Agenda of Audit, Risk and Finance Committee

Audit, Risk and Finance Committee

5 June 2024

Page No.

Karakia and Mihi Timatanga

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 14 February 2024 8 - 13

Document number M20444

Recommendation

That the Audit, Risk and Finance Committee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Committee, held on 14 February 2024, as a true and correct record.

6. Privacy Update 14 - 16

Document number R28506

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Privacy Update (R28506).

7. Annual Procurement update 17 - 19

Document number R28282

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Annual Procurement update (R28282).

8. Internal Audit Plan 2024-2025 20 - 29

Document number R28460

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Internal Audit Plan 2024-2025 (R28460) and its attachments (1194974384-3678 & 1194974384-3679).

Recommendation to Council

That the Council

1. Approves the Internal Audit Plan 2024-2025.

9. Quarterly Internal Audit Report - 31 Mar 2024 30 - 33

Document number R28462

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Internal Audit Report - 31 Mar 2024 (R28462) and its attachment (1194974384-3677).

10. Quarterly Risk Report - 31 Mar 2024 34 - 57

Document number R28481

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Risk Report - 31 Mar 2024 (R28481) and its attachment (1759736513-17).

11. Quarterly Finance Report to 31 March 2024 58 - 80

Document number R28489

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Finance Report to 31 March 2024 (R28489) and its attachments (839498445-18465, 839498445-18471).

12. Audit Report on the Long Term Plan 2024-2034 Consultation Document 81 - 99

Document number R28569

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Audit Report on the Long Term Plan 2024-2034 Consultation Document (R28569) and its attachment (1852948764-1132); and

2. Notes Council’s response to four recommendations from Audit New Zealand on the quality of asset data, active transport level of service, deliverability of the capital programme and asset management maturity, highlighted in sections 2.2, 2.3, 2.6 and 2.10 of the Audit Report (1852948764-1132).

13. Audit New Zealand - Audit Plan 2023-24 100 - 125

Document number R28571

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Audit New Zealand - Audit Plan 2023-24 (R28571) and its attachment (2126778665-333).

Confidential Business

14. Exclusion of the Public

Recommendation

That the Audit, Risk and Finance Committee

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 Committee Meeting - Confidential Minutes - 14 February 2024	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)(d) To avoid prejudice to measures protecting the health and safety of members of the public · Section 7(2)(g) To maintain legal professional privilege
2	Quarterly Health, Safety and Wellbeing Report to 31 March 2024	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)(d) To avoid prejudice to measures protecting the health and safety of members of the public
3	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
4	Insurance Optimisation	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)(b)(ii) To protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information
5	Quarterly Update on Debts - 31 March 2024	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
6	Project Management Oversight - eBus Project	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

Karakia Whakamutanga

Audit, Risk and Finance Committee Minutes - 14 February 2024

Minutes of a meeting of the

Audit, Risk and Finance Committee

Te Kōmiti Kaute / Tūraru / Pūtea

Held in the Council Chamber, Floor 2A, Civic House, 110 Trafalgar Street, Nelson on Wednesday 14 February 2024, commencing at 9.03a.m.

Present: Ms C Taylor (Chairperson), His Worship the Mayor N Smith, Councillor R Sanson and Mr L McKenzie

In Attendance: Chief Executive (N Philpott), Deputy Chief Executive/Group Manager Infrastructure (A Louverdis), Group Manager Environmental Management (M Bishop), Group Manager Corporate Services (N Harrison), Group Manager Strategy and Communications (N McDonald) and Governance Team Leader (R Byrne) and Assistant Governance Adviser (A Bryce)

Apology: An apology has been received from Councillors M Courtney and R O'Neill-Stevens

Karakia and Mihi Timatanga

1. Apologies

Resolved ARF/2024/001

That the Audit, Risk and Finance Committee

1. Receives and accepts an apology from Councillors M Courtney and R O'Neill-Stevens.

Taylor/Sanson 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 24 November 2023

Document number M20377, agenda pages 7 - 13 refer.

Resolved ARF/2024/002

That the Audit, Risk and Finance Committee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Committee, held on 24 November 2023, as a true and correct record.

Sanson/His Worship the Mayor Carried

6. Letter From Audit NZ on Annual Report for year ending 30 June 2023

Document number R27973, agenda pages 14 - 53 refer.

Group Manager Corporate Services, Nikki Harrison, took the report as read and explained that the initial revaluation of three waters infrastructure was approximately a 31% increase and this was reviewed, Audit were happy with the reviewed figure of approximately a $22% increase.

When questioned why trivial items had been included in an Audit letter (e.g. $17.71 overpayment that was clearly explained) Ms Harrison agreed the matters should not be included and would follow up with Audit NZ. The Committee endorsed Ms Harrison’s approach.

