Meeting of the
Finance Audit & Risk Sub-committee
Date: 15 December 2021
Time: 1.30pm
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Venue:
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Council
Chamber
Hawke's
Bay Regional Council
159
Dalton Street
NAPIER
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Agenda
Item Title Page
1. Welcome/Karakia/Notices/Apologies
2. Conflict
of Interest Declarations
3. Confirmation of Minutes of
the Finance Audit & Risk Sub-committee held on 13 October 2021
Decision
Items
4. 2020-2021
Annual Report and Summary 3
Information
or Performance Monitoring
5. Quarterly
Treasury Report for 1 July - 30 September 2021 7
Decision
Items (Public Excluded)
6. Confirmation
of Public Excluded Minutes of the Finance, Audit and Risk Sub-committee meeting
held on 13 October 2021 33
HAWKE’S BAY REGIONAL COUNCIL
Finance Audit & Risk Sub-committee
15
December 2021
Subject: 2020-2021 Annual Report and Summary
Reason for report
1. This item presents the Hawke’s
Bay Regional Council Annual Report for the 2020-2021 financial year for the
Sub-committee’s review and recommendation to the Regional Council for
adoption.
2. The item also presents the 2020-2021
Annual Report Summary for information. The Summary does not require Council
adoption but is instead authorised by the Chief Executive.
Officers’
recommendations
3. Staff recommend that the Sub-committee
considers the 2020-2021 Annual Report as presented, noting that the final audit
report has not yet been received and adjustments may be required before Council
adoption.
Audit
clearance
4. Under the Local Government Act 2020
(the Act), the annual report and summary are statutory requirements and
required to be audited by an independent auditor.
5. Legislation[1] was passed in July 2021 to
extend the statutory deadline for adoption of both the 2020-2021 and 2021-2022
Annual Reports (with 30 June balance dates) by two months due to a severe
shortage of Auditors. That means that those annual reports must be
adopted no later than 31 December in their respective year.
6. At the time of writing, Audit NZ was
still resolving queries with their technical team, therefore there is
uncertainty around when the final audit report will be received. Due to this uncertainty
the plan is now for Council to adopt in January 2022.
7. Staff are expecting an unmodified
audit opinion. We could however expect to see some adjustments to the
financial statements due to the amount of work still to be completed by the
auditors. Should these be minor, staff consider it is not necessary to
bring them before the Sub-committee again for further review. Should
those amendments be significant in nature, revised financial statements will be
brought back to the Sub-committee before Council adoption.
8. Auditing of Hawke’s Bay Regional
Investment Company Ltd’s (HBRIC) accounts has been completed and received
an unmodified audit opinion.
9. A late adoption requires the inclusion
of a note in the Annual Report. It does not affect our Level of Service
Measure related to a clear audited opinion. Interim non-financial and
financial results, prior to being audited, have been in the public arena multiple
times via committee agendas. (See section “Information already
presented to Council’ for more details).
Background
10. The purposes of the annual report are
to:
10.1. compare actual financial and service
performance against intended performance as set out in Year 3 of the Long Term
Plan 2018-2028
10.2. promote accountability to the
community for the decisions made throughout the year by the Regional Council.
11. Schedule 10 of the Act prescribes what
must be included in the annual report.
12. The summary must represent, fairly and
consistently, the information regarding the major matters dealt with in the
annual report. It must not include any new information (not included in the
full document) but does offer the opportunity to engage more effectively with
the community.
Information
already presented to Council
13. Interim financial results for the
2020-2021 financial year to 30 June 2021 (prior to audit) and requests to carry
forward expenditure budgets from 2020-2021 to 2021-2022 were presented to the
Corporate and Strategic Committee on 18 August 2021, noting that year-end
financial results were likely to change as staff refine information as part of
the audit process. Some draft non-financial results (Community Outcomes and
Groups of Activities) were also presented at that meeting.
14. Council approved the budget carry
forward requests at its meeting on 25 August 2021.
15. Feedback from the Corporate and
Strategic Committee on the draft non-financial results was incorporated and
then presented to the Finance, Audit and Risk Sub-committee on 13 October 2021,
along with the Introduction and Regional Highlights sections.
Discussion
points
16. The production of the 2020-2021 Annual
Report financial information has been a challenging process for staff as the
implementation of a new finance system for the whole organisation has taken
place at the same time.
