAL EMPLOYMENT PROSPECTS

A council network was established through the MAV’s Aboriginal Employment Project. A report on improved employment outcomes for Aboriginal people and a local government job scan were undertaken to assist councils’ employment of Aboriginal people. Activity and analysis concentrated on balancing the demand of councils’ workforce requirements and supply of potential Aboriginal candidates. The MAV also acted as a Local Government Broker in the Victorian Government’s Aboriginal Employment Broker Network.

STAFF CODE OF CONDUCT

Under the Local Government Act 1989 each council must have a code of conduct for council staff. The MAV and Department of Planning and Community Development partnered to produce guidance material for councils in developing their own staff codes. A framework for the development and review of council staff codes was developed to assist CEOs to review and update their current staff code, and meet individual and legislated requirements.

MAV ANNUAL REPORT WORKFORCE 2011/12 > 27

THE MAV TEAM Rob Spence 1 Chief Executive Officer

Alison Lyon Deputy Chief Executive Officer

Alison Standish 2 Manager, HR & Corporate Services

MAV STAFF Zara Ahmed 36 Corporate Services Officer Kate Bebbington 29 Corporate Services Officer

Owen Harvey-Beavis 3 Manager, Research & Strategy

Francesca Bennett 13 Public Relations Officer Lloyd Brady Swift Systems James Cleaver 18 Policy Adviser Claire Dunn 42 Policy Adviser

5 Ben Morris 4 Manager, Environment

Jaclyn Felton 44 Legal and Governance Support Officer Hannah Fitzgerald 49 Executive Assistant Max Fonovic 28 Marketing Manager, MAV Procurement

Liz Johnstone 5 Manager, Planning

Michael Green 51 Electronic Records Officer Rosemary Hancock 52 Policy Adviser Trevor Koops Senior Economist

Emma Fitzclarence 6 Manager, Emergency Management

Clare Hargreaves 7 Manager, Social Policy

Gavin Mahoney 21 Senior Projects Officer Janet Metcalf 50 Online Communications Coordinator Eliza Nolan 27 Corporate Services Officer Candice Ong 20 Finance Officer Chestine Ong 37 Procurement Officer Andrew Rowe 14 Councillor Development Officer Paul Rozario 26 Governance and Legislation Adviser

Geoff Pawsey 8 Manager, Workforce & Risk Management

David Shields 19 Contracts Manager, MAV Procurement Debbie Smith 11 Senior Communications Adviser Simone Stuckey 35 Policy Adviser

9 Cameron Spence 9 Manager, MAV Procurement

Julie-Ann Undrill 43 Manager, Events and Sponsorship Steve Vasilevski 12 IT Coordinator Jay Westfold 34 Event Coordinator

28 > MAV ANNUAL REPORT THE MAV TEAM 2011/12

GRANT FUNDED ROLES Wendy Allan 31 Early Years Adviser

Naree Atkinson 30 Policy Adviser Jan Barrett 39 Early Years Consultant Lisa Bennetto 22 Executive Officer, Local Government Information Communications Technology

Adrian Birch 24 Quality and Performance Analyst Jan Black 47 Policy Adviser Jan Bruce 16 Positive Ageing Policy Adviser Bernie Cotter 48 Executive Officer, Association of Bayside Municipalities

Michelle Croughan 46 Planning Project Officer Sophie Gale Project Coordinator, Prevention of Violence Against Women Ros Handley 17 Project Coordinator Gareth Hately 33 Rural Planning Policy Officer

Elizabeth Jackson 40 Executive Officer, Public Libraries Victoria Network Claudia Laidlaw Project Officer Maxine Morrison 23 Program Adviser, Rural Councils Victoria Kellie Nagle 32 Policy Adviser

Con Pagonis 38 Multicultural Policy Adviser Kevin Peachey 15 Coordinator, Timber Towns Victoria and National Timber Councils Association Russell Rees 10 Risk Adviser

Helen Rowe 45 Maternal and Child Health Policy Adviser Clare Smith 41 Policy Adviser Derryn Wilson 25 Home and Community Care Adviser

MAV ANNUAL REPORT THE MAV TEAM 2011/12 > 29

MAV GOVERNANCE MUNICIPAL ASSOCIATION ACT 1907

The Municipal Association Act 1907 defines the purpose of the MAV ‘to promote the efficient carrying out of municipal government throughout the state of Victoria and watch over and protect the interests, rights and privileges of municipal corporations’. It establishes the MAV as a corporation with perpetual succession and requires it to provide a mutual liability insurance scheme for local government and empowers it to provide fidelity (crime) insurance.

BOARD MEETING ATTENDANCE 2011/12

JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN

Bill McArthur Jeff Amos David Clark Rod Fyffe Ken Gale Geoff Gough Gaetano Greco

MAV RULES

Geoff Lake

The Act requires the MAV to set rules for:

Mary Lalios

> the management of the Association

Lisa Mahood

> the regulation of proceedings

Reid Mather

> fixing the annual subscription paid by each municipality

Coral Ross

> fixing of contributions to the Municipal Officers’ Fidelity Guarantee Fund (crime fund)

John Sipek

> other matters affecting the management of the Association. STATE COUNCIL

The Act provides that each member council may appoint a councillor as its representative, and these representatives constitute the Association. The representatives come together twice a year to form State Council, which sets the policy direction of the Association and monitors its performance. The State Council Annual General Meeting was held in October 2011 and received a report from the President on the activities and financial affairs of the Association and voted on 49 motions from member councils. In May 2012 the State Council met and approved the Strategic Work Plan for the MAV for 2012-13 and considered a further 63 motions from member councils. For a list of MAV representatives at 30 June 2012 see page 36. BOARD

Thirteen board members are elected for a two-year term. Twelve board members are elected to represent a geographic grouping of councils. The representatives in each grouping elect their regional board member. The thirteenth member of the board is the President who is popularly elected by the representatives of each member council. The Rules prescribe the functions of the Board which include ensuring the directions set by State Council are met, setting the budget and overseeing the manner by which the MAV engages with its membership. The term of the current board commenced in March 2011 and will end in March 2013.

a a a a a a - a a a a a a a a a a a - a a a a a a a a a a a - a a a a X a a X a a a - a a a a a a a a X a X - a a X a a a a a a a a - a X a X a a a X a a a - X a a a X a a a a a a - a a a a a X X X a a a - a a X a a a a a a a X - a a a a a a a a a a X - a X a a a a a a a a a - a a a X a X a X a a a - a a X a a

** No meeting held in January 2012

BOARD ALLOWANCES AND EXPENSES

The Board allowance and expense policy makes provision for board members to receive an annual allowance paid quarterly in advance. Board members are provided with a data allowance for accessing business papers via iPads and can claim out-of-pocket expenses for travel, parking, accommodation and meals when undertaking duties as a board member. Expenses also reflect costs associated with representations on the Australian Local Government Association Board, Ministerial Advisory Council on Public Libraries, State Library Advisory Committee on Public Libraries and the Australian Packaging Covenant Council. The policy also allows for board members to attend MAV events including the Annual Conference, Councillor Development Weekend, Asset Management Conference and Future of Local Government Summit.

ANNUAL DATA ALLOWANCE ALLOWANCES EXPENSES

Jeff Amos

8,044.20

360.00

Rod Fyffe

8,044.20

Ken Gale

8,044.20

TOTAL

6,077.25

14,481.45

360.00

6,202.50

14,606.70

360.00

10,742.99

19,147.19

Gaetano Greco 8,044.20

360.00

359.46

8,763.66

Geoff Lake

8,044.20

360.00

704.57

9,108.77

Mary Lalios

8,044.20

360.00

1,317.18

9,721.38

Reid Mather

8,044.20

360.00

9,898.57

18,302.77

David Clark

8,044.20

360.00

3,548.38

11,952.58

John Sipek

8,044.20

360.00

3,005.15

11,409.35

Coral Ross

8,044.20

360.00

490.75

8,894.95

Geoff Gough

11,814.20

360.00

2,925.18

15,099.38

Lisa Mahood

11,814.20

360.00

5,286.59

17,460.79

Bill McArthur

57,312.00

360.00

16,303.51

73,975.51

* President Cr Bill McArthur was also provided with full private use of a motor vehicle at a cost of $26,377.66 30 > MAV ANNUAL REPORT MAV GOVERNANCE 2011/12

The amounts listed do not correlate to the allowance and expense payment figures in the financial statements as they include some payments made to board members for expenses incurred in 2010-11 and claimed in 2011-12. Some expenses are also charged to other areas in the MAV accounts. Payments for expenses were made directly to board members, to their council for travel where they have utilised a council fleet vehicle, or directly to the hotel for some accommodation expenses. It should be noted that board members may lodge claims after 30 June 2012 for expenses incurred in the 2011-12 year, details of which will be reflected in the 2012-13 Annual Report. COMPLIANCE

In addition to the requirements of the Municipal Association Act 1907 and MAV Rules, the MAV must comply with relevant regulations and obligations applicable to statutory and public bodies. The MAV is also required to comply with the provisions of its Australian Financial Services Licence (AFSL). The MAV has established a significant compliance and governance structure to ensure it meets its obligations under the AFSL. This structure includes a compliance and risk management strategy; compliance and risk management plan; compliance and risk analysis table; and disaster recovery and business continuity plan. An electronic risk management and compliance system operates within MAV Insurance to ensure compliance with its AFSL obligations. Compliance with this system is audited annually by the MAVâ&#x20AC;&#x2122;s independent, external auditor and findings are reported to both the MAV Insurance Committee and the MAV Board. AUDIT COMMITTEE

The Audit Committee is an independent committee established at the direction of the MAV Board in 2004. The Committee operates under a charter approved by the Board, which was reviewed and updated this year. Its primary objective is to assist MAV management in maintaining good governance, compliant financial reporting, management of risk, maintaining a reliable system of internal controls and monitoring organisational performance. The Committee meets quarterly and additional meetings are convened as required. The Committee comprises three independent members and two board members. Terry Makings AM FIEAust was appointed independent chair from February 2010 to September 2012. Michael Ulbrick was appointed as an independent member in October 2010 to September 2013. The third independent member is Michelle Dowsett, appointed May 2012. The Board was represented by the MAV President, Cr Bill McArthur and Cr Mary Lalios. Cr Coral Ross is the alternate for both the President and Cr Lalios. In addition to monitoring the financial and risk management performance of the MAV and reviewing the annual work program of the internal and the external auditors, in 2011-12 the MAV Audit Committee received reports on the Disaster Recovery and Business

Continuity Plan, the IT Event Credit Card Payments Security Audit, the Event Management Audit and MAV insurance capital requirements. It also reviewed the performance of the MAVâ&#x20AC;&#x2122;s external auditor. Independent committee members receive a sitting fee for each meeting attended. In 2011/12 the sitting fees were: > Chair: $891.15 (2011 calendar year) and $918.00 (2012) > Independent committee members: $594.10 (2011) and $612.00 (2012). MAV BOARD ADVISORY COMMITTEES

Seven advisory groups have been established since 2009 to provide strategic advice to the MAV Board. Committees and reference groups were resolved in July 2011. A board member chaired each group and provided a conduit for feedback between the group and the Board. The MAV Board has established a number of advisory committees to provide advice in the following areas: MAV HUMAN SERVICES COMMITTEE

To inform and progress strategic human services issues impacting on local government as prioritised by the MAV Strategic Plan. The committee also facilitates consultation with regional groupings of councils on current state-wide issues. MAV PLANNING COMMITTEE

Provides advice to the MAV Board on strategic and statutory planning issues affecting local government, and guides MAV policy and position development on planning related issues. MAV ENVIRONMENT COMMITTEE

To inform and help progress MAV work on environment priorities identified by the sector in the MAV Strategic Plan, State Council resolutions and as nominated by the Board. MAV TRANSPORT AND INFRASTRUCTURE COMMITTEE

To inform and help progress MAV work on the transport and infrastructure priorities identified by the sector in the MAV Strategic Plan, State Council resolutions and as nominated by the Board. MAV ARTS AND CULTURE COMMITTEE

To inform and progress arts and cultural policy issues impacting on local government as prioritised by the MAV Strategic Plan. MAV MULTICULTURAL COMMITTEE

To inform and progress multicultural policy issues impacting on local government as prioritised by the MAV Strategic Plan. MAV EMERGENCY MANAGEMENT COUNCILLOR REFERENCE GROUP

Provides advice to the MAV Board on emergency management policy issues, including the role and function of local government in emergency management. The group is also the councillor reference group for the Improving Emergency Management in Local Government program.

MAV ANNUAL REPORT MAV GOVERNANCE 2011/12 > 31

OTHER MAV COMMITTEES

The MAV has also established and supported several other committees across major policy areas and projects, including: MAV PROFESSIONAL DEVELOPMENT REFERENCE GROUP

Provides advice on the MAV’s professional development program for councillors, identifies ongoing areas of need within the sector to be addressed, and encourages participation of colleagues in the MAV professional development program. MAV INFORMATION AND COMMUNICATION TECHNOLOGY COMMITTEE

Plans, co-ordinates and supports information and communication technology initiatives that deliver better council services and reduce costs. MAV LOCAL GOVERNMENT ALCOHOL AND OTHER DRUGS ISSUES FORUM

Brings councils and other relevant stakeholders together to build the capacity of the local government sector to manage, prevent and reduce harms associated with alcohol and other drug use.

MAV EARLY YEARS ADVISORY GROUP

Guides the MAV on issues relating to early years policy, service provision and planning. MAV HACC AND AGEING ADVISORY GROUP

Guides the MAV on issues relating to governments’ ageing policies, Home and Community Care and related aged programs, and positive ageing issues. MAV SWIFT CONSORTIUM MANAGEMENT GROUP

Manages the ongoing implementation of the contract for supply and operation of a shared library management system for public libraries. MAV ELECTRIC LINE CLEARANCE REFERENCE GROUP

Provides input into the development of a risk management model that would allow councils to deliver safety outcomes and preserve streetscape amenity in urban areas. MAV-DEPARTMENT OF PLANNING AND COMMUNITY DEVELOPMENT WINDFARM JOINT WORKING GROUP

MAV COUNCIL ALLIANCE FOR SUSTAINABLE BUILT ENVIRONMENTS (CASBE)

Engages councils to improve the assessment, compliance and public confidence in wind farm development.

Supports and guides councils to advance assessment of sustainable design in the planning permit assessment process.

MAV-DEPARTMENT OF SUSTAINABILITY AND ENVIRONMENT LOCAL GOVERNMENT NATIVE VEGETATION REFERENCE GROUP

MAV DISABILITY INCLUSION STRATEGY GROUP

Guides the MAV on issues relating to disability access and inclusion policies and programs. MAV COAG WORKING PARTY (HUMAN SERVICES)

Advises MAV advocacy into Council Of Australian Governments policy directions, and monitors progress of agreements being developed with the Victorian Government. MAV-DEPARTMENT OF HEALTH FOOD SAFETY COORDINATION PROJECT STEERING COMMITTEE

Facilitates collaboration between State and local government regarding food regulations in Victoria.

32 > MAV ANNUAL REPORT MAV GOVERNANCE 2011/12

Provides advice on native vegetation management, principally on private land and roadsides which impact on local government. LOCAL GOVERNMENT NATIVE VEGETATION WORKING GROUP

Facilitates discussion between State and local government on native vegetation management issues and the development of over-the-counter native vegetation offset schemes. MAV PUBLIC LIGHTING CUSTOMER INNOVATION COMMITTEE

Reviews public lighting technology to reduce costs and reduce greenhouse emissions.

MAV IMPROVING EMERGENCY MANAGEMENT IN LOCAL GOVERNMENT PROGRAM STEERING COMMITTEE

Oversees projects to define the role of local government in emergency management, improve capability and capacity of performance and develop robust performance measures. MAV COUNCILLOR WORKCOVER COMMITTEE

Provides guidance on issues about councillor workers compensation. MAV-DEPARTMENT OF HEALTH TOBACCO ADVISORY COMMITTEE

Advises the MAV and Department of Health on funding arrangements between State and local government for tobacco enforcement and education measures. MAV PREVENTING VIOLENCE AGAINST WOMEN LEADERSHIP GROUP

Provides advice on progressing the MAV leadership agenda on preventing violence against women, and building capacity with councils at a strategic level. MECC CENTRAL JOINT MANAGEMENT PANEL

Oversees the relationship between the MAV, participant councils and Datalink to identify and create opportunities for continuous improvement and innovation. MAV RURAL LAND USE PLANNING FORUM

Provides a quarterly forum for councillors and planners to discuss and address priority rural land use planning issues.

EXTERNAL COMMITTEES

As the peak body for local government, the MAV represents or nominates representatives for the sector on a range of external committees and other bodies. In 2011/12, these included: Animal Welfare Advisory Committee

Heart Foundation (Vic) and Quit Victoria Smoke-Free Policies Advisory Group

Transport Accident Commission – Community Road Safety Grants Reference Panel

Independent Panel of Experts to Assess Authority to Control Wildlife Applications

Two Million Trees Project Partners Group

Local Coastal Hazard Assessments Project Control Group Melbourne Bushfire Protection Program Project Control Group

UN Global Compact Cities Programme Advisory Council VicHealth Alcohol Strategy Advisory Group VicRoads – Speed Limit Advisory Group

Metropolitan Local Government Waste Forum

VicRoads – Victorian Community Road Safety Alliance

Metropolitan Transport Forum

Victorian Childcare Industry Liaison Group

Ministerial Advisory Council on Public Libraries

Victorian Children’s Council

Building Regulation Advisory Committee

Ministerial Utilities Infrastructure Reference Panel

Bushfire Land Acquisition Panel

Mosquito Borne Virus Taskforce

Victorian Climate Change Coastal Hazard Guidelines

Climate Change and the Emergency Management Sector: Building Research Capacity Steering Group

Municipal Emergency Management Enhancement Group

Victorian Coastal Strategy Implementation Coordination Committee

Australian Packaging Covenant Council

Victorian Committee of Food Regulators

Community Emergency Risk Management Review and Redevelopment Committee

National Waste Policy – Data Working Group

Victorian Feedlot Committee

National Television and Computer Product Stewardship Scheme Stakeholder Reference Group

Victorian Home Pool and Spa Safety Committee

Office for Children Early Childhood Development Advisory Group

Victorian Primary and Community Health Network

Planning Fees Review Technical Reference Group

Project Steering Group Victorian Community Road Safety Alliance

ANZAC Commemorative Naming Program Committee Association of Regional Waste Management Groups (observer status)

Community Recovery Fund Community Road Safety Reference Group Country Fire Authority Board Development Assessment Forum Department of Education and Early Childhood Development Roundtable Department of Human Services Aids and Equipment External Advisory Committee Department of Planning and Community Development Procurement Technical Advisory Group Department of Planning and Community Development Sustainable Procurement Working Group Department of Transport Maintaining Mobility Steering Group Destination Excellence Building Industry Group Developer Contributions Review Project Domestic Animal Management Implementation Committee

Powerline Bushfire Safety Taskforce Stakeholder Reference Group Project Board Evaluating Trials of Community Warning Sirens Railway Crossing Project Delivery Committee Railway Crossing Technical Group Committee Road Freight Advisory Council Sex Work Ministerial Advisory Committee State Emergency Mitigation Committee

Victorian Medicare Locals Transition Advisory Committee

Victoria Emergency Management Council Victorian Feedlot Committee Victorian Food Safety Council (observer status) Victorian Freight and Logistics Council Victorian Government Fire and Emergency Communications Committee Victorian Prevention and Population Health Advisory Board

State Emergency Relief and Recovery Planning Committee

Victorian Litter Action Alliance

State Emergency Relief Sub-committee

Victorian Myrtle Rust Coordination Committee

State Emergency Response Planning Committee

Victorian Sex Industry Strategic Management Group

State Emergency Management Team State Fire Management Planning Committee

Victorian Local Sustainability Accord Committee

State Flood Policy Committee

Victorian Strategy for Healthy Rivers Estuaries and Wetlands Stakeholder Reference Group

Essential Service Commission Customer Consultative Committee

State Social, Health and Community Recovery Planning Sub-committee

Victorian Railway Crossing Safety Steering Committee

Fire Safety in Public Buildings Committee

State Library Advisory Committee on Public Libraries

Electric Line Clearance Consultative Committee

Domestic Wastewater Review Steering Committee

Flood Warning Consultative Committee Victoria Forests and Timber Biosecurity Working Group Green Light Plan Reference Group

State Natural and Built Environment Recovery Planning Committee

Infringements Standing Advisory Committee

Regional Growth Plans State-wide Program Control Group

HACC Departmental Advisory Committee (Victorian Department of Health)

Swift Consortium Management Committee

Women’s Participation in Local Government Coalition Worksafe Stakeholder Reference Group

MAV ANNUAL REPORT MAV GOVERNANCE 2011/12 > 33

CORPORATE HUMAN RESOURCES

The MAV retained a mix of staff and consultants to advocate the interests of members, raise the sector’s profile, provide advice and capacity building programs to support local government activities, and supply insurance and procurement services to councils. In 2011-12 the staffing profile of the MAV included: > 35 staff (28 full-time and seven part-time) funded from membership subscriptions. Core staff focus on delivering the MAV’s Strategic Work Plan ratified by State Council; provide policy support, advice and capacity-building programs to councils; and maintain representation of Victorian local government views to other governments and stakeholders. > 15 staff (nine full-time and six part-time) funded from Victorian and Australian government grants, or external organisations to deliver specific projects and programs to support Victorian councils > Seven specialist consultants who supplement the skills of staff and provide support in areas such as insurance, financial management, information technology and policy advice. During the year 14 staff left the organisation. The employment term of two staff concluded with the end of grant funded projects. Ten staff moved on to new career opportunities and two retired. These positions were filled through recruitment or reorganisation of tasks. EVENTS

In a tighter financial climate the MAV attracted more than 7 000 registrations, running over 120 conferences, forums, workshops, and training events to support the ongoing professional development of councillors and senior officers. The Councillor Development Weekend, Annual Conference, Future of Local Government Summit and Infrastructure and Asset Management Conference were among the major events staged.

