Agenda of Finance Audit & Risk Sub-committee

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Annual Internal Audit Plan 2022-2023 for adoption

Reason for Report

1. This item provides the Finance Audit and Risk Sub-committee (FARS) with a potential Annual Internal Audit Plan 2022-2023 for consideration and adoption.

Background/Discussion

2. The Internal Audit Framework was adopted by Council on 26 May 2021. This framework requires that an Annual Internal Audit Plan be adopted by FARS each year, for the following financial year.

3. Council’s current internal auditors, Crowe, have provided a potential FY22-23 Annual Internal Audit Plan (attached) and will attend the FARS meeting to respond to questions and provide additional information as required.

4. The following, from the list of potential internal audits provided by Crowe, are recommended by the Executive Leadership Team (ELT meeting of 11 April 2022). In making the recommendation the ELT considered emerging risks, coverage of enterprise risks from previous years audits, resource availability, and budgets. Recommended audits include:

4.1. Data and Analysis – currently this audit is a 12-monthly cyclical review (consideration could be given to reduce this to once every two years when TechOne has been fully embedded) that covers payroll and accounts payables master and transactional data to identify potentially suspicious relationships, trends and transactions for the year.

4.2. Three yearly Health and Safety Review – this reviews health and safety reporting processes and mechanisms in place at the Council to assess their effectiveness in informing management of events and in developing appropriate actions (e.g., identification of trends, training needs, control improvements, etc).

4.3. Organisational Change Consolidation and Prioritisation – this audit is to ensure that decisions on ‘how’ to execute and programme our strategic organisational change initiatives effectively consider organisational impacts, risks, resource constraints and process/system integration. The aim is to look at opportunities to strengthen decision making to execute organisational change in order to expedite the creation of value while protecting the organisation from undue risk, e.g. impact on people, compliance, etc. The strategic decision-making process on each individual organisational change initiative and project management process is out of scope.

Financial and Resource Implications

5. The internal audits will be undertaken, as per the approved plan, within the 2022-2023 budgets allocated.

Decision Making Process

6. 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:

6.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

6.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.3) the independence and adequacy of internal and external audit functions

6.1.2. The Finance, Audit and Risk Sub-committee is delegated by Council to (3.6) review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework; and (3.7) assess the performance of the internal audit function and ensure that the function is adequately resourced and has appropriate authority and standing within Council.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and considers the Annual Internal Audit Plan 2022-2023 for adoption staff report

2. Adopts the internal audit plan for the 2022-2023 financial year, which includes:

2.1. data analytics

2.2. health and safety system

2.3. organisational change consolidation and prioritisation.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

Crowe - Potential HBRC Internal Audits 2022-2023

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Fraud Internal Audit report

Reason for Report

1. This item provides the Finance Audit and Risk Sub-committee (FARS) with the internal audit report on Fraud Risk Management undertaken by Crowe.

Officers’ Recommendations

2. Council officers recommend that the Sub-committee considers the planned actions to address the recommendations of the Fraud Risk Management Internal Audit report and agree the medium findings to be monitored and tracked as corrective actions via the Correction Actions Dashboard.

Executive Summary

3. The FARS agreed on 13 October 2021, as part of the Annual Internal Assurance Plan FY 2022-21 to engage Crowe to conduct an internal audit of the Council’s Fraud Risk Management system.

4. The Fraud Internal Audit was carried out in February 2022 in accordance with the 2021-2022 Internal Audit Plan. The scope of the audit was to establish the effectiveness of the current fraud and corruption policies and procedures, and to establish actions to reduce the risk of fraud or misconduct from occurring.

5. The Executive Leadership Team reviewed and agreed the findings at its meeting of 11 April following recommendations by the Fraud Risk Management Audit report.

6. There were no high priority findings observed. The report noted staff members interviewed all noted a good ethical culture where staff have a willingness to raise issues and concerns when they arise. In addition, good levels of internal control, monitoring and reviewing of procedures were noted. The main themes of the findings for corrective action and improvement, included:

6.1. a lack of awareness of fraud and corruption amongst staff

6.2. key fraud policies require reviewing, updating and ownership

6.3. procedures on staff and supplier screening requires improvement.

Decision Making Process

7. 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:

7.1. The agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

7.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.3) the independence and adequacy of internal and external audit functions

7.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.6) receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s)

7.1.3. The Finance, Audit and Risk Sub-committee is delegated by Council to (3.5) ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management.

