Agenda of Finance Audit & Risk Sub-committee

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 22 May 2019

Subject: Rating Invoice – Proposed Issue, Due and Penalty Date Changes

Reason for Report

1. This report proposes a change to the date Hawke’s Bay Regional Council’s rate invoices are sent out and the date payment is due with the objective of improving Council’s cash flow and removing the payment pressure on ratepayers over the Christmas period.

2. It provides the Finance, Audit and Risk Sub-committee (FARS) the opportunity to review the proposal and if supportive, make a recommendation to the Corporate and Strategic Committee.

Background

3. An opportunity has been identified to improve HBRC’s cash flow through adjustments to the date rates assessment/invoices are sent out and the date payment is due.

4. Currently rates invoices are sent out mid-September and due 1 October each year, however HBRC allows ratepayers until 31 January to pay before a penalty is applied.

5. Rates are the main direct source of income for Council. Typically Council receives approximately 6-8% of rates revenue in October, with approximately 70% of the rates revenue collected in January and February - seven to eight months into the financial year. (Please see Attachment 1 for the rates payment trends for the past three years.)

6. HBRC’s history of having a due date (1 October) and then a final date for payment (31 January) for rates is understood to have come from the time when HBRC was a County Council. The Council at that time extended the timeframe for payment to accommodate the rural sector who needed to wait for their wool payments which arrived in January.

Proposal

7. This paper is proposing Council send out rates invoices earlier and bring the date forward for when payment is required. (Please see Table 8.1 below for the current dates and proposed changes.) It is also proposed to have one payment date only – so the due date and final date for payment is the same. Having one due date is in line with how Territorial Local Authorities apply their invoices.

Table 8.1: Current dates and proposed changes

	Current dates	Proposed dates for 2020-21
Date rating information is sent to NZ Post, Christchurch	31 August	Last week of July
Date rates invoices are sent out	Mid-September	Early to mid-August
Rate assessment/invoice date	1 October	20 September
Date invoice payments are due	1 October	20 September
Date for final payment	31 January	20 September
Date for applying penalties	1 February	21 September

8. The intention is for ratepayers to receive their invoice four to six weeks before it is due to be paid (currently ratepayers have 17 weeks). Legislation requires the ratepayer to receive the invoice 14 days before the due date.

9. The idea of moving the date invoices are sent out and the date payment is due has previously been discussed at a Council Long Term Plan (LTP) workshop on 11 October 2017 where potential efficiencies across the business were presented to Councillors.

10. Also introduced at this workshop was the option of adding a second penalty of 10% on total rates outstanding (including penalties) as allowed as per the local Government (Rating) Act 2002.

11. In the 2018-28 LTP Council stated we would investigate the rating date changes and implement the additional penalty. The following are extracts from the 2018-28 LTP.

Rate invoicing period change

It is proposed that during the 2018-28 LTP period HBRC will investigate changing the date that rate invoices are sent out and the final due date each year.

Additional penalties to be added from July 2019

All outstanding rates including previous penalties as at 1 July each year will now have a penalty of 10% added to those rates. This penalty will be added on the first working day after 1 July each year.

12. A 10% penalty is being implemented from 1 July 2019. This has also been notified on the current years’ invoice.

Aim of changing the dates

13. The main aim of changing the date rate invoices are sent out and the payment date is to improve Council’s cash flow.

14. The aim is to also shorten the payment period and eliminate the final date for payment. This means ratepayers would have one due date for payment (20 September).

15. It is hoped the new issue and payment dates can be implemented for the 2020-21 year with promotion of the new dates starting this year. This means the dates for next year’s rates for 2019-20 will remain the same.

16. The intention is to also redesign HBRC’s rate invoice to reflect Council’s new branding and provide a cleaner invoice, while still meeting the legislative requirements.

Benefits of changing the dates

17. Improved cash flow - by moving the due date and having just one payment date, we are hoping to receive the 70% of rates revenue several months earlier than we currently do.

17.1. As shown in Attachment 1, Council invoiced a total of $24,240,753 in rates for the 2017-18 financial year and received approximately 70% ($15,569,677) in January/February. In the current financial year (2018-19) $27,280,369 was invoiced and $18,908,917 was received this January/February.

