Agenda of Audit, Risk and Finance Subcommittee

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

18 May 2017

Page No.

1. Apologies

1.1 An apology has been received from Mr John Murray

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. Status Report - Audit Risk and Finance Subcommittee - 18 May 2017 7 - 9

Document number R7639

Recommendation

That the Subcommittee

Receives the Status Report Audit, Risk and Finance Subcommittee 18 May 2017 (R7639) and its attachment (A1753947).

6. Chairperson's Report 10 - 11

Document number R7716

Recommendation

That the Subcommittee

Receives the report Chairperson's Report (R7716).

7. Corporate Report to 31 March 2017 12 - 24

Document number R6998

Recommendation

That the Subcommittee

Receives the report Corporate Report to 31 March 2017 (R6998) and its attachments (A1750159 and A1753951).

8. Health and Safety: Quarterly Report 25 - 35

Document number R7023

Recommendation

That the Subcommittee

Receives the report Health and Safety: Quarterly Report (R7023) and its attachment (A1753457).

Recommendation to Council

That the Council

Notes the report Health and Safety Quarterly Report (R7023) and its attachment (A1753457); and

Confirms the assessment of critical health and safety risks contained in the attachment (A1753457).

9. Internal Audit Quarterly Report to 31 March 2017 36 - 46

Document number R7569

Recommendation

That the Subcommittee

Receives the report Internal Audit Quarterly Report to 31 March 2017 (R7569); and its attachment (A1747023).

Recommendation to Council

That the Council

Notes the report Internal Audit Quarterly Report (R7569) and its attachment (A1747023).

50. Service Delivery Review Quarterly Progress Update - May 2017 47 - 90

Document number R6910

Recommendation

That the Subcommittee

Receives the report Service Delivery Review Quarterly Progress Update - May 2017 (R6910) and its attachments (A1737008, A1732393, A1731928, A1731591, A1736351, A1642437, A1736093, A1732264 and A1753361); and

Notes the update on progress with the programme of s17A reviews.

61. Audit NZ - audit arrangement and engagement letters 91 - 129

Document number R7513

Recommendation

That the Subcommittee

Receives the report Audit NZ - audit arrangement and engagement letters (R7513); and attachments A1749598, A1749594 and A1752596; and

Notes the Subcommittee can provide feedback on the Audit Arrangement, Audit Engagement and Audit Proposal letters to Audit NZ if required, noting the Mayor will sign the letters once the Subcommittee’s feedback has been incorporated.

72. Tax Risk Governance Framework 130 - 139

Document number R7599

Recommendation

That the Subcommittee

Receives the report Tax Risk Governance Framework (R7599) and its attachment (A1750676).

Notes that a tax risk management strategy will be presented to a future meeting of this Subcommittee, and annual reporting against this framework will occur annually after the end of the tax year (31 March).

Recommendation to Council

That the Council

Adopts the Tax Risk Governance Framework (A1750676) with immediate effect.

(delete as appropriate)

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R7716

Chairperson's Report

1. Purpose of Report

1.1 To welcome members to the first Audit, Risk and Finance Subcommittee meeting for the 2016-2019 triennium.

2. Recommendation

That the Subcommittee

Receives the report Chairperson's Report (R7716).

3. Chairperson’s Report

3.1 Welcome to the first Audit Risk and Finance (ARF) Subcommittee meeting of the new Council term. I would like to express my appreciation at again being asked to chair it.

3.2 In the period since the Council elections a number of relevant reports have been considered by the Governance Committee. However, in my opinion, it has been a long gap for an organisation such as Nelson City Council to not have a formal Audit Risk and Finance committee in place.

3.3 Having said that I am pleased that this Council has decided that, in this term, the ARF Subcommittee should report directly to Council. I believe this reflects best practice, and provides a better opportunity for awareness and oversight by all Councillors, especially in such key areas as Health and Safety and Risk Management.

3.4 One of the early tasks for this Subcommittee will be to establish a workplan for this term. In October last year a letter recommending items of carry over to the incoming ARF Subcommittee, together with the results of a survey undertaken on the effectiveness of the Audit, Risk and Finance Subcommittee, were sent to the Chief Executive. I suggest that these documents might be a useful place to start on a workplan and, subject to the Members’ agreement, I will ask officers to commence suitable arrangements for the formulation of an appropriate workplan for this Subcommittee.

