Agenda of Audit, Risk and Finance Committee

Audit, Risk and Finance Committee

14 August 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 5 June 2024 7 - 15

Document number M20599

Recommendation

That the Audit, Risk and Finance Committee

1. Confirms the minutes of the meeting of the Audit, Risk and Finance Committee, held on 5 June 2024, as a true and correct record.

6. Quarterly Internal Audit Report - 30 June 2024 16 - 19

Document number R28694

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Internal Audit Report - 30 June 2024 (R28694) and its Attachment (1194974384-3691).

7. Quarterly Risk Report - 30 June 2024 20 - 44

Document number R28695

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Risk Report - 30 June 2024 (R28695) and Attachment (1759736513-18).

8. Quarterly Finance Report to 30 June 2024 45 - 66

Document number R28611

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Finance Report to 30 June 2024 (R28611) and its Attachments (1857728953-1938, 1530519604-14363 and 839498445-18731).

9. Annual Tax Update 67 - 78

Document number R28612

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Annual Tax Update (R28612) and its Attachment (2130083480-731).

10. Bad Debts write off - Year ending 30 June 2024 79 - 80

Document number R28716

Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Bad Debts write off - Year ending 30 June 2024 (R28716).

Confidential Business

11. 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 - 5 June 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 · 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
2	Quarterly Health, Safety and Wellbeing Report to 30 June 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)(c)(ii) To protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely otherwise to damage the public interest · Section 7(2)(g) To maintain legal professional privilege
4	Quarterly Update on Debts - 30 June 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

Karakia Whakamutanga

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 5 June 2024, commencing at 9.03a.m.

Present: Ms C Taylor (Chairperson), His Worship the Mayor N Smith, Councillors, M Courtney, R O'Neill-Stevens, R Sanson and Mr L McKenzie

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

Apologies : Nil

Karakia and Mihi Timatanga

1. Apologies

2. Confirmation of Order of Business

Agenda Item 7 - Annual Procurement update would be considered last on the open agenda to accommodate staff availability.

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 14 February 2024

Document number M20444, agenda pages 8 - 13 refer.

Resolved ARF/2024/015

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.

Sanson/McKenzie Carried

6. Privacy Update

Document number R28506, agenda pages 14 - 16 refer.

Group Manager Strategy and Communications, Nicky McDonald and Manager Governance and Support Services, Devorah Nicuarta-Smith, took the report as read and provided an update to the committee in relation to the compliance investigation themes. They answered questions on the artificial intelligence policy and trials, CCTV cameras, LGOIMA and Privacy Act requests.

Resolved ARF/2024/016

That the Audit, Risk and Finance Committee

1. Receives the report Privacy Update (R28506).

Courtney/His Worship the Mayor Carried

7. Internal Audit Plan 2024-2025 (Agenda Item 8)

Document number R28460, agenda pages 20 - 29 refer.

Audit and Risk Analyst, Chris Logan, took the report as read and answered questions on the four proposed audit topics: infrastructure physical works procurement, transformation business case for change assistance, insourcing services and annual fraud & conflict of interest testing, in the 2024/25 financial year.

Chief Executive, Nigel Philpott, discussed the Transformation business case program model and monitoring, noting this project was about creating organisational efficiencies rather than cost savings.

Resolved ARF/2024/017

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).

O'Neill-Stevens/Sanson Carried

Recommendation to Council ARF/2024/018

That the Council

1. Approves the Internal Audit Plan 2024-2025.

O'Neill-Stevens/Sanson Carried

8. Quarterly Internal Audit Report - 31 Mar 2024 (Agenda Item 9)

Document number R28462, agenda pages 30 - 33 refer.

Group Manager Corporate Services, Nikki Harrison and Audit and Risk Analyst, Chris Logan, took the report as read and answered questions on the risks, learnings and timing of the implementation of the vertical construction external review.

Resolved ARF/2024/019

That the Audit, Risk and Finance Committee

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

Courtney/McKenzie Carried

9. Quarterly Risk Report - 31 Mar 2024 (Agenda Item 10)

Document number R28481, agenda pages 34 - 57 refer.