Resolved ARF/2024/003

That the Audit, Risk and Finance Committee

1. Receives the report Letter From Audit NZ on Annual Report for year ending 30 June 2023 (R27973) and its attachment (2126778665-323); and

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

His Worship the Mayor/McKenzie Carried

7. Draft Treasury Management Policy including Liability Management and Investment Policies

Document number R28288, agenda pages 54 - 98 refer.

Group Manager Corporate Services, Nikki Harrison took the report as read and the Committee agreed, in addition to some matters raised by a member via email and accepted by officers, to amend the first bullet point of section 33.7 (Agenda page 90) to reflect governance decisions:

· “Contracting out forest management to reputable service providers and harvesting at the appropriate time to maximise returns and in accordance with Council resolutions.

Resolved ARF/2024/004
	*That the Audit, Risk and Finance Committee* *1. Receives the report Draft Treasury Management Policy including Liability Management and Investment Policies (R28288) and its attachments (438494377-3859 and 438494377-3833).*
Sanson/His Worship the Mayor Carried
Recommendation to Council ARF/2024/005
	*That the Council* *1. Adopts the amended Treasury Management Policy (438494377-3833).*
Sanson/His Worship the Mayor Carried

8. Quarterly Finance Report to 31 December 2023

Document number R28218, agenda pages 99 - 121 refer.

Group Manager Corporate Services, Nikki Harrison took the report as read.

Group Manager Infrastructure, Alec Louverdis, answered questions on timing of the extreme weather event funding from Waka Kotahi and the National Emergency Management Agency and explained staff were also working with private insurers and while it was taking time the funding was coming in and being reported through the Storm Recovery Taskforce. He answered further questions on the breakdown of transport data, particularly events involving cyclists and pedestrians.

Resolved ARF/2024/006

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Finance Report to 31 December 2023 (R28218) and its attachments (1857728953-1257, 839498445-18200 and 839498445-18199).

Sanson/McKenzie Carried

9. Quarterly Risk Report - 31 Dec 2023

Document number R28271, agenda pages 122 - 147 refer.

Internal Auditor Chris Logan took the report as read.

Resolved ARF/2024/007

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Risk Report - 31 Dec 2023 (R28271) and its attachment (1759736513).

Sanson/His Worship the Mayor Carried

10. Quarterly Internal Audit Report - 31 Dec 2023

Document number R28272, agenda pages 148 - 151 refer.

Internal Auditor Chris Logan took the report as read and answered questions on members’ interests and how these were recorded. There was further discussion on how long an interests should be declared by a member after they had stood down from an entity.

Resolved ARF/2024/008

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Internal Audit Report - 31 Dec 2023 (R28272) and its attachment (1194974384).

His Worship the Mayor/Sanson Carried

11. Exclusion of the Public

Resolved ARF/2024/009

That the Audit, Risk and Finance Committee

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

Sanson/His Worship the Mayor Carried

Item	General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Particular interests protected (where applicable)
1	Audit, Risk and Finance Committee Meeting - Confidential Minutes - 24 November 2023	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	Health, Safety and Wellbeing Report to 31 December 2023	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)(d) To avoid prejudice to measures protecting the health and safety of members of the public
3	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
4	Quarterly Update on Debts - 31 December 2023	Section 48(1)(a) The public conduct of this matter would be likely to result in disclosure of information for which good reason exists under section 7	The withholding of the information is necessary: · Section 7(2)(a) To protect the privacy of natural persons, including that of a deceased person

The meeting went into confidential session at 10.21a.m. and resumed in public session at 10.47a.m.

Karakia Whakamutanga

12. Restatements

It was resolved while the public was excluded:

1	Health, Safety and Wellbeing Report to 31 December 2023
	2. Agrees that Report (R28308) and attachment (855153265-4450) remain confidential at this time.

2	Quarterly Report on Legal Proceedings
	2. Agrees that the Report (R28193) and Attachment (142319133-508) remain confidential at this time.

3	Quarterly Update on Debts - 31 December 2023
	2. Agrees that the Report R28270 and its attachment (1857728953-1250) remain confidential at this time.

There being no further business the meeting ended at 10.47a.m.

Confirmed as a correct record of proceedings by resolution on (date)

Resolved

Item 6: Privacy Update

Audit, Risk and Finance Committee

5 June 2024

Report Title: Privacy Update

Report Author: Devorah Nicuarta-Smith - Manager Governance and Support Services

Report Authoriser: Nicky McDonald - Group Manager Strategy and Communications

Report Number: R28506

1. Purpose of Report

1.1 To provide a six monthly update on actions underway to monitor and manage privacy related matters following the coming into force of the Privacy Act 2020.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Privacy Update (R28506).

3. Systems and controls

Privacy Policy and breach management planning

3.1 Privacy related clauses have been included in Council’s contract templates, including the Service Level Agreements used for IT related matters. The Privacy Policy and breach management plan is now a required schedule to contracts, and the Policy is available on Council’s website for public awareness https://www.nelson.govt.nz/council/request-for-official-information/

Privacy statements

3.2 Work continues on preparing and updating privacy statements for a variety of situations including the Long Term Plan, states of emergency and drafting for specific events and grants processes.

