Agenda of Finance Audit & Risk Sub-committee

Meeting of the Finance Audit & Risk Sub-committee

Date: Wednesday 21 August 2019

Time: 9.00am

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 meeting held on 22 May 2019

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

Decision Items

5. Remission of Penalties on Rates Policy (Fixed Term) 11

6. Six Monthly Report on Risk Assessment and Management 15

Information or Performance Monitoring

7. Treasury Report 23

8. Procurement Hub Update 39

9. August 2019 Sub-committee Work Programme Update 43

Decision Items (Public Excluded)

10. Proposed Local Government Act Section 17a Review 45

11. Confirmation of the Public Excluded Minutes of the Finance, Audit and Risk Sub-commitee Meeting held 22 May 2019 47

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 21 August 2019

Subject: Remission of Penalties on Rates Policy (Fixed Term)

Reason for Report

1. The purpose of this report is to introduce an additional Remission of Penalties on Rates Policy (Fixed Term) to assist ratepayers who may experience a financial hardship caused by Council’s change in our rates payment due date from 31 January 2021 to 20 September 2020.

2. Staff have begun developing and implementing a comprehensive communications plan with staggered roll-out over the coming months to advise, inform, and educate the ratepayers on this change in due date. As a result, Staff proposes to seek the appropriate decision-making committees of the Council to formalise and adopt this one-time, fixed term change to the Remission of Penalties on Rates.

3. Our current Remission of Penalty on Rates Policy ‘conditions and criteria’ allow for one remission every three years for a missed rate payment for circumstances which are under ratepayer’s control.

4. A change in our rates due date from January 2021 to September 2020 (4 months earlier) may cause some ratepayers a financial hardship resulting in a delayed payment. Council currently applies a 10% penalty on unpaid rates (rates past the due date). This policy change allows a ratepayer to apply for a remission on the 10% penalty recognising that some ratepayers will be required to issue two rate payments in calendar year 2020, which may cause a financial hardship. Any discretionary decision by the Council granting this special remission will disregard the ratepayer’s prior missed rate payment history.

5. This policy will only apply to rates due for the financial year 1 July 2020 to 30 June 2021.

6. The Local Government Act (LGA), section 103(4), requires an amendment to a rates remission and postponement policy to be consulted on using the provisions of section 82. Presenting this report to the FARS is part of the procedure required to enable its inclusion in next year’s annual plan consultation process.

Objective

7. The objective of this additional policy is to enable Council to act fairly and reasonably, when a rates payment has not been received by the due date to allow for a one-time remission of penalties for ratepayers who may experience a financial hardship caused by the requirement to remit two rate payments in one calendar year (2020).

Background

8. Local Government (Rating) Act Section 57, states that a local authority may, by resolution, authorise penalties to be added to rates that are not paid by the due date. This penalty must not exceed 10% of the amount of the unpaid rates on the date when the penalty is added. Council applies a 10% penalty for unpaid rates.

9. Council acts fairly and reasonably when a rate payment has not been received by the due date and currently has the following Rates Remission and Postponement policies in place:

9.1. Māori Freehold Land, Remission in Special Circumstances

9.2. Remission of Penalties on Rates

9.3. Remission of Rates on Properties Affected by Natural Calamity

9.4. Remission for Uniformed Annual General Charges (UAGC)

9.5. Postponement in Cases of Financial Hardship or Natural Disaster.

10. To be granted a remission or postponement under any of the above policies certain ‘conditions and criteria’ must be met before a penalty remission is granted. All applications for a remission must be in a written format (including email).

11. Of the policies listed above, application for remissions from ratepayers fall within one of two of the following policies.

11.1. Māori Freehold Land

11.2. the Remission of Penalties on Rates.

12. Māori Freehold Land Remissions ‘conditions and criteria’ are straightforward and easy to apply as the entire rate, including penalties, can be remitted.

