Meeting of the Finance Audit & Risk Sub-committee

 

 

Date:                 04 Aug 2021

Time:                12.30pm

Venue:

Council Chamber

Hawke's Bay Regional Council

159 Dalton Street

NAPIER

 

Agenda

 

Item        Title                                                                                                                            Page

 

1.         Welcome/Notices/Apologies

2.         Conflict of Interest Declarations

3.         Confirmation of Minutes of the Finance Audit & Risk Sub-committee held on 5 May 2021

4.         Risk Management Maturity Update                                                                               3

5.         Internal Assurance Programme                                                                                    9

6.         Internal Audit Report – Talent Management                                                               21

7.         2020-21 Annual Report Audit Plan                                                                             45

8.         2020-21 Annual Treasury Report                                                                                47

Public Excluded

9.         Six Monthly Enterprise Risk Report                                                                            77


HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: Risk Management Maturity Update

 

Reason for Report

1.      This item provides the Sub-committee with an update on Council’s Risk Management Maturity.

Officers’ Recommendations

2.      Council Officers recommend that the Sub-committee notes that:

2.1.      The status of the Regional Council’s risk management maturity deliverables as reported through the ‘Corrective Actions Status Update’ dashboard is stated as either ‘behind’ or ‘at risk’. However, when deliverables are compared to the risk maturity roadmap that was endorsed by the Hawke’s Bay Regional Council on 24 June 2020 risk maturity progress remains largely ‘on track’.

2.2.      The focus for quarter one FY2022 is to ensure the Regional Council endorsed risk maturity roadmap remains ‘on track’, including:

2.2.1.      Finalising the ‘draft’ risk appetite statement with Council

2.2.2.      Finishing remaining enterprise risk bowties through risk workshops, and

2.2.3.      Completing workshops to identify the critical controls for all enterprise risks.

2.3.      The baseline deliverable dates for reporting progress of the Regional Council’s risk maturity through the ‘Corrective Actions Status Update’ dashboard will be reset by:

2.3.1.      Considering the period that the Risk and Corporate Compliance Manager role was vacant

2.3.2.      Considering other high priority corrective or strategic actions that need to be embedded into the organisation, and

2.3.3.      Aligning the corrective action deliverables and milestones to the phases and dates outlined in the risk maturity roadmap.

Background/Discussion

3.      At the Hawke’s Bay Regional Council meeting on 24 June 2020, on recommendation from the Corporate and Strategic Committee, the Regional Council endorsed the risk maturity roadmap.  At the Corporate and Strategic Committee (C&S) meeting held on 10 June 2020 where the risk maturity roadmap was scrutinised the Committee requested that the FARS oversee progress of the risk maturity roadmap.  Oversight by the FARS was to ensure that the maturing risk management system remained on track and was providing value to the organisation. Therefore, this item provides an update to the FARS on progress of the risk management maturity against the risk maturity roadmap.

4.      The status of key milestones for the Regional Council’s risk management maturity initiative is reported through the ‘Corrective Actions Status Update’ dashboard.  The dashboard is included as a separate agenda item for this meeting.

5.      The overall status of the risk management maturity corrective actions reported in the dashboard are noted as either ‘behind’ or ‘at risk’.  The actions’ due dates and milestones reported in the dashboard are informed by the risk management maturity project plan that was developed to implement the Regional Council approved risk maturity roadmap.  However, the risk management maturity project plan contained ‘bold’ deliverables when compared to the risk maturity roadmap. When risk maturity milestones delivered to date are compared to the key deliverable dates outlined for each phase of Council’s risk maturity roadmap the overall status remains largely ‘on track’.

6.      Key areas for focus over quarter one of FY2022 to ensure that risk maturity actions continue to deliver on the risk maturity roadmap phases, include:

6.1.      Progressing the risk appetite statement so that final sign-off can be obtained from the Regional Council

6.2.      Finalising the risk bowties for each enterprise risk, including:

5.2.1       Undertaking risk bowtie workshops for the following enterprise risks; risk 1a strategic - decision, risk 1b strategic – implementation and delivered, risk 6 core ICT services, risk 7 legal compliance, and risk 13 third parties/ contractors, and

5.2.2       Using each enterprise risk bowtie to undertake further workshops to systematically identify the critical controls.

