Agenda of Audit, Risk and Finance Subcommittee

N-logotype-black-wide Audit, Risk and Finance Subcommittee

30 July 2015

Page No.

1. Apologies

1.1 Apologies have been received from Her Worship the Mayor, Rachel Reese and Mr John Peters

2. Confirmation of Order of Business

3. Interests

3.1 Updates to the Interests Register

3.2 Identify any conflicts of interest in the agenda

4. Public Forum

5. Confirmation of Minutes

5.1 18 June 2015 6 - 12

Document number M1286

Recommendation

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 18 June 2015, be confirmed as a true and correct record.

6. Status Report - Audit Risk and Finance Subcommittee - 30 July 2015 13 - 14

Document number R4596

Recommendation

THAT the Status Report Audit, Risk and Finance Subcommittee 30 July 2015 (R4596) and its attachment (A1324298) be received.

7. Chairperson's Report

8. Update on charging interest on general debtors 15 - 22

Document number R4579

Recommendation

THAT the report Update on charging interest on general debtors (R4579) and its attachment (A1353429) be received;

AND THAT Council do not proceed with charging interest on overdue general debtors at this time.

Recommendation to Governance Committee

THAT the Draft Debt Management Policy (A1353429) be approved.

9. Update on business case approach 23 - 27

Document number R4454

Recommendation

THAT the report Update on business case approach (R4454) and its attachment (A1331113) be received.

10. Corporate Report to 31 May 2015 28 - 48

Document number R4523

Recommendation

THAT the report Corporate Report to 31 May 2015 (R4523) and its attachments (A1376070, A1384382, A1384389, A1375171, A1366415, A793514) be received and the variations noted.

Finance

11. Rates Remissions for 2014/15 49 - 60

Document number R4204

Recommendation

THAT the report Rates Remissions for 2014/15 (R4204) and its attachments (A1383906 and A1222068) be received.

12. Insurance Renewal for 2015/16 61 - 64

Document number R4245

Recommendation

THAT the report Insurance Renewal for 2015/16 (R4245) be received.

13. Bad debt report to 30 June 2015 65 - 66

Document number R4206

Recommendation

THAT the report Bad debt report to 30 June 2015 (R4206) be received.

14. 2014/15 Audit New Zealand Letters 67 - 87

Document number R4433

Recommendation

THAT the report 2014/15 Audit New Zealand Letters (R4433) and its attachments (A1371563 and A1372353) be received.

AND THAT the Subcommittee provide any feedback on the engagement letter to Audit NZ.

Minutes of a meeting of the Audit, Risk and Finance Subcommittee

Held in Ruma Mārama, Level 2A, Civic House, 110 Trafalgar Street, Nelson

On Thursday 18 June 2015, commencing at 1.03pm

Present: Mr J Peters (Chairperson), Her Worship the Mayor R Reese, Councillors I Barker and B McGurk, and Mr J Murray

In Attendance: Councillors P Matheson and G Noonan, Chief Executive (C Hadley), Group Manager Community Services (C Ward), Manager Capital Projects (S Davies), Senior Accountant (T Hughes), and Administration Adviser (S McLean)

1. Apologies

There were no apologies.

2. Confirmation of Order of Business

There was no change to the order of business.

3. Interests

There were no updates to the Interests Register, and no interests with items on the agenda were declared.

4. Public Forum

There was no public forum.

5. Confirmation of Minutes

5.1 5 May 2015

Document number M1202, agenda pages 6 - 13 refer.

Resolved AUD/2015/009

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 5 May 2015, be confirmed as a true and correct record.

McGurk/Barker Carried

6. Status Report - Audit, Risk and Finance Subcommittee - 18 June 2016

Document number R4386, agenda pages 14 - 15 refer.

It was agreed the final list of projects to follow a business case approach would be provided to the Subcommittee.

Resolved AUD/2015/010

THAT the Status Report Audit, Risk and Finance Subcommittee 18 June 2015 (R4386) and its attachment (A1324298) be received.

Barker/McGurk Carried

7. Chairperson's Report

Document number R4390, agenda page 16 refers.

Resolved AUD/2015/011

THAT the Chairperson's Report (R4390) be received and the updates noted.

Peters/Murray Carried

8. Draft Debt Management Policy

Document number R4178, agenda pages 17 - 23 refer.

It was suggested the Policy contain a flowchart which showed the management process for various levels of debt.

There was discussion on charging interest for outstanding debt. It was advised that this could be done under legislation, but may be difficult to do within Council’s systems.

The Chief Executive, Clare Hadley, emphasised that debtors to Council could include volunteer groups, sporting clubs and charity organisations, and discretion may be required when applying interest.

Concern was raised that the Policy did not contain detail on how discretion could be exercised.

Accounting Services Manager, Lynn Anderson, advised that the outstanding debt process now commenced at 60 days overdue.

There was discussion on whether interest should be charged on all outstanding debt, with discretion to waive for certain cases, or if interest would only be applied in certain cases.

Concern was raised that waiving interest charges would create risks for Council.

It was agreed that interest would be charged on all outstanding debt, unless an instalment arrangement as per section 3.4 of the Policy was made prior to the due date.

It was agreed that interest would not be charged to those on instalment arrangements, unless the arrangements were not upheld in which case interest would be charged from the original due date.

There was discussion on the interest rate to charge on outstanding debt. It was noted that Council’s weighted average cost of interest was low and may not be an appropriate level.