7.2. 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 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 considers the Fraud Internal Audit Report.

2. 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 Sub-committee can exercise its discretion and make decisions on this issue in accordance with its Terms of Reference.

3. Agrees that the corrective actions and due dates following, for medium risk findings from the Crowe HBRC Fraud Risk Gap Analysis Report February 2022, are considered adequate to address the report’s findings and recommendations, with progress to be monitored and reported to the Sub-committee using the Corrective Actions Dashboard.

3.1. The Fraud Policy is to be reviewed – implementation September 2022.

3.2. The formal owner of the Fraud Policy is to be identified – implementation September 2022.

3.3. Fraud and Corruption Awareness training will be delivered to all staff – implementation October 2022.

3.4. Conflicts of Interest and Gifts policies are to be reviewed– implementation September 2022.

3.5. The Appointment of Staff Policy is to be reviewed – implementation October/November 2022.

3.6. The Protected Disclosures Policy is to be reviewed – implementation October/November 2022.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

Crowe HBRC Fraud Risk Gap Analysis Report February 2022

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Annual Internal Audit Plan 2021-2022 status update

Reason for Report

1. This item provides the Finance Audit and Risk Sub-committee (FARS) with the Annual Internal Audit Plan FY21-22 status update.

Officers’ Recommendations

2. Council officers recommend that the FARS members consider and notes the Annual Internal Audit Plan FY21-22 status update below.

Approved Audit FY2021-22	Provider	Quarter Due	Date Commenced	Management Comments	Reported to FARS
Fraud Management	Crowe	Q3	February 2022	Approved by ELT 11 April 2022	May 2022*
Data Analytics	Crowe	Q4		Commencing May 2022
Retained Audit Capacity – 40 hrs

*The Fraud Management Audit report is a separate item to this FARS meeting agenda.

3. The purpose of this status update dashboard is to provide the FARS with oversight and progress of individual internal audits that form part of the Corporate and Strategic Committee (C&S) approved Annual Internal Audit Plan.

Financial and Resource Implications

4. The internal audits undertaken as per the approved plan have been managed within the approved budgets.

Decision Making Process

5. 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:

5.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

5.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.3) the independence and adequacy of internal and external audit functions

5.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.5) confirm the terms of appointment and engagement of external auditors, including the nature and scope of the audit, timetable, and fees; (2.6) receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s)

5.1.3. The Finance, Audit and Risk Sub-committee is delegated by Council to (3.6) review the objectives and scope of the internal audit function, and ensure those objectives are aligned with Council’s overall risk management framework; and (3.7) assess the performance of the internal audit function, and ensure that the function is adequately resourced and has appropriate authority and standing within Council.

5.1.4. As this item is for information only, the decision making provisions do not apply.

Recommendations

That the Finance, Audit and Risk Sub-committee receives and notes the Annual Internal Audit Plan 2021-2022 status update staff report.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Road Safety s17a Review outcomes

Reason for report

1. This item presents the Local Government Act section 17a Service Delivery review of HB Roadsafe functions and seeks approval from the Finance Audit and Risk Sub-committee to progress the proposed outcome resulting from the review.

Officers’ recommendations

2. Staff recommend that the committee approves the proposed delivery outcome that resulted from Morrison Low’s Service Delivery Review of the Hawke’s Bay Regional Council’s Road Safety function and has been agreed by the Regional Transport Committee.

Executive Summary

3. This report introduces the Morrison Low report, attached, which covers the feedback, findings, evaluation, and recommendations of the delivery of Hawke’s Bay’s Road Safety programme.

Background/Discussion

4. At its 11 December 2020 meeting, the Regional Transport Committee (RTC) sought advice in relation to their oversight and governance of Hawke’s Bay’s Road Safety programme (RSP). The Committee also sought further advice about the effective delivery of their governance obligations for Road Safety.

5. In response to the request for oversight and governance of the Road Safety Programme, a workshop was held on 12 March 2021. The workshop provided an opportunity to discuss the options and preferred approach for the involvement of the Committee in the Road Safety Programme.

6. The outcome from that workshop was agreement that direction setting, oversight and accountability for the RoadSafe programme should sit with the RTC at the Governance level.

7. Following that decision, the RTC agreed to a service delivery review in accordance with the requirements of Section 17a of the Local Government Act 2002.

