Agenda of Audit, Risk and Finance Subcommittee

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

12 November 2015

Page No.

1. Apologies

Nil

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 14 October 2015 6 - 10

Document number M1529

Recommendation

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 14 October 2015, be confirmed as a true and correct record.

6. Status Report - Audit, Risk and Finance Subcommittee - 12 November 2015 11 - 12

Document number R5107

Recommendation

THAT the Status Report Audit, Risk and Finance Subcommittee 12 November 2015 (R5107) and its attachment (A1324298) be received.

7. Chairperson's Report

8. Internal Audit Plan and Procedure 13 - 22

Document number R5045

Recommendation

THAT the report Internal Audit Plan and Procedure (R5045) and its attachments (A1452073 and A1428836) be received.

Recommendation to Governance Committee and Council

THAT the Internal Audit Plan to 30 June 2016 (A1452073) be approved.

9. Corporate Report to 30 September 2015 23 - 40

Document number R5067

Recommendation

THAT the report Corporate Report to 30 September 2015 (R5067) and its attachments (A1448646, A1311288, A793514, and A1437431) be received and the variations noted.

AND THAT the subcommittee notes that funding of $8,900 has been allocated to Isel House in 2015/16 for the operational costs of running the House.

10. Liability Management Policy amendment 41 - 56

Document number R5077

Recommendation

THAT the report Liability Management Policy amendment (R5077) and its attachment (A1450461) be received.

Recommendation to Governance Committee and Council

THAT the amended Liability Management Policy (A1450461) be adopted.

11. PwC Presentation

Brett Johanson, Treasury Adviser will give a presentation on treasury risk management.

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

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

On Wednesday 14 October 2015, commencing at 9.42am

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

In Attendance: Councillors L Acland, P Matheson, and G Noonan, Chief Executive (C Hadley), Group Manager Infrastructure (A Louverdis), Group Manager Corporate Services (N Harrison), and Administration Adviser (G Brown)

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

Mr Kerry Neal read from tabled document A1444695 regarding Trafalgar Centre financing.

Attachments

1 A1444695 - Tabled Document - Kerry Neal - Trafalgar Centre Financing

5. Confirmation of Minutes

5.1 10 September 2015

Document number M1459, agenda pages 6 - 11 refer.

Resolved AUD/2015/041

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 10 September 2015, be confirmed as a true and correct record.

Murray/Barker Carried

6. Status Report - Status Report - 14 October 2015

Document number R4982, agenda pages 12 - 13 refer.

Resolved AUD/2015/042

THAT the Status Report Audit, Risk and Finance Subcommittee 14 October 2015 (R4982) and its attachment (A1324298) be received.

Barker/McGurk Carried

7. Chairperson's Report

The Chairperson said it was pleasing to see progress made in relation to new policies and the risk management framework which the Audit, Risk and Finance Subcommittee would be discussing at today’s meeting.

8. Draft Asset Disposal Policy

Document number R4823, agenda pages 14 - 19 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report.

There was agreement that the following changes would be incorporated in the draft Asset Disposal Policy:

· Clause 4.1 remove the term ‘real property’ and add ‘and property’ after the word Land

· Clause 7.1, remove ‘a’ and replace with ‘the’ third tier manager

· Add to clause 8.1 evidence and documents will be kept on file in relation to the statement ‘examples of like items’

· Clause 8.2 reword ‘items being disposed of on one day’

· Clause 8.6 broaden the definition of technology to include other confidential information

It was suggested that the removal of confidential information should be covered in a broad overarching policy.

There was a discussion around what triggers the disposal of an asset. The Chief Executive, Clare Hadley advised there were processes in place for the disposal of assets and that a disposal was approved at a senior level. She added that officers had input to whether the asset required disposal.

Resolved AUD/2015/043

THAT the report Draft Asset Disposal Policy (R4823) and its attachment (A1412442) be received.

Barker/McGurk Carried

Recommendation to Governance Committee and Council AUD/2015/044

THAT the Draft Asset Disposal Policy (A1412442) with amendments be approved;

AND THAT the Delegations Manual is updated to reflect the delegations in the Asset Disposal Policy.

Barker/McGurk Carried

9. Draft Risk Management Framework

Document number R4887, agenda pages 20 - 35 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report.