13. Remission of Penalties on Rates ‘conditions and criteria’ allows for two types of remissions under which only the penalty can be remitted.

13.1. matters that are outside the ratepayer’s control

13.2. matters that fall within the ratepayer’s control.

14. If the late payment is caused due to matters outside of the ratepayer’s control, i.e. an error by the Council, then this penalty would be remitted as soon as it is identified.

15. Ratepayer controlled penalty remissions are where there is non-payment at due date with the error being the ratepayers responsibility. Council’s current policy allows for one remission every three years, taking into consideration the ratepayer’s good payment history.

16. As the Council changes the rates due date, from January 2021 to September in 2020 (4 months earlier), Council may find that some ratepayers are unable to pay their rates in full by the accelerated due date of 20 September 2020, resulting in a 10% penalty on past due rates. Under Council’s current policy, a ratepayer who was granted a penalty remission in the last two years would be ineligible for another remission.

17. By introducing an additional Policy on Remission of Penalties on Rates (Fixed Term) which covers the first year of our changeover to the new rates due date, all ratepayers who are unable to issue a payment by the due date will be subject to a standardised, consistent, and transparent policy of remission on the penalty.

New Fixed Term Policy - Remission of Penalties on Rates (Fixed Term)

18. This policy is both a remission and postponement policy as defined by the Local Government (Rating) Act 2002 and Local Government Act 2002

Objective

19. To enable HBRC to act fairly and reasonably when a rates payment has not been received by the due date as a result of the Council changing the due date from 31 January 2021 to 20 September 2020. This policy will only be in place from 1 July 2020 to 20 September 2021 and is in addition to the existing policy on Remission of Penalties on Rates, and will apply only to rates due for the financial year 1 July 2020 to 30 June 2021.

20. There are two parts to this policy.

20.1. Ratepayers on an existing payment plan

Conditions and criteria

20.1.1. Upon receipt of an application from the ratepayer either in written or email format, or if identified by Council, a penalty may be remitted where all of the conditions listed below are met

20.1.2. A full payment of outstanding rates due (excluding a penalty amount) has been made prior 31 January 2021

20.1.3. The ratepayer has an existing payment plan which has been adhered to over the previous 12 months, and

20.1.4. The ratepayer amends the existing payment plan to ensure that the rates for the financial year 1 July 2021 to 30 June 2022 are paid no later than 20 September 2021.

20.2. Ratepayers not on an existing payment plan

Conditions and criteria

20.2.1. Upon receipt of an application from the ratepayer either in written or email format, or if identified by Council, a penalty may be remitted where all of the conditions listed below are met

20.2.2. Full payment of outstanding rates due (excluding a penalty amount) has been made prior to the application (but no later than being 31 January 2021) is received by the Council, and the ratepayer has previously paid all rates by the due date within the last three years

20.2.3. The ratepayer pays the rates for the financial year 1 July 2021 to 30 June 2022 no later than 20 September 2021.

Policy notes

21. The penalties are only postponed until all the criteria are met.

22. Where there is a deliberate non-payment, remission will not be granted.

Decision Making Process

23. Council is required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

23.1. The decision does not significantly alter the service provision or affect a strategic asset, and is not inconsistent with an existing policy or plan.

23.2. LGA section 103(4) requires that an amendment to a rates remission and postponement policy must be consulted on using the provisions of LGA section 82. This requires Council to provide the opportunity for persons who will or may be affected by or have an interest in the decision to present their views to Council. This consultation can be undertaken as part of any consultation that Council undertakes between now and 1 July 2020, including the 2020-21 Annual Plan.

Recommendations

1. That the Finance, Audit and Risk Sub-committee receives and considers the “Remission of Penalties on Rates Policy (Fixed Term)” staff report.

2. The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee recommends that Hawke’s Bay Regional Council:

2.1. Agrees the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that Council will consult as required by LGA s103(4) and s82 as part of either the 2020-21 Annual Plan or with other appropriate consultation process.

