A G E N D A. DATE: Tuesday, 20 June William Street PAEROA

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1 DISTRIBUTION: Elected Members: His Worship the Mayor Cr D A Adams Cr P Buckthought Cr C Daley Cr R Harris Cr G R Leonard Cr M P McLean Cr P A Milner Cr A Rattray Cr D Smeaton Cr A M Spicer Cr D H Swales Cr J H Thorp Independent Member: P Bennett Audit NZ David Walker Maree Procter Staff: L D Cavers D Peddie K Vatselias Council Secretary AUDIT & RISK COMMITTEE A G E N D A DATE: Tuesday, 20 June 2017 TIME: VENUE: 8.30am Hauraki Room William Street PAEROA Public copies: Paeroa Office Plains Area Office Waihi Area Office MEMBERS: P Bennett (Chairperson/Independent Member) J P Tregidga (Mayor) Cr D A Adams Cr G R Leonard Cr P A Milner Cr D Smeaton L D Cavers Chief Executive

2 Delegations: Audit and Risk Committee Membership Meeting frequency Quorum Purpose Mayor, Deputy Mayor (Deputy Chairperson), three Hauraki District Council Councillors and an Independent Member (Chairperson), to be appointed by the Council Third to last Tuesday bi-monthly commencing at 9.00am As set by Standing Orders The purpose of the Audit and Risk Committee is to contribute to improving the governance, performance and accountability of the Hauraki District Council by: Ensuring that the Council has appropriate financial, health and safety, risk management and internal control systems in place. Seeking reasonable assurance as to the integrity and reliability of the Council s financial and non-financial reporting. Providing a communications link between management, the Council and the external and internal auditors. Promoting a culture of openness and continuous improvement. Responsibilities The Council delegates to the Audit and Risk Committee the following responsibilities: To monitor the Council s treasury activities to ensure that it remains within policy limits. Where there are good reasons to exceed policy, that this be recommended to Council. To review the Council s insurance policies on an annual basis. To review, in depth, the Council s annual report and if satisfied, recommend the adoption of the annual report to Council. To work in conjunction with the Chief Executive and Group Manager Corporate Services in order to be satisfied with the existence and quality of cost-effective health and safety management systems and the proper application of health and safety management policy and processes. To work in conjunction with the Chief Executive and Group Manager Corporate Services in order to be satisfied with the existence and quality of cost-effective risk management systems and the proper application of risk management policy and processes. To work in conjunction with the Chief Executive and Group Manager Corporate Services to monitor the Council s handling of rates in arrears and rating sales and ensure the proper application policy and processes. To provide a communications link between management, the Council and the external and internal auditors. To engage with Council s external auditors and approve the terms and arrangements for the external audit programme. To engage with Council s internal auditors and approve the terms and arrangements for the internal audit programme. To monitor the organisation s response to the external and internal audit reports and the extent to which recommendations are implemented. To engage with the external and internal auditors on any one off assignments.

3 Delegations Subject to any expenditure having been approved in the Operative Hauraki Long Term Plan and/or Operative Annual Plan the Audit Committee shall have delegated authority to approve: the appointment of the independent internal auditor risk management and internal audit programmes additional services provided by the external auditor. In addition, the Council delegates to the Audit and Risk Committee the following powers and duties: The Audit and Risk Committee can conduct and monitor special investigations in accordance with Council policy, including engaging expert assistance, legal advisors or external auditors, and, where appropriate, recommend action(s) to Council. The Audit and Risk Committee is delegated to hear and decide upon appeals to rates remission decisions made by the Group Manager Corporate Services. The Audit and Risk Committee can recommend to Council: Adoption or non-adoption of completed financial and non-financial performance statements. Governance policies associated with Council s financial, accounting, risk management, compliance and ethics programmes, and internal control functions, including the: Liability Management Policy, Treasury Policy, Sensitive Expenditure Policy, Fraud Policy, and Risk Management Policy. Commencement of rating sale proceedings. Accounting treatments, changes in generally accepted accounting practice (GAAP). New accounting and reporting requirements. The Audit and Risk Committee may not delegate any of its responsibilities, duties or powers.