8. Morrison Low undertook the Section 17a review of the delivery of the Road Safety programme with all stakeholders and the findings and recommendations from that review are attached.

Options assessment

9. Road Safety delivery options are discussed in the attached Morrison Low report.

Financial and resource implications

10. Financial and resource implications are outlined in the attached Morrison Low report.

Consultation

11. Consultation undertaken with stakeholders is outlined in the attached report.

Considerations of tangata whenua

12. There are no social, cultural, or economic effects on tangata whenua as a result of this review, but consultation was undertaken with key stakeholders, some of which have a primary focus on the social, cultural and economic wellbeing of tangata whenua in regard to road safety.

Decision making process

13. 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:

13.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

13.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.3) the independence and adequacy of internal and external audit functions

13.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.6) receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s); (2.11) undertake systematic reviews of Council operational activities against Council stated performance criteria to determine efficiency/effectiveness of delivery of Council services

13.1.3. The Finance, Audit and Risk Sub-committee is delegated by Council to (3.5.) ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management.

13.2. 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 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 considers the Road Safety s17a Review outcomes staff report.

3. Endorses the preferred service delivery model, as approved by way of a resolution of the Regional Transport Committee on 11 March 2022, of a fully collaborative regional approach to road safety including:

3.1. The revised structure will drive an enhanced collaborative model across the region through the Napier City, Hastings District, Central Hawke’s Bay District, Wairoa District and Hawke’s Bay Regional councils, Waka Kotahi, NZ Police and their partners working together to deliver better road safety outcomes through engineering, education and enforcement.

3.2. The road safety programme will be developed and monitored at a strategic regional level and then implemented locally at an operational level.

3.3. A strengthened Regional Transport Committee role will ensure effective governance and decision-making, giving clear direction and goals.

3.4. A focused Road Safety Group will support a more effective programme across the region, coming together to identify priorities and set the annual programme and then to review the annual programme (midway through the year) against objectives and measures and adjust it to suit current / emerging needs.

3.5. RoadSafe HB will provide a coordination and community engagement role in delivery of the programme with strategic support from the Regional Transport Committee and the Napier City, Hastings District, Central Hawke’s Bay District, Wairoa District and Hawke’s Bay Regional councils.

Authored by:

Katie Nimon

Transport Manager

Approved by:

Katrina Brunton

Group Manager Policy & Regulation

James Palmer

Chief Executive

Attachment/s

1 ⇩

Morrison Low Hawke's Bay Road Safety s17A Review report

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: 2020-2021 Annual Report adoption update

Reason for report

1. This item provides the sub-committee with an update on the late adoption of the FY20-21 Annual Report, specifically the outcome of the auditor’s deliberations on the accounting treatment of the significant prior year adjustment regarding the Accident Compensation Corporation (ACC) Contract.

Background

2. The purposes of the Annual Report are to:

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

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

3. Schedule 10 of the Act prescribes what must be included in the Annual Report.

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

5. The Annual Report 2020-2021 includes a significant prior year adjustment. In December 2013, Council signed a contract with 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.

6. 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 the freehold has been sold on a large number of properties and the value of the remaining properties has increased significantly.

7. 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.

8. 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.

9. At the March sub-committee meeting. Karen Young of Audit NZ explained that their technical team were reviewing the ACC contract and its associated accounting treatment.

Update

10. Audit NZ has recommended we receive an unqualified audit opinion.

11. Audit NZ, after further delay, has completed their technical assessment of the ACC contract and provided Council with their recommendations:

11.1. Council should have treated the payment of the future rental income included in the contract as a financial liability not a provision, and must change the headings to reflect the correct classification.

11.2. Council should have recognised two embedded derivatives (such as financial liabilities) being payment of two-thirds of any excess rental received and two-thirds of the profit from sales.

11.3. Council’s decision to recognise a prior period error and restate the financial statements is correct.

11.4. Audit NZ proposed options for the treatment of the future rental income and embedded derivatives.

11.5. Staff have chosen to present the future rental income liability as previously calculated and the derivatives as a single liability shown at fair value.

11.6. Audit NZ considered that the Council’s draft calculation of $21.7 million for the fair value of the derivatives was reasonable.