2.2. Subject to consultation as per 2.1 above, agrees to adopt a Remission of Penalties on Rates Policy (Fixed Term).

Authored by: Approved by:

Trudy Kilkolly

Principal Accountant Rates
and Revenue

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

Wednesday 21 August 2019

Subject: Six Monthly Report on Risk Assessment and Management

Reason for Report

1. This item provides the Sub-committee with the six monthly review of the risks that Council is exposed to and the mitigation actions in place to manage Council’s risk profile.

Background

2. The Sub-committee last considered the risk management report at its 12 February 2019 meeting.

3. Subsequent to this meeting, the Executive Leadership Team has considered the Sub-Committee’s feedback and reviewed the organisation’s strategic risks with each Group Manager. Details of any resulting changes to the risk register are outlined below.

4. During this period staff resourcing to support this work has been very stretched due to competing priorities. This has led to a shift as to how the risk management function will be resourced internally with changes described further on in this item.

Key Changes to the Risk Matrix

5. Following the feedback at the last discussion on this matter at the Finance, Audit and Risk Sub-Committee (FARS) on 12 February 2019, consideration has been given on whether to add a new risk regarding environmental harm, providing further detail surrounding the CDEM (Civil Defence) risk, and supplementary information on staff retention and welfare. These are summarised below for your consideration.

Risk of Harm to Environment

6. While there are risks on the register that relate to our region’s drinking water, it was highlighted at the FARS discussion on 12 February that there is no recognised risk that relates to harm to the environment generally. Specifically, this risk would cover Council’s requirement to protect the environment, and not cause it undue harm. This may occur during Council’s day to day practices, whereby one or more groups may have conflicting goals.

7. As an example, the earlier incident of death of eels in our drainage was an example of harm to the environment caused whilst Council was carrying out its standard business practices. This risk would recognise any potential gaps between different group’s aims, and seek to mitigate any potential conflicts.

8. We will look to include this as a new risk as “Risk of Harm to the Environment during Council undertaking its operations”, and the agreed Risk Owner will be Chris Dolley, Group Manager Asset Management. He will assist in determining the exact risk descriptor, rating, and current and suggested mitigation strategies. Examples of mitigation actions will include appropriate Codes of Practice and training of staff. Further work on shaping up this risk and the mitigation strategies will be developed over the next few months and will be presented in the next risk update to FARS.

Civil Defence

9. While it is noted that Civil Defence has its own risk management processes, there was some concern from the FARS committee members as to whether or not these are sufficiently captured within Council’s own risk register. The intention is to include this as part of the forthcoming risk management review later in the financial year.

Staff Wellbeing and Staff Retention

10. There is a risk within the register entitled “Risk of Failure to Attract and Retain Staff”. Several committee members raised questions as to what the Council is doing to ensure staff wellbeing, and ensure staff are excited to work at the Council.

11. In response to this strategies currently being utilised for this risk are the implementation of the organisational development review and subsequent changes and work programme (which will pick up a deeper focus on recruitment and retention strategies), a project focussed on the new Learning & Development strategy, and the creation of the draft Wellbeing-Hauora Strategy and Action Plan. This latter plan utilises several initiatives encompassing physical, social, mental and spiritual wellbeing of staff. In addition, there has been a full remuneration review that has made it more aligned to the market. Remuneration changes are in the process of being implemented now.

Risk Register summary update

12. Since the last FARS committee meeting, there has been a recent review of the risk register with all of the risk owners (or a delegate if needs be). Risk owners are managing their risks actively. Updates can be seen in blue on the attached risk register.

13. It should be noted that there have been a number of actions that have been implemented to further assist with the management of the Council’s risks especially with OCEC001 – Health and Safety. This will be further supported by the upcoming appointment of a health and safety staff resource.

