Agenda of Audit, Risk and Finance Subcommittee

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

14 November 2017

Page No.

1. Apologies

Nil

2. Confirmation of Order of Business

3. Interests

3.1 Updates to the Interests Register

3.2 Identify any conflicts of interest in the agenda

4. Public Forum

5. Confirmation of Minutes

5.1 28 September 2017 7 - 13

Document number M2963

Recommendation

That the Audit, Risk and Finance Subcommittee

Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 28 September 2017, as a true and correct record.

6. Status Report - Audit Risk and Finance Subcommittee -14 November 2017 14 - 17

Document number R8676

Recommendation

That the Subcommittee

Receives the Status Report Audit, Risk and Finance Subcommittee 14 November 2017 (R8676) and its attachment (A1753947).

7. Chairperson's Report

8. Report from 28 September Works and Infrastructure Committee 18 - 20

Document number R8681

Recommendation

That the Audit, Risk and Finance Subcommittee

Receives the Report from 28 September Works and Infrastructure Committee (R8681) and its attachment/s () and its attachment (A1839317).

9. Corporate Report to 31 August 2017 21 - 34

Document number R7001

Recommendation

That the Committee

Receives the report Corporate Report to 31 August 2017 (R7001) and its attachments (A1854215, A1853357 and A1852936).

10. Health and Safety: Quarterly Report 35 - 48

Document number R7022

Recommendation

That the Subcommittee

Receives the report Health and Safety: Quarterly Report (R7022) and its attachment (A1845583).

Recommendation to Council

That the Council

Notes the report Health and Safety: Quarterly Report (R7022) and its attachment (A1845583); and

Acknowledges the assessment of critical health and safety risks contained in the attachment (A1845583).

11. Insurance renewal 2017/18 49 - 54

Document number R7525

Recommendation

That the Subcommittee

Receives the report Insurance renewal 2017/18 (R7525) ; and

Notes the decision made to exit Local Authority Protection Program (LAPP) and join the Aon South Island Collective from 1 July 2017; and

Notes the decision made to purchase an additional $125 million shared limit (to a total limit of $250million) with a Council sublimit of $160m from 1 November 2017.

12. Internal Audit Quarterly Report to 30 September 2017 55 - 59

Document number R7589

Recommendation

That the Subcommittee

Receives the report Internal Audit Quarterly Report to 30 September 2017 (R7589).

13. Key Organisational Risks 2017 - 3rd Quarterly Report 60 - 77

Document number R7681

Recommendation

That the Subcommittee

Receives the report Key Organisational Risks 2017 - 3rd Quarterly Report (R7681) and its attachment (A1842185).

14. Section 17A Service Delivery Review progress report 78 - 123

Document number R8167

Recommendation

That the Subcommittee

Receives the report Section 17A Service Delivery Review progress report (R8167) and its attachment/s (A1824993, A1845758, A1844354, A1843923, A1837281, A1633609, A1819898, A1844359, A1853049).

15. Tax Risk Management Strategy 124 - 132

Document number R8585

Recommendation

That the Subcommittee

Receives the report Tax Risk Management Strategy (R8585) and its attachments (A1847439 and A1847460).

Recommendation to Council

That the Council

Adopts the Tax Risk Management Strategy (A1847439).

Note:

· This meeting is expected to continue to lunchtime. (delete as appropriate)

· Lunch will be provided. (delete as appropriate)

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

Held in the Council Chamber, Civic House, 110 Trafalgar Street, Nelson

On Thursday 28 September 2017, commencing at 1.02pm

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

In Attendance: Councillors M Courtney, P Matheson, B McGurk, G Noonan, M Rutledge , and S Walker, Group Manager Corporate Services (N Harrison), Group Manager Community Services (C Ward), Senior Strategic Adviser (N McDonald), Manager Communications (P Shattock), Senior Accountant (T Hughes) and Governance Adviser (E-J Ruthven)

Apology: Councillor B Dahlberg

1. Apologies

Resolved AUD/2017/056

That the Subcommittee

Receives and accepts the apologies from Councillor Dahlberg.

Barker/Her Worship the Mayor Carried

2. Confirmation of Order of Business

There was no change to the order of business.

3. Interests

There were no updates to the Interests Register, and no interests with items on the agenda were declared.

4. Public Forum

There was no public forum.

5. Confirmation of Minutes

5.1 8 September 2017

Document number M2894, agenda pages 7 - 15 refer.

Resolved AUD/2017/057

That the Committee

Confirms the minutes of the meeting of the Committee, held on 8 September 2017, as a true and correct record.

Barker/Her Worship the Mayor Carried

6. Status Report - Audit Risk and Finance Subcommittee - 28 September 2017

Document number R8406, agenda pages 16 - 18 refer.

Resolved AUD/2017/058

That the Subcommittee

Receives the Status Report Audit, Risk and Finance Subcommittee 28 September 2017 (R8406) and its attachment (A1753947).

Murray/Barker Carried

7. Chairperson's Report

The Chairperson gave a verbal report, and explained reasons for the July 2017 financial records not being available for this meeting.

He added that the Annual Report audit had become available this week, and Group Manager Corporate Services, Ms Harrison, tabled a document (A1841934) outlining changes to the Annual Report as a result of the audit process.

