Agenda of Finance Audit & Risk Sub-committee

Meeting of the Finance Audit & Risk Sub-committee

Date: Wednesday 10 May 2017

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 held on 31 January 2017

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

5. Progress on HB LASS Tender for Internal Audit Provision 7

6. Operational Efficiency Review 13

7. Capital Structure Review 17

8. 2017 Sub-committee Work Programme 23

Public Excluded Items

9. Proposed 2017-18 Council Insurance Programme 25

10. Internal Audit Report - Taxation Compliance Review 27

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

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

Reason for Report

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

Decision Making Process

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

Recommendation

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

Authored by:

Leeanne Hooper

Governance Manager

Approved by:

Paul Drury

Group Manager
Corporate Services

Attachment/s

⇩1

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

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: Progress on HB LASS Tender for Internal Audit Provision

Reason for Report

1. To provide the Sub-committee with an update of the progress of the HB LASS (Hawke’s Bay Local Authority Shared Services) tender for internal audit provision.

Background

2. This Sub-committee resolved on 20 September 2016 that a joint internal audit services approach with other local Council’s should be undertaken. This would allow for financial efficiencies, better knowledge sharing and improved access to skills.

Comment

3. A request for proposal (RFP) for internal audit services for three years (with possibility for up to two year extension) was advertised on 29 March 2017 using the Government Electronic Tenders Service (GETS). The RFP overview is Attachment 1.

4. The tender closed on 19 April 2017 with responses from six organisations.

5. These responses are in the final stages of being evaluated based on price/non-price information, with an evaluation meeting to be held on 5 May 2017 between all HBLASS Councils. The current provider of internal audit services to HBRC is PricewaterhouseCoopers.

6. Due diligence checks with shortlisted suppliers are about to commence with a final recommendation report scheduled for later in the month. Contract negotiation and execution is scheduled for mid-late June. All five participating Councils will need to be in a position to execute this contract. The service is expected to commence for the 2017/18 financial year. HBRC have provided $30,000 in that year for internal audit services.

Decision Making Process

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

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the “Progress on HB LASS Tender for Internal Audit Provision” report

2. Notes that the Hawke’s Bay Regional Council Chief Executive has delegation to enter into agreements as a member of HB LASS Ltd on behalf of Hawke’s Bay Regional Council, including the provision of internal audit services.

Authored by:

Melissa des Landes

Management Accountant

Approved by:

Paul Drury

Group Manager
Corporate Services

Attachment/s

⇩1

HB LASS Request for Proposals for Internal Audit Services

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: Operational Efficiency Review

Reason for Report

1. This report sets out the programme of work for the operational efficiency review currently being undertaken within Council and provides an update on the status of this review.

Background

2. Council has established that it intends to undertake an efficiency review to potentially secure costs savings within the Council’s operational structure. Reference to this review has been made in a number of documents including the Consultation Document for the Annual Plan 2017-18.

3. The intention is to undertake this efficiency review in advance of the upcoming LTP round where there will be extra pressure for increasing expenditure in additional environmental work and there could also well be pressure in the LTP on regional income levels.

4. This review will focus on cost efficiency opportunities including assessing whether or not there are sensible levels of service adjustments within the current Council operation. In particular:

4.1. A detailed assessment of the income flow and expenditure across Council activities; and

4.2. Further areas of discretionary/non-essential costs.

5. On 20 February 2017, the first stage of the review was contracted to Greg Woodham of Three Roads Consulting, entailing the following work (as stated in the Engagement Letter excerpt attached).

5.1. Familiarise with the various financial and management reporting tools.

5.2. Meet with individuals and write up notes.

5.3. Understand the flow of incoming expenditure.

5.4. Propose efficiencies that can be made in Council’s service delivery.

5.5. Recommend any changes to the level of delivery of Council services with a view to reducing Council costs.

5.6. Prepare a draft report for discussion and feedback.

5.7. Prepare a final report.

6. The draft report has been distributed by Mr Woodham to the Executive and Councillors for comment and feedback, and he has indicated that he will be preparing his final report for Council’s consideration at the Corporate and Strategic Committee meeting on 24 May 2017.

Decision Making Process

Recommendations

That the Finance Audit and Risk Sub-committee receives and notes the “Operational Efficiency Review” staff report, and specifically notes the agreed Scope of the review as attached.

Authored by:

Leeanne Hooper

Governance Manager

Approved by:

Paul Drury

Group Manager
Corporate Services

Attachment/s

⇩1

Scope of Efficiency Review

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: Capital Structure Review

Reason for Report

1. To provide an update on the Capital Structure Review as this review is included on this Sub-committee’s work programme.