Risk Trend ratings

14. Risk trend ratings down have been amended as follows.

REG001 Human Health impacts from contamination of drinking water

14.1. Trending down due to the National Environment Standards for drinking water being reviewed to further tighten land use impacts and the identification of source protection zones complete for inclusion in plan change 9. As a result the residual risk rating is such that consequence has been altered from extreme to high.

15. Risk trend ratings going up are as follows.

CORP002 Investment Portfolio – the ability to receive expected dividends. Financial reliance on dividends from Napier Port in time of planned expansion. HBRIC Limited with renewed mandate and directorship.

15.1. The IPO transaction is expected to take place on 19 August which will reduce our shareholding to 55%, therefore there is less reliance on the port dividend - proceeds are unknown at the time of writing. There will be less ability to accurately forecast financial returns on the Diversified Investment Portfolio. Likewise the current $40m funds under management remain subject to potential market volatility.

STRAT001 Implementation of National Policy for Freshwater Management (NPSFM): risk that aspects of policy do not meet minimum standards.

15.2. There is a high possibility that central government will impose a new deadline of 2025 for all freshwater plans to be operative. Risk trend amended from steady to trending up.

Risk Management Summary

External Review

16. At the last risk update to FARS, there was some uncertainty expressed as to the level of detail within the risk register and whether or not this was sufficient or too excessive. There was also some query as to how much societal risks should be covered in the register i.e. demographic changes. In addition to the consideration of Civil Defence risks, both of these questions will be addressed through a risk management review that is proposed for the 2019-20 financial year as part of the Crowe Horwath internal audit programme (and is included in existing internal audit budgets). The timeline for the review is likely to be in the third or fourth quarter and will help outline the scope of the future work programme.

Risk Management function

17. Whilst the risk management process has gained traction and maturity with regular and frequent Executive Leadership Team interrogation of all strategic level risks, it is recognised that further work is required to build the wider organisation’s risk management knowledge and understanding.

18. Current resourcing of the risk management portfolio has been through Melissa Des Landes in the Finance Team who has developed a strong framework and understanding of risk management. However resourcing the function has been a continuing challenge. As Melissa is shifting into a Senior Group Accountant role, it is anticipated to appoint a risk and assurance role who will lead responsibility for the risk management portfolio to further build organisational maturity. Alongside this they will develop the Council’s assurance framework which will include responsibility for the internal audit programme and quality management system (ISO business process certification). This role will be funded through a vacancy created elsewhere in the Office of the CE and Chair (OCEC) group.

19. At a group manager level, this portfolio will be held by the Group Manager (OCEC). The newly-appointment Chief Financial Officer, Shash Dave, has a background in risk management and will retain an advisory link to this work-stream.

Decision Making Process

20. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

20.1. The decision does not significantly alter the service provision or affect a strategic asset, and is not inconsistent with an existing policy or plan.

20.2. The use of the special consultative procedure is not prescribed by legislation.

20.3. The decision does not fall within the definition of Council’s policy on significance.

20.4. The decision of the sub-committee is in accordance with the Terms of Reference and decision making delegations adopted by Hawke’s Bay Regional Council 9 November 2016, specifically:

20.4.1. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to review whether Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the council’s significant risks in place, and

20.4.2. undertake periodic monitoring of corporate risk assessment, and the internal controls instituted in response to such risks

20.4.3. report on Council’s risk management systems, processes and practices to the Corporate and Strategic Committee to fulfil its responsibilities.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. receives and considers the “Six Monthly Risk Assessment and Management” staff report

AND

2. confirms the Sub-committee’s confidence that Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the Council’s significant risks

3. recommends that the Corporate and Strategic Committee receives and notes the resolutions of the sub-committee, confirming the robustness of Council’s risk management systems, processes and practices.

4. advises staff of the specific risks (following) that require reassessment to confirm the level of risk is accurate and internal controls are adequate, for reporting back to the next sub-committee meeting.

4.1. …

4.2. …

5. recommends that the Corporate and Strategic Committee receives and notes the resolutions of the sub-committee, including the specific risks that require reassessment.