17. The 2020-2021 Annual Report includes a
significant prior year adjustment. In December 2013, Council signed a contract
with the Accident Compensation Corporation (ACC) to provide immediate
investment funds in exchange for the future rental income from the Napier
endowment leasehold properties for the 50-year term of the contract. Council
has recognised a provision for the payment of the future rental income in the
financial statements since the year ending 30 June 2014.
18. The contract includes an obligation
that Council pays ACC two-thirds of the gain from the sale of the leasehold
over and above the future rental income due on that property. In the early
years of the contract, the portion of the gain paid to ACC was immaterial but
this has evolved over time as a large number of properties have been freeholded
and the value of the remaining properties has increased significantly.
19. Council has now assessed the potential
liability based on the valuation of the Napier property portfolio and the
remaining rental provision and has determined that a provision of $21.7 million
is required to correctly state the liability to ACC from the probable sale of
the remaining leasehold properties.
20. Council has determined that this
adjustment should be recognised in prior periods to meet accounting standards
and has restated the 2019-2020 figures accordingly resulting in a
$6.3 million reduction in the 2019-2020 surplus and a $2.9 million expense
in the current year.
Next
steps
21. Following Council adoption, and in
line with section 98 of the Local Government Act 2002, both the 2020-2021
Annual Report and the 2020-2021 Annual Report Summary will be made publicly
available within one month. Both will be published on Council’s website
and a limited number of the Summary Annual Report will be printed.
Decision Making Process
22. Council and its committees
are required to make every decision in accordance with the requirements of the
Local Government Act 2002. Staff have assessed the requirements in relation to
this item and have concluded:
22.1. The decision does not
significantly alter the service provision or affect a strategic asset, nor is it
inconsistent with an existing policy or plan.
22.2. The use of the special
consultative procedure is not prescribed by legislation.
22.3. The decision is not
significant under the criteria contained in Council’s adopted
Significance and Engagement Policy.
22.4. The decision is in accordance with the
Finance, Audit and Risk Sub-committee Terms of Reference, specifically to:
22.4.1. Satisfy itself that the financial
statements and statements of service performance are supported by adequate
management signoff and adequate internal controls and recommend adoption of the
Annual Report by Council.
22.5. Given the nature and
significance of the issue to be considered and decided, and also the persons
likely to be affected by, or have an interest in the decisions made, Council
can exercise its discretion and make a decision without consulting directly
with the community or others
having an interest in the decision.
Recommendations
That the Finance, Audit and Risk
Sub-committee:
1. Receives and considers the “Hawke’s
Bay Regional Council 2020-2021 Annual Report and Summary” staff report.
2. Recommends that
Hawke’s Bay Regional Council adopts the 2020-2021 Annual Report, pending receipt of Audit New
Zealand’s final audit report and subject to any minor adjustments resulting from
the audit.
Authored by:
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Sarah Bell
Team Leader
Strategy & Performance
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Mandy Sharpe
Project
Manager
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Desiree Cull
Strategy
& Governance Manager
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Approved by:
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Jessica Ellerm
Group
Manager Corporate Services
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Attachment/s
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1⇨
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2020-2021 HBRC Annual Report
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Under Separate Cover
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2⇨
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2020-2021 Annual Report Summary
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Under Separate Cover
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HAWKE’S BAY REGIONAL
COUNCIL
Finance Audit & Risk Sub-committee
15
December 2021
Subject: Quarterly Treasury Report for 1 July - 30 September 2021
Reason for Report
1. This item provides
compliance monitoring of Hawke’s Bay Regional Council (HBRC) treasury
activity and reports the performance of Council’s investment portfolio
for the quarter ended 30 September 2021.
Overview of the Quarter – ending 30 September 2021
2. At the end of the quarter
to 30 September 2021, HBRC was compliant with all of the measures in its
Treasury policy.
3. Our investment returns for
the first 3 months are below expectations at this stage, however, it is too
early to predict the returns for the rest of the year.
4. Our cash balances are good
and borrowing requirements low for the first 3 months. As Council progresses
further into the financial year additional borrowing will be required.
