Agenda of Audit, Risk and Finance Subcommittee

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

4 August 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

5. Confirmation of Minutes

5.1 23 June 2016 7 - 14

Document number M1948

Recommendation

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 23 June 2016, be confirmed as a true and correct record.

6. Status Report - Audit, Risk and Finance Subcommittee - 4 August 2016 15 - 16

Document number R6356

Recommendation

THAT the Status Report Audit, Risk and Finance Subcommittee 4 August 2016 (R6356) and its attachment (A1324298) be received.

7. Chairperson's Report 17 - 21

Document number R6372

Recommendation

THAT the Chairperson's Report (R6372) and its attachment (A1592555) be received;

AND THAT the Audit, Risk and Finance Subcommittee annual self-review questionnaire (A1592555) be noted for completion by members of the Subcommittee, and members of the Governance Committee be invited to do the same;

AND THAT, in light of there being no further Audit, Risk and Finance Subcommittee meetings in the 2013-16 triennium, the officer report with responses to the questionnaire, and any recommendations for change, is referred to the Governance Committee for its meeting on 25 August 2016.

8. Council's Key Organisational Risks: Progress Report 22 - 38

Document number R6320

Recommendation

THAT the report Council's Key Organisational Risks: Progress Report (R6320) and its attachment (A1565520) be received.

9. Insurance renewal 2016/17 39 - 41

Document number R5648

Recommendation

THAT the report Insurance renewal 2016/17 (R5648) be received.

10. Corporate Report to 31 May 2016 42 - 59

Document number R6248

Recommendation

THAT the report Corporate Report to 31 May 2016 (R6248) and its attachments (A1575438, A1582911, A1592842 and A1563107) be received.

Recommendation to Governance Committee and Council

THAT unbudgeted expenditure of $50,000 be approved for engaging external resource to assist delivering the Internal Audit Plan 2016/17.

11. Bad Debts write offs for the year ending 30 June 2016 60 - 61

Document number R5510

Recommendation

THAT the report Bad Debts write offs for the year ending 30 June 2016 (R5510) be received.

12. Internal Audit Report to 30 June 2016 62 - 67

Document number R6205

Recommendation

Receive the report Internal Audit Report to 30 June 2016 (R6205) and its attachment (A1575455).

Recommendation to Governance Committee and Council

Note the internal audit findings, recommendations and status of action plans up to 30 June 2016 as detailed in report R6205.

Public Excluded Business

13. 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	Summary of New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits	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)(j) To prevent the disclosure or use of official information for improper gain or improper advantage

Item

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

Particular interests protected (where applicable)

Summary of New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits

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)(j)

To prevent the disclosure or use of official information for improper gain or improper advantage

14. 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 the Council Chamber, Civic House, 110 Trafalgar Street, Nelson

On Thursday 23 June 2016, commencing at 1.04pm

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

In Attendance: Councillors E Davy, P Matheson, G Noonan and P Rainey, and Chief Executive (C Hadley), Group Manager Infrastructure (A Louverdis), Group Manager Strategy and Environment (C Barton), Group Manager Community Services (C Ward), Group Manager Corporate Services (N Harrison), Senior Accountant (T Hughes), Internal Audit Analyst (L Anderson), Risk and Procurement Analyst (S Vaughan), Manager Capital Projects (S Davies) and Administration Adviser (L Halsall)

1. Apologies

The Chairperson said that Her Worship the Mayor had entered an apology, but was now able to attend the meeting.

There were no further apologies.

2. Confirmation of Order of Business

There were no changes 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 10 May 2016

Document number M1874, agenda pages 7 - 12 refer.

Resolved AUD/2016/041

THAT the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 10 May 2016, be confirmed as a true and correct record.

McGurk/Barker Carried

6. Chairperson's Report

Mr Peters noted that there was a requirement under the Charter that an annual review of the Subcommittee be undertaken and that it would be necessary to hold a discussion with council officers regarding the process to ensure this happened at the Subcommittee’s next meeting in August because this was the final meeting of the term.

Resolved AUD/2016/042

THAT the Chairperson’s Report be received.

