Meeting of the Finance Audit & Risk Sub-committee



Date:                       15 December 2021

Time:                      1.30pm


Council Chamber

Hawke's Bay Regional Council

159 Dalton Street





Item          Title                                                                                                                                           Page


1.            Welcome/Karakia/Notices/Apologies

2.            Conflict of Interest Declarations

3.            Confirmation of Minutes of the Finance Audit & Risk Sub-committee held on 13 October 2021

Decision Items

4.            2020-2021 Annual Report and Summary                                                      3

Information or Performance Monitoring

5.            Quarterly Treasury Report for 1 July - 30 September 2021                      7

Decision Items (Public Excluded)

6.            Confirmation of Public Excluded Minutes of the Finance, Audit and Risk Sub-committee meeting held on 13 October 2021                          33


Finance Audit & Risk Sub-committee  

15 December 2021

Subject: 2020-2021 Annual Report and Summary        

Reason for report

1.        This item presents the Hawke’s Bay Regional Council Annual Report for the 2020-2021 financial year for the Sub-committee’s review and recommendation to the Regional Council for adoption.

2.        The item also presents the 2020-2021 Annual Report Summary for information. The Summary does not require Council adoption but is instead authorised by the Chief Executive.

Officers’ recommendations

3.        Staff recommend that the Sub-committee considers the 2020-2021 Annual Report as presented, noting that the final audit report has not yet been received and adjustments may be required before Council adoption.

Audit clearance

4.        Under the Local Government Act 2020 (the Act), the annual report and summary are statutory requirements and required to be audited by an independent auditor.

5.        Legislation[1] was passed in July 2021 to extend the statutory deadline for adoption of both the 2020-2021 and 2021-2022 Annual Reports (with 30 June balance dates) by two months due to a severe shortage of Auditors.  That means that those annual reports must be adopted no later than 31 December in their respective year.

6.        At the time of writing, Audit NZ was still resolving queries with their technical team, therefore there is uncertainty around when the final audit report will be received. Due to this uncertainty the plan is now for Council to adopt in January 2022.

7.        Staff are expecting an unmodified audit opinion.  We could however expect to see some adjustments to the financial statements due to the amount of work still to be completed by the auditors.  Should these be minor, staff consider it is not necessary to bring them before the Sub-committee again for further review.  Should those amendments be significant in nature, revised financial statements will be brought back to the Sub-committee before Council adoption.

8.        Auditing of Hawke’s Bay Regional Investment Company Ltd’s (HBRIC) accounts has been completed and received an unmodified audit opinion.

9.        A late adoption requires the inclusion of a note in the Annual Report.  It does not affect our Level of Service Measure related to a clear audited opinion.  Interim non-financial and financial results, prior to being audited, have been in the public arena multiple times via committee agendas.  (See section “Information already presented to Council’ for more details).


10.      The purposes of the annual report are to:

10.1.      compare actual financial and service performance against intended performance as set out in Year 3 of the Long Term Plan 2018-2028

10.2.      promote accountability to the community for the decisions made throughout the year by the Regional Council.

11.      Schedule 10 of the Act prescribes what must be included in the annual report.

12.      The summary must represent, fairly and consistently, the information regarding the major matters dealt with in the annual report. It must not include any new information (not included in the full document) but does offer the opportunity to engage more effectively with the community.

Information already presented to Council

13.      Interim financial results for the 2020-2021 financial year to 30 June 2021 (prior to audit) and requests to carry forward expenditure budgets from 2020-2021 to 2021-2022 were presented to the Corporate and Strategic Committee on 18 August 2021, noting that year-end financial results were likely to change as staff refine information as part of the audit process. Some draft non-financial results (Community Outcomes and Groups of Activities) were also presented at that meeting.

14.      Council approved the budget carry forward requests at its meeting on 25 August 2021.

15.      Feedback from the Corporate and Strategic Committee on the draft non-financial results was incorporated and then presented to the Finance, Audit and Risk Sub-committee on 13 October 2021, along with the Introduction and Regional Highlights sections.

