Agenda of Audit, Risk and Finance Subcommittee

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

17 September 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 27 August 2019 7 - 13

Document number M4447

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 27 August 2019, as a true and correct record.

6. Chairperson's Report 14 - 16

Document number R11485

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Chairperson's Report (R11485).

7. Draft Annual Report 2018/19 17 - 20

Document number R10243

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Annual Report 2018/19 (R10243) and its attachment (A2224087).

Recommendation to Council

That the Council

1. Notes the draft Annual Report 2018/19 has been prepared and will be audited before being presented to Council for adoption on 31 October 2019.

8. Carry Forwards 2018/19 21 - 30

Document number R10242

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Carry Forwards 2018/19 (R10242) and its attachment (A2240980).

Recommendation to Council

That the Council

1. Approves the carry forward of $779,000 unspent capital budget for use in 2019/20; and

2. Approves the carry forward of $58,000 unspent capital budget for use in future years; and

3. Notes that this is in addition to the carry forward of $4,807,000 approved during the 2019/20 Annual Plan, taking the total carry forward to $5,644,000; and

4. Approves the deferral due to reliance on external factors of $101,000 unspent capital budget for use in 2019/20; and

5. Notes that this is in addition to the deferral of $447,000 approved during the 2019/20 Annual Plan, taking the total deferral to $548,000; and

6. Approves the carry forward of $460,000 of unspent operating budget for use in 2019/20; and

7. Notes total savings and reallocations in 2018/19 capital expenditure of $2,642,000 including staff time; and

8. Notes that the total 2019/20 capital budget (including staff costs and excluding consolidations and vested assets) will be adjusted by these resolutions from a total of $43,898,000 to a total of $44,777,000.

9. Draft Treasury Management Policy including Liability Management and Investment Policies 31 - 70

Document number R10282

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Treasury Management Policy including Liability Management and Investment Policies (R10282) and its attachment (A2258406).

Recommendation to Council

That the Council

1. Adopts the Treasury Management Policy (A2258406).

Public Excluded Business

10. 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 - 27 August 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

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 - 27 August 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

Audit, Risk and Finance Subcommittee Minutes - 27 August 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 27 August 2019, commencing at 1.00p.m.

Present: Mr J Peters (Chairperson), Councillors I Barker, B Dahlberg and Mr J Murray

In Attendance: Councillors G Noonan, M Rutledge and S Walker, Chief Executive (P Dougherty), Group Manager Corporate Services (N Harrison), Group Manager Strategy and Communications (N McDonald), Group Manager Community Services (R Ball) and Governance Adviser (J Brandt)

Apology: Her Worship the Mayor R Reese

1. Apologies

Resolved AUD/2019/038

That the Audit, Risk and Finance Subcommittee

1. Receives and accepts an apology from Her Worship the Mayor R Reese.

Barker/Murray 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 25 June 2019

Document number M4310, agenda pages 7 - 11 refer.

Resolved AUD/2019/039

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.

Dahlberg/Murray Carried

6 Chairperson's Report

The Chairperson noted that the online review of the Audit Risk and Finance Subcommittee was still open, and encouraged members to complete the survey, as the information would assist Council in the next Council triennium should a similar body be formed.
Resolved AUD/2019/040
	*That the Audit, Risk and Finance Subcommittee* 1. Receives the verbal Chairperson’s report .
Peters/Murray Carried

7. Quarterly Report to 30 June 2019

Document number R10331, agenda pages 12 - 42 refer.

Tracey Hughes, Senior Accountant, presented the report and noted that this report was based on information available at the end of July 2019 and would therefore differ from information presented in the draft Annual Report at the 17 September 2019 Subcommittee meeting.

Officers answered questions regarding Nelson Regional Sewerage Business Unit costs, increases to insurance premiums, self-insurance, official information requests received and the revaluation of Marina assets. Further questions were answered regarding council-owned forestry and market trends.

The format of project sheets were discussed and members noted their preference to have the original project budget and any approved changes recorded on the sheets for completeness.

