Agenda of Audit, Risk and Finance Subcommittee

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

18 February 2016

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

4.1 Hugh Briggs, Melrose House Society

Hugh Briggs, Chair of Melrose House Society, will speak about the Society’s request for a loan/grant to undertake a bathroom upgrade in Melrose House.

5. Confirmation of Minutes

5.1 12 November 2015 8 - 14

Document number M1593

Recommendation

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 12 November 2015, be confirmed as a true and correct record.

6. Status Report - Audit, Risk and Finance Subcommittee - 18 February 2016 15 - 16

Document number R5457

Recommendation

THAT the Status Report Audit, Risk and Finance Subcommittee 18 February 2016 (R5457) and its attachment (A1324298) be received.

7. Chairperson's Report

8. Corporate Report to 31 December 2015 17 - 37

Document number R5375

Recommendation

THAT the report Corporate Report to 31 December 2015 (R5375) and its attachments (A1489864, A1482829, A793514, A1498466 and A1486343) be received and the variations noted.

Recommendation to Governance Committee and Council

THAT Council resolves to fund the additional expenditure for Tasman Street from the following activities; Roading subsidised budgets ($119,000), Roading unsubsidised budgets ($117,000) and Stormwater budgets ($92,000), a total of $328,000, from operational and capital expenditure budgets as appropriate, noting that any individual project underspends which cover this overspend will be reported by 30 June 2016;

AND THAT funding of $100,000 for the Stoke Foothills Traffic Study be deferred from 2015/16 to 2016/17;

AND THAT funding of $100,000 for the Atawhai Hills Traffic Study be brought forward from 2016/17 to 2015/16.

9. Letter to the Council on the audit for the year ending 30 June 2015 38 - 48

Document number R5350

Recommendation

THAT the report Letter to the Council on the audit for the year ending 30 June 2015 (R5350) and its attachment (A1499499) be received.

Recommendation to Governance Committee and Council

THAT Council notes Audit NZ’s comments (A1499499) and how officers intend to address the issues raised.

10. Health and Safety quarterly update to 31 December 2015 49 - 60

Document number R4967

Recommendation

THAT the report Health and Safety quarterly update to 31 December 2015 (R4967) and its attachments (A1483985 and A1485205) be received.

11. Council's Key Organisational Risk Progress Report 61 - 79

Document number R5395

Recommendation

THAT the Council's Key Organisational Risk Progress Report (R5395) and its attachment (A1461881) be received.

12. Internal Audit Report to 31 December 2015 80 - 86

Document number R5452

Recommendation

THAT the Internal Audit Report to 31 December 2015 (R5452) and its attachments (A1485806 and A1498101) be received.

Recommendation to Governance Committee and Council

THAT Council note the internal audit findings, recommendations and status of action plans up to 31 December 2015 (R5452).

13. Extension of loan facility to the Melrose Society 87 - 104

Document number R4814

Recommendation

THAT the report Extension of loan facility to the Melrose Society (R4814) and its attachments (A1450076 and A1416892) be received.

Recommendation to Governance Committee and Council

THAT an interest free loan of $25,000 be made to the Melrose Society for the purpose of toilet refurbishment, subject to:

- the Society receiving a grant of $35,000 from the Rata Foundation for the same purpose;

- the designs being approved by the Property and Facilities Asset Manager;

AND THAT the loan is to be repaid in five annual instalments of $5000 commencing 20 January 2017.

Public Excluded Business

14. Exclusion of the Public

Recommendation

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:

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 - 12 November 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.
2	Letter to the Council on the audit for the year ending 30 June 2015 - Utilities Contract	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)(h) To enable the local authority to carry out, without prejudice or disadvantage, commercial activities

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 - 12 November 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.

Letter to the Council on the audit for the year ending 30 June 2015 - Utilities Contract

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)(h)

To enable the local authority to carry out, without prejudice or disadvantage, commercial activities

15. Re-admittance of the public

Recommendation

THAT the public be re-admitted to the meeting.

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 12 November 2015, commencing at 9.09am

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

In Attendance: Councillor P Matheson (Deputy Mayor), Chief Executive (C Hadley), Group Manager Infrastructure (A Louverdis), Group Manager Corporate Services (N Harrison), Senior Accountant (T Hughes), Administration Adviser (E-J Ruthven)

Apology: Councillor Ian Barker

By agreement of all members present, Mr Murray assumed the Chair.

1. Apologies

Resolved AUD/2015/049

THAT an apology be received and accepted from Councillor Ian Barker.

Reese/McGurk Carried

2. Confirmation of Order of Business

There was no change to the order of business, although it was noted that the order of business may alter to accommodate the Council’s Treasury Adviser, Brett Johanson’s, presentation to the Subcommittee.

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 14 October 2015

Document number M1529, agenda pages 6 - 10 refer.

Resolved AUD/2015/050

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.

McGurk/Murray Carried

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

Document number R5107, agenda pages 11 - 12 refer.

