Hawke’s Bay Regional
Council
Risk
and Audit Committee
12
February 2025
Subject:
Risk management update
Reason for report)
1. This item provides the Risk
and Audit Committee (RAC) with a quarterly update of:
1.1. the strategic risk profile
for HBRC, expressed in terms of HBRC’s purpose, strategic priorities and
definition of success, together with an outline of the major areas of
uncertainty/risk relating to this
1.2. the sentiment of both the
Executive Leadership Team and Councilors as to the aggregate level of
confidence/concern (i.e. risk rating) with respect to the strategic risk
profile of HBRC
1.3. the wider external
environment and specific issues for the attention of the Risk and Audit
Committee, as well as a draft forward work plan (attachment 1) for
discussion and feedback
1.4. results of assurance work
undertaken across key controls
including the external Crowe review of Data Analytics (confidential
attachment 2)
1.5. incidents and events raised
for the attention of the Committee.
Executive
summary
2. HBRC has experienced a
relatively quiet December quarter with a generally positive rate payer and
community attitude with few incidents of concern.
3. A notable change in the
financial risks and delivery risk from NIWE is reflected in the risk rating for
this programme. Financial Risks are presenting potential over-runs in
particular in Whirinaki. HBRC continues to work with Crown Infrastructure
Programme (CIP) in regard to the allowable transfer of under and overs within
programmes.
4. Council staff have
undertaken control testing on two key controls – Conflicts of Interest
and Gift Registering. Results are positive and outlined within the Assurance
updates.
5. The annual Data Analytics
review (Externally Lead) has also concluded that there have been no
unauthorised or misappropriated funds identified across sample testing.
6. Two operational incidents
occurred in November (driven by one event) when unauthorised access was
obtained into HBRC internal network. This resulted in some malicious activity
occurring, which resulted in personal identifiable information being breached.
(A full review breakdown is in confidential attachment 3).
7. Three medium Health and
Safety Events were noted. However, although this report is for the quarter to
31 December, two concerning, significant H&S incidents occurred in January
2025, involving two attacks on HBRC staff and one of our staff was hospitalised.
Discussion
Wider external context
Legislative and regulatory changes
8. Central Government
continues to publicly highlight the local government reform programme which we
anticipate will remove references to the ‘Four Well-beings’ from
the Local Government Act 2002, restoring a purpose focused on fixing pipes, filling
potholes, and delivering core local services.
9. The intent, amongst other
things, includes refocusing local government on basics, guiding council
decision-making and avoiding duplication of roles with central Government,
including benchmarking councils’ performance.
10. The Department of Internal
Affairs (DIA) will publish a yearly report on key financial and delivery
outcomes, helping ratepayers hold councils accountable. The first
benchmarking report on local councils will be released in the middle of 2025
and is expected to include a number of key council performance metrics such as:
10.1. rates – so that
ratepayers know the number of rates levied per unit, the change in rates since
the previous year, and the forecast change in rates over the next 10 years
10.2. Council debt –
including debt per rating unit, percentage change in council debt since the
previous year, and forecast change over the next 10 years
10.3. a balanced budget –
to show whether a council is balancing its budget or borrowing to support
expenditure.
11. An overhaul of the Resource
Management Act (RMA) continues. The Resource Management (Freshwater and Other
Matters) Amendment Bill returned to Parliament for its final reading and came
into force on 25 October 2024. It was introduced in May to make targeted
amendments to the RMA and a range of national direction instruments.
12. The external rate payer
environment continues to be challenging, in particular the fiscal
environment. In December 2024, New Zealand's annual inflation rate was
2.2% for the quarter. Although lowered, the cost-of-living crisis continues.
North Island Weather Events (NIWE)
Flood Resilience Programme
13. There continues to be
challenge and focus from central government on our ability to deliver critical
category 2 flood mitigation and the NIWE team has put measures in place to
provide assurance to our governors that effective and transparent processes are
put in place.