Resolved AUD/2019/041

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).

Murray/Barker Carried

8. Annual Tax Review

Document number R10239, agenda pages 43 - 78 refer.

Tracey Hughes, Senior Accountant, answered questions regarding work undertaken since a GST review was carried out earlier in the year.

Council’s ability to use tax credits was discussed and noted for further exploration at a workshop in the new triennium.

Resolved AUD/2019/042

That the Audit, Risk and Finance Subcommittee

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

Murray/Dahlberg Carried

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

Document number R10217, agenda pages 79 - 99 refer.

Manager Business Improvement, Arlene Akhlaq, answered questions regarding the council priority areas in attachment 1. The level of information provided in the report was commended.

Resolved AUD/2019/043

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).

Dahlberg/Barker Carried

10. Health Safety and Wellbeing Performance Report

Document number R10385, agenda pages 100 - 115 refer.

Malcolm Hughes, Health and Safety Adviser, gave an update regarding the security incidents at the Elma Turner Library, noting a significant reduction of incidents since a security guard had been engaged. Mr Hughes answered questions regarding the flu vaccine update and sick leave data.

Attendance: Councillor Dahlberg left the meeting from 2.01p.m. to 2.03p.m.

Resolved AUD/2019/044

That the Audit, Risk and Finance Subcommittee

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

Murray/Barker Carried

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

Document number R10302, agenda pages 116 - 119 refer.

Lynn Anderson, Internal Audit Analyst, presented the report.

The Chief Executive answered questions regarding Alpha One software, noting that the software was intended to bring improvements and consistency in how building consents are processed in the Nelson Tasman region.

Resolved AUD/2019/045

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).

Murray/Dahlberg Carried

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

Document number R10303, agenda pages 120 - 125 refer.

Lynn Anderson, Internal Audit Analyst, answered questions regarding the water contamination prevention in attachment 1 of the report, noting that the training exercise for the Maitai Dam was scheduled to occur in 2019, not 2018, and that a desktop exercise would precede a full training exercise. Ms Anderson further noted that it was expected that the risk of loss of life would be addressed in the Emergency Action Plan.

Resolved AUD/2019/046

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).

Dahlberg/Barker Carried

13. Exclusion of the Public

Resolved AUD/2019/047

That the Audit, Risk and Finance Subcommittee

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

Barker/Dahlberg 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 - 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

The meeting went into public excluded session at 2.20p.m. and resumed in public session at 2.55p.m.

Restatements

It was resolved while the public was excluded:

PUBLIC EXCLUDED: Quarterly Update on Legal Proceedings

That the Audit, Risk and Finance Subcommittee

3. Agrees that the Report (R10367) and its attachment (A2186227) be excluded from public release at this time.

PUBLIC EXCLUDED: Quarterly Update On Debts - 30 June 2019

That the Audit, Risk and Finance Subcommittee

2. Agrees that Report (R10351) and its attachment (A2216183) be excluded from public release at this time.

There being no further business the meeting ended at 2.55p.m.

Confirmed as a correct record of proceedings:

Chairperson Date

Item 6: Chairperson's Report

Audit, Risk and Finance Subcommittee

17 September 2019

REPORT R11485

Chairperson's Report

1. Purpose of Report

1.1 To provide an update on the Survey of the Audit Risk and Finance Sub-Committee Review for the 2017-2019 term of Council.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Chairperson's Report (R11485).

2. Discussion

2.1 My thanks to those members of the Sub-Committee, and others, who completed the Survey of the Audit Risk and Finance Sub-Committee Review for the 2017-2019 term of Council.

2.2 Eight responses were received, together with a number of helpful comments.

2.3 The summary of results will be passed on to the Chief Executive and the Mayor, with the intention that these provide input to the activities of the incoming Audit Risk and Finance Committee, or any equivalent, in the next term of Council. A copy will also be provided to Audit New Zealand.