Audit and Risk Analyst, Chris Logan, took the report as read and answered questions on the change in organisational risk lifeline services from medium to high, rerated risks procedures and Nelson City Council’s risk tolerance reporting.

Chief Executive, Nigel Philpott and Acting Group Manager Infrastructure, David Light, answered questions on the contaminated soil issue and risk notifications.

Resolved ARF/2024/020

That the Audit, Risk and Finance Committee

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

His Worship the Mayor/O'Neill-Stevens Carried

10. Quarterly Finance Report to 31 March 2024 (Agenda Item 11)

Document number R28489, agenda pages 58 - 80 refer.

Group Manager Corporate Services, Nikki Harrison and Manager Finance, Prabath Jayawardana, took the report as read and answered questions on government funding for kerbside kitchen waste expenses, capital expenditure, monitoring and reporting and the eBus project reporting.

Attendance: His Worship the Mayor Hon Dr Smith left the meeting at 10.25a.m.

Resolved ARF/2024/021

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).

Courtney/McKenzie Carried

The meeting adjourned from 10.30a.m. until 10.48a.m.

11. Audit Report on the Long Term Plan 2024-2034 Consultation Document (Agenda Item 12)

Document number R28569, agenda pages 81 - 99 refer.

Group Manager Strategy and Communications, Nicky McDonald, took the report as read and answered questions on active modes of transport measures, others councils undertaking surveys to measure and monitor active transport statistics, levels of service and measurements of accurate data collected via alternative measures and the draft financial strategy.

Director Audit New Zealand, John Mackey, spoke to the report and the Audit process.

Attendance: His Worship the Mayor returned to the meeting at 10.58a.m.

Resolved ARF/2024/022

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).

O'Neill-Stevens/Sanson Carried

12. Audit New Zealand - Audit Plan 2023-24 (Agenda Item 13)

Document number R28571, agenda pages 100 - 125 refer.

Group Manager Corporate Services, Nikki Harrison, Director Audit New Zealand, Julian Tan and Manager Finance, Prabath Jayawardana, took the report as read and answered questions on the proposed focus areas for the audit.

Resolved ARF/2024/023

That the Audit, Risk and Finance Committee

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

Sanson/Courtney Carried

13. Annual Procurement update (Agenda Item 7)

Document number R28282, agenda pages 17 - 19 refer.

Procurement and Contracts Advisor, Peter Denton, took the report as read and answered questions on reporting on broader outcomes and timing for reviewing the procurement policy.

Resolved ARF/2024/024

That the Audit, Risk and Finance Committee

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

Sanson/McKenzie Carried

14. Exclusion of the Public

Resolved ARF/2024/025

That the Audit, Risk and Finance Committee

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

Courtney/McKenzie 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 - 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

The meeting went into confidential session at 11.34a.m. and resumed in public session at 12.50p.m.

Karakia Whakamutanga

15. Restatements

It was resolved while the public was excluded:

1	CONFIDENTIAL: Project Management Oversight - eBus Project (Agenda Item 6)
	2. Agrees that the decision remains confidential.

2	CONFIDENTIAL: Quarterly Health, Safety and Wellbeing Report to 31 March 2024 (Agenda Item 2)
	2. Agrees that the Quarterly Health, Safety and Wellbeing Report to 31 March 2024 Report (R28548) and attachment (855153265-4717) remain confidential at this time.

3	CONFIDENTIAL: Quarterly Report on Legal Proceedings (Agenda Item 3)
	2. Agrees that the report Quarterly Report on Legal Proceedings (R28407) and Attachment (142319133-546) remain confidential.

CONFIDENTIAL: Insurance Optimisation (Agenda Item 4)

1. Receives the report Insurance Optimisation (R28442) and its attachment (1731786637-3743); and

2. Notes that the recommendations are being taken due to increased premiums over the number of years; and

3. Notes that these recommendations will result in increased financial risk to the Council; and

4. Agrees that Report (R28442) and the decision only be made publicly available; and

5. Agrees that Attachment (1731786637-3743) remain confidential at this time.

6	CONFIDENTIAL: Quarterly Update on Debts - 31 March 2024 (Agenda Item 5)
	2. Agrees that the report Quarterly Update on Debts - 31 March 2024 (R28488) and its attachment (1857728953-1637) remain confidential at this time.

