Agenda of Audit, Risk and Finance Subcommittee

Audit, Risk and Finance Subcommittee

23 February 2021

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 2 December 2020 8 - 12

Document number M15319

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee , held on 2 December 2020, as a true and correct record.

6. Chairperson's Report

7. Nelson Port and Harbour Safety Management System 13 - 97

Document number R22563

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Nelson Port and Harbour Safety Management System (R22563) and its attachment (A2553588); and

2. Agrees the identified gaps in the Port and Harbour Safety Management System are to be included in Council’s Risk Register.

8. Health Safety and Wellbeing Report, October to December 2020 98 - 112

Document number R22561

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Report, October to December 2020 (R22561) and its attachment (A2552487).

9. Key Organisational Risks Report - 01 September to 31 December 2020 113 - 143

Document number R22526

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Key Organisational Risks Report - 01 September to 31 December 2020 (R22526) and its attachment (A2547697).

10. New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits - 31 December 2020 144 - 147

Document number R22532

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits - 31 December 2020 (R22532) and its attachment (A2538210).

11. Internal Audit - Quarterly Progress Report to 31 December 2020 148 - 151

Document number R22531

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Internal Audit - Quarterly Progress Report to 31 December 2020 (R22531) and its attachment (A2537934).

12. Quarterly Finance Report for the six months ending 31 December 2020 152 - 171

Document number R22575

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Finance Report for the six months ending 31 December 2020 (R22575) and its attachments (A2554847, A2561298, A2561235 and A2563228).

13. Letter from Audit NZ on Annual Report for year ending 30 June 2020 172 - 199

Document number R22559

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Letter from Audit NZ on Annual Report for year ending 30 June 2020 (R22559) and its attachment (A2570817); and

2. Notes Audit NZ’s comments (A2570817) and how officers intend to address the issues raised.

CONFIDENTIAL Business

14. Exclusion of the Public

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Confirms, in accordance with sections 48(5) and 48(6) of the Local Government Official Information and Meetings Act 1987, that Sarah Macky, from Heaney & Partners, remain after the public has been excluded, for Item 1 of the Confidential agenda (Quarterly Report on Legal Proceedings), as she has knowledge that will assist the meeting.

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	Quarterly report 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
2	Quarterly Update On Debts - 31 December 2020	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)

Quarterly report 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

Quarterly Update On Debts - 31 December 2020

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 - 2 December 2020

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

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

On Wednesday 2 December 2020, commencing at 11.02a.m.

Present: Mr J Peters (Chairperson), Her Worship the Mayor R Reese, Councillors J Edgar, M Lawrey, R Sanson and Mr J Murray

In Attendance: Group Manager Corporate Services (N Harrison), Governance Adviser (J Brandt) and Governance Support (P Boutle)

Apology: Her Worship the Mayor R Reese (lateness)

1 Apologies


Resolved ARF/2020/064
	*That the Audit, Risk and Finance Subcommittee* 1. Receives and accepts an apology for lateness from Her Worship the Mayor R Reese.
Peters/Edgar 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 10 November 2020

Document number M15258, agenda pages 6 - 12 refer.

It was requested to add to the minutes that the committee noted its disappointment with Audit New Zealand for the delays in completing the Annual Report 2019/20 audit and not providing clear timeframes.

Resolved ARF/2020/065

That the Audit, Risk and Finance Subcommittee

1. Confirms the amended minutes of the meeting of the Audit, Risk and Finance Subcommittee , held on 10 November 2020, as a true and correct record.

Edgar/Murray Carried

6. Chairperson's Report

Document number R22501, agenda pages 13 - 13 refer.

Resolved ARF/2020/066

That the Audit, Risk and Finance Subcommittee

1. Receives the Chairperson's Report (R22501).

Peters/Edgar Carried

7. Policy Review: Procurement Policy

Document number R14814, agenda pages 14 - 30 refer.

Manager Business Improvement, Arlene Akhlaq, presented the report. She answered questions about the policy’s commitment to the Living Wage. Ms Akhlaq answered further questions about the streamlined contract award process for the Capital Works Programme, the exemption in place and how a streamlined procurement process may continue under this Policy.

Attendance: Her Worship the Mayor R Reese joined the meeting at 11.41 a.m.

Resolved ARF/2020/067
	*That the Audit and Risk Subcommittee* 1. Receives the report Policy Review: Procurement Policy (R14814) and its attachments (A2348654 and A2525519).
Edgar/Sanson Carried
Recommendation to Council ARF/2020/068
	*That the Council* 1. Approves the amended Nelson City Council Procurement Policy (A2348654), effective from 1 February 2021.
Edgar/Sanson Carried

8. Quarterly Finance Report 1 July - 30 September 2020

Document number R21347, agenda pages 31 - 47 refer.

