Agenda of Audit, Risk and Finance Subcommittee

Audit, Risk and Finance Subcommittee

25 May 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 23 February 2021 9 - 16

Document number M15441

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Subcommittee, held on 23 February 2021, as a true and correct record.

6. Chairperson's Report 17 - 18

Document number R25884

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Chairperson's Report.

7. Audit NZ: Audit Plan for year ending 30 June 2021 19 - 58

Document number R24802

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Audit NZ: Audit Plan for year ending 30 June 2021 (R24802) and its attachments (A2638227 and A2648347).

2. Notes the Subcommittee can provide feedback on the Proposed Audit Fee letter to Audit New Zealand if required, noting the Mayor will sign the letter once the Subcommittee’s feedback has been incorporated.

8. Health Safety and Wellbeing Report, January - March 2021 59 - 87

Document number R23731

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Report, January - March 2021 (R23731) and its attachment (A2621469).

9. Key Organisational Risks Report - 1 January 2021 to 31 March 2021 88 - 125

Document number R23745

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Key Organisational Risks Report - 1 January 2021 to 31 March 2021 (R23745) and its attachment (A2587873).

10. Internal Audit - Quarterly Progress Report to 31 March 2021 126 - 139

Document number R23746

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Internal Audit - Quarterly Progress Report to 31 March 2021 (R23746) and its attachments (A2601420, A2599893).

11. Draft Annual Internal Audit Plan for year to 30 June 2022 140 - 146

Document number R24781

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Annual Internal Audit Plan for year to 30 June 2022 (R24781) and its attachment (A2601457).

Recommendation to Council

That the Council

1. Approves the Draft Annual Internal Audit Plan for the year to 30 June 2022 (A2601457).

12. Draft Treasury Management Policy including Liability Management and Investment Policies 147 - 186

Document number R24767

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Treasury Management Policy including Liability Management and Investment Policies (R24767) and its attachment (A2611223).

Recommendation to Council

That the Council

1. Adopts the Treasury Management Policy (A2611223).

13. Service Delivery Reviews (s17A reviews) 187 - 195

Document number R15914

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Service Delivery Reviews (s17A reviews) (R15914).

Recommendation to Council

That the Council

1. Approves an increase in the value threshold that triggers a service delivery review under section 17A of the Local Government Act 2002 from $100,000 to $500,000 per annum for contracts and activity areas.

14. Quarterly Finance Report for the nine months ending 31 March 2021 196 - 220

Document number R24820

Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Quarterly Finance Report for the nine months ending 31 March 2021 (R24820) and its attachments (A2630218, A2630198, A2620993, A2628832 and A2628831).

CONFIDENTIAL Business

15. 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 name and name remain after the public has been excluded, for Item# of the Confidential agenda (item title), as he/she/they has/have knowledge relating to (description) 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	Audit, Risk and Finance Subcommittee Meeting - Confidential Minutes - 23 February 2021	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
2	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
3	Quarterly Update On Debts - 31 March 2021	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 - 23 February 2021

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

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

On Tuesday 23 February 2021, commencing at 9.02a.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 Environmental Management (C Barton), Group Manager Corporate Services (N Harrison) and Governance Adviser (J Brandt) and Governance Support (P Boutle)

Apologies : Nil

1. Apologies

There were no apologies

2. Confirmation of Order of Business

There was no change to the order of business

3. Interests

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

4. Public Forum

There was no public forum.

5. Confirmation of Minutes

5.1 2 December 2020

Document number M15319, agenda pages 8 - 12 refer.

Resolved ARF/2021/001

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.

Edgar/Sanson Carried

6 Chairperson's Report

Audit, Risk and Finance Subcommittee Chairperson, John Peters gave a verbal report. He spoke about the Officer of the Auditor General (OAG) online meetings he had attended in 2020. The first meeting addressed the Subcommittee’s role during COVID-19, which was deemed appropriate, and the second, the Subcommittee’s role in preparation of the 2021 Long Term Plan (LTP). Mr Peters noted that for the 2024 LTP process, earlier and more appropriate involvement of this Subcommittee would be sought. A request was made for officers to bring the next OAG review to the subcommittee in order for OAG recommendations and timelines relating to the LTP to be noted.
Resolved ARF/2021/002
	*That the Audit, Risk and Finance Subcommittee* 1. Receives the verbal Chairperson’s Report.
Peters/Lawrey Carried

7. Nelson Port and Harbour Safety Management System

Document number R22563, agenda pages 13 - 97 refer.

Manager, Consents and Compliance, Mandy Bishop, and Harbourmaster, Andrew Hogg, presented the report. Mr Hogg answered questions about steps taken to make improvements to address shortcomings identified in the Nelson Port and Harbour Safety Management System review. Mr Hogg noted that the frequency of external reviews was moving from five to three years, and that working closely with Maritime New Zealand overall would bring improvements.

Attendance: Her Worship the Mayor Reese joined the meeting at 9.10a.m.

Group Manager Corporate Services, Nikki Harrison, confirmed the process for reporting identified gaps in the Port and Harbour Safety Management System via the Council’s Risk Register.

A request was made for officers to provide progress updates to the following two Subcommittee meetings.

Resolved ARF/2021/003

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.

Sanson/Lawrey Carried

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

Document number R22561, agenda pages 98 - 112 refer.

Health and Safety Adviser, Malcolm Hughes, presented the report. He answered questions about notifiable events, mental health, threats made to officers, and safe work observation site visits for Subcommittee members.

Resolved ARF/2021/004

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).

Lawrey/Her Worship the Mayor Carried

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

Document number R22526, agenda pages 113 - 143 refer.

Manager Business Improvement, Arlene Akhlaq, presented the report. She noted a correction to paragraph 4.2, i.e. that the review referred to for quarter 3 had been pushed out to quarter 4 (April 2021).

Ms Akhlaq answered questions about the risk summary sheets in attachment 1 of the report, and took feedback from members on how future reporting on the key organisational risks could be improved.

Resolved ARF/2021/005

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).

Edgar/Sanson Carried

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

Document number R22532, agenda pages 144 - 147 refer.

Newly appointed Audit and Risk Analyst, Chris Logan, was introduced to the Subcommittee.

Group Manager Corporate Services, Nikki Harrison, answered questions regarding asset management for council owned property and facilities management, Information Management Maturity and cloud based services.

Resolved ARF/2021/006

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).

Edgar/Murray Carried

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

Document number R22531, agenda pages 148 - 151 refer.

Manager Business Improvement, Arlene Akhlaq, presented the report.

Resolved ARF/2021/007

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).

Murray/Sanson Carried

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

Document number R22575, agenda pages 152 - 171 refer.

Manager Finance, Clare Knox, presented the report and answered questions.