14. Most recently, leadership
changes have been made within the NIWE programme and Council has endorsed
further funding applications to MBIE to ensure financial support for those
areas which anticipate funding shortfalls outside of the Future of Severely Affected
Land (FOSAL) contracted amounts.
Internal
Council operating environment
Risk Management and strategic risk
themes
15. HBRC continues to adopt a
top down approach to strategic risk management, that considers
‘risk’ in terms of major areas of ‘uncertainty’
presenting both threat and opportunity to HBRC, related to the HBRC’s
purpose, groups of activities and priorities.
16. The ELT continues to
provide a monthly assessment on each of these areas of strategic risk which
enables the collective views of ELT to be considered in conjunction with the
specific risk assessments of staff with business area accountabilities for
these areas. This enables a focus on areas of shared concern or where there are
divergent viewpoints on specific matters.
17. In January 2025, Councilors
were invited to provide their assessment on each of these areas. Of the 11
Councillors, 6 responses were received (compared to 5 from the September 2024
survey). The usefulness of this overall assessment is directly related to the
completeness of responses received.
18. This strategic risk profile
is shown in the attached HBRC Enterprise Dashboard (Attachment 1)
19. Key themes emerging from
the latest assessments are:
19.1. While there is a relatively
high degree of alignment in sentiment across the ELT, there is a relatively low
degree of alignment in sentiment across councillors.
19.2. In several areas there are
very different levels of perceived risk on specific topics between councillors,
ELT and Business Owners with specific accountabilities for these topics/areas
of risk. These are highlighted in Attachment 1.
19.3. Effectiveness of Emergency
Management,
and Connectedness of decision -making remain primary areas of
uncertainty for Council staff. It is anticipated that the recently
approved CDEM transformation strategy will ensure that appropriate controls,
processes and mitigations are proactively and progressively put in place to manage
this risk. In addition, steps have been taken internally to update HBRC
Business Continuance Plan (BCP) documentation and ensure appropriate
scenario-based training is completed.
19.4. Effectiveness of
decision-making
reflects the current uncertainties as we head into the Annual Plan. Budget cuts
and staffing holds are leading to uncertainty of programmes and how to ensure
levels of service are achieved when facing internal constraints and rising
public perception of minimum expectations.
Risk-pool
20. In December 2024 the
Risk-pool Board advised of a likely further call on members in 2025. Risk-pool
is engaged in significant domestic litigation (having been sued by several
members) and is busy attempting to secure confirmation of reinsurance cover in London,
which is consuming considerable in-house and external resources.
21. A call is likely to be made
in March 2025. This call, which we expect to be in the region of
$2.5 million (across the membership, not per individual member), will be
to cover ongoing operational expenses. This compares to a total call of $12.88
million in November 2023. Based on the number of members, this is likely to be
circa $100k cost for HBRC. It is unclear when litigation may be settled, or
close which adds uncertainty for HBRC in budgeting future costs.
Closing
down of the Silt Taskforce and Commercial Funds
22. The Silt and Debris
Taskforce, including the Commercial Silt Programme, is winding down, having 31
December 2024 spend dates. Across the Local Authority Fund to date, 4.6 million
tonnes have been managed. With all collections now complete the Taskforce is
working to complete the remaining site remediation by the end of March 2025 (~2
sites to close).
23. In December, Wairoa
District Council received an extension to the use of funding for silt and
debris to June 2025. This allowed them to continue efforts to remove silt and
debris, but also to assist with establishing a further waste site due to full
capacity of Wairoa waste sites being experienced. The risk around unused money
for WDC rests with Wairoa. Unspent monies will be returned to DIA in due course
should this not occur. HBRC continues to assist with funding/grant money and to
reimburse WDC based on a cost incurred basis.
24. The Commercial Funding
(individual recipients received up to $400k on a 50/50 cost share basis) had a
spend completion date (for applicants) of 31 December. HBRC has been
proactively undertaking an audit of applications on a sample of ~150 basis since
June 2025. The audit programme verifies that actual spend aligned with the
eligible expenses within the programme. To date, 14 applicants have returned a
total of $935k, as monies were not able to be utilised.
