Agenda of Finance Audit & Risk Sub-committee

Meeting of the Finance Audit & Risk Sub-committee

Date: Wednesday 6 June 2018

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 7 March 2018

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

Decision Items

5. Procurement and Contract Management Internal Audit 7

6. Living Wage Implications Memorandum 47

7. Water Management Internal Audit 67

8. Proposed 2018-19 Internal Audit Programme 97

9. HBRIC Ltd and Napier Port Valuations 119

Information or Performance Monitoring

10. Local Government Act Section 17a Reviews 121

11. Resource Management Information System Implementation Update 127

12. David Benham Resignation 129

13. June 2018 Update on the Sub-committee Work Programmes 131

Decision Items (Public Excluded)

14. Proposed 2018-19 Council Insurance Programme 133

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Procurement and Contract Management Internal Audit

Reason for Report

1. To present the internal audit report for Procurement (with the Living Wage extension covered in a separate item).

Background

2. The Finance, Audit and Risk Sub-committee included Procurement as part of the internal audit work programme for 2017-18, and agreed to the scope on 7 March 2018.

3. During the Procurement audit it was identified that there were several links with Contract Management so the audit scope was extended to include this, rather than having to do a separate audit at a later date.

4. The audit report, with management commentary provided against each recommendation, is attached.

Key Findings

5. The findings from the Crowe Horwath report are summarised below:

6. There is a lack of a procurement “Centre of Excellence” within Council. Each team is expected to manage their own procurement processes with no centralised point for advice, review, or input from a procurement specialist. There is a risk of inconsistent processes being used due to lack of knowledge or oversight.

7. There is a lack of standardised procurement templates within HBRC. There is no procurement planning checklist to indicate areas for consideration such as conflicts of interest, buying local or sustainable business practices.

8. The HBRC procurement policy was deemed to be good overall, however certain aspects needed further refinement. For example there is currently no guidance on when obtaining legal advice could be beneficial or essential.

9. There is no standard or regular forum for management and executive to share oversight of procurement activities, such as any major or high public interest procurements. This lack of information sharing may also lead to risk of failure to identify opportunities for procurement efficiencies.

10. The current document management system HBRC uses is very basic in nature and is not being utilised consistently. It also has limited functionality and is deemed to be more of a storage system as opposed to a document management system.

11. Council currently has a large volume of contracts and oversight is inconsistent. Some contracts are routinely extended and it is not clear or documented whether these contracts are providing best value for money. A dedicated resource would assist with ensuring completeness and proper negotiation of renewals. This work may also tie in with Section 17a reviews.

Analysis

12. The key finding from the procurement and contract management audit is that the current decentralisation of these activities leads to various risks. It is noted that the preferred methodology to combat this is by the creation of a dedicated procurement specialist role.

13. Staff have sought guidance from the Ministry of Business and Innovation (MBIE) procurement department, and feedback regarding the employment of a procurement specialist has been strongly recommended. This is also benchmarked against other councils of similar size.

14. Specifically, for an organisation of HBRC’s size and scale, MBIE have informally recommended 1 x procurement FTE to be at Senior Leadership Team level. This is due to the level of work likely to be involved, along with the requirement for that person to have sufficient stature within the organisation to drive results.

15. MBIE has provided HBRC with a full procurement competency framework which outlines roles and responsibilities of various individuals involved in procurement. A headline of job titles is provided below and HBRC would be best to recruit in the Level 2/ 3 space.

16. Staff note, however, that the cost efficiencies gained by a procurement resource can often be difficult to quantify although feedback given from MBIE and other councils is that a dedicated procurement resource tends to “pay for itself”. This extends beyond the financial benefits, to reducing reputational risks by ensuring that proper probity has been followed. Dedicated procurement also allows scope for innovation and value-add opportunities.

Options

17. Staff have considered the findings of this report and noted that additional resource is needed in the procurement and contract management space. Due to timing of the delivery of the report, funding for a dedicated new hire has not been included in the LTP.

18. Staff appreciate that 2018-19 budgets may not allow for a dedicated resource for immediate hire, and so management will be exploring options including:

18.1. A phased approach with the development of procurement templates and plans created internally where capacity allows. This approach is affordable under current budgets however it is noted that the process will be slow and does not sufficiently mitigate procurement risks due to lack of dedicated oversight.