Manager Environmental Planning, Maxine Day, gave a verbal update on upcoming legislative changes regarding the Resource Management Act and anticipated major flow-on effects for the Whakamahere Whakatū Nelson Plan. It was noted that there was an expectation for significant risk change for Nelson City Council from this legislative reform, especially in the areas of housing and freshwater and thought would need to be given how to best monitor these risks.

Group Manager Corporate Services, Nikki Harrison, answered questions about the Waimea Dam capital grant and progress regarding economic development contributions.

Resolved ARF/2021/008

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).

Edgar/Sanson Carried

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

Document number R22559, agenda pages 172 - 199 refer.

Manager Finance, Clare Knox, presented the report. She answered questions about the Nelson Airport land evaluation.

Resolved ARF/2021/009

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.

Sanson/Her Worship the Mayor Carried

14. Exclusion of the Public

Sarah Macky, of Heaney & Partners, was in attendance for Item 1 of the confidential agenda to answer questions and, accordingly, the following resolution was required to be passed:

Resolved ARF/2021/010

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, remains 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.

Sanson/Edgar Carried

Resolved ARF/2021/011

That the Audit, Risk and Finance Subcommittee

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

Edgar/Sanson 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	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

The meeting went into confidential session at 10.46a.m. and resumed in public session at 12.13p.m.

Restatements

It was resolved while the public was excluded:

PUBLIC EXCLUDED: Quarterly report on legal proceedings

That the Audit, Risk and Finance Subcommittee

2. Agrees that the Report (R22555) and its attachment (A2563217) remain confidential at this time.

PUBLIC EXCLUDED: Quarterly Update On Debts - 31 December 2020

That the Audit, Risk and Finance Subcommittee

2. Agrees that the Report (R22568) and its attachment (A2216183) remain confidential at this time.

There being no further business the meeting ended at 12.13p.m.

Confirmed as a correct record of proceedings:

Chairperson Date

Item 7: Audit NZ: Audit Plan for year ending 30 June 2021

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R24802

Audit NZ: Audit Plan for year ending 30 June 2021

1. Purpose of Report

1.1 To provide the subcommittee with the Audit Plan from Audit New Zealand (Audit NZ) for the year ending 30 June 2021.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Audit NZ: Audit Plan for year ending 30 June 2021 (R24802) and its attachments (A2638227 and A2648347).

2. Background

2.1 The Audit Plan (Attachment 1) sets out the audit arrangements and covers:

· Audit risks and issues, both specific focus areas for council and areas of interest for all local authorities

· Group audit

· Audit process

· Reporting protocols

· Audit logistics

· Expectations.

2.2 The Proposed Audit Fees Letter (Attachment 2) outlines the proposed increased fees for the 30 June 2021 and 30 June 2022 audits. In a letter received in May 2020, the Auditor General considers the matter of annual audit fees. It was decided that due to COVID-19, it was not the time to increase annual fees by the amount that might be otherwise warranted and so for the 30 June 2020 audit, audit fees were to be held to a 1.5% increase over the agreed fee for the 30 June 2019 audit. However, it was noted that audit fees would need to increase substantially in the future and that the auditors would need to discuss this with Council in due course.

2.3 The fees are estimated to increase by 9% and 8% respectively for the 2020/21 and 2021/22 audits. The main reasons for the increase in fees are:

· Additional hours required since last review (approximately 19 weeks on site compared with 14 previously)

· Engagement Quality Review (EQR) hours – the audit meets the Office of the Auditor-General criteria (audits greater than 750 hours) that requires an EQR Director on the engagement

· More meeting requirements (Finance team, Subcommittee and Council) since last review

· Consolidations and Financial Reporting Standards results in more complex adjustments

· More focus on local authority core services

3. Materiality

3.1 A new section has been added to the Audit Plan for the 2020/21 Audit in relation to materiality which discusses materiality for both financial statements and service performance information. Materiality refers to information that if omitted, misstated, or obscured could influence readers’ overall understanding of the financial statements.

3.2 For financial statement materiality, Audit NZ has calculated Group and Parent materiality thresholds into Overall, Specific and ‘clearly trivial’. All uncorrected misstatements other than those that are clearly trivial will be reported by Audit NZ.

3.3 For service performance information materiality, Audit NZ has identified materiality measures and presented them in a table. This will be reassessed during the audit.

4. Timing

4.1 The final audit is planned to commence on 13^th September, which is later than in previous years (2019/20 Audit commenced on 7^th September 2020) and there has been no change to the statutory deadline for 2020/21 Audit Opinions to be issued.

5. Other

5.1 There is no Audit Proposal letter to be signed this year as there have been no changes since it was signed after being brought to the subcommittee meeting on 21 May 2020.

5.2 There is no Audit Engagement letter to be signed this year as there have been no changes in circumstances since it was signed after being brought to the subcommittee meeting on 11 August 2020.

5.3 John Mackey, the appointed auditor, will be available on Zoom at this subcommittee meeting to answer any questions that may arise.

Author: Clare Knox, Manager Finance

Attachments

Attachment 1: A2638227 - Audit - Audit Plan 20-21 - Draft - 11May2021 ⇩

Attachment 2: A2648347 - Audit NZ Proposed Fee Increase Letter - Draft ⇩

Item 8: Health Safety and Wellbeing Report, January - March 2021

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R23731

Health Safety and Wellbeing Report, January - March 2021

1. Purpose of Report

1.1 To provide the subcommittee with a report on health, safety and wellbeing data collected over the period January to March 2021.

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

2. Summary

2.1 Incident and lead indicator data is unexceptional for this period.

2.2 There has been an improvement in senior leader due diligence activities reported.

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

2.4 An emerging risk has been added for this report relating to the Marina transition.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Health Safety and Wellbeing Report, January - March 2021 (R23731) and its attachment (A2621469).

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.

5. Discussion

5.1 Incidents of note

5.1.1 A customer sustained a minor injury at Pūtangitangi Greenmeadows Centre when a window frame insert installed for a display fell out. All similar wooden frame inserts were removed.

5.1.2 A vessel owner died in the Nelson marina following a medical event while working up the mast on his vessel. This was not a Council workplace incident so does not feature in the incident data.

5.1.3 An elected member report of workplace stress in October 2021 has been added to the data for the previous quarter, this was not included in the previous report for privacy reasons, and was omitted from the data due to the category the incident was recorded in.

5.2 Security Incidents

5.2.1 Security incidents at libraries during this period continue to include a number of previously trespassed persons entering libraries, primarily youth. The level of reporting and ability to identify trespassed persons entering are indicators that good process is being followed by library staff.

5.2.2 Three security incidents occurred at the Brook Valley Holiday Park.

5.2.3 Two security incidents occurred at ANZAC Park including an assault on a contractor. Work is ongoing to reduce risks associated with the consumption of alcohol in liquor ban areas and the establishment of homeless camps in Council parks and reserves.

5.3 Lead Indicators

5.3.1 Hazard report and near miss incident data in the attachment continues to show good rates of reporting. Improving hazard and near miss reporting to help prevent injury and illness will remain a focus.

