Agenda of Audit, Risk and Finance Subcommittee

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

27 August 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 25 June 2019 7 - 11

Document number M4310

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 25 June 2019, as a true and correct record.

6. Chairperson's Report

7. Quarterly Report to 30 June 2019 12 - 42

Document number R10331

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Report to 30 June 2019 (R10331) and its attachments (A2224569, A2226256 and A2232140).

8. Annual Tax Review 43 - 78

Document number R10239

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Annual Tax Review (R10239) and its attachments (A2221879 and A2221900).

9. Quarterly Key Risks Report - 1 April to 30 June 2019 79 - 99

Document number R10217

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Key Risks Report - 1 April to 30 June 2019 (R10217) and its attachment (A2233464).

10. Health Safety and Wellbeing Performance Report 100 - 115

Document number R10385

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Performance Report (R10385) and its attachment (A2231288).

11. Internal Audit - Quarterly Progress Report to 30 June 2019 116 - 119

Document number R10302

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Internal Audit - Quarterly Progress Report to 30 June 2019 (R10302) and its attachment (A2227441).

12. Internal Audit - Summary of New or Outstanding Significant Risk Exposures and Control Issues to 30 June 2019 120 - 125

Document number R10303

Recommendation

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 30 June 2019 (R10303) and its attachment (A2227319).

Public Excluded Business

13. 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 - 25 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
2	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
3	Quarterly Update On Debts - 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 - 25 June 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 25 June 2019, commencing at 9.00a.m.

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

In Attendance: Councillors P Matheson, B McGurk and G Noonan, Chief Executive (P Dougherty), Group Manager Corporate Services (N Harrison), and Governance Adviser (E-J Ruthven)

Apologies : Nil

1. Apologies

There were no apologies.

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 21 May 2019

Document number M4225, agenda pages 6 - 13 refer.

Resolved AUD/2019/027

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.

Murray/Dahlberg Carried

6. Chairperson's Report

Mr Peters noted that the interim audit letter had been received, with no significant issues raised. He added that subcommittee members would be asked to complete a survey, which would be used to provide information to the incoming subcommittee following the Local Elections.
Resolved AUD/2019/028
	*That the Audit, Risk and Finance Subcommittee* 1. Receives the oral Chairperson’s Report.
Peters/Her Worship the Mayor Carried

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

Document number R10240, agenda pages 14 - 25 refer.

Group Manager Corporate Services, Nikki Harrison, presented the report. She noted that Council and Audit New Zealand had recently agreed to terminate annual audits of the Nelson Regional Sewerage Business Unit, the Nelson Tasman Regional Business Unit, and Nelson Tasman Civil Defence Emergency Management. Ms Harrison answered questions regarding the assessment of Council’s control environment, procurement procedures and policies, system restrictions or controls to prevent unauthorised data editing for call out time measures, third party contracts involving the collection of revenue, such as the Parking Revenue contract, the Project Management Policy, valuation of Council assets, and Council’s pursuit of bad debtors. It was noted that discussions regarding specific debtors should be held in public excluded session, especially when Council was receiving legal advice regarding appropriate next steps to take.
Resolved AUD/2019/029
	*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.*
Murray/Dahlberg Carried

8. Draft Annual Internal Audit Plan - 30 June 2020

Document number R10266, agenda pages 26 - 31 refer.

Internal Audit Analyst, Lynn Anderson, presented the report. She noted that the budget for the financial year was $40,000. Ms Anderson answered questions regarding potential audits that external contractors could be utilised for, and the corresponding timeframes.
Resolved AUD/2019/030
	*That the Audit, Risk and Finance Subcommittee* 1. *Receives* *the report Draft Annual Internal Audit Plan - 30 June 2020 (R10266) and its attachment (A2202709).*
Barker/Dahlberg Carried
Recommendation to Council AUD/2019/031
	*That the Council* 1. *Approves* *the Draft Annual Internal Audit Plan - 30 June 2020 (A2202709).*
Barker/Dahlberg Carried

9. Exclusion of the Public

There was a discussion regarding whether items relating to bad debts should be considered in public excluded or open session.

Committee members also requested an update on legal proceedings be provided in public excluded session.

The meeting was adjourned from 9.38a.m to 9.43a.m.