Senior Accountant, Tracey Hughes, explained changes in the financial statements for the Annual Report and answered questions.

Attachments

1 A1841934 - tabled document

8. PWC Treasury advisor presentation

Brett Johanson and Jason Bligh, from PriceWaterhouseCoopers, gave a power point presentation regarding the treasury management update (A1838402).

Attendance: Councillor Barker left the meeting from 1.11pm to 1.13pm.

Mr Johanson and Mr Bligh spoke about Council’s financial management framework, short and longer term interest rate profiles and Council’s ability to raise debt, and answered questions.

Attachments

1 A1838402 - PWC Power Point Presentation

9. Protected disclosure policy for elected members

Document number R8402, agenda pages 19 - 31 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report, and explained that a Separate Protected Disclosure policy for elected members would be developed.

Manager People and Capability, Stephanie Vincent spoke about the proposed policy development, and answered questions.

Resolved AUD/2017/059

That the Subcommittee

Receives the report Protected disclosure policy for elected members (R8402) and its attachment (A1338935); and

Requests the development of a separate Protected Disclosure Policy for Elected Members, for review by the Subcommittee prior to submitting the policy for approval by Council.

Barker/Her Worship the Mayor Carried

10. Results of 2017 Residents Survey

Document number R8361, agenda pages 32 - 125 refer.

Senior Strategic Adviser, Nicky McDonald, presented the report, and answered questions.

Resolved AUD/2017/060

That the Subcommittee

Receives the report Results of 2017 Residents Survey (R8361) and its attachment (A1789495); and

Notes the 2017 Residents Survey results (A1789495) will be communicated to the public.

Her Worship the Mayor/Barker Carried

11. Health and Safety Strategic Plan 2017 - 2023

Document number R7718, agenda pages 126 - 144 refer.

Health and Safety Adviser, Malcolm Hughes, presented the report, and answered questions.

Resolved AUD/2017/061

That the Subcommittee

Receives the report Health and Safety Strategic Plan 2017 - 2023 (R7718) and its attachment (A1398549).

Barker/Murray Carried

Recommendation to Council AUD/2017/062

That the Council

Approves the Health and Safety Strategic Plan 2017 - 2023 (A1398549).

Barker/Murray Carried

12. Audit Engagement Letter 2017 - debenture trust deed

Document number R8254, agenda pages 145 - 169 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report and answered questions.

Resolved AUD/2017/063

That the Subcommittee

Receives the report Audit Engagement Letter 2017 - debenture trust deed (R8254) and its attachment (A1815606); and

Notes the Subcommittee can provide feedback on the Audit Engagement letter – debenture trust deed to Audit NZ if required, noting the Mayor will sign the letter once the Subcommittee’s feedback has been incorporated.

Murray/Barker Carried

13. Revised Internal Audit Annual Plan to June 2018

Document number R8408, agenda pages 170 - 175 refer.

Internal Audit Analyst, Lynn Anderson, presented the report, and noted changes made as a result of a workshop on this subject. She explained that the plan included one additional audit, and that another additional audit may be able to be undertaken within the current budget.

Resolved AUD/2017/064

That the Subcommittee

Receives the report Revised Internal Audit Annual Plan to June 2018 (R8408) and its attachment (A1800209).

Murray/Her Worship the Mayor Carried

Recommendation to Council AUD/2017/065

That the Council

Approves the Internal Audit – Annual Audit Plan to 30 June 2018 (A1800209).

Murray/Her Worship the Mayor Carried

14. Exclusion of the Public

Resolved AUD/2017/066

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:

Murray/Her Worship the Mayor Carried

Item	General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Particular interests protected (where applicable)
1	Audit, Risk and Finance Subcommittee Meeting - Public Excluded Minutes - 8 September 2017	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)(i) To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

Item

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

Particular interests protected (where applicable)

Audit, Risk and Finance Subcommittee Meeting - Public Excluded Minutes - 8 September 2017

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)(i)

To enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

The meeting went into public excluded session at 2.45pm and resumed in public session at 2.47pm.

Please note that as the only business transacted in public excluded was to confirm the minutes, this business has been recorded in the public minutes. In accordance with the Local Government Official Information Meetings Act 1987, no reason for withholding this information from the public exists.

Resolved AUD/2017/067

That the Subcommittee

Confirms the minutes of part of the meeting of the Audit, Risk and Finance Subcommittee, held with the public excluded on 8 September 2017, as a true and correct record.

Barker/Her Worship the Mayor Carried

15. Re-admittance of the Public

Resolved AUD/2017/068

That the Subcommittee

Re-admits the public to the meeting.

Barker/Murray Carried

There being no further business the meeting ended at 2.45pm.

Confirmed as a correct record of proceedings:

Chairperson Date

Audit, Risk and Finance Subcommittee

14 November 2017

REPORT R7001

Corporate Report to 31 August 2017

1. Purpose of Report

1.1 To inform the members of the Governance committee of the financial results of activities for the two months ending 31 August 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 August 2017 (R7001) and its attachments (A1854215, A1853357 and A1852936).