5.3.2 Workgroup toolbox talk data shows an improvement in toolbox talks completed against targets since mid 2020. All business unit managers and team leaders receive the toolbox talk agenda each month.

5.4 Safe Driving

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

5.4.2 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 remains around 0.2 events per 100km.

5.5 Staff Wellbeing

5.5.1 Sick leave data through much of 2020 showed the average number of sick days taken by each staff member was less than for the same month in previous years, this was somewhat consistent with Ministry of Health flutracking data.

5.5.2 Later in 2020 and so far in 2021 there has been an increase in sick leave taken that is at times above the average for the previous 4 years (2016-2019). No clear explanation could be found for this from the data, however it may relate to the increased expectation to stay home if unwell.

5.6 Contractor Health and Safety

5.6.1 High numbers of safe work observations (SWOs) or contractor monitoring reported has continued.

5.7 Due Diligence Activities

5.7.1 Five 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.

5.7.2 Cr Edgar attended a Workplace Health and Safety committee meeting as a due diligence activity for the Audit Risk and Finance Subcommittee.

5.7.3 These due diligence activities are currently occurring at a frequency that indicates targets will be met or exceeded for this calendar year. Further work is planned to better support due diligence activities.

6. Key Health and Safety Risk Update

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

6.2 A new emerging key risk area has been outlined in regard to the transition of Marina operations from a contractor to Council staff. This has been assessed as a medium health and safety risk.

6.3 With the upcoming transfer of Marina operations the critical risks associated with this work such as falls from height, work under suspended loads and vehicle versus pedestrians will no longer be captured in key risk reporting as ‘insufficient oversight of Contractors’.

6.4 An overview of controls and planned treatments are identified in the attachment. There is some uncertainty regarding the ability to implement all required treatments prior to the transition.

6.5 It is anticipated that inclusion of this risk in reporting to the subcommittee as a separate item relating to the marina is a temporary measure. As these are new risk areas for Council staff operations inclusion in ongoing organisational reporting will require a review of the key risk categories.

6.6 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.

6.7 Where possible timeframes are indicated for treatments.

Author: Malcolm Hughes, Health and Safety Adviser

Attachments

Attachment 1: A2621469 ⇩ Health, Safety and Wellbeing Report, January - March 2021

Item 9: Key Organisational Risks Report - 1 January 2021 to 31 March 2021

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R23745

Key Organisational Risks Report - 1 January 2021 to 31 March 2021

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 three 2020-21.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Key Organisational Risks Report - 1 January 2021 to 31 March 2021 (R23745) and its attachment (A2587873).

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 The thirteen risk areas are unchanged from last quarter. In the fourth quarter of 2020-21 the categorisation and the set of organisational risks is being reviewed by the Senior Leadership Team.

3.3 The attachment to this report describes each risk in more detail, its existing controls and planned risk treatments. For ease of comparison to the prior quarter, new text in the attachment has been coloured red.

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 In 2021-22 there are plans to develop regular risk reporting for business unit managers to assist in further embedding use of the module to support risk management activity.

5. Special-request reporting

5.1 On the 23rd of February, the Audit, Risk and Finance Committee requested reporting on the progress on risk R00322 - Port and Harbour Safety Management System is not compliant with the NZ Port and Harbour Marine Safety Code. The residual risk for R00322 is rated Low, so would normally not appear in this report however by exception, R00322 is included and will also be included for fourth quarter of 2020-21 reporting.

5.2 The harbourmaster has confirmed good progress is being made on the Risk Assessment for the harbour. Information has been prepared and provided to the external reviewers (representatives of Maritime New Zealand, a port and a Harbourmaster). Their review will conclude in May 2021 with findings on the Nelson Harbour’s consistency with the Port and Harbour Marine Safety Code due mid-year. This will allow full appreciation of our current trajectory towards becoming Code compliant.

6. Risks to Achieving Council Long Term Plan Top Priorities

6.1 Updated information to the end of quarter three is summarised below, with further detail on the risk areas, their controls and treatments set out in attachment one.

6.2 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 quarter four. The risk rating remains at High, with no risk movement to report during quarter three 2020-21.

6.3 Priority area Environment (Risk 2). Recent changes in central government’s National Policy Statements and National Environmental Standards, combined with proposed significant changes to legislation, including Resource Management Act reform, has increased staff workload and is creating uncertainty in the deliverability of this priority area particularly as it relates to the development of the Nelson Plan. The residual risk level has been increased from Medium to High.

6.4 Priority area City Centre Development (Risk 3). The priority for Council for delivering housing outcomes is now sitting with the City Development Team. The scope of the housing work is being confirmed and then two additional staff resources will be sought. Recruitment will be critical for delivery so while this is outstanding the residual risk level has been increased from Medium to High.

6.5 Priority area Lifting Council Performance (Risk 4). The risk rating remains at Medium, with no risk movement during quarter two 2020-21.

7. Key Organisational risks

7.1 At the end of quarter three, 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	Very High	Group Manager Environmental Management
3	Council priority area: City Centre Development	Very High	Group Manager Environmental Management
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

7.2 Lifeline service failure from natural hazards and similar events (Risk 5). All planned risk treatments have been completed. The overall residual risk rating remains at Medium.

7.3 Illness, injury or stress from higher hazard work situations (Risk 6). There was no risk movement during quarter two 2020-21, and so the overall risk rating remains at Medium.

7.4 Loss of service performance from ineffective contracts and contract management (Risk 7). Transfer of contract data into the contract management system is in progress continued in quarter three. The overall residual risk rating remains at Medium, with no risk movement to report during quarter three 2020-21.

7.5 Compromise of Council service delivery from information technology failures (Risk 8). Email notation (warning banners) will go live in April reducing the risk of a data breach. Other controls are being monitored and remain effective. The residual risk rating remains at Low, with no risk movement to report during quarter three 2020-21.

7.6 Compromised decision making and public information from incomplete and difficult to access records (Risk 9). Business case scoping for consolidating the electronic document and records management system, with the current cloud-based Office 365 technology was approved in quarter three. The overall residual risk rating remains at Medium, with no risk movement during quarter three 2020-21.

7.7 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. There continues to be isolated difficulties in replacing some specialist roles in part due to uncertainty from COVID-19 and central government reforms including three waters. The overall residual risk rating remains at Medium, with no risk movement during quarter three 2020-21.

7.8 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.

7.9 Legal liability and reputation loss from inadequate consideration of the law in decision making (Risk 11). 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.

7.10 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.

7.11 Disruption to Council service delivery due to significant increase in COVID-19 cases (Risk 13). 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. A review and update of local Business Unit continuity plans remains in progress. The risk rating is Medium, with no risk movement during quarter two 2020-21.

8. Risk Areas for Each Group

8.1 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.

