MUNICIPAL ASSOCIATION OF VICTORIAANNUAL REPORT 2011/12

Published by Municipal Association of VictoriaLevel 12, 60 Collins Street, Melbourne VIC 3000GPO Box 4326, Melbourne 3001Telephone: 03 9667 5555, Facsimile: 03 9667 5550Email: 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 Victoria’s commitment to environmental sustainability.

Editor Eliza NolanDesign Frank Design Pty LtdPhotography Portraits: Chris KapaMAV Events: 2Vue Imagery Other: Michael Prideaux

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

MAV ANNUAL REPORT 2011/12 > 1MAV ANNUAL REPORT 2011/12 > 1

2 YEAR IN REVIEW

4 PRESIDENT’S REPORT

6 MAV BOARD

8 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

CONTENTS

2 > MAV ANNUAL REPORT YEAR IN REVIEW 2011/12

YEAR IN REVIEW

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.

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.

MAV ANNUAL REPORT YEAR IN REVIEW 2011/12 > 3

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.

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.

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.

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.

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

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.

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.

PRESIDENT’S REPORT

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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.

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.

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

6 > MAV ANNUAL REPORT MAV BOARD 2011/12

CR GEOFF GOUGH

Manningham City Council DEPUTY PRESIDENT (METROPOLITAN)

METROPOLITAN EAST REPRESENTATIVEChair, Transport and Infrastructure CommitteeCouncillor 1997 - presentMayor 2002, 2007, 2011Australian Local Government Association BoardCouncillor Workcover CommitteeVITS Language LinkVictorian Local Government Sustainability Accord

CR LISA MAHOOD

Wodonga City CouncilDEPUTY PRESIDENT (RURAL)RURAL NORTH EAST REPRESENTATIVEDeputy Chair, Multicultural Committee Councillor 2000 - presentMayor 2002, 2003, 2004, 2005, 2006Deputy Mayor 2001Alternate, Australian Local Government Association BoardVictorian Councillor Service Awards, Mayor Emeritus

CR JEFF AMOS

Wellington Shire Council RURAL GIPPSLAND REPRESENTATIVE

Environment CommitteeDeputy Chair, Professional Development Reference GroupDeputy Chair, Planning CommitteeCouncillor 2003 - presentMayor 2004, 2010-2011 Deputy Mayor 2005, 2007Chair, CEO Performance Review Committee Chair, Remuneration CommitteeChair, Strategic Land Use Planning CommitteeDeputy Chair, Place Names CommitteeAsset Management Strategic GroupAccess & Inclusion Advisory GroupChair, WGCMA Catchment Ecosystem Advisory GroupRoadSafe Gippsland

CR DAVID CLARK

Pyrenees Shire Council RURAL SOUTH CENTRAL REPRESENTATIVE

Deputy Chair, Environment CommitteeDeputy Chair, Emergency Management Councillor Reference GroupCouncillor 1992-1994, 1996-2004, 2008 - presentMayor 1999, 2003, 2004, 2010Pyrenees Shire Audit CommitteeWestern Highway Action CommitteeChair, North Central Catchment Management AuthorityChair, Victorian Farm Tree and Land Care Association Treasurer, Conservation Volunteers Australia

MAV BOARD

CR BILL MCARTHUR

Golden Plains Shire Council PRESIDENTMAV Audit CommitteeMAV Insurance CommitteeCouncillor 1991 - 1994 (Grenville), 1996 - present Mayor 2004, 2005Australian Local Government Association BoardVictorian Councillor Service Awards, 15 yearsWhite Ribbon Ambassador for the Prevention of Violence Against Women

MAV ANNUAL REPORT MAV BOARD 2011/12 > 7

CR ROD FYFFE

Greater Bendigo City CouncilRURAL NORTH CENTRAL REPRESENTATIVE

MAV Insurance CommitteeChair, Environment CommitteeChair, Arts and Culture CommitteeProfessional Development Reference GroupCouncillor 1996 - presentMayor 2004, 2005, 2011Ministerial Advisory Council on LibrariesState Library Public Libraries Advisory CommitteeAlternate representative, Australian Packaging Covenant Council Victorian Councillor Service Award, 20 Years

CR KEN GALE

Moyne Shire Council RURAL SOUTH WEST REPRESENTATIVE

Chair, Human Services CommitteeCouncillor 2004 - presentMayor 2008, 2009Chair, Rural Councils VictoriaTimber Towns VictoriaWhite Ribbon Ambassador for the Prevention of Violence Against Women

CR GAETANO GRECO

Darebin City Council METROPOLITAN CENTRAL REPRESENTATIVE

Chair, Multicultural CommitteeDeputy Chair, Arts and Culture CommitteeCouncillor 2008 - presentInner North Training Group BoardChair Bundoora Homestead BoardAPlus Apprentice and Trainee Services BoardItalian Consular Advisory Council for Victoria and Tasmania2009 McArthur Fellowship Award2004 Multicultural Excellence Award2001 Centennial Medal

CR GEOFF LAKE

Monash City Council METROPOLITAN SOUTH REPRESENTATIVE

Councillor 2000 - presentMayor 2002, 2003Trustee Director, Vision SuperLawyer, Minter Ellison Lawyers

CR MARY LALIOS

Whittlesea City Council INTERFACE REPRESENTATIVE

MAV Audit CommitteeChair, Emergency Management Councillor Reference Group Councillor 2005 - presentMayor 2008-09, 2009-10Victorian Bicycle Advisory CommitteeYarra Plenty Regional Library BoardYMCA (Whittlesea)Plenty Valley Community Health Board 2010 Professional of the Year (awarded by Professions Australia)

CR REID MATHER

Buloke Shire Council RURAL NORTH WEST REPRESENTATIVE

Councillor 2003 - presentMayor 2005, 2006, 2007, 2008, 2009Chair, North Western Municipalities AssociationCountry Fire Authority BoardVictorian Councillor Service Awards, Mayor Emeritus

CR CORAL ROSS

Boroondara City Council METROPOLITAN SOUTH EAST REPRESENTATIVE

Alternate, MAV Audit Committee Chair, Planning CommitteeDeputy Chair, Human Services CommitteeCouncillor 2002 - presentMayor 2007, 2008President Australian Local Government Women’s Association (Victorian)

CR JOHN SIPEK

Moonee Valley City Council METROPOLITAN WEST REPRESENTATIVE

Chair, Professional Development Reference Group Councillor 2005 - present Mayor 2010-2011Deputy Mayor 2009Alternate, Australian Local Government Association BoardChairman, Australian Packaging Covenant CouncilMetropolitan Waste Management Group BoardDirector, Qantas Superannuation Plan and Audit CommitteeDirector, ISIS Primary Care

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

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.

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.

CEO’S REPORT

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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-to-reach audiences.

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.

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

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

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 Australian-first 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.

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 state-wide PVAW network and Executive Leadership Group to help promote the messages in our Leadership Statement.

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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 inter-governmental 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.

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

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 property-based 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

FINANCE AND PRODUCTIVITY

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

14 > MAV ANNUAL REPORT PROCUREMENT 2011/12

PROCUREMENT

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.

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.

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.

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

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.

16 > MAV ANNUAL REPORT PLANNING 2011/12

PLANNING

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.

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.

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.

MAV ANNUAL REPORT PLANNING 2011/12 > 17

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.

ENVIRONMENT

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

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 MAV’s long-held position that the State’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.

EMERGENCY MANAGEMENT

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

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.

TRANSPORT AND INFRASTRUCTURE

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

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

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 councils’ 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.

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

26 > MAV ANNUAL REPORT WORKFORCE 2011/12

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.

MAV ANNUAL REPORT WORKFORCE 2011/12 > 27

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.

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.

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.

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.

28 > MAV ANNUAL REPORT THE MAV TEAM 2011/12

Alison LyonDeputy Chief Executive Officer

Alison LyonDeputy Chief Executive Officer

Rob Spence 1Chief Executive Officer

Rob Spence 1Chief Executive Officer

Alison Standish 2Manager, HR & Corporate Services

Alison Standish 2Manager, HR & Corporate Services

Owen Harvey-Beavis 3Manager, Research & Strategy

Owen Harvey-Beavis 3Manager, Research & Strategy

Ben Morris 4Manager, Environment

Ben Morris 4Manager, Environment

Liz Johnstone 5Manager, Planning

Liz Johnstone 5Manager, Planning

Emma Fitzclarence 6Manager, Emergency Management

Emma Fitzclarence 6Manager, Emergency Management

Clare Hargreaves 7Manager, Social Policy

Clare Hargreaves 7Manager, Social Policy

Geoff Pawsey 8Manager, Workforce & Risk Management

Geoff Pawsey 8Manager, Workforce & Risk Management

Cameron Spence 9Manager, MAV Procurement

Cameron Spence 9Manager, MAV Procurement

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MAV STAFF

Zara Ahmed 36Corporate Services Officer

Kate Bebbington 29Corporate Services Officer

Francesca Bennett 13Public Relations Officer

Lloyd Brady Swift Systems

James Cleaver 18Policy Adviser

Claire Dunn 42Policy Adviser

Jaclyn Felton 44Legal and Governance Support Officer

Hannah Fitzgerald 49Executive Assistant

Max Fonovic 28Marketing Manager, MAV Procurement

Michael Green 51Electronic Records Officer

Rosemary Hancock 52Policy Adviser

Trevor KoopsSenior Economist

Gavin Mahoney 21Senior Projects Officer

Janet Metcalf 50Online Communications Coordinator

Eliza Nolan 27Corporate Services Officer

Candice Ong 20Finance Officer

Chestine Ong 37Procurement Officer

Andrew Rowe 14Councillor Development Officer

Paul Rozario 26Governance and Legislation Adviser

David Shields 19Contracts Manager, MAV Procurement

Debbie Smith 11Senior Communications Adviser

Simone Stuckey 35Policy Adviser

Julie-Ann Undrill 43Manager, Events and Sponsorship

Steve Vasilevski 12IT Coordinator

Jay Westfold 34Event Coordinator

THE MAV TEAM

MAV ANNUAL REPORT THE MAV TEAM 2011/12 > 29

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GRANT FUNDED ROLES

Wendy Allan 31Early Years Adviser

Naree Atkinson 30Policy Adviser

Jan Barrett 39Early Years Consultant

Lisa Bennetto 22Executive Officer, Local Government Information Communications Technology

Adrian Birch 24Quality and Performance Analyst

Jan Black 47Policy Adviser

Jan Bruce 16Positive Ageing Policy Adviser

Bernie Cotter 48Executive Officer, Association of Bayside Municipalities

Michelle Croughan 46Planning Project Officer

Sophie Gale Project Coordinator, Prevention of Violence Against Women

Ros Handley 17Project Coordinator

Gareth Hately 33Rural Planning Policy Officer

Elizabeth Jackson 40Executive Officer, Public Libraries Victoria Network

Claudia Laidlaw Project Officer

Maxine Morrison 23Program Adviser, Rural Councils Victoria

Kellie Nagle 32Policy Adviser

Con Pagonis 38Multicultural Policy Adviser

Kevin Peachey 15Coordinator, Timber Towns Victoria and National Timber Councils Association

Russell Rees 10Risk Adviser

Helen Rowe 45Maternal and Child Health Policy Adviser

Clare Smith 41Policy Adviser

Derryn Wilson 25Home and Community Care Adviser

30 > MAV ANNUAL REPORT MAV GOVERNANCE 2011/12

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.

