Agenda of Finance Audit & Risk Sub-committee

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: Quarterly Treasury Report for the period 1 April - 30 June 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 30 June 2022.

Overview of the Quarter – ending 30 June 2022

2. At the end of the quarter to 30 June 2022, HBRC was compliant with all measures in its Treasury policy.

3. Investment returns are below budget due to a significant financial market decline since January 2022. The LTP budget had forecasted an annual growth of 2% ($2.3m) for capital protection and returns of an additional 3.16% ($3.685m) to subsidise rates income. However due to the decline in fund value, no withdrawals have been made by Council this financial year. The lack of investment returns has not required any additional debt due to the shortfall in Council expenditure compared to budget.

4. Financial markets, particularly international markets, continue to move around considerably given the high economic uncertainty. Staff advice is to watch and wait at this point in time, corrective action is not required, and the portfolio is well balanced for the long term.

5. Cash balances are good and borrowing requirements have remained relatively low.

Background

6. 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:

6.1. Treasury Exceptions report

6.2. Policy compliance

6.3. Borrowing limit report

6.4. Funding and liquidity report

6.5. Debt maturity profile interest rate report

6.6. Investment management report

6.7. Treasury investments

6.8. Cost of funds report cash flow and debt forecast report

6.9. Debt and interest rate strategy and commentary

6.10. Counterparty credit report

6.11. Loan advances.

7. 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.

8. 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.

9. Treasury Investments to be reported on consist of:

9.1. Liquidity

9.1.1. Cash and Cash Equivalents

9.1.2. Debt Management.

9.2. Externally Managed Investment Funds

9.2.1. Long-Term Investment Fund (LTIF)

9.2.2. Future Investment Fund (FIF).

9.3. Investment properties

9.4. HBRIC Ltd

9.5. 2021-22 Performance Summary.

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 June 2022.

30 June 2022	$000
Cash on Call	9,851
Short-term bank deposits	-
Total Cash & Deposits	9,851

13. Council’s balance of cash and deposits compares with the June 2021 balance of $8.1m.

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 June 2022 the current external debt for the Council group was $46.725m ($63.388m including the loan from HBRIC).

16. Since the March quarter additional funds of $4.0m were borrowed from LGFA. Total new debt for 2021-22 was $19.0m against a plan of $36.5m.

17. We anticipate that further borrowing will be required in the first quarter of the new financial year as expenditure of flood recovery activities and Council’s capital programme ramps up.

18. 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	19,000,000	19,000,000
Less amounts repaid	(3,149,996)	(3,149,996)
Closing Debt 30 June 2022 (excluding HBRIC loan)	46,725,018	46,725,018
Plus opening balance - loan from HBRIC	16,663,036	-
Total Borrowing as at 30 June	63,338,054	46,725,018

Managed Funds

19. 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 the capital base to enable the future earnings to protect the capital base for future generations.

20. 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 agreed 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 received the budgeted $10.1m in dividends from HBRIC within the FY21-22.

21. The FY21-22 budget expectation for managed funds to be withdrawn to support Council operations is $3.7m. Based on the June 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. Borrowing will be required to cover the revenue shortfall.

22. The Fund performances for this year have been lower than we have experienced for some time. Financial markets have not performed as strongly as the FY20-21 with the June quarter 2022 bringing further significant losses to the funds.

23. Given the nature of the investments some volatility is to be expected. However, the performance of the managed funds since placement demonstrates that 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.

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

25. The view for the 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/(under) the capital protected amount.

	30 Jun 2021	30 Sep 2021	31 Dec 2021	31 Mar 2022	30 Jun 2022
	$000	$000	$000	$000	$000
Total funds before withdrawals	118,563	115,745	118,221	112,099	104,449
Funds withdrawn	(4,200)
Fund balance HBRC	114,363	115,745	118,221	112,099	104,449
Capital Protected Amount HBRC (2% compounded)	111,983	112,543	113,105	113,671	114,239
Current HBRC value above protected amount	2,380	3,202	5,116	(1,572)	(9,790)

	30 Jun 2021	30 Sep 2021	31 Dec 2021	31 Mar 2022	30 Jun 2022
	$000	$000	$000	$000	$000
Funds Balances (Group + HBRIC)
Long-Term Investment Fund	49,883*	50,484	51,712	49,013	45,679
Future Investment Fund	64,370*	65,261	66,508	63,086	58,770
Total HBRC	114,363*	115,745	118,220	112,099	104,449
Plus HBRIC	48,503	48,771	48,907**	46,337	43,226
Total Group Managed Funds	162,866	164,516	167,127	158,436	147,675
Capital Protected Amount (2% compound inflation)	159,506	160,303	161,104	161,910	162,720
Current group value above protected amount	3,360	4,213	6,023	(3,474)	(15,045)

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

25.2. ** HBRIC withdrew $1.3m during the December quarter.