12. Staff have made the following changes to the Annual Report presented to the sub-committee in December 2021.

12.1. Changed the headings in the Statement of Financial Position and Notes to ‘ACC Leasehold Financing Liability’.

12.2. Changed the movements in the sales liability from an expense to fair value through surplus/deficit.

12.3. Updated the notes to reference the correct classification of the liabilities and movements.

13. Because the changes to the Annual Report 2020-2021 presented to the sub-committee in December 2021 are not considered significant nor material, staff will present the updated Annual Report 2020-2021 and Annual Report Summary direct to the Regional Council for adoption on 25 May 2022.

Decision Making Process

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

Recommendations

That the Finance, Audit and Risk Sub-committee receives and notes the Hawke’s Bay Regional Council 2020-2021 Annual Report adoption update staff report.

Authored by:

Sarah Bell

Team Leader Strategy & Performance

Tim Chaplin

Senior Group Accountant

Chris Comber

Chief Financial Officer

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Quarterly Treasury Report for the period 1 January - 31 March 2022

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 31 March 2022.

Overview of the Quarter – ending 31 March 2022

2. At the end of the quarter to 31 March 2022, HBRC was compliant with all measures in its Treasury policy.

3. Investment returns for managed funds, are now ($3.7m) below budget for the first 9 months due to a significant financial market adjustment in January 2022. Another significant market correction is now needed to deliver the required cash returns to support the 2021-22 budget requirements.

4. Further growth of $1.5m is required to achieve 2% capital growth on managed funds for the year, before any funding of Council activities can be considered.

5. It is now anticipated there will be a shortfall to the planned current financial year investment income. However, the market is variable and staff advice in consultation with investment managers is that the portfolio remains balanced for the long term.

6. Cash balances are good and actual year to date borrowing is $15m. Potentially, $15m is the full borrowing requirement for activities for the year, which was planned at $36.5m. The variance is due to some delay in timing of capital work programme delivery and the impacts of Covid-19. As a result, and the additional debt to revenue headroom, staff are comfortable with the ability to fund the anticipated shortfall in investment income this financial year through borrowing based on current financial performance and position.

Background

7. 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:

7.1. Treasury Exceptions report

7.2. Policy compliance

7.3. Borrowing Limit report

7.4. Funding and liquidity report

7.5. Debt maturity profile Interest rate report

7.6. Investment management report**

7.7. Treasury investments

7.8. Cost of funds report Cash flow and debt forecast report

7.9. Debt and interest rate strategy and commentary

7.10. Counterparty credit report

7.11. Loan advances.

8. 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.

9. 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.

10. Treasury Investments to be reported on consist of:

10.1. Liquidity

10.1.1. Cash and Cash Equivalents

10.1.2. Debt Management

10.2. Externally Managed Investment Funds

10.2.1. Long-Term Investment Fund (LTIF)

10.2.2. Future Investment Fund (FIF)

10.3. Investment properties

10.4. HBRIC Ltd

10.5. 2021-22 Performance Summary.

11. Since 2018, HBRC has procured treasury advice and services from PriceWaterhouseCoopers (PwC).

Discussion

12. 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. A high-level summary of the data in the PwC report is provided following.

Liquidity

13. To ensure HBRC has the ability to adequately fund its operations, current policy requires HBRC to maintain a liquid balance of a minimum of $3.0m.

14. The following table reports the cash and cash equivalents on 31 March 2022.

31 March 2022	$000
Cash on Call	9,960
Short-term bank deposits	-
Total Cash & and Deposits	9,960

15. Council’s balance of cash and deposits compares with the March 2021 balance of $18.94m (in March 2021 Council raised $10m from the LGFA).

16. 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

17. On 31 March 2022 the current external debt for the Council group was $43.5m ($60.175m including the loan from HBRIC).

18. Since the December quarter additional funds of $4m were borrowed from LGFA.

19. Further borrowing is anticipated in the last quarter of the financial year as capital programmes increase and to offset anticipated shortfalls in investment income.

20. The following summarises the Year-to-date movements in Council’s debt position.

Summary of HBRC Debt

	HBRC only	HBRC Group
Opening Debt – 1 July 2021 – excl HBRIC Loan	30,875,014	30,875,014
New Loans raised	15,000,000	15,000,000
Less amounts repaid	(2,362,497)	(2,362,497)
Closing Debt 31 March 2022 (excluding HBRIC loan)	43,512,517	43,512,517
Plus opening balance - loan from HBRIC	16,663,036	-
Total Borrowing as at 31 March	60,175,553	43,512,517

Managed Funds

21. The LTP budgets an annual return of 5.16% from managed funds. Of this 3.16% is used to fund activities with 2.0% retained to grow and protect the capital base for future generations.