8.2 There is currently significant uncertainty regarding proposed changes in governing the three waters. There is also some uncertainty around roading projects:

8.2.1 Shorter term, additional regulation from Waka Kotahi, which comes into force 1st May 2021, has potential to delay the start of new projects in road reserve. The delay risk relates to a lack of locally qualified Temporary Traffic Management Planners who will be able to write and submit Traffic Management Plans.

8.2.2 Longer term, there is risk that Council’s preferred transport programme over 2024-27 will not be delivered in full. The delivery risk relates to the unknown level of funding subsidy provided by Waka Kotahi. Waka Kotahi has signalled that the 2024-27 National Land Transport Fund (NLTF) has significant financial pressure. Officers expect to have an indication of funding subsidy levels in April 2021.

8.3 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.

8.4 Environmental Management Group: There is currently significant uncertainty regarding the Resource Management Act and three water reforms which could potentially have a wide reaching impact.

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

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

Author: Chris Logan, Audit and Risk Analyst

Attachments

Attachment 1: A2587873 Council risk profile - key organisational risks - A4 attachment to quarterly report for audit risk and finance subcommittee ⇩

Item 10: Internal Audit - Quarterly Progress Report to 31 March 2021

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R23746

Internal Audit - Quarterly Progress Report to 31 March 2021

1. Purpose of Report

1.1 To update the Audit, Risk and Finance Subcommittee on the internal audit activity for the quarter to 31 March 2021.

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.

2.2 Business improvement progress is no longer being reported due to the change in Internal Auditor and noting that it falls outside the scope of Internal Audit function.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Internal Audit - Quarterly Progress Report to 31 March 2021 (R23746) and its attachments (A2601420, A2599893).

4. Overview of Progress on the 2020-21 Internal Audit Plan

4.1 The 2020-21 Internal Audit Plan (the Plan) 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.

4.2 Three audit items have been completed as at 31 March 2021. Further details of progress on the plan is provided in attachment Annual Audit Plan Progress to 31 March 2021 (A2601420), and an overview provided below.

4.3 The planned audit ‘effectiveness of crisis management response and business disruption planning & management’ has been postponed. The decision to proceed or indefinitely postpone this planned audit will be informed in quarter four 2020-21 by assessing the strength of recommendations of similar reviews performed by other councils.

4.4 In the quarter two 2020-21, the placeholder ad hoc audit topics had yet to be defined. Three topics have now been considered:

4.4.1 Nelson Waste Recovery Centre Kiosk - Post Management Change (described in 4.4 to 4.6)

4.4.2 Land and Information Memo review to assess compliance with legislation (scoped in quarter three 2020-21 for external review in quarter four 2020-21)

4.4.3 Development Contributions follow-up (considered in Draft Annual Audit Plan 2021-22).

4.5 During quarter three 2020-21, the Nelson Waste Recovery Centre Kiosk operation was audited. Areas of consideration included operational effectiveness and efficiency, reliable financial reporting, and compliance with laws, regulations, and policies.

4.6 The audit found that the transition from Nelmac to Council management was smooth due to the uncomplicated nature of operations, and effective project management by Council. Controls have been strengthened with minimal impacts to net operating income (before Local Waste Disposal Levy ‘top-up’) relative to that in place under Nelmac.

4.7 The audit resulted in five Very Low rated recommendations (need only be implemented if incidental to another action).

5. Overview of New and Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits

5.1 This section, including attachment New or Outstanding Internal Audit Recommendations Rated High or Very High - 31 March 2021 (A2599893), replaces the stand-alone report, that was included in previous Audit, Risk and Finance Subcommittee agendas.

5.2 There are no new significant risk exposures identified from internal audits and of the seven outstanding items at end of quarter three 2020-21, one has been closed. Of the remaining six outstanding items, it is anticipated that one, Monitoring & Management of Contractor Performance (I00021), will be closed in the next quarter.

Author: Chris Logan, Audit and Risk Analyst

Attachments

Attachment 1: A2601420 Annual Audit Plan Progress to 31 March 2021 ⇩

Attachment 2: A2599893 New or Outstanding Internal Audit Recommendations Rated High or Very High - 31 March 2021 ⇩

Item 11: Draft Annual Internal Audit Plan for year to 30 June 2022

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R24781

Draft Annual Internal Audit Plan for year to 30 June 2022

1. Purpose of Report

1.1 To approve the Draft Annual Internal Audit Plan to 30 June 2022.

2. Summary

2.1 The Internal Audit Charter, approved by Council on 15 November 2018, requires that at least annually, internal auditor submits to the Audit, Risk and Finance Subcommittee (ARF) an internal audit plan for review and recommendation to the Council for approval.

3. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Draft Annual Internal Audit Plan for year to 30 June 2022 (R24781) and its attachment (A2601457).

Recommendation to Council

That the Council

1. Approves the Draft Annual Internal Audit Plan for the year to 30 June 2022 (A2601457).

4. Background

4.1 The internal audit plan consists of a work schedule as well as budget and resource requirements for the next fiscal year. These items are described in the attachment Draft 2021-22 Internal Audit Plan – 21 March 2021 (A2601457)

4.2 The internal audit plan has been developed based on a prioritisation of a list of all potential audit topics using a risk-based methodology.

5. Discussion

5.1 Like prior years, the draft annual audit plan contains two to three planned topics and a placeholder for two ad hoc audit topics. A budget of $25,000 has been allowed for should the ad hoc audit topics require external specialists.

5.2 The planned topics are:

5.2.1 ‘Streamlined procurement’ probity & value for money audit (first half year of 2021-22)

5.2.2 Marina controls assessment (second half year of 2021-22)

5.2.3 Annual Fraud & Conflict of Interest Control Effectiveness Assessment (first half year of 2021-22)

6. Options

6.1 Option 1 – Preferred Option – Approve draft plan.

6.2 Option 2 – Less Agile Option - involves removing one of the placeholder ad hoc audit topics and replacing it with an item, selected by the Subcommittee, from the list of potential ad-hoc audit topics as per attachment Draft 2021-22 Internal Audit Plan – 21 March 2021 (A2601457).

Option 1: Approve Draft Internal Audit Plan (Preferred)
Advantages	· In line with Senior Leadership Team (SLT) expectations · Flexibility to audit emerging risks.
Risks and Disadvantages	· A loss occurs that may have been avoided had an audit taken place for one of the potential ad-hoc audit topics.
Option 2: Approves an amended, less agile Internal Audit Plan
Advantages	· Greater certainty of the audit plan.
Risks and Disadvantages	· Increased delivery risk as placeholder ad hoc audit topics not fully scoped.

Author: Chris Logan, Audit and Risk Analyst

Attachments

Attachment 1: A2601457 - Draft 2021-22 Internal Audit Plan - 31 March 2021 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

This report provides a plan to assess whether certain areas of Council's risk management, governance and internal control processes are operating effectively.

Execution of the plan provides assurance that Council is effectively promoting the social, economic, environmental, and cultural well-being of communities in the present and for the future.