18.2. Create a new procurement specialist role responsible for ensuring consistency in approach to procurement policies, internal advice to staff, drive s17a efficiency reviews and be involved in negotiating contracts. The role would also provide oversight to the contract management storage system to ensure that it is being used correctly and ensure best value for money is consistently achieved throughout Council. This option is not provided for in the 2018-19 budgets and would rely on cost savings achieved elsewhere in the organisation for funding.

18.3. Employ a staff member on a fixed term basis to create and roll out correct procurement templates, plans and contracts within HBRC. Upon expiry of the contract, it would be staff’s responsibility to use the correct templates consistently. This may not address the requirement for ongoing contract negotiation and monitoring, does not sufficiently address long term procurement risks and is not funded in 2018-19 budgets.

18.4. A combination of the above, that internal staff create templates using existing MBIE procurement guideline templates, and a dedicated procurement resource be further explored in the 2019-20 financial year.

Decision Making Process

19. 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:

19.1. The decision does not significantly alter the service provision or affect a strategic asset.

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

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

19.4. The persons affected by this decision are HBRC staff.

19.5. The decision is not inconsistent with an existing policy or plan.

19.6. 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.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the “Procurement and Contract Management Internal Audit Report” staff report.

2. Accepts the commentary, including any follow-up actions, provided against each of the report’s recommendations by HBRC Executive staff.

Authored by:

Melissa des Landes

Management Accountant

Mark Heaney

Manager Client Services

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1

Crowe Horwath Procurement & Contract Management Review Internal Audit Report

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Living Wage Implications Memorandum

Reason for Report

1. To provide the Sub-committee with the Crowe Horwath Living Wage memorandum for review and consideration.

2. Staff are requesting feedback from the Sub-committee, in the form of recommendations to the Corporate and Strategic Committee, then on to Council, about the potential inclusion of ‘living wage’ considerations in Council’s procurement policy.

Background

3. In response to a petition from First Union submitted in October 2017, the Corporate and Strategic Committee agreed, at its meeting on 11 December 2017, to align a review of the living wage with the planned Procurement internal audit review. The agreed scope of the Living Wage review was to assess the possible implications of promoting the living wage for contractors and more specifically for GoBus drivers.

4. Council’s internal auditor, Crowe Horwath, was engaged to provide a memorandum (attached) on the implications of requiring contractors to pay the Living Wage.

5. Staff have reviewed the findings and have provided some general commentary, along with commentary specific to the GoBus contract.

Living Wage Analysis

6. HBRC recently confirmed that it pays all of its own staff the living wage, however has not consciously made this a permanent commitment by way of internal remuneration policy.

7. In order for businesses to pay their staff the living wage, there is a question of who would absorb these costs. If businesses are operating at low margins, then the cost would likely be passed on to their customers through raising prices which may impact on their ability to be competitive.

8. If the subsequent cost increases were passed on to HBRC, this could give rise to section 17a issues where HBRC is required to “provide cost effective services to the ratepayer”. This could also be seen as penalising other low paid workers in the region to subsidise those fortunate enough to work on HBRC contracts. For example, a self-employed worker on a low income (who does not provide services to HBRC) would have their rates bill increase to pay for the benefit of other workers.

9. The breaking of contracts to introduce a living wage requirement for contractors and suppliers may have legal and financial implications that may outweigh the benefits. A challenge could be raised by unsuccessful suppliers who may have included paying staff the living wage in their original tendering documents but were unsuccessful due to price.

National Approach

10. A small number of other Councils have decided to begin implementing the living wage selectively. Those councils are in larger cities with a higher cost of living than Hawke’s Bay (Wellington, Auckland and Christchurch).

11. Statistics NZ provides information on cost of living by region, however the living wage is not indexed to reflect those regional variations. As an example, the cost of living for an average household is approximately $416 per week (or 36%) lower for those in the regions than those living in Auckland.

12. In light of this, Palmerston North City Council recently requested a review to determine a “Palmerston North” living wage, which has currently been set at $17.50 an hour. This reflects a lower cost of living in Palmerston North than in major centres.