17.2. The earlier Council collects the rates revenue, the earlier it can be invested or used to fund operational expenses.

18. Less debt funding – if required to cover cash flow shortfall periods.

19. Less penalty and simpler payment for ratepayers.

19.1. While the proposed changes might be viewed negatively by some, the change may be welcomed as helping ease the frustration of some ratepayers. Every year the rates team gets frustrated ratepayers calling once the penalty has been applied to their invoice to say they forgot to pay their rates because of the long time span between the issue and final due date.

19.2. The intention is to provide ratepayers with a 12-month direct debit payment option which may assist the ratepayer with better budgeting. Currently ratepayers have a three-month direct debit option and a once-yearly option on 31 January. Some ratepayers choose to pay through automatic payments. Ratepayers who pay by direct debit will not be charged any penalty.

20. Better timing for ratepayers.

20.1. Ratepayers tell Council staff the timing of the final payment date, 31 January, is not ideal; citing Christmas, holidays and expenses relating to the start of the new school year. Although suggested that they can pay the rates earlier many prefer to pay on the last possible date.

21. Will reduce staff time spent taking phone calls from ratepayers checking to see if they have paid their rates, and re-printing and sending out invoices on request due to the long timespan between receiving the invoice and the final date for payment.

22. Provides Finance and Rating staff the opportunity to take more leave during the school holidays and Christmas period.

Risks/Issues of Changing the Dates

23. Public Perception

23.1. Ratepayers, for budgeting purposes, will be receiving two rate invoices in one calendar year – although the invoices cross over two financial years. It is vital that the changes, if approved by Council, are communicated early and clearly both internally and externally. A communications plan will be developed and implementation will start the day Councillors adopt the proposal (if they choose to adopt) to allow a good lead in time for the ratepayers.

24. Election Year

24.1. Due to it being it an election year it may be that Councillors are not keen to approve the proposed date changes. Should this be the case, the intention would be to implement the changes for 2021-22, following approval from Council.

25. Transition Period

25.1. It is acknowledged it may take two years before we receive the full targeted 70% earlier. People who are currently on payment plans may take a longer period to adjust.

25.2. More penalties may need to be remitted in the first year of implementation due to an unbudgeted change for ratepayers. Council currently has a remission policy of one penalty remittance allowed every three years. If this proposal is approved, Council will develop a one-off additional penalty remission policy to take place in the first year of implementing the new dates. This will enable previously remitted ratepayers not to be financially punished while this change is being implemented.

Consultation

26. External advice has been sought in regards to determining the need for community consultation in changing the collection and penalty dates.

27. Philip Jones of PJ and Associates^{^[1]} has advised (please see Attachment 2) there is no legal requirement under either the Local Government (Rating) Act 2002 (LGRA) or the Local Government Act 2002 (LGA) for Council to consult on changing the due or penalty dates (When setting the due and penalty date a local authority must follow the requirements of both these acts.)

28. As noted in point 11 it was stated in Council’s 2018-28 LTP HBRC will investigate changing the date that rate invoices are sent out and the final due date each year.

29. Philip Jones advises that a significant change in the due dates and associated penalty date would have to be considered against the Council’s Significance and Engagement Policy. He advises the proposed changes would be considered a minor decision and therefore does not require further consultation via public meetings. However, because of the ratepayer’s impact, Council should provide a long lead in time before implementing the proposal.

30. Staff have also considered Council’s Criteria for Significance, in particular:

30.1. The likely impact or consequences for affected individuals and groups in the region

30.2. The impact on rates or debt levels

30.3. The cost and financial implications of the decision to ratepayers

31. Is it acknowledged there will be some ratepayers who be significantly impacted by the earlier payment due date. The intention is to identify the 200 highest ratepayers in each district and contact them personally in writing to explain the changes, outline payment options, and potential remission of penalties for the implementation year.

Financial and Resource Implications

32. A project team has been established with Project Manager Mandy Sharpe (from the Project Management Office) and Principal Accountant Rates and Revenue Trudy Kilkolly leading the project. Within this team are staff from Communications, Rates, Finance and ICT.