Discussion points

16.      The production of the 2020-2021 Annual Report financial information has been a challenging process for staff as the implementation of a new finance system for the whole organisation has taken place at the same time.

17.      The 2020-2021 Annual Report includes a significant prior year adjustment. In December 2013, Council signed a contract with the Accident Compensation Corporation (ACC) to provide immediate investment funds in exchange for the future rental income from the Napier endowment leasehold properties for the 50-year term of the contract. Council has recognised a provision for the payment of the future rental income in the financial statements since the year ending 30 June 2014.

18.      The contract includes an obligation that Council pays ACC two-thirds of the gain from the sale of the leasehold over and above the future rental income due on that property. In the early years of the contract, the portion of the gain paid to ACC was immaterial but this has evolved over time as a large number of properties have been freeholded and the value of the remaining properties has increased significantly.

19.      Council has now assessed the potential liability based on the valuation of the Napier property portfolio and the remaining rental provision and has determined that a provision of $21.7 million is required to correctly state the liability to ACC from the probable sale of the remaining leasehold properties.

20.      Council has determined that this adjustment should be recognised in prior periods to meet accounting standards and has restated the 2019-2020 figures accordingly resulting in a $6.3 million reduction in the 2019-2020 surplus and a $2.9 million expense in the current year.

Next steps

21.      Following Council adoption, and in line with section 98 of the Local Government Act 2002, both the 2020-2021 Annual Report and the 2020-2021 Annual Report Summary will be made publicly available within one month. Both will be published on Council’s website and a limited number of the Summary Annual Report will be printed.

Decision Making Process

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

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

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

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

22.4.      The decision is in accordance with the Finance, Audit and Risk Sub-committee Terms of Reference, specifically to:

22.4.1.      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.

22.5.      Given the nature and significance of the issue to be considered and decided, and also the persons likely to be affected by, or have an interest in the decisions made, Council can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.



That the Finance, Audit and Risk Sub-committee:

1.        Receives and considers the “Hawke’s Bay Regional Council 2020-2021 Annual Report and Summary” staff report.

2.        Recommends that Hawke’s Bay Regional Council adopts the 2020-2021 Annual Report, pending receipt of Audit New Zealand’s final audit report and subject to any minor adjustments resulting from the audit.


Authored by:

Sarah Bell

Team Leader Strategy & Performance

Mandy Sharpe

Project Manager

Desiree Cull

Strategy & Governance Manager


Approved by:

Jessica Ellerm

Group Manager Corporate Services





2020-2021 HBRC Annual Report


Under Separate Cover


2020-2021 Annual Report Summary


Under Separate Cover



Finance Audit & Risk Sub-committee

15 December 2021

Subject: Quarterly Treasury Report for 1 July - 30 September 2021


Reason for Report

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

Overview of the Quarter – ending 30 September 2021

2.        At the end of the quarter to 30 September 2021, HBRC was compliant with all of the measures in its Treasury policy.

3.        Our investment returns for the first 3 months are below expectations at this stage, however, it is too early to predict the returns for the rest of the year.

4.        Our cash balances are good and borrowing requirements low for the first 3 months. As Council progresses further into the financial year additional borrowing will be required.


5.        Council’s Treasury Policy requires a quarterly Treasury Report to be presented to the Finance Audit and Risk Sub-committee.  The policy states that the Treasury Report is to include:

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.        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 PriceWaterhouseCoopers (PwC) and their quarterly compliance report is attached.


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 report is attached.  This report gives a high-level summary of the data in the PwC report.


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 on 30 September 2021.

30 September 2021


Cash on Call


Short-term bank deposits


Total Cash & and Deposits


13.      Council’s balance of cash and deposits compares favorably with the September 2020 balance of $15.2m. The main reason for the variance to last year is that the due date for the payment of rates was 20 September 2021 so a large portion of rates revenue had been received, while last year ratepayers were given additional time to pay.