Background
5. Council’s Treasury
Policy requires a quarterly Treasury Report to be presented to the Finance
Audit and Risk Sub-committee. The policy states that the Treasury Report
is to include:
5.1. Treasury Exceptions report
5.2. Policy compliance
5.3. Borrowing Limit report
5.4. Funding and liquidity report
5.5. Debt maturity profile Interest rate report
5.6. Investment management report **
5.7. Treasury investments
5.8. Cost of funds report Cash flow and
debt forecast report
5.9. Debt and interest rate strategy and
commentary
5.10. Counterparty credit report
5.11. Loan advances.
6. The Investment Management report** has
specific requirements outlined in the Treasury Policy. This requires quarterly
reporting on all treasury investments plus annual reporting on all equities and
property investments.
7. In addition to the Treasury Policy,
Council has a Statement of Investment Policy and Objectives (SIPO) document
setting out the parameters required for funds under management for the HBRC
Long Term Investment Fund.
8. Treasury Investments to be
reported on consist of:
8.1. Liquidity
8.1.1. Cash and Cash Equivalents
8.1.2. Debt Management
8.2. Externally Managed Investment Funds
8.2.1. Long-Term Investment Fund (LTIF)
8.2.2. Future Investment Fund (FIF)
8.3. Investment properties
8.4. HBRIC Ltd
8.5. 2020-21 Performance Summary.
9. Since 2018, HBRC has
procured treasury advice and services from PriceWaterhouseCoopers (PwC) and
their quarterly compliance report is attached.
Discussion
10. A separate treasury report is prepared
by Council’s advisors, PwC to report on compliance with the policy
parameters and investment performance. The PwC report is attached. This
report gives a high-level summary of the data in the PwC report.
Liquidity
11. To ensure HBRC has the
ability to adequately fund its operations, current policy requires HBRC to
maintain a liquid balance of $3.0m.
12. The following table reports
the cash and cash equivalents on 30 September 2021.
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30
September 2021
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$000
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Cash
on Call
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12,845
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Short-term
bank deposits
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14,000
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Total
Cash & and Deposits
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26,845
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13. Council’s balance of
cash and deposits compares favorably with the September 2020 balance of $15.2m.
The main reason for the variance to last year is that the due date for the
payment of rates was 20 September 2021 so a large portion of rates revenue had
been received, while last year ratepayers were given additional time to pay.
14. To manage HBRC liquidity
risk, HBRC also retains a Standby Facility with BNZ.
This facility provides HBRC with a same day draw down option, to any amount
between $0.3-$5.0m, and with a 7-day minimum draw period.
Debt Management
15. On 30 September 2021,
current external debt was $42.096m.
16. $6m was raised form LGFA in
July and a further $5m was raised from LGFA in August. The funds were
raised for terms of 3,6 and 8 years with effective interest rates ranging from
1.82% to 2.39%. Details of the funds raised are show in Appendix 14 of the PwC
report.
17. Further borrowing will be
required in the second half of the financial year (first half of 2022) as the
requirements of the proposed 2021-22 borrowing programme of $27.5m ramps up.
Managed
Funds
18. The Fund performances for
the first 3 months have been lower than we have experienced recently. Markets
have not performed as strongly as last year with the YTP results for the two
providers being 0.9% and 1% so far. This follows on from annualized returns of
12.5% and 14.5% for the 2020-21 financial year.
19. Given the nature of the
investments some volatility is to be expected. It is too early to predict
likely returns for the full year, however, if the remaining quarters deliver
similar results the annualized return would be approximately 4% which is below
the LTP budget of 5.16% p.a.
20. The presentation of table
below has been changed from previous reports to show the combined view of funds
and the value available above the capital protected sum. As at June 2021
Council had an additional $3.36m available due to the stronger investment
returns in 2020-2021. Some of this could be used to supplement any shortfall if
the current lower returns continue to the end of the financial year.
21. The following table summarises the fund balances at the
end of each quarter.
22. The view for the June 2021
and September 2021 has been expanded to show the total group balance of managed
funds (including HBRIC) and the amount by which the current funds balance
exceeds the capital protected amount.