It was suggested that officers contact Local Government New Zealand to investigate interest rate levels charged in the public sector.

It was agreed that the second sentence in the second bullet point under section 3.4 of the Policy would be removed.

In response to a question, Ms Anderson advised that business units received information on debtors to ensure further engagement did not take place. She added that she reviewed outstanding debts on a monthly basis, and Inland Revenue had certain processes to follow before an amount could be written off.

In response to questions, Ms Anderson advised the debt collection agency sent regular reports on progress of collecting outstanding debts. She said that once a debt reached a certain threshold, it would be reported to the Audit, Risk and Finance Subcommittee.

There was discussion on the process for invoice disputes.

Attendance: Her Worship the Mayor left the meeting at 1.47pm.

Resolved AUD/2015/012

THAT the report Draft Debt Management Policy (R4178) and its attachment (A1353429) be received;

AND THAT the following edits be made to the Draft Debt Management Policy before the Policy is reported back to the Subcommittee for consideration:

· Inclusion of flowchart regarding processes for various debt levels

· Implementation of an interest charge/penalty regime for unpaid debts

· Interest rate to be charged following research with Local Government New Zealand

· Explanation of interest charge to be included in terms of credit

Murray/Barker Carried

9. Corporate Report to 30 April 2015

Document number R4244, agenda pages 24 - 43 refer.

Attendance: Her Worship the Mayor returned to the meeting at 1.50pm.

In response to a question, Senior Accountant, Tracey Hughes, advised that managers were advised regularly about high annual leave balances and there was a level at which a plan to take leave was required. The Chief Executive, Clare Hadley, pointed out that this information was included in Council’s Annual Report, as well as being regularly presented to the Chief Executive Employment Committee.

In response to questions, Ms Hughes advised that the $43,000 less than projected for landfill fees was not at a level to be concerned about. She confirmed that headworks maintenance was deliberately scheduled at the end of the financial year for practical reasons.

Her Worship the Mayor congratulated Group Manager Community Services, Chris Ward, and his team on the media coverage for the Cricket World Cup and for delivering the event under budget.

In response to questions, Ms Hughes advised that variances were not compared with the original budget, they were compared to the adjusted budget as at the end of April.

It was agreed the On Track heading for the Completed Projects in Attachment 5 to the report (A1366144) would be amended to avoid confusion.

In response to questions, Mrs Hadley advised that landowner consultation on Stage 2 of the Saxton Creek Upgrade had not progressed during the Long Term Plan 2015-25 consultation. It was agreed that the update should state ‘delayed due to the need to continue landowner consultation’.

In response to a question, Manager Capital Projects, Shane Davies, advised the delay on the Orphanage Stream upgrade related to cultural impact assessments. Mrs Hadley highlighted this was an issue for a number of projects.

It was suggested that issues with cultural impact assessments needed a solution and this should be added to the Risk Register.

In response to questions, Mr Davies advised that considerable effort had been made to communicate with residents affected by the Tasman Street upgrade (Nile to Bronte). He said internal processes were being developed for project wrap up reporting.

It was asked that officers include detail on the Maitai Walkway financials in the next Corporate Report, and add it to the completed portion of the project status report.

It was asked that reporting on earthquake-prone buildings be clearer in future.

Resolved AUD/2015/013

THAT the report Corporate Report to 30 April 2015 (R4244) and its attachment (A1366139) be received and the variations noted.

McGurk/Barker Carried

10. Risk Register and Framework Plan

Document number R4246, agenda pages 44 - 53 refer.

The Chief Executive, Clare Hadley, provided an update on recruitment for the new Organisational Assurance team.

The Chairperson asked that issues with cultural impact assessments be reflected in the Risk Register.

There was discussion on the link between the risks of reputational damage to Council and insufficient/incomplete advice.

It was suggested that the Political heading on the Risk Register be changed to Political/Governance.

Resolved AUD/2015/014

THAT the report Risk Register and Framework Plan (R4246) and its attachments (A1241121 and A1359808) be received.

Barker/Murray Carried

11. Exclusion of the Public

Resolved AUD/2015/015

THAT the public be excluded from the following parts of the proceedings of this meeting.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

McGurk / Barker Carried

Item	General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Particular interests protected (where applicable)
1	Audit, Risk and Finance Subcommittee Meeting - Public Excluded - 5 May 2015	Section 48(1)(a) The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7.	The withholding of the information is necessary: · Section 7(2)(a) To protect the privacy of natural persons, including that of a deceased person. · Section 7(2)(i) To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

Item

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

Particular interests protected (where applicable)

Audit, Risk and Finance Subcommittee Meeting - Public Excluded - 5 May 2015

Section 48(1)(a)

The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7.

The withholding of the information is necessary:

· Section 7(2)(a)

To protect the privacy of natural persons, including that of a deceased person.

· Section 7(2)(i)

To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

The meeting went into public excluded session at 2.40pm and resumed in public session at 2.42pm.

Please note that as the only business transacted in public excluded was to confirm the minutes, this business has been recorded in the public minutes. In accordance with the Local Government Official Information Meetings Act, no reason for withholding this information from the public exists.

Resolved AUD/2015/016

THAT the minutes of part of the meeting of the Audit, Risk and Finance Subcommittee, held with the public excluded on 5 May 2015, be confirmed as a true and correct record.

Murray/McGurk Carried

12. Re-admittance of the Public

Resolved AUD/2015/017

THAT the public be re-admitted to the meeting.

Peters / Murray Carried

There being no further business the meeting ended at 2.42pm.