2. Consistency with Community Outcomes and Council Policy

This report aligns with the Internal Audit Charter, approved by Council on 15 November 2018.

The review of the ‘Streamlined procurement’ speaks directly to the Community Outcomes identified in the Long Term Plan 2018-28 that “our infrastructure is efficient, cost effective and meets current and future needs.”

3. Risk

If internal audits are not approved: the cost of external audits may increase, the frequency and severity of internal control failures may increase and it may become more difficult to retain Council’s current credit rating.

4. Financial impact

This decision will fit within existing budgets.

5. Degree of significance and level of engagement

This matter is of low significance because it does not directly impact financial decisions, or the levels of services provided. Therefore no consultation is required.

6. Climate Impact

There has been no specific climate change impact considered in the preparation of this report.

7. Inclusion of Māori in the decision making process

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

8. Delegations

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

Areas of Responsibility:

· Internal audit

Powers to Decide

· Appointment of a deputy Chair

Powers to Recommend to Council

· All other matters within the areas of responsibility or any other matters referred to it by the Council:

Item 12: Draft Treasury Management Policy including Liability Management and Investment Policies

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R24767

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 (R24767) and its attachment (A2611223).

Recommendation to Council

That the Council

1. Adopts the Treasury Management Policy (A2611223).

3. Background

3.1 Under the Local Government Act 2002 (LGA) section 102(2)(b) and (c) Council must adopt a Liability Management Policy and an Investment Policy. The current Treasury Management Policy including Liability Management and Investment Policies was adopted in September 2019 and is due for review in September 2022. However, recent changes in the sector including a lower interest rate environment, a new Local Government Funding Agency (LGFA) standby facility, and changes to the Financial Strategy through the Long Term Plan (LTP), have prompted an earlier review of this policy.

3.2 In order to manage Council’s proposed work programme in the LTP 2021-31, the debt to revenue ratio is proposed to be changed from 150% to 175%. This change to the Financial Strategy needs to be also changed in the Treasury Management Policy.

4. Discussion

4.1 The Council’s treasury advisors, Price Waterhouse Cooper (PWC), have reviewed and updated the Council’s draft Treasury Management Policy to continue to align with sound treasury management sector practice. Changes to the policies are highlighted in yellow.

Liability Management Policy

4.2 The following recommendations were made based on the review:

4.3 Changing the interest rate risk management policy framework to provide greater flexibility in managing interest rate risk positions (Section 1.4):

4.3.1 The policy approach reduces the minimum amount of interest rate fixing over the medium term to allow management greater discretion in managing Council’s exposure to market wholesale interest rates.

4.3.2 This will allow Council to benefit from the current lower interest rate environment.

4.3.3 There is an ongoing requirement to have a portion of interest rate risk managed through fixing with approved interest rate instruments.

4.3.4 Interest Rate risk positions will continue to be reviewed monthly by staff and PWC.

4.4 Changes to the funding risk control limits are recommended to provide more flexibility in Council’s debt management (Section 5):

4.4.1 An adjustment to the maturity bands within the framework will allow for a 3–7 year and 7 year + timeframe. LGFA currently lend up to 15 years.

4.4.2 The policy continues to encourage a spreading of debt maturities with a minimum of 40% of the debt portfolio spread across the 0-3 year and 3-7 year time bands and no more than 60% of the debt portfolio maturing in the next 3 years.

4.4.3 Whilst maintaining consistency with Council’s treasury objectives and recognising the debt management and liquidity support of the LFGA, the recommended funding maturity limits create additional flexibility, allowing existing debt to mature naturally whilst providing Council with the ability to strategically manage its debt portfolio over time.

4.5 The Policy includes the new debt instrument that is now on offer from the LGFA. These are committed stand-by facilities that will replace a portion of existing committed bank facilities (Section 8).

4.6 In order to reflect changes made to the Financial Strategy as part of the draft 2021-31 LTP, the net external debt as a percentage of total revenue has been changed to 175% (previously 150%) in Section 9. The Policy has also been updated to reflect the LGFA lending covenant of 280% (previously 250%) following an update by the LGFA in 2020 (Section 9).

4.7 The Emission Trading Scheme section has been reviewed to amend the minimum and maximum hedging allowed for the Landfill ETS liability. This is primarily to allow the Nelson Tasman Regional Landfill Business Unit (NTRLBU) to provide more ETS hedging cover for their Business Plan. In addition, the Government has changed the way it delivers carbon credits to NZETA participants from a cash option to auction. Changes to the policy have been made to allow the Landfill to use the NZ ETS auctions to obtain credits to meet its obligations.

4.8 Any changes required to the Treasury Management Policy from the Holding Company proposal will be brought back to a future Subcommittee meeting.

Investment Policy

4.9 The changes to the Investment Policy are:

4.10 Updated wording for Nelmac investment reflecting Council’s resolution on 22 September 2020 confirming Nelmac’s position as a strategic partner delivering key services to Council.

4.11 The forestry section has been updated to reflect the revised Goal in the forestry AMP including recognising the protection of environmental and recreational values and recognition of Council’s Forest Stewardship Council (FSC) accreditation.

4.12 The Property Investment section has been updated to remove the list of Council properties as the list is not comprehensive and having some properties listed may hinder decision making.

4.13 Finance staff have conducted a review of the changes in depth and are satisfied with the recommendations.

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 · will allow for holding company/funding vehicle to borrow directly from LGFA
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 · will not allow for holding company/funding vehicle to borrow directly from LGFA

6. Next Steps

6.1 On approval by 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 subcommittee will be against the new framework.

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

Author: Nikki Harrison, Group Manager Corporate Services

Attachments

Attachment 1: A2611223 Treasury Management Policy - April 2021 ⇩

Important considerations for decision making

1. Fit with Purpose of Local Government

Risk management through having an Investment Policy and Liability Management Policy ensures Council is effectively promoting the social, economic, environmental, and cultural well-being of communities in the present and for the future.

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. Climate Impact

7. Inclusion of Māori in the decision making process

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

8. Delegations

The Audit Risk and Finance Subcommittee has the following delegations to consider Investment and Liability Management Policies:

Areas of Responsibility:

· Council’s Treasury policies

Powers to Decide:

· none

Powers to Recommend:

· Any matters within the areas of responsibility

Item 13: Service Delivery Reviews (s17A reviews)

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R15914

Service Delivery Reviews (s17A reviews)

1. Purpose of Report

1.1 To propose efficiencies in the service delivery review work programme and consider increasing the internal threshold requirements for reviews undertaken in meeting the requirements of section 17A of the Local Government Act 2002.

2. Recommendation

That the Audit, Risk and Finance Subcommittee

1. Receives the report Service Delivery Reviews (s17A reviews) (R15914).

Recommendation to Council

That the Council

3. Background

3.1 Changes to the Local Government Act 2002 (LGA) in 2014 saw the introduction of requirements under a new section, 17A, for councils to review the cost-effectiveness of arrangements for meeting the needs of communities within their district or region. This is to encourage good quality local infrastructure, local public services, and performance of regulatory functions.