13. These Councils have also only implemented the living wage under certain criteria, often only for their direct staff – which HBRC currently has in place. A summary of each is outlined below:

Auckland Council

13.1. Policy updated to include living wage payments to staff and CCOs only. Policy excludes contractors, volunteers and trainees.

Wellington City Council

13.2. Resolved to consider implementing the living wage on a case by case basis however this decision was subject to challenge by Wellington Chamber of Commerce (WCoC) noting an intention to bring judicial review proceedings against the Council decision. This is due to belief that a higher cost of cleaning contracts did not represent prudent use of ratepayer resources.

13.3. After several months of negotiations between the WCoC, Wellington City Council agreed that when a significant contract is under renewal, there is a commitment to pay the living wage via a phased implementation, on selected contracts only and in consultation with WCoC.

Greater Wellington Regional Council

13.4. Has agreed to pay living wage for staff only. Has requested Local Government New Zealand provide a legal opinion on this area, of which the results are still outstanding.

13.5. Sees living wage as one set of criteria in purchasing process alongside others, such as environmental practices.

13.6. Notes that ratepayers are likely to foot the bill and that this appears to be a problem that central government should step in and resolve.

Christchurch City Council

13.7. Has agreed to pay living wage to staff with the skills and experience to work unsupervised. No comment provided by CCC on contractors/suppliers.

GoBus Contract

14. The GoBus contract currently sits under the national PTOM (Public Transport Operating Model). PTOM was introduced in 2013 with the intention of driving down bus fares for its users (bus fares currently offset approximately 50% of total operating costs, the remainder is made up by local government and NZTA).

15. It is noted that the Hawkes Bay GoBus contract expiry date is not until 2025. A review of this contract now could bring about legal challenge from other suppliers who missed out on the tender, along with potential litigation from commerce groups as evidenced in Wellington.

16. Bay of Plenty’s (BOP) bus contract came up for renewal last month in April and it is noted that the winning tender agreed to pay the living wage in its contract. It should be recognised that the winning tenderer was not GoBus, and the recent winning supplier for BOP was a failed tender for the Hawke’s Bay contract. BOP procurement notes that the living wage was a “factor” in its decision making, rather than a requirement. It is also noted that this service cost an additional $2m per annum – although this cost is made up of a number of factors.

17. Other Councils have only implemented living wage in contracts up for renewal. The review of unexpired contracts has not been conducted due to challenges outlined in the memorandum. In the case of GoBus there is an added dimension to this, including the NZTA 51% funding agreement which is also party to the contract, along with consideration of how this will impact on bus fares.

18. On this basis, a theoretical retender may mean that GoBus may lose the contract and the drivers could possibly be out of jobs altogether. This is not factoring in legal challenge costs which subject to any damages paid out, would likely go to GoBus owners and not the drivers. The ratepayer would be required to foot this bill.

19. It should be highlighted that GoBus drivers are also paid several dollars above minimum wage and wages for drivers are reviewed annually at a rate in line with or above inflation. The GoBus CEO has defended its recent pay negotiations, insisting workers have just been given a pay increase “recently those drivers received a very generous increase from the company, well in excess of inflation”. GoBus drivers are now also paid at time and a half for work on Sundays, and at a rate above the Palmerston North hourly ‘living wage’ rate.

20. Staff have reviewed the GoBus tender documents and note several complexities due to the NZTA requirements and recommend that specific legal advice is obtained before looking any further at opening up the contract.

Central Government Action

21. There is a currently a review being conducted nationally regarding the PTOM which the GoBus contract was formed under. This review will include the assessment of wages for bus drivers. If Council were to make changes in line with a PTOM review overhaul, it is unlikely that there would be any legal implications due to following of national policy.

22. Specifically, The Ministry of Transport has contracted an independent consultancy firm to review the PTOM model and the effect this has on worker’s conditions and wage rates. HBRC was contacted by the Ministry recently and advised that the consultancy firm will be in contact to request information on conditions and wage rates for bus drivers in our region.

23. Staff intend to report back to the Finance, Audit & Risk sub-committee with updates and results that arise from this review.

Decision Making Process

24. 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:

24.1. The decision does not significantly alter the service provision or affect a strategic asset.

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

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

24.4. The decision is not inconsistent with an existing policy or plan.

Given the nature and significance of the issue to be considered and decided, and also the persons likely to 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.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the Crowe Horwath “Living Wage” memorandum and staff report.