2.4 Some of the key findings and responses from the Survey are as follows:

2.5 The overall average score was 3.4. The 2016 survey score was 3.3 - (3 means Progressing Satisfactorily, 4 means Achieved);

2.6 The highest score was 3.75 for the question: Has ARF conformed to and reflected its Terms of Reference?

2.7 The lowest score was 3.0 for the question: Does ARF provide relevant advice and respond in a timely fashion? Comments and suggestions for this question included:

2.7.1 “Sufficient notice and supporting material in timely fashion”

2.7.2 “Timing of meetings and the age of the information provided can sometimes impede its progress. Maybe the committee can consider how it convenes to make it more able and quicker to get together… particularly if an issue quickly escalates”

2.7.3 “It is important to advise the committee when something arises. The committee can only address items it is aware of. When advised they are very proactive. It is important that elected members are conscious of items that should be referred to the committee”

2.8 Further to this last quote it is evident from some of the responses that there is not a broad understanding of the role and scope of ARF. Consideration should be given to making elected members fully aware of these, perhaps during their orientation.

2.9 The three base documents for the Committee (the Delegations, Terms of Reference and Charter) should be reviewed at the start of the new triennium;

2.10 There were also comments relating to:

· The level of expertise on the committee

· Relationships with relevant parties

· The extension of Business Improvement into the role of Internal Audit

· The need for quality legal advice

2.11 The Committee’s key achievements during the current term were seen to be:

· Financial reporting extended to committee level

· Improving risk management processes

· Keeping an overall eye on process

· Relationship with Audit New Zealand

2.12 The areas for suggested improvement next term included:

· Earlier involvement in issues, e.g. Greenmeadows

· More participation from other committee chairs and other councillors

· Broadening internal organisational understanding.

2.13 Finally, as this is the last meeting of this Audit Risk and Finance Sub-committee I would like to record my sincere thanks to Councillors for giving me the opportunity to Chair the Committee during this term, and my appreciation of the support I have received from them. In particular my thanks to those elected members of the Committee – Councillor Ian Barker, Councillor Bill Dahlberg and Her Worship the Mayor, and to Mr John Murray as the other appointed external member.

2.14 My sincere thanks also to the Chief Executive and his team, for the support and attention I have always received from them. In particular, my thanks to Nikki Harrison, Tracey Hughes, Arlene Akhlaq, Mary Birch, Steve Vaughn, Lynn Anderson, Malcolm Hughes, Fiona McLeod, Jasmin Brandt, Gina Fletcher, Ruth Killman and other regular providers of reports, advice and assistance.

Author: John Peters, Chairperson - Audit, Risk and Finance Subcommittee

Attachments

Nil

Audit, Risk and Finance Subcommittee

17 September 2019

REPORT R10243

Draft Annual Report 2018/19

1. Purpose of Report

1.1 To provide a copy of the draft Annual Report 2018/19.

2. Summary

2.1 The draft Annual Report for the 2018/19 financial year has been prepared and is provided as Attachment 1, for information. It is in the process of being audited and there are likely to be some changes as a result of the audit process.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Annual Report 2018/19 (R10243) and its attachment (A2224087).

Recommendation to Council

That the Council

1. Notes the draft Annual Report 2018/19 has been prepared and will be audited before being presented to Council for adoption on 31 October 2019.

4. Background

4.1 The purpose of the Annual Report is to compare Council’s actual performance against the targets as set out in year one of the Long Term Plan 2018-28. It also provides accountability to the Nelson community for the decisions made throughout the year.

5. Discussion

5.1 The attached draft Annual Report 2018/19 is intended to provide Council with information officers have to date. This is not the final Annual Report for the year as it is in the process of being audited. It is likely to require modification through the auditing process.

5.2 As the final Annual Report 2018/19 is required to be adopted by Council within four months of the end of the financial year, it is proposed that it be brought to Council for adoption at Council’s 31 October meeting. Officers did explore whether an earlier audit timeframe was achievable, to allow the Annual Report to be approved in this triennium, however given the volume of work for Audit NZ at this time of year it was not possible. Given the time constraints, it is recommended that the Annual Report be presented directly to Council, rather than to the Audit, Risk and Finance Subcommittee first.