There was agreement that the following changes would be incorporated into the draft Risk Management Framework:

· Section 6, add to 6.1 ‘The role of the Senior Leadership Team is to report to the Audit, Risk and Finance Subcommittee as set out below and in Table 1’

· Clause 9.3.2 add ‘including an environmental scan’

Attendance: Her Worship the Mayor left the meeting from 10.21am to 10.23am.

Resolved AUD/2015/045

THAT the report Draft Risk Management Framework (R4887) and its attachment (A1431591) be received.

Peters/Barker Carried

Recommendation to Governance Committee and Council AUD/2015/046

THAT the Draft Risk Management Framework (A1431591) with amendments be approved.

Peters/Barker Carried

10. Corporate Report to 31 August 2015

Document number R4939, agenda pages 36 - 52 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report.

In response to a question, Group Manager Infrastructure, Alec Louverdis, advised the projects included under the Parks and Active Recreation activity in attachment 3 included retaining walls, dredging and the Trafalgar Centre.

In response to a question, the Chief Executive, Clare Hadley referred to the Trafalgar Centre Reopening project in attachment 5, and explained the expenditure of $644,000 was in relation to early project work and this was written off on advice from Audit New Zealand. This was not included in the current budget.

Mrs Hadley said the $667,000 additional expenditure for the Trafalgar Centre was incorrectly recorded in the Consulting Engineer, Richard Kirby’s, report to Council on 3 September 2015, but he verbally corrected this at the meeting.

It was agreed that the Audit, Risk and Finance Subcommittee was satisfied the increase in expenditure for the Trafalgar Centre was appropriately considered against the Significance and Engagement Policy and followed due process.

In response to a further question, Mrs Hadley advised the Rutherford Park development was not included as part of the Trafalgar Centre budget.

There was a discussion regarding further road closures in relation to the Brook Area Cycling and Walking Improvements. Mr Louverdis advised that any further road closures would be managed in discussion with the Communications Team, the residents and other stakeholder groups.

Resolved AUD/2015/047

THAT the report Corporate Report to 31 August 2015 (R4939) and its attachments (A1422506, A1432835, A793514, and A1436178) be received and the variations noted.

Murray/McGurk Carried

Recommendation to Governance Committee and Council AUD/2015/048

THAT $350,000 for the upgrade of the Civic House verandah be deferred until 2017/18;

AND THAT $200,000 for the upgrade of the Hunter Furniture roof be deferred until 2016/17.

Murray/Barker Carried

There being no further business the meeting ended at 11.15am.

Confirmed as a correct record of proceedings:

Chairperson Date

Audit, Risk and Finance Subcommittee

12 November 2015

REPORT R5045

Internal Audit Plan and Procedure

1. Purpose of Report

1.1 To approve the internal audit plan through to 30 June 2016 and to review the internal audit procedure.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee has responsibility for risk management and internal control.

3. Recommendation

THAT the report Internal Audit Plan and Procedure (R5045) and its attachments (A1452073 and A1428836) be received.

Recommendation to Governance Committee and Council

THAT the Internal Audit Plan to 30 June 2016 (A1452073) be approved.

4. Background

4.1 The Internal Audit Charter was brought to the Audit, Risk and Finance sub-committee on 10 September 2015 and recommended for approval to Governance and Council.

4.2 It is intended that a risk based internal audit plan will be brought to the sub-committee at least annually prior to the beginning of each financial year. Risk assessments have been undertaken across the organisation over the last couple of months and the internal audit plan to 30 June 2016 is included as Attachment 1.

5. Discussion

5.1 The internal audit plan has been developed based on a prioritisation of a list of all potential audit topics using a risk-based methodology. Once approved, any significant deviation from the approved internal audit plan will need be considered by Audit, Risk & Finance after seeking guidance (if appropriate) from the Chief Executive and if necessary the Governance Committee.

5.2 Results of the internal audits, where appropriate, will be reported to the Audit, Risk and Finance subcommittee.

5.3 The Internal Audit Charter also referred to internal audit activity’s standard operating procedures manual. The Audit, Risk and Finance sub-committee requested that a copy of this be brought back to the sub-committee for information and this is included as Attachment 2.

6. Options

6.1 Accept the recommendation – approve the Internal Audit plan. The internal audit procedure is provided for information as requested.

6.2 Reject the recommendation – not approve the Internal Audit plan.

7. Alignment with relevant Council policy

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

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 report.