Confirmed as a correct record of proceedings:

Chairperson Date

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4579

Update on charging interest on general debtors

1. Purpose of Report

1.1 To update the Committee on charging interest on general debtors.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee has oversight of the management of financial risk.

3. Recommendation

THAT the report Update on charging interest on general debtors (R4579) and its attachment (A1353429) be received;

AND THAT Council do not proceed with charging interest on overdue general debtors at this time.

Recommendation to Governance Committee

THAT the Draft Debt Management Policy (A1353429) be approved.

4. Background

4.1 The following resolution was passed at the Audit, Risk and Finance subcommittee on 18 June 2015:

· AND THAT the following edits be made to the Draft Debt Management Policy before the Policy is reported back to the Subcommittee for consideration:

o Inclusion of flowchart regarding processes for various debt levels;

o Implementation of an interest charge/penalty regime for unpaid debts;

o Interest rate to be charged following research with Local Government New Zealand;

o Explanation of interest charge to be included in terms of credit.

5. Discussion

5.1 Officers also spoke to Napier Computer Systems (NCS), who provide our financial system and they have confirmed that the system does not currently have the capability of charging interest on overdue accounts. They believe the development work to achieve this is significant and would cost the Council upwards of $20,000. This would also require additional ongoing resourcing within Council to administer the charging regime as Council would have to move to open item invoicing.

5.2 Officers have also considered if this could be administered manually and believe that this is not a robust solution and the resourcing implications are significant.

5.3 Officers have researched the charging of interest for general debtors and have not been able to find another council in New Zealand that does this. Local Government NZ was also not aware of any and therefore could not provide feedback on the appropriate interest rate to be charged.

5.4 Outstanding 3 month plus general debtors is less than 1% of total debtors (including rates and water) each month. Also, given the low level of bad debts written off historically, officers do not recommend moving to an interest charging regime at this time and that current resourcing would be better utilised focusing on getting debt collection done promptly.

6. Options

6.1 Accept the recommendation – significant cost and resourcing implications outweigh the benefits.

6.2 Reject the recommendation.

7. Alignment with relevant Council policy

7.1 This decision is not inconsistent with any other previous Council decisions as the previous recommendation was to bring this report back for consideration of the Committee.

7.2 The Chief Executive has put in place an IT Steering Committee which, if a decision was made at the Committee to proceed, means that this development would have to be assessed and weighed up against other IT priorities. No budget has been set aside for this development.

8. Assessment of Significance against the Council’s Significance and Engagement Policy

8.1 This is not a significant decision under the Council’s Significance and Engagement Policy.

9. Consultation

9.1 No consultation has been undertaken in preparing this report.

10. Inclusion of Māori in the decision making process

10.1 No consultation with Maori has been undertaken in preparing this policy.

Lynn Anderson

Accounting Services Manager

Attachments

Attachment 1: A1353429 - Draft Debt Management Policy

1. Policy Objectives and Scope

The Policy Objectives and Scope are as follows:

1.1. To ensure Council manages its Accounts Receivable in such a way that reduces risk to the organisation and protects the income earned for services provided.

1.2. Provides a consistent approach to the management and follow-up of debt.

1.3. Provides the rules and general guidance around extending credit to third parties.

1.4. Provides the rules around the write-off of debt.

1.5. This policy excludes rates (including water rates), parking, and dogs which are covered by statutory processes.

2. Principles of Policy

The guiding principles for this policy are as follows:

2.1. Responsibilities. All business units are responsible to provide complete and accurate information for any chargeable work or services to external parties for billing purposes.

2.2. Risk Management. Principles of risk management will underpin decisions made in relation to credit and debt management. The business unit providing the goods and/or service is accountable to ensuring that the debtor is a good credit risk, ensuring Council’s exposure to potential debt write-off is eliminated.

2.3. Fairness and Equity. Council will ensure that all debts are managed fairly and equitably. Parties that incur debts do so on the understanding that Council’s standard terms of payment are met.

3. Policy Guidelines

The sections following are intended as a guide to ensure outstanding debts are managed and reported to Council.

3.1. Extending Credit:

· It is the responsibility of managers to ensure that debts raised by invoice are properly chargeable and comply with applicable regulations, laws and Council policies.

· Standard credit application forms, appropriate to the level of credit to be extended, or the risk, will be completed when a customer applies for credit.

· Managers and their delegates should request a credit check from the finance team before they agree to extending credit. A credit check is to be based on:

o The value of the work being undertaken is above $10K, or

o A lesser amount if the business unit feels it is appropriate, or

o Where there is a potential risk to the organisation, or

o Where there is the potential for an ongoing relationship between Council and the debtor and a credit history has not previously been established.

· In cases where the credit check indicates a high level of risk, then the Accounting Services Manager should determine that payment terms are to be “Cash in Advance”.

3.2. [jb1] Payment Terms and Invoicing:

· Council’s payment terms are displayed on the invoice. Standard terms being the 20th of the month following the date of the invoice.

· Other credit terms may apply in relation to the approved fees and charges schedule and any ongoing changes, e.g. cash in advance for building consents.

· Where a debtor does not pay within the credit term, the debtor is to be considered in default of the agreement to pay, and collection procedures are to be initiated as appropriate.

· The Managers are provided a list of all aged debtor accounts, each month showing the status in respect of invoices as raised by staff within their group.

· All invoices must be raised against individuals or legal entities, i.e. limited liability companies or incorporated societies, which provides a specific source of contact for debt recovery.