14.      To manage HBRC liquidity risk, HBRC also 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. 

Debt Management

15.      On 30 September 2021, current external debt was $42.096m.

16.      $6m was raised form LGFA in July and a further $5m was raised from LGFA in August.  The funds were raised for terms of 3,6 and 8 years with effective interest rates ranging from 1.82% to 2.39%. Details of the funds raised are show in Appendix 14 of the PwC report.

17.      Further borrowing will be required in the second half of the financial year (first half of 2022) as the requirements of the proposed 2021-22 borrowing programme of $27.5m ramps up.

Managed Funds

18.      The Fund performances for the first 3 months have been lower than we have experienced recently. Markets have not performed as strongly as last year with the YTP results for the two providers being 0.9% and 1% so far. This follows on from annualized returns of 12.5% and 14.5% for the 2020-21 financial year.

19.      Given the nature of the investments some volatility is to be expected. It is too early to predict likely returns for the full year, however, if the remaining quarters deliver similar results the annualized return would be approximately 4% which is below the LTP budget of 5.16% p.a.

20.      The presentation of table below has been changed from previous reports to show the combined view of funds and the value available above the capital protected sum. As at June 2021 Council had an additional $3.36m available due to the stronger investment returns in 2020-2021. Some of this could be used to supplement any shortfall if the current lower returns continue to the end of the financial year.

21.      The following table summarises the fund balances at the end of each quarter.

22.      The view for the June 2021 and September 2021 has been expanded to show the total group balance of managed funds (including HBRIC) and the amount by which the current funds balance exceeds the capital protected amount.


30 Sep 2020

31 Dec 2020

31 Mar 2021

30 Jun 2021

30 Sep 2021







Total funds before withdrawals






Funds withdrawn






Fund Balance HBRC







Funds Balances (HBRC & Group)

Long-Term Investment Fund


49,925 *




Future Investment Fund


64,300 *




Total HBRC












Total Group Managed Funds






Capital Protected Amount (2% compound inflation)






Current value above protected amount






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

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

Investment Property

23.      In the first quarter, two Napier Endowment Leasehold Properties were been freeholded totaling $0.35m. $0.27m of this has been subsequently paid to ACC as settlement for the remaining 42 years rent for these properties.

24.      The income from leasehold sales is recognised in the current financial year.  Most of this goes into offsetting the movement in the ACC liability.  HBRC receives one third of any surplus after paying out the remaining ACC liability. The HBRC share of proceeds to date ($42,000) are placed in the Sale of Land Reserve.

25.      Since 30 September a further 4 properties have been freeholded and another two will be settled in the near future.


26.      In accordance with Council Policy, HBRIC provides separate quarterly updates to the Corporate and Strategic Committee.


Decision Making Process

27.      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:

27.1.      The agenda item is in accordance with the Finance, Audit and Risk Sub-committee Terms of Reference, specifically “The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.4) monitor the performance of Council’s investment portfolio”.

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



That the Finance, Audit and Risk Sub-committee receives and notes the “Quarterly Treasury Report for 1 July – September 2021” and confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.


Authored by:

Ross Franklin

Acting Chief Financial Officer


Approved by:

Jessica Ellerm

Group Manager Corporate Services





PWC Quarterly Treasury Report to 30 September 2021




PWC Quarterly Treasury Report to 30 September 2021

Attachment 1


PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator

PDF Creator


Finance Audit & Risk Sub-committee

15 December 2021

Subject: confirmation of public excluded minutes

That Hawke’s Bay Regional Council excludes the public from this section of the meeting being Confirmation of Public Excluded Minutes Agenda Item 6 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:







Internal Assurance Dashboard - Cyber Security Corrective Actions Status Update

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

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:

Leeanne Hooper

Team Leader Governance


Approved by:

Desiree Cull

Strategy & Governance Manager



[1] Annual Reporting and Audit Time Frames Extensions Legislation Act 2021