Background

2. On 29 March 2017 Council approved the scope and process for the Capital Structure Review as set out in Attachment 1; this approval being subject to any input Hawke’s Bay Regional Investment Company Ltd (HBRIC Ltd) directors may wish to have.

3. At that meeting Council also resolved the membership of the Capital Structure Review Advisory Committee, being:

3.1. Forms a Capital Structure Review Advisory Committee comprising the HBRC Chairman, Rex Graham, Chairman of the HBRC Corporate & Strategic Committee, Neil Kirton, the Chairman of Hawke’s Bay Regional Investment Company Ltd Board of Directors, the Chairman of the Napier Port Board of Directors and two suitably qualified independent members to be confirmed by Council at its 26 April meeting.

4. The appointment of two independent committee members was the subject of a paper submitted to Council on 26 April 2017, however the item was left to lie on the table as nominations for the independent members had not been finalised.

5. At the Council meeting on 26 April 2017 there was also discussion, arising from discussion on the HBRIC Ltd 2017-18 Statement of Intent item, about a proposal to:

5.1. Amend the HBRC Capital Structure – Scope and Process document to include a clause that specifically states that the review will examine the arguments for and against retaining ownership of Napier Port in HBRIC Ltd or moving to direct ownership, with such arguments to include but not be limited to tax considerations.

6. This amendment was also ‘left to lie’ by Council resolution on 26 April 2017.

Outstanding Matters

7. The two matters to be resolved prior to the Review commencing are:

7.1. recommendation of suitably qualified candidates for appointment as the two independent members on the Capital Structure Review Advisory Committee

7.2. Addition of Napier Port ownership examination (as above) to the Scope and Process document for the review.

Decision Making Process

8. 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.

Recommendations

That the Finance Audit and Risk Subcommittee receives and notes the “Capital Structure Review” staff report.

Authored by:

Leeanne Hooper

Governance Manager

Approved by:

Paul Drury

Group Manager
Corporate Services

Attachment/s

⇩1

Capital Structure Review - Council Paper from 29 March 2017 Meeting

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: 2017 Sub-committee Work Programme

Reason for Report

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

Task	Item	Scheduled / Status
Internal Audits	Fraud Detection and Prevention Review Report	completed
	Event Response Review	September FA&R meeting
	Taxation Review	May FA&R meeting
	Decide on Internal Audit Programme for 2017-18	September FA&R meeting
Risk Assessment & Management	Reporting on risks (6-monthly) affecting Council	January & September FA&R meetings
	Review previous 6-month Risk Assessment to note changes / improvements / areas that require attention
	Sub-committee to carry out detailed review of individual Group’s Risk Management (as part of the programmed reviews of activities)
Insurance	Council’s proposed 2017-18 Insurance programme	Council’s insurance broker to present at May FA&R meeting
Annual Report	Discussion on the major issues (if any) in the audit report.	Auditor scheduled to attend September FA&R meeting
Annual Report	Discussion on Audit Management Letter	Auditor scheduled to attend December FA&R meeting
Reviews	Review of Council expenditure on delivery of functions with a view to ensuring and or enhancing efficiency	Initiated 27 February 2017
	Review of the Council’s capital structure, taking into account the values of dividends in supporting Council operations	Scope and process for the review, and membership of the Capital Structure Review Advisory Committee to lead the review were agreed by Council 29 March 2017 and
	Comprehensive review of the HBRC Risk Assessment and Management process to ensure major strategic risks to the public and environment are appropriately managed	Review in progress and an updated report will be provided with the next scheduled update in September

Decision Making Process

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

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “2017 Sub-committee Work Programme” report.

Authored by:

Leeanne Hooper

Governance Manager

Approved by:

Paul Drury

Group Manager
Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: Proposed 2017-18 Council Insurance Programme

Recommendations

1. That the Finance, Audit and Risk Sub-committee excludes the public from this section of the meeting, being Agenda Item 9 Proposed 2017-18 Council Insurance Programme 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
Proposed 2017-18 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.

2. That Matt Meacham, representing JLT insurance brokers, is in attendance for this item to enable provision of detailed responses to Committee queries.

Authored by:

Trudy Kilkolly

Financial Accountant

Approved by:

Paul Drury

Group Manager
Corporate Services

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 10 May 2017

Subject: Internal Audit Report - Taxation Compliance Review

Recommendation

That the Finance, Audit & Risk Sub-committee excludes the public from this section of the meeting, being Agenda Item 10 Internal Audit Report - Taxation Compliance Review 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
Internal Audit Report - Taxation Compliance Review	7(2)(a) 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 protect the privacy of natural persons.	The Council is specified, in the First Schedule to this Act, as a body to which the Act applies.

Authored by:

Manton Collings

Corporate Accountant

Approved by:

Paul Drury

Group Manager
Corporate Services