Notice of the Ordinary meeting of

Audit and Risk Subcommittee

Kōmiti Iti mō te Tātari Kaute me te Tūraru

 

 

Date:                     Thursday 21 May 2020 Time:                     Commencing at the conclusion of the Governance and Finance Committee meeting Location:                via Zoom

 

Supplementary Agenda

Rārangi take

Chairperson                 Mr John Peters

Members                     Her Worship the Mayor Rachel Reese

Cr Judene Edgar

Mr John Murray

Cr Rachel Sanson

 

 

 

 

 

 

 

Quorum  3                                                 Pat Dougherty

Chief Executive

Nelson City Council Disclaimer

Please note that the contents of these Council and Committee agendas have yet to be considered by Council and officer recommendations may be altered or changed by the Council in the process of making the formal Council decision. For enquiries call (03) 5460436.

Audit and Risk Subcommittee

21 May 2020

 

Page No.

 

1.       Reserves Contributions for Unit Titles –
Final Report                                 4 - 13

Document number R16954

Note:  This report is identified as item 12 on the main agenda.

Recommendation

That the Audit and Risk Subcommittee

1.      Receives the report Reserves Contributions for Unit Titles - Final Report  (R16954) and its attachment (A2369193).

 

Confidential Business

1.       Exclusion of the Public

Recommendation

That the Audit and Risk 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	Reserves Contributions for Unit Titles - Breakdown of Discrepancies	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 ·    Section 7(2)(h)      To enable the local authority to carry out, without prejudice or disadvantage, commercial activities

 

 

 

Item 12: Reserves Contributions for Unit Titles - Final Report

 

Audit and Risk Subcommittee 21 May 2020

 

REPORT R16954

Reserves Contributions for Unit Titles - Final Report

 

1.       Purpose of Report

1.1      To inform the subcommittee of the underlying causes for inconsistent calculation of reserves contributions during the period from September 2004 to July 2018.

 

 

 

2.       Recommendation

That the Audit and Risk Subcommittee 1.    Receives the report Reserves Contributions for Unit Titles - Final Report  (R16954) and its attachment (A2369193).

 

 

3.       Background

3.1      The Audit and Risk Subcommittee requested a copy of the final report at the meeting on 18 February 2020 to better understand the causes of discrepancies which arose during the period from September 2004 to July 2018 in the calculation of reserves contributions for unit title subdivisions.

4.       Discussion

4.1      The attachment Reserves Contributions for Unit Titles – Final Report on Investigation (A2369193) refers.

4.2      As previously reported to the Subcommittee, no fraudulent activity was found.

4.3      The main finding of the report is that in the 14 year period from 2004 to 2018 reserve contribution requirements in the Nelson Resource Management Plan (NRMP) have been applied inconsistently accounting for under-recovery of $527,000 and a potential future shortfall of $947,000.  Of the 28 unit title subdivisions processed, 19 were correct and 9 used incorrect valuations.

4.4      During this period, reserves contributions were imposed on resource consents as a condition of consent. The calculation of the amount of the contribution was reliant on a professional valuation.

4.5      Council imposed financial contributions for reserves and community services on unit title subdivisions using two different valuation methodologies, depending on which consent condition was imposed on the relevant resource consent. One method closely aligned with the financial contribution provisions of the Nelson Resource Management Plan (NRMP) while the second did not. The first methodology was based on the market value of each additional unit created by the subdivision while the second provided for the value to be based on a notional figure, which was effectively the value after accounting for the cost of developing the unit of land together with its improvements.

4.6      The second methodology was first used in 2003 and this approach was only valid during the transitional phase of the Resource Management Act 1991 when financial contributions changed over from the Local Government Act 2002. Chapter 6 of the NRMP was in place from 1 September 2004 and the conditions should have been imposed in accordance with the provisions of Chapter 6 from then on. 

4.7      The methodologies give two different financial outcomes.  One is consistent with the NRMP while the second one results in a lesser valuation and therefore a lower reserves contribution.

4.8      The primary cause for this failure was a variable level of knowledge, experience and resource available within the processing team. This meant that in many instances the complexities and changes to subdivision rules during this period were not fully understood. This resulted in differing interpretation of rules, and explains why the processes for unit title subdivisions, which had already been established prior to the change in 2004, were not questioned or updated by any of the many different officers involved over the 14 year period.

4.9      From 1 July 2018, Chapter 6 of the NRMP no longer applied and so the inconsistent application of those provisions did not continue. Council’s Development Contributions Policy 2018 provides the clarity necessary for consistent interpretation.

4.10    The following has occurred since this issue was first identified:

4.10.1  An independent review by an external consultant was performed in May 2019. Their report highlighted that the team was relatively small compared with the volume of applications and broad range of consent types processed; and there was a lack of depth of experience across all consent types but notably in the specialist areas of land subdivision and other complex consent applications. Actions taken as a result of the independent review include –

·    Instigation of a peer review process of the application of development contributions, both at resource consent and building consent stages.

·    The appointment of a principal planner to lift the level of expertise particularly for more complex consents.

·    A dedicated senior subdivision planner is currently being recruited to further bolster the Resource Consents Team to ensure appropriate oversight of development contributions.

4.10.2  This internal audit has been undertaken. Recommendations from the audit have already begun to be implemented. In addition to the changes mentioned above, these include –

·    Continuing with the plan for additional staffing resources.

·    Assigning responsibility for continuous process and document improvements relating to all consenting and closing any quality assurance gaps from the use of contractors.

·    Allowing for more emphasis on professional development in resource planning.

·    Considering whether the financial processes related to contributions fit better with Finance.

·    Considering a standard mechanism to provide evidence that all comparable developments are treated equally and in accordance with the rules.

4.11    This was an unfortunate situation brought on by complex, changing rules and the lack of experience of staff members. Officers have confidence that the checks and balances that are now in place ensure that the process is more robust and the risk of this situation reoccurring is low.

 

Author:          Lynn Anderson, Internal Audit Analyst

Attachments

Attachment 1:   A2369193 - Reserves Contributions for Unit Titles - Final Report ⇩