MAV RULES

The Act requires the MAV to set rules for:

> the management of the Association

> the regulation of proceedings

> fixing the annual subscription paid by each municipality

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

> 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.

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.

MAV GOVERNANCE

ANNUAL DATA ALLOWANCE ALLOWANCES EXPENSES TOTAL

Jeff Amos 8,044.20 360.00 6,077.25 14,481.45

Rod Fyffe 8,044.20 360.00 6,202.50 14,606.70

Ken Gale 8,044.20 360.00 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

BOARD MEETING ATTENDANCE 2011/12 JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN

Bill McArthur a a a a a a - a a a a aJeff Amos a a a a a a - a a a a aDavid Clark a a a a a a - a a a a X

Rod Fyffe a a X a a a - a a a a aKen Gale a a a X a X - a a X a aGeoff Gough a a a a a a - a X a X aGaetano Greco a a X a a a - X a a a X

Geoff Lake a a a a a a - a a a a aMary Lalios X X X a a a - a a X a aLisa Mahood a a a a a X - a a a a aReid Mather a a a a a X - a X a a aCoral Ross a a a a a a - a a a X aJohn Sipek X a X a a a - a a X a a** No meeting held in January 2012

MAV ANNUAL REPORT MAV GOVERNANCE 2011/12 > 31

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 MAV’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 MAV’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.

32 > MAV ANNUAL REPORT MAV GOVERNANCE 2011/12

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 COUNCIL ALLIANCE FOR SUSTAINABLE BUILT ENVIRONMENTS (CASBE)

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

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.

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

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

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

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.

MAV ANNUAL REPORT MAV GOVERNANCE 2011/12 > 33

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

ANZAC Commemorative Naming Program Committee

Association of Regional Waste Management Groups (observer status)

Building Regulation Advisory Committee

Bushfire Land Acquisition Panel

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

Community Emergency Risk Management Review and Redevelopment Committee

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

Domestic Wastewater Review Steering Committee

Essential Service Commission Customer Consultative Committee

Fire Safety in Public Buildings Committee

Flood Warning Consultative Committee Victoria

Forests and Timber Biosecurity Working Group

Green Light Plan Reference Group

Infringements Standing Advisory Committee

HACC Departmental Advisory Committee (Victorian Department of Health)

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

Independent Panel of Experts to Assess Authority to Control Wildlife Applications

Local Coastal Hazard Assessments Project Control Group

Melbourne Bushfire Protection Program Project Control Group

Metropolitan Local Government Waste Forum

Metropolitan Transport Forum

Ministerial Advisory Council on Public Libraries

Ministerial Utilities Infrastructure Reference Panel

Mosquito Borne Virus Taskforce

Municipal Emergency Management Enhancement Group

Australian Packaging Covenant Council

National Waste Policy – Data Working Group

National Television and Computer Product Stewardship Scheme Stakeholder Reference Group

Office for Children Early Childhood Development Advisory Group

Planning Fees Review Technical Reference Group

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

State Emergency Relief and Recovery Planning Committee

State Emergency Relief Sub-committee

State Emergency Response Planning Committee

State Emergency Management Team

State Fire Management Planning Committee

State Flood Policy Committee

State Social, Health and Community Recovery Planning Sub-committee

State Library Advisory Committee on Public Libraries

State Natural and Built Environment Recovery Planning Committee

Regional Growth Plans State-wide Program Control Group

Swift Consortium Management Committee

Transport Accident Commission – Community Road Safety Grants Reference Panel

Two Million Trees Project Partners Group

UN Global Compact Cities Programme Advisory Council

VicHealth Alcohol Strategy Advisory Group

VicRoads – Speed Limit Advisory Group

VicRoads – Victorian Community Road Safety Alliance

Victorian Childcare Industry Liaison Group

Victorian Children’s Council

Victorian Climate Change Coastal Hazard Guidelines

Victorian Coastal Strategy Implementation Coordination Committee

Victorian Committee of Food Regulators

Victorian Feedlot Committee

Victorian Home Pool and Spa Safety Committee

Victorian Medicare Locals Transition Advisory Committee

Victorian Primary and Community Health Network

Project Steering Group Victorian Community Road Safety Alliance

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

Victorian Litter Action Alliance

Victorian Local Sustainability Accord Committee

Victorian Myrtle Rust Coordination Committee

Victorian Sex Industry Strategic Management Group

Victorian Strategy for Healthy Rivers Estuaries and Wetlands Stakeholder Reference Group

Victorian Railway Crossing Safety Steering Committee

Electric Line Clearance Consultative Committee

Women’s Participation in Local Government Coalition

Worksafe Stakeholder Reference Group

34 > MAV ANNUAL REPORT CORPORATE 2011/12

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.

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.

CORPORATE

MAV ANNUAL REPORT CORPORATE 2011/12 > 35

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 cost-savings 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.

36 > MAV ANNUAL REPORT CORPORATE 2011/12

MAV REPRESENTATIVES

Alpine Shire Council - Cr Peter Roper

Ararat Rural City Council - Cr Colin McKenzie

Ballarat City Council - Cr Cheryl Bromfield

Banyule City Council - Cr Jenny Mulholland

Bass Coast Shire Council - Cr John Duscher

Baw Baw Shire Council - Cr Diane Blackwood

Bayside City Council - Cr James Long

Benalla Rural City Council - Cr Peter Dunn

Boroondara City Council - Cr Coral Ross

Brimbank City Council - Ms Joanne Anderson

Buloke Shire Council - Cr Reid Mather

Campaspe Shire Council - Cr Kevin Simpson

Cardinia Shire Council - Cr Ed Chatwin

Casey City Council - Cr Beverley Hastie

Central Goldfields Shire Council - Cr John Smith

City of Greater Bendigo Council - Cr Rod Fyffe

Colac Otway Shire Council - Cr Stephen Hart

Corangamite Shire Council - Cr Matt Makin

Darebin City Council - Cr Steven Tsitas

East Gippsland Shire Council - Cr Jane Rowe

Frankston City Council - Cr Brad Hill

Gannawarra Shire Council - Cr Max Fehring

Glen Eira City Council - Cr Margaret Esakoff

Glenelg Shire Council - Cr Gilbert Wilson

Golden Plains Shire Council - Cr David Cotsell

Greater Dandenong City Council - Cr Peter Brown

Greater Geelong City Council - Cr Andy Richards

Greater Shepparton City Council - Cr Geoff Dobson

Hepburn Shire Council - Cr Bill McClenaghan

Hindmarsh Shire Council - Cr Michael Gawith

Hobsons Bay City Council - Cr Tony Briffa

Horsham Rural City Council - Cr Mandi Stewart

Hume City Council - Cr Helen Patsikatheodorou

Indigo Shire Council - Cr Larry Goldsworthy

Kingston City Council - Cr John Ronke

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

Melton Shire Council - Cr Kathy Majdlik

Mildura Rural City Council - Cr John Arnold

Mitchell Shire Council - Cr Sue Marstaeller

Moira Shire Council - Cr Alex Monk

Monash City Council - Cr Geoff Lake

Moonee Valley City Council - Cr John Sipek

Moorabool Shire Council - Cr Tom Sullivan

Moreland City Council - Cr Oscar Yildiz

Mornington Peninsula Shire Council - Cr Bev Colomb

Mount Alexander Shire Council - Cr Michael Redden

Moyne Shire Council - Cr Jim Doukas

Murrindindi Shire Council - Cr John Walsh

Nillumbik Shire Council - Cr Helen Coleman

Northern Grampians Shire Council - Cr Dorothy Patton

Port Phillip City Council - Cr John Middleton

Pyrenees Shire - Cr David Clark

Queenscliffe Borough Council - Cr Bob Merriman

South Gippsland Shire Council - Cr Warren Raabe

Southern Grampians Shire Council - Cr Bob Penny

Stonnington City Council - Cr Claude Ullin

Strathbogie Shire Council - Cr Graeme Williams

Surf Coast Shire Council - Cr Libby Coker

Swan Hill Rural City Council - Cr Gary Norton

Towong Shire Council - Cr Mary Fraser

Wangaratta Rural City Council - Cr Roberto Paino

Warrnambool City Council - Cr Jacinta Ermacora

Wellington Shire Council - Cr Jeff Amos

West Wimmera Shire Council - Cr Evaline van Breugel

Whitehorse City Council - Cr Mark Lane

Whittlesea City Council - Cr Mary Lalios

Wodonga City Council - Cr Lisa Mahood

Wyndham City Council - Cr Bob Fairclough

Yarra City Council - Cr Geoff Barbour

Yarra Ranges Shire Council - Cr Graham Warren

Yarriambiack Shire Council - Cr Andrew McLean

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

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 INSURANCE - CHAIR’S REPORT

38 > MAV ANNUAL REPORT MAV INSURANCE COMMITTEE 2011/12

RON FARRELL

APPOINTED 2001General Manager, Australian Eagle Insurance Co LtdChairman and Non Executive Director, Utilities Insurance Co Pty LtdNon Executive Director, connect.com.auPty LtdNon Executive Director, Metropolitan Fire and Emergency Services BoardMember, Professional Standards Councils (All States and Territories)

CR ROD FYFFE

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

ALLAN GARCIA

APPOINTED 2003CEO Local Government Association of TasmaniaLocal Government Asscociation of Tasmania representativeQuadrant Superannuation

MICHAEL GUILMARTIN

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

DR MICHAEL KENNEDY OAM

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

CR BILL MCARTHUR

APPOINTED 2009MAV PresidentCouncillor, Golden Plains Shire Council Mayor 2004, 2005Director, Australian Local Government Association Member, MAV Audit Committee

ANNE MURHPY OAM

APPOINTED 1993Chair, MAV Insurance Committee 1993 - 2005Past President, MAVPrincipal, Anne Murphy Strategy andFacilitationBoard member, KYM Employment Services IncBoard member, Calvary Health Care Bethlehem Advisory Board

ROB SPENCE

APPOINTED 1997Chief Executive Officer, Municipal Association of VictoriaTrustee, Vision SuperMember, Victorian Children’s Council

MAV INSURANCE COMMITTEE

JOHN WARBURTON

APPOINTED 1995Chair, MAV Insurance Committee 2005 - presentDirector, Lend Lease Real Estate Investments LimitedDirector, Health Super Financial ServicesDirector, Emergency Services FoundationChairman, Vision Super Audit Committee

MAV ANNUAL REPORT MAV INSURANCE COMMITTEE 2011/12 > 39

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.