10. Additional agenda item - Update on legal proceedings

The Chairperson acknowledged the subcommittee’s request for an additional item in public excluded session for an update on legal proceedings. He said that, as a minor matter not on the agenda, the sub-committee could discuss the item, but not make a resolution, decision or recommendation about the item, except to refer it to a subsequent meeting for discussion. He added that a procedural resolution should be passed to allow the item to be discussed.
Resolved AUD/2019/032
	*That the Audit, Risk and Finance Subcommittee* 1. Considers the public excluded item regarding Update on Legal Proceedings at this meeting as a minor item not on the agenda, pursuant to Section 46A(7A) of the Local Government Official Information and Meetings Act 1987.
Murray/Barker Carried

6. Exclusion of the Public

Resolved AUD/2019/033

That the Audit, Risk and Finance Subcommittee

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

Her Worship the Mayor/Barker 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 - 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 write-off 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
3	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

The meeting went into public excluded session at 9.45a.m. and resumed in public session at 11.06a.m.

There being no further business the meeting ended at 11.06a.m.

Confirmed as a correct record of proceedings:

Chairperson Date

Item 7: Quarterly Report to 30 June 2019

Audit, Risk and Finance Subcommittee

27 August 2019

REPORT R10331

Quarterly Report to 30 June 2019

1. Purpose of Report

1.1 To inform the Committee of the financial and non-financial results for the fourth quarter for the activities under its delegated authority.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Report to 30 June 2019 (R10331) and its attachments (A2224569, A2226256 and A2232140).

3. Background

3.1 Quarterly reports on performance are being provided to each Committee on the performance and delivery of projects and activities within their areas of responsibility.

3.2 The financial reporting focuses on the year to date performance (1 July 2018 to 30 June 2019) compared with the year-to-date (YTD) approved capital and operating budgets.

3.3 Unless otherwise indicated, all information is against approved operating budget, which is the 2018/19 Long Term Plan budget plus any carry forwards, plus or minus any other additions or changes as approved by the Committee or Council.

3.4 Although this report covers the 12 months to 30 June 2019, these results represent a point in time, prior to most of the analysis and adjustments required for financial year end, and include a large number of accruals. The draft annual report which will be in front of this subcommittee in September may be significantly different to these results as:

· It will include all year-end adjustments such as revaluations and impairments

· Almost all of the accruals made for the purposes of this report will be reversed and actual data reported

· It will include the consolidation of NRSBU, NTRLBU and Civil Defence.

4. Key developments for the twelve months to 30 June 2019

4.1 For the twelve months ending 30 June 2019, the activity surplus/deficits are $1.5 million favourable to budget. This is mostly due to income ahead of budget as expenditure overall is on budget.

4.2 The most significant variances to budget are:

· Dividends are ahead of budget by $1.1 million reflecting:

- the unbudgeted special dividend of $750,000 declared by Port Nelson Limited in September 2018

- the 2017/18 Nelson Airport Limited dividend of $375,000 that was expected in the last financial year but declared too late to be accrued

· Interest income on short term investments is ahead of budget by $505,000, as Council holds deposits to offset the pre-funding of debt which is maturing in 2019.

· Forestry harvesting income is behind budget by $760,000 as only the Roding Harvest was completed in 2018/19 as planned. Harvesting of the Maitai block has been moved out to the winter of 2020. Expenditure is also behind budget ($684,000) largely for the same reason.

· There are numerous variances in staff operating costs in the activities, however total staff operating costs are behind budget by $174,000. Opex staff and overhead costs are over budget by $289,000 and capex staff and overheads are under budget by $463,000. Overall this includes savings in salaries and wages of $129,000, in training costs of $140,000, in depreciation of $178,000 and in consultancy costs of $114,000. Relieving and contractor costs are over budget by $387,000, offsetting salaries and wages, and recruitment costs are over by $48,000 reflecting the busy year.

· Unbudgeted recovery costs from the February 2018 storms have been incurred in the Parks and Transport activities particularly, $395,000 in 2018/19 (note that this expenditure is funded through the Disaster Recovery Fund and income from insurance of $302,000 has been received in relation to these events against expenditure over 2017/18 and 2018/19).

· Although resource consent income is behind budget by $366,000 it is also 11% ahead of 2017/18. Expenditure is ahead of budget by $279,000, with consultancy costs ahead by $280,000 offset by vacancies in staff costs of $200,000, and a new contract price greater than budget by $174,000.

· Wastewater income is greater than budget by $517,000 largely due to a catch up of trade waste invoicing relating to 2017/18.

· Council’s share of NRSBU costs is greater than budget by $450,000 resulting from an increased share of greater than budget management and maintenance costs.

· Water supply income is greater than budget by $237,000 including unbudgeted income related to the supply of water to TDC during the drought.

4.3 Financial information provided in Attachment 1 includes:

· 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).

· Operating income and expenditure displayed against budget for both committee and category. Significant variances are noted against committees. Each committee will receive a more detailed analysis of variances by cost centre.

· A summary profit and loss statement also including the latest forecast position.

· 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. The current year balance sheets do not include consolidations.

· A debtor analysis graph over 13 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 – The line graph records actual expenditure against approved budget, and quarter two forecast (current understanding of most likely outcome). The bar graph records year to date expenditure against approved budget by committee.