Resolved AUD/2015/051

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

McGurk/Murray Carried

Chairperson's Report

7. Chairperson's Report

There was no Chairperson’s report.

8. Internal Audit Plan and Procedure

Document number R5045, agenda pages 13 - 22 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report. She explained that the risk register captured organisational risks, and that an audit of the top ten organisational risks was expected to be completed by 30 June 2016.

In response to questions, Ms Harrison explained current internal checks in relation to financial policies such as the payroll system. She added that the internal audit system would involve a review of internal processes, and may include data checking.

In response to a further question, the Chief Executive explained that no issues had been raised through the whistle-blowing system, and as a result, no review of this had been undertaken. Ms Harrison added that any issues arising as a result of internal audits would be brought to the subcommittee’s attention.

Attendance: Mr Peters joined the meeting at 9.21am, and assumed the chair.

In response to a question, the Chief Executive explained that regulatory risk was captured in the risk register, but was not considered to be one of the top ten risks requiring internal audit in the short term. She said that some elements of regulatory risk were monitored via external auditing procedures, but that other aspects would require internal audit.

In response to further questions, Ms Harrison explained that the interest schedules for both elected members and staff were updated on an on-going basis. She said that the schedule recording elected members’ interests was carefully reviewed by Audit New Zealand, but that an audit had not been undertaken regarding the staff interests’ register.

Following discussion, it was agreed that, in the Internal Audit Procedure under the heading ‘Extension for Action Plans’, the words “or organisational risk” should be added after the words “no safety-related issues”.

Resolved AUD/2015/052

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

Murray/McGurk Carried

Recommendation to Governance Committee AUD/2015/053

THAT the Internal Audit Plan to 30 June 2016 (A1452073) be approved, with the amendment:

· Under the heading ‘Extension for Action Plans’, insert the words “or organisational risk” after the words “no safety-related issues”.

McGurk/Murray Carried

9. Corporate Report to 30 September 2015

Document number R5067, agenda pages 23 - 40 refer.

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

In response to a question, Group Manager Infrastructure, Alec Louverdis, explained the quantum involved in studies delayed until the New Zealand Transport Agency Southern Arterial Investigation was released.

In response to a question regarding the Nelson School of Music, Ms Harrison explained that the expenditure being behind budget was largely a timing issue. She added that there were a number of open purchase orders, which indicated work underway.

In response to a question regarding the Nelson Plan and the Air Plan, the Chief Executive explained that, dependent on timing of hearings, there was likely to be an overspend in the Air Plan as a result of bringing the Plan Change forward.

The Committee considered the report attachments in turn.

In response to a question regarding the Capital Expenditure Graph, Ms Harrison explained that the actual spend trending behind the budget was largely an invoicing timing issue.

In response to questions regarding the Major Projects Status Report, Mr Louverdis gave an update of the process surrounding Cultural Impact Assessments. With regards to the Trafalgar Centre re-opening, Mr Louverdis confirmed that the budget column reflected stages 1-3, but that the next report would have updated costs.

There was a discussion regarding marina maintenance dredging. In response to a question, Mr Louverdis explained the process of calling for tenders, and noted that responses to the tender exceeded the available budget. He said that the next Corporate report would address this issue.

In response to a question regarding debtors to Council, the Chief Executive advised that debt recovery steps were being undertaken. She added that the meeting would need to move into public excluded session in order to provide further details.

Resolved AUD/2015/054

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

Murray/McGurk Carried

Resolved AUD/2015/055

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.

McGurk/Reese Carried

10. PwC Presentation

Brett Johanson, Council’s Treasury Adviser, gave a Power Point presentation on treasury risk management (A1458485).

He spoke about changes to the domestic and global interest rate markets, and explained additional movements in the financial market which impacted on the manner in which local authorities managed their treasury functions.

Mr Johanson provided an update regarding the Local Government Funding Agency (LGFA). He explained the change in policy allowing bonds to be issued out to 12 years at a lower cost than bank funding, and noted that there may be an even longer-term bond offering in the future. He spoke about the effect that longer-term bonds had on local authorities’ ability to manage debt risks.

The subcommittee discussed whether Council was too risk adverse to taking on debt, given that current market conditions were favourable to taking on further debt. In response to a question, Ms Harrison explained that pre-funding future projects when interest rates were low was not necessarily advantageous to Council, as margins would be lost when such funds were re-invested. Mr Johanson added that pre-funding also raised the risk of over-hedging and creating inflexibility, and that external agencies, such as the LGFA and Standard and Poors, appreciated local authorities behaving in a financially prudent manner. He added that pre-funding activities by taking on debt now could potentially affect Council’s credit rating, which would have flow on effects for relative interest rates.