6       The risk management maturity project plan developed to implement the risk maturity roadmap was bold. Since the risk management maturity update to the FARS in February 2021 the Risk and Corporate Compliance Manager role has been vacant for approximately four months. Over that same period some key organisational activities that included the Long Term Plan (LTP) and TechOne implementation needed prioritisation.  Therefore, implementation of risk management maturity milestones as outlined in the bold project plan was difficult. It is also acknowledged that to now speed up actions to bring the project plan back on track is difficult to achieve without additional resources and costs.

7       The preferred approach is therefore to reassess and reset the baseline for the risk management maturity project and provide the updated project plan and milestones to the FARS at the next meeting for endorsement. The reset of the risk management maturity baseline will also include adjusting the ‘due dates’ that are being reported to the FARS through the ‘Corrective Actions Status Update’ dashboard. Reset of the delivery dates in the risk maturity project plan will consider:

7.2       The time the Risk and Corporate Compliance Mangere role was vacant

7.3       Delivery timeframes as per the phases outlined in the risk maturity roadmap, and

7.4       The significance and focus of other high priority corrective actions or key strategic actions that will impact staff across the organisation.

Strategic Fit

8       Maturity of the Regional Council’s risk management system contributes towards achieving all strategic goals/vision by protecting the organisation. A mature risk system provides consistent risk intelligent decision making enabling the efficient prioritisation of finite organisational resources to deliver on strategy.

Financial and Resource Implications

9       Maturity of the risk management system is phased to minimise budgetary implications.  Some facilitated workshops will be required over quarter one of FY2022 to finalise the enterprise risk bowties. Later in the financial year it is likely risk training workshops will need to be provided to targeted staff to ensure risk intelligent decision making is consistently and effectively embed across the organisation.

Next Steps

10     The next steps for maturity of the Regional Council’s risk management system is to ensure that momentum continues on risk maturity activities that align to the Regional Council endorsed risk maturity roadmap.  The focus for quarter one FY2022 includes:

10.2     Finalising the ‘draft’ risk appetite statement with Council

10.3     Finishing the remaining enterprise risk bowties through risk workshops

10.4     Completing workshops to identify the critical controls for all enterprise risk, and

10.5     Resetting the baseline of the risk management maturity project plan then seeking endorsement from the FARS to update the due dates in the ‘Corrective Actions Status Update’ dashboard.

Decision Making Process

11     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:

11.2     The decision does not significantly alter the service provision or affect a strategic asset, nor is it inconsistent with an existing policy or plan.

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

11.4     The decision is not significant under the criteria contained in Council’s adopted Significance and Engagement Policy.

11.5     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 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

11.5.1    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.

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

11.5.3    report on the robustness of 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 “Risk Management Maturity Update” staff report.

2.      Confirms that the management actions undertaken and planned adequately respond to the risk management maturity roadmap as endorsed by Hawke’s Bay Regional Council on 24 June 2020.

3.      Supports the reset of the baseline for the risk management maturity project with the new deliverable dates of the reset plan being provided to the FARS at the next meeting for endorsement.

4.      Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that adequate evidence has been provided of progress to implement the maturing risk management system in accordance with the risk maturity roadmap

5.      Seeks the Corporate and Strategic Committee’s agreement to reset the baseline of the supporting risk management maturity project plan to implement the roadmap as proposed.

 

Authored by:                                                     Approved by:

Helen Marsden

Risk and Corporate Compliance Manager

Tom Skerman

Acting Corporate Services Group Manager

Attachment/s     1  Updated Risk Maturity Roadmap  


Updated Risk Maturity Roadmap

Attachment 1

 


HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: Internal Assurance Programme

 

Reason for Report

1.      This agenda item provides the Finance Audit and Risk Sub-committee (FARS) with two internal assurance dashboards that update the Sub-committee on progress to deliver:

1.1.      Previously reported internal audit ‘corrective actions’, and

1.2.      The FY21 annual internal audit plan.

Officers’ Recommendations

2.      Council officers recommend that the FARS members consider and note the internal assurance dashboards that update the status of progress with corrective actions, and delivery of the FY2021 internal audit plan.

