AGENDA
Ordinary meeting of the
Audit, Risk and Finance Subcommittee
Tuesday 27 June 2017
Commencing at 9.00am
Council Chamber
Civic House
110 Trafalgar Street, Nelson
Membership: Mr John Peters (Chairperson), Her Worship the Mayor Rachel Reese, Councillor Ian Barker, Councillor Bill Dahlberg and Mr John Murray
Guidelines for councillors attending the meeting, who are not members of the Committee, as set out in Standing Orders:
· All councillors, whether or not they are members of the Committee, may attend Committee meetings (SO 2.12.2)
· At the discretion of the Chair, councillors who are not Committee members may speak, or ask questions about a matter.
· Only Committee members may vote on any matter before the Committee (SO 3.14.1)
It is good practice for both Committee members and non-Committee members to declare any interests in items on the agenda. They should withdraw from the room for discussion and voting on any of these items.
Audit, Risk and Finance
Subcommittee
27 June 2017
1.1 An apology has been received from Her Worship the Mayor.
2. Confirmation of Order of Business
3.1 Updates to the Interests Register
3.2 Identify any conflicts of interest in the agenda
Document number M2590
Recommendation
That the Subcommittee
Confirms the minutes of the meeting of the Committee, held on 18 May 2017, as a true and correct record.
6. Status Report - Audit, Risk and Finance Subcommittee - 27 June 2017 16 - 18
Document number R7943
Recommendation
That the Subcommittee
Receives the Status Report Audit, Risk and Finance Subcommittee 27 June 2017 (R7943) and its attachment (A1753947).
8. Corporate Report to 30 April 2017 19 - 31
Document number R6999
Recommendation
That the Committee
Receives the report Corporate Report to 30 April 2017 (R6999) and its attachments (A1766296 and A1771251).
9. Balance Sheet reconciliation review 32 - 39
Document number R7002
Recommendation
Receives the report Balance Sheet reconciliation review (R7002) and its attachment (A1774923).
10. Liability Management Policy review 40 - 57
Document number R7529
Recommendation
That the Subcommittee
Receives the report Liability Management Policy review (R7529) and its attachment (A1765543).
Recommendation to Council
That the Council
Adopts the amended Liability Management Policy (A1765543).
11. Carry Forwards (Interim) 2016/17 58 - 66
Document number R7555
Recommendation
That the Subcommittee
Receives the report Carry Forwards (Interim) 2016/17 (R7555) and its attachments (A1770607).
Recommendation to Council
That the Council
Approves continuing work on 2016/17 projects within the 2016/17 approved budgets, noting a final report on carry forwards will come to the Audit, Risk and Finance subcommittee on 8 September 2017.
12. Council Risk Management Policy and Risk Criteria 67 - 80
Document number R7572
Recommendation
That the Subcommittee
Receives the report Council Risk Management Policy and Risk Criteria (R7572) and its attachments: Risk Management Policy (A1553263) and Council Risk Criteria (A1545157).
Recommendation to Council
That the Council
Approves the Risk Management Policy (A1553263); and
Adopts the Council Risk Criteria (A1545157).
13. Internal Audit - Annual Audit Plan to 30 June 2018 81 - 89
Document number R7587
Recommendation
That the Subcommittee
Receives the report Internal Audit - Annual Audit Plan to 30 June 2018 (R7587) and its attachment (A1748975);
Recommendation to Council
That the Council
Approves the Internal Audit – Annual Audit Plan to 30 June 2018 (A1748975).
14. Health and Safety Governance Charter review 90 - 97
Document number R7622
Recommendation
That the Subcommittee
Receives the report Health and Safety Governance Charter review (R7622) and its attachment (A1767136);
Recommendation to Council
That the Council
Approves the revised Health and Safety Governance Charter (A1767136).
15. Protected disclosure policy 98 - 109
Document number R7631
Recommendation
That the Subcommittee
Receives the report Protected disclosure policy (R7631) and its attachment (A1338935) ; and
Notes the revised Protected Disclosure Policy (A1338935).
16. Trafalgar Park Seating and Sale of the Punawai 110 - 136
Document number R7383
Recommendation
That the Subcommittee
Receives the report Trafalgar Park Seating and Sale of the Punawai (R7383) and its attachments (A345448, A1311242, R6448 and A1412442); and
Notes that the purchase of the Trafalgar Park Seats complied with Council’s Procurement Policy 2015 (A345448); and
Notes that the Council approved the private sale of the Punawai for reasons of timeliness and efficiency, and recognised at the time of the sale that this approach departed from Council’s Asset Disposal Policy 2015 (A1412442).
17. Interim audit letter for the year ending 30 June 2017 137 - 145
Document number R7627
Recommendation
That the Subcommittee
Receives the report Interim audit letter for the year ending 30 June 2017 (R7627) and its attachment (A1775216); and
Notes the suggested responses to the recommendations.
Public Excluded Business
Recommendation
That the Subcommittee
Excludes the public 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:
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Item |
General subject of each matter to be considered |
Reason for passing this resolution in relation to each matter |
Particular interests protected (where applicable) |
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1 |
Bad debts for the year ending 30 June 2017
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Section 48(1)(a) The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7 |
The withholding of the information is necessary: · Section 7(2)(a) To protect the privacy of natural persons, including that of a deceased person · Section 7(2)(i) To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations) |
19. Re-admittance of the public
Recommendation
That the Subcommittee
Re-admits the public 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 18 May 2017, commencing at 1.03pm
Present: Mr J Peters (Chairperson), Her Worship the Mayor R Reese, Councillor I Barker and Councillor B Dahlberg
In Attendance: Councillor G Noonan, Chief Executive (C Hadley), Group Manager Community Services (C Ward), Group Manager Corporate Services (N Harrison), Senior Strategic Adviser (N McDonald), Manager Capital Projects (S Davies), Senior Accountant (T Hughes) and Administration Adviser (S Burgess)
Apology: Mr John Murray
1. Apologies
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Resolved AUD/2017/001 That the Subcommittee Receives and accepts the apology from Mr John Murray. Barker/Her Worship the Mayor Carried |
2. Confirmation of Order of Business
The Chairperson advised that the report Audit NZ – audit arrangement and engagement letters, would be considered after the Chairperson’s Report.
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. Status Report - Audit Risk and Finance Subcommittee - 18 May 2017
Document number R7639, agenda pages 7 - 9 refer.
The Subcommittee directed that a Subcommittee briefing on social enterprise principles was appropriate, and a workshop was no longer required.
The Subcommittee noted that the Chair of the Governance Committee and Mr John Peters would proceed to develop the scope for the tendering processes report.
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Resolved AUD/2017/002 That the Subcommittee Receives the Status Report Audit, Risk and Finance Subcommittee 18 May 2017 (R7639) and its attachment (A1753947). Barker/Dahlberg Carried |
6. Chairperson's Report
Document number R7716, agenda pages 10 - 11 refer.
The Chairperson presented his report.
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Resolved AUD/2017/003 That the Subcommittee Receives the report Chairperson's Report (R7716). Peters/Barker Carried |
7. Audit NZ - audit arrangement and engagement letters
Document number R7513, agenda pages 91 - 129 refer.
Bede Kearney and Jacques Coetzee of Audit New Zealand joined the meeting. Mr Kearney presented the report and responded to questions.
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Resolved AUD/2017/004 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. Dahlberg/Barker Carried |
8. Corporate Report to 31 March 2017
Document number R6998, agenda pages 12 - 24 refer.