34 > MAV ANNUAL REPORT CORPORATE 2011/12

MEDIA AND COMMUNICATIONS

Reinforcing our position as the voice of local government, the MAV’s total mentions across Victorian print, TV and radio media grew by 10 per cent. We received in excess of 2 340 total mentions in mainstream media including 1 600 print news stories, 570 radio stories and 68 TV reports. Widespread positioning of councils’ views was secured on the critical sector issues of library funding, changes to restricted breed dog laws, landfill levy rises, council rates and cost pressures, outdoor smoking bans, and carbon price impacts. We ventured into social media through Twitter, Facebook and Vimeo to enhance our traditional media relations and advocacy efforts. The MAV’s social media following continues to steadily build as we share our campaigns, engage with members and stakeholders, correct misinformation, and inform communities of the challenges facing local government. An Australian-first social media policy template was finalised for local government, which has been adapted for use by over 40 member councils, and was purchased by the South Australian Local Government Association for use by its members. Two media workshops on council budgets, rates and revaluations were held to inform and improve journalists’ reporting and build community understanding of how councils work. Positive feedback from participants led to an online workshop video to broaden access to this free training resource. An IT software and hardware upgrade delivered more reliable technology to enhance our service to members and reduce downtime. The MAV’s power consumption reduced as we keep at the forefront of information technology. A new website and members only website improved and simplified members’ access to information, including confidential documents. As a popular starting point for people wanting to find out more about local government, the MAV website received over 80 500 visits since its launch in September 2011.

SECRETARIATS

The MAV hosts the secretariat functions for several local government groups. While agreements vary, the MAV generally provides office space, facilities and support services at an affordable cost for an officer employed to support the activities and governance arrangements of each group. TIMBER TOWNS VICTORIA (TTV) In recognition of Timber Towns Victoria’s Timber Industry Road Evaluation Study, $1 million was allocated to timber-impacted roads in the Victorian State Budget. Two priority projects have been selected for commencement in 2012-13: $255 000 will be invested to widen Casterton-Dartmoor Road and $402 000 to widen Dorodong Road, near Dergholm. TTV will coordinate and fund upcoming regional and state committee meetings, including nomination of potential roads for improvement works in the next State Budget. Cr Jan Vonarx of Alpine Shire was voted in as the association’s president, with Cr Jenny Blake of Golden Plains Shire voted in as vice president. TTV also held the secretariat for the National Timber Councils Association for the fifth consecutive year. COUNCIL ALLIANCE FOR SUSTAINABLE BUILT ENVIRONMENT (CASBE) The Alliance moved from an informal network to a formal association, housed and administered within the MAV. A memorandum of understanding developed by CASBE and the MAV provided a general framework for cooperation, and was signed by nine councils. The Alliance prepared submissions to the review of the Victorian Planning System and the Australian Government’s regulatory impact statement for Mandatory Disclosure of Residential Building Energy, Greenhouse and Water. Both submissions highlighted the importance of national and state programs and policy frameworks that build on existing local government work to encourage ecological sustainable development. CASBE also provided advice and support to a range of programs to implement sustainable design assessment in the planning process. RURAL COUNCILS VICTORIA (RCV) In this first year of the Victorian Government’s four-year Networked Rural Councils program RCV scoped, researched and mobilised 13 projects. With rural planning consistently rated as the number one issue by rural councils, regular meetings were secured with both the Deputy Premier and the Planning Minister, and RCV welcomed the Planning Minister’s request to provide input into a planning review. A significant pilot project commenced alongside the Country Education Project working with councils in the Grampians region. More than 200 people attended another successful Rural Summit in Port Fairy, and the East Gippsland Shire was awarded hosting rights to the 2014 Rural Summit in Lakes Entrance. RCV also conducted two forums for mayors, councillors and CEOs to communicate program developments and address future issues of concern for rural councils.

ASSOCIATION OF BAYSIDE MUNICIPALITIES (ABM) The 2012-16 strategic directions were established with core priorities to address environmental challenges ahead and improve community value of the Bayside region. Technical workshops delivered skills development and capacity building on coastal processes and hazards, climate challenges and council planning to combat future coastal climate impacts. A study examined the impacts of inundation on developed areas around Port Phillip Bay and considered other climate change challenges. The ABM’s commitment to information sharing, networking and skills development has seen effective advocacy and partnership building among the ten member councils. The City of Greater Geelong was the presidential council in 2011-12, with Cr John Doull as ABM President. PUBLIC LIBRARIES VICTORIA NETWORK (PLVN) PLVN continued to advocate for public libraries as a key local government service through work with the MAV to coordinate a campaign opposing funding cuts announced by the State Government. The cuts were reversed and a Ministerial Advisory Council on Public Libraries was re-established to conduct a review of current and future issues impacting on the sector. To complement the review, a Victorians Love Libraries campaign was launched by PLVN and the MAV to showcase the role of libraries in local communities. Public libraries were also supported through collaborative purchasing and the Swift shared library management system. PLVN also worked with the State Library of Victoria on a number of state-wide library development projects. LOCAL GOVERNMENT INFORMATION COMMUNICATIONS TECHNOLOGY (LGICT) GROUP The LGICT group is comprised of IT practitioners from 76 Victorian councils. Established by the MAV eight years ago, LGICT membership subscriptions support and fund IT projects, such as the model smartphone and tablet best practice policy. These projects deliver important business outcomes for councils and their communities. LGICT collaboration achieved sector-wide costsavings through group procurement contracts and established innovative social media networks to share ideas and experiences. Major events such as the LGICT Annual Conference were also coordinated, promoting information communications technology innovation across all council business areas.

MAV ANNUAL REPORT CORPORATE 2011/12 > 35

MAV REPRESENTATIVES

Alpine Shire Council - Cr Peter Roper

Melton Shire Council - Cr Kathy Majdlik

Ararat Rural City Council - Cr Colin McKenzie

Mildura Rural City Council - Cr John Arnold

Ballarat City Council - Cr Cheryl Bromfield

Mitchell Shire Council - Cr Sue Marstaeller

Banyule City Council - Cr Jenny Mulholland

Moira Shire Council - Cr Alex Monk

Bass Coast Shire Council - Cr John Duscher

Monash City Council - Cr Geoff Lake

Baw Baw Shire Council - Cr Diane Blackwood

Moonee Valley City Council - Cr John Sipek

Bayside City Council - Cr James Long

Moorabool Shire Council - Cr Tom Sullivan

Benalla Rural City Council - Cr Peter Dunn

Moreland City Council - Cr Oscar Yildiz

Boroondara City Council - Cr Coral Ross

Mornington Peninsula Shire Council - Cr Bev Colomb

Brimbank City Council - Ms Joanne Anderson

Mount Alexander Shire Council - Cr Michael Redden

Buloke Shire Council - Cr Reid Mather

Moyne Shire Council - Cr Jim Doukas

Campaspe Shire Council - Cr Kevin Simpson

Murrindindi Shire Council - Cr John Walsh

Cardinia Shire Council - Cr Ed Chatwin

Nillumbik Shire Council - Cr Helen Coleman

Casey City Council - Cr Beverley Hastie

Northern Grampians Shire Council - Cr Dorothy Patton

Central Goldfields Shire Council - Cr John Smith

Port Phillip City Council - Cr John Middleton

City of Greater Bendigo Council - Cr Rod Fyffe

Pyrenees Shire - Cr David Clark

Colac Otway Shire Council - Cr Stephen Hart

Queenscliffe Borough Council - Cr Bob Merriman

Corangamite Shire Council - Cr Matt Makin

South Gippsland Shire Council - Cr Warren Raabe

Darebin City Council - Cr Steven Tsitas

Southern Grampians Shire Council - Cr Bob Penny

East Gippsland Shire Council - Cr Jane Rowe

Stonnington City Council - Cr Claude Ullin

Frankston City Council - Cr Brad Hill

Strathbogie Shire Council - Cr Graeme Williams

Gannawarra Shire Council - Cr Max Fehring

Surf Coast Shire Council - Cr Libby Coker

Glen Eira City Council - Cr Margaret Esakoff

Swan Hill Rural City Council - Cr Gary Norton

Glenelg Shire Council - Cr Gilbert Wilson

Towong Shire Council - Cr Mary Fraser

Golden Plains Shire Council - Cr David Cotsell

Wangaratta Rural City Council - Cr Roberto Paino

Greater Dandenong City Council - Cr Peter Brown

Warrnambool City Council - Cr Jacinta Ermacora

Greater Geelong City Council - Cr Andy Richards

Wellington Shire Council - Cr Jeff Amos

Greater Shepparton City Council - Cr Geoff Dobson

West Wimmera Shire Council - Cr Evaline van Breugel

Hepburn Shire Council - Cr Bill McClenaghan

Whitehorse City Council - Cr Mark Lane

Hindmarsh Shire Council - Cr Michael Gawith

Whittlesea City Council - Cr Mary Lalios

Hobsons Bay City Council - Cr Tony Briffa

Wodonga City Council - Cr Lisa Mahood

Horsham Rural City Council - Cr Mandi Stewart

Wyndham City Council - Cr Bob Fairclough

Hume City Council - Cr Helen Patsikatheodorou

Yarra City Council - Cr Geoff Barbour

Indigo Shire Council - Cr Larry Goldsworthy

Yarra Ranges Shire Council - Cr Graham Warren

Kingston City Council - Cr John Ronke

Yarriambiack Shire Council - Cr Andrew McLean

Knox City Council - Cr Joe Cossari Latrobe City Council - Cr Bruce Lougheed Loddon Shire Council - Cr Allen Brownbill Macedon Ranges Shire Council - Cr John Letchford Manningham City Council - Cr Stephen Mayne Mansfield Shire Council - Cr Jeff Whyte Maribyrnong City Council - Cr Michael Clarke Maroondah City Council - Cr Rob Steane 36 > MAV ANNUAL REPORT CORPORATE 2011/12

MAV INSURANCE - CHAIR’S REPORT In a tough insurance environment, Liability Mutual Insurance (LMI) continues to provide quality and low cost insurance to local government and other public authorities across Victoria and Tasmania. We signed a new 10 year agreement with our service provider, Jardine Lloyd Thompson (JLT), to provide continuity of service to members and ongoing access to the national local government reinsurance arrangements. The long-term agreement provided a significant financial benefit to the scheme. Internationally, the insurance market has suffered from significant reinsurance losses caused by unprecedented catastrophes. Along with falling investment returns, this has triggered a world-wide increase in reinsurance premiums. Global market performance significantly impacted on LMI’s reinsurance cover costs. In years leading up to 2011 there has been a sharp rise in claim numbers. Together with the increases in reinsurance premiums, these factors caused the LMI Scheme to increase its contributions for the 2013 financial year. LMI claims stabilised this year, with some tempering of the sharp increases experienced in the past two years. Claim numbers continued to be above long-term trends and will present an ongoing challenge for the scheme. Our successful strategy of proactively defending local government at the Victorian Bushfires Royal Commission continues to pay dividends to the scheme and its members. In response to increasing claim numbers, MAV Insurance focused on strengthening its risk management activities. We developed a comprehensive risk register to focus on the current key claims drivers, and identify new or emerging claim risks, management strategies and successful mitigation activities. Key to this approach is strengthening the relationship between the MAV’s policy work and the risk management activities undertaken by MAV Insurance.

With the insurance market likely to be hardening over the foreseeable future, MAV Insurance will continue its focus on strengthening members’ risk management processes, refining the pricing model for the scheme and working with members to reduce claims.

ONE OF OUR MAIN AIMS IS TO ENSURE OUR MEMBERS HAVE THE BROADEST POSSIBLE INSURANCE COVER, INTERNATIONALLY BACKED AND OF THE HIGHEST FINANCIAL SECURITY, BEING PROVIDED AT REASONABLE PRICES. It is pleasing to note that all councils in both Victoria and Tasmania are members of the LMI Scheme. For nearly 20 years LMI has been part of an Australia-wide shared service arrangement that brings together the seven state Local Government Associations and some 550 Australian local authorities to acquire reinsurance within the international insurance market. I acknowledge and thank all of our service providers, contractors and staff who work so diligently to ensure that LMI delivers an excellent service at a reasonable cost year after year. JOHN WARBURTON MAV Insurance Chair

MAV ANNUAL REPORT MAV INSURANCE CHAIR’S REPORT 2011/12 > 37

MAV INSURANCE COMMITTEE JOHN WARBURTON APPOINTED 1995 Chair, MAV Insurance Committee 2005 - present Director, Lend Lease Real Estate Investments Limited Director, Health Super Financial Services Director, Emergency Services Foundation Chairman, Vision Super Audit Committee

RON FARRELL

CR ROD FYFFE

APPOINTED 2001 General Manager, Australian Eagle Insurance Co Ltd Chairman and Non Executive Director, Utilities Insurance Co Pty Ltd Non Executive Director, connect.com.au Pty Ltd Non Executive Director, Metropolitan Fire and Emergency Services Board Member, Professional Standards Councils (All States and Territories)

DR MICHAEL KENNEDY

OAM

APPOINTED 1995 Chief Executive Officer, Mornington Peninsula Shire Council Chairman, Frankston Mornington Peninsula Local Learning and Employment Network Chairman, GAMUT (Centre for the Governance and Management of Urban Transport) University of Melbourne Director, LifeSaving Victoria Director, Inner East Community Health

APPOINTED 2004 MAV Regional Representative for Rural North Central Councillor, Greater Bendigo City Council Mayor 2004, 2005, 2011

CR BILL MCARTHUR APPOINTED 2009 MAV President Councillor, Golden Plains Shire Council Mayor 2004, 2005 Director, Australian Local Government Association Member, MAV Audit Committee

38 > MAV ANNUAL REPORT MAV INSURANCE COMMITTEE 2011/12

ALLAN GARCIA APPOINTED 2003 CEO Local Government Association of Tasmania Local Government Asscociation of Tasmania representative Quadrant Superannuation

ANNE MURHPY

OAM

APPOINTED 1993 Chair, MAV Insurance Committee 1993 - 2005 Past President, MAV Principal, Anne Murphy Strategy and Facilitation Board member, KYM Employment Services Inc Board member, Calvary Health Care Bethlehem Advisory Board

MICHAEL GUILMARTIN APPOINTED 2009 Company Director Lake Eildon Country Club Ltd Chief Executive Officer, Victorian Managed Insurance Authority 1997 - 2007 President, Association of Risk Insurance Managers of Australia 1980 Risk Manager, Alcoa of Australia Ltd 1971 - 1997

ROB SPENCE APPOINTED 1997 Chief Executive Officer, Municipal Association of Victoria Trustee, Vision Super Member, Victorian Childrenâ&#x20AC;&#x2122;s Council

MAV INSURANCE COMMITTEE INSURANCE COMMITTEE

The Board has delegated authority and responsibility for the operation of the MAV Insurance business to the MAV Insurance Committee (MAVIC). A Deed of Establishment requires the formation of a management committee, and formalises authorities, duties and powers of delegation by the committee and provides guidance as to the day-to-day operation of the insurance business.

MAV INSURANCE COMMITTEE ATTENDANCE

MAVIC has oversight of the operation of the insurance schemes and monitors the MAVâ&#x20AC;&#x2122;s compliance with its Australian Financial Services Licence (AFSL). It comprises nine members â&#x20AC;&#x201C; four independent insurance experts, one council CEO, one MAV board member, one representative of the Local Government Association of Tasmania, and the President and CEO of the MAV. The Committee oversees the operations of the MAV Insurance business.

Michael Guilmartin

Independent committee members receive a sitting fee for each meeting attended. In 2011/12 the sitting fee was:

SEP OCT* NOV FEB* MAR APR JUN

John Warburton Ron Farrell Rod Fyffe Allan Garcia Michael Kennedy Bill McArthur Anne Murphy Rob Spence

a a a a a a a a X a X a a a a a a a a a a a X a X a a a a a a a a a X a a a a a a a a a a a X X a a a a a a a a a a a a a a a

* Denotes special meetings of the MAV Insurance Committee. The special meeting in October was to consider the financial statements for MAV Insurance. The special meeting in February was to consider contribution methodology.