3.3 Early advice has been provided on privacy considerations when flying drones or capturing other forms of aerial footage (such as by helicopter) and privacy statements and notifications will be prepared as required.

Processes and templates

3.4 A suite of processes and associated templates are under development, clarifying and formalising legislative requirements and internal practice when requests under the Privacy Act are received.

3.5 These include a process and template letter for responding to a request under Information Privacy Principle 6 [‘IPP6’] (by which an individual or their authorised representative may request their own information), and considering the interactions between LGOIMA and the Privacy Act when responding to requests to disclose information as an exception under Information Privacy Principle 11 [‘IPP11’].

3.6 Drafting has also been undertaken on a process to address unauthorised filming of Council workers.

Artificial Intelligence (AI) Policy and privacy impact assessment

3.7 A policy to guide any use of AI in Council activities has recently been approved, and early discussions on guidance to accompany the implementation of the policy underway.

3.8 A privacy impact assessment has been developed to be completed by Council workers proposing substantive of use AI tools in an activity or project, and submitted to the Privacy Officer for consideration as part of the initiation phase of the work.

4. Privacy requests – IPP6, IPP11 disclosures

4.1 There have been two IPP6 requests and one IPP11 disclosure request in the period since November 2023.

4.2 IPP6 requests allow an individual (or their authorised representative) to request the information held about that individual by Council. These requests have the same statutory time frame to respond as for an official information request (20 working days), but usually have a significantly larger amounts of information in scope - particularly for councils where people may have interacted with the organisation in multiple ways and over an extensive period of time. Depending on the nature of the information and any applicable Public Records Act retention requirements there may be 7-10 years of search results. Where information disposal protocols have not been followed, there may be more extensive results returned and older systems required to be included in the search process.

4.3 When IPP6 requests that include all information held about an individual are received, there are significant impacts on the ability to progress other work and there is ongoing consideration of how this work can best be resourced.

4.4 Council has been requested to increase its sharing of CCTV footage to the Police to support real-time monitoring and deployment of frontline staff in Nelson and this request is being considered, including from a privacy perspective.

5. Compliance investigations

5.1 There have been a number of compliance investigations in the reporting period. These included use of forms without an appropriate privacy statement, mis-sorting of letters so that some were received by residents other than the intended recipient, inappropriate sharing of personal information in a consenting process due to incorrect contact details; and an employment matter involving unauthorised accessing of staff information.

5.2 Multiple near misses and a breach have occurred through the provision of property files due to Council’s numbering processes related to subdivisions. A wider review of property information has been initiated to identify and make recommendations for the improvement of property related processes and practices.

6. Training and advice

6.1 Training and advice has been provided to multiple areas within Council including on CCTV footage, wearable device footage, drone footage (including general advice and recommendations in preparation for licensing to be completed and review of land owner notification letters), managing requests for personal information to address found property, ways to set up customer profiles for increased accuracy and protection of information, and interactions between the Privacy Act and other legislation such as the Building Act.

Attachments

Nil

Item 7: Annual Procurement update

Audit, Risk and Finance Committee

5 June 2024

Report Title: Annual Procurement update

Report Author: Peter Denton - Procurement and Contracts Advisor

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28282

1. Purpose of Report

1.1 To update Elected Members on procurement activity for the period 01 July 2022 to 31 December 2023, and to report on delivery of Procurement Policy objectives.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Annual Procurement update (R28282).

3. Background

3.1 Council’s Procurement Policy was approved by Council resolution on 17 December 2020. The Policy introduced objectives relating to broader outcomes in procurement, cost effective and efficient procurement processes, and working well with suppliers. The policy has been in effect since 1 February 2021.

3.2 Following the introduction of the Procurement Policy, the Audit, Risk and Finance committee requested that an annual procurement report be initiated, to provide a summary of procurement activity conducted under the policy, and a commentary on achievement of policy objectives and delivery of broader outcomes.

4. The past 18 months in review

4.1 While procurement processes during the 18-month period from 1 July 2022 has run smoothly, there was a disruptive period throughout 2023 due to the absence of the Business Improvement Team Manager. The delay in providing this annual report is a result of that disruption.

4.2 The appointment of a fixed-term (2 years), part-time (0.6 FTE) Procurement & Contracts Advisor was made in September 2022. This has allowed the procurement support function to council to continue.

4.3 The Procurement Steering Committee has been in operation since July 2019 to provide an oversight for the procurement function within council. This committee meets quarterly to discuss procurement related issues and opportunities and to review procurement data and compliance with the Procurement Policy.

4.4 The original Terms of Reference (ToR) for the Procurement Steering Committee was developed in December 2018. It was reviewed in July 2023. Key items altered in the review included an update of the membership of the committee and the short/medium/long term focus for the committee.

