Agenda of Finance Audit & Risk Sub-committee

Meeting of the Finance Audit & Risk Sub-committee

Date: Monday 4 December 2017

Time: 10.00am

Venue:

Council Chamber

Hawke's Bay Regional Council

159 Dalton Street

NAPIER

Agenda

Item Subject Page

1. Welcome/Notices/Apologies

2. Conflict of Interest Declarations

3. Confirmation of Minutes of the Finance Audit & Risk Sub-committee held on 19 September 2017

4. Follow-ups from Previous Finance Audit & Risk Sub-committee Meetings 3

Information or Performance Monitoring

5. Audit NZ Management Report for HBRC Annual Report for Year Ending 30 June 2017 15

6. Data Analytics Internal Audit Report and Update 17

7. ACC Lease Receivables Agreement Audit 43

8. Risk Management Update 59

9. December 2017 Update on the Sub-committee Work Programmes 65

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

SUBJECT: Follow-ups from Previous Finance Audit & Risk Sub-committee Meetings

Reason for Report

1. In order to track items raised at previous meetings that require follow-up, a list of outstanding items is prepared for each meeting. All follow-up items indicate who is responsible for each, when it is expected to be completed and a brief status comment. Once the items have been completed and reported to the Committee they will be removed from the list.

Decision Making Process

2. Council is required to make every decision in accordance with the Local Government Act 2002 (the Act). Staff have assessed the in relation to this item and have concluded that as this report is for information only and no decision is required, the decision making procedures set out in the Act do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the report “Follow-ups from Previous Finance Audit and Risk Sub-committee Meetings”.

Authored by:

Leeanne Hooper

Governance Manager

Approved by:

Liz Lambert

Group Manager External Relations

Attachment/s

⇩1

Follow-ups

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

Subject: Audit NZ Management Report for HBRC Annual Report for Year Ending 30 June 2017

Reason for Report

1. Audit NZ has completed the audit of the Annual Report for year ending 30 June 2017 and will provide a final management letter outlining any significant matters for discussion by the subcommittee.

2. At the time of this paper the final management letter is still being reviewed by Audit NZ but should be available to circulate electronically to the subcommittee prior to the meeting.

Background

3. At its meeting on 19 September 2017 the subcommittee discussed the major issues covered by this audit with Stephen Lucy from Audit NZ. The management letter will formally cover off those issues and some of the more detailed operational recommendations.

4. We hope to have a representative from Audit NZ at the meeting to discuss the issues but are waiting on confirmation of availability.

5. The audited Annual Report was adopted by Council resolution at its meeting on Wednesday 25 October 2017. Both the full Annual Report and the Annual Report Summary are now available on the HBRC website.

Decision Making Process

6. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “Audit NZ Management Report for HBRC Annual Report for Year Ending 30 June 2017”.

Authored by:

Manton Collings

Corporate Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

Subject: Data Analytics Internal Audit Report and Update

Reason for Report

1. Crowe Horwath have completed the internal audit on Data Analytics and their report is attached for review by the Sub-committee.

Background

2. The Finance, Audit and Risk Sub-committee agreed at its meeting on 19 September 2017, as part of the internal audit work programme, to engage Crowe Horwath to conduct an internal audit on Data Analytics, as Attachment 1.

3. Staff have reviewed the findings and have provided a key findings summary along with detailed commentary against each recommendation from report, as Attachment 2.

Decision Making Process

4. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee Receives and notes the “Data Analytics Internal Audit Report” and associated staff commentary.

Authored by:

Melissa des Landes

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1	Internal Audit Data Analytics Report
⇩2	Findings Summary

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

Subject: ACC Lease Receivables Agreement Audit

Reason for Report

1. To present to the Finance Audit & Risk Sub-Committee the Annual Audited Report under the Lease Receivables Agreement between the Hawkes’s Bay Regional Council (HBRC) and the Accident Compensation Corporation (ACC) dated 17 December 2013.

Background

2. HBRC and ACC have concluded an agreement to sell the annual rents from HBRC’s Napier leasehold land portfolio to ACC for fifty years, up to and including financial year ending 30 June 2063. This agreement is called the “Receivables Purchase Agreement” (RPA) and is binding upon HBRC and ACC. The RPA is therefore the overriding document for the management of the leasehold portfolio, including of rents, freeholding of properties, lease renewals and reporting.

3. HBRC administers the RPA for an agreed fee. Under this arrangement, HBRC must report monthly on freeholdings to ACC. HBRC must also provide a six month and an annual report including details of cashflows, collections costs, properties sold, valuations obtained, rent reviews conducted and mortgage releases. Payments under the RPA agreement are to be made twice a year to ACC, being 20 January and 20 July.

4. The annual report is to also provide a separate Annual Certificate by its Auditors (Attachment 1) addressed to ACC stating:

4.1. Whether or not they have become aware of any matter that is contrary to the rights, powers and interest of ACC in respect of the properties or the specified receivables under the agreement made between ACC and the HBRC, and what those matter are (section 19 RPA); and

4.2. Whether or not HBRC has collected the rents and sale proceeds in accordance with the provisions of the agreements and whether or not their audit has disclosed any matter that requires investigation by ACC.

5. The Council will provide to ACC a copy of its most recent LTP and its Liability Management Policy and any amendments, revisions and re-issues of them over the term of the agreement. A copy of the Annual Plan for the forthcoming financial year and the Annual Report for the previous financial year.