I look forward to working with you all.

John Peters

Chairperson - Audit, Risk and Finance Subcommittee

Attachments

Nil

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R6998

Corporate Report to 31 March 2017

1. Purpose of Report

1.1 To inform the members of the subcommittee of the financial results of activities for the 9 months ending 31 March 2017 compared to the approved operating budget, and to highlight and explain any permanent and material variations.

2. Recommendation

That the Subcommittee

Receives the report Corporate Report to 31 March 2017 (R6998) and its attachments (A1750159 and A1753951).

3. Background

3.1 The financial reporting focuses on the 9 month performance compared with the year to date approved operating budget.

3.2 Unless otherwise indicated, all measures are against approved operating budget, which is 2016/17 Annual Plan budget plus any carry forwards, plus or minus any other additions or changes as approved by Council throughout the year.

3.3 For the 2016/17 financial year, officers have assessed budgets and applied a range of phasing mechanisms to better reflect the timing of anticipated actual income and expenditure. This should enable clearer analysis of variances, and better highlight any real issues. Given that there are in excess of 3,500 budget lines, officers have concentrated effort on more material items so there will remain a (much smaller) element of timing differences.

4. Discussion

4.1 For the 9 months ending 31 March 2017, the activity surplus/deficits are $3.3 million favourable to budget. At this stage and at a high level, $1.6 million income and $111,000 expenditure are considered permanent favourable variances against approved budget.

4.2 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. The arrow icon in each applicable measure indicates whether the variance is increasing or decreasing 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 where available, and a graph showing debt levels over a rolling 13 month period.

· High level balance sheet. This does not include any consolidations.

· 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 approved budget for the financial year, and year to date expenditure against approved budget by activity.

· A major projects summary including milestones, status, issues and risks.

4.3 Capital expenditure is $10.6 million under approved budget, noting that $8-9 million of this variance is the subject of current exceptions reports (in process).

5. November 2016 earthquake costs update

5.1 A total of $87,145 has been incurred including staff time and overhead. Remaining work is expected to be in the region of $23,600. Quotes for this work have now been received. These costs will be met from unprogrammed maintenance budgets.

6. Options

6.1 Accept the recommendation. This report is to inform the subcommittee members, and no further actions are required.

6.2 Do not accept the recommendation.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: Financial information (A1750159) ⇩

Attachment 2: Major projects report (A1753951) ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

The Audit, Risk and Finance subcommittee receives an update on financial matters at each meeting to inform them of items of financial interest and potentially items of financial risk.

2. Consistency with Community Outcomes and Council Policy

The financial reports are prepared comparing current year performance against the year to date approved budget for 2016/17. Presentation of these reports support the community outcome “Our Council provides leadership and fosters partnerships, a regional perspective, and community engagement”.

3. Risk

The recommendation carries no risk as the report is for information only.

4. Financial impact

The recommendation has no financial impact.

5. Degree of significance and level of engagement

The recommendation is of low significance as there are no decisions to be made.

6. Inclusion of Māori in the decision making process

No consultation is required.

7. Delegations

The Audit Risk and Finance subcommittee has oversight of Council’s financial performance and the management of financial risks.

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R7023

Health and Safety: Quarterly Report

1. Purpose of Report

1.1 To provide the Subcommittee with a quarterly report of health and safety data collected over the first quarter of 2017, and an update on the health and safety work programme.

2. Recommendation

Recommendation

That the Subcommittee

Receives the report Health and Safety: Quarterly Report (R7023) and its attachment (A1753457).

Recommendation to Council

That the Council

Notes the report Health and Safety Quarterly Report (R7023) and its attachment (A1753457); and

Confirms the assessment of critical health and safety risks contained in the attachment (A1753457).

3. Background

3.1 Councillors, as ‘Officers’ under the Health and Safety at Work Act (HSWA) 2015, are expected to undertake due diligence on health and safety matters. Council’s Health and Safety Governance Charter states that quarterly performance data reports will be presented to Council.

