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AGENDA

Ordinary meeting of the

 

Audit, Risk and Finance Subcommittee

 

Tuesday 25 June 2019

Commencing at 9.00a.m.

Council Chamber

Civic House

110 Trafalgar Street, Nelson

 

Pat Dougherty

Chief Executive

 

Membership: Mr John Peters (Chairperson), Her Worship the Mayor Rachel Reese, Councillors Ian Barker, Bill Dahlberg and Mr John Murray

Quorum: 3

 

Nelson City Council Disclaimer

Please note that the contents of these Council and Committee Agendas have yet to be considered by Council and officer recommendations may be altered or changed by the Council in the process of making the formal Council decision.


Guidelines for councillors attending the meeting, who are not members of the Committee, as set out in Standing Order 12.1:

·      All councillors, whether or not they are members of the Committee, may attend Committee meetings

·      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

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.

 


N-logotype-black-wideAudit, Risk and Finance Subcommittee

25 June 2019

 

 

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       21 May 2019                                                                            6 - 13

Document number M4225

Recommendation

That the Audit, Risk and Finance Subcommittee

1.     Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 21 May 2019, as a true and correct record.

  

 

 

6.       Chairperson's Report  


 

7.       Interim audit letter for the year ending 30 June 2019                                                          14 - 25

Document number R10240

Recommendation

That the Audit, Risk and Finance Subcommittee

1.      Receives the report Interim audit letter for the year ending 30 June 2019 (R10240) and its attachment (A2206215); and

2.      Notes the status updates to previous audit recommendations.

 

 

8.       Draft Annual Internal Audit Plan - 30 June 2020                                                          26 - 31

Document number R10266

Recommendation

That the Audit, Risk and Finance Subcommittee

1.       Receives the report Draft Annual Internal Audit Plan - 30 June 2020 (R10266) and its attachment (A2202709).

 

 

Recommendation to Council

That the Council

2.       Approves the Draft Annual Internal Audit Plan - 30 June 2020 (A2202709).

 

       

Public Excluded Business

9.       Exclusion of the Public

Recommendation

That the Audit, Risk and Finance Subcommittee

1.       Excludes the public from the following parts of the proceedings of this meeting.

2.       The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows: 

 

Item

General subject of each matter to be considered

Reason for passing this resolution in relation to each matter

Particular interests protected (where applicable)

1

Audit, Risk and Finance Subcommittee Meeting - Public Excluded Minutes -  21 May 2019

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)(g)

     To maintain legal professional privilege

·    Section 7(2)(h)

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

 

2

Bad debt writeoff for year ending 30 June 2019

 

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

 

 

 

  


Audit, Risk and Finance Subcommittee Minutes - 21 May 2019

 

 

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

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

On Tuesday 21 May 2019, commencing at 9.05a.m.

 

Present:               Her Worship the Mayor R Reese, B Dahlberg and Mr J Murray

In Attendance:     Councillors P Matheson and B McGurk, Group Manager Infrastructure (A Louverdis), Group Manager Community Services (R Ball), Group Manager Corporate Services (N Harrison), Group Manager Strategy and Communications (N McDonald) and Governance Adviser (J Brandt)

 

Apologies:            Councillor Barker and Mr Peters

 

1        Appointment of Chairperson

The Group Manager Corporate Services, Nikki Harrison, called for nominations from members to appoint a chairperson for the meeting, as an apology had been received from the appointed Chairperson and there was no appointed Deputy Chairperson for the Subcommittee. 

Resolved AUD/2019/013

 

That the Audit, Risk and Finance Subcommittee

1.     Appoints Mr John Murray as Chairperson of the Audit, Risk and Finance Subcommittee meeting on 21 May 2019. 

Dahlberg/Her Worship the Mayor                                                      Carried

 


 

 

2.       Apologies

Resolved AUD/2019/014

 

That the Audit, Risk and Finance Subcommittee

2.     Receives and accepts the apologies from Councillor Barker and Mr Peters.

Murray/Dahlberg                                                                              Carried

 

3.       Confirmation of Order of Business

It was noted that agenda item 12 would be considered after item 7 due to time constraints of the speaker.