2. Accepts the commentary provided by HBRC Executive staff in response to the Crowe Horwath memorandum.

The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee:

3. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that the Committee can exercise its discretion and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision.

4. Recommends that Council:

4.1. Participates in and continually monitors results of the Public Transport Operating Model review and/or any central government policy changes that necessitate the reassessment of the GoBus contract to align with legislation and its own internal policies accordingly.

4.2. Requests that staff amend Council’s procurement policy to give weighting to contractors who are paying the living wage, alongside other important factors such as environmentally friendly business practices and overall affordability, in Tender evaluation processes.

4.3. Requests that Council’s procurement policy is published on the HBRC website (in line with the Procurement Review recommendations from Crowe Horwath).

Authored by:

Melissa des Landes

Management Accountant

Manton Collings

Corporate Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1

Living Wage Memo

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Water Management Internal Audit

Reason for Report

1. To provide the Crowe Horwath Water Management internal audit report (attached) for review by the Sub-committee.

Background

2. The Finance, Audit and Risk sub-committee agreed at its meeting on 9 September 2017 to include Water Management as part of the internal audit work programme. After a series of iterations, the scope was agreed at the Regional Council meeting on 31 January 2018.

3. The findings report has been reviewed by the HBRC Executive team, who have provided commentary against each of the recommendations.

Decision Making Process

4. 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:

4.1. The decision does not significantly alter the service provision or affect a strategic asset.

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

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

4.4. The persons affected by this decision are HBRC staff.

4.5. The decision is not inconsistent with an existing policy or plan.

4.6. 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, the Finance, Audit and Risk Sub-committee can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

The Finance, Audit and Risk Sub-committee:

1. Receives and notes the Crowe Horwath Water Management Internal Audit report.

2. Accepts the commentary, including any follow-up actions, provided against each of the report’s recommendations by HBRC Executive staff.

Authored by: Approved by:

Melissa des Landes

Management Accountant

Liz Lambert

Group Manager External Relations

Attachment/s

⇩1

Crowe Horwath Water Management Internal Audit Report

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Proposed 2018-19 Internal Audit Programme

Reason for Report

1. To propose an internal audit programme for the 2018-19 financial year for agreement of the Sub-committee.

Background

2. During the current financial year HBRC’s internal auditors, Crowe Horwath, have conducted a series of internal audits including:

2.1. Data Analytics

2.2. Water Management

2.3. Procurement/Living Wage/Contract Management.

Options Assessment

3. In consultation with Crowe Horwath, and based on HBRC’s risk register, staff recommend the following internal audit programme.

3.1. Health & Safety

3.2. Data Analytics

3.3. Treasury

3.4. Business Continuity and Disaster Recovery Planning

4. Health and Safety has been proposed due to the increasingly complex legislation in this area and the high priority placed on health and safety by HBRC. A scope for this audit is attached for the sub-committee to review and approve.

5. The Data Analytics audit is proposed to be repeated due to the useful information that it provided previously and the opportunity to benchmark improvements made to processes since that prior audit. As this audit was performed previously, the cost and staff time involved will be reduced.

6. Treasury has been selected due to a significant change in direction of Council’s financial strategy signalled in the LTP, including the placement of investment funds into a managed portfolio and significant borrowing. This audit will look at monitoring controls, segregation of duties and compliance with delegated authorities.

7. Business Continuity and Disaster Recovery Planning has been selected as the current policy is due for review and this area is listed as high risk on Council’s risk register.

8. All of these areas are recommendations at this stage and staff will take any guidance from the Sub-committee for additional or reprioritising topics, as well as refining of scope.

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. The decision does not significantly alter the service provision or affect a strategic asset.

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

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

9.4. The persons affected by this decision are HBRC staff.

9.5. The decision is not inconsistent with an existing policy or plan.

9.6. 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, the Finance, Audit and Risk Sub-committee can exercise its discretion and make a decision without consulting directly with the community or others having an interest in the decision.