Manager Finance, Clare Knox, presented the report. She gave a progress update about Audit New Zealand’s delays with Annual Report 2019/20 audit, noting that officers were hoping the audit clearance would be received in time for the 17 December 2020 Council meeting.

Resolved ARF/2020/069

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Finance Report 1 July - 30 September 2020 (R21347) and its attachments (A2505385, A2505175 and A2517557).

Sanson/Edgar Carried

Attendance: Mr Murray left the meeting at 12.14p.m. and returned during the confidential part of the meeting.

9. Exclusion of the Public

Recommendation

That the Audit, Risk and Finance Subcommittee

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

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 – Confidential Minutes - 10 November 2020	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)(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 – Confidential Minutes - 10 November 2020

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)(a)

To protect the privacy of natural persons, including that of a deceased person

· Section 7(2)(g)

To maintain legal professional privilege

The meeting went into confidential session at 12.14p.m. and resumed in public session at 12.15p.m.

The only business transacted in confidential session was to confirm the minutes. In accordance with the Local Government Official Information Meetings Act, no reason for withholding this information from the public exists therefore this business has been recorded in the open minutes.

10. Confirmation of Minutes

10.1 10 November 2020

Document number M15260, agenda pages 3 - 5 refer.

Resolved ARF/2020/070

That the Audit, Risk and Finance Subcommittee

1. Confirms the minutes of part of the meeting of the Audit, Risk and Finance Subcommittee, held with the public excluded on 10 November 2020, as a true and correct record.

Edgar/Peters Carried

Attendance: Mr Murray returned to the meeting at 12.15p.m.

11. Re-admittance of the Public

Resolved ARF/2020/071

That the Council

1. Re-admits the public to the meeting.

Sanson/Lawrey Carried

There being no further business the meeting ended at 12.15p.m.

Confirmed as a correct record of proceedings:

Chairperson Date

Item 7: Nelson Port and Harbour Safety Management System

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22563

Nelson Port and Harbour Safety Management System

1. Purpose of Report

1.1 To consider the recent joint self-assessment of Nelson’s Port and Harbour Safety Management System (SMS) for inclusion in Council’s Risk Register.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Nelson Port and Harbour Safety Management System (R22563) and its attachment (A2553588); and

2. Agrees the identified gaps in the Port and Harbour Safety Management System are to be included in Council’s Risk Register.

2. Background

2.1 On 1 December 2020 the Environment and Climate Committee:

Received the report Port and Harbour Safety Management System (R21423) and its attachments (A1418392 and A2474992); and

Noted further updates will be provided to the Environment and Climate Committee as actions are undertaken to address the identified gaps in the Port and Harbour Safety Management System; and

Referred the report Port and Harbour Safety Management System (R21423) and resolutions to the Audit Risk and Finance Committee for consideration in the organisational Risk Register.

2.2 The report highlighted the annual self-assessment of Nelson’s SMS identified some gaps in the documentation, policies, procedures and records do not demonstrate the implementation of best practice industry standards (see Attachment 1). The New Zealand Port and Harbour Marine Safety Code (the Code) has changed since the SMS was drafted and assessed as compliant with the standards in 2015. Every three to five years an external review is undertaken by a panel of Maritime NZ officers, harbourmasters and operations managers from other regions, of the SMS. Nelson’s external review is due to occur in February/March 2021.

3. Actions

3.1 The harbourmaster has engaged the services of a consultant to assist with addressing the documentation gaps. Phase one of this work is the production of a Harbour Safety Plan, Harbour SMS and a Port SMS. This will provide a safety framework for the harbour and harbour users.

3.2 Phase two, which commenced mid-November, is a Risk Assessment of the harbour. It is expected that there will be additional streams of work that will be identified during this process and the Port is committed to undertaking these. An update on progress will be provided at the meeting.

3.3 There is also commitment from the Port to investigate any recommendations as a result of the external review that is to occur in February/March 2021. Recommendations could include improving practices, procedures, policies or systems that enable and support the safe management of marine activities for both the Port and wider harbour users.

4. Conclusion

4.1 The annual self-assessment of the Nelson Port and Harbour Safety Management System has identified there are gaps in the SMS and it needs to be updated to be more consistent with the current Code and industry best practices. These identified gaps should be included in the Council’s Risk Register until they have been addressed.

4.2 Council officers are working with the harbourmaster to put systems in place to ensure Nelson’s SMS is improved and then maintained at a high standard. Progress will be reported to the Subcommittee.