3. Background

3.1 The financial reporting focuses on the two 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 2017/18 Annual Plan budget plus any carry forwards, plus or minus any other additions or changes as approved by Council throughout the year.

3.3 The phasing of budgets to better reflect the timing of anticipated actual income and expenditure has not yet occurred due to resourcing constraints. This should be done in time for the next corporate report.

4. Discussion

1.1 For the two months ending 31 August 2017, the activity surplus/deficits are $2.7 million unfavourable to budget. All of the unfavourable variance is due to budgets not been phased yet and costs such as insurance and rates being charged at the beginning of the year.

1.2 Financial information provided in Attachment 1 to this report:

· 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, and year to date expenditure against approved operating budget by activity.

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

4.1 Capital expenditure is $2.3 million under budget.

5. Accounts for camping grounds, marina and forestry activities

5.1 At the 27 June 2017 subcommittee meeting the following resolution was passed:

Resolved AUD/2017/017

That the Subcommittee

Requests that profit and loss accounts for the forestry, marina, and camping grounds consolidated accounts be brought to a future meeting.

5.2 The accounts are included as Attachment 3 which outline the separate activities of the three motor camps, the marina and the forestry including asset value and outstanding loans (if any).

6. Options

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

6.2 Do not accept the recommendation.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: A1854215 - Financial information ⇩

Attachment 2: A1853357 - Major projects summary ⇩

Attachment 3: A1852936 - Analysis of Motor camps, Marina and forestry ⇩

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 2017/18.

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

14 November 2017

REPORT R7022

Health and Safety: Quarterly Report

1. Purpose of Report

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

2. Summary

2.1 Health and safety performance reports are provided quarterly to the Subcommittee. These reports provide an overview of health and safety performance based on key lead and lag indicators. Where a concerning trend is identified more detail is provided in order to better understand issues and implement appropriate controls.

3. Recommendation

That the Subcommittee

Receives the report Health and Safety: Quarterly Report (R7022) and its attachment (A1845583).

Recommendation to Council

That the Council

Notes the report Health and Safety: Quarterly Report (R7022) and its attachment (A1845583); and

Acknowledges the assessment of critical health and safety risks contained in the attachment (A1845583).

4. Background

4.1 Councillors, as ‘Officers’ under the Health and Safety at Work Act 2015 (HSWA), 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.

5. Discussion

5.1 Attached is a report outlining data on health, safety and wellbeing drawn from Council’s health and safety system. The wellbeing section in this report is new and shows the total number of sick days taken and the number of work or non-work issues raised with workplace support. These provide an indication of trends in the broadest sense only, as more detailed analysis is not practicable due to data limitations or privacy.

5.2 Physical security continues to be rated as a High risk in the attached assessment. This is due to the large number of areas where this risk is present and outstanding actions relating to further controls. As this work is completed it is expected that this will move to a Medium risk.

5.3 The key health and safety risks as reported on are currently being reviewed by Council officers to ensure we are focusing our energy on the right risks.

General work programme

5.4 Governance activities: Councillors have participated in site visits to the Maitai dam, Tantragee water treatment plant and the Stoke Greenmeadows centre. These visits help councillors to meet their due diligence obligations, and form part of the governance due diligence plan, outlined in the Health and Safety Governance Charter.

5.5 The Health and Safety Strategic Plan was reviewed by the Audit Risk and Finance (ARF) Subcommittee on 28 September 2017.

5.6 On 8 September 2017 it was requested that officers report back on security related events at Council libraries, including details of controls and treatments. This work is well underway and it is planned to have a report for Subcommittee at its next meeting once worker engagement on security controls and treatments has been completed.

Other activities:

5.7 The contract with the provider of Council’s health and safety data base (InControl) has been renewed. After careful consideration and worker engagement it has been decided to upgrade to the latest version. A review of the InControl platform is programmed for later in the financial year.

5.8 Further training has been provided to the ‘Champions and Connectors’ as the next steps in the ‘Wellbeing at Work’ programme.

5.9 Council’s Health and Safety Policy has been reviewed.

5.10 The health and safety forum received a presentation on safety in design (SID).

6. Options

6.1

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.

Malcolm Hughes

Health and Safety Adviser

Attachments

Attachment 1: A1845583 - Quarterly Health and Safety Performance Data July to September 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 Health and Safety at Work 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 ‘Governance due diligence plan’ found at section 6 of the Health and Safety Governance Charter (A1767136). The likelihood of adverse consequences is assessed as low based on the current record of Council’s health and safety systems and 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 Subcommittee is delegated oversight of Health and Safety.

Audit, Risk and Finance Subcommittee

14 November 2017

REPORT R7525

Insurance renewal 2017/18

1. Purpose of Report

1.1 To update the subcommittee on the 2017/18 insurance renewal.

2. Summary

2.1 Nelson City Council is part of the Top of the South Collective with Tasman District Council and Marlborough District Council which was formed 1 July 2011. The insurance broker is Jardine Lloyd Thomson (JLT) and Nelson City Council has various insurance policies including material damage insurance for ‘above ground’ assets ie buildings etc.