33. Regular meetings/workshops will be held to ensure the process is rolled out as smoothly as possible, identifying and managing any issues.

34. Estimated costs that this project will incur include:

34.1. Implementation of a communication/advertising campaign - $15,000.

34.2. Software changes (@ $205.00/ hr) to allow the development of a new rates invoice template and to enable the 12-month direct debit facility to be added to our system. It is not known at this stage how long this will take.

34.3. Consultant fees for peer review and development of remission policy - $5,000.

34.4. Re-design of new invoice - $5000-$7000.

34.5. Increased staffing levels for short fixed term period to deal with ratepayers queries in relation to the change in payment times and/or payment structure $10,000-$15,000

34.6. Possible increase in penalty remissions for the first year of implementation. (Last year 9,992 ratepayers received a penalty with 14% written off).

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

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

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

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

35.4.1. The purpose of the Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for the provision of appropriate controls to safeguard the Council’s financial and non-financial assets, the integrity of internal and external reporting and accountability arrangements.

Recommendations

1. That the Finance, Audit and Risk Sub-committee receives and notes the “Rating Invoice – Proposed Issue, Due and Penalty Date Changes” 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.

2.2. Recommends that Hawke’s Bay Regional Council approves the proposed rates issue, due and penalty dates following, for implementation 1 July 2020.

2.2.1. Invoices sent out – early to mid-August

2.2.2. Rate assessment/invoice date – 20 September

2.2.3. Payment due date – 20 September

2.2.4. Penalty date – 21 September

Authored by:

Trudy Kilkolly

Principal Accountant Rates and Revenue

Mandy Sharpe

Project Manager

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1	Rate Payment Trends
⇩2	Letter from PJ & Associates

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 22 May 2019

Subject: Proposed Schedule of 2019-2020 Internal Audits

Reason for Report

1. To propose an internal audit programme for the 2019-20 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. Health & Safety

2.3. Water Management Follow-up.

Options Assessment

3. In consultation with Crowe Horwath, and based on HBRC’s risk register, staff recommend the following internal audit programme for the 2019-20 financial year.

3.1. IT Security

3.2. Data Analytics

3.3. Risk Management

3.4. Asset Management.

4. A detailed work programme which provides an outline of the above proposed and previously conducted audits is attached.

5. IT security has been proposed due to the benefit of independent advice over how effective HBRC’s IT controls are. While HBRC believes its controls are effective, IT and cyber security is an increasingly high risk area for organisations. The review would include an evaluation of processes, policies, procedures, security controls and response and recovery programmes. This would also tie in well with a cyber-security/penetration testing assignment currently underway as part of an overall IT security review. As this is the first proposed audit in the programme, a scope is attached for the Sub-committee to review and approve.

6. Data Analytics is proposed to be repeated due to the useful information it has provided in its previous two audits. This also provides the opportunity to benchmark improvements made to processes since prior audits. As this audit has been performed previously, the cost and staff time involved will be reduced.

7. Risk Management has been proposed due to its evolution and development over the past two years to ascertain how effective risk management processes are, along with areas for improvement.

8. Asset management has been proposed as there hasn’t been an audit of this activity in recent years. The audit would include areas such as a review of the maturity of asset management controls in areas such as asset management policy and strategy, accuracy of data, asset lifecycle decision making, and asset performance and condition. Areas such as leadership, planning and continuous improvement would also be assessed.

9. 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.

Financial and Resource Implications

10. Staff confirm that the schedule of internal audits as proposed is accommodated within existing budgets as set by the 2018-28 Long Term Plan, however if the sub-committee wishes to consider additional work in this area budget allocations may require reconsideration.

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:

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

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

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

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

11.4.1. The purpose of the Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for the independence and adequacy of internal and external audit functions.

11.4.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to confirm the terms of appointment and engagement of external auditors, including the nature and scope of the audit, timetable, and fees.

Recommendations

1. That the Finance, Audit and Risk Sub-committee:

1.1. receives and considers the “Proposed Schedule of 2019-2020 Internal Audits” staff report.