Author: Mandy Bishop, Manager Consents and Compliance

Attachments

Attachment 1: Environment and Climate Committee Report R21423 (A2553588) ⇩

Item 7: Nelson Port and Harbour Safety Management System: Attachment 1

PDF Creator

Item 8: Health Safety and Wellbeing Report, October to December 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22561

Health Safety and Wellbeing Report, October to December 2020

1. Purpose of Report

1.1 To provide the subcommittee with a report on health, safety and wellbeing data collected over the period October to December 2020.

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 two contractor near misses, they were a vehicle being backed over a manhole where work was occurring and a minor electrical shock from a ceiling heating panel.

2.2 There has been no change in the assessed risk ratings of key health and safety risks since the previous report.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Report, October to December 2020 (R22561) and its attachment (A2552487).

4. Background

4.1 Elected members, as ‘Officers’ under the Health and Safety at Work Act 2015 (HSWA), are required 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 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

Incidents of note

5.1 A near miss occurred when a contractor’s vehicle was reversed over a manhole by an unauthorised person while work was occurring in the manhole. The vehicle was being used within a road closure as a barrier for the work. A worker for another service provider could not get past, considering the truck to be poorly parked he reversed it out of the way without checking what was behind. The worker in the manhole heard the vehicles reversing beeper and ducked down into the manhole before the lid was knocked closed by the truck.

5.2 Both contractors have completed comprehensive investigations and Council has shared key learnings to prevent a reoccurrence with a wider group of contractors. This includes better traffic management methods at the actual worksite within a road closure, particularly when the road closure allows essential access to residents and service providers.

5.3 Another near miss was a contractor receiving a minor electric shock from an electric heating ceiling panel while installing a security camera in Elma Turner Library (ETL). These panels are difficult to distinguish from the standard ceiling tiles. Induction procedures for contractors at libraries have been improved and this ceiling heating system must now be isolated by an electrician before any work occurs on the suspended ceiling. Steps will be taken to ensure that this type of heating system is not included in any library redevelopment.

5.4 A shelf in ETL collapsed while being loaded with books due to the failure of a fixing on the shelves recently installed by a contractor.

Security Incidents

5.5 The most significant security incident for this period was threats being made against a parking officer via staff in the Customer Service Centre, this resulted in parking officers being taken off the streets for a short period.

5.6 Security incidents at libraries during this period included a number of previously trespassed persons entering libraries. The level of reporting and ability to identify trespassed persons entering are indicators that good process is being followed by library staff. Some of the library security incidents occurred outside libraries and staff became involved by calling the police.

5.7 Three security incidents occurred at the Brook Valley Holiday Park and a further three related to vandalism at Founders Heritage Park.

Lead Indicators

5.8 Hazard near miss and incident data in the attachment continues to show an improvement over the previous reporting periods. Improving hazard and near miss reporting to help prevent injury and illness will remain a focus.

5.9 Reporting of workstation assessments reported has increased. Under reporting of workstation assessments completed for new starters has been identified as contributing to low numbers in the previous quarters.

Safe Driving

5.10 ERoad in vehicle monitoring data continues to show a decrease in the rate of overspeed events and no individual drivers had a concerning number of over speed events during this period.

5.11 When the ERoad system was first implemented in 2016 the rate of over speed events was close to 2 per 100km travelled, for this quarter it is below 0.2 events per 100km.

Staff Wellbeing

5.12 Sick leave data through most of 2020 showed the average number of sick days taken by each staff member was less than for the same month in previous years. For the October to December quarter the sick leave taken remained at similar levels to the previous quarter and did not dip following the flu season as it had in previous years.

5.13 A number of staff requiring long periods of rehabilitation from non-work injuries has been identified as contributing to the higher rate of sick leave taken over this period.

5.14 There is anecdotal evidence that stress is an increasing issue for a number of staff. This is attributed to both personal and workplace matters and as a result there has been an increase in the uptake of counselling services provided by Workplace Support. Additional staffing continues to be provided in key areas to reduce impacts of excessive workload.

Contractor Health and Safety

5.15 The increase in safe work observations (SWOs) or contractor monitoring reported has continued due to the number of projects underway.

Due Diligence Activities

5.16 Two safe work observations or safety tours for Elected Members have been reported for this period and six for SLT members, these are detailed in the attachment.

5.17 The scheduling of these visits is expected to increase during 2021 as improvements to the process are implemented.

Key Health and Safety Risk Update

5.18 All of Council’s key health and safety risks are assessed to remain as medium risks.

5.19 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.

5.20 Where possible timeframes are indicated for treatments.

Author: Malcolm Hughes, Health and Safety Adviser

Attachments

Attachment 1: Health, Safety and Wellbeing Report - October to December 2020 (A2552487) ⇩

Item 9: Key Organisational Risks Report - 01 September to 31 December 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22526

Key Organisational Risks Report - 01 September to 31 December 2020

1. Purpose of Report

1.1 To provide information to the Audit, Risk and Finance Subcommittee on the key organisational risks through to end of quarter two 2020-21.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Key Organisational Risks Report - 01 September to 31 December 2020 (R22526) and its attachment (A2547697).