Peters/McGurk Carried

7. Internal Audit Plan - 2016/17

Document number R4216, agenda pages 13 - 17 refer.

Internal Audit Analyst, Lynn Anderson presented the report. Ms Anderson said that there were 31 audits planned, and that she would undertake 16 audits, with the remainder split between consultants and expert staff. She reported that there had been a change to the internal audit procedure: extending the response time for corrective action for high risks found in audits to 10 working days.

In response to questions, Ms Anderson said that she believed she would be able to keep progress on track by having a very accurate scope and concentrating on primary risks, although by default some audits may get pushed out. She said suitable separation between officers and internal audit function was achieved by ensuring audits were undertaken by staff not involved in the work being audited and that she would review results.

Resolved AUD/2016/043

THAT the report Internal Audit Plan - 2016/17 (R4216) and its attachment (A1562649) be received;

AND THAT the Subcommittee note the changes in timeframes to the Internal Audit Procedure.

McGurk/Barker Carried

Recommendation to Governance Committee and Council AUD/2016/044

THAT the Internal Audit Plan 2016/17 (A1562649) be approved;

AND THAT it be noted there will be unbudgeted expenditure required, which will be reported for approval to the Audit, Risk and Finance Subcommittee through the Corporate Report once estimates have been confirmed.

Murray/Barker Carried

8. Accounting Policies

Document number R5504, agenda pages 18 - 34 refer.

Senior Accountant, Tracey Hughes, presented the report.

In response to questions, Group Manager Corporate Services, Nikki Harrison, explained that Council effectively had the delegation of approving accounting policies via the Annual Plan process.

Ms Harrison highlighted that Council did not revalue buildings for accounting purposes at present.

Resolved AUD/2016/045

THAT the report Accounting Policies (R5504) and its attachment (A1554702) be received;

AND THAT the Subcommittee notes the attached accounting policies will be included in the Annual Report 2015/16.

Murray/Barker Carried

9. Procurement Policy

Document number R5507, agenda pages 35 - 52 refer.

Risk and Procurement Analyst, Steve Vaughan, presented the report.

Mr Vaughan tabled a document summarising the key changes between the 2015 policy and the new 2016 one (A1571292).

In response to questions, Mr Vaughan said that “preferred supplier” arrangements involved having a contract, certain conditions and expected service performance, and that arrangements had been reviewed and approved by legal advisers.

In further response to questions, Mr Vaughan explained that the bandings relating to quotations had changed in the new policy; of particular note was the fact that there was now a lower figure below which Council was not required to obtain quotes.

Resolved AUD/2016/046

THAT the report Procurement Policy (R5507) and its attachment (A1540508 and A345448) be received.

McGurk/Murray Carried

Attachments

1 (A1571292) Tabled document, Procurement policy update: Key changes from old (2015) policy

Recommendation to Governance Committee and Council AUD/2016/047

THAT the revised Procurement Policy (A1540508) be adopted.

McGurk/Murray Carried

10. Employee Conflicts of Interest Policy

Document number R5918, agenda pages 53 - 58 refer.

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

Ms Harrison explained that historically employee conflicts of interest had been managed in an ad hoc way with records being kept by the Senior Leadership Team, Building Unit and Resource Consent Unit. She said the InControl system would be used to ensure all conflicts were recorded and reviewed, and that adequate controls were in place.

In response to questions, Ms Harrison said that the policy included both pecuniary and non-pecuniary interests, and there would be the ability to record ongoing and potential short term conflicts. She added that staff were asked relevant questions during the interview process and introduced to policies as part of the induction process.

Resolved AUD/2016/048

THAT the report Employee Conflicts of Interest Policy (R5918) and its attachment (A1288320) be received.

Barker/Her Worship the Mayor Carried

11. Theatre Royal Loan

Document number R6040, agenda pages 59 - 95 refer.

Resolved

THAT the report Theatre Royal Loan (R6040) and its attachments (A1135204, A912504, and A1145163) be received.

Her Worship the Mayor/Murray

In response to a question, Group Manager Corporate Services, Nikki Harrison, confirmed that the Theatre Royal Trust had provided audited accounts to Council’s Chief Financial Officer within three months of the Trust’s balance date.