25. The audit programme is
expected to be completed by end of February 2025. This programme of work has
been supervised by the Group Manager Corporate Services.
26. Across the programmes there
have been several challenges over 24 months as to the effectiveness of spend.
To remind the Committee, in 2024 HBRC commissioned a review with PWC on silt
payments made to specific contractors to check these key factors (among
others):
26.1. Tickets were reviewed and
assigned (through Silt Taskforce)
26.2. truck loading information
was agreed to and captured at point of pick up, and
26.3. rates charged agreed to the
average rate card utilised and adopted by the Taskforce in 2023.
27. In addition, in 2024 the DIA requested that MBIE review the
procurement process for the onboarding of contractors. Recommendations were
raised to improve controls at the time that were adopted, however, this review
did not result in any changes to contracts already in place.
Progress
on independent reviews
28. In December 2024 and
January 2025, Council received updates on the progress of work to respond to
the recommendations from the Hawke’s Bay Independent Flood Review. HBRC
is progressing with the one-page action plans to accompany the 56 recommendations
made.
29. Council staff are currently
progressing with identifying a third party to scope and provide ongoing
assurance to Council (and our community) that the design of actions being taken
aligns with the intent of the reported recommendations and, when complete,
evidence is sufficient to provide comfort that these have been addressed to a
satisfactory level. The full Council continues to provide oversight of these
recommendations.
Key
internal controls and assurance
Conflicts of Interest control testing
30. At the October 2024 Risk
and Audit Committee meeting, an update was provided on work underway to provide
a consistent and structured approach to define, document and assess key aspects
of HBRC’s internal control environment. From this, a programme of
internal testing has been established assessing the effectiveness of these
critical controls.
31. During this period, testing
was performed on the mechanisms in place to identify, assess, report and manage
the risk of real or perceived conflicts of interest within HBRC.
32. Effective management of
real or perceived conflicts of interest is an important factor in maintaining
trust, confidence, and ensuring the integrity of decision-making and service
delivery.
33. As part of a wider
programme of control testing, a review was undertaken by HBRC’s Quality
and Assurance Advisor on key internal controls within HBRC that manage real or
perceived conflicts of interest.
34. The scope of this review
included HBRC staff, Councillors and contractors, and focused on the following
aspects of management.
|
Scope
|
Focus
|
|
Policy
framework
|
Identification and assessment of
controls that ensure:
• there is a clear
definition of what is meant by ‘conflicts of interest’
• rules are requirements
with respect to the identification, management and reporting of conflict of
interests are defined
• procedures associated
with the management of conflicts of interest are defined
• accountabilities
associated with independence matters and conflicts of interest are defined.
|
|
Training
and awareness
|
Identification and assessment of
controls that ensure:
• the people that these
expectations apply to (e.g. staff, contractors, councillors and others)
understand the expectations of them and how to meet these expectations.
|
|
Scope
|
Focus
|
|
Declaration
and documentation
|
Identification and assessment of
controls that ensure:
• situations where a real
or perceived conflict of interest might exist are identified
• real or perceived
conflicts are documented in a central place
• confirmation that all
staff, Councillors and contractors are aware of and have complied with
relevant policies and expectations.
|
|
Mitigation
of potential conflicts
|
Identification and assessment of
controls that ensure:
• real or perceived
conflicts of interest are notified to relevant decision makers
• appropriate safeguards
are put in place.
|
|
Monitoring
and reporting
|
Identification and assessment of controls
that ensure:
• there is appropriate
oversight of management of conflicts of interest
• controls, safeguards and
management processes are effective.
|
35. Several policies are in
place that provide guidance to staff including a Conflict of Interests Policy
and a Gifts, Hospitality and Winnings Policy.
36. Interests and gifts are
required to be declared within the Conflicts of Interest or Gifts Register
(staff) or Pecuniary Interests form (councillors).