Nikki Harrison

Group Manager Corporate Services

Attachments

Attachment 1: A1452073 - Internal Audit Plan to 30 June 2016

Attachment 2: A1428836 - Internal Audit procedure

Audit, Risk and Finance Subcommittee

12 November 2015

REPORT R5067

Corporate Report to 30 September 2015

1. Purpose of Report

1.1 To inform the members of the Audit, Risk and Finance subcommittee of the financial results of activities for the 3 months ending 30 September 2015 compared to the approved operating budget, 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 Do not delete this li

3. Recommendation

THAT the report Corporate Report to 30 September 2015 (R5067) and its attachments (A1448646, A1311288, A793514, and A1437431) be received and the variations noted;

AND THAT the subcommittee notes that funding of $8,900 has been allocated to Isel House in 2015/16 for the operational costs of running the House.

4. Background

4.1 The report focuses on the 3 month performance compared with the year to date approved operating budget. Budgets for operating income and expenditure are phased evenly through the year, whereas capital expenditure budgets are phased to occur mainly in the second half of the year.

4.2 Some definitions of terms used within this report:

· Approved operating budget – Annual plan plus carry forwards plus any other additions or changes approved by Council;

· 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 approved operating budget. More detailed financials by sub-activity are in Attachment 2.

5.2 For the 3 months ending 30 September 2015, the activity surplus/deficits are $1.6 million favourable to budget.

5.3 Revenue and expenditure variances are discussed by activity. At this stage of the year individual variances tend to be immaterial and/or a mismatch in timing between the budget phasing and actual expenditure.

5.4 Staff expenses are $269,000 in total better than budget. 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 2015/16 Annual Plan.

Corporate

5.5 The Corporate activity is $423,000 worse than budget.

5.5.1 Revenue – $478,000 less than budgeted. Internal interest income is $167,000 less than budgeted as 2014/15 capital expenditure was less than projected and interest rates remain favourable to those anticipated. Forestry income is $296,000 less than budgeted due to the timing of the Brook Forest harvest which is due to be completed by mid December.

Parks and Active Recreation

5.6 The Parks and Active Recreation activity is $642,000 better than budget due to:

5.6.1 Expenses – other - $558,000 better than budget. Water by meter is $62,000 below budget – seasonality is a major driver of this variance with the December and March quarters generating heavier expenditure. Grants for capital projects at Saxton’s Field have not yet been made to Tasman District Council ($220,000 - timing), and maintenance expenditure is behind budget by $247,000 including $62,000 for the Marina dredging. The scope and timing (originally November) for the Marina dredging is being revised as the submitted tender price exceeds the exisiting budget. Some maintenance expenditure in this activity is very seasonable, and a large number of purchase orders have been raised.

5.6.2 Interest and depreciation together are $104,000 less than budget due to 2014/15 capital expenditure being less than projected.

Social

5.7 The Social activity is $248,000 better than budget due to:

5.7.1 Revenue - $111,000 less than budget due to the timing of income for festivals, Founders, and the Tahuna Beach Motor Camp.

5.7.2 Expenses – other - $295,000 better than budget. Expenditure for the earthquake strengthening and refurbishment of the Nelson School of Music is behind budget by $218,000 (timing). Maintenance expenditure is $95,000 behind budget although again there are a large number of open purchase orders awaiting invoices.

Economic

5.8 The Economic activity is $130,000 better than budget due to:

5.8.1 Expenses – other - $130,000 better than budget. Grants for Light Nelson and the Events Contestable Fund have not yet been accessed (timing), and expenditure budgeted for special economic projects and Innovate business incubator has not occurred to date (timing).

Transport

5.9 The Transport activity is $522,000 better than budget due to:

5.9.1 Revenue - $116,000 less than budget as the timing of income from NZTA reflects the timing of expenditure.

5.9.2 Expenses – other - $466,000 better than budget, mainly in subsidised and unsubsidised roading. The most significant underspends in that activity are:

· Base maintenance ($327,000) including particularly pre-seal repairs, road and footpath maintenance and subsequent road marking. This is seasonal activity and scheduled for October/November dependant on weather conditions.

· $50,000 underspent year to date in recovery works from the 2011 emergency event relating to Days Track. This work has been carried forward from 2014/15. A report on this project will be coming to a Works and Infrastructure committee meeting in the New Year.