> Chair: $900 > Independent committee members: $636 In addition, an allowance of $1,200 was paid to the independent committee members for attendance at other insurance-related meetings. MAV Board

MAV Insurance Committee

Rob Spence Chief Executive Officer

Alison Lyon Deputy Chief Executive Officer

CLAIMS John Smith Claims Adviser

POLICY Owen Harvey-Beavis Contribution Setting (p/t) James Cleaver Water Industry Liaison (p/t)

LEGAL PANEL Minter Ellison DLA Piper Moray & Agnew King & Wood Mallesons Ligeti Partners Hunt & Hunt (Tasmania) Shaun McElwaine (Tasmania) Dobson Mitchell Allport (Tasmania)

SERVICE PROVIDER Jardine Lloyd Thompson (JLT) Risk Management

MAV ANNUAL REPORT MAV INSURANCE COMMITTEE 2011/12 > 39

MAV INSURANCE - LIABILITY MUTUAL INSURANCE (LMI) REINSURANCE TRENDS

Despite 2011-12 being the second costliest year for insured losses internationally, insurer and reinsurer capital seems relatively unscathed and is back to peak levels. Liability insurance prices have registered their first increase since 2004 according to a Barclays Capital survey. A Marsh survey has indicated the long depression in liability pricing may be coming to an end with rates mostly stable in the major territories. There has been no change in underwriting stance from reinsurers, who remain careful in their pricing of the local authority risk, which includes both councils and water authorities. The LMI reinsurance program currently consists of 16 international reinsurers with Standard and Poors ratings of Aâ&#x20AC;&#x201C; or better. The MAV and our reinsurance brokers are constantly surveying the market place for reinsurers and insurance syndicates interested in underwriting local authority risk. Reinsurers must accept the LMI Insurance Policy, developed specifically to cover the broad range of risks for local authorities. Evidence suggests that insurance markets will harden in the next few years, with prices firming and insurers trying to restrict cover. LMI will leverage its strong membership across Victoria and Tasmania and our relationships with the other six Local Government Associations to moderate spikes in future reinsurance premiums. CLAIMS TRENDS

The trend of increasing claim numbers over the past two years stabilised in 2011-12, with the same number of new claims received as the previous year. Compared to the 2007-08 financial year however, the last two years represent an increase of more than 65 per cent. Claim settlement activity and timelines remain dependable, with the average time to resolve claims dropping by almost 10 per cent and the average unit cost per claim also lowered by eight per cent compared to last financial year.

40 > MAV ANNUAL REPORT MAV INSURANCE - LIABILITY MUTUAL INSURANCE 2011/12

PRICING REVIEW

MAV Insurance commissioned and endorsed an independent review of the pricing strategy adopted for Liability Mutual Insurance (LMI) conducted by Ernst and Young. The review examined how the scheme manages its capital, how the overall level of contributions affect the capital position of the scheme, and the preferred methodology for setting member contributions. The new capital policy takes a conservative approach that ensures sufficient capital to cover unexpected claims, while safeguarding councils against paying excessive contributions to meet private sector capital levels. The current contribution setting process adjusts contributions based on the overall movement in reinsurance premiums, claims performance, council revenue and risk audit scores. Ernst and Young’s recommended new approach will achieve a more sophisticated method of apportioning administration, claims management, reinsurance and other costs between members. It will be developed further by the scheme’s independent actuaries in 2012-13 and implemented in time for the 2013-14 renewals. CLAIMS MANAGEMENT

Significant savings were achieved with over half of all claims managed directly by Jardine Lloyd Thompson (JLT) without the need for lawyers to act for the scheme. Where lawyers are required, their costs are certified by independent legal cost consultants to ensure the scheme only pays what is necessary. Our management of claims has proven very effective in maintaining good resolution numbers, significant reductions in the time to resolve claims and stable average claim values with no super inflation.

IMPROVING THE MANAGEMENT OF COUNCIL DAMS

Following the floods of early 2011, the MAV and the Department of Sustainability and Environment began a joint project to identify all the council-owned dams in Victoria and ensure they are safely managed. The success of this project demonstrates the benefits to members of combining MAV Insurance risk management with MAV policy advocacy. So far, the collaboration has involved a series of council-only dam safety seminars and development of a council dam-owner toolkit, including: a hazard rating guide; a dam safety emergency management plan template; and a dam surveillance and maintenance guide. Maintaining council dam safety standards will be an ongoing responsibility for MAV Insurance. Later in 2012 councils will have the opportunity to report on their dam safety activities, ahead of their inclusion in ongoing MAV Insurance risk management processes. WATER AUTHORITY RISK WORK

Water corporation members of MAV Insurance operate some of the largest dams in the state and participate in comprehensive government programs to ensure dams are well maintained and water supplies are safe. A review investigated major risks to water corporations, as well as Victorian and Tasmanian regulatory arrangements, to inform and improve the relevance of MAV Insurance risk management services to water corporation customers. This knowledge will guide future risk management services for water corporations, resulting in more targeted risk audits and the provision of better services. RISK MANAGEMENT REVIEW IMPLEMENTATION

Following an independent review of the risk management services provided to our members last year, MAV Insurance established an LMI risk register and overseeing committee. The register identifies and monitors risk mitigation strategies for the key claims drivers, as well as new and emerging risks through improved liaison between MAV policy staff, MAV Insurance and our service provider JLT. MAV Insurance revised its ‘Best Practice Forums’ to include greater involvement from members sharing their experiences. A monthly MAV Insurance bulletin was introduced to improve information to members, while continued cooperation with the Victorian Managed Insurance Authority (VMIA) provides members with access to at least one major risk management conference annually.

MAV ANNUAL REPORT MAV INSURANCE - LIABILITY MUTUAL INSURANCE 2011/12 > 41

MAV INSURANCE - OTHER COMMERCIAL CRIME

The Commercial Crime Fund covers local authorities against losses from a fraudulent or dishonest act committed by an employee or third party. Like MAV Insurance’s LMI scheme, the Commercial Crime Fund is a mutual insurance scheme that exists solely for the benefit of its members. As there is no profit built into the contribution setting model, the scheme will inevitably be more cost effective in the long term. The Commercial Crime Fund utilises the market power of its 90 members to obtain the broadest insurance cover, with significant sums insured at very competitive rates. While some years incur a shortfall, in other years a surplus is generated, with the aim to balance the pool over the long term. Members who have contributed to the Fund for five years or more have an entitlement to a share of the capital based on the member’s share of the total premium. Importantly, capital attributed to a member who departs the Fund is distributed back amongst the remaining members. Capital attributed to each member currently amounts to around 70 per cent of members’ premiums. LG EMPLOYEE HEALTH PLAN

The Local Government Employees (LGE) Health Plan is delivered in partnership with Health Link to help position councils as an employer of choice. Eligible local government employees and other specified organisations that participate in the health plan benefit through reduced hospital premiums, and in the event of hospitalisation, a refund of the member’s excess payment by the MAV. Funds are held in an account known as an Excess Refund Pool, with employees benefitting from excess reimbursements of $108 701 in 2011-2012. At 30 June 2012 the LGE health plan had 77 member organisations, covering 4 000 employees and family members.

42 > MAV ANNUAL REPORT MAV INSURANCE - OTHER 2011/12

LIABILITY MUTUAL INSURANCE MEMBERS

VICTORIA Alpine Shire Council Ararat Rural City Council Ballarat City Council Banyule City Council Bass Coast Shire Council Baw Baw Shire Council Bayside City Council Benalla Rural City Council Boroondara City Council Brimbank City Council Buloke Shire Council Campaspe Shire Council Cardinia Shire Council Casey City Council Central Gippsland Region Water Corporation Central Goldfields Shire Council Central Highlands Region Water Corporation City West Water Corporation Colac Otway Shire Council Coliban Region Water Corporation Corangamite Shire Council Darebin City Council East Gippsland Region Water Corporation East Gippsland Shire Council Eastern Regional Libraries Corporation Frankston City Council Gannawarra Shire Council Glen Eira City Council Glenelg Shire Council Golden Plains Shire Council Goulburn Valley Region Water Corporation Goulburn Valley Regional Library Corporation Goulburn-Murray Rural Water Corporation Grampians Wimmera Mallee Water Corporation Greater Bendigo City Council Greater Geelong City Council Greater Shepparton City Council Hepburn Shire Council Hindmarsh Shire Council Hobsons Bay City Council Horsham Rural City Council Hume City Council Indigo Shire Council Kingston City Council Knox City Council Latrobe City Council Loddon Shire Council Lower Murray Urban and Rural Water Corporation Macedon Ranges Shire Council Manningham City Council

Mansfield Shire Council Maribyrnong City Council Maroondah City Council Melbourne City Council Melton Shire Council Mildura Rural City Council Mitchell Shire Council Moira Shire Council Monash City Council Moonee Valley City Council Moorabool Shire Council Moreland City Council Mornington Peninsula Shire Council Mount Alexander Shire Council Moyne Shire Council Municipal Association of Victoria Murrindindi Shire Council Nillumbik Shire Council North Central Goldfields Library Service North East Region Water Corporation Northern Grampians Shire Council Port Phillip City Council Pyrenees Shire Council Queenscliffe Borough Council South Gippsland Region Water Corporation South Gippsland Shire Council Southern Grampians Shire Council Southern Rural Water Corporation Stonnington City Council Strathbogie Shire Council Surf Coast Shire Coun cil Swan Hill Rural City Council Towong Shire Council Victorian Water Industry Association Inc. Wangaratta Rural City Council Wannon Region Water Corporation Warrnambool City Council Wellington Shire Council West Gippsland Regional Library Service West Wimmera Shire Council Western Region Water Corporation Westernport Region Water Corporation Whitehorse City Council Whitehorse Manningham Regional Library Corporation Whittlesea City Council Wodonga City Council Wyndham City Council Yarra City Council Yarra Plenty Regional Library Service Yarra Ranges Shire Council Yarriambiack Shire Council

TASMANIA Ben Lomond Water Corporation Break Oâ&#x20AC;&#x2122;Day Council Brighton Council Burnie City Council Central Coast Council Central Highlands Council Circular Head Council Clarence City Council Cradle Mountain Water Corporation Derwent Valley Council Devonport City Council Dorset Council Flinders Council George Town Council Glamorgan/Spring Bay Council Glenorchy City Council Hobart City Council Huon Valley Council Kentish Council King Island Council Kingborough Council Latrobe Council Launceston City Council Local Government Association of Tasmania Meander Valley Council Northern Midlands Council Onstream Rivers and Water Supply Commission Sorell Council Southern Midlands Council Southern Water Corporation Tasman Council Waratah-Wynyard Council West Coast Council West Tamar Council

MAV ANNUAL REPORT LIABILITY MUTUAL INSURANCE MEMBERS 2011/12 > 43

COMMERCIAL CRIME MEMBERS

Alpine Shire Council Ararat Rural City Council Ballarat City Council Bass Coast Shire Council Baw Baw Shire Council Bayside City Council Benalla Rural City Council Boroondara City Council Brimbank City Council Buloke Shire Council Cardinia Shire Council Casey City Council Central Goldfields Shire Council Central Highlands Region Water Corporation Citywide Service Solutions Pty Ltd Colac-Otway Shire Council Coliban Region Water Corporation Corangamite Regional Library Corporation Corangamite Shire Council Crowlands Water Supply Co-operative Darebin City Council East Gippsland Region Water Corporation East Gippsland Shire Council Eastern Regional Libraries Frankston City Council Gannawarra Shire Council Geelong Regional Library Corporation Glenelg Shire Council Golden Plains Shire Goulburn Valley Region Water Corporation Goulburn-Murray Rural Water Corporation Grampians Wimmera Mallee Water Corporation Greater Bendigo City Council Greater Geelong City Council Greater Shepparton City Council Hepburn Shire Council Hindmarsh Shire Council Hobsons Bay City Council Horsham Rural City Council Hume City Council Indigo Shire Council Kingston City Council Knox City Council Latrobe City Council Loddon Shire Council Lower Murray Urban and Rural Water Corporation Macedon Ranges Shire Council Manningham City Council Mansfield Shire Council Maribyrnong City Council Melbourne City Council

Melbourne Wholesale Fish Market Melton Shire Council Mildura Rural City Council Mitchell Shire Council Moira Shire Council Monash City Council Moonee Valley City Council Moorabool Shire Council Moreland City Council Mornington Peninsula Shire Council Mount Alexander Shire Council Moyne Shire Council Municipal Association of Victoria Murrindindi Shire Council Nillumbik Shire Council North East Region Water Corporation Northern Grampians Shire Council Port Phillip City Council Pyrenees Shire Council Queen Victoria Market Queenscliffe Borough Council South Gippsland Region Water Corporation South Gippsland Shire Council Southern Grampians Shire Council Southern Rural Water Corporation Stonnington City Council Strathbogie Shire Council Surf Coast Shire Council Swan Hill Rural City Council Tanjil Bren Water Co-op Ltd & Committee of Management - Recreation Reserve Towong Shire Council Wannon Region Water Corporation Warrnambool City Council Wellington Shire Council West Gippsland Regional Library Corporation West Wimmera Shire Council Western Region Water Corporation Westernport Region Water Corporation Whitehorse City Council Whittlesea City Council Wodonga City Council Wyndham City Council Yarra City Council Yarra Ranges Shire Council Yarriambiack Shire Council

44 > MAV ANNUAL REPORT COMMERCIAL CRIME INSURANCE MEMBERS 2011/12

FINANCIAL OVERVIEW REPORT ON FINANCIAL RESULTS FOR THE YEAR ENDED 30 JUNE 2012

In accordance with the requirements of the Municipal Association Act 1907, and applicable accounting standards, the economic activity of the MAV and MAV Insurance is reported to the members as an economic entity within the annual accounts. The combined activities are shown as the combined accounts and the MAV, being the parent entity, is shown separately as the MAV General Fund. The Association represents local government in Victoria. One of the activities of the MAV is that it seeks out, applies for, and administers grant funds for, and on behalf of its members, for the benefit of both local government and the Victorian community. The MAV financial statements include the activities of MAV Procurement, which provides procurement services and training in procurement for MAV members; and MAV Insurance, which operates the Liability Mutual Insurance Scheme (LMI) and the Commercial Crime Fund. Both insurance activities are nondiscretionary mutual funds and are subject to the oversight of the Associationâ&#x20AC;&#x2122;s Board, which acts through a committee of management established by the Board, the MAV Insurance Committee (MAVIC). MAVIC carries out oversight and management of the operational activities of MAV Insurance. Jardine Lloyd Thompson Pty Ltd provides claims and risk management services to the MAV. MUNICIPAL ASSOCIATION OF VICTORIA

The financial result of the MAV in 2012 was impacted significantly by the Defined Benefit Superannuation Fund liability of $671,964 (2011 $136,000) and the spending of grant funds in excess of grant receipts for the year totalling $2.1 million. The operating deficit for the year was $2,744,976 (2011 deficit $84,908).

MAV INSURANCE

The MAV Insurance business consists of the Liability Mutual Insurance Scheme (LMI) and the Commercial Crime Fund (the Fund). The Association is required under the Municipal Association Act 1907 to provide both public liability and fidelity insurance to local government and other statutory authorities. MAV Insurance is not subject to Australian Prudential Regulatory Authority (APRA) regulations. However, the MAVIC views compliance with these regulations as being good business governance and practice, and has a policy of complying with several, but not all, of the APRA regulations. The MAV holds an Australian Financial Services Licence (AFSL No 27143). The MAV and MAV Insurance have AFSL compliant processes and activities in place to maintain the highest standards of governance, provide operational efficiency and enhance the future viability of the MAV Insurance business. The combined deficit for 2012 was $1.28 million (2011 $0.501 million). The net asset position at the end of 2012 was $6.37 million (2011 $7.65 million). MAV PROCUREMENT

The objective of MAV Procurement is to assist members to access significant benefits through improved purchasing and procurement processes and activities. This year procurement continued to develop and provide remarkable results. Sales increased by 84 per cent from last year and 100 per cent membership participation was achieved. Twelve tenders provided major cost savings for the sector; and the continued improvement of MAV Procurement and its member services is delivering increased revenue. The surplus for 2012 was $190,915 (2011 deficit $143,715).

The year also saw the continued development and expansion of MAV Procurement with sales increasing by 84 per cent on the 2011 financial year. This entity continues to improve and make major gains in contracted services resulting in increased revenues. Combined net assets of the MAV, before including the MAV Insurance business, reduced to $3.99 million (2011 $6.74 million). During 2012, the MAV received a further $7.5 million in grants and other grant-related income (2011 $11.1 million). The MAV delivered on several significant projects during the year that were funded by grants from both Australian and Victorian governments and funds contributed by members. These grants and contributions are managed by the MAV for the betterment of the local government sector and Victorian communities. As at 30 June 2012, the MAV had a commitment to spend $3.96 million (2011 $6.09 million). The operating deficit of the combined entity has been further impacted by events in MAV Insurance including increasing claims costs and increasing costs of re-insurance premiums. The operating deficit of the combined entity was $4.02 million (2011 deficit $0.587 million) with net assets reducing from $14.39 million in 2011 to $10.37 million in 2012. MAV ANNUAL REPORT FINANCIAL OVERVIEW 2011/12 > 45

GUIDE TO FINANCIAL REPORT COMPONENTS OF THE FINANCIAL REPORT

The financial report contains three main sections: > financial statements > notes to the financial statements > statements by the directors and auditor. The financial statements consist of three main statements - income statement, balance sheet and statement of cash flows. The notes to the financial statements detail the Association’s accounting policies and set out the detailed values that are carried into the financial statements. The statements by directors and auditor provide the views of the directors of the MAV and the independent auditor on the financial report. The statement by directors confirms the view of the directors that the financial report presents fairly in all material respects, the financial performance and financial position of the Association, and also confirms that the Association can pay its debts as and when they fall due. The audit report by the independent auditor expresses the auditor’s opinion on whether the financial statements presents fairly in all material respects, the financial position of the Association as at 30 June 2012, and the results of the various business operations and cash flows for the year ended 30 June 2012, in accordance with accounting standards and other mandatory professional reporting requirements. FINANCIAL STATEMENTS

1. INCOME STATEMENT The income statement shows: > the MAV’s revenue from its various activities > expenses incurred in running the MAV and its business activities. These expenses relate only to the business operations and do not include costs associated with the purchase of assets. The expense item ‘depreciation’ spreads the cost of the assets over the estimated life of the assets. The most important figure is the surplus for the year. Where it is positive, this means that revenues were greater than expenses.

46 > MAV ANNUAL REPORT GUIDE TO FINANCIAL REPORT 2011/12

2. BALANCE SHEET The balance sheet shows the assets the Association owns and the liabilities it owes at 30 June. The balance sheet separates the assets and liabilities into current and non-current. Current means those assets or liabilities that will be either collected or that fall due within the next 12 months. The components of the balance sheet are: 2.1 CURRENT AND NON-CURRENT ASSETS

Cash assets include cash held in the bank, petty cash, cash deposits and cash investments. Receivables are monies owed to the Association. Prepayments are payments made in the current financial year which relate to the next financial year; for example, annual subscriptions etc. Property, plant and equipment represents the value of the equipment, furniture and fittings, computers, web site and intranet and motor vehicles owned by the Association. Intangible assets are trademarks, educational programs and other intellectual property owned by the Association. 2.2 CURRENT AND NON-CURRENT LIABILITIES

Bank overdraft indicates the amount the Association owes its bankers on its daily operating account. Payables are monies owed by the Association to its suppliers as at 30 June. Premiums in advance are insurance premiums relating to the next financial year billed to members of the insurance fund before 30 June. Provision for employee entitlements is the accounting term for annual leave, long service leave and retirement gratuities owed to staff. Provision for claims outstanding represents insurance claims reported by members, together with an estimate of claims incurred but not yet reported including an estimate of the costs of settlement for these claims. 2.3 NET ASSETS

This term describes the difference between total assets and total liabilities. It represents the net worth of the Association as at 30 June.

3. STATEMENT OF CASH FLOWS The statement of cash flows summarises cash payments and cash receipts for the year. The values may differ from those shown in the income statement because the income statement is prepared on an accrual basis. Cash is derived from, and is used in, two main areas: 3.1 CASH FLOWS FROM OPERATING ACTIVITIES

Receipts relate to all cash received into the Association’s bank account from members and others who owed money to the Association in the form of fees or premiums. Receipts also include interest earned from the Association’s cash investments. It does not include receipts from the sale of assets. Payments relate to all cash paid out of the Association’s bank account to staff, creditors and others. It does not include cash paid for the purchase of assets. 3.2 CASH FLOWS FROM INVESTING ACTIVITIES

This relates to cash receipts and cash payments resulting from either the sale or purchase of property, plant and equipment. The statement of cash flows concludes with cash at end of year which indicates the cash the Association has at 30 June to meets its debts and liabilities.