Manager Capital Projects, Shane Davies, and Senior Accountant, Tracey Hughes, presented the report. Ms Hughes provided updated information on debtors three months overdue.
Mr Davies, Ms Hughes, and Group Manager Corporate Services, Nikki Harrison, responded to questions.
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Resolved AUD/2017/005 That the Subcommittee Receives the report Corporate Report to 31 March 2017 (R6998) and its attachments (A1750159 and A1753951). Barker/Dahlberg Carried |
9. Health and Safety: Quarterly Report
Document number R7023, agenda pages 25 - 35 refer.
Manager Organisational Assurance and Emergency Management, Roger Ball, and Health and Safety Adviser, Malcolm Hughes, presented the report and responded to questions.
The Chairperson asked that officers look into whether any lessons could be learned from the recently released Havelock water report. He also requested detail of Council’s current precautions against malware.
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Resolved AUD/2017/006 That the Subcommittee Receives the report Health and Safety: Quarterly Report (R7023) and its attachment (A1753457). Her Worship the Mayor/Barker Carried |
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Recommendation to Council AUD/2017/007 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). Her Worship the Mayor/Barker Carried |
10. Internal Audit Quarterly Report to 31 March 2017
Document number R7569, agenda pages 36 - 46 refer.
Internal Audit Analyst, Lynn Anderson, presented the report and responded to questions.
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Resolved AUD/2017/008 That the Subcommittee Receives the report Internal Audit Quarterly Report to 31 March 2017 (R7569); and its attachment (A1747023). Her Worship the Mayor/Barker Carried |
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Recommendation to Council AUD/2017/009 That the Council Notes the report Internal Audit Quarterly Report (R7569) and its attachment (A1747023). Her Worship the Mayor/Barker Carried |
11. Service Delivery Review Quarterly Progress Update - May 2017
Document number R6910, agenda pages 47 - 90 refer.
Policy Adviser, Gabrielle Thorpe, and Interim Manager Building, Chris Wood, presented the report and responded to questions.
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Resolved AUD/2017/010 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. Dahlberg/Barker Carried |
12. Tax Risk Governance Framework
Document number R7599, agenda pages 130 - 139 refer.
Senior Accountant, Tracey Hughes, presented the report and responded to questions.
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Resolved AUD/2017/011 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). Dahlberg/Barker Carried |
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Recommendation to Council AUD/2017/012 That the Council Adopts the Tax Risk Governance Framework (A1750676) with immediate effect. Dahlberg/Barker Carried |
There being no further business the meeting ended at 3.06pm.
Confirmed as a correct record of proceedings:
Chairperson
Date
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7943
Status Report - Audit, Risk and Finance Subcommittee - 27 June 2017
1. Purpose of Report
1.1 To provide an update on the status of actions requested and pending.
2. Recommendation
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Receives the Status Report Audit, Risk and Finance Subcommittee 27 June 2017 (R7943) and its attachment (A1753947). |
Attachments
Attachment 1: A1753947 - Audit, Risk and Finance Subcommittee Status Report ⇩
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R6999
Corporate Report to 30 April 2017
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 10 months ending 30 April 2017 compared to the approved operating budget, and to highlight and explain any permanent and material variations.
2. Recommendation
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Receives the report Corporate Report to 30 April 2017 (R6999) and its attachments (A1766296 and A1771251). |
3. Background
3.1 The financial reporting focuses on the 10 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 10 months ending 30 April 2017, the activity surplus/deficits are $4.1 million favourable to 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 operating budget for the financial year, now including forecast to year end, and year to date expenditure against approved operating budget by activity.
· A major projects summary including milestones, status, issues and risks.
4.3 Capital expenditure is $13.2 million under budget noting that $9.6 million of this variance is awaiting Council approval through the exceptions process (already approved by other committees).
5. Options
5.1 Accept the recommendation. This report is to inform the committee members, and no further actions are required.
5.2 Do not accept the recommendation.
Tracey Hughes
Senior Accountant
Attachments
Attachment 1: Financial information (A1766296) ⇩
Attachment 2: Major projects summary (A1771251) ⇩
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Important considerations for decision making |
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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. |
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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”. |
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3. Risk The recommendation carries no risk as the report is for information only. |
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4. Financial impact The recommendation has no financial impact. |
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5. Degree of significance and level of engagement The recommendation is of low significance as there are no decisions to be made. |
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6. Inclusion of Māori in the decision making process No consultation is required. |
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7. Delegations The Audit Risk and Finance subcommittee has oversight of Council’s financial performance and the management of financial risks. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7002
Balance Sheet reconciliation review
1. Purpose of Report
1.1 To inform the subcommittee on the detail of the balance sheet, the status of reconciliations and any areas of risk identified.
2. Recommendation
It is recommended that the Subcommittee
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Receives the report Balance Sheet reconciliation review (R7002) and its attachment (A1774923). |
3. Background
3.1 As part of the Corporate Report, the subcommittee is presented at every meeting with a summarised balance sheet. The purpose of presenting the summarised balance sheet is to identify and explain any significant differences month on month.
3.2 The balance sheet is otherwise known as a statement of financial position. Balance sheet reconciliations are conducted to ensure the legitimacy of the organisations reported financial position.
3.3 Attachment 1 allows the subcommittee to see the detail that lies beneath the summarised balance sheet in the Corporate Report. For each account, the spreadsheet indicates the balance at 30 April (the last month for which complete data is available), whether the reconciliation has been completed in April and any risk associated with the balance.
3.4 This information is presented to the subcommittee on an annual basis.
4. Discussion
4.1 Accounts with a large number of transactions (debtors, creditors, fixed assets) are reconciled monthly or more frequently.
4.2 Some accounts (largely equity and loans receivable) are reconciled quarterly or annually as part of the annual report and audit process. These accounts may have only one movement during the year.
4.3 Reconciliations are completed by a named member of the finance team and are checked by a senior member, or in some cases, audit.
4.4 As part of its audit process, Audit NZ check some (but not all) reconciliations either during its interim visit (which tends to focus on control and processes) or its final visit (the reconciliation being in support of the results in the Annual Report).
Options
4.5 Accept the recommendation and receive the Balance Sheet reconciliation review report.
4.6 Reject the recommendation.
Tracey Hughes
Senior Accountant
Attachments
Attachment 1: Balance Sheet reconciliations (A1774923) ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government This report allows for a detailed review of one of the key elements of the Corporate Report; the balance sheet. The Corporate Report provided to the Audit, Risk and Finance Subcommittee at each meeting informs them of items of financial interest and potentially items of financial risk. |
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2. Consistency with Community Outcomes and Council Policy This report supports the community outcome “Our Council provides leadership and fosters partnerships, a regional perspective, and community engagement”. |
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3. Risk The recommendation carries no risk as the report is for information only. |
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4. Financial impact The recommendation has no financial impact. |
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5. Degree of significance and level of engagement The recommendation is of low significance as there are no decisions to be made. |
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6. Inclusion of Māori in the decision making process No consultation is required. |
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7. Delegations The Audit, Risk and Finance Subcommittee has the responsibility for considering financial performance and the management of financial risk. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7529
Liability Management Policy review
1. Purpose of Report
1.1 To adopt the amended Liability Management Policy.
2. Recommendation
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Receives the report Liability Management Policy review (R7529) and its attachment (A1765543). |
Recommendation to Council
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Adopts the amended Liability Management Policy (A1765543). |
3. Background
3.1 The current Liability Management Policy (Policy) was approved by Council in March 2016.
4. Discussion
4.1 The amended Policy, with the proposed changes highlighted, is in Attachment 1. The following sections set out further details in relation to the changes that are to be considered:
4.2 Review date
4.2.1 The Policy has been on an annual review cycle. It is proposed to move this to a formal three yearly review. It is also proposed that the Policy be reviewed internally on an annual basis with amendments being brought to the subcommittee, if necessary.