22. Council budgets separately for revenue from directly held managed funds and those held by HBRIC. HBRIC is required to deliver an overall portfolio return by way of an annual dividend agreed through an annual Statement of Intent. The composition (between revenues from managed funds and other sources such as port dividends is up to the HBRIC board). Council has budgeted to receive $10.1 in dividends from HBRIC within the FY21-22.

23. The FY21-22 budget expectation for managed funds to be withdrawn to support Council operations is $3.7m. Based on the March funds result and the value above the protected amount, the funds held are not sufficient to deliver the returns required to meet Council’s requirements. A recovery of the market is now required to deliver on budget expectations.

24. Over the March quarter, the Mercer and Jarden LTIF portfolios returned -4.9% and -5.5% net of fees respectively. The annualised cumulative return since inception for the Mercer and Jarden LTIF portfolios was 6.2% and 6.4% respectively.

25. Over the March quarter, the Mercer and Jarden FIF portfolios returned -4.9% and -5.1% net of fees respectively. The annualised cumulative return since inception for the Mercer and Jarden FIF portfolios was 4.3% and 4.9% respectively.

26. The volatility experienced in markets in recent times make it hard to predict the likely returns for the full year. However, if the final quarter delivers similar results as the March quarter, the annualised return would be approximately -5% against an LTP budget of 5.16% p.a. This means there would be no funds available to fund activities in the current financial year.

27. However, the performance of the managed funds since placement demonstrate market recovery can occur within relatively short timeframes, and a watch and wait approach is prudent. The portfolio construct is intentionally conservatively balanced for the long-term.

28. 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 March 2022 the funds are $1.5m below the expected capital protected amount due to the downward trend in markets in recent times. Because there are no funds available at 31 March over and above capital protection of the funds, there is currently no income from managed funds available this financial year to fund council activities. Any shortfall in investment income will be reflected as an operating deficit and / or borrowed to fund council activities.

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

30. The view for the June, September, December and latest March 2022 quarters 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.

	31 Mar 2021	30 Jun 2021	30 Sep 2021	31 Dec 2021	31 Mar 2022
	$000	$000	$000	$000	$000
Total funds before withdrawals	114,625	118,563	115,745	118,221	112,100
Funds withdrawn		(4,200)
Fund Balance HBRC	114,625	114,363	115,745	118,221	112,100
Capital Protected Amount HBRC (2% compounded)		111,983	112,543	113,105	113,671
Current HBRC value above protected amount		2,380	3,202	5,116	(1,571)

Funds Balances (Group + HBRIC)
Long-Term Investment Fund	50,206	49,883*	50,484	51,712	49,014
Future Investment Fund	64,418	64,370*	65,261	66,508	63,086
Total HBRC	114,625	114,363*	115,745	118,220	112,100
Plus HBRIC		48,503	48,771	48,907**	46,337
Total Group Managed Funds		162,866	164,516	167,127	158,437
Capital Protected Amount (2% compound inflation)		159,506	160,303	161,104	161,910
Current group value above protected amount		3,360	4,213	6,023	(3,473)

30.1. * Additional funds totalling $4.2m (LTIF $2.0m & FIF $2.2m) were withdrawn from the funds during the June 2021 quarter

30.2. ** HBRIC withdrew $1.3m during the December quarter. The Capital Protected amount of HBRIC on 31 December is $47.999m. ($0.907m available).

Investment Property – Napier Leasehold Portfolio

31. Napier Leasehold properties represent the balance of ex Harbour Board residential leasehold properties. The HBRC returns from this portfolio are limited as following the sale of future revenues in 2013 to ACC, HBRC retains one third of any excess rentals and one third of any surplus when a property is freeholded.

32. HBRC provides a detailed report to ACC every 6 months and a 6 monthly payment is made for rents owing and for properties freeholded.

33. In the first 9 months, eight Napier Endowment Leasehold Properties were freeholded totalling $1.4m. The HBRC share of $226,800 for the first 9 months is paid into the sale of land reserve. The balance of funds received are paid to ACC to meet Council’s obligations under the contract.

Investment Property – Wellington Leasehold Portfolio

34. The Wellington leasehold portfolio comprises 12 properties in central Wellington. The lessees are a mix of commercial and residential entities.