Background/Discussion

3.       The purpose of the corrective action status update is to provide oversight to the FARS on open internal audit findings from previously reported internal audits. The dashboard tracks progress of the corrective actions against agreed milestones, until the action is closed.  Key points to note from the dashboard includes:

3.1.      All actions are now completed for the Health and Safety Review form September 2018, and

3.2.      A discrete agenda item has been prepared for this meeting to update the Sub-committee separately on the Risk Management Maturity due to the number of individual actions reported as ‘at risk’.

4.      The purpose of the annual internal audit plan status update dashboard is to provide the FARS with oversight and progress of individual internal audits that form part of the Corporate and Strategic Committee (C&S) approved annual internal audit plan. The completion and presentation of the Talent Management internal audit to the FARS closes out the FY2021 internal audit plan. A separate paper has been prepared for this meeting to report to the FARS the findings from the Talent Management internal audit. 

Financial and Resource Implications

5.      There are no financial implications or additional resource requirements resulting from this internal assurance programme update.

Decision Making Process

6.      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:

6.1.      The agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

6.1.1.      The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.3) the independence and adequacy of internal and external audit functions

6.1.2.      The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.6) receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s)

6.1.3.      The Finance, Audit and Risk Sub-committee is delegated by Council to (3.6) review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework; and (3.7) assess the performance of the internal audit function,and ensure that the function is adequately resourced and has appropriate authority and standing within Council.

 

Recommendations

That the Finance, Audit and Risk Sub-committee:

1.      Receives and considers the “Internal Assurance Programme” staff report.

2.      Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Internal Assurance Programme Update provides adequate evidence of the adequacy of Council’s internal assurance functions and management actions undertaken or planned respond to findings and recommendations from completed internal audits.

 

Authored by:

Helen Marsden

Risk and Corporate Compliance Manager

 

Approved by:

Tom Skerman

Regional Water Security Programme Director

 

 

Attachment/s

1

Internal Audit Annual Plan FY2020-21 Status Update

 

 

2

Internal Assurance Dashboard - Corrective Action Status Update

 

 

  


Internal Audit Annual Plan FY2020-21 Status Update

Attachment 1

 

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Internal Assurance Dashboard - Corrective Action Status Update

Attachment 2

 

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HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: Internal Audit Report – Talent Management

 

Reason for Report

1.      This item provides the Finance Audit and Risk Sub-committee (FARS) with the report on the Talent Management internal audit undertaken by Crowe Horwath.

Officers’ Recommendations

2.      Staff recommend that the FARS note the attached Talent Management report prepared by Crowe Horwath (Crowe), and consider the adequacy of the key management actions noted in the report and outlined following.

Background /Discussion

3.      The FARS agreed at its meeting on 12 August 2020, as part of the internal audit work programme, to engage Crowe to conduct an internal audit of the Council’s Talent Management system.

4.      The objective of the Audit was to evaluate the talent management strategies and processes against the New Zealand Public Service Commission’s Talent Management Maturity Model.

Report Analysis

5.      Findings and recommendations contained within the Crowe report were reviewed by the People and Capability Manager.  The recommendations were accepted and timeframes for implementing the recommendations were inserted into the report as ‘Management Comments’.  The final report was also presented to the Executive Leadership Team (ELT) for information.

6.      Each management action from the Talent Management internal audit report will be tracked and reported to the FARS at future meetings through the Internal Audit Dashboard – Corrective Actions Status Update, until such time that the management action is closed.

7.      The Audit identified one high, six medium, and three low risk findings.

Maturity Assessment

8.      The report assessed the Council’s maturity status as being ‘Just Starting’ when benchmarked against the current Public Service Commission’s Talent Management Maturity model.  Management comments noted within the report, and outlined below, are intended to progress the Council’s Talent Management maturity level to at least an ‘integrating’ status.  The key management action themes include:

Develop a People and Capability(P&C) Strategy

9.      The People and Capability Manager will develop a People and Capability Strategy which will include how the Council will manage its human capital including for example, its approach to talent management, recruitment, leader engagement, succession planning, and remuneration

Develop a Competency Framework

10.    A Competency Framework is to be developed to enable the Council to align its employee’s skills, capabilities and knowledge with its priorities and values with the aim to achieve operational improvements and efficiencies.  This includes setting expectations regarding behaviours and performance and identifying and addressing skill gaps.    The competency framework will provide information to support recruitment decisions

Performance Management

11.    The People and Capability Team have reviewed the current Personal Development Plan (PDP) and Guidelines in order to streamline the process and make it easier to employees and their managers to work with.  There will be more of a focus on behaviour going forward.