4.3 Glossary of terms
4.3.1 It is proposed that the Policy be updated to include a reference to a glossary of financial markets terms which is available on request. As it is a lengthy document, it is not proposed that the glossary be included as part of the Policy.
4.4 Net/gross debt
4.4.1 Previously the Policy has referenced net debt when managing interest rate risk. As Council does not hold any core investment funds to provide an offset, it is proposed to amend the Policy to reflect that interest rate risk is actually managed on a gross basis.
4.5 Risk management instruments
4.5.1 It is proposed that collars be added to the table of risk management instruments allowed, in order to make this clearer. Previously, these were allowed in the wording below the table in certain restricted circumstances and the proposed amendment aims to tidy this up.
4.6 Interest rate swaps
4.6.1 Previously any interest rate swaps beyond 12 years required approval of Council. It is proposed that this is moved to 15 years. The exception to this will be if Council raises Local Government Funding Agency (LGFA) funding as fixed rate or as a swapped floating rate and the maturity is beyond 15 years.
4.6.2 The main driver for this proposed change is that the LGFA, which the Council uses for long term borrowing, is now issuing longer dated debt (it has issued a bond out to April 2033) and the proposed amendment will align with this longer term borrowing now available. In addition, the swap market has become more liquid and actively traded beyond ten years.
4.6.3 The propose amendment has been discussed with our treasury advisor, Price Waterhouse Coopers (PWC) and it raised no concerns.
4.7 Liquidity and funding risk management
4.7.1 This section has been updated at the request of the LGFA to include the statement “To minimise concentration risk the LGFA requires that no more than the greater of NZD 100 million or 33% of a Council's borrowings from the LGFA will mature in any 12-month period”.
4.7.2 This amendment is consistent across the local government sector and is not specific to this Council.
4.8 Specific borrowing limits
4.8.1 It is proposed that definitions for “cash” and “cash equivalent” be included. The suggested definitions are consistent with the manner in which these items are calculated.
4.9 Emissions Trading Scheme
4.9.1 The proposed changes in relation Emissions Trading Scheme include removal of any references to types of emission units which can no longer be used and an amendment to the performance benchmarking based on the view our treasury advisor. In order to simplify and describe the benchmark more appropriately, the following is suggested “the actual annual ETS cost for Council should be no worse than the budgeted ETS cost for that year”.
4.10 Treasury Performance
4.10.1 It is proposed that the performance benchmarking be simplified to measure as follows: “the actual borrowing cost for Council (taking into consideration costs of entering into interest rate risk management transactions) should be below the budgeted borrowing costs”. Previously, it was benchmarking the margin against an LGFA credit curve.
5. Options
5.1 The recommendation is to adopt the amendments to the Liability Management Policy.
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Option 1: Adopt the amended Liability Management Policy |
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Advantages |
· changes are recommended by our treasury advisor and are considered current best practice |
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Risks and Disadvantages |
· none |
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Option 2: Not adopt the amended Liability Management Policy |
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Advantages |
· no change from existing policy |
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Risks and Disadvantages |
· policy is due for review · policy will not conform to current best practice |
Nikki Harrison
Group Manager Corporate Services
Attachments
Attachment 1: A1765543 - Liability Management Policy May 2017 ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government Risk management through having a Liability Management Policy enables more efficient and effective provision of services as set out in section 10(1)(b) of the Local Government Act. |
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2. Consistency with Community Outcomes and Council Policy The Liability Management and Investment Policies are required by section 102 of the Local Government Act. Nothing in the proposed Liability Management Policy is inconsistent with any other previous Council decision or Council Policy. Updating the policy supports the community outcome “Our Council provides leadership and fosters partnerships, a regional perspective and community engagement”. |
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3. Risk There is limited risk from the proposed changes although one of the amendments allows officers to take out interest rate swaps with maturity dates out to 15 years, rather than 12 years. However, this would only occur to manage interest rate risk. |
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4. Financial impact There is no direct financial impact from adopting the amended Liability Management Policy. |
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5. Degree of significance and level of engagement This matter is of low significance because it includes minor amendments to an existing policy, therefore no consultation has taken place. |
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6. Inclusion of Māori in the decision making process Maori have not been consulted in the preparation of this report and policy. |
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7. Delegations The Audit, Risk and Finance Subcommittee has the responsibility for considering Council’s Treasury functions and policies. The Audit, Risk and Finance Subcommittee has the power make a recommendation to Council on this matter. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7555
Carry Forwards (Interim) 2016/17
1. Purpose of Report
1.1 To approve ongoing work using 2016/17 approved budgets until carry forwards are formally approved at the 8 September 2017 meeting of this Subcommittee.
2. Recommendation
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Receives the report Carry Forwards (Interim) 2016/17 (R7555) and its attachments (A1770607). |
Recommendation to Council
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Approves continuing work on 2016/17 projects within the 2016/17 approved budgets, noting a final report on carry forwards will come to the Audit, Risk and Finance subcommittee on 8 September 2017. |
3. Background
3.1 Projects are dynamic, and project expenditure rarely aligns to budget phasing for any number of reasons (e.g. weather, availability of internal or contractor resources, reliance on third parties). The exceptions process has gone a long way in 2016/17 to capture these phasing changes; nevertheless variations to updated budgets are still expected before the end of the financial year as circumstances continue to change.
3.2 As the process for Committee and Council approval can take some time, any further exception reporting will not be able to address these changes in a timely enough manner for progress to continue across the end of one financial year and into the next.
3.3 This being the case, project managers have been asked for an indication of likely carry forwards at 30 June, and Council approval is sought to enable work to continue on unfinished 16/17 projects after 30 June, within 16/17 budgets.
3.4 A report on finalised carry forwards will be brought to the 8 September meeting of the Subcommittee.
4. Discussion
Capital Expenditure
4.1 Capital expenditure to 30 April 2017 was $33.4 million, $13.2 million (28%) below approved budget year to date. This variance does not reflect the exceptions reports recently approved by Committees but yet to be confirmed by Council. Those exceptions will reduce the approved full year budget by $10.7 million once confirmed.
4.2 58 projects totalling approximately $3.6 million of budget have been identified as likely to require a carry forward into 2017/18. Please see attachment 1.
4.3 22 projects totalling approximately $1.6 million are multi-year projects where the timing of expenditure has changed. The Saxton Creek upgrade and the Modeller’s Pond solution account for $1m of this.
4.4 36 projects totalling approximately $2.1 million were initially expected to be completed in the current financial year.
4.5 43 projects with a carry forward total of approximately $2.8 million are currently underway. Carry forward approval will ensure that the total project budget remains available.
4.6 15 projects with a carry forward total of approximately $0.7 million were not underway as at 30 April. Delays have occurred for a variety of reasons and project managers have requested that the budget is carried over to allow the projects to be undertaken in 2017/18.
Operating Expenditure
4.7 Based on April 2017 year to date results, officers have been asked to identify operating projects that will not be complete by 30 June 2017. Projected carry forwards have been assessed for these projects, please see attachment 2.
4.8 39 projects totalling $1.1 million have been identified as likely to require a carry forward into 2017/18.