In response to a question Chief Executive, Clare Hadley, said that the High Court Review found transfer of the asset not to be a barrier to proceeding, but that the proposition was put to one side because of issues relating to earthquake prone buildings at the School of Music.

Concerns were raised about the status of the loan and the fact that there had been no repayments received to date. There was a suggestion that it should be made clear whether it was a loan or a grant and what the Theatre’s financial sustainability was moving forward.

Attendance: The meeting adjourned from 2.32pm to 2.37pm.

Resolved AUD/2016/049

THAT a report of available options in relation to the Theatre Royal Loan is prepared for the Audit, Risk and Finance Subcommittee or its successor.

McGurk/Murray Carried

12. Interim audit letter for year ending 30 June 2016

Document number R6064, agenda pages 96 - 103 refer.

Group Manager Corporate Services, Nikki Harrison, and Bede Kearney, Audit Director at Audit New Zealand, presented the report.

Ms Harrison reported that the interim audit for the year end was completed in mid-April and a number of recommendations were made in relation to contract and project management.

Mr Kearney explained that the recommendations in relation to contract and project management were around moving towards having a more consistent approach across the organisation and that there were no major concerns. In relation to the audit of the more traditional financial and non-financial systems, he reported that overall they were designed appropriately and were operating well.

In response to a question, Ms Harrison said that Council was looking at a purchasing a centralised system for recording and monitoring contracts.

Resolved AUD/2016/050

THAT the report Interim audit letter for year ending 30 June 2016 (R6064) and its attachment (A1565622) be received;

AND THAT the suggested responses to the recommendations are noted.

Murray/Barker Carried

13. Capital Projects Carry Forwards 2015/16

Document number R5992, agenda pages 104 - 110 refer.

Senior Accountant, Tracey Hughes, and Manager Capital Projects, Shane Davies, presented the report.

In response to a question, Group Manager Infrastructure, Alec Louverdis, explained he was seeking a global resource consent for gravel extraction. Separately, he said a Code of Practice was being developed relating to working in streams, which would include consultation with iwi and possible inclusion in the Nelson Plan.

Attendance: Councillor Barker left the meeting at 2.54pm.

In response to the Subcommittee’s concern at the ongoing delay and the potential risk of flooding, Mr Davies said he would liaise with the operations team with a view to having the issue added to the capital team’s “traffic light” report so that progress would be clearly visible.

Resolved AUD/2016/051

THAT the report Capital Projects Carry Forwards 2015/16 (R5992) and its attachments (A1562956 and A1557401) be received.

Murray/McGurk Carried

Recommendation to Governance Committee and Council AUD/2016/052

THAT Council approves continuing work on 2015/16 capital projects within the 2015/16 approved budgets, noting a final report on carry forwards will come to the Governance Committee’s meeting on 25 August 2016.

Murray/McGurk Carried

14. Operating Expenditure Carry Forwards 2015/16

Document number R6071, agenda pages 111 - 116 refer.

Senior Accountant, Tracey Hughes, and Manager Capital Projects, Shane Davies, presented the report.

Resolved AUD/2016/053

THAT the report Operating Expenditure Carry Forwards 2015/16 (R6071) and its attachment (A1557519) be received.

Murray/McGurk Carried

Recommendation to Governance Committee and Council AUD/2016/054

THAT Council approves continuing work on 2015/16 operating projects within the 2015/16 approved budgets, noting a final report on carry forwards will come to the Governance Committee’s meeting on 25 August 2016.

Murray/McGurk Carried

15. Corporate Report to 30 April 2016

Document number R5998, agenda pages 117 - 130 refer.

Senior Accountant, Tracey Hughes, and Manager Capital Projects, Shane Davies, presented the report.

Attendance: Councillor Barker returned to the meeting at 3.00pm.

Ms Hughes said the Subcommittee should note that because of the timing of its final meeting the delegations in respect of the draft Annual Report and final carry forwards report would need to be transferred to the Governance Committee.