3. Background

3.1 This report includes information on risks to achieving Council’s priorities for the Long Term Plan 2018-28 (section 5), and the key organisational risks that could impact Council’s wider ability to deliver core functions and services (section 6). Risks related to specific assets, activities, or projects, are reported on a quarterly basis to the relevant committee, and any significant items are summarised at section 7 of this report. In addition, section 7 provides a brief summary from each Group Manager on emerging risks for their areas of responsibility.

3.2 Good progress has been made in reducing two of our key risks to a residual risk rating of medium – the LTP priority area for Environment (risk 2), and lifeline service failure (risk 5).

3.3 The attachment to this report describes each risk in more detail, its existing controls and planned risk treatments.

4. Risk Management Practice

4.1 Implementation of the risk management software began during quarter two 2020-21, and is on track. The planned implementation will continue throughout quarters three and four, with the focus on transferring all medium and low rated risks from legacy risk registers, embedding use of the module to support risk management activity, and decommissioning the existing set of risk registers.

4.2 A draft updated set of organisational level risks was to be discussed by the Senior Leadership Team during quarter two; due to a scheduling conflict this is now planned for quarter three.

5. Risks to Achieving Council Long Term Plan Top Priorities

5.1 Updated information to the end of quarter two 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). There have been no reported exceptions to the risk controls. All treatments relating to increased flood protection, water supply resilience, pump station capacity, and reduction of wastewater overflows are progressing as planned. Planning and confirmation of the forward works programmes for transport and solid waste is a focus for quarters three and four. The risk rating remains at High, with no risk movement to report during quarter two 2020-21, however the overall consequences and likelihood for this priority area will be further reviewed during quarter three.

5.3 Priority area Environment (Risk 2). Risk impacts and likelihoods have been reviewed taking into consideration progress so far, and as a result the residual risk rating is now considered to be Medium. This is due to: the impact on Council’s reputation being revised to moderate (previously major); and the likelihood of a major environmental impact from infrastructure damage being revised to unlikely (previously possible). The overall residual risk rating is now Medium, with risk movement during quarter two 2020-21 from High to Medium. Further risk identification and analysis is needed in relation to upcoming environment-related legislative changes; it is anticipated that risk mitigations will require a cross organisational approach. Risk identification in this area will begin during quarter three.

5.4 Priority area City Centre Development (Risk 3). Progress on treatments continues as planned. Budgetary issues have been managed to ensure continued enhancement of the city centre. The residual risk rating remains at Medium, with no risk movement during quarter two 2020-21.

5.5 Priority area Lifting Council Performance (Risk 4). During quarter two, the revised Procurement Policy was adopted by Council, and the contract management system was implemented. Other planned treatments continue to progress. The risk rating remains at Medium, with no risk movement during quarter two 2020-21.

6. Key Organisational risks

6.1 At the end of quarter two, the known key risk areas for the four Long Term Plan top priorities, and nine key organisational risks, are as summarised in the heat map, and table below. Updates are provided below for the nine 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	Medium	Group Manager Environmental Management
3	Council priority area: City Centre Development	Medium	Chief Executive
4	Council priority area: Lift Council Performance	Medium	Chief Executive
5	Lifeline service failure from natural hazards and similar events	Medium	Group Manager Infrastructure
6	Illness, injury or stress from higher hazard work situations	Medium	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	Low	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
13	Disruption to Council service delivery due to significant increase in COVID-19 cases	Medium	Chief Executive

6.2 Lifeline service failure from natural hazards and similar events (Risk 5). All planned risk treatments have been completed. Taking this into consideration, the likelihood of moderate impact on Council reputation has been revised to possible (was likely), and the possibility of major loss of services has been revised to unlikely (was possible). The overall residual risk rating is therefore medium, representing a risk movement from High to Medium during quarter two 2020-21.

6.3 Illness, injury or stress from higher hazard work situations (Risk 6). The vulnerability assessments for key Council venues will now be completed during quarter three. Some emerging incident trends are being monitored with a view to understanding how physical safety and staff wellbeing in specific areas of Council could be further improved. There was no risk movement during quarter two 2020-21, and so the overall risk rating remains at Medium.

6.4 Loss of service performance from ineffective contracts and contract management (Risk 7). Implementation of the contract management system took place during quarter two, with transfer of contract data in progress and continuing into quarter three. Impacts and consequences have been reviewed, with minor changes, however the overall residual risk rating remains at Medium, with no risk movement to report during quarter two 2020-21.