5.3 The surplus before revaluation is $8.1 million less than budgeted. The reasons for this variance will be detailed in the final Annual Report but are mainly due to:

5.3.1 Development contributions better than budget ($2.7 million).

5.3.2 Vested assets less than budget ($3.9 million).

5.3.3 Unbudgeted loss on the derivatives revaluation ($4.4 million), and unbudgeted expenditure for abandoned assets ($1.9 million).

5.7 The rates surplus is $488,000.

5.4 Council’s non-financial performance was 76.25% achieved, which is an improvement on the 60% achieved in 2017/18, noting that this is the first year of the performance measures as set out in the 2018-28 Long Term Plan.

6. Options

6.1 This report is provided for information. The Audit Risk and Finance Subcommittee has the option to either receive or not to receive this report and attachment. It is recommended that the Subcommittee receives this report and notes the final Annual Report 2018/19, with any changes resulting from the audit process, will be presented directly to Council before the end of October.

7. Conclusion

7.1 An Annual Report must be completed to comply with section 98 of the Local Government Act 2002.

7.2 The purpose of this report is to provide the Committee with a draft of the Annual Report 2018/19. A final, audited report will be provided to Council for adoption on 31 October 2019.

Author: Nicky McDonald, Group Manager Strategy and Communications

Attachments

Attachment 1: A2224087 - Draft Annual Report 2018/19 (Circulated separately)

Important considerations for decision making

1. Fit with Purpose of Local Government

The Annual Report 2018/19 is a requirement of the Local Government Act 2002 and fits the purpose of local government by providing information about Council’s performance during 2018/19, thereby promoting accountability.

2. Consistency with Community Outcomes and Council Policy

The Annual Report 2018/19 contributes to the community outcomes by measuring performance across the full range of Council activities.

3. Risk

The content of the Annual Report is prescribed by statute so there is a very low risk that it will not achieve the required outcome. There is a risk that Council would not be able to adopt the Annual Report 2018/19 by 31 October and meet the requirements under the Local Government Act 2002.

4. Financial impact

Preparation and publication of the Annual Report can be achieved within funding allocated in the Annual Plan.

5. Degree of significance and level of engagement

The decision to receive this report is of low significance. The final audited Annual Report will be provided to Council for adoption in October. There will be a summary Annual Report available following adoption of the final audited Annual Report and this will also be made available to the public.

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 following delegations to consider the Annual Report 2018/19.

Areas of Responsibility:

· Council’s Annual Report

· Council’s financial and service performance

Powers to Recommend:

· Adoption of Council’s Annual Report

Powers to Decide: None

Item 8: Carry Forwards 2018/19

Audit, Risk and Finance Subcommittee

17 September 2019

REPORT R10242

Carry Forwards 2018/19

1. Purpose of Report

1.1 To approve carry forward of unspent budget to the new financial year.

2. Summary

2.1 Invoice processing is complete for the 2018/19 financial year and officers have reviewed project expenditure in order to identify savings and consider whether unspent budget is still required.

That the Audit, Risk and Finance Subcommittee

1. Receives the report Carry Forwards 2018/19 (R10242) and its attachment (A2240980).

Recommendation to Council

That the Council

1. Approves the carry forward of $779,000 unspent capital budget for use in 2019/20; and

2. Approves the carry forward of $58,000 unspent capital budget for use in future years; and

3. Notes that this is in addition to the carry forward of $4,807,000 approved during the 2019/20 Annual Plan, taking the total carry forward to $5,644,000; and

4. Approves the deferral due to reliance on external factors of $101,000 unspent capital budget for use in 2019/20; and

5. Notes that this is in addition to the deferral of $447,000 approved during the 2019/20 Annual Plan, taking the total deferral to $548,000; and

6. Approves the carry forward of $460,000 of unspent operating budget for use in 2019/20; and

7. Notes total savings and reallocations in 2018/19 capital expenditure of $2,642,000 including staff time; and

3. Background

3.1 The capital programme for 2018/19, as agreed in the Long Term Plan 2018-28, totalled $42.1 million, including staff costs of $2.2 million and excluding Nelson Regional Sewerage Business Unit (NRSBU), Nelson Tasman Regional landfill and vested assets. All figures quoted in this report are calculated on this basis.