4.5 Minor amendments were made to the Procurement Policy in April 2023 to accommodate a more workable ‘streamlined’ procurement process specific to infrastructure projects. In July 2023 further minor amendments were approved by the Procurement Steering Committee to clarify the meaning of specific items within the policy.

4.6 Procurement Overview Sessions have been run monthly for new and existing staff. These are to educate and increase understanding of council’s procurement policy, processes, resources and support.

4.7 A full internal review of procurement and contracting was conducted in November 2023. This included recommendations for improvement and a plan to implement specific tasks during the two year period from January 2024 to December 2025. Key items include:

4.7.1 Further amendments to the Procurement Policy;

4.7.2 The introduction of Contract Management Plans for all contracts;

4.7.3 Move to a Sharepoint-based contracts register;

4.7.4 Decommission of the LawVu contracts module;

4.7.5 Increase staff competency relating to procurement;

4.7.6 Decide on a future service model for procurement;

4.7.7 Design, plan and implement contract template changes to fit new service model.

4.8 Ongoing discussions have been held over whether council should continue to use the LawVu contracts module to centrally file all council contracts. The alternative is to establish a Sharepoint file system. There are many pros & cons to each option. Our current license to use the LawVu contracts module ends in July 2024.

4.9 Three additional staff were provided with formal training by MBIE and provided official access to load and download responses on GETS (Government Electronic Tender Service). This was done in September 2023 to replace staff who had left or changed roles in council.

4.10 The Office of the Auditor General (OAG) conducted an audit of Nelson City Council in relation to reviewing systems that help to achieve broader outcomes. Council was able to provide good evidence of broader outcomes being achieved from policy – training – processes – GETS listing – assessment – contract award. Nelson City Council was one of 4 councils being audited by OAG for this purpose.

4.11 Procurement related templates have been given a simplified naming convention to make them more intuitive and easier for council staff to understand. They are identified by type and are now listed as small, medium and large which relates to the complexity, risk and value of the contract.

5. Conclusion

5.1 The procurement function within council has continued to run smoothly and effectively over the past 18 months. This has been during a period of disruption in procurement management.

5.2 Policies, processes and systems relating to procurement have been reviewed and are currently within review date.

Attachments

Nil

Item 8: Internal Audit Plan 2024-2025

Audit, Risk and Finance Committee

5 June 2024

Report Title: Internal Audit Plan 2024-2025

Report Author: Chris Logan - Audit and Risk Analyst

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28460

1. Purpose of Report

1.1 To approve the Draft Annual Internal Audit Plan to 30 June 2025.

2. Summary

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

3. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Internal Audit Plan 2024-2025 (R28460) and its attachments (1194974384-3678 and 1194974384-3679).

Recommendation to Council

That the Council

1. Approves the Internal Audit Plan 2024-2025.

4. Background

4.1 The internal audit plan consists of a work schedule as well as budget and resource requirements for the next financial year. These items are described in attachment.

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.

4.3 Feedback on the draft topics was sought from the Chair of the Audit, Risk and Finance Committee prior to this meeting.

5. Discussion

5.1 A summary of previous year internal audits in are described in the Attachment 2 (1194974384-3679).

5.2 Like last year, the draft annual audit plan contains four planned topics and a placeholder for one ad hoc audit topic. A budget of $21,360 has been allowed for should the ad hoc audit topic require external specialists.

5.3 The planned topics are:

5.3.1 infrastructure physical works procurement - compliance audit (first half of 2024-25).

5.3.2 transformation business case for change assistance - identify and monitor planned changes to controls (first half of 2024-25).

5.3.3 insourcing services - performance audit (second half of 2024-25).

5.3.4 annual fraud & conflict of interest testing - compliance audit (second half of 2024-25).

5.4 More information on each planned audit topic in provided in Attachment 1 (1194974384-3678).

Option 1: Approve draft plan (preferred option)
Advantages	· Flexibility to audit emerging risk.
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: Substitute an item on the audit plan
Advantages	· Flexibility to audit emerging risk.
Risks and Disadvantages	· Increased delivery risk as placeholder ad hoc audit topics not fully scoped.
Option 3: Defer an item on the audit plan
Advantages	· Increased flexibility to audit emerging risks.
Risks and Disadvantages	· Increased delivery risk as suitable ad hoc audit topic may not be found.

Attachments

Attachment 1: 1194974384-3678 Draft 2024-25 Internal Audit Plan - 30 June 2025 ⇩

Attachment 2: 1194974384-3679 Previous Year Internal Audit Plans - 30 June 2024 ⇩

Important considerations for decision making

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.

Consistency with Community Outcomes and Council Policy

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

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.

Financial impact

This decision will fit within existing budgets.

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.

Climate Impact

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

Inclusion of Māori in the decision making process

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

Legal context

Council has power to make this decision – no specific legislative power is relevant.