4.       Interests

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

5.       Public Forum 

There was no public forum.

6.       Confirmation of Minutes

6.1       19 February 2019

Document number M4041, agenda pages 7 - 13 refer.

Resolved AUD/2019/015

 

That the Audit, Risk and Finance Subcommittee

1.     Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 19 February 2019, as a true and correct record.

Murray/Dahlberg                                                                              Carried

  

7.       Chairperson's Report   

There was no Chairperson’s Report.

8.       Quarterly Report to 31 March 2019

Document number R10169, agenda pages 14 - 44 refer.

Tracey Hughes, Senior Accountant, tabled a replacement chart for agenda page 23 (document A2194360) and noted that the $50,000 debtor payment listed on agenda page 26 had been received since the agenda was published.

Questions were answered regarding dividends ahead of budget, reporting for the Investment Performance Audit undertaken by NZTA, impacts on Council resulting from the Pigeon Valley fire emergency in February 2019, management of methane levels at Founders Park, the increased share of NRSBU costs for Council, progress putting a management plan for Andrews Farm in place to address issues between user groups and the predicted shortfall in capital expenditure.

A number of questions regarding the Greenmeadows Centre and Queens Gardens Toilets in attachment 3 of the report were noted for discussion later in the meeting, as part of the public excluded section of the meeting.

Resolved AUD/2019/016

 

That the Audit, Risk and Finance Subcommittee

Receives the report Quarterly Report to 31 March 2019 (R10169) and its attachments (A2175573, A2176515 and A2180205).

Her Worship the Mayor/Murray                                                         Carried

Attachments

1    A2194360 - Replacement table for page 23 of ARF Agenda 21 May 2019

9.       Audit plan for the year ending 30 June 2019

Document number R10202, agenda pages 93 - 120 refer.

Jacques Coetzee of Audit New Zealand spoke to the report, noting that he envisaged all Councils would be provided with comparative data for benchmarking purposes by the end of the year.

The meeting adjourned from 9.57a.m. until 10.33a.m.

Resolved AUD/2019/017

 

That the Audit, Risk and Finance Subcommittee

1.     Receives the report Audit plan for the year ending 30 June 2019 (R10202) and its attachment (A2186543).

 

Murray/Her Worship the Mayor                                                         Carried

       

 

10.     Quarterly Key Risks Report - 1 January to 31 March 2019

Document number R10167, agenda pages 45 - 67 refer.

Arlene Akhlaq, Manager Business Improvement, presented the report. She made a point of clarity regarding item 3.2 of the report (middle bullet point), noting that it was the consolidation of options that was planned for June, with analysis already under way. Ms Akhlaq further noted that a new rating system had been applied to Quarter 3 risk assessments.

Malcolm Hughes, Health and Safety Advisor, explained the increased rating on higher hazard work situations (5.11) as a result of the March terrorist attack in Christchurch. Mr Hughes answered questions about levels of stress experienced by frontline staff and measures the organisation was taking to provide support. 

Ms Akhlaq answered questions about the rating for environmental and legal liability risks, the order of risks in the report, and whether the ratings reflected residual risk.

Nikki Harrison, Group Manager Corporate Services answered a question about the Council’s disaster recovery fund, noting the fund remained in deficit.

Resolved AUD/2019/018

 

That the Audit, Risk and Finance Subcommittee

1.     Receives the report Quarterly Key Risks Report - 1 January to 31 March 2019 (R10167) and its attachment (A2179264).

 

Dahlberg/Her Worship the Mayor                                                      Carried

                 

11.     Health & Safety Quarterly Performance Report 1 January to 31 March 2019

Document number R10138, agenda pages 68 - 83 refer.

Malcolm Hughes, Health and Safety Advisor, answered questions about security incidents in the libraries, and plans to limit access to certain internet sites in the libraries. Safe Work Observation visits for Elected Members were discussed and it was noted that Councillors would be invited to attend along with senior staff.