There was a further discussion regarding whether asset management and deferred maintenance, particularly of infrastructure assets, should be brought forward, in order to take advantage of lower interest rates, and the capacity of Council to deliver such projects was discussed. It was noted that Council’s current debt to total revenue ratio was approximately 65%, well below Council’s policy limit of 150% and the Standard and Poor’s limit of 175%, at which a down-grade of the credit rating would be indicated. In response to a question, Ms Harrison explained that the Long Term Plan indicated a ratio of approximately 140% around years six to seven, and that this should be kept in mind if any alterations to Council’s current debt management were to be considered.

Mr Johanson then explained updates to Council’s Liability Management Policy. He said that this was now managed out to 12 years, as a result of the longer term LGFA funding available, but that any debt beyond this time period would require Council approval.

He added that the 5-year-plus limit had moved from 40% to 60%, as this provided the greatest flexibility for Council to manage growing debt. There was a discussion regarding Council’s exposure to banks through interest rate swaps, and whether it was appropriate for local authorities to invest with local building societies or credit unions. In response to a question, Ms Harrison clarified that Council was a net borrower, and was not in a position to invest in such agencies per se.

In response to questions, Mr Johanson explained that prudent financial management was a key objective, and that overall Council was fit for purpose and meeting best practice standards in relation to its liability and investment policies, and disciplined approach to managing risks.

Attachments

1 Power Point Presentation - A1458485 - Treasury Management Update

11. Liability Management Policy amendment

Document number R5077, agenda pages 41 - 56 refer.

Resolved AUD/2015/057

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

Murray/McGurk Carried

Recommendation to Governance Committee AUD/2015/058

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

Murray/McGurk Carried

12. Exclusion of the Public

Recommendation

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

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	Corporate Report to 30 September 2015 – discussion regarding debtor	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.

Item

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

Particular interests protected (where applicable)

Corporate Report to 30 September 2015 – discussion regarding debtor

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.

The meeting went into public excluded session at 11.20am and resumed in public session at 11.25am.

13. Re-admittance of the Public

Resolved AUD/2015/059

THAT the public be re-admitted to the meeting.

McGurk/Murray Carried

There being no further business the meeting ended at 11.25am.

Confirmed as a correct record of proceedings:

Chairperson Date

Audit, Risk and Finance Subcommittee

18 February 2016

REPORT R5375

Corporate Report to 31 December 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 6 months ending 31 December 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 risks. Do not delete Do not delete this li

3. Recommendation

THAT the report Corporate Report to 31 December 2015 (R5375) and its attachments (A1489864, A1482829, A793514, A1498466 and A1486343) be received and the variations noted.

Recommendation to Governance Committee and Council

AND THAT funding of $100,000 for the Stoke Foothills Traffic Study be deferred from 2015/16 to 2016/17;

AND THAT funding of $100,000 for the Atawhai Hills Traffic Study be brought forward from 2016/17 to 2015/16.

4. Background

4.1 The report focuses on the 6 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 It is anticipated that this will be the last corporate report in this format. Officers are working with the Subcommittee external appointees to streamline reporting to better meet the needs of the sub-committee.

5.3 For the 6 months ending 31 December 2015, the activity surplus/deficits are $2.6 million favourable to budget.

5.4 Revenue and expenditure variances are discussed by activity. Many variances are a mismatch in timing between the budget phasing and actual expenditure. The Christmas/New Year break has also delayed receipt and processing of regular expenses. Finance will investigate more tailored budget phasing for the upcoming financial year.

5.5 Staff expenses are $361,000 in total favourable to 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.

5.6 Depreciation is $175,000 unfavourable to budget. This is as a result of a $94,000 write down for retired assets along with depreciation on unbudgeted assets added to the register.

5.7 Finance expenses are $165,000 favourable to budget as 2014/15 capital expenditure was less than projected and interest rates remain favourable to those anticipated.

5.8

Corporate

5.9 The Corporate activity is $921,000 unfavourable to budget.

5.9.1 Revenue – $853,000 less than budgeted. Internal interest income is $186,000 less than budgeted as 2014/15 capital expenditure was less than projected and interest rates remain favourable to those anticipated. Forestry income is $584,000 as revenue and costs related to the harvest of the Brook stand are yet to be finalised. We are also still awaiting reimbursement from the Ministry of Civil Defence and Emergency Management for a claim lodged in July last year for the 2011 emergency event (278,000 year to date, total claim $555,000).

5.9.2 Expenses - $172,000 less than budgeted. There are timing differences in Civic House outgoings such as cleaning, and delays in commencing programmed maintenance. A loss on disposal of $80,000 was recorded on the retirement of the old phone system from the fixed asset register.

Parks and Active Recreation

5.10 The Parks and Active Recreation activity is $968,000 favourable to budget due to:

5.10.1 Expenses – other - $1,048,000 less than budget. Water by meter is $162,000 below budget – seasonality is a major driver of this variance with the March quarter generating heavier expenditure. Grants for capital projects at Saxton’s Field have not yet been made to Tasman District Council ($440,000 - timing), and maintenance expenditure is behind budget by $376,000 including $150,000 for the Marina dredging. The scope and timing (originally November) for the Marina dredging is being revised as the submitted tender price exceeds the existing budget. Some maintenance expenditure in this activity is very seasonable, and a large number of purchase orders have been raised.