Authored by:

Joanne Lawrence

Group Manager Office of the Chief Executive and Chair

Approved by:

James Palmer

Chief Executive

Attachment/s

⇩1

Risk Management Register

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 21 August 2019

Subject: Treasury Report

Reason for Report

1. This item provides an update on the development of Council’s diversified investment portfolio.

Background

2. On 26 September 2018 Council resolved to appoint dual fund managers, being Mercer and Jarden (formerly First New Zealand Capital).

3. Council has engaged PwC to provide treasury advice and reporting, and their quarterly treasury report for the period ended 30 June 2019 is attached.

Fund Performance

4. For the quarter ending 30 June 2019, investment returns are below Council’s FY19 targeted net inflation-adjusted return of 4.50%; at 2.31% for investments managed by Jarden, and 2.9% for investments managed by Mercer.

5. Investment returns are also slightly below the benchmark for both fund managers. Specifically, funds managed by Mercer closely tracked the benchmark, slightly underperforming by 0.2%. Funds under management by Jarden also closely tracked the benchmark, slightly underperforming by 0.1%.

6. Income assets for both fund managers either tracked the benchmark (Jarden) or slightly outperformed the benchmark (Mercer +0.7%). This is due to Mercer’s reallocation of income assets in May 2019 as well as Mercer’s New Zealand Sovereign Bond portfolio slightly outperforming the benchmark.

7. Investment returns are below Council’s FY19 targeted net inflation-adjusted return of 4.50% due to:

7.1 Council’s allotment of capital between Income and Growth assets

7.2 Target asset allocation and portfolio composition have yet to be fully realised by one of the two fund managers (Jarden).

8. An analysis of investment performance metrics may be premature primarily due to the relatively recent capital allocations to the fund managers, as well as ongoing portfolio composition adjustments. Returns and performance will continue to be analysed and presented quarterly.

9. Notwithstanding the foregoing, Mercer’s returns on its income asset allocation have outperformed the benchmark but have slightly underperformed for growth assets.

10. Any commentary on Jarden’s assessment of performance relative to the benchmark would be premature due to targeted portfolio composition continuing to be completed.

11. Mercer’s investment returns for income and growth assets have outperformed Jarden’s. However, Income asset returns are relatively comparable. This is in part due to the initial instruction from Council to Jarden to assign a greater weighting to cash investments, and in part due to Jarden’s deliberate and systematic approach to building a portfolio of Growth Assets in a macro-economic environment where corporate earnings may not fully support market valuations.

12. Jarden is currently non-compliant with the Statement of Investment Policy and Objectives (SIPO) with respect to achieving target asset allocation for funds under management. This is partly due to Jarden’s investment philosophy of gradually staggering into investment portfolio positions and partly due to Council’s initial instruction to Jarden assigning greater weight to cash investments.

13. Council staff have discussed Jarden’s SIPO non-compliance during in-person meetings with Jarden and PwC representatives, and Jarden has provided assurances that the strategic asset allocation will achieve SIPO compliance over the coming months.

14. This staggered approach to target asset allocation over a slightly elongated time frame may be beneficial as it theoretically allows Jarden to strategically develop an equity position in Growth assets with a longer-term view on returns and performance. Despite this investment strategy, forecast returns could be negatively impacted due to broader macro-economic factors outlined below.

Additional Funds under Management

15. With Council’s 45% ownership in Napier Port to be traded through the New Zealand Stock Exchange (NZX) within the coming days, staff estimates a $79 million tax-neutral influx of capital being returned to the Council.

16. The balance of capital influx is to be realised by Hawke's Bay Regional Investment Company Ltd (HBRIC), a Council Controlled Organisation.