Resolved AUD/2019/019

 

That the Audit, Risk and Finance Subcommittee

1.     Receives the report Health & Safety Quarterly Performance Report 1 January to 31 March 2019 (R10138) and its attachment (A2173565).

 

Dahlberg/Murray                                                                              Carried

 

12.     Internal Audit - Quarterly Progress Report to 31 March 2019

Document number R10129, agenda pages 84 - 86 refer.

Lynn Anderson, Internal Audit Analyst, spoke to the report and answered questions about the amounts of cash handled in the libraries, the financial system used by the Building Unit and how this was linked in with other Council systems. It was noted that the debtor invoicing for the marina was being managed by Nelmac, and while debtors were transferred to Council monthly, the overall system was separate from Council’s financial system. Discussion took place regarding reporting mechanisms where Audit New Zealand might raise issues with Nelmac for this council asset.

Resolved AUD/2019/020

 

That the Audit, Risk and Finance Subcommittee

1.      Receives the report Internal Audit - Quarterly Progress Report to 31 March 2019 (R10129) and its attachment (A2173040).

 

Murray/Her Worship the Mayor                                                         Carried

 

13.     Internal Audit - Summary of New or Outstanding Significant Risk Exposures and Control Issues to 31 March 2019

Document number R10130, agenda pages 87 - 92 refer.

Lynn Anderson, Internal Audit Analyst, provided a number of updates regarding business continuity planning measures being introduced, training for the Incident Management Team, and working with Civil Defence and Police to inform evacuation plans for Maitai flood zones.

Alec Louverdis, Group Manager Infrastructure, answered questions about the risk of water contamination as a wilful act, and regular ongoing monitoring at the dam.

In regards to asset management plans coming to committee meetings, it was requested that where plans were not as developed as others, due to delays from the Pigeon Valley fires, this should be highlighted in the report and assistance be given by finance officers to assist members with robust decision-making.

Resolved AUD/2019/021

 

That the Audit, Risk and Finance Subcommittee

1.      Receives the report Internal Audit - Summary of New or Outstanding Significant Risk Exposures and Control Issues to 31 March 2019 (R10130) and its attachment (A2174097).

 

Murray/Dahlberg                                                                              Carried

 

14.     Exclusion of the Public

Resolved AUD/2019/022

 

That the Audit, Risk and Finance Subcommittee

1.     Excludes the public from the following parts of the proceedings of this meeting.

2.     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:

Dahlberg/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 -  19 February 2019

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)(g)

     To maintain legal professional privilege

2

Quarterly Report to 31 March 2019 - Debtor Discussion, Greenmeadows  Centre and Queens Gardens Toilets

 

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)(h)

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

 

·      Section 7(2)(g)

     To maintain legal professional privilege

3

Quarterly Update on Legal Proceedings

 

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)(g)

     To maintain legal professional privilege

4

Tax planning 10-year outlook report

 

Section 48(1)(a)

The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7

The withholding of the information is necessary:

·    Section 7(2)(h)

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

 

The meeting went into public excluded session at 11.36a.m. and resumed in public session at 1.11p.m.

 


 

Restatements

 

It was resolved while the public was excluded:

 

2

PUBLIC EXCLUDED: Quarterly Update on Legal Proceedings

 

That the Audit, Risk and Finance Subcommittee

1.     Receives the report Quarterly Update on Legal Proceedings (R10173) and its attachment (A2186227); and

2.     Agrees that the decision (AUD/2019/026) only be released from public excluded business; and

3.     Agrees that Report (R10173) and its attachment (A2186227) be excluded from public release at this time.

 

3

PUBLIC EXCLUDED: Tax planning 10-year outlook report

 

That the Audit, Risk and Finance Subcommittee

1.     Receives the report Tax planning 10-year outlook report (R10163) and its attachment (A2179101); and

2.     Agrees that the decision (AUD/2019/027) only be released from public excluded business; and

3.     Agrees that Report (R10163) and attachment (A2179101) be excluded from public release at this time.

  

 

There being no further business the meeting ended at 1.11p.m.