6.5 Compromise of Council service delivery from information technology failures (Risk 8). There are no further risk treatments planned. Controls are being monitored and remain effective. The residual risk rating remains at Low, with no risk movement to report during quarter two 2020-21.

6.6 Compromised decision making and public information from incomplete and difficult to access records (Risk 9). Early research and business case scoping is underway regarding the feasibility of consolidating the electronic document and records management system, with the current cloud-based Office 365 technology. Key findings from the Information Management maturity audit are being transferred to risk management. The overall residual risk rating remains at Medium, with no risk movement during quarter two 2020-21.

6.7 Council work compromised by loss of and difficulties in replacing skilled staff (Risk 10). The leadership capability framework was launched during quarter two, with implementation continuing throughout the remainder of 2020-21. Oranga Tonutanga – Council’s new wellbeing framework – has also been launched. The overall risk profile has been reviewed and remains at Medium. Notwithstanding isolated difficulties in replacing some specialist roles, the Medium risk rating remains tolerable, with no risk movement during quarter two 2020-21. It is unlikely in the future that the risk can be mitigated to a low or very low rating, as this is more dependent on market and economic factors – in particular recruiting to Council vacancies in a competitive market. Future programmed work is intended to ensure Council is a competitive and sought after employer, rather than further reduce risk.

6.8 Legal liability and reputation loss from inadequate consideration of the law in decision making (Risk 11). Training continues as planned. A review of legal services has been underway during quarter two, the scope of which includes recommendations for enhanced organisational engagement. There are no changes to existing controls or treatments to report. The risk owner remains satisfied that the residual risk is at a tolerable level. The risk rating remains at Medium, with no risk movement during quarter one 2020-21.

6.9 Loss of public trust in the organisation (Risk 12). The risk owner remains satisfied that the residual risk is at a tolerable level. The risk rating remains at Medium, with no risk movement during quarter two 2020-21.

6.10 Disruption to Council service delivery due to significant increase in COVID-19 cases (Risk 13). Incident management debriefs from the COVID-19 response have been completed, and during quarter two, key items were incorporated into an action plan, to be triggered in the event of an escalation to COVID-19 alert level three or four. The COVID-19 response readiness group continues to operate, and has implemented various initiatives to ensure COVID-19 controls are in place and adhered to. The risk rating is Medium, with no risk movement during quarter two 2020-21.

7. Risk Areas for Each Group

7.1 Infrastructure Group: As reported to the Infrastructure Committee in November, delivery of the capital programme is moving at pace; this carries some risks which are being monitored. There is currently some uncertainty over the ability to fully deliver Council’s preferred transport programme, due to the unknown level of funding subsidy to be provided by Waka Kotahi who have signalled that the National Land Transport Fund (NLTF) has significant financial pressure. Officers expect to have an indication of funding subsidy levels in April 2021.

7.2 Community Services Group: Some workload pressures are emerging, related to increasing community expectations on Council to deliver social and recreational services. The risk of a positive COVID-19 case amongst attendees at large scale Nelson events continues to be monitored – officers are working closely with event organisers to ensure health advice and best practice is being followed, with appropriate contingency planning in place. Compliance issues related to Council operated campgrounds represent some ongoing risks whilst remediation actions are developed and implemented; further information will be provided once risk identification and analysis has been completed.

7.3 Environmental Management Group: There is some risks to maintaining the timeline for delivery of the Nelson Plan, related to new legislation. No other new emerging risks to report at this time.

7.4 Strategy and Communications Group: There are continued workload pressures for governance support and administration teams, and the draft Long Term Plan 2021-31 includes funding for extra resource to address this.

7.5 Corporate Services Group: There are workload issues for the Finance team, related to “three waters” information requests.

Author: Arlene Akhlaq, Manager Business Improvement

Attachments

Attachment 1: A2547697 - Key organisational risks report Quarter 2 - October to December 2020 ⇩

Item 10: New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits - 31 December 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22532

New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits - 31 December 2020

1. Purpose of Report

1.1 To update the Subcommittee on new or outstanding risk exposures following internal audits included in any Internal Audit Plan to 30 June 2021.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits - 31 December 2020 (R22532) and its attachment (A2538210).

3. Background

3.1 Under section 9.1 of the Internal Audit Charter, the Audit, Risk & Finance Subcommittee is to be informed of internal audit results where appropriate.

3.2 Under section 9.4, the Audit, Risk and Finance Subcommittee requires a periodic update of any significant risk exposures and control issues identified from internal audits completed.

4. Summary

4.1 The attachment (A2538210), New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits, shows progress relating to six high risks outstanding from the previous report presented to the Audit, and Risk Subcommittee meeting of 10 November 2020.