3.2 The intention behind the change was to encourage local authorities to explore opportunities to improve effectiveness and make efficiency gains through mechanisms such as joint services and shared arrangements.

3.3 There are two types of reviews:

3.3.1 Review of service areas, such as a business activity, within Council (activity reviews)

3.3.2 Review of services which are delivered via contract, such as maintenance (contract reviews)

3.4 In November 2015, Council agreed to the approach staff would take to meet legislative requirements. This included an agreed schedule of review areas, use of a review template, and a review timeline. As provided for under the Act, Council also set its financial threshold, exempting from review activities and contracts below $100,000 in value.

3.5 The first round of service reviews concentrated on 42 service delivery areas to cover the breadth of Council’s activities. Reviews in these areas were completed in 2017 and overseen by Council’s Audit and Risk Committee.

4. Discussion

The legislation and triggers for review

4.1 A service delivery review is the process of determining whether the existing means of delivering a service remains the most efficient, effective and appropriate means for delivering that service. This includes consideration of the current method of governance, funding and delivery of services alongside the alternative options that are available.

4.2 Section 17A(2) states that service delivery reviews must be undertaken:

In conjunction with consideration of any significant change to relevant service levels; and

17(A)(2)(a) Within 2 years before the expiry of any contract or other binding agreement relating to the delivery of that infrastructure, service, or regulatory function; and

17(A)(2)(b) At such times as the local authority considers desirable, but not later than 6 years following the last review under subsection (1).

4.3 Section 17A(3) also provides two exemptions to these requirements:

17A(3)(a) A local authority is not required to undertake the review in respect of a function to the extent that delivery arrangements are bound by legislation, contract or binding agreement so that they cannot be changed within the next two years;

(17(3)(b) A local authority is not required to undertake the review if it is satisfied that the potential benefits do not justify the cost of the review.

4.4 The legislation does not limit the consideration of costs and benefits to only financial matters. Other costs and benefits, such as staffing resources, can also be considered. The second exclusion is designed for circumstances where the service is small or where cost savings may be minor.

4.5 It is important to note that the review of services covers how the services are delivered, not the quality of the services, most of which are reviewed as part of the development of activity management plans.

4.6 It is also noted that if a change to the way a service is delivered is proposed, that decision in itself will need to consider Council’s Policy on Significance and Engagement and any consequential public engagement.

Current status of review programme

4.7 Under the current process, the threshold is $100,000. Most service review areas have been scheduled for their next review in 2021/22 or 2022/23.

4.8 Staff have completed a reassessment of the process. Values attributed to contracts and activity areas is based on their current value, but will be reviewed again following the adoption of the Long Term Plan (LTP) 2021-2031, when budgets may have changed.

4.9 Since the completion of first round of reviews in 2017, staff have undertaken several activity and contract reviews, including:

· Listed Trees - May 2018

· Navigation Safety - May 2020

· Nelmac Infrastructure Contract - February 2020

· General Building Maintenance of NCC Owned Buildings/Facilities – General Maintenance and Physical Works Contract - August 2020

Proposed increase in review limit to $500,000 per annum

4.10 The majority of the first round of reviews were undertaken using existing staff resources. Reviews are time consuming and rarely result in changes that have not already emerged from the activity management process.

4.11 Many variables apply in relation to the time required to complete a review, however a broad estimation of the time required is somewhere between five to 30 hours per review. Under the current system there are several business units with full work programmes that have a multiple contracts and services valued at $100,000 or over (the current threshold).

4.12 Staff are recommending the threshold that triggers the need for either an activity or contract review be increased to $500,000 per annum. As shown below, a $500,000 per annum threshold will reduce the estimated work by four activity reviews and 18 contract reviews. This will focus attention on service delivery activities where the most gains can be made, and free up staff time to concentrate on priority projects.

4.13 Notwithstanding the proposed $500,000 per annum threshold, Council may still decide to undertake an activity review which does not meet this threshold if considered necessary.

4.14 Additionally, in relation to contract reviews, it is proposed that the threshold be applied to its annual cost rather than the total cost of the contract, which may be over multiple years.

Comparison of different threshold options

4.15 To provide comparison information, adopting a $500,000 or $1 million threshold is laid out below alongside the current $100,000 threshold. Staff have determined the value of these activities by operating expenditure and an estimate of overheads. In summary there are:

· 40 Activity Reviews required at the $100,000 threshold

· 25 Activity Reviews required at the $500,000 threshold

· 22 Activity Reviews required at the $1 million threshold

$ Threshold	Number of reviews	Service activity review areas
$100,000 p.a.	15 service review areas (plus all listed below)	Administration of Grants
		Cemeteries
		Civil Defence Emergency Management
		Commercial Property portfolio
		Community Facilities Management
		Crematorium
		Eco Design Service and Heritage
		Festivals and Events
		Founders Park
		General Building Maintenance
		Golf Course – Waahi Taakaro
		Heritage Houses
		Marina
		Motor Camps
		Swimming Pools
$500,000 p.a.	4 service review areas (plus all listed below)	City Development*
		Forestry
		Nelson Arts Festival
		Saxton Field
$1 million p.a.	22 service review areas	Building Consents and Building Inspection Services
		Corporate Services
		Dogs and other animal control, parking enforcement, food safety and public health compliance, alcohol licensing and compliance, freedom camping and other bylaw compliance and incident response
		Libraries
		Nelson Airport
		Nelson Regional Development Agency
		Nelson Regional Sewerage Business Unit
		Parks and Reserve
		Planning and City Development
		Public Transport
		Port Nelson
		Recycling
		Resource Consents
		Resource Management Policy and Planning
		Road Maintenance
		Science and Environment
		Solid Waste
		Solid Waste Management – Landfill
		Strategic Policy, Bylaws and Asset Management Planning
		Tasman Bay Heritage Trust and Nelson Museum
		Transfer Station
		Utilities – Storm water/Flood protection/Wastewater (including Waste Water Treatment Plant(s)/Water supply

*Based on draft 2021/22 budget

4.16 This is only an indication, as the review areas would require an updated assessment of financial costs following the adoption of the 2021-2031 LTP. For example, the draft Property and Facilities Activity Management Plan 2021-2031 shows Motor Camps having a value of $531,000 (up from $446,000) and the Marina services are now undertaken in-house and will be captured in the $1 million threshold.

4.17 Council is currently transitioning to a new contract management system, LawVu. Based on the information in the new system so far, there are:

· 18 Contracts for services with an annual value over $100,000

· No Contracts for services with an annual value between $500,000 and $1 million

· 3 Contracts for services with an annual value over $1 million

4.18 It is important to note that not all these contracts may be subject to a s17A review, depending on other circumstances as set out in paragraphs 4.3 of this report.