2.2 Separately, Council was a member in the Local Authority Protection Programme (LAPP) scheme which is a mutual scheme whose membership consists of 32 local authorities. It is aimed at providing insurance cover for damage to ‘infrastructural assets’ from natural hazard events only (not fire etc). It only covers the 40% of damage costs not covered by the National Disaster Recovery Plan which currently covers 60%.

2.3 Aon New Zealand has undertaken risk modelling on Council's flood and earthquake risks using Tonkin and Taylor analysis and data on our infrastructure assets (including location and value). Based on the latest risk assessment it would appear that Council is underinsured; that the $125m loss limit is not enough.

2.4 At the Governance Committee meeting on 9 March 2017 (prior to the Audit, Risk and Finance subcommittee being formed) a report was presented looking at the option to exit LAPP for Council’s infrastructure insurance and the appropriate level of insurance cover, given the risk modelling work undertaken by Aon/Tonkin and Taylor. This decision was delegated to a small group of councillors, the Chief Executive and the Chair of Audit, Risk and Finance subcommittee to make the decision.

2.5 This report is both an update to the subcommittee on those decisions and the 2017/18 insurance renewal.

3. Recommendation

That the Subcommittee

Receives the report Insurance renewal 2017/18 (R7525) ; and

Notes the decision made to exit Local Authority Protection Program (LAPP) and join the Aon South Island Collective from 1 July 2017; and

Notes the decision made to purchase an additional $125 million shared limit (to a total limit of $250million) with a Council sublimit of $160m from 1 November 2017.

4. Background

4.1 Top of the South Collective

4.2 Nelson City Council is part of the Top of the South Collective with Tasman District Council and Marlborough District Council which was formed 1 July 2011. The insurance broker is Jardine Lloyd Thomson (JLT) and Nelson City Council has various insurance policies including:

4.2.1 Material Damage;

4.2.2 Business Interruption;

4.2.3 Motor Vehicle;

4.2.4 Public and Professional Indemnity;

4.2.5 Crime, Statutory and Employers Liability;

4.2.6 Harbour Masters and Wreck Removal Liability;

4.2.7 Hall Hirers Liability;

4.2.8 Personal Accident;

4.2.9 Forestry.

Infrastructure insurance

4.3 Separately, Council was a member in the Local Authority Protection Programme (LAPP) scheme which is a mutual scheme whose membership consists of 32 local authorities. It is aimed at providing insurance cover for damage to infrastructural assets from natural hazard events only (not fire etc). It only covers the 40% of damage costs not covered by the National Disaster Recovery Plan which currently covers 60%. Council had $707 million of infrastructure assets covered by the Local Authority Protection Programme ($719m 2015/16).

Risk modelling for infrastructure assets

4.4 As part of the presentation of our infrastructure asset portfolio to insurance companies in London, Aon New Zealand has undertaken risk modelling on Council's flood and earthquake risks using Tonkin and Taylor analysis and data on our infrastructure assets (including location and value).

4.5 This risk modelling was undertaken during 2016 and has been further refined following the Kaikoura earthquake and similar modelling for Marlborough and Tasman District Council.

4.6 Based on the latest risk assessment it would appear that Council is underinsured; that the $125m loss limit is not enough.

5. Discussion

Top of the South Collective

1.1 Confirmation was received from the brokers on 30 June 2017 that the insurance program was successfully placed and cover was in place for the current financial year.

5.1 Material Damage & Business Interruption – Lead insurer has now changed to QBE, followed by AIG, Berkshire Hathaway Ltd, NZI (part of IAG New Zealand Ltd) and XL Catlin Pty Ltd. QBE were the second co-insurer behind Vero in prior year renewals so they are have agreed to accept the expiring wording and terms so, other than the premiums, everything else remains unchanged. Material Damage premiums have increased by $54,000 (8%) for 2017/18 which reflects the impact on the insurance market from the Kaikoura earthquake as well as increased insured valuations ($276m to $318m).

Infrastructure insurance

5.2 At the Governance Committee meeting on 9 March 2017 (prior to the Audit, Risk and Finance subcommittee being formed) a report was presented looking at the option to exit LAPP for Council’s infrastructure insurance and the appropriate level of insurance cover, given the risk modelling work undertaken by Aon/Tonkin and Taylor. The following resolution was passed at Council:

Approves delegating authority to the Mayor, Chair of Governance, Deputy Chair of Governance, Chair of Audit, Risk and Finance Subcommittee and Chief Executive to decide whether Nelson City Council should exit from the Local Authority Protection Program for Council’s infrastructure insurance and the appropriate level of insurance cover, by the end of May 2017 and take any action required to give effect to the decision.

5.3 Meetings were held with the group delegated with the decision and it was agreed to exit LAPP from 1 July 2017 and join a South Island Collective through Aon with a $125 million shared limit. As the renewal date for the South Island collective is 1 November 2017 Council (along with Tasman District, Grey District and Environment Southland Councils) joined the program for four months on existing terms and pricing of the collective.

5.4 The decision on the appropriate level of insurance cover was deferred while Aon worked on placing and obtaining terms for an excess layer for Council above the $125m limit and confirming other potential participants in time for the 1 November 2017 renewal date.

5.5 During October, Aon confirmed that it would be able to place $125 million above the $125 million (ie $250 million limit) as a shared limit with one right of reinstatement for earthquake at nil additional premium. The overall programme limit defines what is shared by the collective per loss and the maximum amount payable.