37. While there is some initial
training for new staff and councillors on policies, this is typically a
one-off, with variable levels of understanding and awareness from people
interviewed. Onboarding of contractors is limited and does not extend to HBRC
policies or wider expectations, including those relating to the management of
real or perceived conflicts of interest.
38. In practice, limited use is
made of the Conflicts of Interest Registers, with 13 entries over the past two
years. Such declarations are made on a point in time basis, and declarations
made are not revisited or updated. The Conflict of Interest Register is
actively monitored by one staff member. There is no record or confirmation that
actions agreed to manage potential conflicts were done with some
‘pending’ from May 2024.
39. One conflict of interest
situation came to light that was not declared or addressed through the policies
or controls expected to be in place. This related to a procurement
situation where a staff member, as part of their normal duties, approved an invoice
for payment to a related family member.
40. While it is difficult to
determine the counter-factual (i.e. how many potential conflict situations
existed that were not registered), the low volume of activity, together with
limited training and awareness activities, suggests that factors that might
compromise the independence of staff or contractors are not top of mind for
all.
Business
and ICT continuity management
41. The refreshed business
continuity plan (BCP) (including merging the Emergency Procedures) was
distributed to all staff in December 2024 and hard copies are distributed
across HBRC buildings and locations. HBRC’s primary response centre is
159 Dalton Street.
42. During February, scenarios
testing, and role play will be undertaken with both ELT and managers to ensure
appropriate awareness and knowledge of actions and operations required is
sufficient.
Data analytics review of transactions
43. Each year the Regional
Council, as part of the internal audit work programme, engages Crowe to conduct
a review of our Data Analytics. This review is used primarily for
identification of fraud or suspicious transactions across our business.
Although historical, it provides management with assurances on processes
followed throughout the reporting period.
44. The agreed scope and
purpose of the audit was to review payables and payroll transactional data for
the financial year ended 30 June 2024 and master data extracted as at 9
September 2024. This data was analysed independently by Crowe for any potential
anomalies or suspicious transactions. The report was then provided to staff,
along with separate spreadsheets listing the transactions that required review,
with final oversight from the Chief Financial Officer .
45. 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 from 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’.
46. In addition, some
transactions are listed purely for review purposes due to their deemed higher
risk nature, such as ‘top 50 vendors by amount’. This allows staff
to easily assess whether vendors are in line with expectations and would highlight
any vendors that may appear erroneous.
47. 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
48. The report includes five
high risk results pertaining to:
48.1. purchase orders created
after invoice date
48.2. purchase order approvals
48.3. payments to vendors
approved by a related employee
48.4. employees paid prior to
start date
48.5. employees paid after
termination date.
49. The early raising of
purchase orders continues to be an area needing improvement in the
organisation. We continue to provide training on this and are now developing
reports to identify on a timely basis where purchase orders are regularly not
being raised until after the invoice has been received so that focused
additional training can be given or different processes can be put in place
where needed.
50. The results relating to
delegated approvals of purchase orders were all a result of the TechOne
financial system recording higher level approvals against the original
requisition rather than the final purchase order. All of the results identified
were reviewed to ensure that the appropriate level of delegated approval was
given at the requisition stage. We will work with Crowe to ensure that these
approvals are included in their data extract next year.
51. The payments to a vendor
that were authorised by an employee with the same address were all legitimate
work. The employee has been reminded to ensure that requisitions for this
supplier are reassigned to ensure that there is no perceived conflict of interest.
Finance staff will also keep a watch on this particular vendor.
52. The payments to employees
before start date or after termination date all relate to instances where an
employee changed between a permanent contract and a fixed term contract. All
payments made were appropriate.
53. All other findings have
been reviewed in detail, and no unusual or unexpected transactions were
identified.
54. While reviewing the
findings of the audit, corrective action has been taken where needed to remove
unnecessary duplicates and complete any missing details.
55. Finance continues to train
users on processes with the financial system, especially the raising of
requisitions and purchase orders before goods and services are received.