NOTES TO THE FINANCIAL STATEMENTS

To enable the reader to understand the basis on which the values shown in the statements are established it is necessary to provide details of the Association’s accounting policies. These are described in note 2. Apart from the accounting policies, the notes also give details behind many of the summary figures contained in the statements. The note numbers are shown beside the relevant items in the income statement, balance sheet and the statement of cash flows. Where the Association wishes to disclose information which cannot be incorporated into the statements, this is shown in the notes. The notes should be read at the same time as the financial statements in order to get a full and clear picture of the financial statements. STATEMENTS BY DIRECTORS

The statement by directors is made by two directors on behalf of the Board of the Municipal Association of Victoria. The statement states that, in the opinion of the Board, the financial statements present a true and fair view of the operations of the Association and that the Association can pay its debts as and when they fall due. INDEPENDENT AUDIT REPORT

This report is the independent auditor’s opinion on the financial statements. It provides the reader of the financial statements a completely independent opinion of the financial statements of the Association. The opinion covers all statutory and accounting standards compliance requirements, as well as providing a view on the truth and fairness of the financial statements.

MAV ANNUAL REPORT GUIDE TO FINANCIAL REPORT 2011/12 > 47

48 > MAV ANNUAL REPORT 2011/12

MAV Financial Report 2011/12

MAV FINANCIAL REPORT 2011/12 > 49

Statement of comprehensive income for the year ended 30 June, 2012

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

NOTE

Revenue

48,482,276

54,956,426

15,461,027

18,685,722

48,482,276

54,956,426

15,461,027

18,685,722

EXPENSES

5(b)

52,507,812

55,543,089

18,206,003

18,770,630

(4,025,536)

(586,663)

(2,744,976)

(84,908)

NET SURPLUS/(DEFICIT) OTHER COMPREHENSIVE INCOME TOTAL COMPREHENSIVE INCOME FOR THE PERIOD

(4,025,536)

(586,663)

(2,744,976)

(84,908)

Statement of financial position

as at 30 June, 2012 COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

NOTE

9(a)

38,719,657

39,624,007

4,586,907

7,223,391

10,2(f)

45,862,938

51,172,073

4,137,335

6,174,214

98,939 84,681,534

86,240 90,882,320

97,810 8,822,052

86,241 13,483,846

Current assets Cash and cash equivalents Trade and other receivables Prepayments Total current assets Non-current assets Trade and other receivables Property, plant and equipment

10,2(f) 12,2(h)

53,442,452 780,945

48,163,113 1,013,711

591,542

792,740

Intangibles Total non-current assets

13,2(h)

249,704 54,473,101

211,068 49,387,892

131,458 723,000

153,490 946,230

138,154,635 140,270,212

9,545,052

14,430,076

4,197,691

3,543,453

Total assets Current liabilities Trade and other payables

7,001,997

6,059,759

Premiums in advance

24,210,449

21,945,977

Provision for employee entitlements

765,906

777,186

765,906

777,186

14(a),2(s)

18,079,388

22,813,827

406,823 50,464,563

3,168,464 54,765,213

406,823 5,370,420

3,168,464 7,489,103

Provision for claims outstanding Other current liabilities Total current liabilities Non-current liabilities Provision for employee entitlements Provision for claims outstanding

52,402

26,444

52,402

26,444

14(a),2(s)

78,140,836

70,908,862

127,788 78,321,026

175,111 71,110,417

127,788 180,190

175,111 201,555

128,785,589 125,875,630

Other non-current liabilities Total non-current liabilities Total liabilities

5,550,610

7,690,658

Net assets

10,369,046

14,394,582

3,994,442

6,739,418

Equity

10,369,046

14,394,582

3,994,442

6,739,418

The accompanying notes form an integral part of these statements.

50> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

Statement of changes in equity for the year ended 30 June, 2012

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

Balance at beginning of year Surplus (deficit) from ordinary activities

14,394,582 (4,025,536)

14,981,245 (586,663)

6,739,418 (2,744,976)

6,824,326 (84,908)

Balance at end of year

10,396,046

14,394,582

3,994,442

6,739,418

NOTE

Retained Earnings

Combined statement of cash flows for the year ended 30 June, 2012 COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

47,695,650

45,773,862

24,736,481

21,652,851

2,805,657

2,269,459

283,889

454,745

11,484,989

15,876,897

Cash flow from operating activities Receipts Subscriptions, grants and fees Investment income Reinsurance and other recoveries Payments Suppliers Claim payments Net cash (used in)/provided by operating activities

(51,322,490) (42,798,860) (27,551,227) (20,866,758) (11,382,656) (14,277,800) 9(b)

(718,850)

6,843,558

(2,530,857)

1,240,838

Cash flow from investing activities Proceeds from sale of fixed assets

101,652

220,299

101,652

220,299

Payments for fixed assets and intangibles

(287,152)

(696,306)

(207,279)

(638,731)

Net cash used in investing activities

(185,500)

(476,007)

(105,627)

(418,432)

Net (decrease)/increase in cash held Cash at beginning of year Cash at end of year

9(a)

(904,350)

6,367,551

(2,636,484)

822,406

39,624,007

33,256,456

7,223,391

6,400,985

38,719,657

39,624,007

4,586,907

7,223,391

The accompanying notes form an integral part of these statements.

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 51

Notes to and forming part of the financial statements for the year ended 30 June 2012 1. CORPORATE INFORMATION The combined financial report of Municipal Association of Victoria for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the directors on the date shown on the attached Statement by Directors. The Municipal Association of Victoria is an association incorporated by an Act of the Parliament of Victoria, Australia, known as the Municipal Association Act 1907. The nature of the operations and principal activities of Municipal Association of Victoria are: - to provide a public liability insurance scheme for local government - to arrange fidelity insurance for local government - to promote the efficient carrying out of municipal government throughout the State of Victoria and watch over and protect the interests, rights and privileges of municipal corporations - to serve the interests of the Victorian community. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of preparation The financial report is a general purpose financial report which has been drawn up in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The principal accounting policies adopted in preparing the financial report are stated to assist in a general understanding of the financial report. Accounting policies have been consistently applied unless otherwise indicated. The financial report is presented in Australian dollars. The accounts have been prepared on the accruals basis using historical costs and, except where stated, do not take into account current valuations of assets. (b) Statement of compliance The financial report complies with Australian accounting standards, which include Australian equivalents to International Financial Reporting Standard (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (c) Principles of the combined entity The financial report comprises the economic entity of the Municipal Association of Victoria and its controlled entities the Local Government Mutual Liability Insurance Scheme (trading as Liability Mutual Insurance - LMI), the Commercial Crime Fund and MAV Procurement. A controlled entity is any entity controlled by the Municipal Association of Victoria (Incorporated under the Municipal Association Act 1907). Control exists where the Municipal Association of Victoria has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with the Municipal Association of Victoria to achieve the objectives of the Municipal Association of Victoria. The effects of all transactions between entities in the combined entity have been eliminated. The financial statements of the divisions are prepared for the same reporting period as the Municipal Association of Victoria, using consistent accounting policies. All interdivisional balances and transactions, including unrealised profits arising from intra-divisional transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered. The equity in the insurance businesses of Liability Mutual Insurance and the Commercial Crime Fund represent the assets of the members of each of the insurance mutualsâ&#x20AC;&#x2122; and are not available to the members of the Association. (d) Income tax The Association is exempt from income tax, in accordance with sections 50-10 and 50-25 of the Income Tax Assessment Act 1997. (e) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the Statement of Financial Position.

52> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

(f) Trade and other receivables Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. (g) Trade and other payables Trade and other payables are carried at amortised cost and due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the group prior to the end of the financial year that are unpaid and arise when the group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition. (h) Property, plant, equipment, trademarks and intellectual property Plant and equipment, trademarks and intellectual property are carried at cost less, where applicable, any accumulated depreciation or amortisation and any impairment. On disposal of an item of property, plant, equipment, trademarks and intellectual property the difference between the sales proceeds and the carrying amount of the asset is recognised as a gain or loss. The depreciable amount of all fixed assets including buildings and capitalised leased assets are depreciated/amortised on a straight line basis over their estimated useful lives to the entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. THE FOLLOWING DEPRECIATION RATES ARE IN USE:

ANNUAL RATE

Leasehold improvements at cost

10% - 20%

Furniture and equipment at cost

20% - 33%

Motor vehicles at cost

20%

Interactive communications system at cost

33%

MAV FINANCIAL REPORT 2011/12 > 53

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

(i) Leases A distinction is made between finance leases, which effectively transfer substantially all the risks and benefits incidental to ownership of the leased property from the lessor to the lessee without transferring the legal ownership; and operating leases, under which the lessor effectively retains substantially all the risks and benefits. Where assets are acquired by means of finance leases, the present value of minimum lease payments is established as an asset at the beginning of the lease term and amortised on a straight line basis over the expected economic life. A corresponding liability is also established and each lease payment is allocated between such liability and interest expense. Operating lease payments are charged to expense on a basis which is representative of the pattern of benefits derived from the leased property. Lease incentives received under operating leases are recognised as a liability. (j) Employee entitlements The liabilities arising in respect of employee entitlements (note 17) are measured at their nominal amounts: wages and salaries, annual leave and sick leave regardless of whether they are expected to be settled within twelve months of balance date. Other employee entitlements are expected to be settled within twelve months of balance date. All other employee entitlements, including long service leave, are measured at the present value of the estimated future cash outflows in respect of services provided up to balance date. Liabilities are determined after taking into consideration estimated future increase in wages and salaries and past experience regarding staff departures. Related on-costs are included. Contributions made to an employee superannuation fund are charged as expenses when incurred. (k) Revenue recognition (i) Interest revenue - Interest revenue is recognised on a time-proportionate basis that takes into account the effective yield on the financial asset on an accrual basis. (ii) Grant revenue - Grants are recognised as revenue when the Association obtains control over the assets comprising the contribution. Control over the grants is normally obtained upon their receipt or upon prior notification that a grant has been secured. (iii) Subscriptions and sponsorships - Subscriptions and sponsorships are recognised on an accrual basis. (l) Brokerage and management fees income Brokerage and management fees comprise amounts received from third parties and members to manage the MAV Insurance business and the various grants provided by Federal and State Government and private enterprise. (m) Investment income Investment income consists of interest which is recognised on a time-proportionate basis that takes into account the effective yield on the financial asset and movement in unit values in cash and fixed interest funds which are carried at fair value through the Statement of Comprehensive Income. (n) Other financial assets Investments are valued at net market value at balance sheet date. (o) Comparative figures Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. (p) Cash flows For the purposes of the statement of cash flows, cash includes cash in hand and deposits held at call with banks and investments in cash and fixed interests funds net of outstanding bank overdrafts. (q) Premiums Premiums comprise amounts charged to members of the Schemes for policy cover, net of amounts returned to members as bonuses. The earned portion of premiums received is recognised as revenue. Premiums are treated as earned from date of attachment of risk. The pattern of recognition over the policy is based on time, which is considered to closely approximate the pattern of risks undertaken. (r) Premiums receivable During the month of June each year, the Schemes issue premium notices to Scheme Members. The risk attaches to the premiums in the next accounting period and accordingly the revenue is recognised each following year commencing 1 July. Prior to each balance date members have committed to participate in both the scheme and the fund for the ensuing year and accordingly the premiums are disclosed in the balance sheet as ‘contributions receivable’ with an offsetting liability described as ‘contributions billed in advance’.

54> MAV FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

SUMMARY OF ACCOUNTING POLICIES RELATING TO INSURANCE ACTIVITIES (s) Claims Claims-incurred expense and liability for outstanding claims are recognised in respect of direct business. The liability covers claims incurred but not yet paid, incurred but not yet reported claims, and the anticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by reviewing individual claim files and estimating claims not notified and settlement costs using statistical and actuarial techniques. The liability for outstanding claims is measured as the present value of the expected future payments, reflecting the fact that all the claims do not have to be paid out in the immediate future. The expected future payments are estimated on the basis of the ultimate cost of settling claims, which is affected by factors arising during the period to settlement such as normal inflation and “superimposed inflation”. Advice from the MAV’s actuary has estimated normal and superimposed inflation to be 0% (2011 0%) and the discount rate at 3% (2011 5% ). Superimposed inflation refers to factors such as trends in court awards, for example increases in the level and period of compensation for injury. The expected future payments are then discounted to a present value at the reporting date using discount rates based on the investment opportunities available to the organisation on the amounts of funds sufficient to meet claims as they became payable. Details of rates applied are disclosed in note 22. (t) Reinsurance and other recoveries receivable Reinsurance and other recoveries receivable on paid claims, reported claims not paid, claims incurred but not reported and unexpired risk liabilities are recognised as revenue. Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims. Recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims. (u) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. (i) Premiums - recognised in the period the fund is at risk. (ii) Future reinsurance and other recoveries - on an accruals basis. (iii) Investment income - on an accruals basis including adjustments to bring values of cash backed unit trusts to account as investment income. (iv) Performance bonus - on an accruals basis when firm evidence is available confirming the amount and indicating payments. (v) Reinsurance expense Reinsurance expense relates to insurance premiums paid to reinsurers in accordance with the established reinsurance strategy of the entity and in order to protect the insurance businesses from catastrophic and unforseen claims.

MAV FINANCIAL REPORT 2011/12 > 55

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

COMBINED NOTE

2012

2011

21,945,978

20,349,090

3. Contribution to Operating Surplus Contribution from insurance activities Premium income Performance bonus Re-insurance expense

26 678,475 1,663,647 2(v) (13,326,687) (11,948,816)

Net premium income

9,297,766

10,063,921

Claims expense

5(a) (14,405,769) (18,863,610)

Reinsurance and other recoveries

2(t)

8,834,440

13,286,867

Net Claims Expense

(5,571,329)

(5,576,743)

3,726,437

4,487,178

247,494

190,023

Investment income Administration and general expenses

2,689,461 (7,943,952)

1,817,740 (6,996,696)

Insurance Activity Operating Surplus

(1,280,560)

(501,755)

MAV Surplus (Deficit) Operating Surplus (Deficit)

(2,744,976) (4,025,536)

(84,908) (586,663)

Net Underwriting Result Fees received

COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

24,334,544

22,647,421

2,410,761

2,318,040

8,834,440

13,286,867

4. Revenue Revenues from operating activities Subscriptions/premiums Reinsurance and other recoveries

2(t)

Performance bonus

Brokerage fees Management fee income

678,475

1,663,647

1,487,900

1,467,704

1,487,900

1,467,704

371,155

605,248

1,476,065

1,432,180

Seminars and sale of publications Project, sponsorship, management and rental income

1,150,389

954,440

1,150,389

954,440

3,665,548

2,936,681

3,665,548

2,936,681

Grant income Total revenue from operating activities

4,950,936

9,134,379

4,950,936

9,134,379

45,473,387

52,696,388

15,141,599

18,243,424

3,000,954

2,248,749

311,493

431,009

7,935

11,289

7,935

11,289

3,008,889

2,260,038

319,428

442,298

TOTAL REVENUE 48,482,276

54,956,426

15,461,027

18,685,722

Revenues from non-operating activities Investment income Gain on disposal of non-current assets Total revenue from outside the operating activities

56> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED

2012

2011

NOTE

11,908,234

14,996,386

14(a)

96,220,224

93,722,689

5(a)Claims Expenses Paid Outstanding claims at end of financial year Outstanding claims at beginning of financial year Total Claims Expenses

(93,722,689) (89,855,465) 2(s)

14,405,769

18,863,610

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

Re-insurance expense

13,326,687

11,948,816

Claims expense

14,405,769

18,863,610

99,221

3,152,543

3,091,834

2,873,167

2,477,293

1,857,694

1,318,933

394,248

378,928

394,248

378,928

91,309

62,052

72,105

62,052

NOTE

(b) Operating expenses The following items have been recognised in the operating surplus:

Claims handling cost Scheme management fee

Administration ALGA membership Amortisation of website, educational programs and trademarks Audit fees

176,909

190,071

43,448

37,559

Board of management expenses

238,888

248,329

238,888

248,329

Depreciation furniture and equipment Depreciation motor vehicles

86,673

84,691

74,827

72,847

105,990

104,882

105,990

104,882

Depreciation Information Technology Equipment

57,695

40,492

57,695

40,492

Depreciation leasehold improvements

45,898

74,698

26,177

54,977

7,159,964

9,120,749

7,159,964

9,246,421

296,471

319,770

9,127

194,098

1,402,757

1,180,076

1,402,757

1,178,372

Grants, projects and legal Legal & actuarial fees Meetings and seminars Operating lease rental expense

752,963

683,593

740,983

683,593

Salary and payroll costs

6,022,100

5,149,147

6,022,100

5,149,147

Stamp duty Total expenditure

1,818,560 52,507,812

1,524,058 55,543,089

18,206,003

18,770,630

Not later than one year

26,400

13,280

26,400

13,280

Later than one year but not later than five years Total lease commitment

66,000 92,400

13,280

66,000 92,400

13,280

6. Leasing commitments Operating lease commitments, being for lease of new OCE and OCE colour copiers

Operating lease commitments, being for lease of leasehold premises: Not later than one year

701,648

674,662

701,648

674,662

Later than one year but not later than five years

2,249,283

2,136,616

2,249,283

2,136,616

Later than five years Total Lease Commitment

2,950,931

406,010 3,217,288

2,950,931

406,010 3,217,288 MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 57

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

Audit services

138,550

151,700

24,600

37,559

Other services

38,359 176,909

151,700

18,848 43,448

37,559

NOTE

7. Auditors Remuneration Amounts received or due and receivable for audit services:

COMBINED NOTE

2012

2011

1,886,120

1,843,568

8. Scheme Management Fees Scheme management fees are paid to the scheme manager for: Reinsurance placement Risk management and administrative services Total administration

5(b)

Claims management (included in claims expenses) Total scheme management fees

1,266,423

1,248,266

3,152,543

3,091,834

1,052,758 4,205,301

1,130,808 4,222,642

COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

8,534,026

12,092,703

4,586,907

7,223,391

30,185,631 38,719,657

27,531,304 39,624,007

4,586,907

7,223,391

9. Notes to Statement of Cash Flows (a) Cash and cash equivalents at balance date as shown in the statement of cash flows are held in Standard and Poors rated AA and AAf cash deposits and reconciled to the related items in the Statement of Financial Position as follows: Cash at bank Other financial assets Total Cash and cash equivalents (b) Reconciliation of net cash used in operating activities to operating profit (loss) (4,025,536)

(586,663)

(2,744,976)

(84,908)

Depreciation

Profit (loss) for year

296,257

311,042

264,689

335,251

Amortisation

91,310

55,773

72,105

(Surplus)/deficit on disposal of assets

(7,935)

(11,289)

(7,935)

(11,289)

438,604

(1,262,507)

2,036,879

(1,321,353)

Changes in assets and liabilities (Increase)/decrease in accounts receivable

2(f)

(Increase)/decrease in prepayments

(12,248)

(17,588)

(11,572)

(17,588)

Increase/(decrease) in accounts payable

724,997

2,635,476

654,238

2,090,525

14,678

81,504

14,678

81,504

2,307,431

3,867,224

2,262,556

1,601,890

(2,808,964)