 

Confirmed as a correct record of proceedings:

 

 

 

                                                         Chairperson                                    Date

         

 


 

Item 7: Interim audit letter for the year ending 30 June 2019

 

Audit, Risk and Finance Subcommittee

25 June 2019

 

 

REPORT R10240

Interim audit letter for the year ending 30 June 2019

     

 

1.       Purpose of Report

1.1       To provide the letter to the Subcommittee on the interim audit for the year ending 30 June 2019 from Audit New Zealand.

 

 

2.       Recommendation

 

That the Audit, Risk and Finance Subcommittee

1.      Receives the report Interim audit letter for the year ending 30 June 2019 (R10240) and its attachment (A2206215); and

2.      Notes the status updates to previous audit recommendations.

 

 

 

3.       Discussion

3.1       In mid-April Audit New Zealand carried out an interim audit for the year ending 30 June 2019 on the Council's internal controls and the overall control environment. It issued the draft letter on 11 June 2019 (Attachment 1).

3.2       There were no minor or significant issues identified during the audit which is a good result. 

3.3       The Audit New Zealand interim letter also contains a section on previous recommendations made and an update on the status of these recommendations.  Officers are working to resolve these issues as soon as practical, while weighing up the relative priority to other business improvement initiatives and internal audit actions.

3.4       Audit NZ are currently undertaking a review of the Councils procurement, contract management and project management practices to support the planning, design, procurement and delivery of renewals and new capital infrastructure.  This will be reported back on during the final audit.

4.       Options

4.1       That the Subcommittee note the status updates on previous matters in the letter to the Council on the interim audit of Nelson City Council for the year ending 30 June 2019.

 

 

Author:           Nikki Harrison, Group Manager Corporate Services

Attachments

Attachment 1:    A2206215 - Interim management letter from Audit NZ 11 June 2019

  

 

Important considerations for decision making

1.   Fit with Purpose of Local Government

Section 99 of the Local Government Act 2002 requires the audit of information contained in the Annual Report and Summary and the interim audit forms part of that process.

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, and to have infrastructure which is efficient and effective.

3.   Risk

There is a risk that Council will not meet all its legislative responsibilities if the recommendations from Audit NZ are not accepted and actioned.

4.   Financial impact

There is no financial impact.

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.

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 considering audit processes and management of financial risk.

 

 


Item 7: Interim audit letter for the year ending 30 June 2019: Attachment 1

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Item 8: Draft Annual Internal Audit Plan - 30 June 2020

 

Audit, Risk and Finance Subcommittee

25 June 2019

 

 

REPORT R10266

Draft Annual Internal Audit Plan - 30 June 2020

     

 

1.       Purpose of Report

1.1       To approve the Draft Annual Internal Audit Plan to 30 June 2020.

 

 

2.       Recommendation

That the Audit, Risk and Finance Subcommittee

1.       Receives the report Draft Annual Internal Audit Plan - 30 June 2020 (R10266) and its attachment (A2202709).

Recommendation to Council

That the Council

1.       Approves the Draft Annual Internal Audit Plan - 30 June 2020 (A2202709).

 

 

 

3.       Background

3.1       The Internal Audit Charter approved by Council on 15 October 2015 requires that at least annually, the Audit, Risk and Finance Subcommittee consider the Annual Internal Audit Plan.

3.2       The Internal Audit Charter cl. 8.2 requires the Internal Audit Plan to respond to changes in the business.

3.3       Management continues to assess how to allocate the internal audit resource to provide most benefit to the organisation. This report reflects Management’s decision.

4.       Discussion

4.1       The Draft Internal Audit Plan (Attachment 1 A2202709) was compiled following discussions with the Group Manager Corporate Services, Manager Business Improvement, Chair of Audit, Risk and Finance subcommittee and Audit NZ. Council’s most recent Quarterly Key Risks Report has also been reviewed.