In response to a question, Ms Hughes said that the $104,000 in relation to the book fair was not a sum owing to Council. She confirmed that Founders ran the event, and the money raised went to Founders.

In response to a question, Mr Davies said he believed Council would meet the KPI on capital expenditure.

Resolved AUD/2016/055

THAT the report Corporate Report to 30 April 2016 (R5998) and its attachments (A1557787 and A1563107) be received;

AND THAT the Audit, Risk and Finance Subcommittee refer to the Governance Committee its delegation for the review of the draft Annual Report and the 2015/16 Carry Forwards Report.

McGurk/Barker Carried

There being no further business the meeting ended at 3.05pm.

Confirmed as a correct record of proceedings:

Chairperson Date

Audit, Risk and Finance Subcommittee

4 August 2016

REPORT R6320

Council's Key Organisational Risks: Progress Report

1. Purpose of Report

1.1 To update the subcommittee on progress with identifying and managing key risks to the organisation’s objectives.

2. Delegations

2.1 The Audit Risk and Finance Subcommittee has oversight of the Council’s management of risk.

3. Recommendation

THAT the report Council's Key Organisational Risks: Progress Report (R6320) and its attachment (A1565520) be received.

4. Background

4.1 At its meeting on 10 May 2016 the subcommittee considered and received the second progress report on the Council’s key organisational risks. This report was developed from updates of a series of broad brush business unit risk assessments conducted during the last quarter of 2015. That update included working with each business unit to develop objectives for risk management which are, as far as possible, specific, measurable and achievable within a defined timeframe.

4.2 At the time of writing, these objectives and a consistent set of techniques for assessing risks have been largely put in place. Work is continuing to improve the criteria for assessing risks and to develop the organisation’s tools for assessing and managing risks. In addition the Council continues to put in place controls to reduce risks described in the attached update.

5. Update of controls

5.1 Since the last report controls to manage risks in the following key risk areas have been improved or further developed:

Key risk area	Controls updated since last report
1. Difficulty maintaining lifeline services in the face of natural hazard and similar events	Earthquake resistance improvements to Civic House complete Earthquake prone buildings legislation passed and being implemented
2. Customer aggression threatening health and safety	Tracking technology in place including for council vehicles
3. Reputational damage from negative media exposure	Employee Conflict of interest policy completed and being rolled out
5. Ineffective contracts and management of contractors compromising council service performance	Revised procurement policy approved Improved council originated contract templates being developed
6. IT failure impacts on service delivery	Further removal of bespoke systems
7. Incomplete and difficult to access records compromise decision making and public services	Rationalisation of offsite records and improved understanding of contents of records stored off site (contract in progress)
9. Fraud corruption or theft reduces Council capacity to deliver work programme	Audit findings being used to improve systems and procedures

6. Emerging key risk area

6.1 Since the last report we have identified one area of risk which may become a key risk for Council. This cannot yet be ranked as a key risk as there is not sufficient information to do so. The risk is that a major adverse event may either deny access to Civic House or prevent sufficient staff being available to adequately direct responses to the event and /or provide services required in the short term. Exercises and testing are planned to further clarify this risk.

7. Options

7.1 Accept the recommendation – receive the Key Organisational Risks Progress Report.

7.2 Reject the recommendation – do not receive the Key Organisational Risks Progress Report.

8. Alignment with relevant Council policy

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

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

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

10. Consultation

10.1 No external consultation has been undertaken in the preparation of this report although information from the Council’s developing risk management systems has been used in preparing it.

11. Inclusion of Māori in the decision making process

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

Steve Vaughan

Risk & Procurement Analyst

Attachments

Attachment 1: (A1565529) Progress report 3: Council's key organisational risks

Audit, Risk and Finance Subcommittee

4 August 2016

REPORT R5648

Insurance renewal 2016/17

1. Purpose of Report

1.1 To update the subcommittee on the 2016/17 insurance renewal.

2. Delegations

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

3. Recommendation

THAT the report Insurance renewal 2016/17 (R5648) be received.

4. Background

4.1 Top of the South Collective

4.2 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.