3.2 The addition of 2017/18 carry forwards, and other resolutions of Council over the 2018/19 year adjusted the total capital budget to $42.8 million.

3.3 The 2018/19 capital budgets were forecast quarterly throughout 2019 with a view to what could realistically be achieved in the remainder of the financial year. The total capital budget was reforecast to $36.3 million at the end of quarter three (Q3) which informed the Annual Plan 2019/20. The 2018/19 budget movements incorporated in the Annual Plan 2019/20 were approved on adoption of the Annual Plan on 27 June 2019. In particular, $4.8 million was carried forward from 2018/19 to 2019/20 during the Annual Plan process.

3.4 Total capital expenditure for the 2018/19 year was $34 million, $8.8 million less than the adjusted 2018/19 Long Term Plan budget of $42.8 million. Of this, $2.6 million has been identified as savings or reallocations.

3.5 Reasons for capital carry forwards and deferrals being requested include:

· alterations to the phasing of multi-year projects

· reliance on external funds

· delays created by weather/season requirements, negotiations with external parties

· construction delays

· lead time in procuring materials and equipment

· projects running behind time

3.6 Carry forwards for operating budgets are presented for the approval of the sub-committee and are needed to complete programmed work.

3.7 Once the 2018/19 year was closed for invoice processing, officers collated data relating to the projects undertaken during the year, identifying variances against the reforecast. Project managers were asked to identify which variances represented savings, and where they wished to carry forward budget into 2019/20 they were asked to support their request. The Senior Leadership Team have reviewed the resulting information to ensure that the requested carry forward is justified.

4. Discussion

Capital savings and reallocations

4.1 Officers identified $2.6 million of savings and reallocations in capital expenditure against the 2018/19 Long Term Plan. This figure includes key projects delivered under budget ($1.7 million), savings in capital staff time ($471,000), and a greater proportion of expenditure relating to preliminary work, which is re-classified as operating expenditure, than budgeted ($412,000). Projects delivered under Long Term Plan budget include Water Treatment Plant Membrane renewals, streetlight conversion to LED, and the hockey turf replacement.

4.2 In total this saving will have a positive impact on interest, depreciation and debt levels, in excess of that already identified in the 2019/20 Annual Plan.

Capital carry forwards and deferrals

4.3 Officers have requested that $837,000 be carried forward. Of this, $779,000 is requested to be added to 2019/20 capital budgets, and $58,000 is requested to be carried forward to future years.

4.4 Officers have requested that $101,000 be deferred due to reliance on external factors. This amount is requested to be added to the 2019/20 capital budgets. This is in addition to the $447,000 deferred during the 2019/20 Annual Plan process, taking the total deferral due to reliance on external factors to $548,000.

4.5 Together, the carry forward and deferrals increase the total capital programme for 2019/20 by $879,000 to $44.8 million, compared to the budget established through the 2019/20 Annual Plan of $43.9 million (excluding vested assets and NRSBU but including staff time).

4.6 A breakdown of budget movements in the total 2018/19 capital budgets is provided as Table 1.

4.7 Table 2 itemises capital projects with carry overs requested greater than $100,000. These are new carry overs which have been requested in addition to those approved during the 2019/20 Annual Plan.

Operating expenditure carry forwards

4.8 Officers were asked to identify operating projects and programmes that will be completed in the new financial year and which require a carry- over of funds in order to do so. A total of $460,000 has been requested.

4.9 Totals by activity are as follows:

4.10 Operating programmes/projects with carry overs requested greater than $50,000 are itemised in Table 2.

Reasons for requesting operating carry forwards include:

· Grants or collaborative expenditure agreed to

· Work contracted but not complete at 30 June

· Health and safety items which cannot be funded from 2019/20 budgets

· Programmed maintenance delayed due to weather or contractor availability some of which has now been spent in 2019/20

· Operating projects that span more than one year

· Opportunity to take advantage of third party funding in 2019/20.