1.2. Agrees to the 2019-20 schedule of Internal Audits, including associated budget allocations, being:

1.2.1. IT Security

1.2.2. Data Analytics

1.2.3. Risk Management

1.2.4. Asset Management.

2. The Finance, Audit and Risk Sub-committee recommends that the Corporate and Strategic Committee takes note of the agreed 2019-20 schedule of Internal Audits within associated budget allocations.

Authored by: Approved by:

Melissa des Landes

Acting Chief Financial Officer

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇩1	Draft Proposed 2019-20 Internal Audit Plan
⇩2	2020 Cyber Security Planning Memo - Draft for discussion

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 22 May 2019

Subject: Living Wage Update

Reason for Report

1. To provide the Sub-committee with a report that breaks down the type and value of suppliers used by Council for review and consideration. This is provided in conjunction with any other relevant Living Wage updates since previous meetings.

Background

2. A procurement internal audit was completed and presented to FARS 6 June 2018, which included an extension to consider the implications behind implementing a Living Wage requirement. This Living Wage memorandum traversed the key issues behind implementation of a living wage, such as legal and financial challenges. The memorandum also noted the benefits of implementing a Living Wage, such as the recognition of the dignity of work and ability to earn a living.

3. The Finance, Audit and Risk Sub-committee (FARS) requested at its meeting on 21 November 2018 that staff prepare further analysis of the types of suppliers (direct and indirect) Council engages with in the procurement of its goods and services. This analysis would attempt to quantify the cost of implementing or preferencing living wage suppliers and how it could be implemented by way of policy.

4. Finally there was also an analysis of other Councils’ stances on the living wage, whereby the overarching theme was that most Council’s elected to only pay the living wage under certain criteria, such as to direct staff only.

5. This report was then presented to the 12 December 2018 Corporate and Strategic Committee meeting, where after extensive discussion it was agreed to await the results of a national review of the Public Transport Operating Model (PTOM) which is currently underway.

6. The above report was presented in conjunction with other work that Council has previously provided to FARS in relation to GoBus and staff and a further update on this and other relevant updates is provided at this meeting.

7. Over the last quarter, staff have conducted a survey of a sample of direct suppliers to determine likely impacts on requiring them to pay the Living Wage. The volume of feedback received was disappointing, a full analysis of the feedback that was received is provided in separate section following.

Council Supplier Analysis

8. Over the past quarter, staff have conducted an analysis of the top 100 suppliers by spend over a 12 month period. From this list a distinction was made between direct and in-direct suppliers, with direct suppliers being determined as those whom Council engages on a direct level. For example, a cleaner who provides their services on site and in person would be deemed direct, as opposed to a stationary provider who would be deemed indirect.

9. Once this distinction was determined, a total of 65 suppliers from the top 100 were determined to be direct. A survey was then emailed out utilising the online survey tool “Survey Monkey” to the direct suppliers. The disclaimer for the survey stated that Council is reviewing its procurement policy and was using any responses for information only at this stage.

10. The survey was kept brief but included key questions such as whether or not suppliers pay their staff the living wage. A further question was posed that if the requirement for suppliers to pay their staff the Living Wage was made a compulsory, whether that supplier could absorb the costs or if they would need to pass them on (or a combination thereof). Finally, a question was asked if this was made a requirement, whether they would still be interested in continuing business with Council, with room for optional free text comments.

11. There were only nine responses after the initial email which staff concluded wasn’t a large enough sample to refelct a fair view. A decision was made to contact other direct suppliers who Council recognises would traditionally be the type of service who may traditionally be paid on the lower end of the wage scale. This included suppliers who Council engages frequently, such as cleaners and caterers who were not in the preliminary selection.

12. This direct approach also resulted in a disappointing response rate, with only an additional four responses, or 13 in total. This poor response may highlight the reluctance of suppliers to provide sensitive salary information, despite a clear disclaimer being provided as to how this information would be used.

13. Results from respondents are as follows:

13.1. Just over 75% of respondents already pay their staff the Living Wage.

13.2. 100% of respondents who answered stated that they would continue to provide services to Council if it was made a requirement for suppliers to pay the Living Wage.

13.3. There were a mixture of those suppliers who would be able to absorb the costs (29%) versus those who would need to pass on the cost (43%), with the remainder stating they would need to pass on a portion of the costs.