4.2 There is also one new high risk from the COVID-19 Organisational Internal Controls audit to report. As reported in the Internal Audit Quarterly Progress Report presented at this meeting, this relates to the use of digitised signatures. Development of the business case for organisation-wide digital signature capability is scheduled to begin in March 2021. Digitised signatures are essentially a picture of a signature, whereas digital signatures are encrypted and have security controls related to their use.

4.3 Details of progress in Quarter 2 2020-2021 are shown in red for each action which was previously included in the report to 30 September 2020.

Author: Lynn Anderson, Internal Audit Analyst

Attachments

Attachment 1: A2538210 - New and Outstanding Significant Risks Identified from Internal Audits - 31 December 2020 ⇩

Item 11: Internal Audit - Quarterly Progress Report to 31 December 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22531

Internal Audit - Quarterly Progress Report to 31 December 2020

1. Purpose of Report

1.1 To update the Audit and Risk Subcommittee on the internal audit activity for the quarter to 31 December 2020.

2. Background

2.1 Under Council’s Internal Audit Charter approved by Council on 15 November 2018 the Audit, Risk and Finance Subcommittee requires a periodic update on the progress of internal audit activities relative to any current Internal Audit Plan approved by Council.

2.2 The current Internal Audit Plan (the Plan) for the year to 30 June 2021 was approved by the Governance and Finance Committee on 27 August 2020. The Plan provides for two planned audits, with an allowance for a further four unplanned audits. As well, it provides for a contribution towards a data analytics business improvement work programme and further development of the contracts management system.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Internal Audit - Quarterly Progress Report to 31 December 2020 (R22531) and its attachment (A2537934).

4. Overview of Progress and of Related Internal Audit Activities

4.1 During the quarter the review of Organisational internal controls during COVID-19 was reported to Senior Leadership. As noted in the attachment (A2537934) internal controls held very well over the lockdown period and extended period where staff where working at a distance. The one exception related to the use of digitised signatures that have inferior safeguards compared to digital signatures. Digitised signatures are essentially a picture of a signature, whereas digital signatures are encrypted and have security controls related to their use. With a digital signatures, the signatory is required to prove their identity in order to sign the document. This then ‘seals’ the document to prevent the signature being easily copied or manipulated.

4.2 Areas for unplanned audits will be identified and confirmed during quarter three.

4.3 With respect to business improvement progress during the quarter, the central contacts register is now live and officers are gradually transferring their contracts to this system. More detail can be found in attachment (A2537934).

4.4 As at 8 December 2020, 219 council officers had completed or partially completed the new online fraud awareness and conflicts of interest training. This is a significant increase from the 50 completions reported in the last Quarterly Report.

Author: Lynn Anderson, Internal Audit Analyst

Attachments

Attachment 1: A2537934 - Internal Audit - Quarterly Progress Report to 31 December 2020 ⇩

Item 12: Quarterly Finance Report for the six months ending 31 December 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22575

Quarterly Finance Report for the six months ending 31 December 2020

1. Purpose of Report

1.1 To inform the Subcommittee of the financial results for the first half of 2020/21 for Council and to highlight any material variations.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Finance Report for the six months ending 31 December 2020 (R22575) and its attachments (A2561298, A2554847, A2561235 and A2563228).

3. Background

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

3.2 The whole of Council financial reporting provided to this subcommittee focuses on the six month performance (1 July to 31 December 2020) compared with the year-to-date (YTD) approved capital and operating budgets.

3.3 Unless otherwise indicated, all information is against approved operating budgets, which is 2020/21 Annual Plan, plus any carry forwards, plus or minus any other additions or changes as approved by the Committee or Council.

3.4 Commentary is provided below for significant variances of +/- $50,000.

4. Financial Performance

4.1 For the six months ending 31 December 2020, the activity surplus/deficits are $6.5 million favourable to budget.

4.2 Operating budgets were initially phased evenly across the year and then staff are asked to check phasing for any changes required. Following the quarterly report writing process, budgets in all activities have been revisited and corrected where necessary. These changes will be reflected in the second quarter committee reports.

4.3 Profit and Loss

4.4 Income

4.4.1 Rates income is on budget.

4.4.2 Other Income is less than budget by $798,000 with significant variances as follows:

4.4.3 Forestry income is less than budget by $971,000. This variance relates to the Maitai Forest and is a result of delays to the harvest of that forest. This is reflected in Forestry expenditure.

4.4.4 Tasman District Council’s (TDC) contribution towards economic development has not been received and is $157,000 behind budget.

4.4.5 Waka Kotahi maintenance income is under budget by $162,000 due to planned maintenance works being undertaken later in the year. Renewal work was the focus prior to Christmas, and this is reflected in less operational expenditure.

4.4.6 Kawai Street Innovative Streets project is $212,000 behind budget, which is also reflected in costs.

4.4.7 Public Transport Waka Kotahi income is $213,000 ahead of budget and is directly linked to costs, which are also ahead of budget.