4.9 In order that staff can keep moving towards delivery of the 2016/17 work programme in the meantime, officers seek approval for 2016/17 budgets to continue to be used on 2016/17 projects as itemised in attachment 2.
5. Options
5.1 Option 1, approve the recommendation is recommended.
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Option 1: Approve the recommendation |
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Advantages |
· Spending is within 2016/17 approved budgets · Total project budget will remain available for those projects underway · Work can continue on those projects that do not have a 2017/18 annual plan budget allocation |
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Option 2: Do not approve the recommendation |
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Risks and Disadvantages |
· Work would need to cease on these projects after 30 June until such a time as the formal report approving carry forwards has made its way through Council. · Contractor relationships may suffer · May introduce a health and safety risk with some projects |
6. Conclusion
6.1 Most of the projects indicating carry forward are either currently underway or scheduled to be underway before 30 June 2017, and as the budget is approved for spending in 2016/17, it is proposed that work continue on these projects in the meantime.
6.2 A report on final carry forwards will be on the agenda for the 8 September meeting of this subcommittee.
Tracey Hughes
Senior Accountant
Attachments
Attachment 1: Interim capital carry forwards requested (A1770607) ⇩
Attachment 2: Interim opex carry forwards requested (A1770607) ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government Approval of the recommendation will allow progress/completion of approved projects without the risks associated with unnecessary delay, supporting the efficiency of delivery of public infrastructure and services. |
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2. Consistency with Community Outcomes and Council Policy Approval of this recommendation will allow projects as approved in the Annual Plan 2016/17 and subsequent Council resolutions to be delivered without delay. |
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3. Risk Failure to approve the recommendation will introduce risk (financial, contractor and community relationships, health and safety) which does not currently exist. |
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4. Financial impact There is little financial impact from approving the recommendation as budgets are already approved. |
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5. Degree of significance and level of engagement This matter is of low significance as budgets are already approved and the recommendation confirms business as usual. |
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6. Inclusion of Māori in the decision making process No consultation has been undertaken. |
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7. Delegations The Audit, Risk and Finance subcommittee has oversight of the management of financial risk and makes recommendations to Council. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7572
Council Risk Management Policy and Risk Criteria
1. Purpose of Report
1.1 To receive and recommend to the Council for approval a risk management policy tailored for Council, and for adoption criteria for judging risk tolerance.
2. Recommendation
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Receives the report Council Risk Management Policy and Risk Criteria (R7572) and its attachments: Risk Management Policy (A1553263) and Council Risk Criteria (A1545157). |
Recommendation to Council
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Approves the Risk Management Policy (A1553263); and Adopts the Council Risk Criteria (A1545157). |
3. Background
3.1 While Council has always faced uncertainty in managing its activities, recent developments across the organisation have sought to place managing risks on a common and systematic basis. In 2015 this Committee approved a generic ‘Risk Management Framework’ document (A1431519). This document was intended to form a foundation for this more systematic approach.
3.2 In retrospect it is now clear that this generic document does not go far enough in tailoring the risk management process to the Council’s specific context. Major examples of this include;
· Clearly specifying when risk management processes are to be applied
· Requiring the use of clear, consistent criteria in assessing and acting on risks
· Clearly defining roles and responsibilities for managing risks to the Council’s objectives.
3.3 The attached policy A1553263 is intended to provide this direction.
3.4 In addition, effectively managing risks at an organisation level requires consistent criteria, including those for deciding when action should be taken. These criteria need to include all of the types of risks faced by the organisation. The attached risk criteria A1545157 are intended to provide this.
3.5 As the Council’s risk management capacity is being developed in stages, the criteria for approval include only criteria to rank and take action on threats or negative risks. It is proposed to next develop criteria for assessing and acting on uncertain opportunities. This is scheduled for the 2017-18 financial year. This process is expected to include workshops for councillors.
4. Discussion
4.1 The attached policy and risk criteria address the following matters.
Clear linkage to objectives
4.2 The internationally accepted definition of risk – the effect of uncertainty on objectives – makes clear the fundamental importance of clarity of objectives in any process of managing risks. This starts at the overall council level and applies at any level in the organisation where risks are to be managed. The draft policy makes this clear and refers back to the overall objectives of the Council as provided in law and through our long term plan.
Clear accountabilities
4.3 The attached draft policy sets out the specific roles of each decision maker in implementing the policy. This extends from the governance and strategic decision making role of Council and Committee members to those with technical expertise in advisory and operational roles. At its most fundamental, risk management is a management function so most of the accountabilities lie with managers across the organisation.
Effort commensurate with the value at risk
4.4 A core principle of good risk management practice is that risk management must add value. While identifying, assessing and as needed acting on risks can reveal ways to reach objectives more quickly and with more certainty, it is important that the effort put in does not outweigh these advantages. Risk management work must therefore be no more than the value at risk.
4.5 However it is equally necessary to be clear that value at risk is measured appropriately. In particular, value will not necessarily be financial or measurable in financial terms.
Internationally standardised process
4.6 The international standard ISO 31000: 2009 Risk Management – Principles and Guidelines (formally adopted in New Zealand under the Standards Act as AS/NZS ISO 31000) provides processes for risk management applicable to any situation. The policy requires the Council to follow this process. As risk management is a technical discipline, this requires the use of specifically defined terms –even where such terms have different meanings in other contexts.
Clear linkage to decision making
4.7 One fundamental reason for undertaking risk management activities is to improve decisions made. For example to make better choices or to avoid methods of reaching objectives which are more costly. The attached policy is therefore clear that the risk management process is to be applied at the appropriate level to all organisational decision making. This concept of level and appropriate scale (and process complexity) is important in the proper application of risk management. By way of illustration; aircraft pilots are trained to use risk management in decision making and do so in seconds and without formal documentation, while managers of large projects and operations often require significant time and record keeping to use the tools effectively.
Clarity of risk criteria
4.8 In reality most organisations’ risk management (both nationally and internationally) is based on qualitative judgments by those with the necessary expertise. This is also the case for Council.
4.9 With an organisation as diverse as Nelson City Council, it is essential that these judgments are made on a common basis. If this is not done decisions with effects across the organisation will be biased.
4.10 The attached risk criteria therefore form a key component in developing the organisation’s risk management capacity. They are in three parts,
· A clear set of consequences (or levels of organisational impact)
· A well-defined and internally consistent basis for estimating likelihood
· A consistent set of resulting risk levels linked to required actions
4.11 The last element is of considerable importance. Larger risks require either a deliberate decision to tolerate, or take management actions. A clear basis for doing this is where much of the decision making value comes from.
5. Options
5.1 The Subcommittee can choose to recommend approval of the attached policy and adoption of the risk criteria or not.
Option1: Recommend policy approval and adoption of criteria
5.2 The attached risk management policy and risk criteria are key components in a suite of tools designed to improve the organisation’s risk management capability. More importantly they are intended to improve the consistency and quality of decision making in the face of uncertainty.
5.3 The option of ‘approve and adopt’ will enable this.
5.4 For reasons set out in paragraph 3.5, the attached documents are an important half way house in moving towards the long term goal of an organisation which has a current complete and comprehensive understanding of its risks (i.e. to its objectives) and actively manages these to within clear and consistent criteria.
Option2: Do not recommend approval and adoption
5.5 Alternatively, if the Subcommittee chooses not to recommend approval and adoption:
· Council consideration of risks in decision making will continue to be driven by the less specific risk management framework document (itself due for review in 2018)
· Criteria will be needed for day today risk management but these may not be consistent across the whole organisation.