13.4. The cost of the increase in terms of the value of the contract with Council was:

13.4.1. less than 10% (43%)

13.4.2. 10-20% (57%)

13.4.3. no suppliers stated that this would cost more than 20%. Note that the survey only asked for a percentage, as opposed to total costs in order not to make the survey too cumbersome for respondents.

14. The optional comments section at the conclusion of the survey provided some supportive, albeit minimal feedback, with all comments provided being in positive support of the Living Wage concept and encouraged Council for conducting a review on this. The following comments were made. “Make the change to Living Wage,” “I do think this is a necessary step. I fully support a living wage,” “We totally support the Living Wage goal, good on you for highlighting this.”

15. Note the comments above were from suppliers who already pay their staff the Living Wage. No additional feedback was received from those suppliers that don’t.

16. Overall, the feedback shows the majority of respondents already pay their staff the living wage, with around 70% of those that don’t indicating a need to pass on either a portion, or the entire cost to their customers in order to operate their business.

17. Given the relatively small sample size, and the assumption that those suppliers already paying the living wage could have been more inclined to complete the survey, the results of the survey are not conclusive enough to make assumptions or estimates accurate enough to inform decision making. However, based on the results, staff reviewed the budget for the provision of building maintenance services, which includes services such as cleaning and catering as noted above as being types of serviced traditionally in the lower quartile of the wage bracket. At present, Council currently spends approximately $300k per annum on such services. A 20% increase on this budget item would cost Council an additional $60k per annum.

GoBus/PTOM Update

18. At FARS meeting 21 November, Councillors were advised that staff had been participating in the national PTOM review which the GoBus contract falls under. Staff were expecting to have viewed the initial report by this date however Transport Minister Phil Twyford had indicated that further detailed work would be required for the report to be more useful and as a result the report is not yet available.

19. Latest update from the review is that unions were engaged in November/December 2018, with research approach agreed in late December. Work on additional research was launched earlier this year, with report expected to follow. Staff will continue to provide updates to FARS at each meeting.

National Local Authority Update

20. Council is currently working with all five local authorities to progress a discussion on the living wage for internal staff. Councils have agreed to engage an economic consultant to review this from a Hawke’s Bay perspective.

21. At the time of writing this report this is still being finalised however initial indication suggests that every region adopting a common national living wage is not necessarily an adequate reflection of regional living costs and as such the report may identify a more appropriate, Hawke’s Bay living wage. This is similar to an exercise conducted by Palmerston North City Council that identified a living wage which better reflects regional economies.

22. Council currently pays all of its permanent staff the living wage or higher.

Central Government Steps

23. Central Government has recently lifted the minimum wage in New Zealand significantly which now sits at $17.70 per hour as at 1 April 2019. This is an increase of $1.20 on previous minimum wage. This increase is the biggest boost to the minimum wage in recent New Zealand history.

24. In addition to this increase, Central Government has also promised to increase the minimum wage further annually for it to reach $20 per hour by 2021.

25. Workplace Relations and Safety Minister Iain Lees-Galloway has stated that the reasoning behind this increase is “the Government is determined to improve the wellbeing and living standards of all New Zealanders as we build a productive, sustainable and inclusive economy”.

26. At the time of writing this paper, the Living Wage is currently $20.55 and has been signalled to increase to $21.15 - with a 1 September 2019 implementation date.

27. The Living Wage website doesn’t appear to have any commentary on the recent minimum wage increases at the time of writing this paper.

28. As a reminder at FARS meeting 6 June 2018, a Living Wage Implications Memorandum was presented and noted Palmerston North City Council (PNCC) conducted an exercise to determine a Palmerston North living wage. This was in light of the fact that the cost of living in this centre was considerably less than the cost of living in major centres. This determination was set at $17.50.

29. As minimum wage ($17.70) has now increased beyond the Palmerston North living wage ($17.50), PNCC has elected to drop its local living wage and options to reassess it further, in recognition of the minimum wage increases.

30. Some PNCC Councillors noted within their decision making that the increase in the minimum wage is setting out what the living wage originally planned to do, being increase the wellbeing and living standards of New Zealanders.