Recommendations

That the Finance, Audit and Risk sub-committee:

1. Receives and notes the “Proposed 2018-19 Internal Audit Programme” staff report.

2. Agrees to the schedule of Internal Audits to be carried out during the 2018-19 financial year, being:

2.1. Health and Safety

2.2. Data Analytics

2.3. Treasury

2.4. Business Continuity and Disaster Recovery Planning.

Authored by:

Melissa des Landes

Management Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1	HBRC Proposed Internal Audit Plan 2018-19
⇩2	HBRC HS Assessment Proposal

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: HBRIC Ltd and Napier Port Valuations

Reason for Report

1. To seek the Sub-committee’s recommendation to the Corporate and Strategic Committee on an approach for the triennial valuation of the Hawke’s Bay Regional Investment Company Ltd (HBRIC Ltd) for the year ended 30 June 2018.

Background

2. In line with accounting guidelines, Council revalues the HBRIC Ltd investment on a triennial basis. This valuation incorporates HBRIC Ltd’s own valuation of their investment in Napier Port. This was last completed for the year ended 30 June 2015, so is due to be completed again.

3. Council previously used Deloitte to undertake the triennial valuations of both HBRIC Ltd and Napier Port, and to carry out annual reviews of those valuations to notify of any significant movements in the interim years.

Discussion

4. HBRIC Ltd has indicated that they will use Flagstaff materials to perform the valuation of Napier Port given the amount of work that Flagstaff has done for the Port in relation to capital funding options. The reason for doing so is not to incur costs of around $15,000 given the work has already effectively been undertaken by Flagstaff.

5. Flagstaff valuations are based on potential sale values from a possible capital transaction and this may be different from the traditional accounting valuation, which is likely more conservative. The valuation is dependent on which methodology is used and what assumptions are incorporated into the model.

6. Council needs to decide if they are comfortable using the Flagstaff information as the basis for the HBRIC Ltd valuation or if they wish to get an independent valuation of both. At the end of the process Council needs to have comfort about the value on the HBRC and Group financial statements, while the HBRIC Ltd board will need to ensure their own comfort over the valuation used in their financial statements.

7. The complexity is that the valuation may affect the perceived sale price of any capital value.

8. There is budget set aside for a full valuation of both entities.

Decision Making Process

9. 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:

9.1. The decision does not significantly alter the service provision or affect a strategic asset.

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

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

9.4. 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.

Recommendations

1. That the Finance, Audit and Risk Sub-committee receives and notes the “HBRIC Ltd and Napier Port Valuations “ staff report.

2. The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee:

2.1. Agrees that the decisions to be made are not significant under the criteria contained in Council’s adopted Significance and Engagement Policy, and that the Committee can exercise its discretion and make decisions on this issue without conferring directly with the community and persons likely to be affected by or to have an interest in the decision.

2.2. Recommends to Council that it uses the Napier Port valuation provided by HBRIC Ltd as the basis for the valuation of HBRIC Ltd

2.3. Recommends to Council that it seeks independent valuations of both Napier Port and HBRIC Ltd.

Authored by:

Manton Collings

Corporate Accountant

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Local Government Act Section 17a Reviews

Reason for Report

1. To provide an update on progress with s17a activities reviews.

Introduction

2. At its meeting held 7 March 2018, the Finance, Audit & Risk Sub-committee was advised that staff would report back to this meeting to advise a proposed plan to review the efficiencies of its activities to meet its obligations under s17a of the Local Government Act (2002).

3. The Sub-committee was also advised that Council has been actively reviewing various aspects of the organisation’s efficiency through various functional reviews undertaken in the current financial year and/or through development of the Long Term Plan.

Legislative Background

4. Section 17a reviews were introduced as part of the Government’s 2012 Better Local Government reform programme, designed to encourage and enable local authorities to improve the efficiency and effectiveness of their operations and processes.

5. Council is required to give effect to the purpose of local government as prescribed by Section 10 of the LGA, which is “to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.”

6. S17a reviews are required:

6.1. Every six years after previous review

6.2. Before expiry of contracts related to the delivery of infrastructure, services or regulatory functions

6.3. When significant changes to service levels are considered.

Threshold

7. Initial steps required under s17a include proposing a materiality threshold value for the reviews. Analysis has been undertaken and the level for creating exceptions to Section 17a has been assessed at $300,000 based on peer review and total Council spend (total budgeted operational and capital expenditure).