6. Balance of Napier Leasehold Portfolio as at 4 December 2017 is:

6.1. 134 single site sections available for freeholding

6.2. 85 cross lease sections available for freeholding

6.3. Total number of lessee 397

Summary of Audit Report

7. Audit NZ has stated that nothing has come to their attention to indicate:

7.1. A significant deficiency in HBRC’s system of internal controls over the completeness of the property, the process of reviewing lease rentals, the process for selling property and the timely collection of lease rentals or proceeds from the sale of property

7.2. HBRC has not kept proper books and records

7.3. HBRC is not a going concern.

8. This report clarifies that HBRC is meeting all its responsibilities under the RPA Agreement.

Decision Making Process

9. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “ACC Lease Receivables Agreement Audit” staff report.

Authored by:

Trudy Kilkolly

Financial Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1

Lease Receivables Agreement Audit Report

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

Subject: Risk Management Update

Reason for Report

1. To update the Sub-committee on progress made on analysis of the strategic risks adopted by Council and to update on progress made on analysis of project related risks.

Background

2. Council adopted the strategic risk register containing areas of organisational risk on 19 September 2017. This was public excluded due to the disclosure of commercially sensitive insurance information, which has now been detached from the register for the purposes of presenting this report.

3. Monthly executive discussions on risk and management thereof have been occurring as discussed at previous sub-committee meeting. Risks in focus are widely discussed and relevant action points/follow ups are established. Staff members are often invited to attend meetings to discuss the risks in greater detail. An updated register reflecting current position is provided as Attachment 1.

4. Six-monthly focus workshops with second and third tier managers are scheduled to occur in line with standard six-monthly risk reporting and will be presented to the sub-committee on 7 March 2017. This process allows for an in-depth visit of the risk register and reassessments of group and organisational wide risks.

5. Council questioned whether or not this process enabled Council to monitor and analyse its project related risks, such as TANK and Plan Change 6. A template has been developed to standardise this process, as Attachment 2. This template will be tabled and explained to relevant staff in conjunction with six monthly risk management workshops. This is to reflect the importance of monitoring our project related risks alongside our strategic level risks.

6. This template will allow for differentiation between both risk prevention and risk mitigation measures, also known in risk management best practice as the “bowtie method”. It is proposed that a similar approach be applied to risk management at Council generally to demonstrate both proactive and reactive risk management.

Decision Making Process

7. Staff have assessed the requirements of the Local Government Act 2002 in relation to this item and have concluded that, as this report is for information only, the decision making provisions do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “Risk Management Update” staff report.

Authored by:

Melissa des Landes

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

⇩1	Full Risk Register
⇩2	Risk Evaluation Template

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Monday 04 December 2017

Subject: December 2017 Update on the Sub-committee Work Programmes

Reason for Report

1. In order to ensure the sub-committee’s ability to effectively and efficiently fulfill its role and responsibilities, an overall update on its work programme is provided following.

Task	Item	Scheduled / Status
Internal Audits	Data Analytics	Report to 4 December 2017 FA&R meeting
	Water Supply/ Wastewater/ Stormwater Management	Report to 7 March 2018 FA&R meeting
	Procurement and Purchasing	Report to 6 June 2018 FA&R meeting
	2018-19 Schedule of Internal Audits	To FA&R 6 June 2018 meeting
Risk Assessment & Management	Reporting on risks (6-monthly) affecting Council plus noting changes / improvements / areas that require attention from last report (3-monthly)	2018 FA&R 7 March & 19 September meetings
Insurance	Council’s proposed 2018-19 Insurance programme	Aligned with insurance renewal dates each year
Annual Report	Discussion on Audit Management Letter	Auditor scheduled to attend December 2017 FA&R meeting
Annual Report	Discussion on the major issues (if any) in the audit report on the Annual Report.	Aligned with Audit NZ & legislative requirements Sept-Nov each year
Reviews	Review of Council expenditure on delivery of functions with a view to ensuring and/or enhancing efficiency	Report to 11 December 2017 C&S with ongoing work forming part of LTP process
Reviews	Review of the Council’s capital structure, taking into account the values of dividends in supporting Council operations	Situation analysis to be presented to Corporate & Strategic Committee meeting 11 December 2017. Ongoing work forming part of LTP process including consultation
Investment Returns Monitoring	Update on progress in obtaining required level of dividend from PONL	PONL AGM is scheduled for 11 December 2017. Confirmation of dividend negotiations to follow after this date.

Future Internal Audits

2. As part of the agreed internal audit work programme, a scoping document for the Water Management internal audit is Attachment 1. The scoping document has been extended to include stormwater as requested, plus a focus on local authority consents and specific water bodies in the region that supply water to the public.

3. The Office of the Auditor General (OAG) released a document, Attachment 2, in October 2017 informing of their Water Management Work Programme. While this work programme is very broad and concerns all freshwater resources, this programme includes consideration for elements of the Water Management internal audit. Areas include a focus on drinking water, stormwater and wastewater. There is also a focus on how organisations are engaging with each other in carrying out their roles and responsibilities.

Decision Making Process

4. As this report is for information only and no decision is to be made, the decision making provisions of the Local Government Act 2002 do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the “December 2017 Update on Sub-committee Work Programmes” staff report.

2. Agrees to the content in the scoping document for the Water Management internal audit as proposed by Crowe Horwath and approves initiation of the Audit, findings to be presented to the 7 March 2018 Finance, Audit and Risk sub-committee meeting.

Authored by:

Melissa des Landes

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s