Steve Vaughan
Risk & Procurement Analyst
Attachments
Attachment 1: Council Risk management policy(A1553263) ⇩
Attachment 2: Council Risk Criteria(A1545157) ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government This report recommends improved tools for risk management. Risk management is a tool to enable more efficient and effective provision on services as set out in section 10(1)(b) of the LG Act. |
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2. Consistency with Community Outcomes and Council Policy Risk management tools as recommended in this report are aimed at improving the clarity, efficiency and effectiveness with which an organisation’s objectives (in this case as set out in Nelson City Council’s planning documents) can be achieved. |
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3. Risk The attached policy and risk criteria are key but partial documents in developing the organisation’s overall capacity to make better decisions in the face of uncertainty. Of themselves they will not achieve this objective with certainty and must be backed up by · Procedures to consistently apply policy and criteria · Willingness at all levels of decision making from strategic to detailed to systematically understand and consider risks While not part of the decisions recommended in this report, action to assist with these other matters is also underway through coaching, workshops and procedure development. |
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4. Financial impact This report does not have any specific funding implications |
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5. Degree of significance and level of engagement This is a decision of low significance under the Council’s Significance and Engagement Policy. Therefore no external consultation has been undertaken in the preparation of this report. |
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6. Inclusion of Māori in the decision making process There has been no consultation with Maori in the preparation of this report which deals with internal Council processes. |
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7. Delegations The Audit Risk and Finance Subcommittee has oversight of the Council’s management of risk. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7587
Internal Audit - Annual Audit Plan to 30 June 2018
1. Purpose of Report
1.1 To approve the Internal Audit Plan for the year to 30 June 2018.
2. Recommendation
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Receives the report Internal Audit - Annual Audit Plan to 30 June 2018 (R7587) and its attachment (A1748975); |
Recommendation to Council
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Approves the Internal Audit – Annual Audit Plan to 30 June 2018 (A1748975). |
3. Background
3.1 Under the approved Internal Audit Charter a risk-based internal audit plan is to be reviewed by the Subcommittee at least annually prior to the beginning of each financial year.
3.2 The Charter requires that in compiling the internal audit plan the impact of resource limitations is to be considered.
4. Discussion
4.1 The Council’s risk criteria has been applied in compiling the Internal Audit Plan to 30 June 2018, with topics assessed as having the highest risks given priority.
4.2 Audits which were unable to be completed in the approved plan to 30 June 2017 are also included, as are the two deferred audits approved by Council on 15 December 2016 (Liability Management Policy and Investment Policy audits).
4.3 Two complex audits which require specialist knowledge are proposed for the Internal Audit Plan to 30 June 2018. These are in areas where it is considered Council should obtain expert opinion to satisfy itself that there are no risks beyond an accepted level. Note that $40,000 has been budgeted for this purpose.
4.4 In determining the number of audits to be performed to 30 June 2018, each audit has been assessed by complexity – a) complex; b) standard; c) minor. Each of these categories requires an estimated number of hours, based on time taken for audits of similar complexity during the 2016/17 year.
Resource Limitations
4.5 The internal audit plan to 30 June 2017 which allowed for 32 audits to be performed proved to be unrealistic. To help remedy this, Council approved non-budgeted funds of $50,000 for external consultancy engagements (actual costs will fall within budget), and some audits were reallocated to non-audit Council staff. A further four audits were combined into two audits, reducing the total audits to be performed to 30.
4.6 Of the eight audits allocated to non-audit staff, only two of these are expected to be completed by 30 June 2017 due to the staff member’s non-availability after performing their own formal responsibilities. Looking ahead to the 2017/18 plan, we have therefore set a more realistic target for audits undertaken by non-audit Council staff.
4.7 There were 26 audits completed (or soon to be) for the year to 30 June 2017:
|
Auditor |
Audits Completed |
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Internal Audit Analyst |
15 |
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Non-audit Council Staff |
2 |
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External Consultants |
9 |
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Total Audits Completed for 2016/17 |
26 |
4.8 The proposed plan for the year to 30 June 2018 provides for 25 audits:
|
Auditor |
Audits Proposed |
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Internal Audit Analyst |
14 |
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Appointed Staff Member |
6 |
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Non-audit Council Staff |
2 |
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Not yet assigned |
1 |
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External Consultants |
2 |
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Total Audits Proposed for 2017/18 |
25 |
5. Quantity and Assignment of Proposed Audits
5.1 The number of audits proposed for 2017/18 is comparable to that accomplished for 2016/17 and is considered realistic.
5.2 From 1 July, a staff member to formally assist the internal audit function has been will be assigned to provide hours towards the plan. This will eliminate the need to secure external consultants for standard or minor audits and reduce the number of non-audit Council staff required.
5.3 The undertaking of two audits by non-audit staff is considered more realistic than the eight provided for in 2016/17.
6. Options
6.1 Accept the recommendation to approve the proposed Internal Audit Plan to 30 June 2018.
6.2 Reject the proposed Internal Audit Plan to 30 June 2018.
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Option 1: Accept the Proposed 2017/18 Internal Audit Plan |
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Advantages |
· Council can demonstrate its commitment to improving controls and practices that ensure the prudent, effective and efficient management of Council resources. |
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Risks and Disadvantages |
· The audit plan might not be achieved due to unexpected factors, such as the complexity of audits or the non-availability of personnel. · The audit plan is finite in scope and therefore functions outside the scope of the plan are not audited. |
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Option 2: Reject the Proposed 2017/18 Internal Audit Plan |
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Advantages |
· The resources applied to this audit plan could be diverted to other Council priorities. |
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Risks and Disadvantages |
· Council may suffer reputational damage and financial losses that could lead to the public losing confidence in Council’s ability to function effectively on its behalf and to meet its obligations under the Local Government Act 2002. |
7. Conclusion
7.1 The Internal Audit Plan to 30 June 2018 is recommended for approval.
Lynn Anderson
Internal Audit Analyst
Attachments
Attachment 1: A1748975 - Internal Audit - Annual Audit Plan 2017/18 ⇩
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Important considerations for decision making |
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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. |
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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. |
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3. Risk There is more risk that Council may not meet its responsibilities cost-effectively and efficiently if this recommendation is not accepted. |
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4. Financial impact The recommendation will not have any significant financial impact. |
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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. Therefore no engagement has been undertaken. |
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6. Inclusion of Māori in the decision making process There has been no consultation with Maori in the preparation of this report. |
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7. Delegations The Audit, Risk and Finance Subcommittee has the responsibility for audit processes and the management of financial risks. The Audit, Risk and Finance Subcommittee has the power to make a recommendation to Council on this matter. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7622
Health and Safety Governance Charter review
1. Purpose of Report
1.1 To review and approve the Health and Safety Governance Charter.
2. Recommendation
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Receives the report Health and Safety Governance Charter review (R7622) and its attachment (A1767136); |
Recommendation to Council
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Approves the revised Health and Safety Governance Charter (A1767136). |
3. Background
3.1 Council has implemented a Health and Safety Management System following adoption of the Health and Safety at Work (HSW) Act 2015. The Health and Safety Governance Charter is Council’s ‘peak’ document relating to health and safety. It defines how Council sets health and safety expectations and, in particular, sets out governance expectations in relation to health and safety. The Health and Safety Governance Charter was first adopted by Council on 17 December 2015.
3.2 The Governance Charter is supported by the Health and Safety Strategic Plan (2015-2020) also approved by Council. Both documents are now due for review. This report attaches a revised Governance Charter for consideration (Attachment 1). A review of the Health and Safety Strategic Plan is programmed for the September meeting of the Audit, Risk and Finance Subcommittee.