Social

5.11 The Social activity is $425,000 favourable to budget due to:

5.11.1 Revenue - $11,000 more than budget. Festivals income is $216,000 more than year to date budget (offset by expenditure). Founders book fair proceeds ($53,000 behind year to date budget) will be received in June, and motor camp income ($124,000 behind year to date budget) should be caught up in January/February. All timing issues.

5.11.2 Expenses – other - $407,000 less than budget. Expenditure for the earthquake strengthening and refurbishment of the Nelson School of Music is behind budget by $403,000 (timing). Maintenance expenditure is $118,000 less than budget although again there are a large number of open purchase orders awaiting invoices. Festivals are overspent $195,000 year to date (offset by income, a timing issue).

Economic

5.12 The Economic activity is $240,000 favourable to budget due to:

5.12.1 Revenue - $200,000 more than budget. The unbudgeted half year contribution from TDC has been received against unbudgeted expenditure incurred in Economic Development and Tourism Nelson.

5.12.2 Expenditure – the Events Contestable Fund has not yet been accessed ($167,000, timing), and $41,000 expenditure budgeted for investigating a business incubator is not expected until year end (timing). EDA and NTT service provision is $200,000 overspent year to date (offsetting revenue in EDA from TDC).

Transport

5.13 The Transport activity is $541,000 favourable to budget due to:

5.13.1 Revenue - $162,000 less than budget as the timing of income from NZTA ($179,000) reflects the timing of expenditure. Income from Parking Regulation is tracking ahead of budget year to date ($53,000) as the anticipated reduction in fines relating to changes in parking enforcement has not eventuated.

5.13.2 Expenses – other - $477,000 less than budget, mainly in subsidised and unsubsidised roading. The most significant underspends in that activity are:

· Base maintenance $346,000 less than budget in the roading accounts. Year to date underspend is a result of seasonality and contract management requirements. Budgets are expected to be spent by the end of the financial year.

· $52,000 more than budget in off-street parking meter maintenance as paper usage has significantly increased with 1 hour free parking.

· $95,000 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.

· There has been no spend year to date on 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.

· The Stoke Foothills Traffic Study has been delayed from 15/16 to 16/17 so that the model that is under development for the NZTA Southern Link project and its outputs can be utilised which will result in more robust outcomes/better value for money.

· The Atawhai Hills Traffic Study is proposed to be brought forward from 16/17 to 15/16 (this year) so the outputs of the study can be incorporated into the Nelson Plan and landscape value work currently underway.

Environmental Management

5.14 This activity includes Civil Defence and Rural Fire activities, Consents and Compliance, Environmental Programmes, and Solid Waste activities. The Environmental Management activity is $636,000 favourable to budget due to:

5.14.1 Revenue - $359,000 less than budget. Landfill fees and levies (including hazardous waste levies) are $258,000 (15%) less than year to date budget as waste volumes are less than anticipated. Income recorded in other solid waste accounts is $154,000 less than budget as expenditure in these accounts is correspondingly less than budgeted. Building income is $66,000 above budget (8%). Volumes are roughly the same as first quarter 2014/15, the increased revenue is a result of higher value building applications. Resource consent income is $64,000 ahead of budget and tracking ahead of prior year to date.

5.14.2 Expenses – other - $638,000 less than budget. Environmental advocacy and advice (mainly Nelson Nature) is $127,000 behind budget. A monitoring programme has now been agreed and expenditure has been committed. A partnership with the Department of Conservation (DoC) has been announced and work direction is now being confirmed which will require expenditure.

5.14.3 Solid waste expenditure is $377,000 less than budget including $154,000 internal transfer in the closed accounts (offsetting income). There has been little expenditure in Waste Minimisation due to a programme delivery review and timing of expected invoices; service provision for the transfer station and landfill are under budget as December has only been partly invoiced; and Toe embankment maintenance and ETS levies in the landfill account will not be spent until the end of the year.

Wastewater

5.15 The Wastewater activity is $151,000 favourable to budget due to:

5.15.1 Expenses – other - $144,000 less than budget. Maintenance expenditure is $131,000 behind budget with a review of this expenditure to be undertaken in February. There has been no expenditure on natural hazards risk assessment to date – a report is currently being prepared on the impact of natural hazards on the NWWTP, rising main and primary pump stations. This work complements development of projects such as Nelson Plan, Land Development Manual and civil defence planning.

Stormwater

5.16 The Stormwater activity is $138,000 favourable to budget due to:

5.16.1 Expenses – other - $144,000 better than budget. There has been no expenditure year to date against budgets for studies and strategies including natural hazards risk assessment (see Wastewater comment). Work has been commissioned for the project on network capacity confirmation for growth areas and is likely to be completed by May. The budget for Building Act compliance in relation to dams ($60,000 year to date) is unlikely to be spent due a delay from central government required to progress the project.