17. Staff have engaged both of the Council-approved fund managers (Mercer and Jarden) to deploy this additional capital within Council’s currently managed portfolios, in accordance with the Council’s SIPO. Staff have received confirmation that Mercer will deploy this additional capital immediately, while Jarden will continue its staggered, risk-based approach to capital deployment over the upcoming months. Jarden will likely remain non-compliant with the SIPO as it pertains to strategic asset allocations due to its methodical approach to asset allocation.

18. Staff have also engaged both of the Council-approved fund managers (Mercer and Jarden) to deploy additional HBRIC capital (estimated at $25 million) in mirror funds to those of the Council’s, in accordance with the Council’s SIPO. Staff will continue to engage with the fund managers and HBRIC leadership to determine other commercially viable and cost-efficient capital deployment alternatives that are consistent with the Council’s ethos and values.

Macro Overview

19. The escalation of protectionist measures by the US government continues to dominate, distract and detract from economic prospects for the US and the rest of the world. An intensifying and ongoing conflict between the US and China (and elsewhere) has depressed consumer sentiment and trade activity. This political unpredictability has created a challenging environment for central banks to be constructive on the economic outlook. Consequently, indicators of global manufacturing sentiment and trade have worsened.

20. Global equity markets witnessed substantial movements over the second quarter of 2019 with periods of declines being ultimately surpassed. Declines in equity indices were prompted by an escalation of the US/China trade dispute as well as a weakening in the international macroeconomic growth outlook. A swift recovery was followed by the Trump/Xi meeting at the G20 summit in Osaka that new tariffs would not be immediately implemented. This short-lived equity market euphoria was quickly tampered by recent statements from the US proposing an additional 10% tariff on approximately $300 billion of Chinese imports beginning 1 September 2019. China retaliated by stopping purchases of US agricultural goods and allowing the yuan to depreciate through the key psychological level of 7 to the USD.

21. The future of the equity markets is contingent on the investors’ desire to achieve sufficient returns and corporations’ earnings matching equity pricing. With depressed interest rate returns, there remains little alternative to equity markets for sizeable returns. Although, the ability for corporate earnings to meet valuations indicated by equity pricing poses a potential challenge in an environment of slowing global growth.

22. Monetary and fiscal measures could play a vital role in potentially offsetting the impact of trade deliberations. Most notably, the US Federal Reserve and the European Central Bank have both relented on tightening monetary policy this year. Markets have already priced in a 70% probability of two to three interest rate cuts in the US this year.

23. Governments may be more inclined to use fiscal policy by implementing tax cuts and/or increase spending, to encourage growth in the months ahead. An example of this is the Chinese economy which appears to have stabilised after a period of tight monetary conditions in the first half of 2018, followed by a reduction in interest rates signifying easier monetary policy. While the Chinese economy has not responded with the same vigour as it has in past stimulus cycles, this is emblematic of the impact of the trade uncertainties, which continue to dampen both business and consumer confidence.

24. Consequently, the Reserve Bank of New Zealand (RBNZ) had previously indicated easing the monetary policy and further reduction in the Official Cash Rate (OCR). As at 29 July 2019, market pricing suggested that the Official Cash Rate (OCR) may reach 1% by year-end. However, RBNZ dramatically reduced the OCR by 50 bps to 1% in August 2019. Most economists, expecting the OCR rate to be reach a 1% “floor” by year-end are left readjusting their forecasts indicating that a 0.75% OCR rate reduction may be a near eventuality.

25. Nationally, New Zealand business confidence indicators appear to be falling as evidenced by the ANZ Business Outlook Survey business confidence index, which has fallen 6 points since June, and commercial construction intentions falling by a concerning 25 points (to -20%), with a net 33% of firms in the construction sector intending to cut jobs. Firms’ expectations of their own activity fell to the lowest level in almost a year, with only a net 5% expecting a lift. As the construction sector is a substantial provider of employment in New Zealand, this downturn in activity may further support RBNZ’s rationale for future interest rate cuts as it continues to focus on its remit of “Maximum Sustainable Employment.”