4.3 Local Authority Protection Programme

4.4 Separately, Council is a member in the Local Authority Protection Programme (LAPP) scheme which is a mutual scheme whose membership consists of 32 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 $719 million of infrastructure assets covered by the Local Authority Protection Programme ($696m 2015/16).

5. Discussion

Top of the South Collective

5.1 Material Damage premiums have decreased by $48,000 (8%) for 2016/17. The Standard & Poor’s Claims paying ability rating of the insurers continue to be A (strong) and above.

5.2 Changes to the insurance policies include:

5.2.1 With the softening in the reinsurance market Council has seen also an increase in some of the Material damage and Business Interruption sub-limits in the policies.

5.2.2 Motor vehicles – previously the policy operated with a burning cost adjustment ie the insurer estimates the premium for the year but it is adjusted at the end of the year retrospectively, depending on the number and size of claims. The Top of the South group have decided to move to a fixed price to provide some certainty for budgeting purposes.

5.2.3 Public Liability – The Waimea Rural Fire Committee (WRFC) after taking advice, have determined that they are very unlikely to ever call on their Forest and Rural Fire Act insurance cover, as they have a number of ways to recover costs under legislation including levying stakeholders such as Council. They have advised stakeholders of their intentions to cease holding this cover. This will avoid the current situation where stakeholders are effectively paying twice for insurance (ie, as stakeholders and via WRFC). WRFC also requested Council check their limit to ensure it is sufficient. Officers have increased the limit from $1m to $2m, which more fairly reflects the costs of fighting large fires. This has a cost of $3,500pa.

5.2.4 Statutory liability – the policy includes defence costs; the limit has been increased from $1m to $2m per claim due to the new Health and Safety Act (although fines under the Act can’t be insured, defence costs can). This has cost an additional $2,000pa which is covered by savings in the material damage premiums.

Local Authority Protection Plan

5.3 A report was brought to the 31 March 2016 Sub-committee discussing whether to exit from the LAPP scheme from 1 July 2016 and the appropriate level of cover required for Councils infrastructure assets. The decision was delegated to the Chair of the Governance Committee, the Mayor and the Chief Executive at the 5 May 2016 Council meeting and the decision was made that it was appropriate to stay with the LAPP scheme for the 2016/17 renewal.

5.4 A further decision needs to be made about whether the shared loss limit of $125m for LAPP is enough given the results of risk modelling work on Council's flood and earthquake risks using Tonkin and Taylor analysis and data on our infrastructure assets (including location and value).

5.5 A draft report has been received from Aon/Tonkin and Taylor on the earthquake loss estimate, however it is still being reviewed by Treasury, who commissioned the work on Councils behalf. The decision on the appropriate level of cover to purchase was also delegated to the Chair of the Governance Committee, the Mayor and the Chief Executive at the 5 May 2016 Council meeting and the decision will be made once the report is finalised.

Other matters

5.6 Treasury has not yet put out a consultation document on the current 40/60% cost sharing arrangement. This consultation document will include consideration of Central Government contributing a lower percentage for smaller more frequent events, introduction of risk management regulations etc.

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

4 August 2016

REPORT R6248

Corporate Report to 31 May 2016

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 11 months ending 31 May 2016 compared to the approved operating budget, and to highlight and explain any permanent and material variations.

2. Delegations

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

3. Recommendation

THAT the report Corporate Report to 31 May 2016 (R6248) and its attachments (A1575438, A1582911, A1592842 and A1563107) be received.

It is recommended that the Governance Committee and Council

THAT unbudgeted expenditure of $50,000 be approved for engaging external resource to assist delivering the Internal Audit Plan 2016/17.

4. Background

4.1 The financial reporting focuses on the 11 month performance compared with the year to date approved operating budget.

4.2 Unless otherwise indicated, all measures are against approved operating budget, which is LTP budget plus any carry forwards, plus or minus any other additions or changes as approved by Council throughout the year.

4.3 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.