Water

5.17 The Water activity is $240,000 favourable to budget due to:

5.17.1 Revenue - $99,000 less than budget (timing).

5.17.2 Expenses – other - $403,000 less than budget relates to $307,000 maintenance expenditure including $178,000 for reactive maintenance, $82,000 for head-works maintenance (timing), and $35,000 for projects linked to the resource consents (to be reviewed in February). There has been no expenditure year to date against budgets for studies and strategies including natural hazards risk assessment (see Wastewater comment), water loss reduction strategy, and water safety plan (both to be reviewed in January/February). Work has been commissioned for the project on network capacity confirmation for growth areas and is likely to be completed by March.

Flood Protection

5.18 The Flood Protection activity is $176,000 favourable to budget.

5.18.1 Expenses – $85,000 less than budget – there is a delay in programmed work waiting on global/individual consents. December stream inspections have identified possible other areas of focus and Nelmac are now supplying cost estimates on this work.

Capital Expenditure

5.19 Capital expenditure to 31 December 2015 was $17.8 million, $8.0 million (31%) below budget. Details are included in Attachments 2, 3 and 5.

5.20 Improvements in the way projects are developed and managed have led to initial delays as greater rigour has been applied to preparing and understanding the projects. However, expectations at this stage are that the work programme will be met.

Balance Sheet

5.21 Council had $1.7 million in on call cash balances at the end of November from payment of the October rates instalment. Operational expenditure utilised this balance in December.

5.21.1 Payables include rates received in advance. As rates are invoiced in quarterly instalments, significant movements are generated between debtors and creditors, depending on which month of the cycle is being reported. Balances have also built up from those ratepayers with direct debit arrangements in advance of the next quarterly rates accounts, invoiced in January.

5.21.2 In December, $5 million of current borrowings were replaced with $5m term borrowings through the Local Government Funding Agency, due in 2023.

5.21.3 Rates income for the quarter is recognised in its entirety when it is invoiced, in this case in October. 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. Royal Visit

6.1 Direct costs relating to the visit to Nelson in November 2015 by HRH the Prince of Wales and the Duchess of Cornwall totalled $70,000. A budget of $100,000 was approved for this event. Refer Attachment 9.

7. Consultancy costs for Chief Executive Employment Committee

7.1 External support for the Chief Executive Employment Committee totals $25,500 to December.

8. Outstanding rates at 31 December 2015

8.1 Please see attachment 8 for an update.

9. Tasman Street upgrade

9.1 The Tasman Street Upgrade project (between Nile Street and Bronte Street) commenced in February 2015 and was completed in late October 2015. This project was signalled in the 2013/14 Annual Plan. The work included the upgrade of Council underground services (water, sewer and storm water), footpaths, kerb and channel , carriageway upgrade, re-seal, roundabout improvements, street lighting and underground private services (power and telecommunications).

9.2 The original project budget was $1,129,000. Following very competitive pricing, the final budget on evaluation was reduced by $119,000 to $1,010,000 as the tendered price was lower than the estimate. This included a contingency (as per all contracts) of approximately 15%.

9.3 Many issues during the project led to an eventual overspend of approximately $211,000 and a final construction cost of approximately $1,340,000 (22% higher than the original project budget). Asset Managers believe the shortfall should be allocated to those activities that have benefited from the betterment the additional works have provided.

9.4 This project predated the new and now standard quality assurance measures put in place following the review of how capital projects should be delivered. There are now systems in place to ensure that risks (as identified on this project) are mitigated.

9.5 The complex project included the following conditions encountered on site that are regarded as genuine unforeseen issues:

9.6

· Incorrect location of private underground services

· Incorrect location of historic Council services

· Poorer than expected ground conditions

· Poor design assumptions

· Altering design to mitigate unforeseen issues

9.7 These unforeseen issues also included the opportunity for Council to upgrade existing services (termed betterment) at a reduced cost, resulting in increased asset life, due to economies of scale and avoiding re-excavation of the carriageway.

9.8 There have also been very positive lessons learnt from poor design process which are now being applied to all new projects to mitigate risk. These issues have been discussed with the external design consultant with a view to a financial contribution to offset the additional costs.

10. Other projects update

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

11. Alignment with relevant Council policy

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

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

12.1 There are no significant decisions.

13. Consultation

13.1 No consultation is required.

14. Inclusion of Māori in the decision making process

14.1 No consultation is required.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: NCC Detail Performance (A1489864)

Attachment 2: Capital Expenditure Graph (A1489864)

Attachment 3: Capital Expenditure by Activity (A1489864)

Attachment 4: NCC Balance Sheet (A1489864)

Attachment 5: Major Projects Report (A1486343)

Attachment 6: Interest Rate Position (A1482829)

Attachment 7: Debtors report (A793514)

Attachment 8: Rates Outstanding (A1489864)

Attachment 9: Royal visit costs Dec 2015 (A1498466)

Audit, Risk and Finance Subcommittee

18 February 2016

REPORT R5350

Letter to the Council on the audit for the year ending 30 June 2015

1. Purpose of Report

1.1 To provide the letter to the Council on the audit for the year ending 30 June 2015 from Audit NZ and advise on issues raised.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee have responsibility for the audit of Council’s Annual Report and annual accounts.