There being no further business the meeting ended at 12.50p.m.

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

Resolved

Item 7: Quarterly Risk Report - 30 June 2024

Audit, Risk and Finance Committee

14 August 2024

Report Title: Quarterly Risk Report - 30 June 2024

Report Author: Chris Logan - Audit and Risk Analyst

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28695

1. Purpose of Report

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

1.2 To update to the Audit, Risk and Finance Committee on insurance renewals.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Risk Report - 30 June 2024 (R28695) and Attachment (1759736513-18).

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. The risk rating remains at High.

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). No new emerging risks to report at this time. 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 is starting to ease and most critical roles which had been vacant for long periods are now filled. Training, inducting and establishing relationships within the organisation is now a key focus to ensure that new talent is retained and can thrive. The organisational risk rating remains at Medium until we see this trend continue through the back half of 2024.

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

5.4 Community Services Group:

5.4.1 Risks associated with two of three 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. Since the last report to this Committee, non-compliance with one campground has been resolved.

5.4.2 Risks associated with wood processing waste deposited at Tāhunanui Beach in the 1960s have been investigated, and a remediation option has been approved by Council, with funding from MfE currently being sought.

5.5 Environmental Management Group: Some 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:

5.7.1 No new emerging risks to report at this time.

5.7.2 There was one High risk notification made to the Chair of ARF during the quarter relating to Council potentially not having any Professional Indemnity Insurance from 1 July 2024. It is noted that primary layer insurance is now in place.

6. Insurance renewal update

6.1 Excluding below-ground-essential-infrastructure insurance, which is due to renew 1 November 2024, Nelson City Council renewed all major insurance policies for financial year 2024-25. Highlights of the 1 July 2024 renewal include:

6.1.1 Material Damage & Business Interruption premium $1.4M (previously $1.8M). Reduction in premium in line with decision to reduce cover as agreed by Council 6 June 2024.

6.1.2 Other lines, premiums were previously $0.4M and were renewed for $0.5M (annualised). However, the Professional Indemnity (PI), Public Liability (PL), and Harbour Master liability & Wreck Removal (HMWR) coverage limits have been significantly reduced:

· PI coverage limit is now $15M in the aggregate but subject to an additional multi-council $30M limit. Options for excess layer coverage are yet to be determined. Previously coverage was AU$300M each claim.

· PL is coverage limit is now $15M each claim with a $30M natural disaster aggregate limit. Previously coverage was AU$300M each claim.

· Harbour Master liability coverage limit is now $25M in aggregate (previously $50M) and Wreck Removal coverage limit is now $10M in aggregate (previously $50M). Officers declined to take up excess cover which would have increased cover to $50M/$25M respectively given the additional cost and maximum foreseeable loss scenario.

6.2 Officers are currently reviewing the below-ground-essential-infrastructure insurance, the review includes:

6.2.1 increasing the limit from $180M to $300M - limit is currently 9% of insured asset value whilst 1 in 500 probably maximum loss scenario is in the range of 14% to 26%+ of insured asset value;

6.2.2 increasing the excess from $1.8M to $5M - to reduce premium impact of the limit increase, which is estimated to cost an additional $0.7M to $0.9M; and

6.2.3 investigating parametric insurance options, where the claim payments are determined by weather/earthquake station measurements, potentially expanding ‘coverage’ to roading.

Attachments

Attachment 1: 1759736513-18 4Q24 key organisational risks for ARF ⇩

Item 8: Quarterly Finance Report to 30 June 2024

Audit, Risk and Finance Committee

14 August 2024

Report Title: Quarterly Finance Report to 30 June 2024

Report Author: Prabath Jayawardana - Manager Finance

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28611

1. Purpose of Report

1.1 To inform the Committee of the financial results for Council for the twelve months ended 30 June 2024, and to highlight any material variations.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Quarterly Finance Report to 30 June 2024 (R28611) and its Attachments (1857728953-1938, 1530519604-14363 and 839498445-18731).

3. Background

3.1 The whole of Council financial reporting provided to this Committee focuses on the twelve-month performance (1 July 2023 to 30 June 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.