· Little has been spent on studies and strategies relating to the Southern Arterial corridor management Plan. This is delayed until the findings of the NZTA Southern Arterial Investigation are released. This money will not be spent in the current financial year. It is recommended that the Stoke Foothills traffic study also needs to be delayed until the NZTA Southern Arterial Investigation is released as the modelling is inter-dependant. This will then also not be spent in 2015/16. The Stoke CBD study is underway , with the purchase order raised and will be completed by December 2015.

Environmental Management

5.10 This activity includes Civil Defence and Rural Fire activities, Consents and Compliance, Environmental Programmes, and Solid Waste activities. The Environmental Management activity is $266,000 better than budget due to:

5.10.1 Revenue - $140,000 less than budget. Landfill levies (including hazardous waste levies) are $123,000 (18%) less than year to date budget. Underlying factors for volume decrease are speculative, but may include the success of waste minimisation initiatives in the region over many years. Building income is $72,000 above budget (21%). Volumes are roughly the same as first quarter 2014/15, the increased revenue is a result of higher value building applications.

5.10.2 Expenses – other - $328,000 behind budget. Expenditure relating to the Nelson Plan and the Air Plan is currently $84,000 behind budget although significant expenditure is committed through purchase orders. Environmental advocacy and advice (mainly Nelson Nature) is $144,000 behind budget. A monitoring programme has now been agreed and expenditure has been committed. Solid waste expenditure is $68,000 less than budget particularly in respect of ETS levies and toe embankment maintenance (timing), and local disposal levies (offsetting income).

Wastewater

5.11 The Wastewater activity is $49,000 better than budget due to:

5.11.1 Expenses – other - $88,000 less than budget. Maintenance expenditure is $54,000 behind budget, and little expenditure has been incurred on the studies relating to natural hazards risk assessment and network capacity confirmation for growth areas (expected completion February 2016).

Stormwater

5.12 The Stormwater activity is $85,000 better than budget due to:

5.12.1 Expenses – other - $65,000 better than budget. There has been no expenditure year to date against budgets for studies and strategies including natural hazards risk assessment, network capacity confirmation for growth areas (work commencing November), and code of practise for open streams (timing).

Water

5.13 The Water activity is $26,000 better than budget due to:

5.13.1 Revenue - $105,000 less than budget (timing).

5.13.2 Expenses – other - $138,000 better than budget relates to $64,000 maintenance expenditure unspent although purchase orders are in place. There has been no expenditure year to date (timing) against budgets for studies and strategies including natural hazards risk assessment, network capacity confirmation for growth areas (results expected by end of March 2016), water loss reduction strategy, and water safety plan.

Flood Protection

5.14 The Flood Protection activity is $101,000 better than budget.

5.14.1 Expenses – all expenditure classes are less than budget by individually immaterial amounts (timing).

Capital Expenditure

5.15 Capital expenditure to 30 September 2015 was $7.5 million, $2.7 million (36%) below budget. Details are included in Attachments 2, 3 and 5.

5.16 Changes in project management standards and business case approach have delayed construction phase, however expectations at this stage are that the work programme will be met.

Balance Sheet

5.17 The creditors payment in September utilised cash balances on hand at the end of August.

5.17.1 Payables include income in advance. Along with receipts for the full year rates in August (which are being released to income monthly), balances have built up from those ratepayers with direct debit arrangements in advance of the next quarterly rates accounts, invoiced in October.

5.17.2 In September, $5 million of current borrowings were replaced with $5m term borrowings through the Local Government Funding Agency, due in 2027.

5.17.3 Rates income for the quarter is recognised in its entirety when it is invoiced, in this case in July. Over the following 2 months, accumulated funds decrease as expenditure is incurred. Essentially accumulated funds reflects the timing differences between rates income and organisational expenditure.

6. Isel House

6.1 On 30 August 2015 the Isel House Charitable Trust notified Council that from 30 October 2015 it would be relinquishing its lease to manage Isel House. Isel House now returns to the direct management of Council staff through the Libraries and Heritage Facilities Business Unit.

6.2 As the Trust was contracted to Manage Isel House no funding is included in the Long Term Plan to cover any of the operational costs now required to be met by Council. Funding of $8,900 is needed for the remainder of 2015/16 to provide services to the house whilst a decision is made as to the future direction of the facility. This funding will cover electricity, telephone, security and insurance costs until June 2016.

6.3 Funding beyond 2015/16 will be included as part of the upcoming annual plan process.

6.4 Isel House will be open for the Summer provided volunteers are confirmed by 30 November 2015. This process is in hand.