168,696

(2,808,964)

168,696

(718,850)

6,843,558

(2,530,857)

1,240,838

Increase/(decrease) in provision for employee entitlements Increase/(decrease) in outstanding claims Increase/(decrease) in accrued revenue Increase/(decrease) in other liabilities CASH FLOWS FROM OPERATIONS 58> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

2(s)

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

NOTE

2(t)

78,128,664 (7,964,231)

77,377,653 (6,625,877)

70,164,433

70,751,776

10. Receivables Future reinsurance and other recoveries receivable Discount to present value Less doubtful debts

24,094,922

20,884,676

5,046,035 99,305,390

7,698,734 99,335,186

4,137,335 4,137,335

6,174,214 6,174,214

Current

45,862,938

51,172,073

4,137,335

6,174,214

Non-Current Total

53,442,452 99,305,390

48,163,113 99,335,186

4,137,335

6,174,214

Total

<30 days

31-60 days

61-90 days

>90 days

29,175,329

28,899,976

192,020

405

82,928

3,856,846

3,581,493

192,020

405

82,928

29,319,660

29,138,495

118,995

20,558

41,612

6,004,140

5,822,975

118,995

20,558

41,612

Premiums receivable

2(r)

Other receivables Total receivables Represented by:

The ageing analysis of trade receivables are as follows: 2012 Combined MAV General Fund 2011 Combined MAV General Fund

COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

24,210,449

21,945,977

877,799

698,358

(707,640)

(661,742)

(646,526)

(620,350)

170,159

216,057

51,832

78,008

11. Premiums in Advance Contributions billed in advance 12. Property, Plant and Equipment Leasehold Improvements - at cost Less accumulated depreciation Furniture and Equipment - at cost Less accumulated depreciation Motor vehicles - at cost Less accumulated depreciation Information Technology Equipment- at cost Less accumulated depreciation Total Property, Plant and Equipment

858,074

848,525

760,054

750,505

(728,400)

(641,727)

(701,456)

(626,629)

129,674

206,798

58,598

123,876

564,532

560,172

564,532

560,172

(180,786)

(110,835)

(180,786)

(110,835)

383,746

449,337

383,746

449,337

688,711

669,651

688,711

669,651

(591,345) 97,366

(528,132) 141,519

(591,345) 97,366

(528,132) 141,519

780,945

1,013,711

591,542

792,740

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 59

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

216,057

247,100

78,008

89,330

43,655

12. Property, Plant and Equipment (continued) Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the financial year. Leasehold Improvements Movements during the year Beginning of year Additions Disposals

Depreciation

(45,898)

(74,698)

(26,176)

(54,977)

End of year

170,159

216,057

51,832

78,008

206,798

278,028

123,876

183,260

9,549

14,817

9,549

14,819

Furniture and Equipment Movements during the year Beginning of year Additions Disposals

Depreciation

(86,673)

(86,047)

(74,827)

(74,203)

End of year

129,674

206,798

58,598

123,876

Beginning of year

449,337

392,350

449,337

392,350

Additions

119,139

370,879

119,139

370,879

Motor Vehicles Movements during the year

(78,740)

(209,010)

(78,740)

(209,010)

Depreciation

Disposals

(105,990)

(104,882)

(105,990)

(104,882)

End of year

383,746

449,337

383,746

449,337

141,519

50,156

141,519

50,156

Additions

30,272

130,499

30,272

130,499

Disposals

(16,730)

Depreciation

(57,695)

(39,136)

(57,695)

(39,136)

End of year

97,366

141,519

97,366

141,519

Information Technology Equipment Movements during the year Beginning of year

60> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED NOTE

MAV - GENERAL FUND

2012

2011

2012

2011

13. Intangible Assets Trademarks and Intellectual Property

800,999

671,106

663,549

613,528

(551,295)

(460,038)

(532,091)

(460,038)

249,704

211,068

131,458

153,490

Beginning of year

211,068

176,925

153,490

176,925

Additions

145,330

136,457

65,458

78,879

Less accumulated amortisation

Reconciliation of the carrying amounts of intangible assets at the beginning and end of the financial year. Intangible Assets Movement during the year

Disposals

(15,385)

(40,262)

(15,385)

(40,262)

Amortisation

(91,309)

(62,052)

(72,105)

(62,052)

End of year

249,704

211,068

131,458

153,490

COMBINED

2012

2011

Central estimate

101,987,759

95,767,965

Discount to present value

(11,298,096) (10,045,276)

NOTE

14(a) Outstanding claims

90,689,663 Claims handling costs Risk margin

14(b)

Total outstanding claims

85,722,689

630,333

3,344,000

4,900,228

4,656,000

96,220,224

93,722,689

18,079,388

22,813,827

78,140,836

70,908,862

96,220,224

93,722,689

Comprising: Current Non-current Total claims provision

2(s)

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 61

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

14(b) Risk margin - Process for determining risk margin

Based on two actuarial publications Taylor Fry Consulting Actuaries, the appointed actuary recommended that a risk margin of 20% of the net liabilities be adopted to give a probability of about 75% that the provisions including the risk margins will prove adequate to meet the relevant liabilities. 2012 Gross Reinsurance $ $

(c) Reconciliation of movement in discounted outstanding claims liability Outstanding claims brought forward Changes in assumptions Increase in claims incurred/recoveries anticipated Incurred claims recognised in income statement Claim payments/recoveries during the year Outstanding claims carried forward

2011 Net $

Gross Reinsurance $ $

Net $

93,722,689

70,751,776

22,970,913

89,855,465

72,858,432

16,997,033

11,099,705

7,397,698

3,702,007

14,616,145

18,802,365

(4,186,220)

2,253,307

1,431,843

821,464

3,178,225

(5,520,748)

8,698,973

13,353,012 (10,855,477)

8,829,541 (9,416,884)

4,523,471 17,794,370 13,281,617 (1,438,593) (13,927,146) (15,388,273)

4,512,753 1,461,127

96,220,224

70,164,433

26,055,791

Current Year $

Prior Year $

22,110,561

(6,451,972)

(2,444,593) 19,665,968

93,722,689

70,751,776

Total Current Year $ $

Prior Year $

Total $

15,658,589

29,109,441 (10,119,956)

18,989,485

1,191,773

(1,252,820)

(3,652,090)

3,526,215

(125,875)

(5,260,199)

14,405,769

25,457,351

(6,593,741)

18,863,610

2012

22,970,913

2011

15. Net Claims Incurred Gross claims and related expenses undiscounted Discount Gross claims and related expenses discounted Reinsurance and other recoveries undiscounted Discount

(11,050,667) 104,080

963,983 (10,086,684) (15,202,368) 1,148,164 1,252,244 710,813

Reinsurance and other recoveries discounted

(10,946,587)

2,112,147

8,719,381

(3,148,052)

Net claims incurred

62> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

(8,834,440) (14,491,555) 5,571,329

10,965,796

2,558,701 (12,643,667) (1,354,013) (643,200) 1,204,688 (13,286,867) (5,389,053)

5,576,743

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

16. Claims Development Table Accident Year

2008 $

2009 $

2010 $

2011 $

2012 $

total $

Gross estimate of ultimate claims cost - LIABILITY MUTUAL INSURANCE At end year of accident

11,438,398

33,095,464

20,293,152

28,063,635

21,064,708

One year later

14,574,373

41,692,816

22,682,968

24,589,379

Two years later Three years later

15,754,621 15,397,449

32,781,490 32,282,253

18,260,706 -

Four years later

16,124,021

Current estimate of cumulative claims cost

16,124,021

32,282,253

18,260,706

24,589,379

Cumulative payments

(7,006,304) (12,947,509)

Outstanding claims - undiscounted

9,117,717

19,334,744

(2,785,825)

(2,106,363)

15,474,881

22,483,016

21,064,708 112,321,067 (154,348) (25,000,349) 20,910,360

Discount

(9,470,238)

Claims handling expense

541,388

2007 and prior LIABILITY MUTUAL INSURANCE - total gross outstanding claims 14(a) Combined gross outstanding claims 14(c)

Accident Year

87,320,718

17,828,356 96,220,224 96,220,224

2008 $

2009 $

2010 $

2011 $

2012 $

total $

Net estimate of ultimate claims cost - LIABILITY MUTUAL INSURANCE At end year of accident

2,336,670

28,615,874

8,883,685

11,576,465

8,710,223

One year later

1,146,195

19,307,213

9,429,739

8,098,820

Two years later

1,143,419 291,537

14,069,608 16,406,929

7,185,550 -

Three years later Four years later

352,944

Current estimate of cumulative claims cost

352,944

16,406,929

7,185,550

8,098,820

8,710,223

Cumulative payments

(696,783)

(7,496,844)

(1,280,865)

(1,183,763)

Outstanding claims - undiscounted

(343,839)

8,910,085

5,904,685

6,915,057

Discount Claims handling expense 2007 And prior LIABILITY MUTUAL INSURANCE - TOTAL NET OUTSTANDING CLAIMS Combined net outstanding claims 14(c)

40,754,466

(66,825) (10,725,080) 8,643,398

30,029,386 (3,489,663) 186,182 (670,114) 26,055,791 26,055,791

These tables show the trend in the balance of outstanding claims.

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 63

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

Provisions (current)

765,906

777,186

765,906

777,186

Provisions (non-current) Total employee entitlements

52,402 818,308

26,444 803,630

52,402 818,308

26,444 803,630

Beginning of year

803,630

722,126

803,630

722,126

Additions End of year

14,678 818,308

81,504 803,630

14,678 818,308

81,504 803,630

NOTE

17. Provisions for Employee Entitlements The aggregate amount of employee entitlement liability is comprised of:

Reconciliation of the carrying amounts of provision for employee entitlements at the beginning and end of the financial year Employee entitlements Movement during the year

18. Superannuation Contribution The Municipal Association of Victoria contributes in respect of its employees to both the Vision Super Superannuation Fund’s Accumulation Fund and the Defined Benefits Fund. The amount of superannuation contributions paid by the Municipal Association of Victoria to the Vision Super Accumulation Fund and the Defined Benefits Fund during the reporting period was $1,078,590 (2011: $503,536). The Municipal Association of Victoria contributes to the Accumulation Fund based on a fixed percentage of employee earnings in accordance with the Superannuation Guarantee Legislation 9% in 2012 and 9% in 2011. No further liability accrues to the employer as the superannuation benefits accruing to employees are represented by their share of the net assets of the Fund. Contributions to the Defined Benefits Fund are determined by the Scheme’s actuary. The Fund’s liability for accrued benefits for defined benefit and defined contribution members was determined on the 31 December 2011 by an actuarial investigation carried out by Local Authorities Super pursuant to the requirements of Australian Accounting Standard AASB 2005-13. The actuarial review calculated that the Defined Benefits Superannuation Fund was in a deficit and a call was made on members. During the year the Municipal Association of Victoria accrued its share of the call amounting to $671,964 (2011: $136,263) within the superannuation contributions paid. 19. Government Grants The Association receives grant monies from various Federal and State government departments on behalf of local government. Grant monies received have been accounted for as income in accordance with Australian Accounting Standard 1004. At the end of the financial year the Association had commitments to expend grants totalling approximately $3,957,656 (2011 $6,094,255) after deducting an estimate of costs of administering the grants. COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

4,950,936

11,145,802

4,950,936

11,145,802

Recognised in Income Statement Grant income The Association does not receive any other government assistance.

64> MAV FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

20. Financial risk management policies and objectives The groupâ&#x20AC;&#x2122;s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out below: COMBINED

NonInterest Earning $

MAV - GENERAL FUND

Floating Interest Rate

NonInterest Earning

Floating Interest Rate

2012 Financial assets Cash at bank Other financial assets Trade and other receivables Total financial assets

99,305,390 99,305,390

8,534,026

4,586,907

30,185,631

38,719,657

Weighted average interest rate

4,137,335 4,137,335

4,586,907

Financial liabilities Outstanding claims

96,220,224

Unearned premiums/subscriptions

24,210,449 7,001,997 127,432,670

Trade and other payables Total financial liabilities

Weighted average interest rate

4,197,691 4,197,691

The cash at bank and other financial assets are level 1 financial assets in accordance with AASB7 financial instruments. The carrying amounts of financial assets and financial liabilities represent their approximate net fair value. All maturity dates are within twelve months. COMBINED

NonInterest Earning $

MAV - GENERAL FUND

Floating Interest Rate

NonInterest Earning

Floating Interest Rate

2011 Financial assets Cash at bank

12,092,703

7,223,391

Other financial assets

27,531,304

99,335,186 99,335,186

39,624,007

Trade and other receivables Total financial assets Weighted average interest rate

6,174,214 6,174,214

6.2%

7,223,391 6.3%

Financial liabilities Outstanding claims

93,722,689

Unearned premiums/subscriptions

21,945,977 6,059,759 121,728,425

Trade and other payables Total financial liabilities Weighted average interest rate

3,543,453 3,543,453

Cash at bank and other financial assets are level 1 financial assets in accordance with AASB7 financial instruments. The carrying amounts of financial assets and financial liabilities represent their approximate net fair value. All maturity dates are within twelve months

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 65

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

20. Financial risk management policies and objectives (continued) The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities as at 30 June 2012. Cash flows for financial assets and liabilities without fixed amount or timing are based on conditions existing at 30 June 2012. The remaining contractual maturities of the financial liabilities are: COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

3 months or less

17,496,792

17,225,886

4,197,691

3,543,453

3-12 months

33,230,236

38,234,716

1,172,729

3,945,650

1-5 years

55,803,950

63,036,991

180,190

201,555

33,552,706

17,423,333

140,083,684 135,920,926

5,550,610

7,690,658

Over 5 years

Liquidity Risk Maturity analysis of financial assets and liabilities based on management’s expectation. The risk implied from the values in the table below, reflects a balanced view of cash inflows and outflows. These liabilities originate from insurance contracts and other financial assets used in the ongoing operations of the business. These assets are considered in the Association’s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable effective controlling of future risks, the Association has established a comprehensive risk reporting covering its insurance business that reflects the expectations of the management of expected settlement of financial assets and liabilities. Year ended 30 June 2012

<3 months

3-12 months

1-5 years

>5 years

Total

38,719,656

Combined Financial assets Cash and cash equivalents

38,719,656

Trade and other receivables

33,994,752 72,664,408

11,891,869 11,891,869

38,417,012 38,417,012

22,787,581 107,041,214 22,787,581 145,760,870

Outstanding claims

4,585,463

13,756,391

55,623,760

33,552,706 107,518,320

Unearned premiums/subscriptions

6,052,612

18,157,837

24,210,449

Trade and other payables

6,858,717

143,279

7,001,996

Other liabilities Total financial liabilities

17,496,792

1,172,729 33,230,236

180,190 55,803,950

Net maturity

55,167,616 (21,338,367) (17,386,938) (10,765,125)

Combined Financial liabilities

1,352,919 33,552,706 140,083,684 5,677,186

Parent Financial assets Cash and cash equivalents

4,586,907

Trade and other receivables

4,137,335 8,724,242

Parent Financial liabilities Trade and other payables

4,197,691

Other liabilities Total financial liabilities

4,197,691

1,172,729 1,172,729

180,190 180,190

1,352,919 5,550,610

Net maturity

4,526,551

(1,172,729)

(180,190)

3,173,632

66> MAV FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

20. Financial risk management policies and objectives (continued) Risk management objectives and policies for mitigating insurance risk The Association’s local government mutual liability scheme (trading as Liability Mutual Insurance) is established by legislation contained in the Municipal Association Act 1907. Membership is available to local government councils and prescribed bodies. The Scheme operates in Victoria and Tasmania to provide services to members in respect of their potential and actual liabilities. A member may seek indemnity from the Scheme in respect of a claim. Actuarial models, using information from the Scheme’s management information systems are used to confirm contributions and monitor claim patterns. Past experience and statistical methods are used as part of the process. The principal risk is that the frequency and severity of claims is greater than expected. Civil liability risk events are, by their nature, random, and the actual number and size of events during any one-year may vary from those estimated using established statistical techniques. Objectives in managing risk arising from insurance and policies for mitigating those risks The Scheme has an objective to control insurance risk thereby reducing the volatility of its operating surplus. In addition to the inherent uncertainty of civil liability risks, which can lead to variability in the loss experience, operating surpluses can also be affected by external factors, such as competition and movements in asset values. The Scheme relies on a strong relationship with its members and actively encourages them to adopt practices of risk management that reduce the incidence of claims to the Scheme. Reinsurance strategy The Scheme adopts a conservative approach towards management of risk and does this by utilising various risk transfer options. The MAV Insurance Committee determines the level of risk, which is appropriate for the Scheme having regards to ordinary concepts of prudence and regulatory constraints. The risk transfer arrangements adopted by the Scheme include the utilisation of commercial reinsurance / excess arrangements. These arrangements include constant review of both reinsurers’ financial strength, and ensuring spread of risk among reinsurers who meet the requirements of the MAV insurance policies. These risk transfer arrangements assist the Scheme to limit exposures to large single claims and catastrophic events. These programs are reviewed each year to ensure that they continue to meet the risk needs of the Scheme. Terms and conditions of membership Membership to the Scheme is offered to eligible bodies and renewed annually on 30th June. Payment of the annual contribution confirms continuation of membership. Termination of membership is subject to at least 90 days written notice of intention as laid out by the Scheme Rules.

Product features The Scheme operates in Victoria and Tasmania. Should a claim be accepted the Scheme provides indemnity to the member in respect of their civil liabilities for $400 million public / products liability ($600 million for water authorities) and $300 million for professional indemnity insurance, subject to any excess, for any claim incurred anywhere throughout the world. Operating surpluses arise from the total contributions charged to members less the amounts paid to cover claims and the expenses incurred by the Scheme.

Management of risks The key insurance risks that affect the Scheme are contribution risk, and claims experience risk. Contribution risk is the risk that the Scheme does not charge contributions appropriate for the indemnity cover it provides. The Scheme partially manages contribution risk through its proactive approach to risk management that addresses all material risks both financial and non-financial. There are no specific terms and conditions that are expected to have a material impact on the financial statements. Claims experience risk is managed through the non-financial risk assessment and risk management and reinsurance management process. Claims experience is monitored on an ongoing basis to ensure that any adverse trending is addressed. The Scheme is able to reduce the claims experience risk of severe losses through the reinsurance program, and by managing the concentration of insurance risks.

Concentration of insurance risks Insurance risk is managed by taking a long term approach to setting the annual contribution rates that eliminates price fluctuations, through appropriate investment strategy, reinsurance and by maintaining an active state-wide risk management profile. It is vital that the Scheme keeps abreast of changes in the general economic, legal and commercial environment in which it operates. It is vital that the Scheme spreads its risk of reinsurance failure by ensuring reinsurers are of high financial quality and can meet their commitments to the Association. The Association maintains policies and strategies and receives advice from an independent actuary on at least an annual basis in order to determine the concentration and amount of risk exposure. The Association keeps abreast of changes in the general economic, legal and commercial environment in which it operates.