4.4 Capital expenditure is $6.6 million under approved budget year to date.

· The chart in Attachment 2 represents project health for all projects reported to other committees.

· Project health is analysed based on three factors; quality, time and budget. From the consideration of these three factors the project is summarised as being on track (green), some issues/risks (yellow), or major issues/risks (red). Projects that are within 5% of their total budget are considered to be on track for the budget factor.

· More detailed project sheets are supplied in Attachment 3 for all projects with a red health assessment along with all projects with a budget greater than $1m in the current financial year.

· The quarter four forecast for capital expenditure is $6.1 million less than approved budget ($35.2 million vs $41.3 million excluding NRSBU, vested assets and consolidations). The approved budget of $41.3 million includes $1.5 million of the carry-overs agreed through the annual plan process.

· Total capital expenditure of $34.7 million is within half a million (1%) of the quarter four forecast. Forecasting accuracy has predictably increased as the year has progressed, from 18% at quarter one to 6% at quarter three and 1% at quarter four.

5. Quarterly Review of Key Performance Indicators

The pie chart below shows overall Council performance to 30 June 2019 against performance measures set in the Long Term Plan. To date, 74% of measures were achieved by the end of the financial year, with some assessment remaining.

Insurance renewal

5.1 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 Marsh JLT (formerly Jardine Lloyd Thomson (JLT)) and Nelson City Council has various insurance policies including:

· Material Damage – commercial and residential

· Business Interruption

· Motor Vehicle

· Public and Professional Indemnity

· Crime, Statutory and Employers Liability

· Harbour Masters and Wreck Removal Liability

· Hall Hirers Liability

· Personal Accident

· Forestry

5.2 The insurance was successfully placed for 1 July 2019 for this programme. The infrastructure asset insurance renewal is on 1 November 2019.

5.3 During the year the members of the collective signed an agreement agreeing in advance how any claim payments, which are subject to shared limits can be equitably disbursed in situations where more than one member has a claim within the same claim year and the shared limit is exceeded. This was signed by the Chief Executives of the Councils. The intention is a similar agreement will be signed for the infrastructure asset shared South Island collective prior to the renewal on 1 November 2019.

5.4 The policies held with a shared limit are currently:

· Business interruption additional expenses ($10m)

· Public Liability and Professional Indemnity ($300m)

· Statutory liability ($2.5m)

· Defence costs ($500,000)

· Employers liability ($1m)

5.5 Where a second claim is made which would exceed the shared limit, then the distribution would be shared on the same basis as the current premium allocation.

5.6 Premiums have increased overall by $210,000 (21%) mainly driven by increased material damage premiums. The increase is related to the increasing value of property insured (valuation and new assets) as well as premium increases. An allowance for premium increases of $115,000 was included in the 2019/20 Annual Plan, and there is still some risk around costs for the infrastructure renewal in November given market conditions.

5.7 The policies for crime (fraud), statutory liability, employer’s liability and hall hirer’s liability have been provided by QBE for 2019/20 after Vero ceased to offer the crime (fraud) cover. Members of the collective along with Council Insurance Brokers (Marsh JLT) spent some time considering the new proposal and collectively decided that retention of the Crime cover was important enough to outweigh an increase in premium.

5.8 PF Olsen provided an alternative insurance quote to NCC to join their Standing Timber Insurance Policy group cover which has been accepted.

5.9 The policy was reviewed by Marsh JLT and advice given was to accept. The Policy is through Lloyd’s market with an Insurance rating of A+ (Strong).

5.10 Cover limits have increased for wind damage ($1M from $500k) and re-establishment ($1.6M from $870k) but the annual premium is lower at $14,653 compared to the previous policy of $28,562 (with Primacy part of Allianz).

Insurance Market Summary in respect of Public Liability and Public Indemnity Insurance for Local Government

5.11 The UK insurance market including Lloyds is currently going through market reform, with the regulator requiring insurers to have acceptable business plans in place in order to continue to offer insurance. One outcome of this is that insurers are having to adopt a more risk based approach to underwriting, including how they are identify and treating risk at a very granular level. In terms of the Public Liability & Professional Indemnity this has meant that underwriters have firstly looked to consider the LG litigation environment in New Zealand, then they have focused on each individual council and its risk profile, including prior claims.

5.12 In that respect there has been a deterioration of Local Government’s liability risk profile, with a trend towards adverse judgements where it is appears Councils are a convenient defendant to sheet a liability home to. Councils are also exposed to inflated claims costs through ‘joint & several’ liability where other liable parties may have liquidated their business to avoid liability and/or professionals significantly limiting their liability through contract. Significant claims are also becoming far more frequent even from smaller Councils, and class actions against Councils exacerbated by litigation funders, are all increasing claims costs.