8. In the absence of other factors (e.g. high probability of significant savings, high public interest in the service), where a service has gross annual expenditure of less than $300,000 it will be assumed that the costs of undertaking Section 17a reviews would be in excess of the likely benefits and a review will not be carried out on those services.

Priority Review Areas

9. A number of reviews have been undertaken in recent years in various forms and contexts and these are deemed as completed. The priority for Council should be on repurposing those reviews and incorporating any Section 17a requirements. Other priorities will be set by the expiry or renewal of significant contracts where staff identify opportunities to explore service improvements and efficiency gains.

10. Due to the recent internal reorganisation and LTP processes, several of Council’s functional activities have been reviewed more recently. It is therefore proposed that these be re-reviewed in a few years’ time, once the most recent restructure and LTP process has matured. It is further proposed that no reviews are undertaken in Q1 and Q2 of the 2018-19 financial year due to resourcing constraints. Council has forecast a senior accountant as part of the realignment of the finance team to assist with these reviews.

11. Staff have undertaken analysis and sought guidance from the Executive team and have recommended priority review areas (attached) for the sub-committee to provide feedback on. These have been sorted by priority and are proposed to begin once the significant LTP process has been completed.

12. The approach in determining a work programme is to seek out opportunities to add practical value to the services and activities that the Council provides or undertakes for and on behalf of its community, including:

12.1. Understanding the nature of and rationale for services or activities currently provided or undertaken

12.2. Looking at the context (including service demand) in which these services are and will be delivered, now and into the future

12.3. Identifying opportunities that might arise for improving the efficiency or effectiveness of the services or activities, including opportunities that might arise from a collaborative approach with other parties

12.4. Assessing those opportunities to see if they might add value for the Hawke’s Bay community.

13. In addition staff have reviewed external guidance on best practice approaches to determine priority review areas for Council. SOLGM’s guidance recommends using the activities (not groups) disclosed for reporting in the Long Term Plans as a starting point for defining ‘services’ to be reviewed. Determination of priority options is based on guidance which is highlighted further in this section below.

14. External advice suggests the following principles when considering whether an activity should be reviewed.

14.1. The bigger the budget the more efficiency gains are possible

14.2. Capital intensive services are more likely to generate savings

14.3. The greater the cost of a review as a percentage of the total cost of service, the less value in a review

14.4. The more generic the service the more opportunity for economies of scale or scope

14.5. Services which are core competencies and have non-commercial objectives should be retained in house

14.6. There is value in conducting a review if it could further Council’s strategic priorities or responds to a demographic trend or future problem

14.7. The success of many alternative service delivery methods depends on the existence of a competitive market

14.8. Services that have been the subject of comprehensive review under other procurement or legislative processes are less likely to generate new and better ways of doing things

14.9. A service that consistently achieves its performance targets is evidence that it meets customer expectations, and a review is less likely to realise benefits

14.10. If operating costs are comparable with other suppliers then a review is less likely to realise efficiency gains

14.11. Council will get the most “bang for buck” by focusing on services that are important to citizens and are failing to meet their expectations

14.12. The more elapsed time since the last review, the greater value in a review

14.13. Service reviews realise the most benefits when there is certainty around the operating environment in which the service is delivered

14.14. Reviews undertaken jointly with relevant councils and service providers will realise the most value.

15. Where another Council is planning to review its similar activities, a joint approach will be investigated to establish whether it is likely to bring cost efficiencies to the review process.

Summary

16. Staff will continue to undergo reviews in accordance with 17a requirements in line with the review proposal sheet. Progress updates and findings from these reviews will be reported back to this committee every quarter.

Decision Making Process

17. 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 & Risk sub-committee:

1. Receives and notes the “Local Government Act Section 17a Reviews” staff report

2. Agrees the recommended work programme as proposed.

Authored by:

Melissa des Landes

Management Accountant

Jessica Ellerm

Group Manager Corporate Services

Approved by:

James Palmer

Chief Executive

Attachment/s

⇩1

HBRC 17a Programme Timeline

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 06 June 2018

Subject: Resource Management Information System Implementation Update

Reason for Report

1. To provide an update on progress with the implementation of the new Resource Management Information software (IRIS).

Milestones and Progress

2. The project team and business units have completed reforecasting and it has been agreed that Consents and Compliance Go Live with IRIS in November 2018 with Incidents and Enforcements following in February 2019.