MAV FINANCIAL REPORT 2011/12 > 67

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

20. FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVES (continued) CREDIT RATING

Reinsurance and other recoveries on outstanding claims Reinsurance and other recoveries on paid claims

Reinsurance and other recoveries on paid claims

AAA +/$m

AA +/$m

A +/$m

BBB $m

Speculative Grade $m

Not Rated $m

TOTAL $m

2012

0.431

32.220

0.454

33.105

2011

0.467

27.057

0.537

28.061

2012

0.022

1.378

0.757

2.157

2011

0.038

3.408

0.743

4.189

PAST DUE BUT NOT IMPAIRED Neither Greater past than due nor Less than 3 to 6 6 months 1 year Impaired impaired 3 months months to 1 year $m $m $m $m $m $m

Total $m

2012

1.053

0.347

0.026

0.731

2.157

2011

2.632

0.678

0.139

0.014

0.726

4.189

Interest rate risk The reinsurance indemnity contracts contain no clauses that expose the Scheme, directly to interest rate risk. The reinsurance contracts are long term arrangements, reviewed and payable annually.

Variable

Current rate

Change variable to

Total Operating Accumulated surplus Funds after the impact (deficit) at 30 June of applying variable 2012 $

(1,314,338)

5,933,495

3.5%

(827,338)

6,420,495

2.5%

(1,801,338)

5,446,495

Impact of changes in interest rates LIABILITY MUTUAL INSURANCE Base value at 30 June 2012 Interest rate pa

Credit risk The Scheme is exposed to credit risk on insurance contracts as a result of exposure to reinsurers. The credit risk to reinsurers is managed through the Schemeâ&#x20AC;&#x2122;s Reinsurance Management Strategy and policies that includes regularly monitoring both the financial rating of the reinsurers both prior to and during the reinsurance program and the flow of payments coming from the reinsurers. Investments in cash and cash equivalents at balance date as shown in the Statement of Cash Flows are held in Standard and Poors rated AA and AAf rated cash deposits.

Price risk Investments held are not subject to price risk. Investments are cash at bank and fixed interest funds.

68> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2012

21. ACCOUNTING ESTIMATES AND JUDGEMENTS The Scheme makes estimates and judgements in respect of certain key assets and liabilities. Estimates and judgements are continually reviewed and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates and judgements are applied are described below. (a) Estimation of outstanding claims liability Provision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported (IBNR) to the Scheme. The Scheme takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome may be different from the original liability established. Provisions are calculated gross of all recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers and any third party. The determination of an appropriate outstanding claims provision involves: (i) Establishing a case estimate for each reported claim at year-end taking into account legal advice where appropriate on larger claims (ii) Allowance for incurred but not reported claims as confirmed by the actuarial review on 30 June 2012 (iii) An allowance of 0.7% for claim settlement expenses, as assumed by the Actuary (iv) Allowances for claim inflation of 3.25%, as assumed by the Actuary (v) Allowances for discount at 3%, as assumed by the Actuary (vi) A risk margin of 20% of net outstanding claims after the effect of reinsurance has been applied, as assumed by the Actuary. Details of specific actuarial assumptions used in deriving the outstanding claims liability at year-end are detailed in note 22. (b) Assets arising from reinsurance contracts Assets arising from reinsurance contracts were estimated for each fund year, from the payments to date and estimated outstanding claims history at 30 June 2012, taking into account the reinsurance terms applying to that fund year. In accordance with the Actuarial recommendations an allowance was made for non-recoveries from relevant insurers. 22. ACTUARIAL ASSUMPTIONS AND METHODS Actuarial assumptions The following assumptions have been made in determining the outstanding claims liabilities: 2012

2011

Key Actuarial Assumptions Wage inflation Claim administration expense

3.25%

0.7%

Discount rate

Reinsurer default

20%

Risk margin

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 69

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

22. ACTUARIAL ASSUMPTIONS AND METHODS (continued)

Process used to determine actuarial assumptions A description of the processes used to determine the above key actuarial assumptions is provide below: Liability Mutual Insurance has provided public and professional indemnity insurance to local government bodies in Victoria and Tasmania and other bodies constituted under any Act for any public or local governing purpose since 30 September 1993. The Actuary was supplied with details of all transactions (payments, recoveries, changes of estimates) from 30 September 1993 to 30 June 2012. The individual claim payments and case estimates reconciled closely with totals in Liability Mutual Insurance financial statements for each year of cover. The actuary subdivided the claims data into three claim types (Public Liability, Professional Indemnity and the 2009 Bushfire claims) and made separate estimates of the gross outstanding claims liabilities for each of these claim types. The actuary estimated the gross outstanding claims liabilities for each claim type using 5 different actuarial methods. Large claims (claims above $250,000) were estimated based on a numbers times average size method and non-large claims were estimated using 4 different actuarial methods â&#x20AC;&#x201C; payments per claim incurred; payments per claim finalised; incurred cost development; and projection of case estimates. The actuary selected a combination of these methods for estimating the outstanding claims. Payments were projected with a payment pattern, based on past experience. Estimates of outstanding excesses were based on a numbers times average size method and estimates of non-reinsurance recoveries were made by a recoveries per claim method. Estimates of reinsurance recoveries were made from projected gross payments, excesses and non-reinsurance recoveries, allowing for the different insurance treaties applying to each year. Based on Access Economics June 2012 forecasts for Victorian average weekly claims inflation was assumed to be 3.25%. The discount rate was assumed to be 3% pa., derived from the yields on Commonwealth government bonds. Based on two actuarial publications the actuary recommended that a risk margin of 20% of the net liabilities be adopted to give a probability of about 75% that the provisions including the risk margins will prove adequate to meet the relevant liabilities. VARIABLE

IMPACT OF MOVEMENT IN VARIABLE

Wage inflation Expected future payments are inflated to take account of inflationary increases. An increase or decrease in the assumed levels of economic inflation would have a corresponding impact on claims expense, with particular reference to longer tail claims. Discount rate The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on total claims expense. Case estimate development Case estimates are initially established in accordance with established guidelines and by reference to the known facts. Where new information becomes available the initial case estimate will change. This development movement is applied to open claims and will have a corresponding impact on claims expense.

Variable

Total Operating Accumulated surplus Funds after the impact (deficit) at 30 June of applying variable 2012

Current rate

Change variable to

(1,314,338)

5,933,495

3.75%

(1,844,338)

5,403,495

2.75%

(784,338)

6,463,497

Impact of changes in interest rates LIABILITY MUTUAL INSURANCE Base value at 30 June 2012 Interest rate pa

70> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

3.25%

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

23. RENT-FREE PERIOD During the 2004 financial year the Association negotiated a ten-year lease over the property at Level 12, 60 Collins Street Melbourne with the Reserve Bank of Australia. The lease commenced on 1 March 2004 and included a 15 months rent free period up to 31 May 2005. During the 2008 financial year the Association negotiated a ten-year lease over the property at Level 11, 60 Collins Street Melbourne with the Reserve Bank of Australia for an on behalf of Liability Mutual Insurance. The lease commenced on 1 June 2008 and included an 8 month’s rent free period up to 31 January 2009. In accordance with Lessee Accounting for Surplus Leased Space Under Non-Cancellable Operating Lease, lease incentives received have been recognised as a liability. This liability recognised in respect of the lease incentive will be reduced by allocating lease rental payments between rental expense and reduction of the liability. 24. COMMERCIAL CRIME FUND - CHANGE OF BUSINESS – Change of Business On 1 July 2010 the Commercial Crime Fund ceased to write insurance business on its own account. From this date the Scheme facilitated insurance for its members via a policy issued by Zurich Insurance Australia. The Scheme undertook this change in business due to the inability of the Scheme to offer the broad terms and conditions currently available in the market. This is due to the restrictions placed on the Scheme by the provisions of the Municipal Association Act 1907. The Scheme was liable for any claims made against it up to 31 December 2010 for events occurring prior to 1 July 2010. From 1 January 2011 the Scheme is not on risk for any insurance claim that might be made against it. 25. CAPITAL MANAGEMENT OBJECTIVES The Association is specifically excluded from the provisions of the Insurance Act and from APRA regulation. There is no externally imposed capital requirement on the Association. The Association’s capital management philosophy is focused on capital efficiency and effective risk management to support a progressive business model for the benefit of members of both LMI and the Commercial Crime Fund. The independent actuary provides advice on the target capital holding on at least an annual basis. The target capital holding is to be at a level that provides operational flexibility, avoids sudden increases in contribution levels in response to fluctuations in surplus and ensures solvency in the event of the maximum likely adverse event. Both LMI and the Commercial Crime Fund are non discretionary mutual funds and have as a last resort an ability to claim against its members to protect its capital holdings. 26. REINSURANCE PERFORMANCE BONUS The Liability Mutual Insurance Scheme, in conjunction with similar Local Government Self Insured Mutual Liability Schemes around Australia has entered into a profit sharing arrangement with its primary reinsurers, based on the National Local Government claims experience. The arrangement enables any surplus per each year over the five-year reinsurance period to be shared between the various Schemes and the reinsurers on a proportional basis. Performance bonus totalling $678,475 ( 2011 $1,663,647) became due and receivable on 30 June 2012, and has been independently confirmed at the date of this report. 27. CONTINGENT LIABILITY During the normal course of business, the Scheme may be exposed to contingent liabilities from litigation arising from its insurance and reinsurance activities, which if they should crystallise may adversely affect the financial position and performance of the MAV. Provisions are made for obligations that are probable and able to be quantified. The MAV provides public liability and professional indemnity insurance to the City of Casey, and during the year the MAV was joined by the City of Casey in a legal action after the MAV did not grant indemnity to the City of Casey under the contract of insurance in relation to claims concerning the escape and migration of landfill gas from a City of Casey landfill. The legal action is a class action commenced by nearby residents. In the legal action the City of Casey is seeking to recover from the MAV and various other defendants $13.5M paid by the City of Casey to settle the residents’ claims and remediation costs alleged to exceed $100M. The MAV denies that it is on risk and consequently no provision for this claim, other than for legal and other costs, has been brought to account. The MAV is vigorously defending this claim and will continue to assess its legal position.

MAV FINANCIAL REPORT 2011/12 > 71

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

28. REMUNERATION OF KEY MANAGEMENT PERSONNEL The MAV employed five key management personnel and provided these personnel with short term employee benefits and post employment benefits. COMBINED

MAV - GENERAL FUND

2012

2011

2012

2011

932,084

902,737

903,286

875,975

44,923

43,488

44,923

43,488

MAV Board Members receive an annual allowance. The President receives $57,672, the Deputy Presidents $12,174 and other Board members $8,404. Short term employment benefits Post employment benefits Loans to directors The MAV has a strict policy of not providing loans to directors. No loans were made to or are payable by directors. Other transactions There were no other material transactions with directors. Insurance The activities of the MAV board members are covered by the MAV directors’ and officers’ indemnity insurance policy effected by the Municipal Association of Victoria 29. RELATED PARTIES The Municipal Association of Victoria is a body corporate established under the Municipal Association Act 1907 to provide services for and represent local government authorities in Victoria. The Association and its wholly owned controlled entities trade with its members in the normal course of business and on an arm’s length basis. The Deed of Establishment of the Liability Mutual Insurance Scheme provides for the MAV to appoint a Committee of Management (MAVIC) to be responsible for the administration of the Scheme. There were no material related party transactions during the year.

72> MAV FINANCIAL REPORT 2011/12

Statement by directors as at 30 June 2012 In the opinion of the Directors of the Municipal Association of Victoria: (a) the accompanying Statements of Comprehensive Income drawn up so as to present fairly in all material respects the result of the association for the year ended 30 June 2012; (b) the accompanying Statement of Financial Position is drawn up so as to present fairly in all material respects the state of affairs of the association as at that date; (c) at the date of this statement there are reasonable grounds to believe that the association will be able to pay its debts as and when they fall due; and (d) the accompanying Combined Financial Statements present fairly in all material respects the state of affairs of the association as at that date; (e) the financial statements and notes also comply with the international financial reporting standards as disclosed in note 2(b). The financial statements and combined financial statements have been made out in accordance with applicable Accounting Standards and other mandatory professional reporting requirements. Signed in accordance with the resolution of directors.

Cr. William McArthur President

Cr. Geoff Gough Robert Spence Director Chief Executive Officer

Melbourne 5 October 2012

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 73

Combined financial reports

74> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

Combined financial reports

MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12 > 75

Other information

Legal Form: The Municipal Association of Victoria is an association incorporated by the Municipal Association Act 1907.

Domicile: Melbourne, Australia Address of registered office and principal place of business: Level 12, 60 Collins Street, Melbourne, 3000, Victoria, Australia Nature of the operation and principal activities: The Municipal Association of Victoria represents, promotes and supports the interest of Victorian local government and their communities. Employees: Average number of equivalent full time employees during the year is 59.1 EFT.

76> MAVâ&#x20AC;&#x2C6;FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

MAV INSURANCE Financial Report 2011/12

MAV INSURANCE FINANCIAL REPORT 2011/12 > 77

Statement of comprehensive income for the year ended 30 June, 2012 COMBINED

Reinsurance expense

2012

2011

2012

2011

NOTE

21,945,978

20,349,090

21,945,978

20,349,090

678,475

1,663,647

678,475 1,663,647 2(s) (13,326,687) (11,948,816) (13,326,687) (11,948,816)

9,297,766

10,063,921

4(a) (14,405,769) (18,863,610) (14,405,769) (18,827,532)

(36,078)

Net Premium Income Claims expense Reinsurance and other recoveries Net Claims Expense

Investment income Administration and general expenses

9,297,766

8,834,440

13,286,867

8,829,540

13,281,617

4,900

5,250

(5,571,329)

(5,576,743)

(5,576,229)

(5,545,915)

4,900

(30,828)

Net underwriting result Management fees

COMMERCIAL CRIME

2011

Premium revenue Performance bonus

LIABILITY MUTUAL INSURANCE

2012

3,726,437

4,487,178

3,721,537

4,518,006

4,900

(30,828)

3,20

247,496

190,023

247,496

190,023

2,689,461

1,817,740

2,664,826

1,795,436

24,635

22,304

(7,943,952)

(6,996,699)

(7,700,701)

(6,851,792)

(243,251)

(144,907)

Operating Profit (LoSS)

4(b)

(1,280,558)

(501,758)

(1,314,338)

(538,350)

33,780

36,592

Other comprehensive income Total comprehensive income for the period

(1,280,558)

(501,758)

(1,314,338)

(538,350)

33,780

36,592

Statement of financial position COMBINED

as at 30 June, 2012

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

8(a) 34,132,749

32,400,616

33,687,158

31,992,173

445,591

408,443

NOTE

Current Assets Cash and cash equivalents Trade and other receivables Total current assets

42,040,464 76,173,213

45,541,129 77,941,745

42,039,339 75,726,497

45,535,185 77,527,358

1,125 446,716

5,944 414,387

Property, plant and equipment

7(a)

189,404

220,971

189,404

220,971

Intangible assets

7(b)

118,247

57,578

118,247

57,578

53,442,452

48,163,113

53,442,452

48,163,113

53,750,103

48,441,662

53,750,103

48,441,662

129,923,316 126,383,407 129,476,600 125,969,020

446,716

414,387

5,609

7,060

Non-current assets

Trade and other receivables Total non-current assets Total assets Current liabilities Trade and other payables Premiums in advance

3,118,041

3,059,581

3,112,432

3,052,521

24,210,449

21,945,977

24,210,449

21,945,977

Provision for claims outstanding 11(a) Total Current Liabilities

18,079,388 45,407,878

22,813,827 47,819,385

18,079,388 45,402,269

22,813,827 47,812,325

5,609

7,060

78,140,836

70,908,862

78,140,836

70,908,862

78,140,836

70,908,862

78,140,836

70,908,862

123,548,714 118,728,247 123,543,105 118,721,187

5,609

7,060

Non-Current Liabilities Provision for claims outstanding 11(a) Total non-current liabilities Total liabilities Net assets

6,374,602

7,655,160

5,933,495

7,247,833

441,107

407,327

Equity

6,374,602

7,655,160

5,933,495

7,247,833

441,107

407,327

78 > MAV INSURANCE FINANCIAL REPORT 2011/12

Statement of changes in equity for the year ended 30 June, 2012 COMBINED

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

7,655,160

8,156,918

7,247,833

7,786,183

407,327

370,735

(1,280,588)

(501,758)

(1,314,338)

(538,350)

33,780

36,592

6,374,602

7,655,160

5,933,495

7,247,833

441,107

407,327

NOTE

Retained Earnings Balance at beginning of year Surplus (deficit) from ordinary activities Balance at end of year

Statement of cash flows for the year ended 30 June, 2012 COMBINED

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

Premiums and fees

24,468,922

24,286,459

23,421,248

23,569,452

1,047,674

717,007

Performance bonus

1,663,647

1,995,765

1,663,647

1,995,765

Investment income

2,521,768

1,814,714

2,508,313

1,789,648

13,455

25,066

Reinsurance and other recoveries

9,821,342

13,881,132

9,816,442

13,875,882

4,900

5,250

Suppliers

(25,281,016) (22,097,549) (24,252,135) (21,310,370)

(1,028,881)

(787,179)

Claim payments Net cash provided by/ (used in) operating activities

(11,382,655) (14,277,798) (11,382,655) (14,231,367)

(46,431)

NOTE

Cash flow from operating activities Receipts

Payments

8(b)

1,812,008

5,602,723

1,774,860

5,689,010

37,148

(86,287)

(79,875)

(57,578)

(79,875)

(57,578)

(79,875)

(57,578)

(79,875)

(57,578)

Cash flow from investing activities Proceeds from sale of fixed assets Payments for fixed assets and intangibles Net cash used in investing activities Net increase / (decrease) in cash held Cash at beginning of year Cash at end of year

8(a)

1,732,133

5,545,145

1,694,985

5,631,432

37,148

(86,287)

32,400,616 34,132,749

26,855,471 32,400,616

31,992,173 33,687,158

26,360,741 31,992,173

408,443 445,591

494,730 408,443

The accompanying notes form an integral part of these statements.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 79

Notes to and forming part of the financial statements for the year ended 30 June 2012 1. Corporate Information The combined financial report of MAV Insurance for the year ended 30 June 2012 was authorised for issue in accordance with a resolution of the directors of the Municipal Association of Victoria on the date shown on the attached Statement by Directors. MAV Insurance is the insurance division of the Municipal Association of Victoria. The Municipal Association of Victoria is an association incorporated by an Act of the Parliament of Victoria known as the Municipal Association Act 1907. The nature of the operations and principal activities of MAV Insurance are to provide public liability and professional indemnity and arranging fidelity insurance for its members located in Victoria and Tasmania and community groups within its council member boundaries. 2. Summary of Significant Accounting Policies (a) Basis of preparation The financial report is a general purpose financial report which has been drawn up in accordance with Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board. The principal accounting policies adopted in preparing the financial report are stated to assist in a general understanding of the financial report. Accounting policies have been consistently applied unless otherwise indicated. The financial report is presented in Australian dollars. The accounts have been prepared on the accruals basis using historical costs and, except where stated, do not take into account current valuations of assets. (b) Statement of compliance The financial report complies with Australian accounting standards, which include Australian equivalents to International Financial Reporting Standard (AIFRS). Compliance with AIFRS ensures that the financial report, comprising the financial statements and notes thereto, complies with International Financial Reporting Standards (IFRS). (c) The basis of the combined report The combined financial report relates to the insurance activities of the Municipal Association of Victoria “the Association” being its controlled entities the Local Government Mutual Liability Insurance Scheme (trading as Liability Mutual Insurance - LMI) “the Scheme”, and the Commercial Crime Fund. The presentation of the combined balances is for management purposes only. The two entities are separate independent legal entities. The effects of all transactions between entities in the combined entity have been eliminated. The financial statements of the entities are prepared for the same reporting period as the Municipal Association of Victoria, using consistent accounting policies. (d) Income tax The entities are exempt from income tax, in accordance with sections 50-10 and 50-25 of the Income Tax Assessment Act 1997. (e) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Bank overdrafts are included within interest-bearing loans and borrowings in current liabilities on the Statement of Financial Position. (f) Trade and other receivables Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment. Collectability of trade receivables is reviewed on an ongoing basis at an operating unit level. Individual debts that are known to be uncollectible are written off when identified. An impairment provision is recognised when there is objective evidence that the group will not be able to collect the receivable. Financial difficulties of the debtor, default payments or debts more than 60 days overdue are considered objective evidence of impairment. The amount of the impairment loss is the receivable carrying amount compared to the present value of estimated future cash flows, discounted at the original effective interest rate. (g) Trade and other payables Trade and other payables are carried at amortised cost due to their short term nature they are not discounted. They represent liabilities for goods and services provided to the group prior to the end of the financial year that are unpaid and arise when the group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