4.2       Due to the organisation’s current stretched capacity throughout and the downstream impact on the organisation of internal audits, the Draft Plan continues to provide a split plan incorporating internal audits and business improvement activities.

4.3       The proposed Plan would not compromise objectivity for the internal audit function.

4.4       This proposal will not require additional budget this financial year.

Compilation of the Draft Internal Audit Plan and Best Use of Internal Audit

4.5       The availability of staff to respond to internal audits and their outcomes remains limited. Alongside this, Council has a stated key goal in the Long Term Plan 2018-28 to lift Council performance.

4.6       The officers believe that the best use of internal audit for this financial year is to place some emphasis on business improvements which will contribute to the achievement of the goal to lift Council performance.

4.7       This proposal will not require additional budget for 2019/20 financial year.

4.8       The Draft Plan allows for two currently unplanned audits and two pre-determined audits. The planned topics are intentionally outside the business improvement focus areas because: a) it ensures internal audit independence is not compromised, and; b) it is considered too early to be auditing key areas such as contract management where improvements are currently underway.

4.9       Following discussions with Audit NZ, it is clear that priority areas for improvement are contracts and contractor management. These have been included in the business improvement section.

4.10     Other key business improvement projects to help lift Council performance which internal audit could contribute to include: a) improvements to asset management systems and processes based on the drawing together of difference improvement strands identified through audits; b) the simplification of procedures and tools. Time has been provided for these in the Draft Plan.

5.       Options

5.1       Option 1, is to approve the Draft Internal Audit Plan, which provides for a smaller number of audits, as well as a contribution to business improvement. This option is recommended.

5.2       The alternative, Option 2, is for Council to decide the Internal Audit Plan should only provide for internal audits this financial year. This is considered less favourable as the downstream effect of a large volume of audits on the organisation is not considered viable. 

 

Option 1: Approve Draft Internal Audit Plan proposal

Advantages

·    Remedying some of the already known weaknesses, such as contracts and contractor performance management, as soon as practicable is in Council’s best interests.

·    The primary goal of business improvement is to increase effectiveness and efficiency to improve the organisation’s ability to deliver services. A good improvement plan will focus on the organisation’s most important activities and any associated risks, and will address any necessary mitigations. This is closely aligned to the internal audit process but is forward-looking, while internal audit informs past performance.

Risks and Disadvantages

·    There may be future costs where external audits are required in areas where internal audit has had some responsibility or involvement in the previous 12 months.

Option 2: Provide for Internal Audits only in the Audit Plan

Advantages

·   Council will have a greater knowledge of areas across the organisation where there have been systems or control failures.

Risks and Disadvantages

·   A higher volume of internal audits impacts on the organisation, taking scarce organisational resources away from performing other key responsibilities, which may have higher consequences to the organisation than those of the risks found from an audit.

·   While control weaknesses are likely to be identified from an internal audit, the ability to treat these is limited due to scarce resources throughout the organisation.

 

 

 

 

Author:           Lynn Anderson, Internal Audit Analyst

Attachments

Attachment 1:    A2202709 - Draft Internal Audit Plan to 30 June 2020

 

 

Important considerations for decision making

1.   Fit with Purpose of Local Government

This decision will help to ensure the resources available in internal audit contribute optimally to business improvement and internal auditing that will help give confidence that Council will be able to meet its responsibilities 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, and to have an infrastructure which is efficient and effective.

3.   Risk

It is more likely that Council may not meet its responsibilities effectively and efficiently if this recommendation is not accepted.

4.   Financial impact

This decision will fit within existing budgets.

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.

6.   Inclusion of Māori in the decision making process

No engagement with Māori has been undertaken in preparing this report.

7.   Delegations

The Audit, Risk and Finance Subcommittee has the delegation to consider the Annual Internal Audit Plan and the resourcing for this each year.

Areas of Responsibility:

·    The  internal audit function

Powers to Recommend:

·      To Council any matters within the areas of their responsibility

 

 


Item 8: Draft Annual Internal Audit Plan - 30 June 2020: Attachment 1

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