MAVIC has oversight of the operation of the insurance schemes and monitors the MAV’s compliance with its Australian Financial Services Licence (AFSL). It comprises nine members – 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.

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

> 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 INSURANCE COMMITTEE ATTENDANCE SEP OCT* NOV FEB* MAR APR JUN

John Warburton a a a a a a aRon Farrell a X a X a a aRod Fyffe a a a a a a aAllan Garcia a X a X a a aMichael Guilmartin a a a a a a X

Michael Kennedy a a a a a a aBill McArthur a a a a X X aAnne Murphy a a a a a a aRob Spence 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.

MAV INSURANCE COMMITTEE

Rob SpenceChief Executive Officer

Rob SpenceChief Executive Officer

MAV Insurance Committee

MAV Insurance Committee

Alison LyonDeputy Chief Executive Officer

Alison LyonDeputy Chief Executive Officer

CLAIMSJohn Smith Claims Adviser

CLAIMSJohn Smith Claims Adviser

POLICYOwen Harvey-BeavisContribution Setting (p/t)

James CleaverWater Industry Liaison (p/t)

POLICYOwen Harvey-BeavisContribution Setting (p/t)

James CleaverWater Industry Liaison (p/t)

LEGAL PANELMinter Ellison

DLA Piper

Moray & Agnew

King & Wood Mallesons

Ligeti Partners

Hunt & Hunt (Tasmania)

Shaun McElwaine (Tasmania)

Dobson Mitchell Allport (Tasmania)

LEGAL PANELMinter Ellison

DLA Piper

Moray & Agnew

King & Wood Mallesons

Ligeti Partners

Hunt & Hunt (Tasmania)

Shaun McElwaine (Tasmania)

Dobson Mitchell Allport (Tasmania)

SERVICE PROVIDERJardine Lloyd Thompson (JLT)Risk Management

SERVICE PROVIDERJardine Lloyd Thompson (JLT)Risk Management

MAV BoardMAV Board

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 A– 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

MAV INSURANCE - LIABILITY MUTUAL INSURANCE (LMI)

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

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.

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.

MAV INSURANCE - OTHER

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

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

LIABILITY MUTUAL INSURANCE MEMBERS

VICTORIA

Alpine Shire CouncilArarat Rural City CouncilBallarat City CouncilBanyule City CouncilBass Coast Shire CouncilBaw Baw Shire CouncilBayside City CouncilBenalla Rural City CouncilBoroondara City CouncilBrimbank City CouncilBuloke Shire CouncilCampaspe Shire CouncilCardinia Shire CouncilCasey City CouncilCentral Gippsland Region Water CorporationCentral Goldfields Shire CouncilCentral Highlands Region Water CorporationCity West Water CorporationColac Otway Shire CouncilColiban Region Water CorporationCorangamite Shire CouncilDarebin City CouncilEast Gippsland Region Water CorporationEast Gippsland Shire CouncilEastern Regional Libraries CorporationFrankston City CouncilGannawarra Shire CouncilGlen Eira City CouncilGlenelg Shire CouncilGolden Plains Shire CouncilGoulburn Valley Region Water CorporationGoulburn Valley Regional Library CorporationGoulburn-Murray Rural Water CorporationGrampians Wimmera Mallee Water CorporationGreater Bendigo City CouncilGreater Geelong City CouncilGreater Shepparton City CouncilHepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City CouncilHorsham Rural City CouncilHume City CouncilIndigo Shire CouncilKingston City CouncilKnox City CouncilLatrobe City CouncilLoddon Shire CouncilLower Murray Urban and Rural Water CorporationMacedon Ranges Shire CouncilManningham City Council

Mansfield Shire CouncilMaribyrnong City CouncilMaroondah City CouncilMelbourne City CouncilMelton Shire CouncilMildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City CouncilMoorabool Shire CouncilMoreland City CouncilMornington Peninsula Shire CouncilMount Alexander Shire CouncilMoyne Shire CouncilMunicipal Association of VictoriaMurrindindi Shire CouncilNillumbik Shire CouncilNorth Central Goldfields Library ServiceNorth East Region Water CorporationNorthern Grampians Shire CouncilPort Phillip City CouncilPyrenees Shire CouncilQueenscliffe Borough CouncilSouth Gippsland Region Water CorporationSouth Gippsland Shire CouncilSouthern Grampians Shire CouncilSouthern Rural Water CorporationStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire Coun cilSwan Hill Rural City CouncilTowong Shire CouncilVictorian Water Industry Association Inc.Wangaratta Rural City CouncilWannon Region Water CorporationWarrnambool City CouncilWellington Shire CouncilWest Gippsland Regional Library ServiceWest Wimmera Shire CouncilWestern Region Water CorporationWesternport Region Water CorporationWhitehorse City CouncilWhitehorse Manningham Regional Library CorporationWhittlesea City CouncilWodonga City CouncilWyndham City CouncilYarra City CouncilYarra Plenty Regional Library ServiceYarra Ranges Shire CouncilYarriambiack Shire Council

TASMANIA

Ben Lomond Water CorporationBreak O’Day CouncilBrighton CouncilBurnie City CouncilCentral Coast CouncilCentral Highlands CouncilCircular Head CouncilClarence City CouncilCradle Mountain Water CorporationDerwent Valley CouncilDevonport City CouncilDorset CouncilFlinders CouncilGeorge Town CouncilGlamorgan/Spring Bay CouncilGlenorchy City CouncilHobart City CouncilHuon Valley CouncilKentish CouncilKing Island CouncilKingborough CouncilLatrobe CouncilLaunceston City CouncilLocal Government Association of TasmaniaMeander Valley CouncilNorthern Midlands CouncilOnstream Rivers and Water Supply CommissionSorell CouncilSouthern Midlands CouncilSouthern Water Corporation Tasman CouncilWaratah-Wynyard CouncilWest Coast CouncilWest Tamar Council

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

COMMERCIAL CRIME MEMBERS

Alpine Shire CouncilArarat Rural City CouncilBallarat City CouncilBass Coast Shire CouncilBaw Baw Shire CouncilBayside City CouncilBenalla Rural City CouncilBoroondara City CouncilBrimbank City CouncilBuloke Shire CouncilCardinia Shire CouncilCasey City CouncilCentral Goldfields Shire CouncilCentral Highlands Region Water CorporationCitywide Service Solutions Pty LtdColac-Otway Shire CouncilColiban Region Water CorporationCorangamite Regional Library CorporationCorangamite Shire CouncilCrowlands Water Supply Co-operativeDarebin City CouncilEast Gippsland Region Water CorporationEast Gippsland Shire CouncilEastern Regional LibrariesFrankston City CouncilGannawarra Shire CouncilGeelong Regional Library CorporationGlenelg Shire CouncilGolden Plains ShireGoulburn Valley Region Water CorporationGoulburn-Murray Rural Water CorporationGrampians Wimmera Mallee Water CorporationGreater Bendigo City CouncilGreater Geelong City CouncilGreater Shepparton City CouncilHepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City CouncilHorsham Rural City CouncilHume City CouncilIndigo Shire CouncilKingston City CouncilKnox City CouncilLatrobe City CouncilLoddon Shire CouncilLower Murray Urban and Rural Water CorporationMacedon Ranges Shire CouncilManningham City CouncilMansfield Shire CouncilMaribyrnong City CouncilMelbourne City Council

Melbourne Wholesale Fish MarketMelton Shire CouncilMildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City CouncilMoorabool Shire CouncilMoreland City CouncilMornington Peninsula Shire CouncilMount Alexander Shire CouncilMoyne Shire Council Municipal Association of VictoriaMurrindindi Shire CouncilNillumbik Shire CouncilNorth East Region Water CorporationNorthern Grampians Shire CouncilPort Phillip City CouncilPyrenees Shire CouncilQueen Victoria MarketQueenscliffe Borough CouncilSouth Gippsland Region Water CorporationSouth Gippsland Shire CouncilSouthern Grampians Shire CouncilSouthern Rural Water CorporationStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire CouncilSwan Hill Rural City CouncilTanjil Bren Water Co-op Ltd & Committee of Management - Recreation ReserveTowong Shire CouncilWannon Region Water CorporationWarrnambool City CouncilWellington Shire CouncilWest Gippsland Regional Library CorporationWest Wimmera Shire CouncilWestern Region Water CorporationWesternport Region Water CorporationWhitehorse City CouncilWhittlesea City CouncilWodonga City CouncilWyndham City CouncilYarra City CouncilYarra Ranges Shire CouncilYarriambiack Shire Council

MAV ANNUAL REPORT FINANCIAL OVERVIEW 2011/12 > 45

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 Association’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).

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 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).

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

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 STATEMENTThe 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.

