A financial analysis of South eastern local councils in Malta

Abstract

Purpose: The overall aim of the study is to establish a framework of ratios that would be suitable to assess the organizational effectiveness of Local Councils. The research assessed the organizational effectiveness of the Local Councils by means of a financial analysis using traditional ratios. This study also puts forward further measures and performance indicators that reflect the specific Local Council context and thus provide a more useful financial assessment. Design: Twenty-eight semi-structured interviews were carried out to thus obtain different viewpoints on the organizational effectiveness of Local Councils. Additionally, a documentary analysis was also conducted to derive ratios regarding liquidity, gearing levels and the efficiency and effectiveness with which assets are used.

Findings: Not all ratios led to meaningful results when applied to a Local Council context. Local Councils are not harvesting sufficient benefits from their available sources of income. Local Councils do have access to sufficient funds to be effective, however the Central Government funds formula can be improved by incorporating a mechanism which reflects the challenges faced by the locality. All interviewed participants agreed that a ratio analysis does contribute to better decision making. The idea of Local Councils having their own Perfromance Indicators is not a new concept, however, the Division for Local Government is to increase its efforts in investigating this notion.

Conclusion: The organizational effectiveness of Local Councils cannot be assessed by the same scale of a business. Alternative ratios pertaining to a more holistic framework of ratios can be employed in a Local Context context. The Division for Local Government is to increase its efforts in order to identify and implement auxiliary measures and Performance Indicators.

Value: The overall objective of the research conducted stands at the aspiration that Local Councils be more successful on the local, regional and national level.