3.4 Note that this is a draft result, as year-end is still in progress.

4. Financial Performance

4.1 For the twelve months ending 30 June 2024, the Council’s draft deficit is $12.2m against a budgeted surplus of $5.8m ($18.0m unfavourable to budget), mainly due to reasons explained below.

4.2 Profit and Loss

4.3 Revenue

4.4 Rates income is in-line with budget.

4.5 Subsidies and Grants is less than budget by $3,210,000. Attachment 1 (1857728953-1938) includes a detailed analysis of this variance.

4.6 Fees and Charges income is greater than budget by $1,648,000. This is mainly due to water by meter charges to residential and commercial users by $0.6m due to higher water usage than anticipated. Consent fees and Job sales are also higher than budget by $0.6m which offsets the higher than budget other expense variance below.

4.7 Other revenue is less than budget by $10,514,000. The NRSBU Profit Share Washup is yet to be done (budget is $1.7m) and the Infrastructure Holdings Limited (IHL) dividend has not been accrued due to the new IHL dividend policy, resulting in a shortfall of $3.1m compared to budget. The Port Nelson and Nelson Airport dividends previously declared prior to year end and paid the next financial year: now declared and paid in the same financial year. This is a timing issue as the result will be two years of dividend income in 2024/25. Vested asset income is yet to be calculated (budget is $5.4m).

4.8 Development Contributions is less than budget by $1,400,000. This is due to less development activity than budgeted for.

4.9 Finance Revenue is greater than budget by $2,076,000. This is due to more funds being invested than planned because of pre-funding of debt. Currently there is $20m of investments for pre-funding of debt (see offset in Finance costs below).

4.10 Other gains/(losses) is less than budget by $1,371,000. This relates to the forestry activity, with net income being less than budget due to delays in harvesting at Marsden and Roding Forest.

4.11 Expenses

4.12 Personnel costs are greater than budget by $294,000. There have been savings in personnel costs of $2.8m across different activities however the YTD vacancy provision was $3.1m.

4.13 Finance costs are greater than budget by $3,608,000. This increase in interest costs is due to additional pre-funding of debt (which is offset by the $2.1m extra in finance revenue), and higher interest rates and borrowings than planned during the year.

4.14 Depreciation and amortisation costs are greater than budget by $2,285,000. Depreciation has been based on the 2022/23 asset valuations, which saw large increases. This resulted in a higher depreciation expense than planned.

4.15 Weather Event costs are greater than budget by $250,000 with there being no significant variances greater than $0.5m.

4.16 Other expenses are greater than budget by $1,657,000. Significant variances are as follows:

4.16.1 Insurance is greater than budget by $1,226,000. This is because of increases in premiums due to a) increases in asset values, and b) higher premium rates.

4.16.2 Kerbside Kitchen Waste expenses are less than budget by $1,408,000. This government-funded initiative has been delayed.

4.16.3 Resource Consent Job Purchases is greater than budget by $617,000 from the greater use of consultants due to staff vacancies (partial offset by lower personnel costs and higher Fees & Charges).

4.16.4 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.

4.16.5 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 30 June 2024, capital expenditure was $74.8m which is $6.5m under the Full Year Operating Budget of $81.3m. The operating budget is lower by $20.1m than the previous quarter due to carry forwards being approved during the deliberations meeting in May 2024. The main contributors to the remaining variance were Social ($2.1m), Transport ($1.4m), Water Supply ($1.2m), Parks & Active Recreation ($1.0m).

5.3 The actual capital programme delivery was 84% against the Annual Plan 2023/24 (including carry forwards from 2022/23). The actuals include the Brook Street Property Purchases ($7.2m) which were not budgeted at the time. The capital program delivery is 76% once those property purchases were removed from the actuals.

5.4 The final carry forwards report will be brought to the 18 September 2024 Committee meeting for approval and recommendation to Council when the Draft Annual Report is presented. The top 10 lower than operating budget variances are as below;

6. Cash Flow Management

6.1 Net Debt

6.2 As at 30 June 2024, there was a net debt of $223.5m. This has increased from 30 June 2023 by $54.6m. The full-year Annual Plan budget is $207.9m.