2. BALANCE SHEETThe 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.

GUIDE TO FINANCIAL REPORT

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

3. STATEMENT OF CASH FLOWSThe 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.

48 > MAV ANNUAL REPORT 2011/12

MAV FINANCIAL REPORT 2011/12 > 49

Financial Report 08/09

Financial Report 08/09

MAV FINANCIAL REPORT 2011/12

50> MAV FINANCIAL REPORT 2011/12

STATEMENT OF COMPREhENSIVE INCOME for the year ended 30 June, 2012

STATEMENT OF FINANCIAL POSITION as at 30 June, 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

CurrENT AssETs

Cash and cash equivalents 9(a) 38,719,657 39,624,007 4,586,907 7,223,391

Trade and other receivables 10,2(f) 45,862,938 51,172,073 4,137,335 6,174,214

Prepayments 98,939 86,240 97,810 86,241 totaL Current assets 84,681,534 90,882,320 8,822,052 13,483,846

NON-CurrENT AssETs

Trade and other receivables 10,2(f) 53,442,452 48,163,113 - - Property, plant and equipment 12,2(h) 780,945 1,013,711 591,542 792,740

Intangibles 13,2(h) 249,704 211,068 131,458 153,490 totaL non-Current assets 54,473,101 49,387,892 723,000 946,230

totaL assets 138,154,635 140,270,212 9,545,052 14,430,076

CurrENT lIAbIlITIEs

Trade and other payables 7,001,997 6,059,759 4,197,691 3,543,453

Premiums in advance 11 24,210,449 21,945,977 - -

Provision for employee entitlements 17 765,906 777,186 765,906 777,186

Provision for claims outstanding 14(a),2(s) 18,079,388 22,813,827 - -

Other current liabilities 406,823 3,168,464 406,823 3,168,464 totaL Current LIaBILItIes 50,464,563 54,765,213 5,370,420 7,489,103

NON-CurrENT lIAbIlITIEs

Provision for employee entitlements 17 52,402 26,444 52,402 26,444

Provision for claims outstanding 14(a),2(s) 78,140,836 70,908,862 - -

Other non-current liabilities 127,788 175,111 127,788 175,111 totaL non-Current LIaBILItIes 78,321,026 71,110,417 180,190 201,555

totaL LIaBILItIes 128,785,589 125,875,630 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.

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

reVenue 4 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

net surPLus/(defICIt) 3 (4,025,536) (586,663) (2,744,976) (84,908)

other CoMPrehensIVe InCoMe - - - -

totaL CoMPrehensIVe InCoMe for the PerIod (4,025,536) (586,663) (2,744,976) (84,908)

MAV FINANCIAL REPORT 2011/12 > 51

STATEMENT OF ChANgES IN EquITy for the year ended 30 June, 2012

COMbINEd STATEMENT OF CASh FLOwS for the year ended 30 June, 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

Cash fLow froM oPeratInG aCtIVItIes

rECEIPTs

subscriptions, grants and fees 47,695,650 45,773,862 24,736,481 21,652,851

Investment income 2,805,657 2,269,459 283,889 454,745

reinsurance and other recoveries 11,484,989 15,876,897 - -

PAyMENTs

suppliers (51,322,490) (42,798,860) (27,551,227) (20,866,758)Claim payments (11,382,656) (14,277,800) - -

net Cash (used In)/ProVIded By oPeratInG aCtIVItIes 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 (904,350) 6,367,551 (2,636,484) 822,406

Cash at beginning of year 39,624,007 33,256,456 7,223,391 6,400,985

Cash at end of year 9(a) 38,719,657 39,624,007 4,586,907 7,223,391

The accompanying notes form an integral part of these statements.

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

retaIned earnInGs

balance at beginning of year 14,394,582 14,981,245 6,739,418 6,824,326 surplus (deficit) from ordinary activities (4,025,536) (586,663) (2,744,976) (84,908)

BaLanCe at end of year 10,396,046 14,394,582 3,994,442 6,739,418

52> MAV FINANCIAL REPORT 2011/12

NOTES TO ANd FORMINg PART OF ThE FINANCIAL STATEMENTSfor the year ended 30 June 2012

1. CorPorate InforMatIonThe 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 preparationThe 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 complianceThe 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 entityThe 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 mutuals’ and are not available to the members of the Association.

(d) Income taxThe 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 equivalentsCash 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.

MAV FINANCIAL REPORT 2011/12 > 53

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

(f) trade and other receivablesTrade 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 payablesTrade 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 propertyPlant 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%

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.

54> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

(i) LeasesA 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 entitlementsThe 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 incomebrokerage 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 incomeInvestment 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 figuresWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

(p) Cash flowsFor 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) PremiumsPremiums 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 receivableDuring 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’.

MAV FINANCIAL REPORT 2011/12 > 55

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) ClaimsClaims-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 receivablereinsurance 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 recognitionrevenue 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 expensereinsurance 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.

56> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned

2012 2011NOTE $ $

3. ContrIButIon to oPeratInG surPLus

CONTrIbuTION FrOM INsurANCE ACTIVITIEs

Premium income 21,945,978 20,349,090

Performance bonus 26 678,475 1,663,647 re-insurance expense 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 15 (5,571,329) (5,576,743)

net underwrItInG resuLt 3,726,437 4,487,178

Fees received 247,494 190,023

Investment income 2,689,461 1,817,740 Administration and general expenses (7,943,952) (6,996,696)

InsuranCe aCtIVIty oPeratInG surPLus (1,280,560) (501,755)

MaV surPLus (defICIt) (2,744,976) (84,908)oPeratInG surPLus (defICIt) (4,025,536) (586,663)

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

4. reVenue

rEVENuEs FrOM OPErATING ACTIVITIEs

subscriptions/premiums 24,334,544 22,647,421 2,410,761 2,318,040

reinsurance and other recoveries 2(t) 8,834,440 13,286,867 - -

Performance bonus 26 678,475 1,663,647 - -

brokerage fees 1,487,900 1,467,704 1,487,900 1,467,704

Management fee income 371,155 605,248 1,476,065 1,432,180

seminars and sale of publications 1,150,389 954,440 1,150,389 954,440 Project, sponsorship, management and rental income 3,665,548 2,936,681 3,665,548 2,936,681

Grant income 4,950,936 9,134,379 4,950,936 9,134,379 totaL reVenue froM oPeratInG aCtIVItIes

45,473,387 52,696,388 15,141,599 18,243,424

rEVENuEs FrOM NON-OPErATING ACTIVITIEs

Investment income 3,000,954 2,248,749 311,493 431,009

Gain on disposal of non-current assets 7,935 11,289 7,935 11,289 totaL reVenue froM outsIde the oPeratInG aCtIVItIes

3,008,889 2,260,038 319,428 442,298

totaL reVenue 48,482,276 54,956,426 15,461,027 18,685,722

MAV FINANCIAL REPORT 2011/12 > 57

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned

2012 2011NOTE $ $

5(a)CLaIMs eXPenses

Paid 11,908,234 14,996,386

Outstanding claims at end of financial year 14(a) 96,220,224 93,722,689

Outstanding claims at beginning of financial year (93,722,689) (89,855,465)

totaL CLaIMs eXPenses 2(s) 14,405,769 18,863,610

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

(b) oPeratInG eXPensesThe following items have been recognised in the operating surplus:

re-insurance expense 13,326,687 11,948,816 - -

Claims expense 14,405,769 18,863,610 - -

Claims handling cost 99,221 - - -

scheme management fee 8 3,152,543 3,091,834 - -

Administration 2,873,167 2,477,293 1,857,694 1,318,933

AlGA membership 394,248 378,928 394,248 378,928

Amortisation of website, educational programs and trademarks 91,309 62,052 72,105 62,052

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 86,673 84,691 74,827 72,847

Depreciation motor vehicles 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

Grants, projects and legal 7,159,964 9,120,749 7,159,964 9,246,421

legal & actuarial fees 296,471 319,770 9,127 194,098

Meetings and seminars 1,402,757 1,180,076 1,402,757 1,178,372

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 1,818,560 1,524,058 - - totaL eXPendIture 52,507,812 55,543,089 18,206,003 18,770,630

6. LeasInG CoMMItMentsOperating lease commitments, being for lease of new OCE and OCE colour copiers

Not later than one year 26,400 13,280 26,400 13,280

later than one year but not later than five years 66,000 - 66,000 - totaL Lease CoMMItMent 92,400 13,280 92,400 13,280

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 - 406,010 - 406,010 totaL Lease CoMMItMent 2,950,931 3,217,288 2,950,931 3,217,288

58> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

7. audItors reMuneratIon

Amounts received or due and receivable for audit services:

Audit services 138,550 151,700 24,600 37,559

Other services 38,359 - 18,848 - 176,909 151,700 43,448 37,559

CoMBIned

2012 2011NOTE $ $

8. sCheMe ManaGeMent fees

scheme management fees are paid to the scheme manager for:

reinsurance placement 1,886,120 1,843,568

risk management and administrative services 1,266,423 1,248,266

Total administration 5(b) 3,152,543 3,091,834

Claims management (included in claims expenses) 1,052,758 1,130,808 totaL sCheMe ManaGeMent fees 4,205,301 4,222,642

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

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 8,534,026 12,092,703 4,586,907 7,223,391

Other financial assets 30,185,631 27,531,304 - - totaL Cash and Cash equIVaLents 38,719,657 39,624,007 4,586,907 7,223,391

(b) reconciliation of net cash used in operating activities to operating profit (loss)

Profit (loss) for year (4,025,536) (586,663) (2,744,976) (84,908)

Depreciation 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)

Changes in assets and liabilities

(Increase)/decrease in accounts receivable 2(f) 438,604 (1,262,507) 2,036,879 (1,321,353)

(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

Increase/(decrease) in provision for employee entitlements 14,678 81,504 14,678 81,504

Increase/(decrease) in outstanding claims 2(s) 2,307,431 3,867,224 - -

Increase/(decrease) in accrued revenue 2,262,556 1,601,890 - -

Increase/(decrease) in other liabilities (2,808,964) 168,696 (2,808,964) 168,696

Cash fLows froM oPeratIons (718,850) 6,843,558 (2,530,857) 1,240,838

MAV FINANCIAL REPORT 2011/12 > 59

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

10.reCeIVaBLes

Future reinsurance and other recoveries receivable 2(t) 78,128,664 77,377,653 - -Discount to present value (7,964,231) (6,625,877) - -

70,164,433 70,751,776 - -

less doubtful debts - - - -

Premiums receivable 2(r) 24,094,922 20,884,676 - -

Other receivables 5,046,035 7,698,734 4,137,335 6,174,214 totaL reCeIVaBLes 99,305,390 99,335,186 4,137,335 6,174,214

represented by:

Current 45,862,938 51,172,073 4,137,335 6,174,214

Non-Current 53,442,452 48,163,113 - - totaL 99,305,390 99,335,186 4,137,335 6,174,214

the ageing analysis of trade receivables are as follows:

totaL <30 days 31-60 days 61-90 days >90 days

2012

Combined 29,175,329 28,899,976 192,020 405 82,928

MAV General Fund 3,856,846 3,581,493 192,020 405 82,928

2011

Combined 29,319,660 29,138,495 118,995 20,558 41,612

MAV General Fund 6,004,140 5,822,975 118,995 20,558 41,612

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

11.PreMIuMs In adVanCe

Contributions billed in advance 24,210,449 21,945,977 - -

12.ProPerty, PLant and equIPMent

leasehold Improvements - at cost 877,799 877,799 698,358 698,358

less accumulated depreciation (707,640) (661,742) (646,526) (620,350)

170,159 216,057 51,832 78,008

Furniture and Equipment - at cost 858,074 848,525 760,054 750,505

less accumulated depreciation (728,400) (641,727) (701,456) (626,629)

129,674 206,798 58,598 123,876

Motor vehicles - at cost 564,532 560,172 564,532 560,172

less accumulated depreciation (180,786) (110,835) (180,786) (110,835)

383,746 449,337 383,746 449,337

Information Technology Equipment- at cost 688,711 669,651 688,711 669,651

less accumulated depreciation (591,345) (528,132) (591,345) (528,132) 97,366 141,519 97,366 141,519

totaL ProPerty, PLant and equIPMent 780,945 1,013,711 591,542 792,740

60> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

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 216,057 247,100 78,008 89,330

Additions - 43,655 - 43,655

Disposals - - - -

Depreciation (45,898) (74,698) (26,176) (54,977)

End of year 170,159 216,057 51,832 78,008

FurNITurE AND EquIPMENT

Movements during the year

beginning of year 206,798 278,028 123,876 183,260

Additions 9,549 14,817 9,549 14,819

Disposals - - - -

Depreciation (86,673) (86,047) (74,827) (74,203)

End of year 129,674 206,798 58,598 123,876

MOTOr VEHIClEs

Movements during the year

beginning of year 449,337 392,350 449,337 392,350

Additions 119,139 370,879 119,139 370,879

Disposals (78,740) (209,010) (78,740) (209,010)

Depreciation (105,990) (104,882) (105,990) (104,882)

End of year 383,746 449,337 383,746 449,337

INFOrMATION TECHNOlOGy EquIPMENT

Movements during the year

beginning of year 141,519 50,156 141,519 50,156

Additions 30,272 130,499 30,272 130,499

Disposals (16,730) - (16,730) -

Depreciation (57,695) (39,136) (57,695) (39,136)

End of year 97,366 141,519 97,366 141,519

MAV FINANCIAL REPORT 2011/12 > 61

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

13. IntanGIBLe assets

Trademarks and Intellectual Property 800,999 671,106 663,549 613,528

less accumulated amortisation (551,295) (460,038) (532,091) (460,038)

249,704 211,068 131,458 153,490

reconciliation of the carrying amounts of intangible assets at the beginning and end of the financial year.

INTANGIblE AssETs

Movement during the year

beginning of year 211,068 176,925 153,490 176,925

Additions 145,330 136,457 65,458 78,879

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 2011NOTE $ $

14 (a) outstandInG CLaIMs

Central estimate 101,987,759 95,767,965

Discount to present value (11,298,096) (10,045,276)

90,689,663 85,722,689

Claims handling costs 630,333 3,344,000

risk margin 14(b) 4,900,228 4,656,000

totaL outstandInG CLaIMs 96,220,224 93,722,689

Comprising:

Current 18,079,388 22,813,827

Non-current 78,140,836 70,908,862

totaL CLaIMs ProVIsIon 2(s) 96,220,224 93,722,689

62> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

14 (b) rIsk MarGIn - ProCess for deterMInInG rIsk MarGInbased 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 2011

Gross $

reInsuranCe$

net $

GrOss $

rEINsurANCE$

NET $

(c) reConCILIatIon of MoVeMent In dIsCounted outstandInG CLaIMs LIaBILItyOutstanding claims brought forward 93,722,689 70,751,776 22,970,913 89,855,465 72,858,432 16,997,033

Changes in assumptions 11,099,705 7,397,698 3,702,007 14,616,145 18,802,365 (4,186,220)Increase in claims incurred/recoveries anticipated 2,253,307 1,431,843 821,464 3,178,225 (5,520,748) 8,698,973

Incurred claims recognised in income statement 13,353,012 8,829,541 4,523,471 17,794,370 13,281,617 4,512,753 Claim payments/recoveries during the year (10,855,477) (9,416,884) (1,438,593) (13,927,146) (15,388,273) 1,461,127

Outstanding claims carried forward 96,220,224 70,164,433 26,055,791 93,722,689 70,751,776 22,970,913

2012 2011

Current year $

PrIor year$

totaL $

CurrENT yEAr $

PrIOr yEAr$

TOTAl $

15. net CLaIMs InCurred

Gross claims and related expenses - undiscounted

22,110,561 (6,451,972) 15,658,589 29,109,441 (10,119,956) 18,989,485

Discount (2,444,593) 1,191,773 (1,252,820) (3,652,090) 3,526,215 (125,875)

Gross claims and related expenses - discounted 19,665,968 (5,260,199) 14,405,769 25,457,351 (6,593,741) 18,863,610 reinsurance and other recoveries - undiscounted (11,050,667) 963,983 (10,086,684) (15,202,368) 2,558,701 (12,643,667)Discount 104,080 1,148,164 1,252,244 710,813 (1,354,013) (643,200)

reinsurance and other recoveries - discounted (10,946,587) 2,112,147 (8,834,440) (14,491,555) 1,204,688 (13,286,867)

net CLaIMs InCurred 8,719,381 (3,148,052) 5,571,329 10,965,796 (5,389,053) 5,576,743

MAV FINANCIAL REPORT 2011/12 > 63

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 15,754,621 32,781,490 18,260,706 - -

Three years later 15,397,449 32,282,253 - - -

Four years later 16,124,021 - - - -

Current estimate of cumulative claims cost 16,124,021 32,282,253 18,260,706 24,589,379 21,064,708 112,321,067

Cumulative payments (7,006,304) (12,947,509) (2,785,825) (2,106,363) (154,348) (25,000,349)

Outstanding claims - undiscounted 9,117,717 19,334,744 15,474,881 22,483,016 20,910,360 87,320,718

discount (9,470,238)

Claims handling expense 541,388

2007 and prior 17,828,356 LIaBILIty MutuaL InsuranCe - totaL Gross outstandInG CLaIMs 14(a)

96,220,224

CoMBIned Gross outstandInG CLaIMs 14(c)

96,220,224

ACCIDENT yEAr 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 14,069,608 7,185,550 - -

Three years later 291,537 16,406,929 - - -

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 40,754,466

Cumulative payments (696,783) (7,496,844) (1,280,865) (1,183,763) (66,825) (10,725,080)

Outstanding claims - undiscounted (343,839) 8,910,085 5,904,685 6,915,057 8,643,398 30,029,386

discount (3,489,663)

Claims handling expense 186,182

2007 And prior (670,114)LIaBILIty MutuaL InsuranCe - totaL net outstandInG CLaIMs

26,055,791

CoMBIned net outstandInG CLaIMs 14(c)

26,055,791

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

64> MAV FINANCIAL REPORT 2011/12

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

CoMBIned MaV - GeneraL fund

2012 2011 2012 2011NOTE $ $ $ $

17.ProVIsIons for eMPLoyee entItLeMents

The aggregate amount of employee entitlement liability is comprised of:

Provisions (current) 765,906 777,186 765,906 777,186

Provisions (non-current) 52,402 26,444 52,402 26,444 totaL eMPLoyee entItLeMents 818,308 803,630 818,308 803,630

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

beginning of year 803,630 722,126 803,630 722,126

Additions 14,678 81,504 14,678 81,504 end of year 818,308 803,630 818,308 803,630

18. suPerannuatIon ContrIButIonThe 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 GrantsThe 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$ $ $ $

rECOGNIsED IN INCOME sTATEMENT

Grant income 4,950,936 11,145,802 4,950,936 11,145,802

The Association does not receive any other government assistance.

MAV 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 oBJeCtIVesThe group’s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out below:

CoMBIned MaV - GeneraL fund

non- Interest earning

floating Interest

rate

non- Interest earning

floating Interest

rate$ $ $ $

2012

fInanCIaL assets

Cash at bank 8,534,026 4,586,907

Other financial assets 30,185,631 -

Trade and other receivables 99,305,390 4,137,335 totaL fInanCIaL assets 99,305,390 38,719,657 4,137,335 4,586,907

weighted average interest rate 8% 5%

fInanCIaL LIaBILItIes

Outstanding claims 96,220,224 - - -

unearned premiums/subscriptions 24,210,449 - - -

Trade and other payables 7,001,997 - 4,197,691 - totaL fInanCIaL LIaBILItIes 127,432,670 - 4,197,691 -

weighted average interest rate 0% 0%

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 MaV - GeneraL fund

Non- Interest Earning

Floating Interest

rate

Non- Interest Earning

Floating Interest

rate$ $ $ $

2011

fInanCIaL assets

Cash at bank - 12,092,703 7,223,391

Other financial assets - 27,531,304 -

Trade and other receivables 99,335,186 - 6,174,214 - totaL fInanCIaL assets 99,335,186 39,624,007 6,174,214 7,223,391

weighted average interest rate 6.2% 6.3%

fInanCIaL LIaBILItIes

Outstanding claims 93,722,689 - - -

unearned premiums/subscriptions 21,945,977 - - -

Trade and other payables 6,059,759 - 3,543,453 - totaL fInanCIaL LIaBILItIes 121,728,425 - 3,543,453 -

weighted average interest rate 0% 0%

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

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)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

Over 5 years 33,552,706 17,423,333 - -

140,083,684 135,920,926 5,550,610 7,690,658

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

months3-12

months1-5

years>5

years totaL$ $ $ $

CoMBIned

fInanCIaL assets

Cash and cash equivalents 38,719,656 - - - 38,719,656

Trade and other receivables 33,994,752 11,891,869 38,417,012 22,787,581 107,041,214 72,664,408 11,891,869 38,417,012 22,787,581 145,760,870

CoMBIned

fInanCIaL LIaBILItIes

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 - 1,172,729 180,190 - 1,352,919 totaL fInanCIaL LIaBILItIes 17,496,792 33,230,236 55,803,950 33,552,706 140,083,684

net MaturIty 55,167,616 (21,338,367) (17,386,938) (10,765,125) 5,677,186

Parent

fInanCIaL assets

Cash and cash equivalents 4,586,907 - - - 4,586,907

Trade and other receivables 4,137,335 - - - 4,137,335 8,724,242 - - - 8,724,242

Parent

fInanCIaL LIaBILItIes

Trade and other payables 4,197,691 - - - 4,197,691

Other liabilities - 1,172,729 180,190 - 1,352,919 totaL fInanCIaL LIaBILItIes 4,197,691 1,172,729 180,190 - 5,550,610

net MaturIty 4,526,551 (1,172,729) (180,190) - 3,173,632

MAV FINANCIAL REPORT 2011/12 > 67

20. fInanCIaL rIsk ManaGeMent PoLICIes and oBJeCtIVes (continued)

risk management objectives and policies for mitigating insurance riskThe 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 risksThe 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 strategyThe 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 membershipMembership 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 featuresThe 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 risksThe 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 risksInsurance 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.