Delegations

The Audit, Risk and Finance Committee has the following delegations to consider

Areas of Responsibility:

· Internal audit Delegations:

Powers to Recommend (if applicable):

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

Item 9: Quarterly Internal Audit Report - 31 Mar 2024

Audit, Risk and Finance Committee

5 June 2024

Report Title: Quarterly Internal Audit Report - 31 Mar 2024

Report Author: Chris Logan - Audit and Risk Analyst

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28462

1. Purpose of Report

1.1 To update the Audit, Risk and Finance Committee on the internal audit activity through to the end of the third quarter of 2023/24.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Internal Audit Report - 31 Mar 2024 (R28462) and its attachment (1194974384-3677).

3. Background

3.1 Under Council’s Internal Audit Charter, the Audit, Risk and Finance Committee requires a periodic update on the progress of internal audit activities. The 2023-24 Internal Audit Plan (the Plan) was approved by the Council on 8 June 2023.

4. Overview of Progress on the 2023/24 Internal Audit Plan

4.1 One audit was completed during the quarter - Commercial Lease Management internal audit resulted in one low recommendation.

4.2 Only four of the five audits (four planned, one ‘ad-hoc’) are likely to be completed this year.

4.3 Further information on the status and outcome of the audits is provided in the attachment.

5. Significant external audits that are not reported separately to the Audit, Risk and Finance Committee

6. An external audit of Councils direct greenhouse gas emissions was completed in the quarter. The audit resulted in Reasonable Assurance of Scope 1 and 2 emissions and Limited Assurance on Scope 3 emissions. The audit had two qualifications relating to the Water New Zealand methodology used in the WWTP emissions and the reporting of Anthropogenic biogenic emissions but noted neither qualification has a material impact on the intended use or users of the emissions report.

7. Status of Outstanding Significant Risk Exposures and Control Issues Identified from Internal Audits

7.1 Information is not readily accessible nor retrievable (IANZ GNC) – Legacy document permission / accessibility issue was resolved during the quarter. The deficient ranking of search results impacting retrievability, is expected to be resolved by implementing an ‘advanced search’ (user friendly query generator) before the May 2024 IANZ deadline.

7.2 Staff are finding it difficult to find NCC internal policies – Internal policies register has been developed, tested as is due to go live in quarter four of 2023/24.

Attachments

Attachment 1: 1194974384-3677 Annual Audit Plan Progress - 31 Mar 2024 ⇩

Item 10: Quarterly Risk Report - 31 Mar 2024

Audit, Risk and Finance Committee

5 June 2024

Report Title: Quarterly Risk Report - 31 Mar 2024

Report Author: Chris Logan - Audit and Risk Analyst

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28481

1. Purpose of Report

1.1 To provide information to the Audit, Risk and Finance Committee on the organisational risks through to the end of the third quarter of 2023/24.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Risk Report - 31 Mar 2024 (R28481) and its attachment (1759736513-17).

3. Background

3.1 This report describes key risk areas, divided by risk theme organisational risks) and reporting Group.

4. Key Risk Areas by Theme (Organisational Risks)

4.1 Risks relating to Council and joint operations are monitored via Council’s risk register. Approximately 30% of risk entries by count have been identified as having a common theme or cause which create risk concentrations that pose a threat at an organisational level. These organisational risks are described below.

4.2 R1 - Central-government-led-reforms (Owner: Chief Executive). Risks relating to deferral of and uncertainty around reforms remain. The risk rating remains at High.

4.3 R2 - Lifeline services failure (Owner: Group Manager Infrastructure). Flood-recovery work is ongoing. Risk rerated to High (was Medium) following a regular risk review.

4.4 R3 - Illness, injury or stress from higher hazard work situations (Owner: Group Manager Corporate Services). Addressing workplace stress remains an organisational focus area. The risk rating remains at High.

4.5 R4 - Loss of service performance from ineffective contracts and contract management (Owner: Chief Executive). The contract management improvement program continues to be monitored quarterly by the internal Procurement Steering Committee. The risk rating remains at Medium.

4.6 R5 - Compromise of Council service delivery from information technology failures (Owner: Group Manager Corporate Services). There was an extended partial outage of our cloud-based document management system during the quarter. In response to this ‘near miss’, we are considering strategies to increase our resilience. The risk rating remains at Medium.

4.7 R6 - Council work compromised by loss of and difficulties in replacing skilled staff (Owner: Manager People and Capability). Turnover remains high with some ‘hard-to-fill’ roles remaining open despite repeated recruitment efforts, engaging recruitment consultants and re-evaluating the job description. The organisational risk rating remains at Medium.

4.8 R7 - Legal Risk (Owner: Group Manager Strategy and Communications). No emerging organisational risks to report at this time noting that any new legal proceedings or emerging areas of increased litigation risk are separately reported in the quarterly report on legal proceedings. The organisational risk rating remains at Medium.

4.9 R8 - Reputation damage and loss of public trust in the organisation (Group Manager Strategy and Communications). No new emerging risks to report at this time. The risk rating remains at Medium.