5. Discussion

5.1 For the 11 months ending 31 May 2016, the activity surplus/deficits are $3.7 million favourable to budget.

5.2 Financial information provided in attachment 1 to this report are:

· A financial measures dashboard with information on rates revenue, operating revenue and expenditure, and capital revenue and expenditure. A new icon has been added to each applicable measure, indicating whether the variance is increasing or decreasing (arrows) and whether that trend is favourable or unfavourable (green or red).

· A grouping of more detailed graphs and commentary for operating income and expenditure. The first set of charts and the commentary is by category (as in the annual report) and highlights significant permanent differences and items of interest. Variances due to timing will not be itemised unless they become permanent. The second set of charts are by activity.

· A treasury measures dashboard with a compliance table (green = compliant), a forecast of the debt/revenue ratio for the year, and a graph showing debt levels over a rolling 12 month period.

· High level balance sheet.

· A debtor analysis graph over 12 months, clearly showing outstanding debt levels and patterns for major debt types along with a summary of general debtors > 3 months and over $10,000 and other debtors at risk.

· Two capital expenditure graphs – actual expenditure against operating budget for the financial year, and year to date expenditure against approved operating budget by activity.

5.3 Operating income and expenditure variances have decreased since the March report to this subcommittee. $3.0 million of the variance has been requested to be carried forward to 2016/17 to fund work that has been delayed. $1.5 million of that variance is loan-funded (grants for capital works).

5.4 Capital expenditure is $18.4 million under budget. Potential carry forwards of $14.3 million have been identified.

6. Guarantees

6.1 On the Audit Risk and Finance subcommittee work plan is an annual update on Council guarantees. These are disclosed in the Annual Report in the notes to the accounts.

6.2 Council is a guarantor of the New Zealand Local Government Funding Agency Limited (LGFA) along with 43 other local authorities. Council consulted on becoming a borrower and guarantor in the Long Term Plan 2012-22.

6.3 The LGFA was incorporated in December 2011 with the purpose of providing debt funding to local authorities in New Zealand. Standard and Poor’s have given the entity a credit rating of AA+ which is equal to the NZ Government sovereign rating.

6.4 Council is a guarantor of all of LGFA borrowings in the event of a council default. At 30 June 2016 the LGFA had borrowings totalling $6.490 billion (30 June 2015 $4.955 billion).

6.5 In a default event, each guarantor would be liable to pay a proportion of the amount owing. The proportion to be paid by each guarantor is set in relation to each guarantor’s rates income. The likelihood of a local authority borrower defaulting is extremely low and all of the borrowings by a local authority from the LGFA are secured by a rates charge. Attachment 2 provided by the LGFA shows the mitigations to NZ Councils facing financial distress and the cascade of impacts on the LGFA if this was to occur.

6.6 Council has been unable to determine a sufficiently reliable fair value for the guarantee and therefore does not recognise a liability.

6.7 There are no other guarantees given by Council.

7. Community Loans

7.1 On the Audit Risk and Finance subcommittee work plan is an annual update on Community Loans. These are disclosed at a high level in the Annual Report in the notes to the accounts. Attachment three shows the amounts outstanding at 30 June 2016.

8. Special housing areas

8.1 Council entered into a Housing Accord in June 2012 and considered eleven Proposed Special Housing Areas (including Bett Carpark) between December 2015 and March 2016. Of those, nine SHAs were gazetted. Costs associated with the work required to evaluate and report on those SHAs were low, primarily legal and met by existing budgets.

8.2 Council ran an Expressions of Interest and Request for Proposals process for Bett Carpark from March to May 2016. This process incurred legal, valuation, architectural and urban design consultant costs of $27,000 + GST which were met by the existing Property Asset Review budget. Further legal costs of up to $10,000 associated with the negotiation and signing of the sale and purchase agreement for Bett carpark will be met from the proceeds of the sale of the property.

8.3 In June and July 2017 Council received and reported on five other requests for additional SHAs, as well as amendments to the qualifying criteria for two existing SHAs. The work required to evaluate and report on those SHA’s incurred architectural design (used to demonstrate the permitted baseline), and legal costs associated with providing Council legal advice and for the preparation of Deeds. The need for this work was unanticipated and unbudgeted for. The costs to date associated with this work have totalled $17,310 + GST. This is expected to be the end of work required on establishing new SHAs as HASHA is repealed on 16 September 2016.