5.6 Within this shared program limit, Council has a sub-limit of $160 million plus AICOW – Additional Increased Cost of Working – this allows for additional costs to be paid over and above normal operating costs during a loss. The $160m was deemed to be the mean 1 in 750 ARI (annual return interval) loss estimate. This limit is one Council will need to review on an annual basis.

5.7 The group delegated with the decision on the appropriate level of insurance cover met in late October and agreed to participate in the additional $125 million shared limit from 1 November 2017 at an estimated cost of $75,000.

5.8 The premium is based on historical losses/claims, inherent risk (i.e. likelihood of loss), capacity requirements (as part of programme), sub limit and excess level. The additional premium can be accommodated within the insurance budget for the current year.

Other matters

5.9 Treasury has not yet put out a consultation document on the current 40/60% cost sharing arrangement. This consultation document will include consideration of Central Government contributing a lower percentage for smaller more frequent events, introduction of risk management regulations etc. The Subcommittee will be updated when this consultation is undertaken as the implications may be substantial for Council.

6. Options

6.1 The options are to receive the report or not, as the decisions outlined in the report were delegated to a subgroup.

7. Conclusion

7.1 The decisions to decide whether Nelson City Council should exit from the Local Authority Protection Program for Council’s infrastructure insurance and the appropriate level of insurance cover were delegated and this report updates the subcommittee on these decisions.

Nikki Harrison

Group Manager Corporate Services

Attachments

Nil

Important considerations for decision making

1. Fit with Purpose of Local Government

Risk management through using insurance is a tool to enable more efficient and effective provision on services as set out in section 10(1)(b) of the Local Government Act.

2. Consistency with Community Outcomes and Council Policy

This recommendation is not inconsistent with any previous Council decisions. It supports the Community Outcome ‘Our Council provides leadership’.

3. Risk

Work by Aon in association with Tonkin and Taylor highlighted to Council that it did not necessarily have the right level of insurance cover for its infrastructure assets, if a large earthquake was to occur.

4. Financial impact

The financial impact from this decision is an additional $75,000 insurance premium which has been budgeted.

5. Degree of significance and level of engagement

This matter is of low significance because it is of limited interest to ratepayers. Therefore no consultation has occurred.

6. Inclusion of Māori in the decision making process

No consultation with Maori has been undertaken in preparing this report.

7. Delegations

The Audit, Risk and Finance subcommittee has responsibility for organisational risk management. The Audit, Risk and Finance subcommittee has the power to make a recommendation to Council on this matter.

Audit, Risk and Finance Subcommittee

14 November 2017

REPORT R7589

Internal Audit Quarterly Report to 30 September 2017

1. Purpose of Report

1.1 To update the Audit, Risk and Finance Subcommittee on the internal audit activity for the quarter to 30 September 2017.

2. Recommendation

That the Subcommittee

Receives the report Internal Audit Quarterly Report to 30 September 2017 (R7589).

3. Background

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

3.2 Under the Internal Audit 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 current Annual Audit Plan period is to 30 June 2018. The Plan for this period was initially received by the Audit, Risk and Finance Subcommittee on 27 June 2017.

4. Progress Against Annual Audit Plan During the Quarter

4.1 Due to the decision to review the Annual Audit Plan to 30 June 2018 at the Council meeting of 10 August 2017, internal audit activity for the quarter has focussed on:

a) Developing a revised Annual Audit Plan

b) Improving processes associated with internal audits.

4.2 This has meant that only one audit has been in progress during the three month period from 1 July 2017 to 30 September 2017. There are therefore no new risk exposures and control issues to report from internal audits during this period.

5. Revised Annual Audit Plan

Analysis of Internal Audit Programme since Inception

5.1 A full analysis of the audit programme of work since inception was performed by officers and this indicated that a closer alignment with Council’s recently developed risk management principles would enhance the benefits to Council from the internal audit work programme.

5.2 Positive effects:

5.2.1 On the upside, 33 audits have been performed since late 2015, and from these, 589 findings were identified. Almost all the recommendations associated with the findings have been actioned by officers, and these have positively contributed to control and process improvements throughout Council.

5.2.2 As there had previously been no internal audit function at Council, the approach to focus initial audits on controls in areas where Council could be more exposed to fraud was a prudent one. Areas such as cash handling, procurement, credit notes, payroll, grants, and mobile fixed assets have been reviewed, as well as fundamental controls such as segregation of duties, conflicts of interest, access permissions to IT systems, and contract management. Having a light shone on these fundamental controls has been invaluable to Council.

5.2.3 The internal audit function is a key component of managing risk at Council and officers are now familiar with the internal audit process.

5.3 Limitations found:

5.3.1 To date, and including the original Annual Audit Plan to 30 June 2018, audits have had a strong financial focus. Council’s recently approved risk criteria have now been incorporated into the internal audit programme, and this suggests a need to widen the ambit of the audit programme to include more non-financial topics.

5.3.2 As a result, other important risk areas that Risk ratings from internal audits had generally been recorded at a higher level than they would have been under Council’s now-approved risk matrix.