Investment Property – Napier Leasehold Portfolio

26. 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.

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

28. During the year, ten Napier Endowment Leasehold Properties were freehold totalling $2.02m. The HBRC share of $348,554 is paid into the sale of land reserve. The balance of the funds received are paid to ACC to meet Council’s obligations under the contract.

29. The HBRC share of net rentals received for the year, after payments to ACC was $118,386.

Investment Property – Wellington Leasehold Portfolio

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

31. 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 currently in the process of having its review completed.

32. 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.

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

HBRIC Ltd

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

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. This 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”.

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

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and notes the Quarterly Treasury Report for the period 1 April – 30 June 2022.

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

Authored by:

Jess Bennett

Commercial Accountant

Chris Comber

Chief Financial Officer

Approved by:

Susie Young

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

1 ⇩

Treasury Reporting as at 30 June 2022

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: Asset Management Group review

Reason for Report

1. This item presents a summary of management reviews of the Asset Management function undertaken since 2018 to assist in decision-making on the timing of an Asset Management internal audit proposed through the 2022-2023 internal audit plan.

Executive Summary

2. The draft 2022-2023 enterprise internal audit plan identified an opportunity to audit the Asset Management function.

3. Management reviews of the Asset Management Group, s17a Review of Works Group, Asset Management Framework and Asset Management plans were conducted in the preparation of the 2021-2031 LTP.

4. The Group Manager of the Asset Management Group will provide a presentation to the sub-committee, outlining the previous management reviews and their findings.

5. The recommendation of the Group Manager Asset Management is to defer the audit, to allow time for the identified improvements from previous reviews to be implemented.

Background

6. A number of management reviews have been undertaken since 2018 to assist in the improvement of both service delivery and Asset Management processes/frameworks. These include:

6.1. A review of structure in 2018 and creation of a capital delivery team with the sole focus on delivering the capital works programme and improving capital delivery processes.

6.2. A Section 17A review of Works Group undertaken by Morrison Low in 2020 and presented to Finance Audit and Risk Sub-committee on 11 November 2020.

6.3. A review of our Asset Management framework (processes) undertaken by Waugh Infrastructure in March 2020.

6.4. A review of our Asset Management plans by Waugh Infrastructure providing feedback to improve Asset Management plans for the 2021-2031 LTP.

6.5. A review of the Asset Management Group structure in 2022 which separated the operations function from the strategic asset management function to assist in the management of change for the Asset Management framework.

7. Many of the process improvements are still to be delivered through the Enterprise Asset Management ICT project, which is a significant activity with regular reporting to Council. The Enterprise Asset Management ICT project is only just commencing, with an expected duration of 24 months. The solution is fully integrated with the new finance system.

Next Steps

8. It is proposed to improve the visibility of the various Asset Management improvement actions to Council by the creation of a master Improvement Register to track execution of agreed actions and report on a regular basis.

9. Defer the proposed 2022-23 audit to 2024-2025 to allow time for the improvements from previous reviews to be implemented.

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, 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 the independence and adequacy of internal and external audit functions

10.2. 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.

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

Recommendation

That the Finance, Audit and Risk Sub-committee receives and notes the Asset Management Group review staff report.

Authored & Approved by:

Chris Dolley

Group Manager Asset Management

Attachment/s

There are no attachments for this report.

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: 2022-2023 Enterprise Internal Audit Plan

Reason for Report

1. This item provides the Finance Audit and Risk Sub-committee (FARS) with an update on the proposed 2022-2023 Enterprise Internal Audit Plan for consideration and confirmation.

Background

2. The Internal Audit Framework requires that an Annual Enterprise Internal Audit Plan be adopted by FARS each year for the following financial year.