5. Key Risk Areas by Reporting Group

5.1 Council’s risk register does not contain specific asset, activity, legal matter, or project risks. Instead, these are rolled up into more general asset, activity, legal or project risks. Any significant specific risks which are new or emerging are summarised below by reporting group.

5.2 Office of the Chief Executive: No new emerging risks to report at this time.

5.3 Infrastructure Group:

5.3.1 Construction downturn in subdivision work has resulting in more tenders on some Council works that has realised competitive pricing in some cases.

5.3.2 There was one Very High risk notification made to the Chair of ARF during the quarter relating to changes to how contaminated soil is defined, which has consequences for the Nelson Tasman regional landfill asset. A mitigation strategy is being developed by NTRLBU General Manager for approval by regional landfill Joint Committee.

5.4 Community Services Group:

5.4.1 Risks associated with Council-owned campgrounds (two operated and one leased) remain elevated whilst non-compliance remediation actions are being implemented. The risks previously monitored by elected members through the Strategic Development and Property Subcommittee have been monitored through the usual organisational processes since that subcommittee ceased at the end of the last triennium.

5.4.2 Risks associated with wood processing waste deposited at Tāhunanui Beach in the 1960s/1970s are being investigated and Council has approved a preferred option for removal of the material and remediation of the site, subject to funding support from Central Government.

5.5 Environmental Management Group: Some senior vacancies have or soon will be filled in the City Development Team; senior planning positions remain vacant. Workload stress continues for both planning teams due to complexity of work and uncertainty about national legislation reform.

5.6 Strategy and Communications Group: No new emerging risks to report at this time.

5.7 Corporate Services Group: Project to optimise insurance is underway. The project may result in increased financial risk. This is being considered through another report to this meeting.

Attachments

Attachment 1: 1759736513-17 3Q24 key organisational risks for ARF ⇩

Item 11: Quarterly Finance Report to 31 March 2024

Audit, Risk and Finance Committee

5 June 2024

Report Title: Quarterly Finance Report to 31 March 2024

Report Author: Prabath Jayawardana - Manager Finance

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28489

1. Purpose of Report

1.1 To inform the Committee of the financial results for Council for the nine months ended 31 March 2024, and to highlight any material variations.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Finance Report to 31 March 2024 (R28489) and its attachments (839498445-18465 and 839498445-18471).

3. Background

3.1 The whole of Council financial reporting provided to this Committee focuses on the nine-month performance (1 July 2023 to 31 March 2024) compared with the year-to-date (YTD) approved capital and operating expenditure budgets. The quarterly report includes Nelson City Council performance only and does not include its subsidiaries, associates, and joint ventures.

3.2 Unless otherwise indicated, all information is against approved operating budgets, which is Annual Plan 2023/24, plus any carry forwards, plus or minus any other additions or changes as approved by the Council.

3.3 Commentary is provided below for significant variances of +/- $500,000.

4. Financial Performance

4.1 For the nine months ending 31 March 2024, the Council’s draft deficit is $14.0m against a budgeted deficit of $4.4m ($9.6m unfavourable to budget), mainly due to reasons explained below.

4.2 Profit and Loss

Operating Budget vs. Annual Plan Budget Net surplus/(Deficit)

4.3 The Full Year Operating Budget is less than the Annual Plan Budget by $2,716,000. This is mainly due to changes in Transport: a $3.6m reduction in Transport Choices Grants, with an offsetting $1.0m reduction in Transport Choices Expenses (net $2.6m).

Full Year Forecast vs. Operating Budget Net surplus/(Deficit)

4.4 The Full Year Forecast is less than the Operating Budget by $4,427,000. Mainly in expenses, where the forecast is higher than budget by $1.8m in Finance costs (net of interest income) due to pre funding of debt and higher borrowings and interest rates. Also, Depreciation and Amortisation forecast is $2.5m higher than budget as the budget was based on the 2021/22 asset valuations, and the forecast was based on 2022/23 valuations which contained significant increases.

4.5 Revenue

4.6 Rates income is in-line with budget.

4.7 Subsidies and Grants is less than budget by $5,363,000. This is mainly due to $2.8m in Transport subsidies and grants (relating to multiple projects including Active Linear Corridor, Transport Choices, Railway Lighting and the weather event) as well as a reduction in 3 Waters Better Off Funding of $0.5m due to funding delays (see below reduction in expenses). A reduction of $0.6m in Waste Minimisation Funding (see below reduction in kerbside kitchen waste expenses). The remaining variances are less than $0.5m. Offsetting this is $0.4m in Environmental Grants from MFE and MPI received earlier than budgeted for.

4.8 Fees and Charges income is greater than budget by $1,208,000. This is mainly due to water by meter charges to residential and commercial users by $0.6m due to higher water usage than anticipated.

4.9 Other revenue is greater than budget by $337,000 and there are no significant variances greater than $0.5m.

4.10 Development Contributions is less than budget by $579,000. This is due to less development activity than budgeted for.