4.4.8 Commercial Trade Waste income is under budget by $111,000.

4.4.9 The return on investment from the Nelson Regional Sewerage Business Unit is creating a timing variance of $214,000 as it does not occur until the end of financial year.

4.4.10 Water Supply income is greater than budget by $259,000 which represents water income being 5.6% ahead of budget and could include factors such as the new water meters recording water usage with greater accuracy, and timing of the reading rounds.

4.4.11 Building consent fees are ahead of budget by $192,000.

4.4.12 Building Consent Authority Quality Assurance levy income is ahead of budget by $71,000 and Insurance Levy income is $33,000 ahead of budget. This is due to a combination of higher fees, and higher consent numbers in November and December compared with prior years, as well as reduced budgets for an expected decrease in income due to COVID-19.

4.4.13 Resource Consent Income is $96,000 ahead of budget.

4.4.14 Unbudgeted income of $98,000 has been received from the Provincial Growth Fund for Borck Creek, and is offset in expenditure.

4.4.15 Tahuna Camp income is less than budget by $113,000 as the annual wash-up invoicing is yet to be completed.

4.4.16 Brook Camp rental income is behind budget by $80,000 and is mainly due to no international visitors and COVID-19 impacts. The camp has seen an increase in bookings over the summer period.

4.5 Staff Costs are greater than budget by $379,000. This is mainly due to hiring staff earlier than budgeted.

4.6 Unprogrammed Expenditure is ahead of budget by $375,000 with significant variances as follows:

4.6.1 Unprogrammed public transport expenditure of $136,000 was incurred for the response to COVID-19 against a nil budget, however this is covered by additional Waka Kotahi income.

4.6.2 Water Supply reticulation maintenance is $66,000 ahead of budget.

4.6.3 Unbudgeted expenditure for Esplanade and Foreshore of $77,000 has been incurred for Borck Creek, and is offset by Provincial Growth Fund income.

4.7 Programmed Expenditure is behind budget by $7.3 million with significant variances as follows:

4.7.1 The capital grant of $5 million to TDC for the Waimea Dam is yet to be paid.

4.7.2 The Events contestable fund is $127,000 behind budget and is dependent on the timing of events.

4.7.3 Mountain bike trail expenditure is $251,000 behind budget, work is underway, however it is currently anticipated that some funds will be requested to be carried forward to 2021/22.

4.7.4 A contribution to TDC capital works of $203,000 for the Champion Drive connection has not yet been paid due to a delay in works.

4.7.5 Expenditure relating to Hill Country Erosion is behind budget by $86,000 with programme spend occurring differently to budget phasing.

4.7.6 Kawai Street Innovative Streets expenditure is $195,000 behind budget.

4.7.7 City development project and consultant costs are behind budget by $51,000 and $28,000 respectively, with work now anticipated to occur in last quarter of the year.

4.7.8 Nelson Nature expenditure is behind budget by $123,000, with work expected to occur in the second half of the year.

4.7.9 Sports Parks Programmed maintenance is $65,000 behind budget due to the contractor being behind on the renovation programme, building maintenance running behind and water charges being behind budget with it being a wetter spring/summer, less water has been required.

4.8 Base Expenditure is behind budget by $2.2 million with significant variances as follows:

4.8.1 Maitai harvest costs are behind budget by $691,000. Roding harvest costs are behind budget by $172,000.

4.8.2 Nelson Plan expenditure is less than budget by $339,000 due to delays in further technical work which will be undertaken in during second half of the financial year.

4.8.3 Parking and CBD Enhancement expenditure is less than budget by $132,000.

4.8.4 Water Supply expenditure is less than budget by $151,000 mainly due to water treatment work being behind budget.

4.8.5 Kerbside recycling contract is $136,000 behind budget.

4.8.6 Recycling Local Disposal $66,000 under budget.

4.8.7 Lease expenditure is $97,000 behind budget mainly due to timing issues (lease which was budgeted in November but paid in January).

4.9 Depreciation expenditure is over budget by $1.4 million due to the budget being based on the value of assets at the start of 2019/20 but actual depreciation is based on the revaluations performed on 30 June 2020 which saw, for example, depreciated replacement value of water supply assets increase by an average of 13% and stormwater assets increase by an average of 29% when compared with values at 1 July 2019. The full year forecast has been updated to reflect this.

4.10 Capital Expenditure (including staff time, excluding vested assets)

4.11 As at 31 December 2020, Capital Expenditure is $6.2 million behind budget. $2.3 million relates to renewals, $447,000 relates to Growth and $3.5 million relates to increased LOS projects.