35. Most of the properties (11) have the rental reviewed every 14 years and one has a 7-year review period. No rent reviews were conducted over the first 9 months and one property is due for a review in June 2022.

36. As previously reported the portfolio value has grown considerably from the initial cost of $6.5m in 2002 to $20.8m at 30 June 2021. Valuation advice is that we can expect another significant increase in the portfolio value when it is revalued as at 30 June 2022.

37. Council budgets to utilise the annual rentals of $841k to offset rates each year.

HBRIC Ltd

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

Decision Making Process

39. 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:

39.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

39.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.1) 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

39.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.4) monitor the performance of Council’s investment portfolio.

39.2. As this item is for information only, the decision making provisions do not apply.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the Quarterly Treasury Report for the period 1 January - 31 March 2022.

2. Confirms that the performance of Council’s investment portfolio has been reported to the Sub-committee’s satisfaction.

Authored by:

Ross Franklin

Finance Consultant

Kishan Premadasa

Commercial Accountant

Chris Comber

Chief Financial Officer

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

HBRC Treasury Report for period to 31 March 2022

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Risk maturity update

Reason for Report

1. This item provides the Finance Audit and Risk Sub-committee (FARS) with an update on the Risk maturity programme of work.

Executive Summary

2. The Executive Leadership Team (ELT) on 11 April noted the status of implementation of phase IV of the risk maturity roadmap as ‘well behind’ plan. They also noted that the disruption to the delivery of phase IV of the risk maturity roadmap was primarily attributable to work from home (WFH) Covid-19 response and staff turnover. It was recommended to, and supported by, ELT that phase IV of the risk maturity roadmap formally be put ‘on-hold’ until Covid disruptions, including the WFH response, ease.

Background

3. At the Corporate and Strategic (C&S) Committee meeting on 10 June 2020 Council’s risk maturity roadmap was endorsed. At that meeting it was agreed that the FARS would take responsibility for overseeing the implementation of the risk maturity roadmap. Therefore, this paper provides the latest update which was presented to the ELT at the meeting on 11 April 2022.

Discussion

4. Subsequent to the Corporate and Strategic (C&S) Committee endorsing the risk maturity roadmap at its meeting on 10 June 2020, phases I-III of the risk maturity roadmap were delivered. Phases I-III focussed on creating risk content and challenging risk thinking at an enterprise level with the ELT and Governance.

5. However, since rollout of phase IV of the roadmap, Council has been faced with significant business disruption due to the Covid-19 WFH response and higher than historic levels of staff turnover. As a result, progress on delivery of phase IV of the roadmap stalled. The rollout of phase IV targets embedding risk management practices and risk-based thinking into the business, and therefore is dependent on staff time and, in some cases, interactive risk sessions with staff.

6. Therefore, at the ELT meeting on 11 April the Executive Team noted the status of implementation of phase IV of the risk maturity roadmap as ‘well behind’ plan. It was recommended to, and supported by, ELT that phase IV of the risk maturity initiative formally be put ‘on-hold’ until Covid disruptions including the WFH response eases. This also allows the operational business to focus on service delivery during the current period of elevated business disruption.

7. The following table outlines the status of key milestones within phase IV of the roadmap that were targeted to be delivered before July 2022.

Risk Maturity Milestone	% Progress and Owners	Status	Reason for Delay
Formal training of Risk Champions	2% Risk Champions/Risk Manager	On hold	Loss of Risk Champions due to resignations and secondments.
Development of Group risk profiles linked to SMART Group objectives	0% Risk Champions / Group Managers / Group LT	On hold	Some Risk Champion roles are now vacant, or Champions are yet to be trained. Covid19 WFH response limits the effectiveness of interactive sessions with Group LT.
Development of critical controls within the completed enterprise bowties	5% Risk Champions / Group Managers / Group LT	On hold: There is a possibility that Group Managers could populate critical controls into the completed enterprise bowties	Covid19 WFH status limits the ability for interactive sessions to identify critical controls.
Formalisation of risk aggregation sessions	10%	On hold	No Group profiles and Covid19 WFH status limits the effectiveness of interactive risk sessions. This limits the ability for risk system processes to effectively elevate risks from the operational business that link to our service deliverables.
Formulation of KPIs / KRIs	1%	Delayed	Internal staff transfer.
Formalisation of CDEM policy/framework	5%	Delayed	HB/Wairoa floods and the flood response.
External validation on the completeness and accuracy of the enterprise bowties	50% Risk Manager and Protecht	Progressing
General risk awareness roadshow	0% Risk Manager	On hold	Covid19 WFH status limits the ability for interactive sessions.
Engage ICT to source options for an integrated risk management system to enable improved FARS dashboard reporting. And to provide a single source of truth for H&S, ISMS, EMS, Compliance (incident management, issues and actions, internal audits, and corporate compliance)	0% Risk Manager and ICT BA (Liaison with H&S, QMS, EMS, ISMS, AMS)	Option to bring forward – pending ICT resource availability	TBC – pending ICT resource availability.
Review of risk appetite statement, RM policy and RM framework	75% Risk Manager, ELT, Council	On hold	Awaiting election and new FARS.