5. Options

5.1 Council officers support Option 1, approve the recommendations. Not approving the recommendations would be problematic as the future scope of some of these projects has been agreed through Committee and Council resolutions including Annual and Long Term Plans prior to this meeting. Work has continued on these projects based on those decisions.

Option 1: Approve the recommendations
Advantages	· Work has continued on 2018/19 capital projects and programmed operating projects and costs have been incurred. · The carry forward spending is within previously approved budgets.
Risks and Disadvantages	· None
Option 2: Approve carry forwards with exceptions
Advantages	· Council could if they wished remove some items from the list of budgets to be carried forward. · Savings in future debt, depreciation, interest and maintenance costs would occur.
Risks and Disadvantages	· The projects concerned would then not have sufficient budget to be completed. · Council do not have complete information through this report to fully inform such a decision.

6. Conclusion

6.1 An analysis of capital and programmed operating expenditure against forecast for 2018/19 and subsequent review by the Senior Leadership Team indicates:

· There are savings and reallocations from the capital budget of $2.6 million compared to the 2018/19 Long Term Plan.

· Additional capital budget of $837,000 not spent should be carried forward, making a total carry forward of $5.6 million. $779,000 should be carried forward into 2019/20 and $58,000 should be carried forward to future years.

· Capital budget of $101,000 not spent due to external factors should be deferred to 2019/20, making a total deferral of $548,000.

6.2 $460,000 of programmed operating expenditure not spent should be carried forward into 2019/20 to progress or complete programmed work that has already been rated for.

6.3 The 2017/18 carry forwards were made during the Long Term Plan 2018-28 (when $19.7 million was removed from the capex program) and additionally at year end. The additional end of year movements approved in the Carry Forwards Report 2017/18 were as follows:

· $4.9 million capital carry forward

· $701,000 operating carry forward

· $945,000 capital savings

Author: Laura Papp, Management Accountant

Attachments

Attachment 1: A2240980 - Tables 1 & 2 - Carry Over Report ARF 17Sept2019 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Approval of the recommendation will allow progress/completion of approved projects, supporting the delivery of public infrastructure and services.

2. Consistency with Community Outcomes and Council Policy

Approval of this recommendation will allow projects as approved in the Annual Plan 2018/19 and subsequent Council resolutions to be delivered.

3. Risk

Failure to approve the recommendation will introduce risk (financial, contractor and community relationships, health and safety) which does not currently exist.

4. Financial impact

There is little financial impact from approving the recommendation as budgets are already approved and funded.

5. Degree of significance and level of engagement

This matter is of low significance as budgets are already approved and the recommendation confirms business as usual. Therefore no engagement is required.

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 following delegations to consider the 2018/19 Carry Forwards.

Areas of Responsibility:

· Management of financial risk

· Council’s financial and service performance

Powers to Decide: None

Powers to Recommend:

· Any matters within the areas of responsibility or such other matters referred to it by the Council

Item 9: Draft Treasury Management Policy including Liability Management and Investment Policies

Audit, Risk and Finance Subcommittee

17 September 2019

REPORT R10282

Draft Treasury Management Policy including Liability Management and Investment Policies

1. Purpose of Report

1.1 To adopt the new Treasury Management Policy including the amended Liability Management and Investment Policies.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Treasury Management Policy including Liability Management and Investment Policies (R10282) and its attachment (A2258406).

Recommendation to Council

That the Council

1. Adopts the Treasury Management Policy (A2258406).

3. Background

3.1 Under the Local Government Act 2002 (LGA) section 102(2)(b) Council must adopt a Liability Management Policy. The current Liability Management Policy was adopted in August 2017 and is due for review August 2020. Recent changes in the sector have prompted an earlier review of this policy.