80 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012 (h) Property, plant, equipment, trademarks and intellectual property Plant and equipment, trademarks and intellectual property are carried at cost less, where applicable, any accumulated depreciation or amortisation and any impairment. On disposal of an item of property, plant, equipment, trademarks and intellectual property the difference between the sales proceeds and the carrying amount of the asset is recognised as a gain or loss. The depreciable amount of all fixed assets including buildings and capitalised leased assets are depreciated/amortised on a straight line basis over their estimated useful lives to the entity commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The following depreciation rates are in use: Annual rate Leasehold Improvements at cost

10%

Furniture and Equipment at cost

10%

Intangible Assets at cost

20%

INTANGIBLE ASSETS Intangible assets (computer software, trademarks and intellectual property) acquired separately or in a business combination are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is recognised in profit or loss in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful life and tested for impairment whenever there is an indication that the intangible assets may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortisation period or method, as appropriate, which is a change in the accounting estimate. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category ‘amortisation’. The Association does not have any intangible assets with indefinite useful lives. IMPAIRMENT The carrying amount of property, plant, equipment, trademarks and intellectual property is reviewed annually by directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets’ employment and subsequent disposal. The expected net cash flows have not been discounted to present values in determining the recoverable amounts. (i) Management fees Management Fees comprise amounts received from members to manage and pay expenses for and on behalf of the Commercial Crime Fund. (j) Investment income Investment income consists of interest which is recognised on a time-proportionate basis that takes into account the effective yield on the financial asset and movements in unit values in cash and fixed interest funds which are carried at fair value from the Statement of Comprehensive Income. (k) Premiums Premiums comprise amounts charged to members of the Schemes for policy cover, net of amounts returned to members as bonuses. The earned portion of premiums received is recognised as revenue. Premiums are treated as earned from date of attachment of risk. The pattern of recognition over the policy is based on time, which is considered to closely approximate the pattern of risks undertaken. (l) Premiums receivable During the month of June each year, the Schemes issue premium notices to Scheme Members. The risk attaches to the premiums in the next accounting period and accordingly the revenue is recognised each following year commencing 1 July. Prior to each balance date members have committed to participate in the scheme and the fund for the ensuing year and accordingly the premiums are disclosed in the balance sheet as ‘contributions receivable’ with an offsetting liability described as ‘contributions billed in advance’. (m) Claims Claims-incurred expense and liability for outstanding claims are recognised in respect of direct business. The liability covers claims incurred but not yet paid, incurred but not yet reported claims, and the anticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by reviewing individual claim files and estimating claims not notified and settlement costs using statistical and actuarial techniques. The liability for outstanding claims is measured as the present value of the expected future payments, reflecting the fact that all the claims do not have to be paid out in the immediate future. The expected future payments are estimated on the basis of the ultimate cost of settling claims, which is affected by factors arising during the period to settlement such as normal inflation.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 81

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

(n) Other financial assets Investments are valued at net market value at balance date. Investment income includes interest received and receivable on investments and changes in net market values of investments in cash and fixed interests funds net of outstanding bank overdrafts. (o) Cash flows For the purposes of the statement of cash flows, cash includes cash on hand and deposits held at call with banks and investments in cash and fixed interests funds net of outstanding bank overdrafts. (p) Reinsurance and other recoveries receivable Reinsurance and other recoveries receivable on paid claims, reported claims not paid, claims incurred but not reported and unexpired risk liabilities are recognised as revenue. Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims. Recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims. (q) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised. (i) Premiums – recognised in the period the fund is at risk. (ii) Future reinsurance and other recoveries – on an accruals basis. (iii) Investment income – on an accruals basis including adjustments to bring values of cash backed unit trusts to account as investment income. (iv) Performance bonus – on an accruals basis when firm evidence is available confirming the amount and indicating payment. (r) Comparative figures Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year. (s) Reinsurance expense Reinsurance expense relates to insurance premiums paid to reinsurers in accordance with the established reinsurance strategy of the entity and in order to protect the Insurance businesses from catastrophic and unforseen claims.

COMBINED

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

21,945,978

20,349,090

21,945,978

20,349,090

678,475

1,663,647

678,475

1,663,647

2 (p)

8,834,440 247,496

13,286,867 190,023

8,829,540 -

13,281,617 -

4,900 247,496

5,250 190,023

31,706,389

35,489,627

31,453,993

35,294,354

252,396

195,273

2,689,461

1,817,740

2,664,826

1,795,436

24,635

22,304

2,689,461

1,817,740

2,664,826

1,795,436

24,635

22,304

34,395,850

37,307,367

34,118,819

37,089,790

277,031

217,577

NOTE

3. Revenue from ordinary activities Revenues from operating activities Premiums Performance bonus Reinsurance and other recoveries Management fees received Total revenue from operating activities Revenues from nonoperating activities Investment income Total revenue from outside the operating activities Total revenue from ordinary activities

82 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED NOTE

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

11,908,234

14,996,386

11,908,234

14,852,308

144,078

96,220,224

93,722,689

96,220,224

93,722,689

(93,722,689) (89,855,465) (93,722,689) (89,747,465) 14,405,769 18,863,610 14,405,769 18,827,532

(108,000) 36,078

4(a)Claims expenses Paid Outstanding claims at end of financial year Outstanding claims at beginning of financial year Total claims expenses

11(a) & 2(m)

(b) Administration and general expenses The following items have been recognised in the operating surplus (deficit): Administration

2,275,051

1,975,717

2,262,887

1,961,822

12,164

13,895

Actuary and legal fees

287,344

125,672

283,698

120,756

3,646

4,916

Audit fees Depreciation furniture & equipment Depreciation leasehold improvements

133,461

120,850

126,511

114,100

6,950

6,750

11,846

19,721

19,722

19,721

19,722

19,205

Amortisation intangible assets Scheme management fee

3,279,543

3,218,834

3,158,273

3,099,488

121,270

119,346

Claims handling costs

99,221

1,818,560 7,943,952

1,524,058 6,996,699

1,818,560 7,700,701

1,524,058 6,851,792

243,251

144,907

133,461

120,850

126,511

114,100

6,950

6,750

30,900

164,361

120,850

157,411

114,100

6,950

6,750

1,886,120

1,831,184

1,886,120

1,831,184

1,393,423

1,387,650

1,272,153

1,268,304

121,270

119,346

3,279,543

3,218,834

3,158,273

3,099,488

121,270

119,346

Stamp duty Total expenditure 5. Auditors remuneration Amounts payable or due and payable for audit services: Audit of the entity Other services

6. Scheme management Fees Included within administration and general expenses are management fees for: Reinsurance placement Risk management and administrative services Claims handling cost

99,221

Total administration

3,378,764

3,218,834

3,158,273

3,099,488

220,491

119,346

Claims management Total scheme management fees

1,052,758

1,130,808

1,052,758

1,033,162

97,646

4,431,522

4,349,642

4,211,031

4,132,650

220,491

216,992

MAV INSURANCE FINANCIAL REPORT 2011/12 > 83

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

Leasehold improvements - at cost

179,441

Less accumulated depreciation

(61,113)

(41,392)

(61,113)

(41,392)

118,328

138,049

118,328

138,049

98,020

(26,944)

(15,098)

(26,944)

(15,098)

71,076

82,922

71,076

82,922

189,404

220,971

189,404

220,971

138,049

157,771

138,049

157,771

NOTE

7(a)Property, plant and equipment

Furniture and equipment - at cost Less accumulated depreciation Total property, plant and equipment Reconciliations of the carrying amounts of property, plant and equipment at the beginning and end of the financial year. Leasehold improvements Movements during the year Beginning of year Additions

Disposals

Depreciation

(19,721)

(19,722)

(19,721)

(19,722)

End of year

118,328

138,049

118,328

138,049

82,922

94,768

82,922

94,768

Property, plant and equipment Movements during the year Beginning of year Additions

Depreciation

Disposals

(11,846)

End of year

71,076

82,922

71,076

82,922

137,452

57,578

137,452

57,578

(b) Intangible assets Intangible assets - at cost Less accumulated amortisation

(19,205)

118,247

57,578

118,247

57,578

Beginning of year

57,578

Additions

79,874

57,578

79,874

57,578

Disposals

Intangible assets Movements during the year

Amortisation

(19,205)

End of year

118,247

57,578

118,247

57,578

84 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

COMBINED NOTE

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

8. Notes to the Cash Flow Statement (a) Cash and cash equivalents at balance date as shown in the Statement of cash flows are held in Standard and Poors rated AA and AAf rated cash deposits and are reconciled to the related items in the balance sheet as follows: Cash at Bank

3,947,118

4,869,312

3,501,527

4,460,869

445,591

408,443

30,185,631 34,132,749

27,531,304 32,400,616

30,185,631 33,687,158

27,531,304 31,992,173

445,591

408,443

(1,280,558)

(501,758)

(1,314,338)

(538,350)

33,780

36,592

Depreciation

31,567

Amortisation

19,205

(1,211,493)

(2,671,724)

(1,214,394)

(2,672,543)

2,901

819

70,759

684,254

70,292

699,952

467

(15,698)

2,264,473

1,601,887

2,264,473

1,601,887

(389,376)

2,591,273

(389,376)

2,591,273

2,307,431

3,867,224

2,307,431

3,975,224

(108,000)

1,812,008

5,602,723

1,774,860

5,689,010

37,148

(86,287)

78,128,664 (7,964,231)

77,377,654 (6,625,878)

78,128,664 (7,964,231)

77,377,654 (6,625,878)

70,164,433

70,751,776

70,164,433

70,751,776

Other Financial Assets Total Cash (b) Reconciliation of net cash used in operating activities to operating surplus/(deficit) Profit (loss) for year

Changes in assets and liabilities (Increase)/decrease in trade & other receivables 2(f) Increase/(decrease) in trade & other payables Increase/(decrease) in premiums in advance (Increase)/decrease in provision for reinsurance recoveries Increase/(decrease) in outstanding claims 2(m) Cash flows (used in)/ from operations 9. Receivables Future reinsurance and other recoveries receivable Discount to present value

2(p)

Less provision for doubtful debts

24,094,922

20,884,676

24,094,922

20,884,676

1,223,561 95,482,916

2,067,790 93,704,242

1,222,436 95,481,791

2,061,846 93,698,298

1,125 1,125

5,944 5,944

Current

42,040,464

45,541,129

42,039,339

45,535,185

1,125

5,944

Non-current Total

53,442,452 95,482,916

48,163,113 93,704,242

53,442,452 95,481,791

48,163,113 93,698,298

1,125

5,944

Premiums receivable Other receivables Total receivables

2(l)

Represented by:

Reinsurance recoveries are due from reinsurers with Standard and Poor ratings of AA+, AA-, A+ and A. Other recoveries are due from unrated local authorities based in Victoria and Tasmania. MAV INSURANCE FINANCIAL REPORT 2011/12 > 85

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

The ageing analysis of premiums receivable and other receivables are as follows: Total

<30 days

31-60 days

61-90 days

>90 days

Combined

25,318,483

Liability Mutual Insurance

25,317,358

1,125

Combined

22,952,467

Liability Mutual Insurance Commercial Crime Fund

22,946,523 5,944

2012

Commercial Crime Fund 2011

All premiums receivable and other receivables are due from local authorities based in Victoria and Tasmania. COMBINED

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

NOTE

2(l)

24,210,449

21,945,977

24,210,449

21,945,977

95,767,965 101,987,759

95,767,965

(11,298,096) (10,045,276) (11,298,096) (10,045,276)

10. Premiums in Advance Contributions billed in advance 11(a)Outstanding Claims Central Estimate

2(m) 101,987,759

Discount to present value Claims handling costs

90,689,663

85,722,689

90,689,663

85,722,689

630,333

3,344,000

630,333

3,344,000

4,900,228 96,220,224

4,656,000 93,722,689

4,900,228 96,220,224

4,656,000 93,722,689

Current

18,079,388

22,813,827

18,079,388

22,813,827

Non-Current Total Claims Provision

78,140,836 96,220,224

70,908,862 93,722,689

78,140,836 96,220,224

70,908,862 93,722,689

Risk margin 11(b) Total Outstanding Claims Represented by:

(b) Risk margin - Process for determining risk margin Based on two actuarial publications Taylor Fry Consulting Actuaries, the appointed actuary recommended that a risk margin of 20% of the net liabilities be adopted to give a probability of about 75% that the provisions including the risk margins will prove adequate to meet the relevant liabilities. (c) Combined reconciliation of movement in discounted outstanding claims liability Gross $

2012 Reinsurance $

Net $

Gross $

2011 Reinsurance $

Net $

93,722,689

70,751,776

22,970,913

89,855,465

72,858,432

16,997,033

Changes in assumptions 11,099,705 Increase in claims incurred/recoveries anticipated 2,253,307 Incurred claims recognised in income statement 13,353,012 Claim payments/recoveries during the year (10,855,477) Outstanding claims carried forward 96,220,224

7,397,698

3,702,007

14,616,145

18,802,365

(4,186,220)

1,431,843

821,464

3,178,225

(5,520,748)

8,698,973

8,829,541

4,523,471

17,794,370

13,281,617

4,512,753

(9,416,884)

(1,438,593) (13,927,146) (15,388,273)

1,461,127

70,164,433

26,055,791

Outstanding claims brought forward

86 > MAV INSURANCE FINANCIAL REPORT 2011/12

93,722,689

70,751,776

22,970,913

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

12. Net Claims Incurred

Combined Gross claims and related expenses undiscounted Discount Gross claims and related expenses - discounted Reinsurance and other recoveries undiscounted Discount Reinsurance and other recoveries - discounted Net claims incurred LIABILITY MUTUAL INSURANCE Gross claims and related expenses - undiscounted Discount Gross claims and related expenses - discounted Reinsurance and other recoveries - undiscounted Discount Reinsurance and other recoveries - discounted Net claims incurred COMMERCIAL CRIME FUND Gross claims and related expenses - undiscounted Discount Gross claims and related expenses - discounted Reinsurance and other recoveries - undiscounted Discount Reinsurance and other recoveries - discounted Net claims incurred

Current Year $

2012 Prior Year $

Total $

22,110,561 (2,444,593)

(6,451,972) 1,191,773

19,665,968

(5,260,199)

(11,050,667)

2011 Prior Year $

Total $

15,658,589 (1,252,820)

29,109,441 (10,119,956) (3,652,090) 3,526,215

18,989,485 (125,875)

14,405,769

25,457,351

18,863,610

Current Year $

963,983 (10,086,684) (15,202,368) 710,813

2,558,701 (12,643,667)

104,080

1,148,164

(10,946,587) 8,719,381

2,112,147 (3,148,052)

(8,834,440) (14,491,555) 5,571,329 10,965,796

22,110,561 (2,444,593)

(6,451,972) 1,191,773

15,658,589 (1,252,820)

29,073,363 (10,119,956) (3,652,090) 3,526,214

18,953,407 (125,876)

19,665,968

(5,260,199)

14,405,769

25,421,273

18,827,531

(11,050,667)

1,252,244

(6,593,741)

968,883 (10,081,784) (15,197,118)

104,080

1,148,164

(10,946,587) 8,719,381

2,117,047 (3,143,152)

1,252,244

710,813

(8,829,540) (14,486,305) 5,576,229 10,934,968

(1,354,013)

(643,200)

1,204,688 (13,286,867) (5,389,053) 5,576,743

(6,593,742)

2,558,701 (12,638,417) (1,354,012)

(643,199)

1,204,689 (13,281,616) (5,389,053) 5,545,915

36,078

(4,900)

(5,250)

(4,900) (4,900)

(5,250) 30,828

MAV INSURANCE FINANCIAL REPORT 2011/12 > 87

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

13. Claims Development Table Accident year Gross estimate of ultimate claims cost

2008 $

2009 $

2010 $

2011 $

2012 $

11,438,398

33,095,464

20,293,152

28,063,635

21,064,708

TOTAL $

LIABILITY MUTUAL INSURANCE At end year of accident One year later

14,574,373

41,692,816

22,682,968

24,589,379

Two years later

15,754,621

32,781,490

18,260,706

Three years later

15,397,449

32,282,253

Four years later Current estimate of cumulative claims cost

16,124,021

32,282,253

18,260,706

24,589,379

Cumulative payments

(7,006,304) (12,947,509)

Outstanding claims â&#x20AC;&#x201C; undiscounted

9,117,717

19,334,744

(2,785,825)

(2,106,363)

15,474,881

22,483,016

21,064,708 112,321,067 (154,348) (25,000,349) 20,910,360

Discount

87,320,718 (9,470,238)

Claims handling expense

541,388

2007 And prior

17,828,356

LIABILITY MUTUAL INSURANCE total gross outstanding claims 11(a) Combined gross outstanding claims 11(c)

96,220,224

Net estimate of ultimate claims cost LIABILITY MUTUAL INSURANCE At end year of accident

2,336,670

28,615,874

8,883,685

11,576,465

One year later

1,146,195

19,307,213

9,429,739

8,098,820

Two years later

1,143,419

14,069,608

7,185,550

Three years later

291,537

16,406,929

Four years later Current estimate of cumulative claims cost

352,944

16,406,929

7,185,550

8,098,820

Cumulative payments

(696,783)

(7,496,844)

(1,280,865)

(1,183,763)

Outstanding claims - undiscounted

(343,839)

8,910,085

5,904,685

6,915,057

Discount Claims handling expense 2007 And prior LIABILITY MUTUAL INSURANCE total net outstanding claims Combined net outstanding claims 11(c)

8,710,223

40,754,466

(66,825) (10,725,080) 8,643,398

30,029,386 (3,489,663) 186,182 (670,114)

26,055,791 26,055,791

These tables show the trend in the balance of outstanding claims.