4. Discussion

Quarterly health and safety data

4.1 Attached is a report outlining data on health and safety drawn from Council’s health and safety system. Changes have been made to the presentation of the data, which it is hoped will add detail and understanding. For example, following discussion on the previous Health and Safety Quarterly Report, detail has been added on security events at Council premises. Feedback is always welcome on the format of these reports.

4.2 The period under review includes an incident in the Council Chamber in which a member of the public vaulted the Council tables. This is being followed up as a health and safety event, and procedures for the Council Chamber are being reviewed. In the meantime, an interim procedure has been established to address security concerns at Council meetings. The issue of physical security continues to be rated as a High risk in the attached assessment.

General work programme

4.3 Governance activities: a number of Councillors participated in a visit to Corder Park and the Nelson Waste Water Treatment Plant. The visit helped to meet Councillors’ objective, set out in the Health and Safety Governance Charter, to make site visits in order to meet its due diligence obligations. A visit for Councillors to Stoke Green Meadows is proposed as the next Councillor site visit.

4.3.1 On 11 April 2017 Councillors took part in a Risk and Health and Safety Workshop, which incorporated an induction on Council’s health and safety framework and, in particular, Councillor obligations as Officers.

4.3.2 Other activities: An internal audit is currently being conducted as part of Council’s audit programme, looking at contractor management processes across a selection of Council contractors, and a number of larger projects.

4.3.3 Council is currently rolling out a programme for staff entitled ‘Wellbeing at Work’, led by the Health Action Trust. The programme focuses on promoting mental health in the workplace, and provides tools to develop organisations that are safe, productive and compliant in regard to mental health issues.

4.3.4 A review of Council’s Health and Safety Governance Charter is programmed for May and a review of the Health and Safety Strategic Plan is programmed for June, both to be reported to future meetings of the Audit, Risk and Finance Subcommittee.

5. Options

Option 1: Receive the report and its attachment
Advantages	· Council demonstrates positive due diligence in relation to health and safety matters in the Council workplace. This assists in meeting Councillors’ obligations as ‘Officers’ under the HSW Act 2015.
Risks and Disadvantages	· Receiving the report alone is not sufficient. Positive diligence (understanding, asking questions etc) is required.
Option 2: Decline to receive the report and its attachment
Advantages	· An advantage could not be identified.
Risks and Disadvantages	· Council will not be able to use this report to help demonstrate due diligence on health and safety matters.

Roger Ball

Manager Organisational Assurance and Emergency Management

Attachments

Attachment 1: A1753457 - HSMS - Quarterly Performance Data - Jan to Mar 2017 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

This report forms part of Council’s work to perform its regulatory functions. Council has an obligation under the Workplace Health and Safety Act 2015 because it is classed as a Person Conducting a Business or Undertaking (PCBU), and both Councillors and Council’s senior management have obligations as “Officers” under that Act.

2. Consistency with Community Outcomes and Council Policy

The recommendations align with the Community Outcome: Our communities are healthy, safe, inclusive and resilient.

3. Risk

This report aims to help Councillors meet their due diligence obligations as “Officers” under the Health and Safety at Work Act 2015. It is likely this objective will be achieved when combined with other actions outlined in Appendix 2 of Council’s Health and Safety Management System Governance Charter (A1394804). The likelihood of adverse consequences is assessed as low based on the current record of Council’s health and safety systems and our on-going monitoring of them. However the consequences for Council could still be significant if there were to be a serious harm incident to a Council worker, contractor or other person. These consequences could include harm to people, prosecution of the Council and/or its officers, financial penalties, and/or reputational damage.

4. Financial impact

There are no immediate budget implications arising from this report.

5. Degree of significance and level of engagement

This matter is of low significance because it is a quarterly progress report regarding the Council’s health and safety data, and no engagement is required.

6. Inclusion of Māori in the decision making process

Maori have not been consulted in the preparation of this report.

7. Delegations

The Audit, Risk and Finance Sub-Committee is delegated oversight of Health and Safety.

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R7569

Internal Audit Quarterly Report to 31 March 2017

1. Purpose of Report

1.1 To update the Subcommittee on the Internal Audit activity relative to audits included in the Internal Audit Plan to 31 March 2017.

2. Recommendation

That the Subcommittee

Receives the report Internal Audit Quarterly Report to 31 March 2017 (R7569); and its attachment (A1747023).