5.3.3 The sheer volume of audits and limited resources had meant that some audits could not be performed to an ideal depth and breadth.

5.3.4 Organisational capacity has not been able to match the flow-on effect of the large volume of internal audits.

Audit, Risk and Finance Subcommittee Workshop

5.4 Following the above analysis and then discussions with key stakeholders, including the Acting Chief Executive and Acting Chair of the Audit, Risk and Finance Subcommittee, a Council workshop was held to clarify direction on the future compilation of an Annual Audit Plan that would ensure closer alignment to Council’s risk management principles whilst matching organisational capacity. This was held on 14 September 2017 and provided the guidance necessary for officers to present the final Annual Audit Plan to the Audit, Risk and Finance Subcommittee meeting of 28 September 2017.

6. Internal Audit Process Improvements

Risk Management of Actions Recommended from Internal Audits

6.1 As part of the Annual Internal Audit Plan review process, risks from all ‘open’ recommended actions from internal audits that had been performed were aligned to meet Council’s approved risk criteria. All future risk assessments will be based on these criteria. In general, as the impact statements in Council’s Risk Criteria have higher thresholds than those in the original Internal Audit Procedure, this will lead to less unnecessary treatment of risks from future internal audits that would have previously been recorded as higher risks.

6.1.1 The tolerance periods for treating risks were also aligned to meet Council’s approved residual risk tolerance timeframes. These timeframes are more realistic than those in the original Internal Audit Procedure.

6.1.2 Where previously there was no requirement to formally record a decision to continue tolerating a risk beyond the allowable period, there is now a process which will require that there is evidence that the management of risk has been properly considered in line with risk management principles.

Review of Internal Audit Procedure

6.2 The original Internal Audit Procedure which was approved in September 2015 is no longer relevant and has been reviewed in its entirety. It had been based to a large extent on processes mimicking those for Health and Safety audits. The Senior Leadership Team approved the revised Procedure at its meeting of 16 October 2017.

7. Recommendation Options

7.1 The acceptance of the recommendation to receive the Internal Audit Quarterly Report to 30 September 2017 outlining internal audit’s activity demonstrates Council’s commitment to improving controls and practices that ensure the prudent, effective and efficient management of Council resources. No advantage could be identified from not receiving this report.

Lynn Anderson

Internal Audit Analyst

Attachments

Nil

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

When considering planned audits collectively, there is a high likelihood that Council could suffer a moderate level of negative public reaction resulting from its failure to assess and implement strong controls. According to Council’s Risk Criteria this corresponds to a high risk.

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

14 November 2017

REPORT R7681

Key Organisational Risks 2017 - 3rd Quarterly Report

1. Purpose of Report

To update the Subcommittee on progress with identifying and managing key risks to the organisation’s objectives. The report is intended to assist the governance role of the Subcommittee in overseeing the organisation’s risk management.

2. Recommendation

That the Subcommittee

Receives the report Key Organisational Risks 2017 - 3rd Quarterly Report (R7681) and its attachment (A1842185).

3. Background

3.1 At its meeting on 8 September 2017, the Audit Risk and Finance Subcommittee received and considered the previous quarterly report on key organisational risks to Council’s objectives. This reporting forms part of the development of Council’s overall risk management capability. As noted in the previous report, this capability is being developed using the organisation’s existing business model – that is by basing risk management processes within each business unit. This includes business unit objectives which are, as far as possible, specific, measurable and achievable within a defined timeframe, and using organisationally consistent techniques and criteria.

3.2 At its meeting of 10 August 2017, the Council adopted an updated Risk Management Policy (A1553263) and Risk Criteria (A1545157). These documents had been in use for some time across the organisation but the Subcommittee recommended and Council agreed to some changes to both the Policy and the Risk Criteria. As a result (and because of some internal changes to business unit function over the last several months) business unit risk management is not yet fully aligned to the recently adopted policy and criteria. In particular because of business unit function changes, some business unit risk registers are no longer aligned to business unit function and some updating will be required.

4. Key risk reporting and management

4.1 Staff have taken the opportunity presented by the above changes, and by the evolving practice in health and safety risk management to:

· Better align this report with the quarterly report to the subcommittee on health and safety

· Review and consider in the light of Council activities so far this year whether or not the key risk areas in previous reports are still appropriate.

4.2 The attached document outlining key risk areas has been updated to reflect this. In particular the attached document now:

· Condenses all health and safety related risks into a single topic area (detail on these risks is contained in the quarterly health and safety report to the Subcommittee)

· Adds a new key risk area related to timing and extent of legal advice used in Council decision making.

4.3 The Subcommittee’s attention is also formally drawn to the fact that this report does not deal with financial risks or with insurance matters. This has always been the case on the basis that the Subcommittee receives more detailed reporting on both of these matters.