Financial and Resource Implications

12.    There are no immediate budget implications not already identified in Council’s Long Term Plan or budgets.

Decision Making Process

13.    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:

13.1.    As this report is for information only, the decision-making provisions do not apply.

13.2.    Any decision of the sub-committee is in accordance with the Terms of Reference and decision-making delegations adopted by Hawke’s Bay Regional Council 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

13.3.    Receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the reports

13.4.    Ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management.

 

Recommendations

That the Finance, Audit and Risk Sub-committee receives and considers Crowe’s “Internal Audit Report – Talent Management”, including the key management actions added by Staff in response to the report’s recommendations.

 

Authored by:

Liana Monteith

Manager People and Capability

Helen Marsden

Risk and Corporate Compliance Manager

Approved by:

Tom Skerman

Regional Water Security Programme Director

 

 

Attachment/s

1

2021 Internal Audit Report - HBRC Talent Management

 

 

  


2021 Internal Audit Report - HBRC Talent Management

Attachment 1

 

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HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: 2020-21 Annual Report Audit Plan

 

Reason for Report  

1.      This item provides an update on the likely timing for the Audit of Council’s 2020-21 Annual Report.

Executive Summary

2.      Legislation has been passed to extend the statutory deadlines for the completion of the audited 2020-21 Annual Report by 2 months due to the continued impacts of Covid-19 on the resourcing for the audits.

3.      The statutory deadline for the adoption of the HBRC Annual Report is now 31 December 2021 and the deadline for the adoption of the HBRIC annual report is 30 November 2021.

4.      Staff have been given 11 October (6 weeks later than previously scheduled) as the revised date for the commencement of the audit process. This will require the scheduling of an additional meeting of the Finance Audit and Risk Sub-committee in early December to review the draft annual report prior to its submission to Council for adoption.

Background /Discussion

5.      The audit and adoption of the annual report follows timelines set out in the Local Government Act 2002.  This Act has been amended to extend the timeframes for the 2020-21 and 2021-22 Annual Reports.

5.1.      Section 98 (7) now states that the annual report of a Council must be adopted no later than 31 December (31 December 2021 for the 2020-21 Annual Report).

5.2.      Section 67 (5) now states that the annual report of a Council Controlled Organisation must be adopted no later than 30 November (30 November 2021 for the 2020-21 Annual Report).

6.      Officers have had initial discussions with our auditors about audit timing and have received an indicative audit start date of 11 October.  It is likely that this may change as our auditors refine their work plans and resourcing.

7.      Officers are comfortable with the revised timing as it is preferrable to have certainty now rather than be faced with delays and changes during the audit process.

Financial and Resource Implications

8.      The delays in the Audit proframme are not expected to impact on the cost of the audit for 2020-21.

Decision Making Process

9.      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:

9.1.      as this report is for information only, the decision-making provisions do not apply.

9.2.      any decision of the sub-committee (in relation to this item) is in accordance with the Terms of Reference and decision-making delegations adopted by Hawke’s Bay Regional Council 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

9.2.1.      Satisfy itself that the financial statements and statements of service performance are supported by adequate management signoff and adequate internal controls and recommend adoption of the Annual Report by Council

9.2.2.      Confirm that processes are in place to ensure that financial information included in Council’s Annual Report is consistent with the signed financial statements

9.3.      Confirm the terms of appointment and engagement of external auditors, including the nature and scope of the audit, timetable, and fees.

 

Recommendations

That the Finance, Audit and Risk Sub-committee receives and considers the “2020-21 Annual Report Audit Plan” staff report:

 

Authored by:

Tim Chaplin

Senior Group Accountant

 

Approved by:

Ross Franklin

Acting Chief Financial Officer

 

 

Attachment/s

There are no attachments for this report.


HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: 2020-21 Annual Treasury Report

 

Reason for Report

1.      This item provides compliance monitoring of Hawkes Bay Regional Council (HBRC) treasury activity and reports the performance of Council’s investment portfolio for the year ended 30 June 2021.