3. Recommendation

THAT the report Letter to the Council on the audit for the year ending 30 June 2015 (R5350) and its attachment (A1499499) be received.

Recommendation to Governance Committee and Council

THAT Council notes Audit NZ’s comments (A1499499) and how officers intend to address the issues raised.

4. Discussion

4.1 Audit New Zealand (Audit NZ) issued an unmodified audit opinion on 15 October 2015 for the financial year ending 30 June 2015. This means that it was satisfied that the financial statements fairly reflected Council’s activity for the year and its financial position at the end of the financial year.

4.2 After the audit is completed, Audit NZ issue a management letter to Council outlining the findings of the audit.

4.3 In the letter to Council issued on 22 January 2016 (Attachment 1) a number of issues were raised. This report provides an explanation of the issues and how they will be addressed by officers.

Council sub-committees

4.4 Audit NZ note the forming of the Audit, Risk and Finance (ARF) and Commercial subcommittee and that Terms of Reference are being developed for the ARF subcommittee. These are due to go to the Governance Committee 10 March 2016 for approval.

Infrastructure asset valuations

4.5 Audit NZ noted in the letter to Council the large revaluation in the 2014 Annual Report and the subsequent change to the methodology used by Council in 2015 for indexing (Council carries out a full revaluation of infrastructure assets every second year with indexing in the intervening year). Officers intend to continue to use the new methodology for indexing, the next instance of which will be in the 2016/17 Annual Report.

Suter redevelopment

4.6 Audit NZ noted in the letter to Council that Council is treating the Suter redevelopment as capital work in progress with the intention of treating the Council $6 million contribution as a capital injection at completion of the project. Council is funding the first $6million of the project and is Engineer to the Contract.

4.7 Officers have subsequently met with Suter representatives and agreed the asset transfer will occur at the completion of the project. This will be treated as a capital injection (increase in investment) from Council’s perspective and an increase in equity by the Suter.

Performance measure rules

4.8 Asset managers had developed measures that collected the data required by the new mandatory performance measures set by the Department of Internal Affairs (DIA) but worded to reflect the Nelson situation. Audit has since indicated that it would like the exact wording of the measures as set out by DIA to be used so those measures will therefore be amended in the 2016/17 Annual Plan.

Residents survey

4.9 Experience has shown that running a full residents survey every year is not a good use of resources as results do not vary greatly and so the process was not providing new insights. A new approach was introduced which would have a full residents survey every three years with smaller short surveys in interim years. This would allow gathering of data for all measures once during the period of the Long Term Plan.

4.10 Audit considers the data should be gathered annually. At this stage it is proposed to revert to that process. Officers are working on a survey to be undertaken in May. Longer term, a review of measures and sources of data will be undertaken.

Supplementary letter

4.11 Audit NZ notes the matters raised in the supplementary letter to management. The Chief Executive accepts these comments and will address these matters prior to the 2015/16 Annual Report.

5. Options

5.1 That the Subcommittee note the matters raised in the Letter to the Council on the audit of Nelson City Council for the year ending 30 June 2015 and the manner in which officers propose to address them.

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.

10. Conclusion

10.1 Audit NZ issued an unmodified audit opinion on 15 October 2015 for the Annual Report for the year ending 30 June 2015. This means that they were satisfied that the financial statements fairly reflected Council’s activity for the year and its financial position at the end of the year.

Nikki Harrison

Group Manager Corporate Services

Attachments

Attachment 1: A1499499 - Letter to the Council on the Audit of NCC for the Year ended 30 June 2015 - redacted

Audit, Risk and Finance Subcommittee

18 February 2016

REPORT R5395

Council's Key Organisational Risk Progress Report

1. Purpose of Report

1.1 To update the Subcommittee on the Council’s risk report for key organisational risk issues.

2. Delegations

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

3. Recommendation

THAT the Council's Key Organisational Risk Progress Report (R5395) and its attachment (A1461881) be received.

4. Background

4.1 In 2014, Council developed a high level risk register through a series of workshops and working groups with Councillors and appointed members of the Audit, Risk and Finance Subcommittee. This was a top down view of the strategic and operational risks facing Council.

4.2 During October and November 2015, a series of broad brush business unit risk assessments were conducted with key members from each Council business unit for the development of a whole of organisation risk register.

4.3 From these risk assessments and that of other risk registers already in existence at Council, the key risk issues have been identified and compiled into a specific risk report for the Subcommittee.

