Purpose: To examine the level of compliance of NSW Local Government councils with the Internal Audit Guidelines developed and published by the NSW State Government to address the identified weaknesses in the governance structures of the councils. The specific focus in this paper is on a key component of good governance, an audit committee, and whether the NSW Local Government councils have followed the guidelines and established an audit committee. Design / methodology: This paper is based on archival research of the 2009/2010 Annual Reports and websites of NSW Local Government councils to collect data on the existence and structure of their audit committees. The data is presented and analysed using basic quantitative analysis from which inferences are drawn. Findings: There is only minimal following by NSW Local Councils of the Internal Audit Guidelines provided by the NSW State Government in relation to the establishment of an audit committee. The audit committees, which have been established, were reviewed and the structure and membership of a number of these committees were found to not meet the level of independence required as outlined in the guidelines. Practical implications: This paper highlights the risk Local Government councils expose residents of NSW and the NSW State Government to due to a significant omission by the majority of NSW councils in not implementing a key component of good governance, an audit committee. The findings indicate the current position of the State Government to only provide recommendations through the Internal Audit Guidelines to establish an audit committee, rather than legislate is insufficient. Originality / value: While there is a relatively large amount of literature on Local Government practices there is little on the level of compliance of Local Government councils with specific governance requirements such as the establishment of an audit committee.