This report comments on the outcomes of the 2014–15 financial report and performance statement audits of the local government sector.

The sector generated a net surplus of more than $900 million annually in each of the past five financial years. The sector's net surplus was $1.5 billion in 2014–15 ($923.6 million in 2013–14). The increase was partly driven by the advance payments of $269.8 million of Commonwealth grants in 2014–15.

The changed timing for financial assistance grants in 2014–15 also impacted several short-term financial sustainability risk indicator results, leading to a more favourable outcome for the sector. Generally, local councils received a low financial sustainability risk assessment. Despite this, some local councils continue to face the ongoing challenge of maintaining spending on capital works and existing assets at sufficient levels.

A new performance reporting regime was introduced for the first time this year. However, there are still areas for improvement and challenges to overcome.

Local councils face the challenge of meeting higher costs associated with the maintenance and management of infrastructure assets over time yet not all local councils that received development contributions for local infrastructure had all the key elements of an effective development contribution management framework in place. Improvements can be made to strengthen the framework around risk identification and management, monitoring and reporting.