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

68> 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)

CredIt ratInG

aaa +/-

aa +/-

a +/- BBB

speculative Grade

not rated totaL

$m $m $m $m $m $m $m

reinsurance and other recoveries on outstanding claims 2012 - 0.431 32.220 - - 0.454 33.105

2011 - 0.467 27.057 - - 0.537 28.061reinsurance and other recoveries on paid claims 2012 - 0.022 1.378 - - 0.757 2.157

2011 - 0.038 3.408 - - 0.743 4.189

Past due But not IMPaIredneither

past due nor

impairedLess than 3 months

3 to 6 months

6 months to 1 year

Greater than

1 year Impaired totaL$m $m $m $m $m $m $m

reinsurance and other recoveries on paid claims 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 rateChange

variable to

operating surplus (deficit)

at 30 June 2012

total accumulated

funds after the impact of applying

variable% % $ $

IMPaCt of ChanGes In Interest rates

lIAbIlITy MuTuAl INsurANCE

base value at 30 June 2012 3% (1,314,338) 5,933,495

Interest rate pa 3.5% (827,338) 6,420,495

2.5% (1,801,338) 5,446,495

Credit riskThe 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 scheme’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 riskInvestments held are not subject to price risk. Investments are cash at bank and fixed interest funds.

MAV FINANCIAL REPORT 2011/12 > 69

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

21. aCCountInG estIMates and JudGeMentsThe 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 liabilityProvision 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 contractsAssets 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 assumptionsThe following assumptions have been made in determining the outstanding claims liabilities:

2012 2011

key aCtuarIaL assuMPtIons

Wage inflation 3.25% 4%

Claim administration expense 0.7% 4%

Discount rate 3% 5%

reinsurer default 1% 1%

risk margin 20% 20%

70> MAV FINANCIAL REPORT 2011/12

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 assumptionsA 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 – 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 Current rateChange

variable to

operating surplus (deficit)

at 30 June 2012

total accumulated

funds after the impact of applying

variable% % $ $

IMPaCt of ChanGes In Interest rates

lIAbIlITy MuTuAl INsurANCE

base value at 30 June 2012 3.25% (1,314,338) 5,933,495

Interest rate pa 3.75% (1,844,338) 5,403,495

2.75% (784,338) 6,463,497

MAV FINANCIAL REPORT 2011/12 > 71

23. rent-free PerIodDuring 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 BusInessOn 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 oBJeCtIVesThe 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 BonusThe 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 LIaBILItyDuring 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.

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

72> MAV FINANCIAL REPORT 2011/12

28. reMuneratIon of key ManaGeMent PersonneLThe 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$ $ $ $

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 932,084 902,737 903,286 875,975

Post employment benefits 44,923 43,488 44,923 43,488

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 PartIesThe 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.

notes to and forMInG Part of the fInanCIaL stateMents FOr THE yEAr ENDED 30 JuNE 2012

MAV FINANCIAL REPORT 2011/12 > 73

STATEMENT by dIRECTORSas 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 Cr. Geoff Gough robert spence President Director Chief Executive Officer

Melbourne 5 October 2012

74> MAV FINANCIAL REPORT 2011/12

COMbINEd FINANCIAL REPORTS

MAV FINANCIAL REPORT 2011/12 > 75

COMbINEd FINANCIAL REPORTS

76> MAV FINANCIAL REPORT 2011/12

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.

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 77MAV INSURANCE FINANCIAL REPORT 2011/12 > 77

MAV INSURANCE FINANCIAL REPORT 2011/12

78 > MAV INSURANCE FINANCIAL REPORT 2011/12

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

Premium revenue 3 21,945,978 20,349,090 21,945,978 20,349,090 - -

Performance bonus 18 678,475 1,663,647 678,475 1,663,647 - -

Reinsurance expense 2(s) (13,326,687) (11,948,816) (13,326,687) (11,948,816) - -

NET PREMIUM INCOME 9,297,766 10,063,921 9,297,766 10,063,921 - -

Claims expense 4(a) (14,405,769) (18,863,610) (14,405,769) (18,827,532) - (36,078)Reinsurance and other recoveries 3 8,834,440 13,286,867 8,829,540 13,281,617 4,900 5,250

NET CLAIMS ExPENSE 12 (5,571,329) (5,576,743) (5,576,229) (5,545,915) 4,900 (30,828)

NET UNDERwRITING RESULT 3,726,437 4,487,178 3,721,537 4,518,006 4,900 (30,828)

Management fees 3,20 247,496 190,023 - - 247,496 190,023

Investment income 3 2,689,461 1,817,740 2,664,826 1,795,436 24,635 22,304 Administration and general expenses 4(b) (7,943,952) (6,996,699) (7,700,701) (6,851,792) (243,251) (144,907)

OPERATING PROFIT (LOSS) (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 COMPREhENSIVE INCOME FOR THE YEAR ENDED 30 JUNE, 2012

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

CURRENT ASSETS

Cash and cash equivalents 8(a) 34,132,749 32,400,616 33,687,158 31,992,173 445,591 408,443

Trade and other receivables 9 42,040,464 45,541,129 42,039,339 45,535,185 1,125 5,944 TOTAL CURRENT ASSETS 76,173,213 77,941,745 75,726,497 77,527,358 446,716 414,387

NON-CURRENT ASSETS

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 - -

Trade and other receivables 9 53,442,452 48,163,113 53,442,452 48,163,113 - - TOTAL NON-CURRENT ASSETS 53,750,103 48,441,662 53,750,103 48,441,662 - -

TOTAL ASSETS 129,923,316 126,383,407 129,476,600 125,969,020 446,716 414,387

CURRENT lIAbIlITIES

Trade and other payables 3,118,041 3,059,581 3,112,432 3,052,521 5,609 7,060

Premiums in advance 10 24,210,449 21,945,977 24,210,449 21,945,977 - -

Provision for claims outstanding 11(a) 18,079,388 22,813,827 18,079,388 22,813,827 - - TOTAL CURRENT LIABILITIES 45,407,878 47,819,385 45,402,269 47,812,325 5,609 7,060

NON-CURRENT lIAbIlITIES

Provision for claims outstanding 11(a) 78,140,836 70,908,862 78,140,836 70,908,862 - - TOTAL NON-CURRENT LIABILITIES 78,140,836 70,908,862 78,140,836 70,908,862 - -

TOTAL LIABILITIES 123,548,714 118,728,247 123,543,105 118,721,187 5,609 7,060

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

STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE, 2012

MAV INSURANCE FINANCIAL REPORT 2011/12 > 79

STATEMENT OF ChANgES IN EqUITy FOR THE YEAR ENDED 30 JUNE, 2012

STATEMENT OF CASh FLOwS

FOR THE YEAR ENDED 30 JUNE, 2012

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

CASH FLOw FROM OPERATING ACTIvITIES

RECEIPTS

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

PAYMENTS

Suppliers (25,281,016) (22,097,549) (24,252,135) (21,310,370) (1,028,881) (787,179)

Claim payments (11,382,655) (14,277,798) (11,382,655) (14,231,367) - (46,431)NET CASH PROvIDED BY/(USED IN) OPERATING ACTIvITIES 8(b) 1,812,008 5,602,723 1,774,860 5,689,010 37,148 (86,287)

CASH FLOw FROM INvESTING ACTIvITIES

Proceeds from sale of fixed assets - - - - - - Payments for fixed assets and intangibles (79,875) (57,578) (79,875) (57,578) - - NET CASH USED IN INvESTING ACTIvITIES

(79,875) (57,578) (79,875) (57,578) - -

NET INCREASE / (DECREASE) IN CASH HELD 1,732,133 5,545,145 1,694,985 5,631,432 37,148 (86,287)

Cash at beginning of year 32,400,616 26,855,471 31,992,173 26,360,741 408,443 494,730 CASH AT END OF YEAR 8(a) 34,132,749 32,400,616 33,687,158 31,992,173 445,591 408,443

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

RETAINED EARNINGS

balance at beginning of year 7,655,160 8,156,918 7,247,833 7,786,183 407,327 370,735 Surplus (deficit) from ordinary activities (1,280,588) (501,758) (1,314,338) (538,350) 33,780 36,592

BALANCE AT END OF YEAR 6,374,602 7,655,160 5,933,495 7,247,833 441,107 407,327

The accompanying notes form an integral part of these statements.

80 > MAV INSURANCE FINANCIAL REPORT 2011/12

NOTES TO ANd FORMINg PART OF ThE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2012

1. CORPORATE INFORMATIONThe 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 preparationThe 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 complianceThe 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 reportThe 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 equivalentsCash 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 receivablesTrade 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 payablesTrade 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.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 81

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

(h) Property, plant, equipment, trademarks and intellectual propertyPlant 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 feesManagement Fees comprise amounts received from members to manage and pay expenses for and on behalf of the Commercial Crime Fund.

(j) Investment incomeInvestment 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) PremiumsPremiums 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 receivableDuring 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) ClaimsClaims-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.

