ABSTRACT
There has been a recent trend towards the use of performance indicators—often predicated on financial data—to enhance accountability and transparency of local government both in Australia and abroad. However, performance management also brings with it a range of risks including unintended and intended performance distortions. This chapter reviews the substantial scholarly literature on government performance management before applying the concepts to a particular instance of high stakes performance management: the New South Wales Fit for the Future programme. Fit for the Future required councils to self-assess against seven ratios drawn from financial statement data. Councils which failed to achieve the prescribed benchmarks were subject to forced amalgamations. Empirical evidence is provided which suggests significant levels of distortion in the performance management data. It is argued that careful design and testing of ratios—in order to avoid deleterious outcomes—is extremely important in any performance management regime, irrespective of whether accounting data from audited financial statements is used.