9. Internal audit costs

9.1 At the 23 June 2016 subcommittee meeting the Internal Audit Plan 2016/17 was approved. It was noted that there will be unbudgeted expenditure required to engage external resource to assist with completing the 2016/17 program. An estimate was to be brought for approval through the next Corporate Report. It has been estimated that a budget of $50,000 will be needed.

10. Rates rebates

10.1 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.

10.2 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.

10.3 For the 2015/16 year the maximum rebate was increased from $605 to $610 and the income abatement threshold was increased from $24,250 to $24,440. The amount of the rebate granted depends on the level of rates and household income as well as number of dependents.

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

10.5

Rating Year	2015/16	2014/15	2013/14
Number of approved rebate applications	1,942	2,007	2,061
Dollar value of rebates granted	$1,111,444	$1,116,324	$1,131,120
Maximum rates rebate	$610	$605	$595
Income abatement threshold	$24,440	$24,250	$23,870

11. Alignment with relevant Council policy

11.1 The financial reporting is prepared comparing current year performance against the year to date approved 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: Financial reporting attachments (A1575438)

Attachment 2: LGFA information on risk of financial distress (A1592842)

Attachment 3: Intermediary and interest free loans (A1582911)

Attachment 4: Major projects summary (A1563107)

Audit, Risk and Finance Subcommittee

4 August 2016

REPORT R5510

Bad Debts write offs for the year ending 30 June 2016

1. Purpose of Report

1.1 To inform the Subcommittee of the bad debts being written off for the year ending 30 June 2016.

2. Delegations

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

3. Recommendation

THAT the report Bad Debts write offs for the year ending 30 June 2016 (R5510) 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 2016.

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 $9,295 excluding GST. $6,383 for 28 separate debts for dog impounding fees and $2,020 for the Monster slide resource consent and water charges (Trill Productions Limited is in liquidation).

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. $9,052 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 2016 $	Write-off 2015 $
Over $2,500	-	-
Under $2,500	9,295	12,185
Cost for year	9,295	12,185

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 against the Council’s significance and engagement policy.

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

Nil

Audit, Risk and Finance Subcommittee

4 August 2016

REPORT R6205

Internal Audit Report to 30 June 2016

1. Purpose of Report

To update the Subcommittee on the Internal Audit activity relative to the Internal Audit Plan to 30 June 2016.

2. Recommendation

It is recommended that the Subcommittee

Receive the report Internal Audit Report to 30 June 2016 (R6205) and its attachment (A1575455).

It is recommended that the Governance Committee and Council

Note the internal audit findings, recommendations and status of action plans up to 30 June 2016 as detailed in report R6205.

3. Background

3.1 The Audit, Risk and 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.

3.2 The Internal Audit Charter was approved by the Audit, Risk & Finance Subcommittee on 12 November 2015 and on 23 June 2016 subsequently approved an increase in the response time for corrective action for high risks from 7 Days to 10 working days.

3.3 Under section 9.4, the Charter requires that the Internal Audit 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 is attached.

3.4 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.

4. Discussion

4.1 Audits shown on the attached Internal Audit Report to 30 June 2016 reflect those approved by Council and the Governance Committee for the Audit Plan to 30 June 2016 together with audits in the approved Audit Plan for the year ending 30 June 2017, due for completion in the month of July 2016.

The Audit Report includes audit objectives as requested by the Audit, Risk and Finance Subcommittee on 23 June 2016.

5. Options

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

Option 1: Accept the recommendation
Advantages	· Auditing helps identify areas of risk and supports reduction of them
Risks and Disadvantages	· There is a cost associated with the provision of auditing services
Option 2: Reject the recommendation
Advantages	· There would be no cost for the provision of auditing services
Risks and Disadvantages	· There is less identification and transparency of risks that Council may be exposed to

Lynn Anderson

Internal Audit Analyst

Attachments

Attachment 1: A1575455 - Internal Audit - Quarterly Report to 30 June 2016

Important considerations for decision making

1. Fit with Purpose of Local Government

The Council has chosen to undertake internal audits to help meet its purpose to meet the current and future needs of communities for good-quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost-effective for households and businesses.