· Where possible, arrangements will be put in place to ensure that Council’s interests are protected eg for seasonal ground use fees, spreading payment over session rather than invoicing all at the end.

3.3. Debt Collection:

· Where debtors are in default of the credit terms, the Finance Team is to initiate appropriate collection procedures after having notified the appropriate manager or their delegate of the debtor status and confirmed that no reason exists that would inhibit collection procedures.

· Appropriate collection procedures may include suspending any further entitlement to credit, and/or to the extent permitted by law, refrain from supplying further goods or services to the customer, until such time as the outstanding debt is repaid in full.

· All debts over $10K and/or of high profile which are likely to be reported to the Audit Risk and Finance Committee are to be brought to the attention of the Group Manager of the group that raised the debt.

· With the approval of the Group Manager Corporate Services, interest may be charged on outstanding debts at Council’s weighted average interest rate for the period it is outstanding.

3.4. Payment Arrangement by Instalments:

· All amounts owing to Nelson City Council should be paid in full immediately when they become due and payable. However, there may be situations where it is not possible for an amount to be paid in full immediately, e.g. where full immediate repayment would lead to unreasonable financial hardship on the customer.

· Only the Accounting Services Manager may agree to recovery of debts by instalment. The Group Manager Corporate Services may accept a reasonable request for the payment of an outstanding amount by instalments, provided that reasonable progress is made promptly within a specified date.

· Any instalment repayment agreement is to be documented in writing and agreed by both the debtor and Accounting Services Manager.

· An explicit term of any such arrangement is that the failure by the debtor to pay any instalment on or before the due date will render the full amount of the debt then outstanding, immediately due and payable.

3.5. Dispute Settlement:

· Where payment of an outstanding debt is disputed by a debtor, the Debtors Officer will refer to the following Invoice Dispute Procedure as detailed in the Terms and Conditions.

· Consultation should be made with the relevant operational staff to attempt to mediate a solution. Any amounts not in dispute must be paid in full and on time.

3.6. Invoice Dispute Procedure:

· If the customer disagrees with a tax invoice provided by Nelson City Council:

o The customer must notify Nelson City Council in writing no later than 10 business days following receipt of the invoice, setting out in reasonable detail the nature of the invoice dispute and the reasons for non-payment

o Nelson City Council will acknowledge receipt of such invoice dispute notice and both parties’ responsible managers will endeavour to promptly settle the invoice dispute by agreement

o If, on resolution of the invoice dispute, an amount is due to Nelson City Council, the customer will pay that amount to Nelson City Council within five business days of resolution of the dispute, or if a building or resource consent, as per the terms of the consent.

· Where only a portion of an amount claimed in a tax invoice is the subject of an invoice dispute (disputed portion), this clause will only apply to the disputed portion and the balance of the amount payable in respect of that tax invoice must be paid by the customer to Nelson City Council no later than the due date of the invoice.

3.7. Bad Debts:

· Debts unable to be collected are to be known as bad debts and must be submitted annually to the Audit Risk and Finance Committee for write-off if over $2,500.

· These debts are to be registered with Council’s external debt collection agency or liquidator/receiver for continued collection.

· The authority levels pertaining to the write-off of bad debts have been approved by Council, as follows:

o General Manager Corporate Services approves any debt write-off up to a maximum of $2,500 for any one item.

o Debt write-off amounts in excess of $2,500 per item require Council approval and will be submitted to the Audit Risk and Finance Committee.

o All debts written off are to be recorded for future possible action and information, and systems are to be updated to best ensure that staff are aware before raising further debts.

4. Monitoring and Implementation

4.1. Reporting:

· All debts over $10,000 and greater than 90 days overdue will be reported to the Audit Risk and Finance Committee.

· Other significant debts under $10,000 where there is a potential risk of non payment, or debts of a sensitive nature, will be reported to the Audit Risk and Finance Committee.

4.2. The policy will be reviewed every three years or at the request of Council or in response to changed legislative and statutory requirements or in response to any issues that may arise.

5. Responsibility

5.1. The Debtors Officer is responsible for Debtor Management, with the assistance of the Accounting Services Manager for escalation where required. Outstanding debts will be reviewed on a regular basis by the Debtor Officer and the Accounting Services Manager and decisions will be made as to the most appropriate debt recovery action. This can include:

· Issue of regular reminders

· Personal contact with the debtor

· Referral of matter to the manager responsible for initiating the debt (where appropriate)

· Escalation of matter to the Group Manager Corporate Services and/or referral to debt recovery agents.

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4523

Corporate Report to 31 May 2015

1. Purpose of Report

1.1 To inform the members of the Audit, Risk and Finance Subcommittee on the financial results of activities for the 11 months ending 31 May 2015 compared to the final projection, completed as part of the Long-Term Plan 2015-2025 (LTP), and to highlight and explain any material variations.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee has oversight of the management of financial risk and makes recommendations to the Governance Committee and to Council. Do not delete this line

3. Recommendation

THAT the report Corporate Report to 31 May 2015 (R4523) and its attachments (A1376070, A1384382, A1384389, A1375171, A1366415, A793514) be received and the variations noted.

4. Background

4.1 The report focuses on the 11 month performance compared with the year to date projection. Budgets/projections for operating income and expenditure are phased evenly through the year, whereas capital expenditure budgets/projections are phased to occur mainly in the second half of the year.