26. Although New Zealand commodity prices remain at well supported levels and interest rates follow a downward trajectory, fears of a global growth slowdown coupled with credit and cost constraints appear to be dampening primarily due to a broader easing of monetary policy across Europe, North America and Australasia along with tightened (and tightening) capital requirements for banks and financial institutions.

Debt Funding

27. Council’s debt forecast indicate a requirement of additional $10 million of core borrowings during FY 2019-20. Staff will evaluate the borrowing and funding schedule for FY 2019-20 based on an internal analysis of annual financial statements which are currently being drafted.

28. Staff will also evaluate the FY 2019-20 core borrowing and funding needs in light of new developments while seeking specialist advice from PwC in compliance with the Council’s Treasury and Funding Policy. Specifically, Staff will evaluate the Council’s financial position in relation to any expected or anticipated return of costs (or capital) arising out of the initial public offering (IPO) of Napier Port while evaluating the current macro-economic environment impacting total cost of capital (borrowings).

Foreign Currency Hedging

29. Council’s current SIPO requires fund managers to mitigate 100% of Council’s foreign currency exposure in all international asset classes except equities.

30. Staff’s consultation with fund manager(s) indicate that the 100% mitigation of foreign currency risk across all asset classes (except equities) utilising spot and forward exchange contracts may not be cost-efficient due to historical and anticipated currency volatility which may inherently accompany an easing monetary and fiscal policy.

31. Subsequent to both fund managers meeting their SIPO-mandated asset allocations, staff and fund managers will evaluate the portfolio as well as options to present a more cost-effective solution which may require adjustments to the SIPO.

Decision Making Process

32. 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 “Treasury Report”.

Authored by:

Shash Davé

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager
Corporate Services

Attachment/s

⇩1

HBRC Treasury Reporting to 30 June 2019

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 21 August 2019

Subject: Procurement Hub Update

Reason for Report

1. This item provides the sub-committee with an update on progress to establish Council’s Procurement Hub.

Background

2. In May 2018 Crowe Horwath completed a Procurement & Contract Management Review and 28 recommendations were adopted.

3. Findings of the review determined 5 key areas for improvement, being to:

3.1. Centralise contract management

3.2. Standardise procurement templates

3.3. Introduce procurement plans

3.4. Introduce monitoring and evaluation tools.

4. Contract Central was originally established for the Resource Management Group and then extended to other groups. It was confirmed by Council’s Sharepoint Administrators that Contract Central could not be migrated to match the new 2018 organisational structure (due to metadata editing), so the decision was made to archive that database and develop a new database reflecting the new structure - called the ‘Procurement Hub’.

Progress

5. During July through December 2018 Council’s Contract Central, ‘current’ contracts (655) were cleansed group by group, down to 475, and archived.

6. From January through July 2019, development, building and testing of the Procurement Hub was undertaken and the 2015 HBRC Procurement Policy & 2016 Operational manual were updated and approved to reflect:

6.1. Combining OAG (Auditor General) principles (2018) and HBRC procurement principles (2019)

6.2. Providing MBIE standardised templates with best practice guidelines

7. The procurement hub was ‘soft launched’ in July 2019 and training is now being cascaded by group, with presentations by Hub staff, as an advice and guidance resource. To date, presentations have been made to the Executive Leadership Team, Corporate Services and Asset Management groups. Where required, 1:1 training is being provided as contracts are generated, ahead of presentations being made to the Strategy and Planning and Integrated Catchment Management groups.

8. For the 2018-19 year in the now archived Contract Hub there were 236 new contracts as shown in Table 1 following.

Table 1 – Archived Contracts

Group	Section	# of Contracts	Total
Integrated Catchment Management	Land Management	27
	Animal Pest Management	22
	Groundwater	10
	Water Quality & Ecology	9
	Plant Pest Management	8
	Land Science	5
	Hydrology	2
	Water Information Services	1
	Air Management	1	85
Asset Management	Land Drainage & River Control	59
	Regional Open Spaces	5
	Forestry	1	65
Corporate Support	Financial Management	48
	Corporate Support	4
	Communications	1
	Information Technology	1	54
Strategic Planning	Plans, Policy & Strategy	14
Strategic Planning	Transport Management	4	18
CDEM		7	7
Regulation		7	7

9. The breakdown below shows that up to February 2019 we didn’t capture value and risk effectively. This has now been included in line with audit recommendations as mandatory data requirement from February 2019 onwards, in the Procurement Hub.