Recommendation to Council

That the Council

Notes the report Internal Audit Quarterly Report (R7569) and its attachment (A1747023).

3. Background

3.1 The Internal Audit Charter was approved by Council on 15 October 2015.

3.2 Under the Charter, the Audit, Risk and Finance Subcommittee requires a periodic update on the progress of internal audit activities relative to any current Internal Audit Plan approved by Council, and to be informed of any significant risk exposures and control issues identified from internal audits completed.

3.3 The Annual Internal Audit Plan relative to the year to 30 June 2017 was approved by Council on 28 July 2016.

4. Discussion

4.1 Progress on internal audits is reported in the attached table. This is for information only and reflects approved audits for the Annual Audit Plan to 30 June 2017 which were due for completion during the period from 1 January 2017 to 31 March 2017. Where an audit may have been reported as incomplete in prior periods, up to date information is provided.

4.2 The table separates and summarises approved audit activity into three groupings: a) external audits; b) internal audits - staff and internal audits and c) internal audits.

5. Options

5.1 The recommendation is to receive the report and its attachments outlining progress of internal audits included in the Annual Audit Plan to 30 June 2017 so that Council can demonstrate its commitment to improving controls and practices that ensure the prudent, effective and efficient management of Council resources. No advantage could be identified from rejecting this report and its attachment.

Lynn Anderson

Internal Audit Analyst

Attachments

Attachment 1: A1747023 - Internal Audit - Quarterly Report to 31 March 2017 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Council has chosen to undertake internal audits to help improve systems, their controls and efficiencies, in order to help give confidence that it will be able to meet its responsibilities cost-effectively and efficiently.

2. Consistency with Community Outcomes and Council Policy

This report supports the community outcome that Council provides leadership, which includes the responsibility for protecting finances and assets through the minimisation of fraud, consistent with guidance provided in Council’s Fraud Prevention Policy.

3. Risk

There is more risk that Council may not meet its responsibilities cost-effectively and efficiently if this recommendation is not accepted.

4. Financial impact

The recommendation will not have any significant financial impact.

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 and no engagement has been undertaken.

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 and Finance Subcommittee has responsibility for audit processes and management of financial risks. The Audit, Risk and Finance Subcommittee has the power to make a recommendation to Council on this matter.

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R6910

Service Delivery Review Quarterly Progress Update - May 2017

1. Purpose of Report

1.1 To receive a quarterly report on progress under section 17A Local Government service delivery reviews.

2. Summary

2.1 Changes to the Local Government Act 2002 (LGA) saw the introduction of new requirements under section 17A to review the cost-effectiveness of current arrangements for meeting the needs of communities within its district or region for good quality local infrastructure, local public services, and performance of regulatory functions.

2.2 The LGA has a transitional provision that requires all services to be reviewed by 8 August 2017.

2.3 These quarterly reports are brought to the Committee in order for it to have oversight of the progress with reviews undertaken.

3. Recommendation

That the Subcommittee

Receives the report Service Delivery Review Quarterly Progress Update - May 2017 (R6910) and its attachments (A1737008, A1732393, A1731928, A1731591, A1736351, A1642437, A1736093, A1732264 and A1753361); and

Notes the update on progress with the programme of s17A reviews.

4. Background

4.1 Section 17A service delivery reviews seek to determine whether cost effectiveness gains can be made by adopting an alternative funding, governance or service delivery option by considering a variety of arrangements including having services delivered by a council controlled organisation, or by another local authority or other party.

4.2 Reviews must be undertaken;

· In conjunction with the consideration of any significant change to service levels

· Within two years before the expiry of any legislation, contract or other binding agreement affecting the service

· No later than six years after any previous review

4.3 A review need not be undertaken if;

· Delivery is governed by legislation, contract or other binding agreement that cannot be reasonably altered in the next two years

· The benefits to be gained do not justify the cost of the review

5. Discussion

Progress update

5.1 In November 2015 Council agreed to the approach staff would take to addressing the new requirement for s17A reviews. This included a schedule of review areas, template and timeline.

5.2 The scheduled timeline for reviews is flexible, and the need for additional reviews, or amalgamation of existing review areas continues to be considered on a case by case basis.