88 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

14. Financial risk management policies and objectives The Groupâ&#x20AC;&#x2122;s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out below: COMBINED

NonInterest Earning $

Floating Interest Rate $

LIABILITY MUTUAL INSURANCE

NonInterest Earning $

Floating Interest Rate $

COMMERCIAL CRIME

Non â&#x20AC;&#x201C; Interest Earning $

Floating Interest Rate $

2012 Financial assets Cash at bank

3,947,118

3,501,527

445,591

Other financial assets

30,185,631

95,482,916 95,482,916

34,132,749

95,481,791 95,481,791

33,687,158

Trade and other receivables Total financial assets Weighted average interest rate

8.0%

1,125 1,125

445,591

8.0%

5.7%

Financial liabilities Outstanding claims Unearned premiums/ subscriptions Trade and other payables Total financial liabilities

96,220,224

24,210,449

3,112,432 - 123,543,105

3,118,041 123,548,714

Weighted average interest rate

5,609 5,609

2011 Financial assets Cash at bank

4,869,312

93,704,242 93,704,242

Other financial assets Trade and other receivables Total financial assets Weighted average interest rate

4,460,869

27,531,304

32,400,616

93,698,298 93,698,298

31,992,173

5,944 5,944

408,443

6.1%

408,443

4.9%

Financial liabilities Outstanding claims Unearned premiums/ subscriptions Trade and other payables Total financial liabilities

93,722,689 21,945,977 3,059,581 118,728,247

Weighted average interest rate

93,722,689

21,945,977

3,052,521 - 118,721,187

7,060 7,060

Cash at bank and other financial asserts are considered level 1 financial assets in accordance with AASB7 financial instruments. The carrying amounts of financial assets and financial liabilities represent their approximate net fair value. All maturity dates are within twelve months.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 89

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

14. Financial risk management policies and objectives (continued) The table below reflects all contractually fixed pay-offs and receivables for settlement, repayments and interest resulting from recognised financial assets and liabilities as at 30 June 2012. Cash flows for financial assets and liabilities without fixed amounts or timing are based on conditions existing at 30 June 2012 The remaining contractual maturities of the financial liabilities are: COMBINED

3 months or less

LIABILITY MUTUAL INSURANCE

COMMERCIAL CRIME

2012

2011

2012

2011

2012

2011

13,612,838

14,225,703

13,607,229

14,218,643

5,609

7,060

3-12 months

32,057,507

34,289,066

32,057,507

34,289,066

1-5 years

55,623,760

62,835,436

55,623,760

62,835,436

33,552,706

17,423,333

33,552,706

17,423,333

134,846,811 128,773,538 134,841,202 128,766,478

5,609

7,060

Over 5 years

Maturity analysis of financial assets and liabilities based on managementâ&#x20AC;&#x2122;s expectation. The risk implied from the values in the table below, reflects a balanced view of cash inflows and outflows. These liabilities originate from insurance contracts and other financial assets used in the ongoing operations of the business. These assets are considered in the Associationâ&#x20AC;&#x2122;s overall liquidity risk. To monitor existing financial assets and liabilities as well as to enable effective controlling of future risks, the Association has established a comprehensive risk reporting covering its insurance business that reflects the expectations of the management of expected settlement of financial assets and liabilities. Year ended 30 June 2012

<3 months 3-12 months $ $

1-5 years $

>5years $

Total $

34,132,749

Combined Financial Assets Cash and cash equivalents

34,132,749

Trade and other receivables

30,341,795 64,494,544

11,900,761 11,900,761

38,417,012 38,417,012

22,787,581 103,447,149 22,787,581 137,579,898

4,585,464

13,756,391

55,623,760

33,552,706 107,518,321

6,052,612

18,157,837

Trade and other payables Total Financial Liabilities

2,974,762 13,612,838

143,279 32,057,507

55,623,760

Net maturity

50,861,706 (20,156,746) (17,206,748) (10,765,125)

Combined Financial Liabilities Outstanding claims Unearned premiums/ subscriptions

90 > MAV INSURANCE FINANCIAL REPORT 2011/12

24,210,449

3,118,041 33,552,706 134,846,811 2,733,087

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

14. Financial risk management policies and objectives (continued)

Risk management objectives and policies for mitigating insurance risk The Association’s local government mutual liability scheme (trading as Liability Mutual Insurance) is established by legislation contained in the Municipal Association Act 1907. Membership is available to local government councils and prescribed bodies. The Scheme operates in Victoria and Tasmania to provide services to members in respect of their potential and actual liabilities. A member may seek indemnity from the Scheme in respect of a claim. Actuarial models, using information from the Scheme’s management information systems are used to confirm contributions and monitor claim patterns. Past experience and statistical methods are used as part of the process. The principal risk is that the frequency and severity of claims is greater than expected. Civil liability risk events are, by their nature, random, and the actual number and size of events during any one-year may vary from those estimated using established statistical techniques.

Objectives in managing risk arising from insurance and policies for mitigating those risks The Scheme has an objective to control insurance risk thereby reducing the volatility of its operating surplus. In addition to the inherent uncertainty of civil liability risks, which can lead to variability in the loss experience, operating surpluses can also be affected by external factors, such as competition and movements in asset values. The Scheme relies on a strong relationship with its members and actively encourages them to adopt practices of risk management that reduce the incidence of claims to the Scheme.

Reinsurance strategy The Scheme adopts a conservative approach towards management of risk and does this by utilising various risk transfer options. The MAV Insurance Committee determines the level of risk, which is appropriate for the Scheme having regards to ordinary concepts of prudence and regulatory constraints. The risk transfer arrangements adopted by the Scheme include the utilisation of commercial reinsurance / excess arrangements. These arrangements include constant review of both reinsurers’ financial strength, and ensuring spread of risk among reinsurers who meet the requirements of the Association’s corporate policies. These risk transfer arrangements assist the Scheme to limit exposures to large single claims and catastrophic events. These programs are regularly reviewed each year to ensure that they continue to meet the risk needs of the Scheme.

Terms and conditions of membership Membership to the Scheme is offered to eligible bodies and renewed annually on 30 June. Payment of the annual contribution confirms continuation of membership. Termination of membership is subject to at least 90 days written notice of intention as laid out by the Scheme Rules.

Product features The Scheme operates in Victoria and Tasmania. Should a claim be accepted the Scheme provides indemnity to the member in respect of their civil liabilities for $400 million public / products liability ($600 million for water authorities) and $300 million for professional indemnity insurance, subject to any excess, for any claim incurred anywhere throughout the world. Operating surpluses and deficits arise from the total contributions charged to members less the amounts paid to cover claims and the expenses incurred by the Scheme.

Concentration of insurance risks Insurance risk is managed by taking a long term approach to setting the annual contribution rates that eliminates price fluctuations, appropriate investment strategy, reinsurance and by maintaining an active state-wide risk management profile. It is vital that the Scheme spreads its risk of reinsurance failure by ensuring reinsurers are of high financial quality and can meet their commitments to the Association. The Association maintains policies and strategies and receives advice from an independent actuary on at least an annual basis in order to determine the concentration and amount of risk exposure. The Association keeps abreast of changes in the general economic, legal and commercial environment in which it operates.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 91

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

14. Financial risk management policies and objectives (continued)

CREDIT RATING

Reinsurance and other recoveries on outstanding claims Reinsurance and other recoveries on paid claims

Reinsurance and other recoveries on paid claims

AAA +/$m

AA +/$m

A +/$m

Not Rated $m

TOTAL $m

2012

0.431

32.220

0.454

33.105

2011

0.467

27.057

0.537

28.061

2012

0.022

1.378

2011

0.038

3.408

0.757

2.157

0.743

4.189

PAST DUE BUT NOT IMPAIRED Neither Greater past than due nor Less than 3 to 6 6 months 1 year Impaired impaired 3 months months to 1 year $m $m $m $m $m $m

Total $m

BBB $m

Speculative Grade $m

2012

1.053

0.347

0.026

2011

2.632

0.678

0.139

0.014

0.731

2.157

0.726

4.189

Variable

Current rate

Change variable to

Total Operating accumulated funds after surplus the impact (deficit) at 30 June of applying variable 2012 $

(1,314,338)

5,933,495

3.5%

(827,338)

6,420,495

2.5%

(1,801,338)

5,446,495

Impact of changes in interest rates LIABILITY MUTUAL INSURANCE Base value at 30 June 2012 Interest rate pa

Credit risk The Scheme is exposed to credit risk on insurance contracts as a result of exposure to reinsurers. The credit risk to reinsurers is managed through the Schemeâ&#x20AC;&#x2122;s reinsurance management strategy and policies that includes regularly monitoring both the financial rating of the reinsurers both prior to and during the reinsurance program and the flow of payments coming from the reinsurers. Investments in cash and cash equivalents at balance date as shown in the Statement of Cash Flows are held in Standard and Poors rated AA and AAf rated cash deposits.

Price risk Investments held are not subject to price risk. Investments are cash at bank and fixed interest funds.

92 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

15. Accounting Estimates and Judgements The Scheme makes estimates and judgements in respect of certain key assets and liabilities. Estimates and judgements are continually reviewed and are based on past experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates and judgements are applied are described below. (a) Estimation of outstanding claims liability Provision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including the cost of claims incurred but not yet reported (IBNR) to the Scheme. The Scheme takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome may be different from the original liability established. Provisions are calculated gross of all recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers and any third party. The determination of an appropriate outstanding claims provision involves: (i) Establishing a case estimate for each reported claim at year-end taking into account legal advice where appropriate on larger claims (ii) Allowance for incurred but not reported claims as confirmed by the actuarial review on 30 June 2012 (iii) An allowance of 0.7% for claim settlement expenses, as assumed by the Actuary (iv) Allowances for claim inflation of 3.25%, as assumed by the Actuary (v) Allowances for discount at 3%, as assumed by the Actuary (vi) A risk margin of 20% of net outstanding claims after the effect of reinsurance has been applied, as assumed by the Actuary. Details of specific actuarial assumptions used in deriving the outstanding claims liability at year-end are detailed in note 16. (b) Assets arising from reinsurance contracts Assets arising from reinsurance contracts were estimated for each fund year, from the payments to date and estimated outstanding claims history at 30 June 2012, taking into account the reinsurance terms applying to that fund year. In accordance with the actuarial recommendations an allowance was made for non-recoveries from relevant insurers. 16. Actuarial Assumptions and Methods

Actuarial assumptions The following assumptions have been made in determining the outstanding claims liabilities: 2012

2011

3.25%

0.7%

Key Actuarial Assumptions Wage inflation Claim administration expense Discount rate

Reinsurer default

20%

Risk margin

MAV INSURANCE FINANCIAL REPORT 2011/12 > 93

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

16. Actuarial Assumptions and Methods (continued)

Process used to determine actuarial assumptions A description of the processes used to determine the above key actuarial assumptions is provided below: Liability Mutual Insurance has provided public and professional indemnity insurance to local government bodies in Victoria and Tasmania and other bodies constituted under any Act for any public or local governing purpose since 30 September1993. The actuary was supplied with details of all transactions (payments, recoveries, changes of estimates) from 30 September 1993 to 30 June 2012. The individual claim payments and case estimates reconciled closely with totals in Liability Mutual Insurance financial statements for each year of cover. The actuary subdivided the claims data into three claim types (public liability, professional indemnity and the 2009 bushfire claims) and made separate estimates of the gross outstanding claims liabilities for each of these claim types. The actuary estimated the gross outstanding claims liabilities for each claim type using five different actuarial methods. Large claims (claims above $250,000) were estimated based on a numbers times average size method and non-large claims were estimated using four different actuarial methods â&#x20AC;&#x201C; payments per claim incurred; payments per claim finalised; incurred cost development; and projection of case estimates. The actuary selected a combination of these methods for estimating the outstanding claims. Payments were projected with a payment pattern, based on past experience. Estimates of outstanding excesses were based on a numbers times average size method and estimates of non-reinsurance recoveries were made by a recoveries per claim method. Estimates of reinsurance recoveries were made from projected gross payments, excesses and non-reinsurance recoveries, allowing for the different insurance treaties applying to each year. Based on Access Economics June 2012 forecasts for Victorian average weekly claims inflation was assumed to be 3.25%. The discount rate was assumed to be 3% pa., derived from the yields on Commonwealth government bonds. Based on two actuarial publications the actuary recommended that a risk margin of 20% of the net liabilities be adopted to give a probability of about 75% that the provisions including the risk margins will prove adequate to meet the relevant liabilities. VARIABLE

IMPACT OF MOVEMENT IN VARIABLE

Variable

Current rate

Change variable to

Total Operating accumulated funds after surplus the impact (deficit) at 30 June of applying variable 2012 $

(1,314,338)

5,933,495

3.75%

(1,844,338)

5,403,495

2.75%

(784,338)

6,463,495

Impact of changes in interest rates LIABILITY MUTUAL INSURANCE Base value at 30 June 2012 Interest rate pa

3.25%

17. Capital Management Objectives The Association is specifically excluded from the provisions of the Insurance Act and from APRA regulation. There is no externally imposed capital requirement on the Association. The Associationâ&#x20AC;&#x2122;s capital management philosophy is focused on capital efficiency and effective risk management to support a progressive business model for the benefit of members of both LMI and the Commercial Crime Fund. The independent actuary provides advice on the target capital holding on at least an annual basis. The target capital holding is to be at a level that provides operational flexibility, avoids sudden increases in contribution levels in response to fluctuations in surplus and ensures solvency in the event of the maximum likely adverse event. Both LMI and the Commercial Crime Fund are non discretionary mutual funds and have as a last resort an ability to claim against its members to protect its capital holdings.

94 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

18. Reinsurance Performance Bonus The Liability Insurance Mutual Scheme, in conjunction with similar local government self insured mutual liability schemes around Australia has entered into a profit sharing arrangement with its primary reinsurers, based on the national local government claims experience. The arrangement enables any surplus per each year over the five-year period of the reinsurance arrangement to be shared between the various Schemes and the reinsurers on a proportional basis. Performance bonus totalling $678,475 ( 2011 $1,663,647) became due and receivable on 30 June 2012, and has been independently confirmed at the date of this report. 19. Contingent Liability During the normal course of business, the Scheme may be exposed to contingent liabilities from litigation arising from its insurance and reinsurance activities, which if they should crystallise may adversely affect the financial position and performance of the MAV. Provisions are made for obligations that are probable and able to be quantified. The MAV provides public liability and professional indemnity insurance to the City of Casey, and during the year the MAV was joined by the City of Casey in a legal action after the MAV did not grant indemnity to the City of Casey under the contract of insurance in relation to claims concerning the escape and migration of landfill gas from a City of Casey landfill. The legal action is a class action commenced by nearby residents. In the legal action the City of Casey is seeking to recover from MAV and various other defendants $13.5 million paid by the City of Casey to settle the residents’ claims and remediation costs alleged to exceed $100 million. The MAV denies that it is on risk and consequently no provision for this claim, other than for legal and other costs, has been brought to account. The MAV is vigorously defending this claim and will continue to assess its legal position. 20. COMMERCIAL CRIME FUND – CHANGE OF BUSINESS On 1 July 2010 the Commercial Crime Fund ceased to write insurance business on its own account. From this date the Fund facilitated insurance for its members via a policy issued by Zurich Insurance Australia. The Fund undertook this change in business due to the inability of the Fund to offer the broad terms and conditions currently available in the market. This is due to the restrictions placed on the Fund by the provisions of the Municipal Association Act 1907. The Fund was liable for any claims made against it up to 31 December 2010 for events occurring prior to 1st July 2010. From 1 January 2011 the Fund is not on risk for any insurance claim that might be made against it. 21. Related Parties The Municipal Association of Victoria is a body corporate established under the Municipal Association Act of 1907 to provide services for and represent local government authorities in Victoria. The Association and its wholly owned controlled entities trade with its members in the normal course of business and on an arm’s length basis. The Deed of Establishment provides for the MAV to appoint a Committee of Management (MAVIC) to be responsible for the administration of the Scheme. There were no material related party transactions during the year. Total expenses of $916,652 (2011 $889,954) were payable to the Municipal Association of Victoria being payment for administrative support, and overseeing the management of the insurance activities, including the conduct of bi-monthly committee meetings. Other than this there were no material related party transactions during the year.

Committee Members During The Year J. Warburton (Independent Chairperson) A. Murphy (OAM) (Independent) Cr W. McArthur (MAV President) A. Garcia (LGAT Representative) R. Farrell (Independent) M. Guilmartin (Independent) Dr. M. Kennedy (OAM) (CEO, Mornington Peninsula Shire Council) R. Spence (MAV Chief Executive Officer) Cr R. Fyffe (MAV Representative)

MAV INSURANCE FINANCIAL REPORT 2011/12 > 95

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2012

21. Related Parties (continued) Key management personnel remuneration COMBINED

LIABILITY MUTUAL INSURANCE

2012

2011

COMMERCIAL CRIME

2012

2011

2012

2011

249,001 19,818

243,914 12,782

Independent committee members receive meeting fees. Chairperson receives $900 per committee meeting and other independent committee members receive $636 per committee meeting plus $1,200 per annum for claims and technical committee and other meetings. Short term remuneration of key management personnel Post employment benefits

249,001 19,818

243,914 12,782

Loans to Committee Members No loans were made to or are payable by committee members.

Other Transactions There were no other material transactions with committee members.

Insurance The activities of the MAV Insurance Committee members are covered by the MAV directors’ and officers’ indemnity insurance policy effected by the Municipal Association of Victoria.

96 > MAV INSURANCE FINANCIAL REPORT 2011/12

Statement by committee of management In accordance with a resolution of the MAV Insurance Committee, we state that: In the opinion of the members of the MAV Insurance Committee: (a) the financial statements and notes of the combined entity are drawn up so as to present fairly in all material respects the results of Liability Mutual Insurance and the Commercial Crime Fund for the year ended 30 June 2012; (b) the accompanying Statement of Financial Position is drawn up so as to present fairly in all material respects the state of affairs of Liability Mutual Insurance and the Commercial Crime Fund as at that date; (c) at the date of this statement there are reasonable grounds to believe that Liability Mutual Insurance and the Commercial Crime Fund will be able to pay its debts as and when they fall due; (d) the financial statements and notes also comply with the International Financial Reporting Standards as disclosed in note 2 (b); and The financial statements have been made out in accordance with applicable accounting standards and other mandatory professional reporting requirements. On behalf of the MAV Insurance Committee

John Warburton MAV Insurance Committee Chairman

Robert Spence MAV Chief Executive Officer

Melbourne 5 October 2012

Statement by directors In accordance with a resolution of the directors of the Municipal Association of Victoria, we state that: In the opinion of the Directors: (a) the accompanying Statement of Comprehensive Income drawn up so as to present fairly in all material respects the result of the association for the year ended 30 June 2012; (b) the accompanying Statement of Financial Position is drawn up so as to present fairly in all material respects the state of affairs of the association as at that date; (c) at the date of this statement there are reasonable grounds to believe that the association will be able to pay its debts as and when they fall due; and (d) the accompanying Combined Financial Statements present fairly in all material respects the state of affairs of the association as at that date; (e) the financial statements and notes also comply with the international financial reporting standards as disclosed in note 2(b). The financial statements and combined financial statements have been made out in accordance with applicable Accounting Standards and other mandatory professional reporting requirements. Signed in accordance with the resolution of Directors.

Cr. William McArthur President

Cr. Geoff Gough Director

Robert Spence Chief Executive Officer

Melbourne 5 October 2012

MAV INSURANCE FINANCIAL REPORT 2011/12 > 97

Combined financial reports - independEnt auDit report

98 > MAV INSURANCE FINANCIAL REPORT 2011/12

Combined financial reports - independEnt auDit report

MAV INSURANCE FINANCIAL REPORT 2011/12 > 99

Other information

Legal Form: MAV Insurance is the insurance division of the Municipal Association of Victoria. The Municipal Association of Victoria is an Association Incorporated by the Municipal Association of Victoria Act 1907

Domicile: Melbourne, Australia

Address of registered office: Level 12, 60 Collins Street, Melbourne, 3000, Victoria, Australia

Principal place of business: Level 11, 60 Collins Street, Melbourne, 3000, Australia

Nature of the operation and principal activities: The Municipal Association of Victoria has the power provided to it by the Municipal Association of Victoria Act 1907 to establish Liability Mutual Insurance and the Commercial Crime Fund in order to provide public liability, professional indemnity and fidelity insurance to Local Government and Water Authorities.

Employees: Nil

100 > MAV INSURANCE FINANCIAL REPORT 2011/12