4.11 Finance Revenue is greater than budget by $1,270,000. This is due to more funds being invested than planned because of pre-funding of debt. Currently there is $25m of investments for pre-funding of debt (see offset in Finance costs).

4.12 Other gains/(losses) is less than budget by $1,316,000. This relates to the forestry activity, with net income being less than budget due to delays in harvesting at Marsden and Roding Forest.

4.13 Expenses

4.14 Personnel costs are greater than budget by $217,000. There have been savings in personnel costs of $2.1m across different activities however the YTD vacancy provision was $2.3m.

4.15 Finance costs are greater than budget by $2,545,000. This increase in interest costs is due to additional pre-funding of debt (which is offset by the $1.3m over variance in finance revenue), and higher interest rates and borrowings than planned for during the nine months ended 31 March 2024.

4.16 Depreciation and amortisation costs are greater than budget by $1,644,000. Depreciation has been based on the 2022/23 asset valuations, which saw large increases. This resulted in a higher depreciation expense than planned.

4.17 Weather Event costs are greater than budget by $535,000 with there being no significant variances greater than $0.5m.

4.18 Other expenses are greater than budget by $254,000. Significant variances are as follows:

4.18.1 Insurance is greater than budget by $1.0m. This is because of increases in premiums due to a) increases in asset values, and b) higher premium rates.

4.18.2 Kerbside Kitchen Waste expenses are less than budget by $1,074,000. This government-funded initiative has been delayed.

4.18.3 Three Waters Better Off Funding is less than budget by $642,000. This is due to delays in funding (refer to subsidies and grants above).

4.18.4 Reticulation Reactive Maintenance for Water Supply is greater than budget by $517,000. This is due to the reactive nature of spending.

4.18.5 Riskpool Claim is greater than budget by $230,000. This is due to a historic exposure to calls dating pre-2010/11 when Nelson City Council was part of a New Zealand Mutual Liability Riskpool Scheme for Insurance. This has been funded from the building insurance reserve.

4.18.6 All other variances in other expenses are below $0.5m.

5. Capital Expenditure

5.1 Capital Expenditure (including staff time, excluding vested assets and joint operations)

5.2 As at 31 March 2024, capital expenditure was $54.4m which is $22.8m under the YTD Operating Budget of $77.1m. The main contributors to the variance were Corporate ($6.7m), Parks & Recreation ($5.5m), Social ($2.2m), Transport ($3.2m), Environmental Management ($0.8m), Stormwater ($0.8m), Water Supply ($2.6m) and Flood Protection ($0.6m).

5.3 Top 10 lower than operating budget variances are as below;

· Slip effected property purchases $3.6m

· Strategic Building Purchases $1.7m

· Slip 12 Allan Street $0.8m

· Slip 18 Collingwood Street $0.7m

· Riverside Pool water heating system renewal $0.8m

· Slip Repair Maitiai Road $1.1m

· Waimea Rd Franklyn St intersection improvement $0.7m

· Saxton Creek Stage 4 Upgrade $0.8m

· Nayland Rd – Aldinga to Songer Street $1.3m

· Maitai Dam Upgrades $0.7m

6. Cash Flow Management

6.1 Net Debt

6.2 As at 31 March 2024, there was a net debt of $215.8m. This has increased from 30 June 2023 by $47.0m. The full-year Annual Plan budget is $207.9m.

6.3 This $47.0m increase in net debt from 30 June 2023 is due to: a) to fund the August 2022 weather event ($3.2m expenditure), b) to fund capital expenditure during the year ($24.8m net of funded depreciation), c) to fund $2.5m advance to Nelson Tasman Regional Landfill Business Unit (NTRLBU), d) to fund $6.0m advance in working capital and term loan to Nelson Regional Sewerage Business Unit (this has reduced since Q2 as they borrowed some term loan to reduce the working capital facility), and e) drawdown of Housing NZ funds of $2.5m. The balance is due to timing of cash inflows and outflows being different than planned.

6.4 Attachment 1 (1857728953-1674) includes the statement of financial position (Balance sheet), Debtors graph and compliance with the Treasury policy as at 31 March 2024.

6.5 The net debt figure in the treasury compliance report (Attachment 1) is different from above 6.2 mainly due to LGFA borrowing notes not being included in the PWC tool.

7. Rates Aging

7.1 Over the last twelve months officers have seen outstanding rates balances increasing slightly which highlights the cost of living and interest rate increases impacting on the community. Officers are working hard to get ratepayers on to payment plans.

7.2 Total rates outstanding as at 31 March 2024 were $975,848. Below are the rates outstanding at the end of each rating quarter.

Total Rates Outstanding

8. Project Health

8.1 A table summarising the health of projects across Council has been generated and is included as attachment 2 (839498445-18465). It gives a red, amber or green rating for quality, time and budget factors.

8.2 The majority of the orange and red are as a result of delays due to weather events in August 2022 and May 2023, the impact of COVID 19 and supply chain delays in material and equipment from overseas.