Summary of control changes since last report

4.4 The table below summarises areas where controls on key risks have been progressed.

Key risk area	Progress on risk treatments since last report
1 Maintaining lifeline services …	· Exercise to test and improve responding to major disruptions scheduled for 15 November · Action from regional lifelines review commenced including enhancements to stream flood protection, water supply and wastewater management
2 H&S risks from higher hazard work situations …	[Condensed from two previous risk areas, detail of actions in health and safety report]
10 Lack of adequate consideration of legal implications …	[New area]

Capital works programme risk

4.5 In the previous report to this Subcommittee, officers noted a risk that may have consequences large enough to warrant corporate action. In summary this risk arises from mechanisms for reconsidering expenditure in cases where fixed sums are allocated to projects by Council decision (often substantially ahead of time). When these projects come to execution, changes in the market can alter the real cost of these projects. The experience from the capital works programme suggests that the time required to revisit a specific Council decision (which may be in the order of 90 days) can lead to significant time delays for the total work programme.

4.6 Council agreed that this matter was significant and has requested action to resolve this, which is in progress.

5. Options

5.1 It is recommended that this report be received as it will further improve the Subcommittee’s understanding of the risks faced by Council and the actions being taken to manage them.

5.2 There can be value from a discussion of the factors contributing to risks and the Subcommittee may consider such a discussion useful.

Steve Vaughan

Risk & Procurement Analyst

Attachments

Attachment 1: Key Risks Report Quarter 3 Calendar 2017 (A1842185) ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

This report describes risk management activity. Risk management is a tool to enable more efficient and effective provision of services as set out in section 10(1)(b) of the LG Act.

2. Consistency with Community Outcomes and Council Policy

This report describes risk management activity. Risk management at its most fundamental is about achieving an organisation’s objectives (in this case as set out in Nelson City Council’s planning documents) with increased clarity, efficiency and effectiveness.

3. Risk

The report does not recommend a particular goal or objective to which risks may be considered. It serves to provide information about Council’s work in addressing those risks judged to be key to the organisation achieving its objectives.

4. Financial impact

This is a report on work already underway as part of Council’s regular management activity. Therefore there are no additional funding implications.

5. Degree of significance and level of engagement

This is of low significance decision under the Council’s Significance and Engagement Policy. Therefore no external consultation has been undertaken in the preparation of this report.

6. Inclusion of Māori in the decision making process

There has been no consultation with Māori in the preparation of this report, which deals with internal Council processes.

7. Delegations

The Audit, Risk and Finance Subcommittee has responsibility for overseeing the Council’s risk management systems.

Audit, Risk and Finance Subcommittee

14 November 2017

REPORT R8167

Section 17A Service Delivery Review progress report

1. Purpose of Report

1.1 To receive a quarterly report on progress for service delivery reviews subject to section 17A of the Local Government Act (LGA) 2002.

2. Summary

2.1 Changes to the 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 a 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, however the Subcommittee, at its meeting on 18 May 2017, granted an extension for the completion of reviews until the end of the 2017 year. This decision recognised that it was more efficient to continue to progress reviews within existing resources than to redirect officers from other higher priority areas of work.

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

3. Recommendation

That the Subcommittee

Receives the report Section 17A Service Delivery Review progress report (R8167) and its attachments (A1824993, A1845758, A1844354, A1843923, A1837281, A1633609, A1819898, A1844359, A1853049).

4. Purpose of reviews

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 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. Resource Consent update

5.1 At the last Subcommittee meeting in September the Subcommittee asked for more information to be provided in the area of Resource Consents (recovery targets, costs and performance as well mixed model delivery arrangement such as in-house - contracting out ratios) and this is set out below.

5.2 Consultants processed 116 resource consents in the 2016/17 financial year, with 36 of these outsourced due to conflict of interest issues. This represents a quarter (25%) of the total consents processed over the last year. Over the previous five years the average number of consents processed by consultants has been 11% of total consents issued.

5.3 The main factors leading to the higher number of consents being outsourced last year are: a sustained increase in the level of applications received; more complex consents to process including notified applications; and staff vacancies. One planner can process up to 100 straightforward consents a year or approximately 50-60 consents of mixed complexity. The number of consents outsourced last year has prompted the increase in staff numbers to reduce reliance on external consultants and recruitment for this position is currently underway.

5.4 Last financial year the resource consent activity achieved a 68% cost recovery from consent fees. The year before the recovery was 59%. The amount spent on consultants more than doubled in this timeframe but the higher level of income gained, mainly from the more complex consents last year, will have offset the cost of consultants. It is not expected this higher level of income will be sustained going forward so a reduction in consultant costs will be required to maintain the required level of cost recovery between 40 and 60%.

6. Review progress update

6.1 In November 2015, Council agreed to the approach staff would take to address the new requirement for s17A reviews. This included a schedule of review areas, template and timeline. Reviews either come as part of a larger piece of work through the relevant committee or are attached to these progress reports.

6.2 Since the last progress report, the review of Nelmac as a CCTO, which had been previously scheduled, has been removed as all contracts with Nelmac have been reviewed within existing business unit activity areas under the s17A process and reported to Council.