4.19 Adopting a $1 million threshold would only reduce the estimated workload by four activity service reviews and no contracts. This would not provide Council with any significant gain.

4.20 Any service delivery review of the Three Waters activities would be dependent on any changes arising from the central government review.

Impact on staff time to be freed up if consultants are utilised

4.21 To accommodate the additional staff workloads in preparation of each LTP, it is also proposed that reviews not to be scheduled during LTP preparation years i.e. not in 2023/24 or 2026/27.

4.22 Staff are also proposing that consultants be used to undertake some activity area reviews to free up staff time, with a budget of $25,000 per annum allocated in the draft budget for years one and two of the LTP 2021-31 (and years one and two of every subsequent three-yearly cycle).

5. Options

5.1 Three options are presented to the Subcommittee. Officers support Option Two.

Option One: Status quo - retain the $100,000 p.a. threshold
Advantages	· More contracts and services are reviewed which may result in more effectiveness and efficiency gains in relation to Council services
Risks and Disadvantages	· Requires more staff time reducing resources for higher priority work · Fewer gains expected from lower level value contracts
Option Two: Recommended - Increase the mandatory threshold for reviews to $500,000 p.a.
Advantages	· Reduces the number of reviews required compared to a threshold of $100,000 · Frees staff time to focus on areas of higher priority · Staff efforts are concentrated on s17A reviews where there is a higher potential to realise efficiency gains
Risks and Disadvantages	· Minor efficiency gains from undertaking lower value reviews might not be realised
Option Three: Increase the mandatory threshold for reviews to $1 million p.a.
Advantages	· Reduces the number of reviews required compared to a threshold of $500,000 · Frees staff time to focus on areas of higher priority · Staff efforts are concentrated on s17A reviews with the highest potential to realise efficiency gains
Risks and Disadvantages	· Some smaller contracts and services that might benefit from a review would not be captured (although Council could specify particular services at a lower level that should also be reviewed)

6. Conclusion

6.1 A $500,000 p.a. threshold is recommended as it provides a balance between the need to undertake service delivery reviews and the exemptions provided for in legislation.

Author: Gareth Power Gordon, Policy Adviser

Attachments

Nil

Important considerations for decision making

1. Fit with Purpose of Local Government

Section 17A service delivery reviews are a requirement of the Local Government Act 2002 to determine the most cost effective arrangement for meeting the needs of communities, including wellbeing, within a district or region for good quality infrastructure, local public services, and performance of regulatory functions.

2. Consistency with Community Outcomes and Council Policy

The recommendation supports the efficient and effective provision of all Council services and the delivery of all Community Outcomes, in particular:

· Our infrastructure is efficient, cost effective and meets current and future needs

· Our urban and rural environments are people-friendly, well planned and sustainably managed

· Our communities have access to a range of social, educational and recreational facilities and activities.

3. Risk

Setting the threshold at $500,000 reduces the risk that resources are allocated to reviews which have minor benefits.

4. Financial impact

Staff resources and the budget of $25,000 in non-LTP years to complete the reviews. The process of reviewing service delivery functions may generate cost savings.

5. Degree of significance and level of engagement

This matter is of low significance as it does not impact levels of service and has a low financial impact and therefore no community engagement has been undertaken.

6. Climate Impact

No impact on the climate results from this recommendation.

7. Inclusion of Māori in the decision making process

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

8. Delegations

The Audit, Risk and Finance subcommittee has the following delegations to consider in relation to the requirements of the Local Government Act 2002

Areas of Responsibility:

· Council’s financial performance

· Internal Audit

· Procurement Policy

Powers to Recommend to Council:

· All other matters within the areas of responsibility or any other matters referred to it by the Council

Item 14: Quarterly Finance Report for the nine months ending 31 March 2021

Audit, Risk and Finance Subcommittee

25 May 2021

REPORT R24820

Quarterly Finance Report for the nine months ending 31 March 2021

1. Purpose of Report

1.1 To inform the Subcommittee of the financial results for the first nine months 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 nine months ending 31 March 2021 (R24820) and its attachments (A2630218, A2630198, A2620993, A2628832 and A2628831).

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 nine-month performance (1 July 2020 to 31 March 2021) 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 nine months ending 31 March 2021, the activity surplus/deficits are $12.0 million favourable to budget.

4.2 Profit and Loss

4.3 Income

4.4 Rates income is on budget.

4.5 Other income is greater than budget by $1.1 million with significant variances as follows:

4.6 Investment Management income is greater than budget by $1.7 million. A provision for reduced rental income from rent relief provided by Council to tenants due to COVID-19 was made in this cost centre however the reduction in income is being recorded within the cost centre to which the relief relates, creating a $825,000 YTD variance. The Port Nelson Dividend of $750,000 was received ahead of budget and the Nelmac Subvention Payment of $397,000 has been received ahead of budget. Interest income is $282,000 under budget with NRSBU interest being $179,000 lower than budget due to lower debt than anticipated and internal interest is $190,000 under budget due to lower internal loan balances across the organisation.

4.7 Economic Development income is less than budget by $203,000. TDC’s contribution to Economic Development is $157,000 behind budget as it was budgeted for December but is expected to be received in June. MBIE’s contribution is $56,000 behind budget with both payments also due in June.

4.8 Forestry income is less than budget by $1.5 million. This variance relates to the Maitai Valley and Brook Valley Forests and has corresponding expenditure less than budget. Harvesting these blocks was delayed in 2020 to allow commercial recreation businesses that operate either near or within commercial blocks to continue operating after the COVID-19 lockdown. The harvesting of selected forestry blocks in the Brook Valley will begin mid-May 2021.

4.9 Unsubsidised Roading income is less than budget by $604,000. Waka Kotahi Funding for Kawai Street is $532,000 behind budget due to a timing issue. Recoveries from Corridor Access (CAR) are under budget by $75,000 and expecting to be $96,000 under budget by the end of the year. This is due to fewer CAR applications than budgeted but this doesn’t reflect in reduced expenses because the complexity of CAR applications has increased so more time and external costs are required to process them. From 1 July, the fees and charges have been approved to charge for Traffic Management Plan processing (previously not charged for) so greater cost recovery will occur in this area.

4.10 Public Transport income is greater than budget by $656,000. Waka Kotahi income is $537,000 ahead of budget and expecting to be $395,000 over by the end of the year due to unprogrammed expenditure for the response to COVID-19. TDC’s contribution to public transport is $47,000 over budget and Beecard revenue is $66,000 over budget.

4.11 Building Services income is greater than budget by $649,000. Building consent fees are ahead of budget by $348,000, BCA QA levy income is ahead of budget by $148,000, Building Warrant of Fitness is ahead of budget by $105,000 and Insurance Levy income is $72,000 ahead of budget. This is due to higher consent numbers compared with prior years as well as reduced budgets for an expected decrease in income due to COVID-19. It is anticipated that income will be over budget by $687,000 at year end.