5.13 Local insurers also appear to be withdrawing from offering this type insurance to Councils limiting long term reliable alternatives and potentially leading towards more restrictive terms to exclude systemic failure type of claims such as building defect claims.

6. Other notable achievements, issues or matters of interest

Community Services

6.1 The Community Funders Roadshow event was hosted by the Community Funders Network at Greenmeadows Community Centre on 24 May. The Roadshow was targeted at community organisations as a way of providing information on upcoming funding opportunities. The programme included presentations from Nelson City Council, Tasman District Council, Department of Internal Affairs, Rata Foundation, Te Puni Kōkiri and Creative Communities. Approximately 90 people attended with positive feedback received. Discussion is underway to look at repeating the event next year.

6.2 The Elmer Turner Library (ETL) has seen a significant increase in security related incidents since the beginning of July, mainly relating to intoxication, mental health and behavioural issues. Security guards have been engaged, a security review is under way and Police are working closely with the library team to mitigate this increase.

6.3 Broadgreen House has also seen a spate of security related issues during May with a group of young people lighting fires and abusing volunteers. Planned upgrades to the CCTV system, improvements with vegetation and proactive attention on those involved by Police appear to be resolving the issue.

6.4 Further discussion in relation to security incidents at ETL and Broadgreen House is contained in the Health and Safety report R10385.

6.5 Following the Bay Dreams event on 4 January at Trafalgar Park, negotiations are well advanced to confirm hosting the event in Nelson again. Negotiations include discussion on a longer term arrangement (subject to certain conditions being met).

6.6 A new system to put up street flags more easily and at lower cost is in place. The Flagtrax installation was started this quarter and sees a total of 80 installed on street light poles throughout the CBD.

Works and Infrastructure

6.7 The utilities team and the transport operations and activity management teams are now fully staffed, however there are six vacant positions in capital projects. Stress due to workload is a concern as in addition to these vacancies the teams have also had to cover time in lieu resulting from the Pigeon Valley fires.

6.8 The contract for the operation and maintenance of the Nelson Water Treatment Plant and its catchments was recently tendered and awarded to Fulton Hogan for a price of $7,482,795.13. This price is spread over approximately 5 years with the ability to be extended by a further 5+5 years depending on satisfactory performance. Fulton Hogan is the current operator of the water treatment plant and was the only contractor to tender for this contract. The price tendered is within Council budgets. The new contract commences on 1 November 2019.

6.9 The Joint Waste Management and Minimisation Plan review was scheduled for completion in 2018. However, the late introduction of a per capita target, by the joint NCC/TDC working party and the operational delays caused by the Pigeon Valley fire, means that the plan will not be adopted by Nelson City Council until September 2019. A waste minimisation Action Plan will be developed in partnership with Tasman District Council once the plan has been adopted. In the last year alongside a focus on promoting composting and recycling of e-waste, the waste minimisation work programme has consisted of investigative work in the construction, business and textile waste sector, along with trial funding of projects to reduce waste at public events.

Planning and Regulatory

6.10 There has been a significant increase in the number of building consents and amendments being granted in quarter 4 compared to quarter 3 (278 compared to 183). The amendments have the effect of increasing the processing and inspections staff workloads as there is an area of rework required to complete each one.

6.11 The Future Development Strategy was adopted by the Joint Committee on the 26 July. This strategy has been prepared in response to the issues raised in the Housing and Business Capacity Assessment. The Strategy provides a framework for planning and also future investment in infrastructure.

6.12 With the help of funding from Maritime New Zealand the deputy harbourmaster continued at full time hours and conducted over 1500 safety checks, a 50% increase from last year’s total. Five search and rescue operations with other organisations were successfully conducted. The deputy harbourmaster initiated a Women on Water workshop that has seen over 40 participants learn basic boating safety skills as a precursor to day skipper courses. School visits on water safety have been very well received by over 800 students.

6.13 Recruiting in the Planning and Regulatory teams continues to be challenging, mirroring the experience of councils across the country. This has led to difficulties in resourcing some projects and programmes.

6.14 Increased information reporting requirements by central government and within the regional and unitary local government sector have highlighted difficulties with current data systems to capture and report on a range of regulatory activities.

Sports and Recreation

6.15 Marina fees and charges were set through the 23 July committee report in consultation with the Marina Advisory Group. The Marina Advisory Group has subsequently requested that for practical reasons the boat ramp fees stay at $5 rather than the CPI adjusted figure of $5.20. The concern is that $5.20 may discourage people from paying the fee altogether if they intend to use cash. The Marina Advisory Group are currently reviewing the fees and charges and propose that following further improvements to the boat trailer carpark in 2019/20 the ramp fee should be set at $10 for the 2020/21 review.