Executive Summary

2.      For the year ended 30 June 2021 Council’s investment returns have exceeded expectations with a strong performance for managed funds.  In addition, the dividends received of $5.2m, while lower than the pre-covid expectations, exceeded the revised budget by $2.2m. Due to the improved returns the planned borrowing to supplement an expected investment revenue shortfall of $4.6m was not required.

3.      Apart from a variance in the Jarden’s fund allocations against the SIPO Council is compliant with all policy parameters as at 30 June 2021.

4.      Based on an initial view of the end year position Council’s borrowing requirement for the year is $9.5m lower than projected at $16.5m.  Of this $10m was raised during the year with a further $6m raised in July.  The final requirement will be updated when the annual report and result is finalised.

Background

5.      Council’s Treasury Policy requires a quarterly Treasury Report to be presented to the Finance Audit & Risk Sub-Committee.  The policy states that the Treasury Report includes:

5.1.      Treasury Exceptions report

5.2.      Policy compliance

5.3.      Borrowing Limit report

5.4.      Funding and liquidity report

5.5.      Debt maturity profile Interest rate report

5.6.      Investment management report **

5.7.      Treasury investments

5.8.      Cost of funds report Cash flow and debt forecast report

5.9.      Debt and interest rate strategy and commentary

5.10.    Counterparty credit report

5.11.    Loan advances.

6.      The Investment management report** has specific requirements outlined in the Treasury Policy. This requires quarterly reporting on all treasury investments plus annual reporting on all equities and property investments.

7.      In addition to the Treasury Policy Council has a Statement of Investment Policy and Objectives (SIPO) document setting out the parameters required for funds under management for the HBRC Long Term Investment Fund.

8.      At 30 June 2021, Treasury Investments to be reported on consist of:

8.1.      Liquidity

8.1.1.      Cash and Cash Equivalents

8.1.2.      Debt Management

8.2.      Externally Managed Investment Funds

8.2.1.      Long-Term Investment Fund (LTIF)

8.2.2.      Future Investment Fund (FIF)

8.3.      Investment properties

8.4.      HBRIC Ltd

8.5.      2020-21 Performance Summary.

9.      Since 2018, HBRC has procured treasury advice and services from PwC and their quarterly compliance report is attached.

Discussion

10.    A separate treasury report is prepared by Council’s advisors, PwC, to report on compliance with the policy parameters and investment performance.  The PwC Quarterly Treasury Report is attached.  The body of this report highlights some of the key components of the PwC report and adds additional information on cashflows and on property investments.

Liquidity

11.    To ensure HBRC has the ability to adequately fund its operations, current policy requires HBRC to maintain a liquid balance of $3.0m.

12.    The following table reports the cash and cash equivalents as at 30 June 2021.

30 June 2021

$000

Cash

8,963

HBRC Held Cash

7,438

Works Group

222

Other – managed trusts

1,303

Short-term bank deposits

0

Cash & and cash equivalents

8,963

 

13.    HBRC liquidity throughout Q4 benefited from the strong YTD cash position at the end of Q3.

14.    To manage HBRC liquidity risk, HBRC retains a Standby Facility with BNZ.  This facility provides HBRC with a same day draw down option, to any amount between $0.3-$5.0m, and with a 7-day minimum draw period. 

15.    The graph following shows the daily closing cash position and Term Deposits held throughout Q4.

Chart

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Debt Management

16.    As at 30 June 2021, the HBRC external debt was $31.1m, $47.8m when taking into consideration the internal $16.7m HBRIC loan All financial covenant ratios are currently at least 4 times under any internal or external limit.  The financial covenant ratios can be seen in the attached PwC report.

17.    The end-year accounts have not yet been prepared so a final year-end debt figure is not yet available.  No further external borrowing took place however since 30 June Council has drawn down $6m in funding from LGFA.  The interim year-end debt position is forecast to be $31.1m, which is below the 2020-21 Covid-19 Adjusted Annual Plan of $41.3m.