3. Council’s internal auditors, Crowe, provided a potential plan to the May 2022 FARS meeting. After discussions it was agreed that further information would be provided to the August 2022 FARS meeting to enable to the sub-committee to confirm the schedule of audits in relation to the:

3.1. Asset Management Group review

3.2. Health & Safety review.

Discussion

4. An update on Council’s Asset Management Framework is being provided to FARS as a separate agenda item. Maturity of Council’s Asset Management Framework is making good progress. As the framework maturity is not fully implemented it is considered too soon for an internal audit to provide full assurance that the updated Asset Management Framework is effective both operationally and in design. Therefore, staff propose that the Asset Management Framework enterprise internal audit be deferred to 2023-2024.

5. Council’s Health and System Management Framework is benchmarked to a standard that is no longer being maintained – ACC’s Workplace Safety Management Practices (WSMP). Therefore, Council’s Health and Safety Management Framework is under review to align to a new Health and Safety Management external standard that is recognised by Worksafe. Undertaking a Health and Safety internal audit in FY23 is timely and will provide two purposes:

5.1. assurance that the maturity of Council’s current Health and Safety Management Framework remains ‘fit for purpose’, with no immediate operational areas of concern, and

5.2. as a gap analysis to the new Health and Safety Management external standard allowing the Health and Safety Team to prioritise key focusses areas for updating Council’s current Health and Safety Management Framework.

6. Therefore, proposed audits for the FY23 Annual Enterprise Internal Audit Plan include Council’s Health and Safety Management Framework and the two audits agreed at the May 2022 FARS meeting, being Data Analytics and Organisational Change Consolidation and Prioritisation. The high-level scope of the proposed enterprise internal audits for FY23 are as follows.

6.1. Data Analytics – a 12-monthly cyclical review to interrogate transactions and master data within Council’s payroll and financial system to identify potentially suspicious relationships, trends, or transactions.

6.2. Organisational Change Consolidation and Prioritisation – seeking assurance that decisions on ‘when’ to programme and ‘how’ to execute our strategic organisational change initiatives effectively consider organisational impacts, risks, resource constraints and process/system integration. The audit will consider opportunities to strengthen decision making to ensure organisational change effectively drives the creation of value while ensuring the organisation is protected from undue risk, e.g., impact on people, compliance, etc, which is sometimes referred to as ‘risk in change’. The strategic decision-making process on each individual organisational change initiative and project management process is out of scope.

6.3. Health and Safety – to seek assurance that the structure of Council’s Health and Safety Management Framework adequately aligns to a Worksafe recognised Health and Safety Management external standard, and to provide the gap analysis against the new external standard to assist the Health and Safety Team with prioritising the Health and Safety workplan. In addition, the audit will review how effectively of Health and Safety processes and procedures are embedded into the operational business that ensures compliance with Council’s Health and Safety Management Policy.

7. Council’s Assurance Universe is attached to this paper. The Assurance Universe links enterprise reviews or audits undertaken over the past four years at Council to an enterprise risk. Reviews and audits in the Assurance Universe include external audits, enterprise internal audits, business reviews with an enterprise focus, and section 17a reviews.

Financial and Resource Implications

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

Decision Making Process

9. Council and its committees are required to make every decision in accordance with the requirements of the Local Government Act 2002 (the Act). Staff have assessed the requirements in relation to this item and have concluded:

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

9.1.1. 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

9.1.2. 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 2022-23 Enterprise Internal Audit Plan staff report

2. Confirms the internal audit plan for the 2022-2023 financial year, will include:

2.1. data analytics (as resolved 4 May 2022)

2.2. organisational change consolidation and prioritisation (as resolved 4 May 2022)

2.3. Health & Safety management framework.

Authored by:

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

Susie Young

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

1 ⇩

Assurance Universe as at 6 July 2022

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: Data Analytics audit report

Reason for Report

1. This item presents the internal audit report (attached) for the Data Analytics audit undertaken by Crowe in July 2022.

Executive Summary

2. The Finance, Audit and Risk Sub-committee (FARS) agreed at its meeting on 13 October 2021, as part of the internal audit work programme, to engage Crowe to conduct an internal audit of Council’s Data Analytics.

3. The agreed scope and purpose of the audit was to review payables and payroll, and master and transactional data for the financial year ended 30 June 2021. Due to the change in financial system from 1 July 2021, the scope was changed to use transaction data from 1 July 2021 to 30 April 2022 and master data extracted on 24 May 2022. This data was then analysed independently by Crowe for any potential anomalies or suspicious transactions.