Outstanding audit issues and
recommendations
|
Audit Performed
|
Review
Type
|
Date
|
Total
Issues raised
|
Issues
Closed
|
Issues
Open
|
Comments
|
|
Regional Assets
|
Section 17a
|
March 2020
|
N/A
|
0
|
3
|
Of the three remaining actions, two are on
track and one is at risk.
|
|
ISO45001 - ECAAS
Certification’s Gap Analysis
|
Review
|
30 November 2023
|
19
|
6
|
13
|
All actions on track
|
|
Organisational Change Consolidation and
Prioritisation
|
Internal Audit
|
July 2025
|
5
|
0
|
5
|
Priority had not been given currently to
addressing issues within this report, however dedicated resource has now been
assigned to complete within the next 6 months.
|
56. All recommendations from
prior audit and assurance reviews undertaken are formally captured and progress
to address these recommendations monitored. The following table provides an
update on progress in this area.
Significant events
57. This quarter, notable
events are outlined below.
|
Type
|
Number of Medium / High-Risk Events
|
|
Non-financial
Risk Incidents
|
2
High
|
|
Health
and Safety
|
3
Medium
|
Non-financial incidents
58. High Risk Event: In
November 2024 two Microsoft Office accounts at Hawke’s Bay Regional
Council were identified as having been signed into by an unauthorised malicious
user. Refer to the Account Security Breach Incident Report in (Confidential
Attachment 3) for information.
58.1. Given the extent of
information shared, this is a notifiable event to the Office of the Privacy
Commissioner (OPC). Immediately, Council staff called those high-risk
individuals where bank information was shared informing them recommendations to
change bank passwords. A formal letter was subsequently sent to all other
impacted individuals on 2 and 3 December.
Health and Safety incidents
59. Three medium Health and
Safety incidents were noted as outlined below:
59.1. A number of staff
complained or felt nauseous or unwell during some paint work on exterior walls
when refurbishments at the Dalton Street main building were undertaken. Staff
were advised to move to another office or work from home. The HBRC Facilities
team was alerted and raised the issues immediately with Wallace Developments. A
face-to-face meeting was held with the developer to discuss corrective actions
and on improving communication for future work that may impact HBRC staff. The
developer spoke to contractor involved and the paint product used will be
avoided in the future. They did adhere to the manufacturer application
methodology (being used in a ventilated space) however in future, tenants will
be advised in advance, painting will be completed out of office hours, or
alternatively all venting will be wrapped.
59.2. An HBRC staff member
observed a heavy tool being thrown upwards from the floor below to the second
story by an external contractor who was at Dalton Street undertaking
refurbishment works. The thrown tool missed the intended catch, landing in
front of the staff member as they entered the building. This was
reported as a near miss but could have had serious consequences if it had hit
the person. The contractor advised that the area was cordoned off with
spotters to keep the public away however a firmer requirement regarding the
movement of tools, and any movement around scaffolding and the interaction with
the public were strengthened. Assurance from the developer that health and
safety is taken seriously and feedback for continuous improvement was welcomed
by HBRC.
59.3. An HBRC mowing tractor
slipped into the drain on Halpin Road while navigating at low-speed between the
drain and apple trees. Conditions at the time were very dry, with longish grass
leading to slippery conditions. The driver endeavoured to avoid damaging
the apple trees, but unfortunately slipped into the open drain onto the
right-hand side. The driver turned the machine off and climbed out. The
driver had no physical injuries and was immediately drug tested, returning a
negative result. The tractor was retrieved with a small dent to the front
fender. HSW assisted with the investigation and discussed the need for the
orchardist to prune back tree growth prior to mowing and that staff ensure they
undertake the “5 min” risk assessment in challenging conditions.