18.    Loan Requirements

2020-21
Annual Plan

Approved Additional Funds

Approved Carry Forward Debt Funding

Total Approved Requirement

2020-21 Debt Forecast*1

Variance to Approved Requirement

More (less)

 

$000

$000

$000

$000

$000

$000

Sustainable Homes

3,527

-

-

3,527

6,523

2,996

Systems Integration

1,913

-

1,578

3,491

1,668

(1,823)

Building Accommodation

2,000

-

 

2,000

136

(1,864)

HBRC Recovery Fund

1,000

-

 

700

100

(600)

Porangahau Catchment

 

 

 

300

0

(300)

Integrated Catchment

2,250

2,450

 

4,700

3,334

(1,366)

Covid-19 Budget Impacts

7,584

-

 

7,584

3,000

(4,584)

Other

755

-

2,901

3,656

1,700

(1,956)

Total

19,029

2,450

4,479

25,958

16,461

(9,497)

*1 Council’s year end balances are still being determined so the final debt requirement will be reported when Council receives the year-end report

As at 30 June 2021, only $10m of the total 2020-21 requirement has been raised. $6m was raised in July 2021.

 

19.    Council was in compliance with its policy parameters for interest rate risk position as at 30 June. This was achieved through the execution of 3 interest rate swaps prior to 30 June.  These swaps fix the interest rate on a total of $15m worth of future borrowings with start dates of June 2022 and March 2023.  Details of these swaps are on page 21 (section 14 Appendix) of the PWC report.


 

Managed Funds

20.    For the purposes of this report, the below terms have been referred to and have the following meaning.

Term

Meaning

Gross Income Net of Fees

The full amount the fund has returned for the period, net of any fees paid to the fund managers. This amount remains in the funds unless divested.

Capital Protection

The amount the fund must earn in relation to the rate of inflation to retain its real purchasing power.

Funding Council Operating Costs

The amount the fund must earn to fund Council operating costs (offsetting rating requirements).

Divested Capital

Gross Income Net of Fees less Capital Protection and have now been withdrawn from the funds.

Undivested Funds Available

Gross Income Net of Fees less Capital Protection that are still invested within the funds.

 

21.    The Fund performances have continued to be above expectations over the last quarter.  During the year a total of $10.694m was withdrawn from the funds.  These withdrawals were partly to cover cash not withdrawn in 2019-20 as well as to meet the 2020-21 funding requirement.

22.    The total earnings over the year were $13.979m which is a return of 12.58% on the opening balance as at 30 June 2020.

23.    The table and graphs below summaries the quarter end fund balances over the last 12 months.

Fund

30 Jun 2020

30 Sep 2020

31 Dec 2020

31 Mar 2021

30 Jun 2021

 

$000

$000

$000

$000

$000

Long-Term Investment Fund

49,950

51,810

49,925 *

50,206

49,993**

Future Investment Fund

61,128

63,094

64,300 *

64,418

64,370**

Total

111,078

114,904

114,225*

114,624

114,363**

* December 2020 saw $6.5m (LTIF $4.5m & FIF $2.0m) Funds being divested for the first time, which explains the reduced fund balance.

** Additional funds totalling $4.2m (LTIF $2.0m & FIF $2.2m) were withdrawn from the funds during the June quarter.

 

Long-term Investment Fund

24.    Invested since November 2018, the fund provides a return which, protects capital value first and then funds Council’s operating costs.


 

25.    The table below shows the key balances of the LTIF as at the end of June 2021.

 

1 July 2020 – Opening Balances

30 June 2021 – Closing Balances

 

Capital Protected Balance

Undivested Funds Available

Total Fund Balance

Capital Protected Balance

Undivested Funds Available

Total Fund Balance

 

$000

$000

$000

$000

$000

$000

LTIF

47,996

1,954

49,950

48,963

1,030

49,993

 

26.    At closing on 30 June 2021, Mercer’s portfolio is compliant, but Jarden’s is non-compliant in both the cash and Global Equities allocations (SIPO policy minimum limits). Policy non-compliance was driven by tilting the portfolio towards higher yielding returns from Global Equities and the low returns from holding cash with near zero cash rates. Note however that when assessing Jarden’s funds under management in aggregate (combing LTIF and PFIF) their allocation of Global Equities is within compliance. Cash remains non-compliant by 0.1% below the strategic asset allocation minimum limit. Jarden have stated that they will seek to return to portfolio compliance on an individual portfolio basis.

Future Investment Fund (FIF)

27.    Invested since September 2019, the fund provides a return which, protects capital value first and then funds Council’s operating costs.