4. The report was then provided to staff, along with separate spreadsheets listing the transactions that required review. These spreadsheets were initially analysed by the Payroll Officer and the Team Leader Finance and then reviewed by the Chief Financial Officer to identify any findings requiring further investigation.

5. This is the fifth consecutive annual Data Analytics audit conducted by Crowe. Previous reporting of the findings of the 2019-20 audit was presented to the sub-committee on 5 May 2021. A comparison to previous findings is also provided in this paper.

6. It is important to note that, when a transaction is identified, it does not necessarily indicate that there is anything suspicious. There are often legitimate business reasons for a transaction being identified, such as different types of payments to a Council (rates credits versus payment for services). These types of transactions may display in areas such as ‘duplicate address’, ‘GST/non-GST transactions’, or ‘duplicate IRD number’.

7. In addition, some transactions are listed purely for review purposes due to their deemed higher risk nature, such as ‘top 50 vendors by amount’ as an example. This, in itself, allows staff to easily assess whether vendors are in line with expectations and would highlight any vendors that may appear erroneous.

8. Given the small size of Hawke’s Bay, there are times when an employee may share the same address as a vendor, usually a spouse. Transactional processing staff ensure that employee approvals are not allowed where any known conflicts exist between an employee and a vendor.

Audit Findings

9. The report includes three high risk results pertaining to:

9.1. Vendors with multiple purchase orders on same day that would exceed approver's delegation, e.g. 33 cases were identified where a purchase order for the same supplier was approved on the same day by the same individual and the total value exceeds delegated authority.

9.2. Invoices approved by persons over or on their delegated authorities – 40 cases identified where Purchase Order approval appeared to exceed delegated authority. We note that in 26 cases the PO was approved after the invoice date.

9.3. Payments to Vendors with an employee master data match approved by the employee – one record was identified where the purchase requisition approver is linked to the vendor. A Companies Office search confirmed the employee who approved the purchase requisition is a director and shareholder of the vendor. The transaction value is $1,710 excluding GST.

10. All of the cases where a purchase order for the same supplier was approved on the same day by the same individual and the total value exceeds delegated authority relate to either sustainable homes or vehicle purchases, where requisitions are for specific individual items and a number can be put through on the same day. No unusual items were noted.

11. On review of the cases identified where Purchase Order approval appeared to exceed delegated authority it was noted that 35 cases were approved by the correct person with the correct financial delegation at the requisition stage. The remaining five cases were for staff that had been given higher financial delegation due to covering management roles. With regard to purchase orders being raised after invoice date, this is a known issue which we will be addressing through increased training.

12. The one record identified where the purchase requisition approver is linked to the vendor was a valid payment. Staff will be reminded to ensure that one-up approval is obtained for any transactions where a conflict of interest may be perceived.

13. All other findings have been reviewed in detail, and no unusual or unexpected transactions were identified.

Comparison to the Last (2020) Audit

14. The number of duplicate bank accounts, vendor names and addresses in the supplier master file decreased from 184 last audit to 74.

15. Last year there were eight possible duplicate payments identified while this year none were identified.

16. Overall, the number of errors arising from internal processes is better than the prior year, with internal checks continuing to keep the number of flagged or highlighted transactions arising within the review to a low percentage of the overall transactions. Staff recognise that there is a need to maintain appropriate process to reduce errors and to ensure correct internal controls are used to reduce the risk of fraud or misappropriation.

Actions to Address Findings

17. While reviewing the findings of the audit, corrective action has been taken where needed to remove duplicates and complete any missing details. Staff have also streamlined some vendor accounts where multiple sub-accounts were causing problems.

18. Staff have also been requested to update their contact details in the system, which most have now done.

19. Finance continues to train users on processes with the new financial system, especially the raising of requisitions and purchase orders before goods and services are received. The Council is also preparing some fraud training, which will include reminders about ensuring any situations where a conflict of interest may be perceived are appropriately managed.

Decision Making Process

20. 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:

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

20.2. Any decision of the sub-committee is in accordance with the Terms of Reference and decision-making delegations adopted by Hawke’s Bay Regional Council 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

20.2.1. 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)

20.2.2. Ensure that recommendations in audit management reports are considered and, if appropriate, actioned by management.

Recommendations

That the Finance, Audit and Risk Sub-committee receives and considers the Data Analytics audit report staff report.