6.16 Council is undertaking a revaluation of the Marina assets which will inform future funding for deprecation. Condition assessments are programmed this year which will inform funding for renewals. Once these processes have been completed the Marina Advisory Group will prepare proposed fees and charges for presentation to the Sports and Recreation Committee for adoption of the new fees in 2020.

6.17 A skate ramp has been installed at Marsden Recreation Reserve in Stoke. This is the first step in development of youth facilities for Stoke. Designs for some art work are currently being explored.

6.18 A new stake ramp has been installed at Tahunanui Reserve beside the basketball area. Officers have worked in partnership with an enthusiastic team of skaters, who have volunteered their time to be involved in the design process. The Arts Council is planning a project for the ramp. Both stake ramps have received positive feedback from the community and are receiving high levels of use.

6.19 Several public planting days have been undertaken this quarter including the Tahunanui front and back beaches, Whakatu Reserve, Botanical Hill, Todd Stream, Saxton Field and Paremata Flats Reserve. The planting days continue to be well supported by the public.

6.20 Staff and the Committee chairman met with the Waahi Taakaro Golf Club for its annual report. A number of requests were received and are being considered. The Club has reported a 30% increase in games played this year compared to last year which brings it much closer to the revenue targets set within its contract. The Chairman and Group Manager of Community Services have scheduled a visit to the Club.

Governance

6.21 There were 65 LGOIMA requests received between 1 April 2019 and 30 June 2019. 63 were responded to within the statutory timeframes, with one overdue and one still open.

Author: Tracey Hughes, Senior Accountant

Attachments

Attachment 1: A2224569 - Finance Report ⇩

Attachment 2: A2226256 - Project Health Summary ⇩

Attachment 3: A2232140 - Project Sheets ⇩

Item 8: Annual Tax Review

Audit, Risk and Finance Subcommittee

27 August 2019

REPORT R10239

Annual Tax Review

1. Purpose of Report

1.1 To advise the Subcommittee of Council’s tax activities over the prior year and provide some context for the current tax environment.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Annual Tax Review (R10239) and its attachments (A2221879 and A2221900).

2. Background

2.1 The Tax Risk Governance Framework was adopted by Council in May 2017 as a proactive step towards identifying and managing tax risk to maintain its low risk profile. This annual update has been prepared as part of that framework.

2.2 This report provides:

· A summary of the tax advice that Council has sought during the period 1 July 2018 to 30 April 2019

· Commentary on tax matters currently being addressed as at 30 June 2019

· A more general high level update on the wider tax environment as it might affect Council

· An overview of the goods and services tax (GST) review undertaken in the last financial year.

2.3 The annual tax review report from Council’s tax advisors (PWC) and the detailed GST review are included with this report as attachments 1 and 2 respectively.

Tax Advice received and matters addressed to 30 June 2019

2.3 For the most part, the tax compliance of Council has been ‘business as usual’ for much of the year with the various tax returns (GST, PAYE, FBT, etc) being filed on time and without any concerns being raised.

2.4 That said, it is appropriate to comment on the following areas where assistance has been provided to Council:

· Advice was sought in relation to IRD’s updated guidelines around vehicle use for Fringe Benefit Tax (FBT) and a voluntary disclosure was subsequently made.

· PwC prepared and filed Council’s 2018 Income Tax Return on time in March 2019.

· In January 2019 PWC sought an indicative view from Inland Revenue (IRD) on Council’s behalf in relation to electronic bus ticketing and the time of supply rules for GST.

· A forward looking report was commissioned covering tax considerations relating to the evolution of Nelson City over a 10 year timeframe.

2.5 As per the tax risk strategy adopted by Council in 2017, a comprehensive GST review was undertaken toward the end of June 2018. The finalised report (attachment 2) can be summarised as follows:

· The Finance team is experienced and efficient in dealing with GST.

· Some risk arises where one-off or unusual transactions have not involved the Finance team from early stages.

· From 29 areas of focus 17 require no action and there are 12 recommendations for action to maximise efficiency and risk reduction, mostly of a minor nature and which are in hand.

2.6 A comprehensive FBT review was undertaken at the end of May 2019, and officers are currently working through the findings with PWC. Officers have spent some time recently considering various FBT issues and plan to do further work in this area not least relating to organisational awareness during the 2019/20 financial year.

2.7 Officers have committed to remaining up to date with tax issues in the sector and have attended tax updates as provided by SOLGM and PWC, as well as a refresher overview of indirect taxes and specific training aimed at officers new to the sector provided by PWC.

2.8 Council have now subscribed to PWC’s GST on Property Guide to support both Property and Finance in this tricky area for GST.