4.2 Projections (forecasts) were updated in April as part of the work informing the final LTP.

4.3 Some definitions of terms used within this report:

· Operating income – all income other than rates including metered water, grants, fees, rentals, and recoveries;

· Rates – includes the general rate, wastewater, stormwater and flood protection rates, and targeted rates for Solar Saver;

· Staff costs – salaries plus overheads such as training, super, professional fees and office accommodation expenses;

· Depreciation – includes all depreciation, and any losses on asset disposal/retirement;

· Interest – includes debt interest, bank fees, interest rate swap margins, treasury and rating agency fees.

5. Discussion

5.1 The report focuses on performance to date compared with the year to date projections. More detailed financials by sub-activity are in Attachment 2.

5.2 For the 11 months ending 31 May 2015, the activity surplus/deficits are $2.6 million favourable to projection.

5.3 Revenue and expenditure variances are discussed by activity.

5.4 Staff expenses are $181,000 in total better than projected. Variances in activities illustrate where staff time has actually been spent against where it was expected to be spent at the time of setting the 2014/15 Annual Plan. Savings identified through the projections exercise are reflected in total in the Corporate Activity.

Corporate

5.5 The Corporate activity is $524,000 worse than projection due to a range of factors including:

5.5.1 Revenue – $625,000 less than projection. Income in the Disaster Recovery Fund is $317,000 under projection due to timing of further insurance proceeds relating to the 2011 emergency event. Analysis has been completed and an accrual in the region of $750,000 is expected to be made. Internal interest is $329,000 under projection reflecting the timing of capital expenditure.

5.5.2 Expenses – staff $408,000 higher than projection. Organisation-wide savings in staff expenditure identified through the latest projection exercise have reduced budget available in this activity.

5.5.3 Expenses – other $392,000 better than projection as the contingency has not yet been called on ($138,000) and Civic House expenditure is under projection ($114,000). Property condition assessments expenditure is $26,000 behind and the budget for post earthquake inspections (reactive budget), year to date $41,000, currently has only $1,000 recorded against it. There is currently an underspend of $36,000 in outgoings and maintenance costs for Civic House. Expenditure on the Strategic Property Review is currently being incurred, but is $37,000 under projection as at the end of May. Third party communications costs (including production costs for Live Nelson) are under projection by $40,000.

5.6 Parks and Active Recreation

5.7 The Parks and Active Recreation activity is $464,000 better than projection due to:

5.7.1 Revenue - $105,000 less than projection due to timing of some revenue streams such as the golf course and Saxton Stadium.

5.7.2 Expenses – staff - $207,000 better than projection. The distribution of staff time over the organisation differs from anticipated and there are savings across this activity but particularly in Community Programmes, Esplanade and Foreshore Reserves, Sports Parks and Recreation Liaison. Savings identified through the projections exercise are represented in total in the Corporate activity.

5.7.3 Expenses – other - $277,000 better than projection. Regional Community Facilities is $43,000 more than projection as the second grant to the Brook Waimarama Sanctuary Fence has been paid in full ($524,000 - timing). Year to date expenditure is under projection in many areas including maintenance ($89,000), General operating expenditure ($95,000) and consultancy costs ($127,000).

Social

5.8 The Social activity is $225,000 better than projection due to:

5.8.1 Revenue - $72,000 less than projection due to the timing of the Founder’s Book Fair income which is received in June.

5.8.2 Expenses – staff - $110,000 less than projected, over a wide range of activities.

5.8.3 Expenses – other - $170,000 better than projection. Base operating expenditure is $110,000 underspent year to date across a large range of activities, for items such as water, insurance, maintenance, cleaning and electricity. Expenditure against property maintenance contracts are currently $66,000 under projection.

Economic

5.9 The Economic activity is $186,000 better than projection due to:

5.9.1 Expenses – staff - $131,000 more than budgeted, almost entirely in the Cricket World Cup sub-activity. This is a budgeting issue as the number of staff hours required was within the 4,000 allowed as part of $900,000 expenditure cap in the contract.

5.9.2 Expenses – other - $289,000 better than projection. The Economic Development expenditure is under projection by $318,000. The events contestable fund is $192,000 under projection. If unspent at year end the balance will be held in reserve for future years. There is no spending to date in the business incubator (timing), facilities marketing and economic impact assessment. Expenses relating to the CWC are now complete, producing a timing effect of expenditure being $30,000 more than projection. The cost to rates of the Cricket World Cup overall was $113,000 less than budgeted.

Transport

5.10 The Transport activity is $575,000 better than projection due to:

5.10.1 Expenses – other - $522,000 better than projection, mainly in unsubsidised roading. The most significant underspends in that activity are:

· Base maintenance ($64,000) including street/cycleway cleaning and footpath maintenance.

· $224,000 underspent relating to UFB remediation and corridor access. Corresponding income is also under projection.

· $63,000 underspent year to date in recovery works from the 2011 emergency event relating to Days Track. This work will be carried forward into 2015/16.

· No expenditure year to date for the southern arterial corridor management plan ($89,000 - this has been delayed until the findings of the Southern Arterial Investigation – Annesbrook Drive roundabout to QEII Drive roundabout (run by NZTA) are known).

Car parks and meters maintenance costs and lease costs have provided $66,000 of savings year to date.