Procurement Options

31. Given the difficulty Council has faced in extracting supplier wage information, it is hard to determine the real cost impact of the requirement to include a Living Wage as a minimum requirement as part of Council’s procurement policy.

32. Staff note that an option may be to encourage the payment of a living wage within its procurement policy, as opposed to making it a minimum requirement.

33. The payment of a Living Wage could be given a weighting however should be weighed up alongside other important factors, such as buying local, environmental impacts, and good health and safety practices. For example, a supplier may pay the Living Wage but they may be from a larger centre. As a result, a local business may miss out on Council’s business. Due to this staff are not recommending a set weighting and believe that each contract should be considered on a case by case basis.

Decision Making Process

34. 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

1. That the Finance, Audit and Risk Sub-committee:

1.1. Receives and notes the “Living Wage Update” staff report

1.2. Notes that considerations of living wage related procurement policy decisions are addressed in a separate “Procurement and Contract Management” item.

1.3. Continues to await the feedback of the Public Transport Operating Model report.

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

2.1. Considers the addition of a statement in the Procurement Policy that “Council encourages payment of the Living Wage”

2.2. Recommends that if the inclusion of a weighting for payment of the Living Wage in a contract decision is to be considered, that decision will be determined based on the type and value of the contract, and should also weigh up other best business practices.

Authored by:

Melissa des Landes

Acting Chief Financial Officer

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 22 May 2019

Subject: Procurement and Contract Management Update

Reason for Report

1. This report provides an update on progress made in response to recommendations made by the 2018 internal audit to review and amend the Regional Council’s Procurement Policy and Procurement Manual.

Background

2. From a purely business perspective, the most obvious benefits of an effective procurement process are financial, via upfront cost savings by procuring items, services, and contracts at the best price available. Effective procurement should also ensure that projects are delivered to time and budget, with reduced exposure to commercial risk and by way of a consistent and appropriate process which aligns with HBRC procurement principals.

3. The HBRC Procurement Policy was approved in 2015, the Procurement Manual was approved in 2016, with the intent to review within three years.

4. In September 2018 The Office of the Auditor General (OAG) and Ministry of Business Innovation and Employment (MBIE) made new recommendations for best practice in procurement. HBRC commissioned a review in 2018 by Crowe Horwath to evaluate our existing policy and make recommendations to align with current best practice guidelines. This draft policy and the accompanying draft procurement manual reflect HBRC progress to adopt those and other recommendations to achieve best practice.

5. The attached revised policy and manual are consistent with national procurement principles and guidelines and are compliant with relevant legislation. The Policy details what HBRC is required to do to meet national guidelines and the Manual details how to apply policy principles, to deliver benefits of best practice procurement.

6. Key Audit findings from 2018 were:

6.1. Procurement policy (2015) is fit for purpose

6.2. HBRC would benefit from a central Procurement and Contract resource

6.3. There was a lack of evidence to support procurement decisions (Procurement plans)

6.4. There are inconsistent templates and de-centralised systems for contract management, with inherent risk.

6.5. Contract register was incomplete and contained expired contracts.

7. Audit recommendations and responses are tabled following.

Recommendation	Response
Procurement structure should be centralised to ensure consistency in the application and training for best practice	1. A procurement hub has now been established as a central procurement management resource. Staff have created a replacement for ‘contract central’ an Electronic Document Record Management System (EDRMS) and rather than just being a repository, the new contracts hub will provide resources to manage the whole procurement life cycle from planning to evaluation. 2. 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. This role was not included in the HBRC Long Term plan, but was proposed at the finance audit and risk committee in June 2018, to be explored for 2020, existing resource being utilized in the interim.
Regular reporting to the Executive team should include high value, high risk or complex procurement and notice of upcoming significant tenders.	A draft template report will be implemented from June 2019
A procurement planning template be included in the procurement manual	Plan templates are included for simple and complex procurements
Training should be provided to staff engaged in procurement practice and contract management	Training will be cascaded from the Hub to selected subject matter experts in each executive team member group. Each group will include (where relevant) training for existing staff and new staff as part of the induction process
Tools and templates should be implemented to ensure policies and procedures are followed	Procurement NZ, OAG and MBIE templates are now being introduced as standard across all HB councils, currently being led by HBRC and HDC. These are detailed in the revised procurement manual.