2.9 Finally, it is noted that Council has continued to obtain support via:

· Subscribing to PwC’s online Indirect Tax Policies and Guides;

· Maintaining a Tax Risk Governance Framework; and

· Adhering to a Tax Risk Management Strategy.

Tax Strategy

2.10 Page 6 of the PWC Tax Review (attachment 1) outlines work planned for the 2018/19 financial year and work done. It has been a more active year than anticipated illustrating that officers are mindful of Council’s low risk tax profile and seek to address risks before they crystallise.

2.11 Page 7 sets out work planned for the 2019/20 financial year, including a review of our systems in relation to IRD’s payday filing requirements and a tax technology and automation review.

Other relevant matters

2.12 Pages 9 to 11 of attachment 1 itemise tax issues that are of interest to the sector along with broader tax developments.

2.13 Of particular interest or relevance to Nelson City Council:

· IRD’s ongoing internal transformation has caused disruption to usual services. NCC has experienced refunds in one tax type being swept to meet payments in another tax type even before due date, causing reconciliation issues and potential overpayments. Officers have addressed this with IRD and are hopeful that a solution has been implemented.

· Once the IRD transformation project is fully operational we can expect to see the results of their ability to see significantly more data about each taxpayer. Before the issuance of pre-populated accounts to taxpayers occurs en masse (31 March 2020 projected), an analysis of our payroll data since payday filing was introduced will be performed to assess any risk areas. IRD have issued regulations relating to how errors in payday filing may be corrected.

· Donee organisations must now be either on Schedule 23 of the Income Tax Act 2007 as approved donee organisations or listed on the charities register in a move to ensure greater transparency of donations tax credits.

· IRD numbers are now required on all property transactions.

Council’s tax figures

2.14 Generally Council is exempt from income tax with the main exception being income from CC(T)O’s. However, Council has significant tax obligations in relation to GST and PAYE in particular. The quantum is highlighted in this section.

2.15 In the 12 months ending 31 March 2019, Council has accounted for:

Tax	12 month period ending	Amount
GST output tax	31 March 2019	$17,683,809
GST input tax	31 March 2019	$14,100,591
PAYE & ACC	31 March 2019	$6,143,558
FBT	31 March 2019	$13,090

2.16 Council also acts as agent for the Nelson Regional Sewerage Business Unit, Nelson Tasman Regional Landfill Business Unit and Nelson Tasman Civil Defence and Emergency Management. The numbers above exclude these entities.

3. Conclusion

3.1 Council formally adopted the Tax Governance Framework on 18 May 2017 and the Tax Risk Management Strategy on 14 December 2017. These form a solid foundation for managing tax risk.

3.2 The Tax Risk Management Strategy (included in attachment 1) is a simple tool to ensure that tax risk is being identified and managed appropriately while providing the Subcommittee with a quick visual tool to see the steps Council has taken to manage tax risk and the forward looking strategy.

3.3 The adoption of the Framework and the Strategy ensures that complacency does not arise amongst the finance team, senior leadership team or those with oversight for audit and risk.

Author: Tracey Hughes, Senior Accountant

Attachments

Attachment 1: A2221879 - PWC Annual Tax Review ⇩

Attachment 2: A2221900 - GST Compliance Review ⇩

Item 9: Quarterly Key Risks Report - 1 April to 30 June 2019

Audit, Risk and Finance Subcommittee

27 August 2019

REPORT R10217

Quarterly Key Risks Report - 1 April to 30 June 2019

2. Purpose of Report

1.1 To provide information to the Audit, Risk and Finance Subcommittee on the key organisational risks.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Key Risks Report - 1 April to 30 June 2019 (R10217) and its attachment (A2233464).

4. Background

4.1 Risk management activities during quarter four include:

· A review of the risk management structure and process;

· The exploration of options to ensure risk management activity is focussed on Council’s core service delivery objectives;

· The identification of a potential software tool to enable consolidation of risk recording, to provide more effective risk ownership and visibility, and to provide more efficient reporting on risk.

4.2 Anticipated risk management activities during quarter one 2019-20 include:

· Planning a risk maturity benchmarking exercise;

· Planning a trial of the risk management software tool;

· Developing a revised risk management structure and related processes.

5. Risks to Achieving Council Long Term Plan Top Priorities

5.1 Updated information for quarter four is summarised below, with further detail on the risk areas, their controls and treatments set out in attachment one.

5.2 Priority area Infrastructure (Risk 1). During quarter four, there were no reported exceptions to the risk controls. The review dates for some planned risk treatments have been brought forward to ensure progress of these planned activities is reported through to the Audit Risk and Finance Subcommittee in a timely manner.