4.4 This will enable the Subcommittee to be informed about the top risk issues for Council, that each key risk issue is assigned a risk owner, provide details for what’s in place to manage each risk issue and what is being planned to further reduce the risk to a level as low as reasonably practicable (ALARP) where possible.

5. Discussion

5.1 The Risk Management Framework was approved at the Audit, Risk and Finance Subcommittee meeting on 14 October 2015.

5.2 Since then, the Organisational Assurance business unit has been working with business units to develop a ‘bottom up’ view of the risks facing the Council. This has been integrated with the work done in 2014. Attached as attachment 1 are the top 10 risks for Council identified through this process.

5.3 Each Council business unit now has a specific risk register in place. Responsibility has been assigned to Group Managers and Business Unit Managers to ensure that these registers are kept current and that any significant change to their controlled activities is assessed and reflected within the register. Where this represents a significant risk to Council, this shall be reported through to the Organisational Assurance business unit for validation and inclusion in this reporting.

5.4 The Risk and Procurement Analyst role has been filled and is expected to commence mid February 2016. Following further validation on the key risk issues identified to date, it is expected that the internal audit programme will be aligned with a risk based approach to ensure appropriate oversight on key risk controls as appropriate.

5.5 With increased event reporting across Council also being targeted, oversight will be conducted by the Organisational Assurance business unit to identify any emerging risks and monitor for signs of weaknesses in existing controls for new and existing risk issues.

6. Options

6.1 Accept the recommendation – receive Council’s Key Organisational Risk Progress Report.

6.2 Reject the recommendation – not receive Council’s Key Organisational Risk Progress Report.

7. Alignment with relevant Council policy

7.1 Understanding the risks that Council faces and the mitigations that are in place or that should be considered, allows Council to consider the impacts on Council’s strategic documents, particularly the Long Term Plan or Annual Plan.

7.2 This report is in alignment with the Council’s Risk Management Framework approved in 2015.

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 preparation of this report.

10. Inclusion of Māori in the decision making process

10.1 There has been no consultation with Maori in the preparation of this report.

Nikki Harrison

Group Manager Corporate Services

Attachments

Attachment 1: A1461881 - DRAFT Key Organisational Risks Report - Jan 2016

Audit, Risk and Finance Subcommittee

18 February 2016

REPORT R5452

Internal Audit Report to 31 December 2015

1. Purpose of Report

1.1 To update the Subcommittee on the Internal Audit activity relative to the Internal Audit Plan to 30 June 2016, and to provide information on significant or high risks identified from audits completed to 31 December 2015.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee have oversight of the internal audit activity.

3. Recommendation

THAT the Internal Audit Report to 31 December 2015 (R5452) and its attachments (A1485806 and A1498101) be received.

Recommendation to Governance Committee and Council

THAT Council note the internal audit findings, recommendations and status of action plans up to 31 December 2015 (R5452).

4. Background

4.1 The Audit, Risk & Finance Subcommittee require a periodic update on the progress of internal audit activities relative to the Internal Audit Plan to 30 June 2016 and to be informed of any significant risk exposures and control issues identified from internal audits completed.

5. Discussion

5.1 The Internal Audit Charter was approved by the Audit, Risk & Finance Subcommittee on 12 November 2015.

5.1.1 Under section 9.4, the Charter requires that the Internal Audit & Procurement Analyst report periodically to the Senior Leadership Team and Audit, Risk & Finance Subcommittee on performance relative to the Internal Audit Plan. A table summarising activity against the workplace is attached.

5.1.2 Under section 9.1 of the Charter, the Audit, Risk & Finance and the Governance Committees are to be informed of internal audit results where appropriate.

5.2 To strike the right balance between significant findings and minor recommendations, it is proposed to report significant and high findings to the Subcommittee.

5.3 In December, the Senior Leadership Team requested an internal audit of the York Valley landfill weighbridge following concerns about a potential discrepancy in revenue. No significant issues were identified but 12 high issues were. The recommendations and status of action plans of those are included in attachment 2.

6. Options

6.1 The recommendation is to receive the report and note the internal audit findings, recommendations and status of action plans.

7. Alignment with relevant Council policy

7.1 This report is in alignment with the Council’s Internal Audit Charter approved in 2015.

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 preparation of this report.