5.3 Reviews either come as part of a larger piece of work through the relevant committee or are attached to these progress reports. Eighteen reviews have been presented to Council previously. A further ten reviews are included with this report.

5.4 Officers have sought feedback from other councils across New Zealand as to their progress on s17A reviews. Feedback received indicates that Nelson City Council is in a similar position to other councils. None of the councils responding were expecting to achieve 100% compliance by August except where large parts of the work programme had been exempted from review.

5.5 Given the current rate of progress officers consider it likely that Nelson City Council will not achieve the deadline of 8 August 2017. At the 1 December 2016 Governance Committee meeting it was indicated that achieving the August deadline should be prioritised and that officers should bring a report requesting extra resources to enable this.

5.6 Should the Committee wish to complete the review schedule by the statutory deadline of August 2017 additional resourcing will be required and delays to other work will be experienced. It is estimated the extra resources needed would cost up to $23,000. There would also be delays to other work so that officers could prioritise s17A reviews. In the infrastructure group, where most reviews are scheduled, this is expected to affect development of asset management plans and other work contributing to the Long Term Plan, including the Infrastructure Strategy, and input to and work flowing from the 2017/18 Annual Plan.

5.7 Officers recommend the current process continues as to accelerate the programme of reviews will cause delays in higher priority projects and require extra funding for little return to ratepayers. Outsourcing of reviews to an external contractor would also lead to a loss of institutional knowledge about the review process which would be unfortunate given they are to be a regular part of the work programme in the future. This approach would not be in line with the intent of the legislation to encourage greater efficiency and cost saving within local authorities.

5.8 Progress to date of s17A service delivery reviews is highlighted below:

5.9 Reviews that have been undertaken since the previous report are noted in the table below:

Service	Outcome
Saxton Field Governance	Establish a joint committee in conjunction with Tasman District Council
Utilities	Continue with Council governance, funding and delivery
Suter Gallery	Continue with Council governance and funding and delivery by a CCO
Tasman Bays Heritage Trust and Nelson Museum	Continue with joint governance and funding in collaboration with Tasman District Council and delivery by a CCO
Economic Services	Continue with Council governance, funding and delivery by a CCO
Natureland	Continue with funding with governance and delivery by an external provider.
Port Nelson	Continue with joint governance in collaboration with Tasman District Council and delivery by CCTO
Nelson Airport	Continue with joint governance in collaboration with Tasman District Council and delivery by CCTO
Libraries	Continue with Council governance, funding and delivery
Building Consents and Building Inspection Services	Continue with Council governance, funding and delivery

5.10 Reviews that have not already been before Council are attached.

6. Conclusion

6.1 It is recommended the Committee note the progress towards completion of the first round of s17A reviews.

Gabrielle Thorpe

Policy Adviser

Attachments

Attachment 1: A1737008 - s17A Service Delivery Review - Utilities ⇩

Attachment 2: A1736093 - s17A Service Delivery Review - Nelson Airport ⇩

Attachment 3: A1736351 - s17A Service Delivery Review - Port Nelson ⇩

Attachment 4: A1732393 - s17A Service Delivery Review - Suter Gallery ⇩

Attachment 5: A1731928 - s17A Service Delivery Review - Regional Museum ⇩

Attachment 6: A1731591 - s17A Service Delivery Review - Economic Services ⇩

Attachment 7: A1732264 - s17A Service Delivery Review - Natureland ⇩

Attachment 8: A1753361 - s17A Service Delivery Review - Libraries ⇩

Attachment 9: A1642437 - s17A Service Delivery Review - Building Consent Authority and Territorial Authority functions ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Section 17A service delivery reviews are a statutory requirement of the LGA 2002.

2. Consistency with Community Outcomes and Council Policy

The service delivery review process aligns with Council’s due diligence obligations and regular reviews of contract performance that are part of business as usual. This work also supports the following Community Outcomes:

- That our infrastructure is efficient, cost effective and meets current and future needs

- Our Council provides leadership and fosters partnerships, a regional perspective and community engagement

3. Risk

It is likely that the scheduled reviews will not be completed by the statutory deadline of 8 August 2017 without additional resourcing. This is considered a low risk outcome and there is no penalty if a territorial authority does not achieve the deadline. Elevating the completion of reviews to a priority will result in delays to other higher priority work.