4.12 There have been some minor delays during the quarter, along with some timing changes to start dates, due to Contractor availability and potential work clashes (e.g. traffic management conflicts). The full year forecast as at 31 December was projected to be $58.7 million which is $911,000 behind Operating Budget of $59.6 million.

5. Nelson Plan Financial Risk Oversight

5.1 Nelson Plan is largely on track to meet the scope and budget for 2020/21. It is currently processing feedback from Phase 1 Engagement and preparing for Phase 2 engagement in 2021. Phase 2 engagement is now planned for mid-2021 to accommodate delays in the delivery of technical work, delays to central government’s delivery of national policy directions, and the need for extended engagement with iwi on key topics (such as Freshwater management).

5.2 Nelson Plan actual YTD expenditure as at 31 December 2020 is $482,000 which is $339,000 behind budget. The costs are expected to meet the budget by the end of the year as consultancy costs increase following public feedback, preparation of supporting reports (s.32 reports).

5.3 Financial Risks include:

5.3.1 Collaboration NPS Freshwater Management requires Council to work with iwi and community to develop plan provisions to deliver te mana o te wai and vision/outcomes for catchments in Nelson. The process of collaboration is more time consuming than planned, particularly as all councils are competing for iwi’s time. This means there is a risk that approved timeframes might not be met. The Sites and Areas of Significance work also has a collaborative approach with iwi which has slowed. Mitigations to these risks have been added, including bringing in additional resources to assist iwi. The mitigations can be accommodated within existing budget.

5.4 The Nelson Plan Project Sheet is attached to the report (Attachment 3).

6. Performance measures

6.1 Council reports on 80 non-financial performance measures across its activity areas, which are ‘achieved’ or ‘not achieved’ at the end of each financial year.

6.2 As at 31 December 2020, Council is ‘on track’ to achieve 51 of its performance measures by the end of 2020/21- which is 63.75% of the 80 measures, or 79.68% of the 64 measures we have results for so far. We are ‘not on track’ to achieve 13 measures (16.25% of the 80 measures, or 20.31% of 64), and does not yet have information available for 16 measures (20%). See the chart below:

See the chart below:

6.3 Details of each performance measure’s status are provided in the Quarter Two 2020/21 reports to Infrastructure, Environment and Climate, and Community and Recreation committees. (Ten measures from the Economic and Corporate activities, which were previously reported on to the Governance and Finance Committee, are included in Attachment 4).

Author: Clare Knox, Manager Finance

Attachments

Attachment 1: A2561298 - Finance Dashboard and Graphs ⇩

Attachment 2: A2554847 - All of Council Project Health Summary Quarter 2 2020/21 ⇩

Attachment 3: A2561235 - Nelson Plan Project Sheet ⇩

Attachment 4: A2563228 - Economic & Corporate - Performance Measures Quarter 2020/21 ⇩

Item 13: Letter from Audit NZ on Annual Report for year ending 30 June 2020

Audit, Risk and Finance Subcommittee

23 February 2021

REPORT R22559

Letter from Audit NZ on Annual Report for year ending 30 June 2020

1. Purpose of Report

1.1 To provide the letter to the Council on the audit for the year ending 30 June 2020 from Audit NZ.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Letter from Audit NZ on Annual Report for year ending 30 June 2020 (R22559) and its attachment (A2570817); and

2. Notes Audit NZ’s comments (A2570817) and how officers intend to address the issues raised.

3. Background

3.1 Audit New Zealand (Audit NZ) issued an unmodified audit opinion on 17 December 2020 for the financial year ending 30 June 2020. This means that it was satisfied that the financial statements fairly reflected Council's activities for the year and its financial position at the end of the financial year.

3.2 Audit NZ included an Emphasis of Matter paragraph to draw attention to the disclosures about the impact of COVID-19, especially in relation to the Council’s investment in Port Nelson Limited.

3.3 After the audit is completed, Audit NZ issues a management letter to Council outlining the findings of the audit.

3.4 In the letter to Council, received on 9 February 2021 (Attachment 1), Audit NZ comment on the matters raised in the Audit Plan letter including:

· COVID-19 pandemic

· Property, plant and equipment revaluations and fair value assessments

· New set of group accounting standards

· Rates

· The risk of management override of internal controls

3.5 Other matters arising from the audit include:

· Valuation improvements – Property, plant and equipment

3.6 There were several items raised in previous audits that have now been completed. This has been reflected in the management comments:

· Reliance on third party to ensure payment is correct at different sites

· Contract management system

4. Conclusion

4.1 That the Subcommittee notes the matters raised in the management letter for the year ending 30 June 2020 and the manner in which officers propose to address them.

Author: Clare Knox, Manager Finance

Attachments

Attachment 1: Audit - Audit NZ - Final Management Letter (A2570817) ⇩