2. Consistency with Community Outcomes and Council Policy

Internal auditing assists Council in the achievement of goals as set out in its strategic documents.

3. Risk

In general, auditing identifies areas of risk and supports reduction of them. Please refer to the attachment for identified risks for the areas which have been assessed.

4. Financial impact

The recommendation will not have any significant financial impact. Any financial impact identified through internal audit processes would be notified through appropriate channels or in future internal audit updates.

5. Degree of significance and level of engagement

This matter is of low significance because it does not affect the level of service provided by Council or the way in which services are delivered.

6. Inclusion of Māori in the decision making process

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

7. Delegations

The Audit Risk & Finance Subcommittee has the responsibility for the oversight of internal audit and the audit process. The Audit, Risk & Finance Subcommittee has the power to make a recommendation to the Governance Committee on this matter.

Audit Plan – All Audits on 30 June 2016	Audit Objective	Recommend-ations Agreed with Manager	Progress		Findings Risk Ratings from Finalised, Approved Audits		Date Reviewed by SLT	Audit Conclusion	Audits Proposed July 2016
Electronic Purchase Orders – controls	Audit effectiveness of existing controls for proper authorisation, maintenance and operation of the EPO and manual purchasing systems	Yes	Entered in InControl		Significant High Moderate Minor	0 0 21 18	20/6/16	The EPO has added layers of controls to purchasing however there are still areas for improvement such as better aligning the organisational business unit model to the EPO system’s authorisation configuration design. This would increase control of budgets by budget managers.
Segregation of Duties & IT Access	Audit the preventative, process and detective internal controls relating to segregation of duties, including access to MagiQ modules	Yes	Entered in InControl		Significant High Moderate Minor	0 0 6 6	4/7/16	There are some excellent IT controls in place, some of which exceed Audit NZ standards. Access controls for MagiQ were tested and will be tested periodically for the important control of segregation of duties (SoD). The development of clear guidelines to aid managers would ensure that SoD is considered before change is made to access permissions.
Cash Handling – Civic House	Audit the preventative, process and internal controls relating to collection, handling and processing of cash in the Customer Service Centre & Finance	Yes	Open Overdue (Actions - InControl)	20 9 (No overdue actions are high risk)	Significant High Moderate Minor	0 2 26 7	2/5/16	Cash handling controls are variable but in the areas where the largest volume of cash is collected there are many effective controls. Improvements primarily relate to cheque security, and increased awareness of risks relating to cash handling. Inadequate segregation of duties relating to low staffing at external sites will be addressed in separate audits.
Accounts Payable – new suppliers, master-file maintenance, GST validity	Audit processes and controls for requesting, setting up and verifying new suppliers (creditors), for the maintenance of the creditors’ master-file and for the validity of GST numbers provided	Yes	Entered in InControl		Significant High Moderate Minor	0 0 12 8	11/7/16	There is a system control to ensure GST numbers are legitimate – no creditors may be added unless the algorithm applies. However this does not of itself ensure the creditor is legitimate - improvements to new supplier due diligence testing, to the new supplier decision process, and other standard validations will enhance confidence in the purchasing process.
Founders Heritage Park – cash income (including separate Book Fair audit)	Ascertain whether retail stock and cash received is property managed, recorded and accounted for; correct calculations & commission payments for "tenant" sales		Book fair audit field work and draft report complete and with Group Managers; other cash revenue audit field work and reporting nearing completion						In progress
Privacy Act	Identify current practice through discussion and survey and report on non-compliance		Audit field work completed, report with Group Manager Corporate Services						In progress
Waahi Taakaro Golf Course (contractor)	Audit income recording and reporting controls		Scoping and audit plan development underway						Due 31 July
Liability Management Policy	Audit compliance in key areas (following discussions with Audit NZ)		Not yet started						Due 31 July
Investment Policy	Audit compliance in key areas (following discussions with Audit NZ)		Not yet started						Due 31 July