5.3 Priority area Environment (Risk 2). Planned risk treatments were further developed during quarter four. The risk profile for this priority area will be reviewed towards the end of quarter one 2019-20, once the recent report on Council’s compliance, monitoring and enforcement practices has been considered by the Planning and Regulatory Committee.

5.4 Priority area CBD Development (Risk 3). Planned risk treatments have been updated during quarter four.

5.5 Priority area Lifting Council Performance (Risk 4). Planned risk treatments were further developed during quarter four. During quarter one 2019-20, the controls will be reviewed to provide more extensive and complete information, followed by a review of the risk profile.

6. Key Organisational risks

6.1 At end of quarter four, the known key risk areas for the four Long Term Plan top priorities, and the eight key organisational risks, are as summarised in the heat map, and table below. Brief updates are provided for the eight key organisational risk areas, with further detail in attachment one.

ID	Risk Area	Rating	Owner
1	Council priority area: Infrastructure	High	Group Manager Infrastructure
2	Council priority area: Environment	High	Group Manager Environmental Management
3	Council priority area: CBD Development	High	Chief Executive
4	Council priority area: Lift Council Performance	Medium	Chief Executive
5	Lifeline service failure from natural hazards and similar events	High	Group Manager Infrastructure
6	Illness, injury or stress from higher hazard work situations	High	Group Manager Corporate Services
7	Loss of service performance from ineffective contracts and contract management	Medium	Chief Executive
8	Compromise of Council service delivery from information technology failures	Medium	Group Manager Corporate Services
9	Compromised decision making and public information from incomplete and difficult to access records	Medium	Group Manager Strategy and Communications
10	Council work compromised by loss of and difficulties in replacing skilled staff	Medium	Manager People and Capability
11	Legal liability and reputation loss from inadequate consideration of the law in decision making	Medium	Group Manager Strategy and Communications
12	Loss of public trust in the organisation	Medium	Group Manager Strategy and Communications

6.2 Lifeline service failure from natural hazards and similar events (Risk 5). The risk profile for this area will be reviewed towards the end of August 2019, to assess the impact of risk treatments that were completed or were in progress during quarter 4 2018-19. Risk treatments completed include a test of the organisation’s major disruption response capability; actions resulting from the regional lifeline review; and development of the Maitai Emergency Action Plan is in progress.

6.3 Illness, injury or stress from higher hazard work situations (Risk 6). The residual risk rating in this area moved from Medium at the start of the year to High. The risk rating was reviewed and revised to High after taking into consideration public spaces and events provided by Council, in light of the attacks in Christchurch, and has remained as High whilst officers work through requirements for enhanced security awareness and physical controls at key Council workplaces. Risk treatments have been progressed throughout the year though most will not be completed until December 2019.

6.4 Loss of service performance from ineffective contracts and contract management (Risk 7). Treatments are underway, with progress being made on contract data consolidation and software tools to evaluate for suitability to support more effective contract management.

6.5 Compromise of Council service delivery from information technology failures (Risk 8). A number of planned treatments scheduled for quarter four were unable to be completed until July 2019. The effect of these completed treatments will be evaluated during quarter one 2019/20, and the residual risk profile will be updated accordingly.

6.6 Compromised decision making and public information from incomplete and difficult to access records (Risk 9). Risk treatments have been expanded and the review timetable updated.

6.7 Council work compromised by loss of and difficulties in replacing skilled staff (risk 10). Risk treatments have been further developed and the review timetable updated.

6.8 Legal liability and reputation loss from inadequate consideration of the law in decision making (Risk 11). Risk treatments have been further developed and the review timetable updated. Some treatments are completed, and the effect of these on the residual risk profile will be evaluated during quarter 2 2019-20, along with other treatments that are planned to be completed by then.

6.9 Loss of public trust in the organisation (Risk 12). The risk treatments and timetable have been updated, most of note is the adoption of the Communications and Engagement Strategy.

7. Risk Areas for Each Group

7.1 Infrastructure Group: The key risks being reported to the Works and Infrastructure Committee this quarter relate to delivery of the capital programme. Issues arising during the year such as issues with land negotiations, increased project costs that required additional funding, inability to attract tenderers, the fire emergency, and drought, all contributed to changes in the programmed timeline for some projects.

7.2 Community Services Group: No new emerging risks to report at this time.

7.3 Environmental Management Group: At the end of quarter four, risks to statutory timeframes and inefficiencies in building consent processing are the biggest concern, whilst necessary changes to the “AlphaOne” software system are implemented.

7.4 Strategy and Communications Group: No new emerging risks to report at this time. Previously reported risks relating to the management of social media, and the volume of reactive work, continue to be managed.