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

82 > MAV INSURANCE FINANCIAL REPORT 2011/12

(n) Other financial assetsInvestments 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 flowsFor 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 receivableReinsurance 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 recognitionRevenue 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 figuresWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

(s) Reinsurance expenseReinsurance 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 2011NOTE $ $ $ $ $ $

3. REvENUE FROM ORDINARY ACTIvITIESREVENUES FROM OPERATING ACTIVITIES

Premiums 21,945,978 20,349,090 21,945,978 20,349,090 - -

Performance bonus 18 678,475 1,663,647 678,475 1,663,647 - - Reinsurance and other recoveries 2 (p) 8,834,440 13,286,867 8,829,540 13,281,617 4,900 5,250 Management fees received 247,496 190,023 - - 247,496 190,023 TOTAL REvENUE FROM OPERATING ACTIvITIES 31,706,389 35,489,627 31,453,993 35,294,354 252,396 195,273

REVENUES FROM NON-OPERATING ACTIVITIES

Investment income 2,689,461 1,817,740 2,664,826 1,795,436 24,635 22,304 TOTAL REvENUE FROM OUTSIDE THE OPERATING ACTIvITIES 2,689,461 1,817,740 2,664,826 1,795,436 24,635 22,304 TOTAL REvENUE FROM ORDINARY ACTIvITIES 34,395,850 37,307,367 34,118,819 37,089,790 277,031 217,577

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 83

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

4(a)CLAIMS ExPENSES

Paid 11,908,234 14,996,386 11,908,234 14,852,308 - 144,078 Outstanding claims at end of financial year

11(a) & 2(m) 96,220,224 93,722,689 96,220,224 93,722,689 - -

Outstanding claims at beginning of financial year (93,722,689) (89,855,465) (93,722,689) (89,747,465) - (108,000)TOTAL CLAIMS ExPENSES 14,405,769 18,863,610 14,405,769 18,827,532 - 36,078

(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 133,461 120,850 126,511 114,100 6,950 6,750 Depreciation furniture & equipment 11,846 11,846 11,846 11,846 - - Depreciation leasehold improvements 19,721 19,722 19,721 19,722 - -

Amortisation intangible assets 19,205 - 19,205 - - -

Scheme management fee 6 3,279,543 3,218,834 3,158,273 3,099,488 121,270 119,346

Claims handling costs 6 99,221 - - - 99,221 -

Stamp duty 1,818,560 1,524,058 1,818,560 1,524,058 - - TOTAL ExPENDITURE 7,943,952 6,996,699 7,700,701 6,851,792 243,251 144,907

5. AUDITORS REMUNERATIONAmounts payable or due and payable for audit services:

Audit of the entity 133,461 120,850 126,511 114,100 6,950 6,750

Other services 30,900 - 30,900 - - -

164,361 120,850 157,411 114,100 6,950 6,750

6. SCHEME MANAGEMENT FEES

Included within administration and general expenses are management fees for:

Reinsurance placement 1,886,120 1,831,184 1,886,120 1,831,184 - - Risk management and administrative services 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

Claims handling cost 99,221 - - - 99,221

Total administration 3,378,764 3,218,834 3,158,273 3,099,488 220,491 119,346

Claims management 1,052,758 1,130,808 1,052,758 1,033,162 - 97,646 TOTAL SCHEME MANAGEMENT FEES 4,431,522 4,349,642 4,211,031 4,132,650 220,491 216,992

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

84 > MAV INSURANCE FINANCIAL REPORT 2011/12

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

7(a)PROPERTY, PLANT AND EqUIPMENT

leasehold improvements - at cost 179,441 179,441 179,441 179,441 - -

less accumulated depreciation (61,113) (41,392) (61,113) (41,392) - -

118,328 138,049 118,328 138,049 - -

Furniture and equipment - at cost 98,020 98,020 98,020 98,020 - -

less accumulated depreciation (26,944) (15,098) (26,944) (15,098) - -

71,076 82,922 71,076 82,922 - -TOTAL PROPERTY, PLANT AND EqUIPMENT 189,404 220,971 189,404 220,971 - -

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 138,049 157,771 138,049 157,771 - -

Additions - - - - - -

Disposals - - - - - -

Depreciation (19,721) (19,722) (19,721) (19,722) - -

End of year 118,328 138,049 118,328 138,049 - -

PROPERTY, PlANT AND EqUIPMENT

Movements during the year

beginning of year 82,922 94,768 82,922 94,768 - -

Additions - - - - - -

Disposals - - - - - -

Depreciation (11,846) (11,846) (11,846) (11,846) - -

End of year 71,076 82,922 71,076 82,922 - -

(b) INTANGIBLE ASSETS

Intangible assets - at cost 137,452 57,578 137,452 57,578 - -

less accumulated amortisation (19,205) - (19,205) - - -

118,247 57,578 118,247 57,578 - -

INTANGIblE ASSETS

Movements during the year

beginning of year 57,578 - 57,578 - - -

Additions 79,874 57,578 79,874 57,578 - -

Disposals - - - - - -

Amortisation (19,205) - (19,205) - - -

End of year 118,247 57,578 118,247 57,578 - -

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 85

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011NOTE $ $ $ $ $ $

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

Other Financial Assets 30,185,631 27,531,304 30,185,631 27,531,304 - - TOTAL CASH 34,132,749 32,400,616 33,687,158 31,992,173 445,591 408,443

(b) Reconciliation of net cash used in operating activities to operating surplus/(deficit)

Profit (loss) for year (1,280,558) (501,758) (1,314,338) (538,350) 33,780 36,592

Depreciation 31,567 31,567 31,567 31,567 - -

Amortisation 19,205 - 19,205 - - -Changes in assets and liabilities

(Increase)/decrease in trade & other receivables 2(f) (1,211,493) (2,671,724) (1,214,394) (2,672,543) 2,901 819 Increase/(decrease) in trade & other payables 70,759 684,254 70,292 699,952 467 (15,698)Increase/(decrease) in premiums in advance 2,264,473 1,601,887 2,264,473 1,601,887 - - (Increase)/decrease in provision for reinsurance recoveries (389,376) 2,591,273 (389,376) 2,591,273 - - Increase/(decrease) in outstanding claims 2(m) 2,307,431 3,867,224 2,307,431 3,975,224 - (108,000)CASH FLOwS (USED IN)/FROM OPERATIONS 1,812,008 5,602,723 1,774,860 5,689,010 37,148 (86,287)

9. RECEIvABLESFuture reinsurance and other recoveries receivable 2(p) 78,128,664 77,377,654 78,128,664 77,377,654 - - Discount to present value (7,964,231) (6,625,878) (7,964,231) (6,625,878) - -

70,164,433 70,751,776 70,164,433 70,751,776 - -

less provision for doubtful debts - - - - - -

Premiums receivable 2(l) 24,094,922 20,884,676 24,094,922 20,884,676 - -

Other receivables 1,223,561 2,067,790 1,222,436 2,061,846 1,125 5,944 TOTAL RECEIvABLES 95,482,916 93,704,242 95,481,791 93,698,298 1,125 5,944

Represented by:

CURRENT 42,040,464 45,541,129 42,039,339 45,535,185 1,125 5,944

NON-CURRENT 53,442,452 48,163,113 53,442,452 48,163,113 - - TOTAL 95,482,916 93,704,242 95,481,791 93,698,298 1,125 5,944

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.

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

86 > MAV INSURANCE FINANCIAL REPORT 2011/12

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

Total <30 days 31-60 days 61-90 days >90 days

2012

Combined 25,318,483 25,318,483 - - -

Liability Mutual Insurance 25,317,358 25,317,358 - - -

Commercial Crime Fund 1,125 1,125 - - -

2011

Combined 22,952,467 22,952,467 - - -

liability Mutual Insurance 22,946,523 22,946,523 - - -Commercial Crime Fund 5,944 5,944 - - -

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 2011NOTE $ $ $ $ $ $

10. PREMIUMS IN ADvANCE

Contributions billed in advance 2(l) 24,210,449 21,945,977 24,210,449 21,945,977 - -

11(a)OUTSTANDING CLAIMS

Central Estimate 2(m) 101,987,759 95,767,965 101,987,759 95,767,965 - -

Discount to present value (11,298,096) (10,045,276) (11,298,096) (10,045,276) - -

90,689,663 85,722,689 90,689,663 85,722,689 - -

Claims handling costs 630,333 3,344,000 630,333 3,344,000 - -

Risk margin 11(b) 4,900,228 4,656,000 4,900,228 4,656,000 - - TOTAL OUTSTANDING CLAIMS 96,220,224 93,722,689 96,220,224 93,722,689 - -

Represented by:

CURRENT 18,079,388 22,813,827 18,079,388 22,813,827 - -

NON-CURRENT 78,140,836 70,908,862 78,140,836 70,908,862 - - TOTAL CLAIMS PROvISION 96,220,224 93,722,689 96,220,224 93,722,689 - -

(b) Risk margin - Process for determining risk marginbased 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

2012 2011Gross

$Reinsurance

$Net

$Gross

$Reinsurance

$Net

$

Outstanding claims brought forward 93,722,689 70,751,776 22,970,913 89,855,465 72,858,432 16,997,033

Changes in assumptions 11,099,705 7,397,698 3,702,007 14,616,145 18,802,365 (4,186,220)Increase in claims incurred/recoveries anticipated 2,253,307 1,431,843 821,464 3,178,225 (5,520,748) 8,698,973 Incurred claims recognised in income statement 13,353,012 8,829,541 4,523,471 17,794,370 13,281,617 4,512,753 Claim payments/recoveries during the year (10,855,477) (9,416,884) (1,438,593) (13,927,146) (15,388,273) 1,461,127 Outstanding claims carried forward 96,220,224 70,164,433 26,055,791 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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 87

12. NET CLAIMS INCURRED

2012 2011Current Year

$Prior Year

$Total

$Current Year

$Prior Year

$Total

$

COMBINEDGross claims and related expenses - undiscounted 22,110,561 (6,451,972) 15,658,589 29,109,441 (10,119,956) 18,989,485 Discount (2,444,593) 1,191,773 (1,252,820) (3,652,090) 3,526,215 (125,875)

Gross claims and related expenses - discounted 19,665,968 (5,260,199) 14,405,769 25,457,351 (6,593,741) 18,863,610 Reinsurance and other recoveries - undiscounted (11,050,667) 963,983 (10,086,684) (15,202,368) 2,558,701 (12,643,667)