Decision-making considerations
60. 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:
60.1. The decisions of the
Committee are in accordance with the Terms of Reference and decision-making
delegations adopted by Hawke’s Bay Regional Council 30 August 2023,
specifically the Risk and Audit Committee shall have responsibility and authority
to provide advice and recommend actions, responses, and
changes to the Council about risk management, assurance activities, governance
oversight and internal control matters, including external reporting and audit
matters. Specifically, this includes:
60.1.1. The robustness of
Council’s risk management systems, policies, practice and assurance
processes. (1.1)
60.1.2. 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. (2.1)
60.1.3. Undertake periodic
monitoring of corporate risk assessment, and the internal controls instituted
in response to such risks. (2.2)
60.2. Because this report is for
information only, the decision-making provisions do not apply.
Recommendations
That
the Risk and Audit Committee receives and considers the Risk Management
update staff report.
|
David Nalder
Acting
Risk Manager
|
Pip O'connor
Chief
Information Officer
|
|
Jess Bennett
Programme
Finance & Controls Manager
|
Olivia
Giraud-Burrell
Quality
& Assurance Advisor
|
Authored by:
Approved by:
|
Susie Young
Group Manager Corporate Services
|
|
|
1
|
HBRC Enterprise Risk Dashboard -
January 2025
|
|
Under Separate Cover
– online only
|
|
Confidential
Attachments
|
|
2
|
2024 Crowe HBRC Data Analytics
Internal Audit Report
|
|
Under Separate Cover
– online only
|
|
3
|
Incident Report - Email Spoofing and
OPC notification
|
|
Under Separate Cover
– online only
|
Attachment/s
Hawke’s Bay Regional
Council
Risk
and Audit Committee
12
February 2025
Subject: Treasury Compliance Report
for the period 1 October - 31 December 2024
Reason for report
1. This item provides
compliance monitoring of Hawke’s Bay Regional Council’s (HBRC)
Treasury activity and reports the performance of Council’s investment
portfolio for the quarter ended 31 December 2024.
Overview of the quarter ending 30 September 2024
2. On 31 December 2024 and
during the preceding quarter, HBRC was compliant with all measures in its
Treasury Policy.
3. The effects of Cyclone
Gabrielle and its recovery continue to impact both cash balances and borrowing
requirements. Additional ongoing borrowing to fund recovery will continue
over the next 3-4 years, while proceeds from insurance claims are slower than
initially forecast.
4. HBRC completed a tender
process prior to Christmas and appointed ANZ as their new transactional
bank. It is expected HBRC will commence operating ANZ bank accounts from
the beginning of April and will hold BNZ accounts open through the next financial
year.
Background
5. Council’s Treasury
Policy requires a quarterly Treasury Report to be presented to the Risk and
Audit 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
5.6. Interest rate report
5.7. Investment management
report
5.8. Treasury investments
5.9. Cost of funds report, cash
flow and debt forecast report
5.10. Debt and interest rate
strategy and commentary
5.11. Counterparty credit report
5.12. 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 all HBRC Group funds under
management.
8. Since 2018, HBRC has
procured treasury advice and services from PricewaterhouseCoopers (PwC) who
provide quarterly treasury reporting for internal monitoring purposes.
Treasury
exceptions report and policy compliance
9. HBRC was compliant with the
counterparty risk policy with all banks during the quarter to 31 December
2024.
10. Council staff continue to
maintain the view that management of Recovery Funding held on behalf of others
sits outside HBRC’s Treasury Policy for normal operations and is excluded
from treasury reporting.
11. Funds held on behalf of the
Silt & Debris programme are nearing exhaustion and should be either fully
utilised or returned to DIA by the end of March. There will continue to
be funds held on behalf of the HB Recovery Agency to 30 June 2025, or until
they too are spent.
Funding
and liquidity
12. To ensure HBRC can
adequately fund its operations, current policy requires us to maintain a liquid
balance of ‘greater than 10% of existing total external debt’.
Current liquidity ratio is 36.65% and therefore
meets policy.