6.3 This $54.6m increase in net debt from 30 June 2023 is due to: a) to fund the August 2022 weather event ($4.0m expenditure), b) to fund capital expenditure during the year ($36.4m net of funded depreciation), c) to fund $4.0m advance to Nelson Tasman Regional Landfill Business Unit (NTRLBU), d) to fund $8.8m advance in working capital and term loan to Nelson Regional Sewerage Business Unit, 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 (1857728953-1938) includes the statement of financial position (Balance sheet), Debtors graph and compliance with the Treasury policy as at 30 June 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 30 June 2024 were $797,328. Below are the rates outstanding at the end of each rating quarter.

Total Rates Outstanding

8. Project Health

8.1 Attachment 2 (1530519604-14363) summarises the health of projects across Council. The table gives a red, amber or green rating for quality, time and budget factors.

8.2 Projects have progressed well this quarter, impacts on supply chains and delays due to covid have largely resolved and a quiet construction market has led to competitive pricing.

8.3 The red on Saxtons Creek Upgrade Stage 4 is due to the weather events in August 2022 and May 2023 and red on Tāhuananui Beach Contaminated Sawdust is due to the funding not yet being approved.

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 ‘achieved, not achieved, or not measured’ at the end of the year.

9.2 At the time of writing the report 50 are achieved, nine are not achieved and eight are not measured yet. The percentages are measured as 74.62%, 13.43% and 11.94% respectively. These numbers are draft and subject to audit.

9.3 Attachment 3 (839498445-18731) details Council’s performance measures so far across all its activities.

Attachments

Attachment 1: 1857728953-1938 Appendix for Council Reports for June-24 ⇩

Attachment 2: 839498445-18731 Q4 Performance Measures 2023-24 ⇩

Attachment 3: 1530519604-14363 Q4 Project Health Summary 2023-24 ⇩

Item 9: Annual Tax Update

Audit, Risk and Finance Committee

14 August 2024

Report Title: Annual Tax Update

Report Author: Prabath Jayawardana - Manager Finance

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28612

1. Purpose of Report

1.1 To advise the Committee of Council’s tax activities over the prior year and provide some context for the current tax environment.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Annual Tax Update (R28612) and its Attachment (2130083480-731).

3. Background

3.1 The Tax Risk Governance Framework was adopted by Council in May 2017 as a proactive step towards identifying and managing tax risk to maintain its low risk profile. This Annual Tax Update (Attachment 1 – 2130083480-731) has been prepared as part of that framework.

3.2 The Annual Tax Update provides:

3.2.1 A summary of the tax advice that Council has sought during the period 1 April 2023 to 31 March 2024.

3.3 Commentary on tax matters currently being addressed as at 30 June 2024.

3.4 A more general high-level update on the wider tax environment as it might affect Council.

3.5 An overview of the Tax Risk Management Strategy.

3.6 The Annual Tax Update report from Council’s tax advisors (PWC), the Pay as You Earn (PAYE) compliance evaluation and Fringe Benefit Tax (FBT) compliance evaluation are included with this report as Attachment 1.

4. Tax advice received and matters addressed

4.1 For the most part, the tax compliance of Council has been ‘business as usual’ for much of the year with the various tax returns (GST, PAYE, FBT, etc.) being filed on time and without any concerns being raised.

4.2 That said, it is appropriate to comment on the following areas where assistance has been provided to Council:

4.2.1 Advice sought on the tax considerations of reorganising the Holding Company structure.

4.2.2 Advice sought in relation to the GST treatment of various property transactions.

4.3 Finally, it is noted that Council has continued to obtain support as follows:

4.3.1 Continued to subscribe to and actively use PWC’s online Indirect Tax Policies and Guides.

4.3.2 Maintained its subscription to PWC’s “GST on Property Guide”.

4.3.3 Sought assistance on a number of ad hoc queries to strengthen Council’s business decisions.

4.3.4 Received assistance with completion and filing of Council’s income tax return.

5. Tax strategy

5.1 Page 4 of the Annual Tax Update sets out work planned for the 2024/25 financial year up to 2026/27 and page 5 outlines the work done during the period ending 31 March 2024.

6. Other relevant matters

6.1 Pages 6 to 7 summarise tax developments during the period. Some of the matters that are of particular interest or relevance to Nelson City Council are:

6.1.1 The changes to how water is delivered in the future need to be carefully worked through, regardless of whether it is under a new legislative framework, or within the existing framework.