28.    The table below shows the key balances of the FIF as at 30 June 2021.

 

1 July 2020 – Opening Balances

30 June 2021 – Closing Balances

 

Capital Protected Balance

Undivested Funds
Available

Total Fund Balance

Capital Protected Balance

Undivested Funds
Available

Total Fund Balance

 

$000

$000

$000

$000

$000

$000

FIF

61,775

(647)

61,128

63,011

1,350

64,229

 

Investment Property

29.    In the current financial year, 2020-21, 18 Napier Endowment Leasehold Properties were freeholded totalling $2.9m. $2.5m of this has been subsequently paid to ACC as settlement for the remaining 42 years rent for these properties.

30.    The income from leasehold sales is recognised in the current financial year.  Most of which goes into offsetting the movement in the ACC liability – the additional proceeds, net of payments to ACC, are transferred to Reserves.

HBRIC

31.    Per Council Policy, HBRIC will separately provide a quarterly update. The main matters of relevance are:

31.1.    Consultation on establishing a new Council Controlled Trading Organisation has completed and an update will made by HBRIC.

32.    The table below shows the key balances of the FIF (HBRIC) as at the end of Q4.

 

1 July 2020 – Opening Balances

31 December 2020 – Closing Balances

 

Capital Protected Balance

Undivested Funds
Available

Total Fund Balance

Capital Protected Balance

Undivested Funds
Available

Total Fund Balance

 

$000

$000

$000

$000

$000

$000

FIF

46,584

(964)

45,620

47,523

980

48,503

 

Financial and Resource Implications

2020-21 Year to Date Performance Summary

33.    The following table shows investment income to date against the 2020-21 Annual Plan.

Income

Annual Plan 2020-21

2020-21 Actuals

Variance to YTD Ann. Plan

 

$000

$000

$000

Other financial assets

4,195

14,228

10,033

Managed Funds

3,567

13,979

10,412

Other Interest*

628

249

(379)

Investment property

2,343

2,318

(270)

Endowment leasehold land**

1,502

1,478

(24)

Wellington Leasehold land

841

840

(1)

Dividends (HBRIC

4,696

5,200

504

10,267PONL Dividend

3,000

5,200

2,200

Managed Fund

1,696

 

(1,696)

Total

11,234

21,746

10,267

* Includes Interest budgeted to be earnt on scheme reserves.

** Endowment leasehold rents are paid to ACC under the 2013 agreement where future rents were sold in exchange for a lump sum payment.

34.    The 2020-21 Investment performance has exceeded expectations.  In response to covid-19 Council revised its investment revenue expectations downwards and proposed to make up the shortfall by borrowing a part of the expectations.  $4.6m out of the proposed $7.6m was to cover an expected reduction in investment revenues.  This borrowing is not now required.

Decision Making Process

35.    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:

35.1.    as this report is for information only, the decision-making provisions do not apply

35.2.    any decision of the sub-committee (in relation to this item) is in accordance with the Terms of Reference and decision-making delegations adopted by Hawke’s Bay Regional Council 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

35.2.1.   Monitor the performance of Council’s investment portfolio.

 

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “2020-21 Annual Treasury Report”.

 

Authored & Approved by:

Ross Franklin

Acting Chief Financial Officer

 

 

Attachment/s

1

PWC Treasury Reporting June 2021

 

 

  


PWC Treasury Reporting June 2021

Attachment 1

 

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HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

04 August 2021

Subject: Six Monthly Enterprise Risk Report

That Hawke’s Bay Regional Council excludes the public from this section of the meeting, being Agenda Item 9 Six Monthly Enterprise Risk Report with the general subject of the item to be considered while the public is excluded; the reasons for passing the resolution and the specific grounds under Section 48 (1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution being:

 

GENERAL SUBJECT OF THE ITEM TO BE CONSIDERED

REASON FOR PASSING THIS RESOLUTION

GROUNDS UNDER SECTION 48(1) FOR THE PASSING OF THE RESOLUTION

Six Monthly Enterprise Risk Report

7(2)s7(2)(j) 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 prevent the disclosure or use of official information for improper gain or improper advantage.

The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

 

 

Authored by:

Helen Marsden

Risk and Corporate Compliance Manager

 

Approved by:

Tom Skerman

Regional Water Security Programme Director