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30 Sep 2020
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31 Dec 2020
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31 Mar 2021
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30 Jun 2021
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30 Sep 2021
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$000
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$000
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$000
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$000
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$000
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Total funds before withdrawals
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111,078
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121,404
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114,625
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118,563
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115,745
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Funds withdrawn
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(6,500)
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(4,200)
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Fund Balance HBRC
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111,078
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114,904
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114,625
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114,363
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115,745
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Funds Balances (HBRC & Group)
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Long-Term Investment Fund
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51,810
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49,925 *
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50,206
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49,883**
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50,484
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Future Investment Fund
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63,094
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64,300 *
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64,418
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64,370**
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65,261
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Total HBRC
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111,078
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114,904
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114,625
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114,363**
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115,745
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Plus HBRIC
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48,503
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48,771
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Total Group Managed Funds
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162,866
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164,516
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Capital Protected Amount (2% compound inflation)
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159,506
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160,303
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Current value above protected amount
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3,360
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4,213
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22.1. * December 2020 saw $6.5m
(LTIF $4.5m & FIF $2.0m) Funds being divested for the first time, which
explains the reduced fund balance.
22.2. ** Additional funds totaling
$4.2m (LTIF $2.0m & FIF $2.2m) were withdrawn from the funds during the
June quarter.
Investment
Property
23. In the first quarter, two
Napier Endowment Leasehold Properties were been freeholded totaling $0.35m.
$0.27m of this has been subsequently paid to ACC as settlement for the
remaining 42 years rent for these properties.
24. The income from leasehold
sales is recognised in the current financial
year. Most of this goes into offsetting the movement in the ACC
liability. HBRC receives one third of any surplus after paying out the
remaining ACC liability. The HBRC share of proceeds to date ($42,000) are
placed in the Sale of Land Reserve.
25. Since 30 September a
further 4 properties have been freeholded and another two will be settled in
the near future.
HBRIC
26. In accordance with Council
Policy, HBRIC provides separate quarterly updates to the Corporate and
Strategic Committee.
Decision Making Process
27. Council and its committees
are required to make every decision in accordance with the requirements of the
Local Government Act 2002 (the Act). Staff have assessed the requirements in
relation to this item and have concluded:
27.1. The agenda item is in accordance with
the Finance, Audit and Risk Sub-committee Terms of Reference, specifically
“The Finance, Audit and Risk Sub-committee
shall have responsibility and authority to (2.4) monitor the performance of Council’s investment portfolio”.
27.2. As this report is for information
only, the decision making provisions do not apply.
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Recommendation
That the Finance, Audit
and Risk Sub-committee receives and notes the “Quarterly Treasury
Report for 1 July – September 2021” and confirms that the
performance of Council’s investment portfolio has been reported to the
Sub-committee’s satisfaction.
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Authored by:
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Ross Franklin
Acting
Chief Financial Officer
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Approved by:
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Jessica Ellerm
Group
Manager Corporate Services
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Attachment/s
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1⇩
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PWC Quarterly Treasury Report to 30
September 2021
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PWC
Quarterly Treasury Report to 30 September 2021
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Attachment 1
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HAWKE’S
BAY REGIONAL COUNCIL
Finance Audit & Risk Sub-committee
15
December 2021
Subject: confirmation
of public excluded minutes
That
Hawke’s Bay Regional Council excludes the public from this section of the
meeting being Confirmation of Public Excluded Minutes Agenda Item 6 with the
general subject of the item to be considered while the public is excluded; the
reasons for passing the resolution and the specific grounds under Section 48
(1) of the Local Government Official Information and Meetings Act 1987 for the
passing of this resolution being:
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GENERAL SUBJECT OF THE ITEM TO
BE CONSIDERED
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REASON FOR PASSING THIS
RESOLUTION
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GROUNDS UNDER SECTION 48(1) FOR
THE PASSING OF THE RESOLUTION
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Internal Assurance Dashboard -
Cyber Security Corrective Actions Status Update
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7(2)(f)(ii)
The withholding of the information is necessary to maintain the effective
conduct of public affairs through the protection of such members, officers,
employees, and persons from improper pressure or harassment
s7(2)(j)
That the public conduct of this agenda item would be likely to result in the
disclosure of information where the withholding of the information is
necessary to prevent the disclosure or use of official information for
improper gain or improper advantage
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The Council is specified, in
the First Schedule to this Act, as a body to which the Act applies.
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Authored by:
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Leeanne Hooper
Team Leader
Governance
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Approved by:
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Desiree Cull
Strategy
& Governance Manager
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