7.5 Corporate Services Group: No new emerging risks to report at this time.

Author: Arlene Akhlaq, Manager Business Improvement

Attachments

Attachment 1: A2233464 Key organisational risks report Quarter 4 April to June 2019 ⇩

Item 10: Health Safety and Wellbeing Performance Report

Audit, Risk and Finance Subcommittee

27 August 2019

REPORT R10385

Health Safety and Wellbeing Performance Report

1. Purpose of Report

1.1 To provide the subcommittee with a quarterly report of health, safety and wellbeing data collected over the April to June quarter of 2019.

1.2 To update the subcommittee on key health and safety risks, including controls and treatments.

2. Summary

2.1 Notable incidents for this period were a vehicle being accidently driven through a window at Stoke Library and an electrical fault generating enough heat and smoke to cause a fire alarm activation at Elma Turner Library.

2.2 Security incidents reported for this quarter included seven incidents at Broadgreen House.

2.3 Council’s key risk ‘Customer aggression threatening the health & safety of those who work for and with Council’ remains assessed as high.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Performance Report (R10385) and its attachment (A2231288).

4. Background

4.1 Elected members, as ‘Officers’ under the Health and Safety at Work Act 2015, are expected to undertake due diligence on health and safety matters. Council’s Health and Safety Governance Charter states that Council will receive quarterly reports regarding the implementation of health and safety. Council has delegated the responsibility for health and safety to the Audit, Risk and Finance Subcommittee.

4.2 Health, safety and wellbeing performance data 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.

4.3 Reporting on key health and safety risks provides further depth and detail to the health and safety risks reported in the organisational risk report.

5. Discussion

5.1 Data Reports

5.1.1 Six of the 18 security incidents reported for the period occurred at Broadgreen House during June. Some vandalism has occurred and police have been in contact with the youths involved. A number of controls have been implemented including increased security patrols, pruning of trees to improve visibility, installation of CCTV and improved lighting. The controls appear to have been effective and no further incidents were reported at Broadgreen House during July.

5.1.2 The increase in security incidents at libraries reported for February 2019 did not continue during the quarter covered by this report. It should be noted that, at the time of writing this report, there had been 15 security incidents reported at Elma Turner Library during July 2019, compared with 32 incidents for all libraries in the first six months of the year. This resulted in a security guard being engaged for 30 hours per week as a temporary control. These incidents primarily related to the behaviour of intoxicated customers or those with mental health issues.

5.1.3 The number of over-speed events for the period as recorded by the E-Road in vehicle monitoring system is at the lowest rate since the system was installed in Council vehicles.

5.2 Incidents of note

5.2.1 A significant near miss occurred during April when a member of the public accidentally drove a vehicle through a window at Stoke Library. There were no injuries resulting from this incident.

5.2.2 An electrical fault in a switchboard at Elma Turner Library generated enough heat and smoke to cause a fire alarm activation. The switchboards in the library have since had upgrade work completed to prevent similar incidents happening in the future.

5.2.3 Although occurring outside this reporting period, it should be noted that there was a fatality at Stoke Library in early July as a result of a customer medical event. Staff actions in responding to this incident were commendable. Support for affected staff was provided following the incident by Workplace Support.

5.3 Key Health and Safety Risk Update

5.3.1 The key health and safety risk ‘Customer aggression threatening the health & safety of those who work for and with Council’ has been assessed as remaining a high risk. The assessed likelihood of an extreme consequence incident has reduced from possible to unlikely, however the risk remains a high risk using Council’s risk criteria.

5.3.2 New Zealand’s national terrorism threat level has been reduced to medium after being raised from low to high immediately following the Christchurch mosque shootings. The national terrorism threat level and the type and frequency of security incidents recently reported are key considerations in completing this risk assessment.

5.3.3 Existing controls such as risk assessments for meetings already consider the national terrorism threat level. Police are now advised of large Council run gatherings such as citizenship ceremonies. Work is underway to include terrorism threat and venue vulnerability assessments in event and venue safety management plans.

5.3.4 All other key health and safety risks are assessed to remain as medium risks.

5.3.5 Where new treatments have been planned or have been implemented as controls since the last report this is indicated by red text in the attachment.

5.3.6 Where possible timeframes are indicated for treatments.

5.4 Due Diligence Activities

5.4.1 SLT members completed four safe work observations during this quarter.

5.4.2 Councillor Dahlberg participated in a safe work observation at the Tantragee water treatment plant.

5.5 Staff Wellbeing Initiatives

5.5.1 76 staff attended the Oranga Mahi wellbeing at work program that was completed by most other staff in 2017.

5.5.2 50% of staff received influenza vaccinations.

Author: Malcolm Hughes, Health and Safety Adviser

Attachments

Attachment 1: Health, Safety and Wellbeing Report, April - June 2019 (A2231288) ⇩