4. Discussion
4.1 Under the HSW Act 2015, the Council and members of the Senior Leadership Team assume many of the standard responsibilities that would normally sit with a Board of Directors. They are classed as “officers” under the Act.
4.2 Under Section 18 of the Act, an officer of a PCBU (a person conducting a business or undertaking), is either a director of that company or any other person occupying a position that has significant influence over the management of that company e.g. elected members, and certain members of the Senior Leadership Team. Such officers have a duty of due diligence.
4.3 Section 44 (4) of the HSW Act 2015 outlines the due diligence expectations of officers, which includes keeping up to date in health and safety matters; understanding the business, its hazards and risks; allocating appropriate resources to health and safety; and ensuring that the business has appropriate processes for collecting and considering health and safety data.
4.4 The New Zealand Institute of Directors Good Governance Practices Guideline for Managing Health and Safety Risks has been adopted as the guiding principles for health and safety governance.
5. Review and changes
5.1 The current Health and Safety Governance Charter has been reviewed in light of progress made by Council since the HSW Act was introduced. The current Governance Charter appears to have served its purpose well and has provided a basis for measuring Council’s performance. For example, health and safety observations have become a regular part of Councillor visits to work sites, regular reporting to Council on health and safety takes place, and councillors and appointed members actively participate in risk and health and safety workshops.
5.2 Since the HSWA 2015 was introduced, Council’s health and safety documentation has been updated, notably the Health and Safety Manual, which is a comprehensive 90 page document covering all aspects of Council’s health and safety management system. In light of that work, the attached update of the Health and Safety Governance Charter has focused the document more specifically on governance responsibilities. The document has been reduced from 22 pages to four pages. The general material previously found in the Governance Charter (e.g. describing the health and safety management system at all levels) can still be read in the Health and Safety Strategic Plan and the Health and Safety Manual. The revised Governance Charter contains a Governance Due Diligence Plan by which Council will be able to measure its progress. It is proposed to include a section in the regular health and safety quarterly reports to report against the Governance Due Diligence Plan.
5.3 The revised Health and Safety Governance Charter is attached for approval.
6. Options
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Option 1: Approve the H&S Governance Charter |
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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. |
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Risks and Disadvantages |
· Receiving the report alone is not sufficient. Positive diligence (understanding, asking questions etc) is required. |
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Option 2: Decline to approve H&S Governance Charter |
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Advantages |
· Further changes or improvements to the proposed Charter could be made. |
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Risks and Disadvantages |
· Council will not be able to use the revised Charter to help demonstrate due diligence on health and safety matters. |
Roger Ball
Manager Organisational Assurance and Emergency Management
Attachments
Attachment 1: Revised Health and Safety Governance Charter (A1767136) ⇩
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Important considerations for decision making |
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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 Health and Safety at Work (HSW) Act 2015 because it is classed as a Person Conducting a Business or Undertaking (PCBU), and Councillors, appointed members, and Council’s senior management have obligations as “Officers” under that Act. |
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2. Consistency with Community Outcomes and Council Policy The recommendations align with the Community Outcome: Our communities are healthy, safe, inclusive and resilient. |
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3. Risk This report aims to help councillors meet their due diligence obligations as “Officers” under the Health and Safety at Work Act 2015. 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. |
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4. Financial impact There are no immediate budget implications arising from this report. |
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5. Degree of significance and level of engagement This matter is of low significance because it is reporting providing high level guidance on Council’s health and safety governance, and no engagement is required. |
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6. Inclusion of Māori in the decision making process Maori have not been consulted in the preparation of this report. |
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7. Delegations The Audit Risk and Finance Subcommittee has responsibility for Health and Safety and has the power to make recommendations to Council about any matters within its areas of responsibility. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7631
Protected disclosure policy
1. Purpose of Report
1.1 To note the updated Protected Disclosure Policy.
2. Recommendation
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Receives the report Protected disclosure policy (R7631) and its attachment (A1338935) ; and Notes the revised Protected Disclosure Policy (A1338935). |
3. Background
3.1 The Audit, Risk and Finance Subcommittee has oversight of the Council’s management of risk and internal procedures including those related to disclosure of serious wrongdoing.
3.2 The Protected Disclosure Policy is an organisational policy outlining how an employee of Nelson City Council may lodge a disclosure of serious wrongdoing under the Protected Disclosures Act 2000, and how the organisation must respond to such a disclosure. As the policy is an organisational policy rather than a Council policy, approval from the Subcommittee and Council is not required.
3.3 The policy is scheduled for review every three years, and a review is due.
3.4 There have been no legislative changes or internal procedure changes since the policy was last reviewed in 2014. The policy provides a robust mechanism for disclosure which meets legislative and good practice requirements.
3.5 Minor amendments have been made to reflect changes in designated Disclosure Officers. The policy does not require more substantial amendment at this time.
4. Options
4.1 It is recommended that the Subcommittee receive and note the reviewed Policy.
Stephanie Vincent
Manager People and Capability
Attachments
Attachment 1: A1338935 - Protected Disclosure Policy 2017 ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government Fit-for-purpose organisational policies are required to ensure that organisational performance is efficient, effective and appropriate to present and anticipated future circumstances. |
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2. Consistency with Community Outcomes and Council Policy Fit-for-purpose organisational policies are required to ensure the Community Outcome of Our Council provides leadership and fosters partnerships, a regional perspective, and community engagement. |
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3. Risk Effective implementation of this policy is likely to reduce the potential for adverse consequences for employees who use the provisions outlined by policy. |
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4. Financial impact There is no financial impact associated with this policy. |
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5. Degree of significance and level of engagement This matter is of low significance because it is an organisational policy. |
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6. Inclusion of Māori in the decision making process No consultation has occurred with Māori. |
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7. Delegations No decision is required from the Subcommittee as the matter is an organisational policy, which falls within the delegations of the Chief Executive. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7383
Trafalgar Park Seating and Sale of the Punawai
1. Purpose of Report
1.1 To provide information requested at the Governance Committee meeting of 9 March 2017 in relation to the purchase of seating for Trafalgar Park and the sale of the harbourmaster vessel, the Punawai.
Recommendation
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Receives the report Trafalgar Park Seating and Sale of the Punawai (R7383) and its attachments (A345448, A1311242, R6448 and A1412442); and Notes that the purchase of the Trafalgar Park Seats complied with Council’s Procurement Policy 2015 (A345448); and Notes that the Council approved the private sale of the Punawai for reasons of timeliness and efficiency, and recognised at the time of the sale that this approach departed from Council’s Asset Disposal Policy 2015 (A1412442). |
2. Background
2.1 At public forum on 9 March 2017, Mr Steve Cross suggested that Council had not followed its own procurement policies for the purchase for the seating for Trafalgar Park in 2015, and that it had not followed its Asset Disposal Policy for the sale of the Punawai in 2016.
Trafalgar Park Seating
2.2 On 12 February 2015, Council received a report in the public excluded section of the agenda entitled ‘Temporary seating for events’ (Attachment 1).
2.3 Council had previously discussed the possible purchase of 4000 new seats for Trafalgar Park at a workshop on 22 January 2015, and had been considering putting a budget line in the Long Term Plan 2015-25 for such a purchase. At the time, Council was advised that 4000 new seats would cost between $500,000 and $1,000,000.
2.4 Council heard that the cost of seat hire was significant. For example, during the Rugby World Cup 2011, Council hired in approximately 10,000 seats for $350,000. Council has had feedback from other event organisers that the costs of overlay (particularly temporary seating) were a barrier to bringing events to Trafalgar Park.