Environmental Management

5.11 This activity includes Civil Defence and Rural Fire activities, Consents and Compliance, Environmental Programmes, and Solid Waste activities. The Environmental Management activity is $721,000 better than projection due to:

5.11.1 Revenue - $262,000 less than projection. Landfill fees are $45,000 less than projection. Internal income in the solid waste group is $141,000 less than projection and is offset in expenses. Building services revenue is $79,000 less than projection. Food premises license fees are now $12,000 better than projection with most of the annual income invoiced in May (timing). $112,000 year to date income projected for the Clean Heat Warm Homes programme is part of an end of year adjustment (timing).

5.11.2 Expenses – staff - $130,000 better than projection. This is mainly in Building Services which has carried vacancies for much of the year, and which has not been charged staff time from the Resource Consents team to the extent anticipated.

5.11.3 Expenses – other - $846,000 better than projection. Monitoring the Environment is $204,000 under projection - this sub activity contains a large number of programmes and almost all of this variance is committed with outstanding purchase orders. Expenditure relating to the Nelson plan is currently $260,000 under projection, however invoices received in June are expected to reduce the full year underspend to no more than $67,000. Landfill expenditure is $273,000 under projection reflecting no expenditure yet for Emissions Trading Scheme (ETS) levies and lower internal charges than anticipated from other solid waste sub-activities. Other sub activities in Solid Waste show year to date savings of $82,000.

Wastewater

5.12 The Wastewater activity is $111,000 better than projection due to:

5.12.1 Revenue - $309,000 less than projected, related to the NRSBU investment return. The distribution from the Regional Sewerage Business Unit (NRSBU) is less than budgeted as input volumes from all five customers are less than anticipated.

5.12.2 Expenses – other - $316,000 less than projection mainly due to lower charges than expected from NRSBU, see 5.11.1.

5.12.3 Expenses – Interest - $143,000 less than projected due to timing of capital expenditure.

Stormwater

5.13 The Stormwater activity is $196,000 better than projection due to:

5.13.1 Expenses – staff - $159,000 better than projection. The distribution of staff time over the organisation differs from anticipated.

Water

5.14 The Water activity is $441,000 better than projection due to:

5.14.1 Expenses – other - $429,000 better than projection relates to year to date underspend against maintenance budgets ($267,000), mainly in reactive budgets. There are a number of outstanding purchase orders however significant savings against reactive budgets are expected. Base service and operating expenditure show a current underspend of $173,000 in respect of electricity and insurance costs (savings) and the costs of the meter reading contract.

Flood Protection

5.15 The Flood Protection activity is $167,000 better than projection.

5.15.1 Expenses – other - $99,000 better than projection. This is relating to recovery works. There has been only minor expenditure year to date for these works (identified from the December 2011 Rainfall Event). The projects have now been re-categorised as mitigation (capital) works and will extend into the 2015/16 year.

Capital Expenditure

5.16 Capital expenditure to 31 May 2015 was $25.4 million, $5.1 million (17%) below projection. Details are included in Attachments 2 to 5.

Balance Sheet

5.17 Fourth quarter rates invoicing fell due for payment on 28 May, generating a $10 million decrease in rates debtors. Cash in excess of that required for operating purposes was used to clear call loan balances, leaving $810,000 on call deposit.

5.17.1 Ratepayers equity has decreased $4.4m reflecting the allocation to May’s income of rates invoiced in April.

6. Projects Update

6.1 Please see Attachments 4 and 5 for progress reports on Council’s major projects.

7. Rates Rebates

7.1 Council administers the rates rebate scheme on behalf of the Department of Internal Affairs. Almost 90% of the rates rebate applications are processed between mid-July and mid-September each year. During this period three additional staff are employed on a temporary basis to carry out the interviews and process the applications. Staff also visit homes and some rest homes to assist ratepayers who are unable to make it into the Council.

7.2 The maximum rebate amount and income threshold are adjusted annually by the rate of inflation therefore reducing the likelihood of the scheme not being utilised due to inflation and increasing incomes.

7.3 For the 2014/15 year the maximum rebate was increased from $595 to $605 and the income abatement threshold was increased from $23,870 to $24,250. The amount of the rebate granted depends on the level of rates and household income as well as number of dependents.

7.4 The below table shows the uptake in rates rebates compared to previous rating years.

Rating Year	2014/15	2013/14	2012/13
Number of approved rebate applications	2,007	2,061	2,043
Dollar value of rebates granted	$1,116,324	$1,131,120	$1,125,549
Maximum rates rebate	$605	$595	$590
Income abatement threshold	$24,250	$23,870	$23,650

8. Ridgeways Joint Venture

8.1 Ridgeways Joint Venture distributed two amounts of $100,000 each to Nelson City Council in July and November 2014 after selling a section. It has since become apparent that further funds should have been retained within the Joint Venture for ongoing overheads. The JV requested that the two partners inject $50,000 each and Council transferred these funds on 30 June 2015.

9. Alignment with relevant Council policy

9.1 The finance report is prepared comparing current year performance against the final projection for the 2015 LTP.

10. Assessment of Significance against the Council’s Significance and Engagement Policy

10.1 There are no significant decisions.

11. Consultation

11.1 No consultation is required.

12. Inclusion of Māori in the decision making process

12.1 No consultation is required.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: NCC Detail Performancy (A1376070)

Attachment 2: Capital Expenditure Graph (A1376070)

Attachment 3: Capital Expenditure by Activity (A1376070)

Attachment 4: Major Projects Status Report - Delivery at Risk (A1384382)

Attachment 5: Major Projects Status Report - On Track (A1384389)

Attachment 6: Balance Sheet (A1375171)

Attachment 7: Interest Rate Position Report (A1366415)

Attachment 8: Debtors Report (A793514)

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4204

Rates Remissions for 2014/15

1. Purpose of Report

1.1 To update the Audit, Risk and Finance subcommittee on the Rates remissions for 2014/15.

2. Delegations

2.1 The Audit, Risk and Finance subcommittee has responsibility for management of financial risk.

3. Recommendation

THAT the report Rates Remissions for 2014/15 (R4204) and its attachments (A1383906 and A1222068) be received.