3.2 Under the LGA section 102 (2)(c) Council must adopt an Investment Policy. The current Investment Policy was adopted by Council in April 2015 and was due for review in 2018. This did not occur due to workload constraints.

3.3 The attached draft Treasury Management Policy combines the amended Liability Management and Investment Policies for efficiency and ease of reading.

4. Discussion

4.1 The Council’s treasury advisors, Price Waterhouse Cooper (PWC), have reviewed and updated the Council’s Liability Management and Investment Policies and proposed that these are combined as one document in the draft Treasury Management Policy (Attachment 1) including an index and glossary of terms for ease of reading. Changes to the policies are highlighted in yellow.

Liability Management Policy

4.2 The review focused on the following main areas:

4.3 Changing the interest rate risk management policy framework (Section 1.4).

4.3.1 The recommended framework provides greater flexibility in forward managing long-term interest rate exposures given the Council’s long term planning horizon.

4.3.2 The policy approach maintains a minimum and maximum percentage band for each independent year of the 15-year forecast debt horizon.

4.4 Incorporating the delegations and procedures upon which the Council on-lends to Council Controlled Organisations (CCOs) and Council Controlled Trading Organisations (CCTOs). These changes impact section 4, 10, 12 and 13.

4.4.1 This update has been incorporated due to the Local Government Funding Agency’s (LGFA’s) change in its lending policies to allow direct funding to these entities. Any lending will require credit support from the Council, whether through the provision of a guarantee or uncalled capital.

4.5 A recommendation that the Council increases the timeframe for entering into debt pre-funding strategies to manage debt re-financing risk from 12 months to 18 months (Section 4).

4.5.1 This is in light of proposed changes to the credit rating methodology announced by the Standard & Poor’s Global Ratings Agency (S&P).

4.6 PWC also recommends some other changes as follows:

4.6.1 Debt Management Instruments (Section 8) - two additional debt management instruments are recommended to be incorporated into the Policy as allowable ‘Borrowing Mechanisms’ in light of proposed changes to S&P methodology and corresponding offering from the LGFA. These instruments are Blend and extends via the LGFA and a forward starting committed bonds with the LGFA. Both mechanisms will avoid the grossing up of the balance sheet that usually occurs with the pre-funding of maturing core debt.

4.6.2 Specific borrowing limits (Section 9) - Inclusion of the LGFA lending covenants alongside the Specific Borrowing Limits Council sets for internal risk management.

4.6.3 Specific borrowing limits (Section 9) - some changes to the definition of liquid assets to reflect changes made recently to how the LGFA will view liquidity and in light of changes to the S&P ratings methodology framework.

4.6.4 Approved financial instruments (Section 16) – a change to the wording of allowable instruments used to manage carbon price risk in light of continuing uncertainly around the NZ Emissions Trading Scheme (ETS).

Investment Policy

4.7 Key updates from the previous Policy are:

4.7.1 Updating the Objectives and Strategies (section 3) of the policy to include “Maintain a prudent level of liquidity and flexibility to meet both planned and unforeseen cash requirements”.

4.8 Treasury Investments

4.8.1 Updating the Background (section 5.1) and risks to deal with the fact that Council is now pre-funding debt maturities with investments allowable up to 18 months.

4.8.2 Clarification of definitions of counterparty credit risk and liquidity risk by referring to definitions within the Liability Management Policy.

4.8.3 Section 6.2 - expressly excluding investment securities (1) Structured debt where issuing entities are not primary borrower/issuers; (2) Subordinated debt (other than borrower notes subscribed from the LGFA), junior debt, perpetual notes and debt/equity hybrid notes such as convertibles.

4.8.4 Section 6.3 - Counterparty credit risk – The main change recommended relates to the makeup of the counterparty credit limit. Under the existing policy, a limit is built up of a set amount for investments and an additional amount for the impact of derivative transactions (foreign currency and interest rates) with this second part currently residing in the Liability Management Policy.

· For Counterparty credit risk PWC has recommended a single limit is applied for each counterparty bank and the makeup of that limit is flexible within the approved limit amount – i.e. there aren’t set sub-limits for each exposure.