4. Financial impact

The process of reviewing service delivery functions may bring cost savings in some areas. Staff resources required to complete reviews are currently within existing budgets. Additional resourcing of up to $23,000 unbudgeted operational expenditure will be required to achieve the statutory deadline of 8 August 2017.

5. Degree of significance and level of engagement

This quarterly update is of low significance and no community engagement has been undertaken.

6. Inclusion of Māori in the decision making process

Māori have not been consulted in preparation of this report.

7. Delegations

The Audit, Risk and Finance Committee has the responsibility for the Council’s financial and service performance. The Audit, Risk and Finance Committee has the power to make a recommendation to Council on this matter.

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R7513

Audit NZ - audit arrangement and engagement letters

1. Purpose of Report

1.1 To provide the subcommittee with the Audit Arrangement Letter for the year ending 30 June 2017 and ask for any feedback before the letter is signed by the Mayor.

1.2 To provide the subcommittee with the Audit Engagement and Audit Proposal Letters for the years ending 30 June 2017, 2018 and 2019 and ask for any feedback before the letters are signed by the Mayor.

2. Recommendation

That the Subcommittee

Receives the report Audit NZ - audit arrangement and engagement letters (R7513); and attachments A1749598, A1749594 and A1752596; and

3. Discussion

3.1 The Audit Arrangement letter for the year ended 30 June 2017 (Attachment 1) sets out the proposed arrangements for the 2016/17 audit of the Council, including Nelson Tasman Combined Civil Defence Organisation.

3.2 The audit arrangement letter sets out the proposed arrangements for this year’s audit. These include:

3.2.1 Business risks/issues and the audit response

3.2.2 Areas of interest for all local authorities; and

3.2.3 Logistics and professional fees.

3.3 There is a separate audit arrangement letter for the debenture trust deed but this is not yet available from Audit NZ and will be brought to a future subcommittee meeting.

3.4 The Audit Engagement letter (Attachment 2) covers the years 30 June 2017, 2018 and 2019 and sets out the terms of the audit engagement and the respective responsibilities of the council and Audit NZ.

3.5 The Audit Proposal letter sets out the proposed audit fees and audit hours covering the years 30 June 2017, 2018 and 2019 agreed with the Office of the Auditor General (Attachment 3). Section 6.1 and 6.2 of this letter outline the reasons for the proposed increase in the audit fees.

3.6 Bede Kearney, the appointed auditor, will be in attendance at this subcommittee meeting to answer any questions that may arise.

3.7 These letters are required to be signed by the Mayor to confirm that the details of the audit match Council’s understanding of the arrangements.

4. Options

4.1 The options are to provide feedback to Audit NZ prior to the Mayor signing the letters or not.

Nikki Harrison

Group Manager Corporate Services

Attachments

Attachment 1: A1749598 - Audit NZ - Audit arrangement letter - Audit for year ending 30 June 2017 ⇩

Attachment 2: A1749594 - Audit NZ - Audit Engagement Letter 2017, 2018, 2019 ⇩

Attachment 3: A1752596 - Audit NZ - Proposal to conduct audit of NCC and controlled entities 2017, 2018, 2019 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Section 99 of the Local Government Act 2002 requires the audit of information contained in the Annual Report and Summary.

2. Consistency with Community Outcomes and Council Policy

This report supports the community outcome that Council provides infrastructure that is efficient, cost effective and meets current and future needs of our community.

3. Risk

There is no risk in approving this recommendation.

4. Financial impact

The recommendation will not have any significant financial impact.

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 and no engagement has been undertaken.

6. Inclusion of Māori in the decision making process

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

7. Delegations

Audit, Risk and Finance Subcommittee

18 May 2017

REPORT R7599

Tax Risk Governance Framework

1. Purpose of Report

1.1 To adopt the Tax Risk Governance Framework as the guiding document in relation to tax governance within Council.

2. Summary

2.1 Council’s payments to the Inland Revenue (IRD) are in the region of $9 million per annum and a degree of formal governance oversight is therefore desirable.

2.2 The IRD and Council’s tax advisors (PriceWaterhouseCoopers (PWC)) recommend the adoption of a tax control framework supported by a tax risk management strategy and regular reporting at a governance level.