4. Background

4.1 Council has a number of rates remission policies which are consulted on through the Long Term Plan. The policies approved through the Long Term Plan 2015-25 are included as Attachment 1.

5. Discussion

5.1 The remission policies approved through the Long Term Plan 2015-25 have not changed materially from the policies applicable to the 2014/15 rating year. There were some wording changes to the remission of rates for underground utilities and remission of charges for excess water arising from leaks.

5.2 Rates remissions for 2014/15 were $402,744 compared with $409,548 in 2013/14 (excluding GST).

5.3 Attachment 2 shows the detail of the rates remissions given for Community, sporting and other organisations and a summary of other remissions. The remission policies are delegated to officers to administer.

5.4 Because the rates remissions are a budgeted expense, the general rates and water rates collected are increased to cover the expected level of remissions.

Rates remissions	2014/15	2013/14
Community sporting and other organisations	72,411	76,756
Golf greens	4,923	5,244
Rates penalties	38,000	48,000
Res properties in commercial areas	9,000	9,000
Excess water credits - residential	102,419	95,070
Excess water credits - commercial	18,789	4,478
Conservation land	314	0
Cemeteries	26,259	24,000
Low value properties	1,030	1,000
Heritage	65,941	64,000
Clean heat warm homes	53,658	54,000
Dependent relative	1,377	1,000
Natural calamity	8,623	27,000
Total	$402,744	$409,548

6. Options

6.1 The recommendation is to receive the report.

7. Alignment with relevant Council policy

7.1 This recommendation is not inconsistent with any previous Council decision.

8. Assessment of Significance against the Council’s Significance and Engagement Policy

8.1 This is not a significant decision.

9. Consultation

9.1 No consultation has occurred in preparation of this report.

10. Inclusion of Māori in the decision making process

10.1 No consultation with Maori has occurred in preparation of this report.

Theo Aitken

Rates Officer

Attachments

Attachment 1: A1383906 - Rates remission policy - extract from LTP2015-25

Attachment 2: A1222068 - 2014/15 Rates remissions

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4245

Insurance Renewal for 2015/16

1. Purpose of Report

1.1 To update the Committee on the 2015/16 insurance renewal.

2. Delegations

2.1 The Audit, Risk and Finance committee has responsibility for risk management.

3. Recommendation

THAT the report Insurance Renewal for 2015/16 (R4245) be received.

4. Background

Top of the South Collective

4.1 Nelson City Council is part of the Top of the South Collective with Tasman District Council and Marlborough District Council which was formed 1 July 2011. The insurance broker is Jardine Lloyd Thomson (JLT) and Nelson City Council has various insurance policies including:

· Material Damage;

· Business Interruption;

· Motor Vehicle;

· Public and Professional Indemnity;

· Crime, Statutory and Employers Liability;

· Harbour Masters and Wreck Removal Liability;

· Hall Hirers Liability;

· Personal Accident;

· Forestry.

Local Authority Protection Programme

4.2 Separately, Council is a member in the Local Authority Protection Programme (LAPP) scheme which is a mutual scheme whose membership consists of 33 local authorities. It is aimed at providing insurance cover for damage to infrastructural assets from natural hazard events. It only covers the 40% of damage costs not covered by the National Disaster Recovery Plan which currently covers 60%. Council has $696 million of infrastructure assets covered by the Local Authority Protection Programme ($653m 2014/15).

5. Discussion

Top of the South Collective

5.1 Material Damage premiums have decreased by $97,000 for 2014/15 however this is been partially offset by an increase in the Fire Service Levy of $36,000.

5.2 Historically the Top of the South collective have paid the Fire Service levies on the fire indemnity loss limit and then shared the cost between the three parties. A recent Supreme Court decision has overruled a High Court and Court of Appeal decision and said that fire service levies must be calculated on the actual indemnity value of the insured property ie view the collective as three separate contracts for the calculation even though we are sharing a limit.

5.3 Since the Christchurch earthquakes there has been a Natural Disaster loss limit in the Material Damage policy reflecting a lack of capacity in the insurance market (for 2014/15 this was a shared limit of $250 million). This limit has been removed for 2015/16 at no additional premium.

Local Authority Protection Programme

5.4 Council gave notice last year that it was considering withdrawing from the LAPP scheme. Members must give one year’s notice but are able to retract the notice by mid May. Council officers believe it is financially prudent to give notice to withdraw annually so that Council could look at other insurance options. Council gave notice 18 May 2015 that they intended to stay with LAPP for the 2015/16 renewal and again gave notice to withdraw from 1 July 2016.

5.5 Contributions for 2015/16 for LAPP are $279,200 compared with $349,000 in 2014/15 with a $1.8m deductible. This is due to a softening on the global insurance markets over the last couple of years. This policy is subject to a limit for any one event of $125m total including the central government 60% component with one reinstatement per year.

5.6 JLT (Council brokers) sourced some quotes for 2015/16 insurance cover for our infrastructure assets. For a similar deductible to LAPP of $2m the annual premium quoted ranged between $300,000 and $375,000. This would be subject to a limit for any one event of $125m total including the central government 60% component.