2.5 On 3 February 2015 Council officers were made aware of an opportunity to purchase used seats of the same make as the temporary seats owned by Tasman District Council. The initial information provided indicated that the seats were owned by Acrow and were available in New Zealand as a result of the Cricket World Cup. It later transpired that the seats were indeed owned by Acrow but located in Australia.
2.6 There was no direct contact between Acrow and Council as it was felt that a negotiation on a commercial basis between two businesses with experience and skills in scaffold seating (Acrow and Nayland Scaffold Ltd) would result in a better value proposition for Council.
2.7 Nayland Scaffold provided construction services to Council for temporary seating for both the Rugby World Cup and the Cricket World Cup in 2015. It is a locally owned company with specific expertise in scaffold construction. Given the nature of the opportunity, Nayland Scaffold was approached to negotiate purchase of the seating on Council’s behalf.
2.8 The initial price quoted for the seats was $125 per seat (including supporting infrastructure) with transport additional. Council was advised that the total purchase price would be $750,000 with transport of the seats to Nelson of up to $60,000.
2.9 For comparison, the Tasman District Council paid $470,000 for 3000 new seats ($157 per seat), of the same type, in 2007.
2.10 A Nayland Scaffold representative visited the storage location in Australia and negotiated a final price of $695,895 for 6000 seats inclusive of delivery to Nelson ($116 per seat).
2.11 Nayland Scaffold passed on the negotiated price direct to Council. It received no commission or mark up from the price it negotiated with Acrow Ltd.
2.12 Nayland did receive payment for acting as Council’s agent, and for the time taken to inspect the seats in Australia. That payment was less than $5,000.
2.13 Nayland were contracted to construct the seats at Trafalgar Park. The value of this contract was less than $50,000.
2.14 There was some urgency around this issue as there was a major sporting event booked in to use Trafalgar Park on 29 May 2015 which required seating to be available.
2.15 Council’s procurement policy at the time is attached (Attachment 2)
2.16 The purchase of the seats is in line with the procurement policy as:
· The procurement of the seats, constituting a purchase of over $100,000, did not require a publicly advertised tender as there were exceptional circumstances and there was a Council resolution (from the February 12 Council 2015 meeting) to take an alternative approach.
· There were exceptional circumstances that allowed for the approval of the procurement of specialist services from Nayland Scaffold by a Group Manager, specifically:
· Specialist knowledge of scaffold construction for temporary seats
· Specific knowledge of temporary seating configurations for Trafalgar Park
· Timeliness.
2.17 The use of Nayland Scaffold to negotiate the purchase of the seats involved a low value transaction (less than $5000) from a supplier of a specialist nature.
Sale of the Punawai
2.18 On 8 September 2016 the Council received a report in the public excluded section of the agenda entitled “Proposed asset sale of the Punawai” (Attachment 3).
2.19 The report identified that Council’s Asset Disposal Policy (attachment 4) requires Council approval for sale by public auction or trade in for assets valued over $50,000. The Punawai was valued between $55,000 and $60,000 in one valuation and $60,000 to $65,000 by a second valuation.
2.20 Attached to the report was the offer to purchase the Punawai for $60,000. The offer was made on a standard sale and purchase agreement form obtained from NZ Marine Brokers Ltd.
2.21 The report requested the Council approve a change of process by way of a private sale that is an exception to the Asset Disposal Policy and provided reasons why this was the preferred option.
2.22 Mr Cross raised three issues with this process:
· If the purchase of the Punawai included a spare outboard the value could be much greater than the Council were informed;
· The legal review of the Sale and Purchase Agreement was poor or non-existent given the reference to NZ Marine Brokers Ltd; and
· The process falls short of the Council’s Asset Disposal Policy introduction that states disposals are transparent, accountable, maximise value for money for Council and minimise opportunities for exploitation.
3. Discussion
Trafalgar Park Seating
3.1 Council officers at all times were working under some considerable time pressure to deliver, in a cost effective way, the outcomes desired by Council.
3.2 Nayland Scaffold provided specialist services that helped Council achieve a good price for the seating and enabled the seating to be installed in a timely manner.
3.3 All transactions were within appropriate delegations and complied with the procurement policy.
Sale of the Punawai
3.4 The spare outboard is a standard piece of safety equipment to provide an alternative means of returning to shore should the main engine fail. In this case it was a Mercury 6 horsepower motor purchased in 2009 for $2,100 and may have been worth $1,000. It is standard practice for safety equipment to remain with the boat when sold.
3.5 A legal review of the purchase agreements occurred with more changes made to the purchase of the replacement vessel agreement than the offer to purchase the Punawai. The reference to NZ Marine Brokers Ltd was not relevant to the purchase of the Punawai and should have been deleted.
3.6 The Council agreed to depart from the Policy on this occasion to ensure the outcome maximised value for money for the Council.
4. Options
4.1 The Committee can either receive this report, or not, or it can request further information.
Chris Ward
Group Manager Community Services
Attachments
Attachment 1: A1311242 - Previous report - Temporary seating for events February 2015 ⇩
Attachment 2: A345448 - Procurement Policy 2015 ⇩
Attachment 3: R6448 - Previous report - Proposed asset sale of the Punawai September 2016 ⇩
Attachment 4: A1412442 - Asset Disposal Policy 2015 ⇩
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Important considerations for decision making |
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1. Fit with Purpose of Local Government This report deals with process matters in relation to cost effective service delivery. |
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2. Consistency with Community Outcomes and Council Policy The report confirms that the relevant Council policies were followed. |
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3. Risk There is a low risk that public perception of Council will be negatively affected due to the nature of the transactions. This can be mitigated by clear communications in relation to the policy framework under which decisions were taken. |
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4. Financial impact There are no costs associated with the recommendations contained in this report. |
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5. Degree of significance and level of engagement This matter is of low significance as the decisions have already been made and no further substantive recommendations are proposed. |
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6. Inclusion of Māori in the decision making process Maori have not been consulted in the preparation of this report. |
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7. Delegations The Governance Committee requested this report at its meeting of 9 March 2017. This matter falls within the delegation of Audit Risk and Finance Subcommittee as it relates to management of financial service and performance. |
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Audit, Risk and Finance Subcommittee 27 June 2017 |
REPORT R7627
Interim audit letter for the year ending 30 June 2017
1. Purpose of Report
1.1 To provide the letter to the Subcommittee on the interim audit for the year ending 30 June 2017 from Audit NZ.
2. Recommendation
|
Receives the report Interim audit letter for the year ending 30 June 2017 (R7627) and its attachment (A1775216); and Notes the suggested responses to the recommendations. |
3. Discussion
3.1 Audit NZ carried out the interim audit for the year ending 30 June 2017 in mid-April 2017 which focused on the Council's internal controls and the overall control environment. They issued two letters - a letter to the Council which covers governance issues (Attachment 1) and a letter to the Chief Executive which covers management issues.
3.2 Project management
3.2.1 Audit NZ raise that there are currently no post implementation reviews undertaken of projects and note that this will be addressed by August 2017.
3.2.2 Council’s business cases include a statement on expected benefits, and likely timing of benefits realisation. Our process for project closure includes a summary assessment of scope and benefits achievement at the point of project closure. During 2017/18 we will be working on linking these assessments with the asset management planning cycle in a more robust way. Beyond these elements, there is currently no formal process or staff capacity to plan and undertake post implementation reviews. Our timing to investigate and plan the benefits management and realisation theme is during 2018/19.