Authored by:

Chris Comber

Chief Financial Officer

Approved by:

James Palmer

Chief Executive

Attachment/s

1 ⇩

Crowe 2022 HBRC Data Analytics Report

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: 2021-2022 Enterprise Internal Audit plan status update

Reason for Report

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

Discussion

2. The intention of this update is to provide the FARS with oversight and progress of individual internal audits that form part of the approved annual internal audit plan.

3. The Data Analytics audit carried out by Crowe commenced in mid-May, and the full report is being presented to the FARS by the Chief Financial Officer in this meeting.

4. As shown on the following dashboard, the internal audits for FY21-22 have now been completed and reported to FARS.

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

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 (2.6) 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.

Recommendations

That the Finance, Audit and Risk Sub-committee:

1. Receives and considers the 2021-22 enterprise Internal Audit plan status update staff report.

2. Reports to the Corporate and Strategic Committee, the Sub-committee’s satisfaction that the 2021-22 Enterprise Internal Audit plan has been completed.

Authored by:

Olivia Giraud-Burrell

Quality & Assurance Advisor

Helen Marsden

Risk & Corporate Compliance Manager

Approved by:

Susie Young

Group Manager Corporate Services

James Palmer

Chief Executive

Attachment/s

There are no attachments for this report.

Hawke’s Bay Regional Council

Finance Audit & Risk Sub-committee

10 August 2022

Subject: Audit Plan for the 2021-2022 Annual Report

Reason for Report

1. This item provides an update on the timing for the Audit of Council’s 2021-22 Annual Report.

Executive Summary

2. Legislation has been passed to extend the statutory deadlines for the completion of the audited 2021-2022 Annual Report by 2 months due to the continued impacts of Covid-19 on the resourcing for the audits.

3. The statutory deadline for the adoption of the HBRC Annual Report is now 31 December 2022.

4. Staff have been given 3 October 2022 as the date for the commencement of the audit process. This will require the scheduling of a meeting of the Finance Audit and Risk Sub-committee in early December to review the draft Annual Report prior to its submission to Council for adoption.

Background /Discussion

5. The audit and adoption of the Annual Report follows timelines set out in the Local Government Act 2002. This Act has been amended to extend the timeframes for the 2020-2021 and 2021-2022 Annual Reports.

5.1. Section 98 (7) now states that the annual report of a Council must be adopted no later than 31 December (31 December 2022 for the 2021-2022 Annual Report).

6. Officers have had discussions with our new auditors, Ernst & Young (EY), about audit timing (see table below) and have received an audit start date of 3 October 2022. This may change as our auditors refine their work plans and resourcing.

3 – 28 October 2022	Audit field work will be conducted (3 weeks onsite and 1 week remotely)
w/b 24 October 2022	Audit of the debenture trust deed
w/b 24 October 2022	Audit of the summary annual report
w/b 24 October 2022	ACC contract Agreed Upon Procedures
w/b 31 October	Wrap-up of annual report review
8 November 2022	EY issue draft audit closing report, report on control findings and representation letters for management review
16 November 2022	EY clear the annual report, summary annual report, debenture trust deed reporting and AUP

7. Given the timing of the appointment of the new auditors, officers have not requested the production of an audit planning report for FARS from Ernst & Young.

8. Officers are comfortable with the timing of the audit process.

Financial and Resource Implications

9. Staff do not expect the cost of the audit for 2021-2022 to exceed the budget allocated for the audit programme.

Decision Making Process

10.1. as this report is for information only, the decision-making provisions do not apply.

10.2. any decision of the sub-committee (in relation to this item) is in accordance with the Terms of Reference and decision-making delegations adopted by Hawke’s Bay Regional Council 25 March 2020, specifically the Finance, Audit and Risk Sub-committee shall have responsibility and authority to:

10.2.1. 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

10.2.2. Confirm that processes are in place to ensure that financial information included in Council’s Annual Report is consistent with the signed financial statements

10.3. Confirm the terms of appointment and engagement of external auditors, including the nature and scope of the audit, timetable, and fees.

Recommendations

That the Finance, Audit and Risk Sub-committee receives and considers the Audit Plan for the 2021-2022 Annual Report.

Authored by:

Tim Chaplin

Senior Group Accountant

Sarah Bell

Team Leader Strategy & Performance

Approved by:

Chris Comber

Chief Financial Officer

Susie Young

Group Manager Corporate Services

Attachment/s

There are no attachments for this report.