· The rationale for this change is due to the following: (1) provides Council with the flexibility to vary the mix of transactions in order to get the best outcomes from each bank counterparty (2) maintains a spreading of risk amongst bank counterparties (3) given the changes to S&P methodology, to increase prefunding activity to 18 months (see the Liability Management changes section below), this approach allows additional investment where required for prefunding activity. Council will meet the counterparty credit risk spreading requirements with the increased allowance under the new policy recommendation.

4.9 Other Investments

4.9.1 Port Nelson Limited (Section 7.6) – in the Financial Benefits section the wording about the use of ordinary and special dividends has been changed to bullet points consistent with Nelson Airport Limited but this doesn’t change the policy intent.

4.9.2 Port Nelson Limited (Section 7.7) risks updated to include natural hazards and difficulty in getting full insurance coverage.

4.9.3 Nelson Airport Limited (Section 8.7) risks updated to include natural hazards.

4.9.4 Nelmac Limited (Section 9.1) – updated the Background section to align with Nelmac’s current Statement of Intent.

4.9.5 Remove the section on Nelson Tasman Tourism which was a CCTO but has ceased operating and was merged to form Nelson Regional Development Agency on 1 July 2016.

4.9.6 Forestry (Section 10) – updated the rationale for holding the forestry assets to reflect the strategic review in 2016. Council reviewed the forestry strategy in 2016 and resolved to retain productive commercial forests that can be managed sustainably and retire some 140ha of forests and consider alternate use. There are some other minor wording changes.

4.9.7 Property investment – deleting Betts carpark which was sold in 2018.

4.9.8 Ridgeway Joint Venture – deleting reference to this entity as it was sold in 2017.

4.9.9 Civic Financial Services Limited (Section 13) – updating the section for the name change from New Zealand Local Government Insurance Corporation Limited (Trading As Civic Assurance) and background and rationale as the company is no longer in the insurance market.

4.10 Finance staff have conducted a review of the changes in depth, page by page, and are satisfied with the recommendations. Council’s Treasury advisor PWC will be at the meeting to answer any questions.

5. Options

Option 1: Adopt the Treasury Management Policy
Advantages	· changes are recommended by Council’s treasury advisor and are considered current best practice · can continue to proactively manage treasury risk
Risks and Disadvantages	· none
Option 2: do not adopt the Treasury Management Policy
Advantages	· no change from existing policy
Risks and Disadvantages	· policy will not conform to current best practice · Investment Policy section is overdue for review.

6. Next Steps

6.1 On approval at Council the adopted Treasury Management Policy will come into effect and will be updated on the Council website.

6.2 Future compliance reporting to the Audit Risk and Finance committee will be against the new framework.

6.3 Active daily monitoring of compliance against the policies are the responsibility of the Group Manager Corporate Services and the Finance Manager.

Author: Nikki Harrison, Group Manager Corporate Services

Attachments

Attachment 1: A2258406 - Treasury Management Policy including the Liability Management and Investment Policy - Sept 2019 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Risk management through having an Investment Policy and Liability Management Policy enables more efficient and effective provision of services as set out in section 10(1)(b) of the Local Government Act.

2. Consistency with Community Outcomes and Council Policy

The Liability Management and Investment Policies are required by section 102 of the Local Government Act. Nothing in the proposed Treasury Management Policy (including the Investment Policy and Liability Management Policy) is inconsistent with any other previous Council decision or Council Policy. Updating the policy supports the community outcome “Our Council provides leadership and fosters partnerships, a regional perspective and community engagement”.

3. Risk

There is limited risk from the proposed changes.

4. Financial impact

There is no direct financial impact from adopting the Treasury Management Policy.

5. Degree of significance and level of engagement

This matter is of low significance because it includes minor amendments to existing policies, therefore no consultation has taken place.

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 following delegations to consider Investment and Liability Management Policies:

Areas of Responsibility:

· Council’s Treasury functions and policies