7. Projects Update

Please see Attachment 5 for progress reports on Council’s major projects.

8. Alignment with relevant Council policy

8.1 The finance report is prepared comparing current year performance against the year to date approved operating budget for 2015/16.

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

9.1 There are no significant decisions.

10. Consultation

10.1 No consultation is required.

11. Inclusion of Māori in the decision making process

11.1 No consultation is required.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: NCC Detail Performance (A1448646)

Attachment 2: Capital Expenditure Graph (A1448646)

Attachment 3: Capital Expenditure by Activity (A1448646)

Attachment 4: NCC Balance Sheet (A1448646)

Attachment 5: Major Projects Status Report (A1311288)

Attachment 6: Interest Rate Position (A1437431)

Attachment 7: Debtors Report (A793514)

Attachment 8: Rates Outstanding (A1448646)

Audit, Risk and Finance Subcommittee

12 November 2015

REPORT R5077

Liability Management Policy amendment

1. Purpose of Report

1.1 To adopt the amended Liability Management Policy.

2. Delegations

2.1 The Audit Risk and Finance Subcommittee has powers to make recommendations to the Governance Committee in relation to Council’s Treasury Policies.

3. Recommendation

THAT the report Liability Management Policy amendment (R5077) and its attachment (A1450461) be received.

Recommendation to Governance Committee and Council

THAT the amended Liability Management Policy (A1450461) be adopted.

4. Background

4.1 The current Liability Management Policy was approved by Council in April 2015. Previously any amendments to this Policy would have had to be consulted on but legislative changes mean that amendments to the Liability Management and Investment Policies can be approved by Council.

5. Discussion

5.1 Officers seek approval for an amendment to the Liability Management Policy to provide for longer term interest rates swaps, to cover borrowing for terms longer than ten years. The amended Policy is attached with changes highlighted (Attachment 1).

5.2 The main drivers for this change are that the Local Government Funding Agency (LGFA), which the Council use for long term borrowing, is now issuing longer dated debt. Also the swap market has become more liquid and actively traded beyond ten years.

5.3 Currently the Liability Management Policy interest rate risk control limits requires that “any interest rate swaps with a maturity beyond 10 years must be approved by Council”. This approach is not practical for managing interest rate swaps as would need to refer each proposed tranche of swaps to Audit, Risk and Finance, Governance then Council by which time the markets may have moved significantly.

5.4 Council has issued a $5 million 2027 maturity LGFA bond (12 years) in the September 2015 tender and are currently unable to manage the interest rate exposure beyond 10 years by entering into swaps (without Council approval).

5.5 The amendment proposed is that the 10 years is changed to 12 years. This has been discussed with our Treasury advisors PriceWaterhouse Coopers (PWC) and they concur.

5.6 It is likely that the LGFA may make available longer dated borrowing beyond 2027 in the future. If there becomes an active swap market beyond 12 years then it may be appropriate to revisit this delegation in the future.

5.7 Another proposed amendment is that the funding risk management parameters are changed to allow a higher percentage of external term debt and committed debt facilities in the 5 year plus bucket. The percentage allowed is proposed to be moved from 40% to 60%, meaning that the Council can borrow a higher percentage of its debt for a longer term ie more than 5 years.

5.8 With increasing debt being signalled in the Long Term Plan 2015-25, the increase in 5 year plus debt percentage allows Council to alleviate possible congestion/constraints when raising new debt. Given the economic life of the assets being funded, it makes sense to allow the increase in percentage in longer term debt, in conjunction with the evolution in the LGFA.

5.9 There has been small tidy ups made to the Emissions Trading Scheme section which take out any reference to Kyoto Protocol units which were no longer able to be used post 1 June 2015.

6. Options

6.1 Adopt the amended Liability Management Policy. The changes have been recommended by our Treasury Advisors, PWC.

6.2 Not adopt the amended Liability Management Policy. This is not recommended.

7. Alignment with relevant Council policy

7.1 The Liability Management and Investment Policies are required by section 102 of the Local Government Act. Nothing in the proposed Liability Management Policy is inconsistent with any other previous Council decision or Council Policy.

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

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

9. Consultation

9.1 No specific consultation has been undertaken in preparation of this report.

10. Inclusion of Māori in the decision making process

10.1 No specific consultation with Maori has taken place in preparation of this report.

Nikki Harrison

Group Manager Corporate Services

Attachments

Attachment 1: A1450461 - Draft Liability Management Policy