Discount 104,080 1,148,164 1,252,244 710,813 (1,354,013) (643,200)Reinsurance and other recoveries - discounted (10,946,587) 2,112,147 (8,834,440) (14,491,555) 1,204,688 (13,286,867)NET CLAIMS INCURRED 8,719,381 (3,148,052) 5,571,329 10,965,796 (5,389,053) 5,576,743

LIABILITY MUTUAL INSURANCEGross claims and related expenses - undiscounted 22,110,561 (6,451,972) 15,658,589 29,073,363 (10,119,956) 18,953,407 Discount (2,444,593) 1,191,773 (1,252,820) (3,652,090) 3,526,214 (125,876)

Gross claims and related expenses - discounted 19,665,968 (5,260,199) 14,405,769 25,421,273 (6,593,742) 18,827,531 Reinsurance and other recoveries - undiscounted (11,050,667) 968,883 (10,081,784) (15,197,118) 2,558,701 (12,638,417)

Discount 104,080 1,148,164 1,252,244 710,813 (1,354,012) (643,199)Reinsurance and other recoveries - discounted (10,946,587) 2,117,047 (8,829,540) (14,486,305) 1,204,689 (13,281,616)NET CLAIMS INCURRED 8,719,381 (3,143,152) 5,576,229 10,934,968 (5,389,053) 5,545,915

COMMERCIAL CRIME FUNDGross claims and related expenses - undiscounted - - - 36,078 - 36,078

Discount - - - - Gross claims and related expenses - discounted - - - 36,078 - 36,078 Reinsurance and other recoveries - undiscounted - (4,900) (4,900) (5,250) - (5,250)

Discount - - - - - - Reinsurance and other recoveries - discounted - (4,900) (4,900) (5,250) - (5,250)NET CLAIMS INCURRED - (4,900) (4,900) 30,828 - 30,828

88 > MAV INSURANCE FINANCIAL REPORT 2011/12

13. 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 15,754,621 32,781,490 18,260,706 - -

Three years later 15,397,449 32,282,253 - - -

Four years later 16,124,021 - - - - Current estimate of cumulative claims cost 16,124,021 32,282,253 18,260,706 24,589,379 21,064,708 112,321,067

Cumulative payments (7,006,304) (12,947,509) (2,785,825) (2,106,363) (154,348) (25,000,349)

Outstanding claims – undiscounted 9,117,717 19,334,744 15,474,881 22,483,016 20,910,360 87,320,718

Discount (9,470,238)

Claims handling expense 541,388

2007 And prior 17,828,356

lIAbIlITY MUTUAl INSURANCE TOTAL GROSS OUTSTANDING CLAIMS 11(a) 96,220,224 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 8,710,223

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 352,944 - - - Current estimate of cumulative claims cost 352,944 16,406,929 7,185,550 8,098,820 8,710,223 40,754,466

Cumulative payments (696,783) (7,496,844) (1,280,865) (1,183,763) (66,825) (10,725,080)

Outstanding claims - undiscounted (343,839) 8,910,085 5,904,685 6,915,057 8,643,398 30,029,386

Discount (3,489,663)

Claims handling expense 186,182

2007 And prior (670,114)

lIAbIlITY MUTUAl INSURANCE TOTAL NET OUTSTANDING CLAIMS 26,055,791 COMbINED NET OUTSTANDING CLAIMS 11(c) 26,055,791

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

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

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 89

14. FINANCIAL RISk MANAGEMENT POLICIES AND OBJECTIvESThe Group’s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out below:

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIMENon-

Interest Earning

Floating Interest

Rate

Non- Interest Earning

Floating Interest

Rate

Non – 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 - 30,185,631 -

Trade and other receivables 95,482,916 - 95,481,791 - 1,125 - TOTAL FINANCIAL ASSETS 95,482,916 34,132,749 95,481,791 33,687,158 1,125 445,591

Weighted average interest rate 8.0% 8.0% 5.7%

FINANCIAL LIABILITIES

Outstanding claims 96,220,224 - 96,220,224 - - Unearned premiums/subscriptions 24,210,449 - 24,210,449 - -

Trade and other payables 3,118,041 - 3,112,432 - 5,609 - TOTAL FINANCIAL LIABILITIES 123,548,714 - 123,543,105 - 5,609 -

Weighted average interest rate 0% 0% 0%

2011

FINANCIAL ASSETS

Cash at bank - 4,869,312 - 4,460,869 - 408,443

Other financial assets - 27,531,304 - 27,531,304 - -

Trade and other receivables 93,704,242 - 93,698,298 - 5,944 - TOTAL FINANCIAL ASSETS 93,704,242 32,400,616 93,698,298 31,992,173 5,944 408,443

Weighted average interest rate 6.1% 6.1% 4.9%

FINANCIAL LIABILITIES

Outstanding claims 93,722,689 - 93,722,689 - - - Unearned premiums/subscriptions 21,945,977 - 21,945,977 - - -

Trade and other payables 3,059,581 - 3,052,521 - 7,060 - TOTAL FINANCIAL LIABILITIES 118,728,247 - 118,721,187 - 7,060 -

Weighted average interest rate 0% 0% 0%

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.

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

90 > MAV INSURANCE FINANCIAL REPORT 2011/12

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 LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011$ $ $ $ $ $

3 months or less 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 - -

Over 5 years 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

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 >5years TOTAL$ $ $ $ $

COMBINED FINANCIAL ASSETS

Cash and cash equivalents 34,132,749 - - - 34,132,749

Trade and other receivables 30,341,795 11,900,761 38,417,012 22,787,581 103,447,149 64,494,544 11,900,761 38,417,012 22,787,581 137,579,898

COMBINED FINANCIAL LIABILITIES

Outstanding claims 4,585,464 13,756,391 55,623,760 33,552,706 107,518,321 Unearned premiums/subscriptions 6,052,612 18,157,837 - - 24,210,449

Trade and other payables 2,974,762 143,279 - - 3,118,041 TOTAL FINANCIAL LIABILITIES 13,612,838 32,057,507 55,623,760 33,552,706 134,846,811

NET MATURITY 50,861,706 (20,156,746) (17,206,748) (10,765,125) 2,733,087

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 91

14. FINANCIAL RISk MANAGEMENT POLICIES AND OBJECTIvES (continued)

Risk management objectives and policies for mitigating insurance riskThe 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 risksThe 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 strategyThe 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 membershipMembership 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 featuresThe 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.

Management of risksThe 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 risksInsurance 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.

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

92 > MAV INSURANCE FINANCIAL REPORT 2011/12

14. FINANCIAL RISk MANAGEMENT POLICIES AND OBJECTIvES (continued)

CREDIT RATING

AAA +/-

AA +/-

A +/- BBB

Speculative Grade

Not Rated TOTAL

$m $m $m $m $m $m $m

Reinsurance and other recoveries on outstanding claims 2012 - 0.431 32.220 0.454 33.105

2011 - 0.467 27.057 - - 0.537 28.061Reinsurance and other recoveries on paid claims 2012 - 0.022 1.378 0.757 2.157

2011 - 0.038 3.408 - - 0.743 4.189

PAST DUE BUT NOT IMPAIREDNeither

past due nor

impairedLess than 3 months

3 to 6 months

6 months to 1 year

Greater than

1 year Impaired TOTAL$m $m $m $m $m $m $m

Reinsurance and other recoveries on paid claims 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 riskThe 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 rateChange

variable to

Operating surplus (deficit)

at 30 June 2012

Total accumulated

funds after the impact of applying

variable% % $ $

IMPACT OF CHANGES IN INTEREST RATES

lIAbIlITY MUTUAl INSURANCE

base value at 30 June 2012 3% (1,314,338) 5,933,495

Interest rate pa 3.5% (827,338) 6,420,495

2.5% (1,801,338) 5,446,495

Credit riskThe 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 Scheme’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 riskInvestments held are not subject to price risk. Investments are cash at bank and fixed interest funds.

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 93

15. ACCOUNTING ESTIMATES AND JUDGEMENTSThe 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 liabilityProvision 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 contractsAssets 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 assumptionsThe following assumptions have been made in determining the outstanding claims liabilities:

2012 2011% %

kEY ACTUARIAL ASSUMPTIONS

Wage inflation 3.25% 4%

Claim administration expense 0.7% 4%

Discount rate 3% 5%

Reinsurer default 1% 1%

Risk margin 20% 20%

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

94 > MAV INSURANCE FINANCIAL REPORT 2011/12

16. ACTUARIAL ASSUMPTIONS AND METHODS (continued)

Process used to determine actuarial assumptionsA 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 – 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 Current rateChange

variable to

Operating surplus (deficit)

at 30 June 2012

Total accumulated

funds after the impact of applying

variable% % $ $

IMPACT OF CHANGES IN INTEREST RATES

lIAbIlITY MUTUAl INSURANCE

base value at 30 June 2012 3.25% (1,314,338) 5,933,495

Interest rate pa 3.75% (1,844,338) 5,403,495

2.75% (784,338) 6,463,495

17. CAPITAL MANAGEMENT OBJECTIvESThe 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.

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

MAV INSURANCE FINANCIAL REPORT 2011/12 > 95

18. REINSURANCE PERFORMANCE BONUSThe 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 LIABILITYDuring 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 BUSINESSOn 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 PARTIESThe 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 YearJ. 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)

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

96 > MAV INSURANCE FINANCIAL REPORT 2011/12

21. RELATED PARTIES (continued)

key management personnel remuneration

COMBINED LIABILITY MUTUAL INSURANCE COMMERCIAL CRIME

2012 2011 2012 2011 2012 2011$ $ $ $

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 249,001 243,914 249,001 243,914 - - Post employment benefits 19,818 12,782 19,818 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.

InsuranceThe 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.

MAV INSURANCE FINANCIAL REPORT 2011/12 > 97

STATEMENT by COMMITTEE OF MANAgEMENT

STATEMENT by dIRECTORS

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 Robert Spence MAV Insurance Committee Chairman MAV Chief Executive Officer

Melbourne 5 October 2012

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 Cr. Geoff Gough Robert Spence President Director Chief Executive Officer

Melbourne 5 October 2012

98 > MAV INSURANCE FINANCIAL REPORT 2011/12

COMbINEd FINANCIAL REPORTS - INdEPENdENT AUdIT REPORT

MAV INSURANCE FINANCIAL REPORT 2011/12 > 99

COMbINEd FINANCIAL REPORTS - INdEPENdENT AUdIT REPORT

100 > MAV INSURANCE FINANCIAL REPORT 2011/12

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