Next Steps

8. As part of the centralisation of procurement, and in order to promote a consistent approach, training will be cascaded through the organisation for and to those with procurement responsibilities. The training will be based on the manual and targeted to the needs of each service group. The Executive Assistants for each group will be supported as ‘subject matter experts’ for the group and training will be delivered to team level. New staff will have training as part of their induction. Training videos will be available for reference and ‘refresher’ presentations delivered on request.

9. Contract reporting as provided monthly to the Executive team and the Office of the Chief Executive will be provided to Finance Audit and Risk sub-committee on a quarterly basis with effect from July 2019. This will include: New contracts in the reporting period by value (over $50k) and level of risk; details of sourcing – RFP/RFQ /Local interest; List of expiring contracts in the next reporting period.

10. Crowe Horwath (Findex) will be invited to review the revised policy and manual in June 2020 to check adherence and completeness.

Decision Making Process

11. 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

1. That the Finance, Audit and Risk Sub-committee:

1.1. Receives and considers the “Procurement and Contract Management Update” staff report

1.2. Agrees support for the proposed revised Hawke’s Bay Regional Council Procurement Policy May 2019 and Procurement Manual.

Authored by:

Mark Heaney

Manager Client Services

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

⇨1	HBRC Procurement Policy May 2019	Under Separate Cover
⇨2	HBRC Procurement Manual May 2019	Under Separate Cover
⇨3	Contractor registration	Under Separate Cover
⇨4	Procurement Plans	Under Separate Cover
⇨5	Contract for Provision of Services	Under Separate Cover
⇨6	Contract Evaluation Form	Under Separate Cover
⇨7	Contract monitoring template	Under Separate Cover
⇨8	Other Policy and Legislation	Under Separate Cover

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

Wednesday 22 May 2019

Subject: May 2019 Sub-committee Work Programme Update

Reason for Report

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

Task	Item	Scheduled / Status
Internal Audits	Health & Safety	Presented to 21 November 2018 FARS meeting.
	Data Analytics	Presented to 12 February 2019 FARS meeting.
	Business Continuance	Deferred
	Water Management – Follow Up Review	Scope agreed at 12 February 2019 FARS meeting with final report to be presented to 22 May FARS meeting.
Risk Assessment & Management	Reporting on risks (6-monthly) affecting Council plus noting changes / improvements / areas that require attention from last report (3-monthly).	Presented to 19 September 2018 and 12 February 2019 meeting. Risk management review proposed for 2019-20 financial year.
Insurance	Council’s proposed 2018-19 Insurance programme.	Update to be presented to 22 May FARS meeting.
Annual Report	Discussion on Audit Management Letter. Discussion on the major issues (if any) in the audit report on the Annual Report.	Audit Director attended 21 November 2018 FARS meeting to discuss Annual Report process.
S17a Efficiency Reviews (Section 17a Local Government Act)	Update on progress and findings of Section 17a Efficiency Reviews.	Staff resourcing has been diverted to focus on the procurement and contract management piece of work, with S17a to form part of this following.
Investment Returns & Treasury Monitoring	Update on progress in obtaining required level of dividend from PONL (Port of Napier Limited). Update on Treasury function within Council.	Separate Treasury paper prepared to be presented to 22 May FARS meeting. Application to join LGFA (Local Government Funding Agency) now complete.
Living Wage	Procurement and Contract Management	Staff have undertaken a survey of supplier contracts and findings of this will be presented at 22 May FARS meeting, alongside an update on the PTOM (Public Transport Operating Model) review.

Decision Making Process

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

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the “May 2019 Sub-committee Work Programme Update” staff report.

Authored by:

Melissa des Landes

Acting Chief Financial Officer

Approved by:

Jessica Ellerm

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.

[1] Philip Jones is the principal of PJ and Associates. He has been consulting to a variety of local government-related organisations since June 2007. He is also a trainer of elected members through LGNZ Professional Development courses.

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