10. Inclusion of Māori in the decision making process

10.1 There has been no consultation with Maori in the preparation of this report.

Lynn Anderson

Internal Audit Analyst

Attachments

Attachment 1: A1485806 - Internal Audit Report to 31 December 2015

Attachment 2: A1498101 - Summary of Significant Risk Exposures and Controls

Audit Plan – All Audits planned for Second Quarter to 31 December 2015	Audits Not Included in Audit Plan	Recommendations Agreed with Manager	In Progress	Findings Risk Ratings from Finalised, Approved Audits		Date Reviewed by SLT	Audits Proposed for February 2016
Electronic Purchase Orders – controls			Finalising report
IT Systems controls			In Progress
Segregation of Duties			In Progress
Payroll		Yes, Managers action plans to be completed by 17/2/16		Significant High Moderate Minor	0 0 21 18	Due 17/2/16
	York Valley Weighbridge operations review	Yes, and agreed actions entered in InControl		Significant High Moderate Minor	0 12 12 9	7/12/15
							Customer Service Centre (counter transactions)
							Accounts Payable – new suppliers
							Accounts Receivable – credit notes
							Insurance Renewals

*Note, Internal Audit Plan to 30 June 2016 approved by Audit, Risk & Finance 12 November 2015

Audit, Risk and Finance Subcommittee

18 February 2016

REPORT R4814

Extension of loan facility to the Melrose Society

1. Purpose of Report

1.1 To consider providing additional loan funding to the Colonel Noel Percy Adams Trust (Melrose) Society for refurbishment of toilets in Melrose House.

2. Delegations

2.1 The Audit, Risk and Finance Subcommittee has the responsibility to monitor Council’s financial and service performance and make recommendations to the Governance Committee and Council.

3. Recommendation

THAT the report Extension of loan facility to the Melrose Society (R4814) and its attachments (A1450076 and A1416892) be received.

Recommendation to Governance Committee and Council

THAT an interest free loan of $25,000 be made to the Melrose Society for the purpose of toilet refurbishment, subject to:

- the Society receiving a grant of $35,000 from the Rata Foundation for the same purpose;

- the designs being approved by the Property and Facilities Asset Manager;

AND THAT the loan is to be repaid in five annual instalments of $5000 commencing 20 January 2017.

4. Background

4.1 Melrose House is currently leased to the Melrose Society until 2018. The Society subleases part of the building as an apartment and café, and uses the income generated to maintain the interior of the house. Council is responsible for maintenance of the exterior.

4.2 The Society approached Council in 2011 seeking permission to refurbish the toilets in Melrose House. The current facilities are not in character with the house and are not adequate for the numbers of people using the house.

4.3 Having received approval from Council for the alterations, the Society has submitted a number of funding applications to raise the money required for the refurbishment. The total estimated cost is $70,000, and the Society has been allocated $35,000 by the Rata Foundation, conditional on the other $35,000 being secured. The Society’s other funding applications have been unsuccessful.

4.4 The Society has indicated that it would be prepared to put up to $10,000 of its own money into the project, although it would prefer this to be $5,000. The Society gets income of around $26,641 each year from the subleases and is also reimbursed expenses (power etc) by the tenant. It has therefore requested a maximum loan of $30,000 from Council (Attachment 1).

4.5 In its 2010-11 Annual Plan Council decided to extend a loan to the Society of $25,000 towards the heating system in the house. The final repayment of that loan ($5000) was made in January 2016.

4.6 A copy of the Society’s most recent accounts (for year ending 31 December 2014) is attached for information (A1416892).

5. Discussion

5.1 The Society is in good health, with a healthy balance sheet and a diverse governance group. It has successfully paid off $20,000 of its initial loan from Council and has secured $35,000 of grant funding towards the toilet refurbishment costs.

5.2 The Society needs to draw down the Rata Foundation grant by August 2016. If it waited until the Annual Plan, it would not have time to make alternative arrangements if Council chooses not to provide funding. Instead it has asked Council to make a decision now in order to give some clarity over what the next steps for the Society should be.

5.3 The Society has indicated that if Council approves a loan that it would make a submission through the Annual Plan 2016/17 for the loan to be converted into a grant. It is recommended that Council consider that request alongside any other funding requests received from the community when making decisions on the Annual Plan rather than making a decision on that request now.

5.4 Council, as building owner, needs to be satisfied that the final designs for any upgrades to the House are approved by the Property and Facilities Asset Manage.

6. Options

6.1 Council could choose to extend a loan to the Society, which has requested $30,000. Officers recommend that $25,000 be allocated based on the previous precedent in relation to providing a loan for the heating for Melrose and as the Society is able to afford to contribute $10,000 from its own reserves to the project.

6.2 Council could offer to provide a grant to the Society of up to $35,000. The Society has not requested that at this time, and that any such funding would be unbudgeted. Officers do not recommend this option as responsibility for the interior maintenance sits with the Society. It should be noted that the Society has indicated that, it may request grant funding through the Annual Plan 2016/17 process.

6.3 Council could choose to decline the loan request. This may result in the loss of the Rata Foundation grant, which requires match funding to be in place. This option is not recommended.

7. Alignment with relevant Council policy

7.1 There is no funding in the Long Term Plan for this work.

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 making these recommendations, other than with the Melrose Society.

10. Inclusion of Māori in the decision making process

10.1 Maori have not been consulted on in making these recommendations.

Chris Ward

Group Manager Community Services

Attachments

Attachment 1: A1450076 - Request for loan from Melrose Society October 2015