13. The following table reports
the cash and cash equivalents on 31 December 2024.
|
31 Dec 2024
|
$000
|
|
Cash on Call
|
26,319
|
|
Short-term bank deposits
|
8,000
|
|
Total Cash & Deposits
|
34,319
|
14. To manage liquidity risk,
HBRC retains a Standby Facility with BNZ. This facility provides HBRC
with a same-day draw down option, to any amount between $0.3m-$10m, and with a
7-day minimum draw period. This facility is due to mature in May and in the
interim, while we transition our transactional banking to ANZ, we will look to
establish a facility before the expiry of the existing agreement.
15. Due to the additional
cashflow required to fund the Crown’s portion of the NIWE project we are
looking to increase the council’s Standby Facility value in the near
future.
16. The OCR reduced in both
October and November 2024 to sit currently at 4.25%. The next OCR review
is 19 February 2025, with markets anticipating at 0.50% decrease. Current
returns for on-call funds with Jarden are 4.25% and BNZ 4.20%. These on-call rates
are now returning higher rates than short term deposits.
17. For loan repayment
purposes, we also hold a term deposit of $8m with Rabo, maturing March 2025,
returning 5.90%.
Debt
management
18. On 31 December 2024 the
current external debt for the Council group was $114m of which $8m is due to
mature in April 2025. This has been pre-funded from the 2024 rates intake.
(external debt is $130.7m including loan from HBRIC).
19. Since Q1 of FY25 Council
has borrowed $6m from LGFA as a short-term commercial note to assist in funding
the cashflow of the Crown portion of the NIWE project while HBRC negotiates
with the Crown on repayment terms.
20. The following summarises
the year-to-date movements in Council’s debt position.
Summary of HBRC Debt
|
|
HBRC only
$000
|
HBRC Group
$000
|
|
Opening debt – 1 July 2024 – excluding
HBRIC loan
|
113,500
|
113,500
|
|
New loans raised
|
6,000
|
6,000
|
|
Less amounts repaid
|
(5,450)
|
(5,450)
|
|
Closing Debt 31 December 2024 (excluding
HBRIC loan)
|
114,050
|
114,050
|
|
Plus loan from HBRIC
|
16,663
|
-
|
|
Total Borrowing as at 31 December 2024
|
130,713
|
114,050
|
21. Council’s debt
maturity profile remains compliant. The table below includes our current
$10m BNZ overdraft facility in total debt and the planned $8m repayment
utilising term deposit. The internal (HBRIC) debt is excluded. The
short-term borrowing mentioned above will put pressure on our 0-3 year funding
policy and we may need to consider amending this while we hold additional
borrowing for the NIWE project.
Funding
summary
22. HBRC borrowing in Q2 was to
fund the cashflow of the NIWE project. It is anticipated HBRC will
be required to hold an additional $13m debt throughout the NIWE project to
cover the timelapse between payment of creditors and Crown reimbursement. This
will be on top of the debt required to fund the HBRC share of NIWE costs.
23. HBRC staff continue to work
on firming up the challenging cashflow forecast for the capital projects and
this will inform the timing of any future borrowings.
24. The LTP debt forecast
anticipated debt levels rising to $176m by the end of FY27. However, as the LTP
is only for 3 years, management has updated their debt forecast for 10 years;
with more information available, they now forecast debt to peak in FY27 at
$158m, then reducing to $133m by 2034.
Borrowing
limits
25. Council continues to
monitor and work within the agreed borrowing limits set by both Council and the
LGFA.
26. The ratios below exclude
all HB Recovery cash & cash equivalents held and any return on these funds
but does include LTIF managed funds as a liquid asset for assessing net debt.
|
Ratio
|
HBRC
|
LGFA
|
Actual
to 31 December 2024
|
|
Net external debt as a percentage of revenue
|
<250%
|
<285%
|
31.0%
|
|
Net interest on external debt as a percentage of total revenue
|
<20%
|
<20%
|
1.9%
|
|
Net interest on external debt as a percentage of annual rates
income
|
<30%
|
<25%
|
6.9%
|
|
Liquidity buffer amount comprising liquid assets and available
committed debt facility amounts relative to existing total external debt
|
>110%
|
>110%
|
131.7%
|
Interest
rate risk
27. Council currently holds
$67m in fixed rate instruments, hedging 60% of current external debt, and
remains compliant to policy. This is based on the FY2025-2027 LTP plan.