4.12 Water Supply income is greater than budget by $353,000. Commercial and Residential Water charges are $402,000 ahead of budget due to increased commercial sales volumes compared with budget and prior year.

4.13 Brook Camp income is less than budget by $130,000. Camp Site Fees are under budget by $91,000 and forecasting to be under budget by $70,000 at year end. Sundry Income is under budget by $18,000 and Semi Permanent Camp Fees are under budget by $11,000. The Camp has been significantly affected by the impacts of COVID-19.

4.14 Community Housing income is greater than budget by $167,000. Rent income is over budget by $167,000 due to the delay in the sale of the portfolio.

5. Expenses

5.1 Unprogrammed expenditure is greater than budget by $863,000 with significant variances as follows:

5.2 Trafalgar Centre Event & Hire expenditure is behind budget by $159,000. This is offset by lower income from users.

5.3 Public Transport is $174,000 over budget but is offset by Waka Kotahi income.

5.4 Water Supply Reticulation Reactive Maintenance is $177,000 ahead of budget due to phasing misalignment.

5.5 Staff Operating expenditure is less than budget by $138,000.

5.6 Programmed expenditure is less than budget by $8.5 million with significant variances as follows:

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

5.8 Kawai Street Innovative Streets is behind budget by $486,000 but the is budget is spread across both Kawai Street and Hampden Street/ Locking street initiatives and is on target for full expenditure this financial year.

5.9 Mountain Bike Trail expenditure is $376,000 under budget and it is now thought that some of these funds should be capital expenditure and not operating expenditure.

5.10 Champion Road Roundabout expenditure is behind budget by $150,000 but expecting to be $34,000 over budget by the end of the year.

5.11 Street Tree Maintenance is behind budget by $66,000.

5.12 Hill Country Erosion expenditure is behind budget by $154,000

5.13 Maitai ERP Grant expenditure is ahead of budget by $158,000. This is matched by income from DOC.

5.14 Preliminary Elma Turner Capex Investigation is behind budget by $55,000 as works are yet to commence.

5.15 The Events contestable fund is $193,000 behind budget and is dependent on the timing of events.

5.16 Finance expenditure is greater than budget by $203,000.

5.17 Depreciation expenditure is under budget by $634,000. A depreciation recovery from the sale of the community housing properties has reduced overall depreciation by $2.6 million. Without this, Depreciation expenditure would be over budget by $2.0 million.

5.18 This variance is 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%, waste water assets increased by an average of 25% and stormwater assets increased by an average of 29% when compared with values at 1 July 2019. The full year forecast has been updated to reflect this.

5.19 Base expenditure is less than budget by $2.6 million with significant variances as follows:

5.20 Maitai and Brook Harvest and Roading costs are under budget by $1.2 million due to the delays in the harvest of that forest.

5.21 Developing the Resource Management Plan base expenditure is $495,000 less than budget which is due to staff taking on some work instead of consultants while a number of costs have been delayed in relation to freshwater and RMA National Policy Statements. There is an anticipated underspend of $588,000, of which $150,000 will be a saving.

5.22 Insurance charges for 2020/21 are $203,000 (10%) over budget year to date. We currently remain in a tougher market with an increased frequency and severity of natural catastrophe events leading to more claims and therefore a rise in premiums. This, combined with the current year infrastructure values, has caused the adverse variance to budget. Projections for 2021/22 are that the market will remain tough which means that Council’s Infrastructure and Material Damage premium increase is likely to be close to 15%. Other insurance premiums are projected to rise by 5%.

5.23 Street Tree Maintenance is behind budget by $66,000.

6. Capital Expenditure

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

6.2 As at 31 March 2021, Capital Expenditure is $9.0 million behind budget, of which $4.0 million relates to Infrastructure and $3.4 million relates to Community and Recreation. $3.1 million relates to renewals, $382,000 relates to Growth and $5.4 million relates to increased Level of Service projects.

6.3 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. The full year forecast as at 31 March 2021 was projected to be $52.9 million which is $6.7 million behind Operating Budget of $59.6 million.

7. Nelson Plan Financial Risk Oversight

7.1 RMA reform presents a significant risk to the completion of the Nelson plan programme, as planned. The uncertainty of transition timeframes, plan requirements and potential joint plans with Marlborough and Tasman district councils means that it is difficult to determine how the reforms will impact the Nelson Plan programme.

7.2 At the current time, the Environmental Planning team is carrying on with development of the Nelson Plan, with expected notification in 2022. It is likely that aspects of the Nelson Plan may be notified at different stages, particularly for Freshwater and Coastal Hazards, as they are both subject to significant legislative changes (or upcoming changes).

7.3 Further National Directions anticipated to be issued by central government may also affect the delivery and content of the Nelson Plan, such as NPS Indigenous Biodiversity; NES Air; NPS Highly Productive Soils - and others. Mitigations to these risks have been added, including decision points for Council, project planning for staged approach, and maintaining contact with Ministry for the Environment on upcoming changes. The mitigations can be accommodated within existing budget.

7.4 The Nelson Plan Project Sheet is attached to the report (Attachment 2).

8. Project Health

8.1 A table summarising the health of projects across Council for which project sheets have been generated is included as Attachment 3. It gives a red, amber, or green rating for quality, time, and budget factors.

8.2 The full project sheets are included as attachments to the Infrastructure, Community and Recreation, and Environment committees’ quarter three reports.

9. Performance Measures

9.1 Council reports on 80 non-financial performance measures across its activity areas, which are assessed as ‘achieved/not achieved/not measured’ at the end of each financial year.

9.2 As at 31 March 2021, Council is ‘on track’ to achieve 54 of its performance measures by the end of 2020/21 (67.5%). It is ‘not on track’ to achieve 15 measures (18.75%), and information is not yet available for 11 measures (13.75%). See the chart below:

9.3 Details of each performance measure’s status are provided in the Infrastructure, Environment and Climate, and Community and Recreation committees’ respective quarterly reports.

9.4 Attachment 4 shows the distribution of statuses across Council’s eleven activity areas and details the 26 measures which are currently ‘not on track’ or ‘not measured yet’. (Note that several can only be measured at the end of the financial year).

9.5 The three ‘on track’ results from the Corporate activity are listed in Attachment 5, as they are not included in any other quarterly report attachment.

Author: Clare Knox, Manager Finance

Attachments

Attachment 1: A2630218 - Finance Dashboard and Graphs ⇩

Attachment 2: A2630198 - Nelson Plan Project Sheet ⇩

Attachment 3: A2620993 - All of Council Project Health Summary Quarter Three 2020/21 ⇩

Attachment 4: A2628832 - Performance measures 'not on track' or 'not measured yet' Quarter Three 2020-21 - analysis ⇩

Attachment 5: A2628831 - 'On track' Corporate Performance Measures Quarter Three 2020/21 ⇩