8. Based on the status of milestones and ongoing business disruption due to Covid19 response and staff turnover it is recommended that the FARS notes that the phase IV of the risk maturity roadmap is formally ‘on hold’ with that status regularly being reviewed by staff and the ELT.

Financial and Resource Implications

9. The maturity of the risk management system is phased to minimise budgetary implications. Some facilitated risk training workshops may need to be provided to targeted staff but financed within current budgets. The 0.1 Risk Champion FTE from each Group will be managed through current resourcing.

Decision Making Process

10. 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:

10.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference adopted by Hawke’s Bay Regional Council 25 March 2020, specifically:

10.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.4) the robustness of risk management systems, processes and practices

10.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.9) review whether Council management has a current and comprehensive risk management framework and associated procedures for effective identification and management of the council’s significant risks in place; and (2.10) undertake periodic monitoring of corporate risk assessment, and the internal controls instituted in response to such risks.

10.2. As this item is for information only, the decision-making provisions do not apply.

Recommendation

That the Finance, Audit and Risk Sub-committee receives the Risk maturity update staff report, and notes that phase IV of the risk maturity roadmap is temporarily ‘on hold’ while the business prioritises resourcing to respond to current levels of business disruption.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

HAWKE’S BAY REGIONAL COUNCIL

Finance Audit & Risk Sub-committee

4 May 2022

Subject: Corrective Actions dashboard

Reason for Report

1. This item updates the Finance, Audit and Risk Sub-committee (FARS) on the progress carrying out corrective actions that respond to internal audit findings as previously reported to the FARS.

Officers’ Recommendation

2. Council officers recommend that the sub-committee considers and notes the internal assurance dashboard corrective action status update, with a view to confirming the adequacy of corrective actions undertaken and reporting as such to the Corporate & Strategic Committee (C&S).

Discussion

3. The purpose of the corrective action status update is to provide oversight to the FARS on the progress of actions taken to address open internal assurance findings. The dashboard gives visibility of:

3.1. open findings of the tracking status milestones plus milestones completed since last reported

3.2. milestones to be completed by the next FARS report

3.3. summary of closed actions since the last FARS report

3.4. summary of the overall progress to close out the full audit review through the reporting of all previous closed actions.

Financial and Resource Implications

4. The actions undertaken, as per the plan approved by Council’s Executive Leadership Team, have been managed within existing approved budgets.

Decision Making Process

5.1. This agenda item is in accordance with the Sub-committee’s Terms of Reference, specifically:

5.1.1. The purpose of the Finance, Audit and Risk Sub-committee is to report to the Corporate and Strategic Committee to fulfil its responsibilities for (1.1) 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, and (1.3) the independence and adequacy of internal and external audit functions

5.1.2. The Finance, Audit and Risk Sub-committee shall have responsibility and authority to (2.6) receive the internal and external audit report(s) and review actions to be taken by management on significant issues and recommendations raised within the report(s), and (2.11) undertake systematic reviews of Council operational activities against Council stated performance criteria to determine efficiency/ effectiveness of delivery of Council services

5.1.3. The Finance, Audit and Risk Sub-committee is delegated by Council to (3.5) ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management

5.2. As this item is for information only, the decision making provisions do not apply.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the Corrective actions dashboard staff report.

2. Confirms that the corrective actions undertaken and/or planned for the future adequately respond to the findings and recommendations of the internal audits.

3. Confirms that the dashboard reports include adequate information on the status of the corrective actions.

4. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the Corrective actions dashboard report provides adequate evidence of the management actions undertaken or planned respond to findings and recommendations from completed internal audits.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

Internal Assurance Dashboard April 2022