5.7 LGNZ commissioned a report in 2013 to review the insurance market for the local authority sector post Christchurch earthquakes and leaky homes and the impact thereof on the 3 sector-owned entities Civic, LAPP and Riskpool.

5.8 The report, prepared by Craig Stobo, made recommendations which may impact on the structure and role of the LAPP scheme in the future as well as the Central government’s role. The working party has been set up to look at the way forward and it is advisable that Council pay close attention to any potential future changes.

5.9 Given this, officers chose to remain with LAPP for the 2015/16 insurance renewal while retaining the right to withdraw and reconsider other options from 1 July 2016.

6. Options

6.1 The recommendation is to receive the report.

7. Alignment with relevant Council policy

7.1 This recommendation is not inconsistent with any previous Council decision.

8. Assessment of Significance against the Council’s Significance and Engagement Policy

8.1 This is not a significant decision.

9. Consultation

9.1 No consultation has been undertaken in preparing this report.

10. Inclusion of Māori in the decision making process

10.1 No consultation with Maori has been undertaken in preparing this report.

Nikki Harrison

Group Manager Corporate Services

Attachments

Nil

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4206

Bad debt report to 30 June 2015

1. Purpose of Report

1.1 To inform the subcommittee of the bad debts being written off for the year ending 30 June 2015.

2. Delegations

2.1 The subcommittee has responsibility for the management of financial risk.

3. Recommendation

THAT the report Bad debt report to 30 June 2015 (R4206) be received.

4. Discussion

4.1 There are no debts over $2,500 to be approved and written off for the year ending 30 June 2015.

4.2 A number of accounts under $2,500 per debtor have been written off by the Group Manager Corporate Services under Delegation F12. These totalled $12,185. $6,141 was for eight separate marina debts, $4,330 for sixteen separate debts for dog impounding fees, and an $800 concession fee. The balance was minor and sundry in nature.

4.3 The decision is an administrative one and although the debts are written off from an accounting point of view, a record is still kept and if an opportunity to recover the debt arises, action will be taken. $11,805 of this balance is with Creditmens, our debt recovery agency, which we will continue to try to recover. Every possible effort has been made to locate and obtain payment from these debtors.

4.4 A summary of this year’s write-off compared to last year’s provision is as follows:

	Write-off 2015 $	Write-off 2014 $
Over $2,500	-	230,875
Under $2,500	12,185	8,176
Cost for year	12,185	239,051

5. Options

5.1 The recommendation is to receive the report.

6. Alignment with relevant Council policy

6.1 This recommendation is not inconsistent with any previous Council decision.

7. Assessment of Significance against the Council’s Significance and Engagement Policy

7.1 This is not a significant decision.

8. Consultation

8.1 No consultation has occurred in preparation of this report.

9. Inclusion of Māori in the decision making process

9.1 No consultation with Maori has occurred in preparation of this report.

Lynn Anderson

Accounting Services Manager

Attachments

Nil

Audit, Risk and Finance Subcommittee

30 July 2015

REPORT R4433

2014/15 Audit New Zealand Letters

1. Purpose of Report

1.1 To provide the subcommittee with the letters to the Council on the interim audit for the year ending 30 June 2015 from Audit NZ.

1.2 To provide the subcommittee with the Audit Engagement Letter for the year ending 30 June 2015 and seek approval for the Mayor to sign.

2. Delegations

2.1 The subcommittee is responsible for the oversight of the audit process and the audit of Council’s Annual Report and annual accounts.

3. Recommendation

THAT the report 2014/15 Audit New Zealand Letters (R4433) and its attachments (A1371563 and A1372353) be received.

AND THAT the committee provide any feedback on the engagement letter to Audit NZ

4. Discussion

Interim audit

4.1 Audit NZ carried out the interim audit for the year ending 30 June 2015 in mid April 2015 which focused on the Council’s internal controls and the overall control environment. They issued two letters - a letter to the Council which covers governance issues (Attachment 1) and a letter to the Chief Executive which covers management issues.

4.2 Overall Audit NZ found that the Council’s internal controls were operating effectively. However they have identified areas where the Council could consider enhancing its internal controls which are outlined in the letter to the Chief Executive.

Audit Engagement letter

4.3 The Audit Engagement letter (Attachment 2) sets out the proposed arrangements for the 2014/15 audit of the Council, including the debenture trust deed and Nelson Tasman Combined Civil Defence Organisation.

4.4 This letter is required to be signed by Council to confirm that the details of the audit match its understanding of the arrangements. The Mayor has provisionally signed the letter but this has not been forwarded to Audit NZ, pending any feedback from this Committee.

5. Options

5.1 That the subcommittee note the matters raised in the letters to the Council and the Chief Executive on the interim audit of Nelson City Council for the year ending 30 June 2015.

5.2 That the subcommittee either agree to sign the Audit Engagement letter or provide additional feedback to Audit NZ.

6. Alignment with relevant Council policy

6.1 This recommendation is not inconsistent with any previous Council decision.

7. Assessment of Significance against the Council’s Significance and Engagement Policy

7.1 This is not a significant decision.

8. Consultation

8.1 No consultation has occurred in preparation of this report.

9. Inclusion of Māori in the decision making process

9.1 No consultation with Maori has occurred in preparation of this report.

Nikki Harrison

Group Manager Corporate Services

Attachments