28. These hedging instruments
are currently held with two banks, Westpac and BNZ. Staff are currently
reviewing options with a view to further hedging.
Managed
funds
29. Total Group Investment Fund
portfolios capital at 31 December 2024 is $181m. This is $9.7m above the
inflation-adjusted contribution target and the result of positive performance
of global equities.
30. All Managed Fund portfolios
now reside with Harbour Asset Management. Market returns to date,
combined with capital gains on transfer have resulted in the portfolio’s
achieving the required rate of return for the financial year, as stipulated in
the HBRC Group’s SIPO, with 6 months potential income still to come.
31. No divestments have been
made from managed funds this year, although they may be required to deliver the
investment cash dividend requested. The strategy on divestments now sits
within HBRICs mandate under the statement of expectations to manage the
group’s investments, while maintaining their inflation protected values.
32. Markets are expected to
remain steady, although there may be some volatility as a result of the
commencement of President Trump’s second term. HBRC must be mindful their
strategy on investments is a long-term one, therefore returns are assessed on a
rolling 5-year average.
|
|
30 June 2023
|
30 June 2024
|
31 Dec 2024
|
|
Fund Balances HBRC
|
$000
|
$000
|
$000
|
|
Fund Balance HBRC
|
110,828
|
118,722
|
128,093
|
|
Capital Protected Amount HBRC (2% compounded since
inception, increasing to 2.5% from 1 July 2024)
|
115,895
|
118,890
|
120,376
|
|
Current HBRC value above/(below) capital protected amount
|
(5,067)
|
(168)
|
7,717
|
|
Funds Balances (HBRC + HBRIC)
|
|
Long-Term Investment Fund (HBRC)
|
48,400
|
51,847
|
55,957
|
|
Future Investment Fund (HBRC)
|
62,428
|
66,875
|
72,136
|
|
Total HBRC
|
110,828
|
118,722
|
128,093
|
|
Plus HBRIC Managed Funds (FIF)
|
45,638
|
48,854
|
53,098
|
|
Total Group Managed Funds
|
156,466
|
167,576
|
181,191
|
|
Capital Protected Amount (2%/2.5% from 1 July 2024
compound inflation)
|
164,798
|
169,343
|
171,466
|
|
Current group value above/(below) protected amount
|
(8,332)
|
(1,768)
|
9,725
|
33. The following table summarises the fund balances at the
end of each period and the graph illustrates the asset allocations within each
fund on 31 December 2024.
Cost of funds
34. Rolling 12 months to 31
December 2024, Gross Cost of Funds (COF), interest spend, was $4.3m and 4.12%
of the average debt in the last 12 months, while Net COF after offsetting
interest received was $4.0m equating to 3.88%.
HBRIC
Ltd
35. In accordance with Council
policy, HBRIC provides separate quarterly updates to the Corporate and Strategic
Committee.
Decision-making process
36. 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:
36.1. The decisions of the
Committee are in accordance with the Terms of Reference and decision-making
delegations adopted by Hawke’s Bay Regional Council 30 August 2023,
specifically the Risk and Audit Committee shall have responsibility and authority
to:
36.1.1. Review the Council’s revenue and
expenditure policies, amongst others, and the effectiveness of those policies
in ensuring limited risk is generated. (1.3)
36.2. Because this report is for
information only, the decision-making provisions do not apply.
Recommendation
That
the Risk and Audit Committee receives and notes the Treasury Compliance
Report for the period 1 October – 31 December 2024.
Authored
by: Approved
by)
|
Tracey O'Shaughnessy
Treasury & Investments
Accountant
|
Susie Young
Group
Manager Corporate Services
|
Attachment/s There are no attachments
for this report.