3.2.3 They have again raised that no project management policy has been developed.
3.2.4 Up until the current year Council has included this mandatory policy statement as part of the performance management system: Project Management: Projects are approved, initiated, planned, managed, reported on and closed according to Nelson City Council standards. Council will be developing this into a broader organisational policy during 2017/18.
3.3 Audit NZ have provided a supplementary letter which identifies areas where the Council could consider enhancing its internal controls. The Chief Executive accepts the comments and they will be addressed prior to the 2016/17 Annual Report.
4. Options
4.1 That the Subcommittee note the matters raised in the letter to the Council on the interim audit of Nelson City Council for the year ending 30 June 2017 and the manner in which officers propose to address them.
Nikki Harrison
Group Manager Corporate Services
Attachments
Attachment 1: A1775216 - Draft letter to Council on interim audit to 30 June 2017 ⇩
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Important considerations for decision making |
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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 and the interim audit forms part of that audit process. |
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2. Consistency with Community Outcomes and Council Policy This report supports the community outcome that Council provides leadership. |
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3. Risk There is more risk that Council will not meet all its responsibilities if the recommendations from Audit NZ are not accepted and actioned. |
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4. Financial impact There is no financial impact. |
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5. Degree of significance and level of engagement This matter is of low significance because there are no decisions to be made. Therefore no engagement has occurred. |
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6. Inclusion of Māori in the decision making process Maori have not been consulted in preparation of this report. |
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7. Delegations The Audit, Risk and Finance Subcommittee has the responsibility for considering audit processes and management of financial risk. The Audit, Risk and Finance Subcommittee has the power to make a recommendation to Council on this matter. |
8 June 2017
Rachel Reese
Mayor
Nelson City Council
PO Box 645
Nelson 7040
cc John Peters, Chair of the Audit, Risk and Finance Subcommittee
Clare Hadley, Chief Executive
Nikki Harrison, Group Manager Corporate Services
Dear Rachel
Letter to the Council on the interim audit of Nelson City Council for the year ending 30 June 2017
1 Introduction
We have completed our interim audit of Nelson City Council (the City Council) and this letter outlines the work undertaken and the key findings from our audit. We have also provided a separate letter to management, which sets out our detailed findings.
Work undertaken
Our interim audit primarily focused on updating our understanding of the City Council’s control environment, including the internal controls in its key financial and non-financial systems. Our assessment of key aspects of the overall control environment is in section 2 of this letter. The work on the issues facing the City Council this financial year which we identified in our audit arrangements letter is covered in section 3 of this letter.
We have provided an overview of the content of our supplementary letter to management, which sets out our more detailed findings in our interim audit in section 4 of this letter.
2 Assessment of the control environment
2.1 The higher level environment
We performed a high level assessment of the control environment. This assessment is for the purpose of planning the most effective and efficient audit approach, to enable us to express an audit opinion on the City Council’s financial statements and the non-financial information.
It is not the purpose of our assessment to provide you with assurance on internal control in its own right. Our assessment will not necessarily identify and detect all matters in relation to internal control.
However, in performing this assessment, we have identified some areas where we believe the control environment can be enhanced. We reported the detail of our recommendations in the supplementary letter to management.
The areas we considered during our high level assessment were:
2.1.1 Project Management
In the 2016 interim report, we noted that the City Council had made changes to its organisational processes to make the management of its projects more effective. However, our discussions with project management staff in the current year identified that currently, there are no realisation, or post-implementation reviews undertaken.
We understand that it is the intention of the project management team to implement such reviews, and the timeframe for a review of this area is expected to be August 2017.
We also understand that the project management policy has not yet been developed.
We will continue to monitor the City Council’s progress and its approach to project management.
2.1.2 Internal audit
As part of the interim audit, we met with the City Council’s internal auditor. We obtained and reviewed the internal audit plans and also discussed the progress of the various reviews planned for the year. The work plan indicates that internal audit intend to review a wide range of the City Council’s activities.
As part of the final audit, we will once again liaise with the internal auditor and review any significant findings, as well as the impact of these findings on our audit approach.
2.1.3 Other aspects of the control environment
We also updated our understanding of; the City Council’s processes for identifying and managing conflicts of interest, and its governance structures.
No issues arose from this.
2.2 Internal controls in key systems
We reviewed the internal controls in place for key financial and non-financial information systems. Internal controls are the policies and processes that are designed, implemented and maintained by Council and management – to provide reasonable assurance as to reliability and accuracy of financial and non-financial reporting , as well as compliance with significant legislative requirements. Both “design effective”[1] and “operationally effective”[2] internal controls are important to minimising the risk of either fraud or misstatement occurring. The responsibility for the effective design, implementation and maintenance of internal control rests with the Council.
After reviewing the City Council’s systems of internal controls, we found that generally design effective controls were in place. Where we tested these controls, we found that they were operating effectively.
We identified some areas where the City Council should consider enhancing its internal controls. These areas are outlined in our supplementary letter to management.
3 Business risks/issues
The matters that we are paying particular attention to this year are outlined in our audit arrangements letter. Given the nature of these matters, we will comment in full on these matters in our final management letter. From our work to date no issues have been identified.
4 Supplementary letter
We have provided management with a supplementary letter that outlines our findings and recommendations about less significant and miscellaneous matters. The topics covered in this supplementary letter include:
4.1 Internal controls
Detailed findings and recommendations in relation to the City Council’s systems of internal control.
4.2 Matter raised in the prior year
A listing of recommendations made in 2016 in our letter to management and the updated position in relation to each.
There are no issues arising from these that we need to specifically bring to your attention.
We wish to thank the City Council for the assistance and cooperation extended during the course of the audit. If you have any questions, please contact me on 021 222 8464.
Yours sincerely
Bede Kearney
Director
Appendix 1: Explanation of priority rating system
Our recommendations for improvement and their priority are based on our assessment of how far short the City Council is from a standard that is appropriate for the size, nature, and complexity of its business. We have developed the following ratings for our recommendations:
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Urgent Major improvements required |
Needs to be addressed urgently These recommendations relate to a serious deficiency that exposes the City Council to significant risk. Risks could include a material error in the financial statements and the non‑financial information; a breach of significant legislation; or the risk of reputational harm. |
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Necessary Improvements are necessary |
Address at the earliest reasonable opportunity, generally within 6 months These recommendations relate to deficiencies that need to be addressed to meet expected standards of good practice. These include any control weakness that could undermine the system of internal control or create operational inefficiency. |
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Beneficial Some improvement required |
Address, generally within 6 to 12 months These recommendations relate to deficiencies that result in the City Council falling short of best practice. These include weakness that do not result in internal controls being undermined or create a risk to operational effectiveness. However, in our view it is beneficial for management to address these. |
Appendix 2: Prior year recommendation
Matters in progress
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Recommendation |
Current status |
Priority |
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Contract management |
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Implement an integrated contract management system. This will allow the City Council to better monitor the performance of contractors and manage project delays on an organisation-wide basis. It will also enable the City Council to make more informed decisions regarding contract renewals. |
The City Council has started this process and has obtained an initial quote for a fully integrated contract management system. In progress |
Necessary |
Matters that have been resolved
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Recommendation |
Outcome |
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Risk Management Adopt a risk management policy and a risk matrix. |
A draft risk management policy has been developed in October 2016, which will be approved by Council at the May 2017 meeting. It is intended that this will be a comprehensive, organisation wide policy. Additionally, a risk treatment and consequence document has been developed. |