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10. Procurement information is now available (from July 2019) ‘live’ at organisation and group level utilising a Power BI Dashboard as below.

11. Reports will be provided monthly to the executive team, and to every Finance Audit and Risk Committee meeting.

12. So far, a contract is being generated across the organisation every day, with the contract being one part in a three stage (planning, sourcing and managing including evaluation) process.

13. Further levels of detail are available at group, service and contract manager levels.

14. A contract expiring triggers an automated evaluation process with the contract owner, collecting data on advisability of supplier future use based on timeliness, budget performance, meeting specification, health and safety performance, shared HBRC environmental vision, professionalism and any learnings from the project/contract delivery.

15. The procurement team will continue to apply a continuous improvement ethos to meet organisational need.

Decision Making Process

16. 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 “Procurement Hub Update” staff report.

Authored by:

Mark Heaney

Manager Client Services

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

Wednesday 21 August 2019

Subject: August 2019 Sub-committee Work Programme Update

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	Cyber Security	Report received – to be presented to first FARS meeting of triennium
	Data Analytics	Scheduled for Q2 2019 FARS meeting.
	Water Management – Follow Up Review	Report was presented to 22 May FARS meeting, with further follow up report scheduled to be presented to Q3 FARS meeting
	Asset Management	Scheduled for Q3 FARS meeting
	Risk Management	Scheduled for Q4 FARS meeting
Risk Assessment & Management	Reporting on risks (6-monthly) affecting Council plus noting changes / improvements / areas that require attention from last report (3-monthly).	Presented to 19 September 2018, 12 February and 21 August 2019 meetings. An internal risk management advisory team has been created to consider developing a risk appetite framework for the Council. A Risk management review is proposed for the 2019-20 financial year.
Insurance	Council’s proposed 2018-19 Insurance programme.	Update presented to 22 May FARS meeting. Insurance now placed effective August 2019.
Annual Report	Discussion on Audit Management Letter. Discussion on the major issues (if any) in the audit report on the Annual Report.	Staff to review the 2019-20 Audit Management Letter, and respond accordingly. Staff have engaged in discussions with Audit NZ pertaining to the disclosure of HBRIC financials prior to the Napier Port IPO.
S17a Efficiency Reviews (Section 17a Local Government Act)	Update on progress and findings of Section 17a Efficiency Reviews.	Staff focus is on specific areas of the Asset Management team to evaluate areas of efficiencies and the subject of a Public Excluded item on the 21 August 2019 FARS agenda.
Investment Returns & Treasury Monitoring	Update on Treasury function within Council.	Treasury Update standing item on 21 August 2019 FARS meeting
Living Wage	Procurement and Contract Management	Living Wage weighting is now part of Council’s procurement process.

Decision Making Process

2. 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 “August 2019 Sub-committee Work Programme Update” staff report.

Authored by:

Shash Davé

Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager
Corporate Services

Attachment/s

There are no attachments for this report.

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Proposed Local Government Act Section 17a Review	7(2)(f)(ii) The withholding of the information is necessary to maintain the effective conduct of public affairs through the protection of such members, officers, employees, and persons from improper pressure or harassment.	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED	REASON FOR PASSING THIS RESOLUTION	GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION
Proposed 2019-20 Council Insurance Programme	7(2)(i) That the public conduct of this agenda item would be likely to result in the disclosure of information where the withholding of the information is necessary to enable the local authority holding the information to carry out, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.