6.3 This brings the total of review areas on the schedule to 47 with 36 of these having been previously reported to Council in a progress report. Since then a further 10 reviews have been undertaken and these are noted in the table below:

Service	Outcome
Heritage Houses	Continue with Council governance, funding and delivery
Commercial Property Portfolio	Continue with Council governance, funding and delivery
Community Health and Safety	Report to Planning and Regulatory Committee 3 October (Public Excluded)
Corporate Services	Continue with Council governance, funding and delivery
Founders Heritage Park	Continue with Council governance, funding and delivery
Nelson Marina	Continue with Council governance, funding and delivery by Council’s CCTO
Saxton Field and Pavilion - funding and delivery only	Continue with shared funding with Tasman District Council and delivery by a CCTO
Golf Course	Continue with Council governance and funding and delivery by a mix of external providers and Council’s CCTO
Solid Waste	Continue with Council governance, funding and delivery noting that this activity is self-funding
Festivals and Events - excluding Nelson Arts Festival	Continue with Council governance, funding and delivery with some delivery by external providers

6.4 Reviews that have not already been before Council are attached. (Please note that the Community Health and Safety review has not been attached as this has already been before Council).

6.5 One further review has been completed (Listed Trees) and will be coming to the Subcommittee with a report detailing the recommended approach and seeking a decision.

6.6 Including the one review detailed in 6.5, the status of the first round of service delivery reviews is that all reviews have been completed.

7. Future review process

7.1 The LGA requires reviews to continue to 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.

7.2 In line with this requirement, officers will continue to undertake reviews within their existing work programmes and will bring these via the relevant Committee as required. There will be no further progress reports to the Audit Risk and Finance Subcommittee as s17A reviews will become part of business as usual and the responsibility of Business Unit Managers.

8. Conclusion

8.1 It is recommended the Subcommittee receives this report, noting the completion of the first round of s17A reviews and the future approach for reviews to come to relevant Committees as required.

Gabrielle Thorpe

Policy Adviser

Attachments

Attachment 1: A1824993 - s17A Service Delivery Review - Heritage Houses ⇩

Attachment 2: A1845758 - s17A Service Delivery Review - Corporate Services ⇩

Attachment 3: A1844354 - s17A Service Delivery Review - Founders Heritage Park ⇩

Attachment 4: A1843923 - s17A Service Delivery Review - Solid Waste ⇩

Attachment 5: A1837281 - s17A Service Delivery Review - Saxton Field ⇩

Attachment 6: A1633609 - s17A Service Delivery Review - Golf Course ⇩

Attachment 7: A1819898 - s17A Service Delivery Review - Festivals and Events ⇩

Attachment 8: A1844359 - s17A Service Delivery Review - Nelson Marina ⇩

Attachment 9: A1853049 - s17A Service Delivery Review - Commercial Property Portfolio ⇩

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

There is some risk that officers may not continue to undertake reviews as per legislated requirements however it is anticipated that workflow enhancements as part of a contract monitoring addition to MagicQ scheduled for early 2018 will provide a means of automatic reminder for reviews. A review schedule will also be disseminated to staff who have responsibility for review areas detailing information for them to programme.

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.

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

Item 15: Tax Risk Management Strategy

Audit, Risk and Finance Subcommittee

14 November 2017

REPORT R8585

Tax Risk Management Strategy

1. Purpose of Report

1.1 To adopt the Tax Strategy as recommended by the Tax Governance Framework.

2. Recommendation

That the Subcommittee

Receives the report Tax Risk Management Strategy (R8585) and its attachments (A1847439 and A1847460).

Recommendation to Council

That the Council

Adopts the Tax Risk Management Strategy (A1847439).

3. Background

3.1 On June 22 2017, Council adopted the Tax Risk Governance Framework (Attachment 2), as recommended by this subcommittee at its meeting of 18 May2017.

3.2 The report noted that a tax risk management strategy would be presented to a future meeting of this subcommittee.

4. Discussion

4.1 The finance department has a number of process and procedures detailing how tax is calculated and when and how it is paid. While there is a small risk that these processes are not followed or that the payments are not made on time, there are well established controls in place to minimise that risk.

4.2 The tax risk management strategy seeks to address the complexity of tax compliance. This is an area that is constantly evolving, and remaining fully up to date with the intricacies is challenging.

4.3 The strategy outlines the mechanisms that we have in place for managing that challenge, and when those mechanisms will be implemented.

4.4 The strategy is a formal understanding of some things we already do to mitigate our tax risk (such as seeking external advice and having our tax return reviewed), along with some recommendations from our tax advisors to keep us on the front foot.

4.5 Where additional costs are likely to be incurred as a result of the strategy, this will be assessed as part of the annual/long term planning process.

Options

4.6 It is recommended that the Tax Risk Management Strategy is adopted. The strategy formalises our approach to managing tax risk, is a key component of the Tax Risk Governance Framework that was adopted in June, and supports the expectation that Council will maintain exemplary tax compliance standards. There are no disadvantages to adopting the strategy.

4.7 If the strategy is not adopted, tax risk would continue to be managed in an ad hoc manner, contrary to the recommendations of the Tax Risk Governance Framework.

Tracey Hughes

Senior Accountant

Attachments

Attachment 1: Tax risk management strategy (A1847439) ⇩

Attachment 2: Tax governance framework (A1847460) ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

The Tax Risk Management Strategy 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 strategy mitigates tax risk in line with Council’s low tax risk profile.

4. Financial impact

Adoption of this strategy may result in minor costs over time for cyclical compliance reviews. Failing to conduct such reviews may be more expensive in the long run.

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.