6.1.2 The increase in the rate of interest that applies for fringe benefit tax purposes to employment-related loans from 7.89% to 8.41% from 1 October 2023.

7. Council’s tax figures

7.1 Generally, Council is exempt from income tax with the main exception being some income from CCTOs, such as subvention payments. However, Council has significant tax obligations in relation to GST and PAYE in particular. The quantum is highlighted in this section.

7.2 In the 12 months ending 31 March 2024, Council has accounted for:

*Tax*	*12 month period ending*	*Amount*
GST output tax	31 March 2024	$20.4million
GST input tax	31 March 2024	$22.1million
PAYE and ACC	31 March 2024	$8.0million
FBT	31 March 2024	$46,000

7.3 For the 12 months ending 31 March 2023, Council tax figures are as below:

*Tax*	*12 month period ending*	*Amount*
GST output tax	31 March 2023	$20.5million
GST input tax	31 March 2023	$22.3million
PAYE and ACC	31 March 2023	$7.3million
FBT	31 March 2023	$57,000

7.4 Council also acts as agent for the Nelson Regional Sewerage Business Unit, Nelson Tasman Regional Landfill Business Unit and Nelson Tasman Civil Defence and Emergency Management. The numbers above exclude those entities.

8. Conclusion

8.1 Council formally adopted the Tax Governance Framework on 18 May 2017 and the Tax Risk Management Strategy on 14 December 2017. These form a solid foundation for managing tax risk.

8.2 The Tax Risk Management Strategy is a simple tool to ensure that tax risk is being identified and managed appropriately while providing the Committee with a quick visual tool to see the steps Council has taken to manage tax risk and the forward looking strategy.

8.3 The adoption of the Framework and the Strategy ensures that complacency does not arise amongst the finance team, senior leadership team or those with oversight for audit and risk.

Attachments

Attachment 1: 2130083480-731 PWC Annual Tax Update - 1 April 2023 - 31 March 2024 ⇩

Item 10: Bad Debts write off - Year ending 30 June 2024

Audit, Risk and Finance Committee

14 August 2024

Report Title: Bad Debts write off - Year ending 30 June 2024

Report Author: Prabath Jayawardana - Manager Finance

Report Authoriser: Nikki Harrison - Group Manager Corporate Services

Report Number: R28716

1. Purpose of Report

1.1 To inform the Audit, Risk and Finance Committee of the level of bad debts written off for the year ending 30 June 2024.

2. Recommendation

That the Audit, Risk and Finance Committee

1. Receives the report Bad Debts write off - Year ending 30 June 2024 (R28716).

3. Background

3.1 There were no debts over $10,000 to be written off for the year ending 30 June 2024.

Over $10,000 (Excluding GST)
	Write-off 2024		Write-off 2023
	$	No.	$	No.
Dog Impounding	$0		$0
Marina Fees	$0		$18,726	1
General Debtors	$0		$0
Regulatory	$0		$0
Total	$0		$18,726	1

3.2 A number of accounts under $10,000 per debtor have been written off by the Group Manager Corporate Services under officer delegation. These totalled $14,398 excluding GST.

Under $10,000 (Excluding GST)
	Write-off 2024		Write-off 2023
	$	No.	$	No.
Dog Impounding	$628	3	$743	2
Marina Fees	$2,116	6	$13,750	6
General Debtors	$11,443	15	$4,025	3
Regulatory	$211	1	$420	2
Total	$14,398	25	$18,938	13

3.3 The decision to write off debts is an administrative one and, although the debts are written off from an accounting point of view, a record is still kept and if an opportunity to recover the debt arises, action will be taken. Most of this balance is with Credit Recoveries Limited, Council’s debt recovery agency, who will continue recovery activities. Every possible effort has been made to locate and obtain payment from these debtors.

3.4 A comparison of debt written off between 2023/24 and 2022/23 is as follows:

Summary
	Write-off 2024	Write-off 2023
	$	$
Over $10,000	$0	$18,726
Under $10,000	$14,398	$18,938
Cost for year	$14,398	$37,664

Attachments

Nil

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

Audit, Risk and Finance Committee

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