2.3 The transparency, discipline and oversight resulting from the implementation of such a strategy provides ssurance to stakeholders that tax risks are subject to proper control and outputs such as tax returns can be relied upon.

2.4 Council officers and PWC have worked together to produce the attached Tax Risk Management Framework and recommend its adoption.

3. Recommendations

That the Subcommittee

Receives the report Tax Risk Governance Framework (R7599) and its attachment (A1750676).

Recommendation to Council

That the Council

Adopts the Tax Risk Governance Framework (A1750676) with immediate effect.

4. Background

4.1 The Inland Revenue (IRD) is one of Council’s largest creditors, if not the largest. Payments to the department for the 2015/16 financial year totalled $8.9 million. These payments covered GST, PAYE and FBT. Council has little or no income tax exposure.

4.2 A degree of oversight from this subcommittee is therefore appropriate.

4.3 In 2016, IRD endorsed the guidance on tax control frameworks (TCF) as published by the OECD’s Forum on Tax Administration.

4.4 The following ‘building block’ approach to a TCF was recommended:

· Tax strategy – should be clearly documented and owned by the senior management and governors of the organisation

· Comprehensive – needs to be able to govern the full range of the organisation’s activities and should be embedded in the day-to-day management of operations

· Responsibility – the governing body of the organisation is accountable for the design, implementation and effectiveness of the TCF

· Governance – there needs to be a system to identify deviations from norms and potential risks of non-compliance should be recognised and managed

· Testing – compliance with the TCF should be the subject of regular reporting, testing, and maintenance

· Assurance – the TCF should be capable of providing assurance to stakeholders, including the IRD, that tax risks are subject to proper control and that outputs such as tax returns can be relied upon.

4.5 Council’s tax advisors, PWC, recommended that Council adopt a Tax Risk Governance Framework, along the lines of a TCF, to increase the transparency of its tax operations and establish appropriate oversight.

4.6 It is PWC’s opinion that the IRD has begun to look more closely at the local government sector recently and that operating under such a framework can make a tax review easier to manage.

4.7 The risk of such a review is not so much that it will uncover non-compliance, with the attendant financial penalties (Council’s tax positions and operations are quite straightforward), more that the resource required to respond to such a review is onerous (a recent review of a not dissimilar council utilised approximately 90 full days of staff time - 0.4 FTE over the department - and 14 days of consultant’s time).

5. Discussion

5.1 Council officers have worked with PWC to produce a tailored Tax Risk Governance Framework (attachment 1).

5.2 Once this framework is adopted, Council will develop a tax risk management strategy to be adopted by this subcommittee.

5.3 Reporting to this subcommittee (attachment 1, section 3.2) will likely be annual, after the end of the tax year (31 March).

Options

5.4 Officers recommend option one, adopt the framework.

Option 1: Adopt the Tax Risk Governance Framework
Advantages	· International best practice and endorsed by IRD and Council’s tax advisors · Increases transparency and oversight of Council’s tax operations · The first step to formalising a tax risk strategy · Supports the expectation that Council will maintain exemplary governance and tax compliance standards
Risks and Disadvantages	· None
Option 2: Do not adopt the framework
Advantages	· Status quo
Risks and Disadvantages	· Lack of transparency and governance oversight may negatively impact the progress or result of any future tax review (and would likely be a recommendation from such a review)

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: Tax Risk Governance Framework (A1750676) ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

The Tax Governance Framework promotes transparency of Council’s tax operations to all stakeholders including the community.

2. Consistency with Community Outcomes and Council Policy

Supports the community outcome “Our Council provides leadership and fosters partnerships, a regional perspective and community engagement”.

3. Risk

Adoption of this framework mitigates potential minor risks of perception and encourages tax risk mitigation in line with Council’s low tax risk profile.

4. Financial impact

Adoption of this framework has no financial impact.

5. Degree of significance and level of engagement

The decision to adopt the framework is of low significance as it is an administrative matter that enhances and formalises existing processes.

6. Inclusion of Māori in the decision making process

There has been no consultation with Maori on this item.

7. Delegations

The Audit, Risk and Finance Subcommittee has the responsibility for considering financial and other risk management, internal control and statutory compliance. The Audit, Risk and Finance Subcommittee has the power to make a recommendation to Council on this matter.