8.3 Projects on hold indicate projects that require further workshops or discussion.

9. Performance Measures

9.1 Council reports on 67 non-financial performance measures across its activity areas, as set out in the Long Term Plan 2021-31. These are evaluated as ‘on track/not on track/not measured yet’.

9.2 Of the 67 measures, 53 are currently on track, 8 are not on track, 6 are not measured yet. A spreadsheet with commentary on these measures is included as attachment 3 (839498445-18471).

Attachments

Attachment 1: 1857728953-1674 Appendix for Council Report for March-24 ⇩

Attachment 2: 839498445-18465 - Project Health Summary - Quarter Three 2023/24 ⇩

Attachment 3: 839498445-18471 - Performance Measures 2023 2024 ⇩

Item 12: Audit Report on the Long Term Plan 2024-2034 Consultation Document

Audit, Risk and Finance Committee

5 June 2024

Report Title: Audit Report on the Long Term Plan 2024-2034 Consultation Document

Report Author: Susan Coleman - Acting Manager Strategy

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28569

1. Purpose of Report

1.1 To provide the committee with Audit New Zealand’s Audit Report on the Long Term Plan 2024-2034 Consultation Document.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Audit Report on the Long Term Plan 2024-2034 Consultation Document (R28569) and its attachment (1852948764-1132); and

3. Background

3.1 The Long Term Plan 2024-2034 Consultation Document was adopted by Council on 22 March 2024. The document was audited by Audit New Zealand prior to Council adopting it, with an unmodified opinion being issued. Following this, Audit New Zealand provided Council with a report outlining the findings from the audit (Attachment 1).

Consultation Document

3.2 The Audit Report outlines the process that was followed in order to reach an unmodified audit opinion. Key points and recommendations are listed below:

3.2.1 The process to develop the Long Term Plan Consultation Document, and prepare the underlying information, was overall assessed as well managed.

3.2.2 Audit was satisfied that Council met the requirements of s93B of the Local Government Act 2002 (LGA).

3.2.3 Audit noted the risk with the New Zealand Transport Agency – Waka Kotahi funding uncertainties and assessed Council’s disclosure of the uncertainty as sufficient.

Areas of emphasis

3.2.4 Audit recommended Council improves its asset data quality and provided a couple of examples of information gaps that needed to be addressed.

3.2.5 Audit recommended Council perform surveys, or an equivalent process, at least every two years to measure and monitor active transport (numbers who walk or bike to work and school).

3.2.6 Audit identified the risk in Council not being able to deliver its capital programme as “high” but the Council’s disclosure of the risk and impacts was appropriate, with the exception of it 90% capital delivery assumption. Audit recommended Council further analyse the estimated combined 10% impact into the forecast percentage related to expected costs being lower, and the percentage expected due to re-prioritisation of the capital programme.

3.2.7 Audit was satisfied the Financial Strategy complies with section 101A of the LGA.

3.2.8 Audit was satisfied that the Infrastructure Strategy is fit for purpose and the supporting underlying information is reasonable.

3.2.9 The Significant Forecasting Assumptions were assessed as materially complete.

3.2.10 For Council’s assessment management maturity, Audit recommended engaging an independent reviewer to perform an assessment of the Council’s asset management maturity and implement any recommendations from that assessment as appropriate.

3.3 Management has reviewed the report and where Audit has made recommendations provided comment. These are highlighted in Attachment 1. Management comments will be provided to Audit New Zealand prior to the audit of the final Long Term Plan scheduled to begin 10 June 2024.

4. Conclusion

4.1 The Audit Report from Audit New Zealand on the Long Term Plan 2024-2034 Consultation Document is attached for information.

Attachments

Attachment 1: 1852948764-1132 - Draft Audit Report to Council on the Long Term Plan 2024-2034 Consultation Document ⇩

Item 13: Audit New Zealand - Audit Plan 2023-24

Audit, Risk and Finance Committee

5 June 2024

Report Title: Audit New Zealand - Audit Plan 2023-24

Report Author: Prabath Jayawardana - Manager Finance

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28571

1. Purpose of Report

1.1 To provide the Committee with the Audit Plan from Audit New Zealand (Audit NZ) for the year ending 30 June 2024.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Audit New Zealand - Audit Plan 2023-24 (R28571) and its attachment (2126778665-333).

3. Background

Audit Plan

3.1 The Audit Plan (Attachment 1 2126778665-333) 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.

Materiality

3.2 Materiality refers to information that, if omitted, misstated, or obscured, could influence readers’ overall understanding of the financial statements.

3.3 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.

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

Timing

3.5 The final audit is planned to commence on 9 September 2024, which is same timing as previous year. Statutory deadline for the adoption of the 2023/24 Annual Report is 31 October 2024.

Attachments

Attachment 1: 2126778665-333 - Draft Audit Plan 2023/24 ⇩

Excerpt from Nelson City Council Delegations Register (NDOCS-1982984479-5437)

Audit, Risk and Finance Committee

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