3. Consents user acceptance testing (UAT) is on track with no significant issues reported. This stage is due for completion on the 8^th June 2018.

4. Solution planning for Compliance and Water Information Services has been completed with a view to have data migration and configuration completed by late July.

Key Assumptions

5. The revised timelines are dependent on the successful and timely recruitment of two new permanent roles; Business Application Specialist – IRIS and GIS Analyst. The assumption was that these roles would be appointed and commence no later than 1 July 2018 and should this not occur, the reforecast timelines may be subject to further delays. One of these roles is approved and in progress and the other is yet to be approved.

Scope

6. Although Water Information Services is part of the IRIS Compliance module, it has been agreed it should be run as a stand-alone work-stream due to the need for specific council defined fields and complexity around water consents. This module will run in parallel with Compliance and will Go Live alongside Consents and Compliance in November.

7. A functionality log was used to capture potential feature and functionality additions. These items were prioritised by the business and will be delivered within an agreed timeframe.

Cost

Reason	Description	Cost
Fixed-term Contract Extensions	Due to the delay in go live, key fixed-term contracts needed to be extended. In addition, a new fixed-term contract to assist with WIS is required. The total cost of this has been offset by a $40k contingency.	$60,000
External Costs	Due to the delay in go live, and additional requirements as a result of further evaluating WIS, significant additional costs will be incurred in consultancy from Datacom. This has been largely offset by a $90k contingency.	$10,000
Contingency	Due to the complexity and nature of this project, and given original contingency has been exhausted (set out above), it is recommended further contingency is provisioned.	$80,000
		$150,000

Revised Timeline

8. The original Go Live date for Consents and Compliance was 16^th April 2018 followed by Incidents and Enforcements in September 2018. The revised timeline means that Consents and Compliance (with WIS) will Go Live in November 2018. Incidents and Enforcements will run in parallel from September and will Go Live in February 2019.

Decision Making Process

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

Recommendation

That the Finance, Audit & Risk Sub-committee receives and notes the “Resource Management Information System Implementation Update” staff report.

Authored by: Approved by:

Kahl Olsen

Information and Communications Technology Manager

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 06 June 2018

Subject: June 2018 Update on the Sub-committee Work Programmes

Reason for Report

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

Task	Item	Scheduled / Status
Internal Audits	Water Supply/ Wastewater/ Stormwater Management	Report to 6 June 2018 FA&R meeting
	Procurement and Purchasing	Report to 6 June 2018 FA&R meeting
	2018-19 Schedule of Internal Audits	To FA&R 6 June 2018 FA&R meeting
Risk Assessment & Management	Reporting on risks (6-monthly) affecting Council plus noting changes / improvements / areas that require attention from last report (3-monthly)	2018 FA&R 7 March & 19 September meetings. Risk management discussions and follow ups now being documented at each monthly meeting at Exec.
Insurance	Council’s proposed 2018-19 Insurance programme	Aligned with insurance renewal dates each year. Report to 6 June 2018 FA&R meeting
Annual Report	Discussion on Audit Management Letter	Auditor scheduled to attend December 2019 FA&R meeting
Annual Report	Discussion on the major issues (if any) in the audit report on the Annual Report.	Aligned with Audit NZ & legislative requirements Sept-Nov each year
Reviews	Review of the Council’s capital structure, taking into account the value of dividends in supporting Council operations.	Phase II report released. Workshop held 9^th May to review Counsellors appetite on options identified.
Investment Returns Monitoring	Update on progress in obtaining required level of dividend from PONL	PONL presented at 14 March C&S meeting. Draft SOI presented at 30 May 2018 Council meeting.
Treasury	Update on Treasury function within Council	Currently working with PWC to produce a draft Treasury Policy and updated SIPO to align with Council’s new strategic direction. Draft policy to be presented at 13 June 2018 C&S meeting. Plan to present a treasury report quarterly, which will include analysis of performance of all investments including financial investments and HBRIC.

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 “June 2018 Update on Sub-committee Work Programmes” staff report.

Authored by:

Jessica Ellerm

Group Manager Corporate Services

Approved by:

James Palmer

Chief Executive

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 2018-19 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.