4 AUDIT AND RISK COMMITTEE Tuesday, 20 June am Hauraki Room, Council Office, William Street, Paeroa Order of Business Pages 1. Apologies 2. Declarations of Late Items 3. Declarations of Interests 4. Confirmation of Audit and Risk Committee Minutes ( ) 7 5. Health Safety Audit and Risk Committee Report June 2017 ( ) Treasury Report as at 31 May 2017 ( ) Rates Affordability Information Report ( ) Overheads Report ( ) 47 Public Excluded 9. Item 1: Rates in Arrears - 31 May 2017 ( ) 10. Item 2: KPMG Internal Audit Reviews Progress report - May 2017 ( ) Appendix A - KPMG Internal Audit Reviews Progress Report May 2017 ( ) Audit & Risk Committee Agenda Doc Ref:

5 Matters to be taken with the Public Excluded THAT the public be excluded from the following parts of the proceedings of this meeting. The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows: Item No. General subject of each matter to be considered Reason for passing this resolution in relation to each matter Ground(s) Under Section 48(1) for the Passing of this Resolution 1 Rates in Arrears - 31 May KPMG Internal Audit Reviews _ Progress Report - May 2017 Section 7(2)(a) Protect the privacy of natural persons, including that of deceased natural persons Section 7(2)(f)(i) Maintain the effective conduct of public affairs through: (i)the free and frank expression of opinions by or between or to members or officers or employees of any local authority, or any persons to whom section 2(5) of this Act applies, in the course of their duty. Section 48(1)(a) That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist. Section 48(1)(a) That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist. 2 Audit & Risk Committee Agenda Doc Ref:

6 11. Information Report - Progress against Audit NZ Recommendations ( ) 98 Appendix A- Progress on Matters raised by Audit NZ ( ) Audit and Risk Committee - Internal Audit Function and Priorities ( ) 112 Appendix A - Internal Audit Priorities Chart ( ) Audit and Risk Committee - Self-Assessment ( ) 116 Appendix A - Audit and Risk Committee - Self-assessment Tool ( ) Risk Report to Audit and Risk Committee ( ) HDC Risk Register - Corporate Risks (222635) Overview of Council's Insurance Policies ( ) Audit and Risk Committee - Work Programme Report ( ) Audit & Risk Committee Agenda Doc Ref:

7 ARC Agenda Page 7 HAURAKI DISTRICT COUNCIL AUDIT AND RISK COMMITTEE MINUTES OF A MEETING OF THE AUDIT & RISK COMMITTEE HELD IN THE HAURAKI ROOM, COUNCIL OFFICE, WILLIAM STREET, PAEROA ON TUESDAY 4 APRIL 2017 COMMENCING AT 9.00AM PRESENT IN ATTENDANCE APOLOGIES Mr P Bennett (In the Chair), His Worship the Mayor Mr J P Tregidga, G R Leonard, P A Milner and D Smeaton (9.20am 12.45pm) Mrs M Procter - Audit NZ, M D Sutton and Ms B Nand (KPMG), Cr R Harris, Messrs L D Cavers (Chief Executive), D Peddie (Group Manager Corporate Services), Mrs K Vatselias (Finance Manager), Mrs J Nicholls (Health & Safety Advisor), Mrs J Sweeney (HR Advisor) and Ms C Black (Council Secretary) RESOLVED THAT the apologies for absence of Cr Adams and for the lateness of Cr Smeaton be received and sustained. ARC17/22 Milner/Leonard CARRIED LATE ITEMS Pursuant to Section 46A(7) of the Local Government Official Information and Meetings Act 1987, the Chairperson called for late items to be accepted. RESOLVED THAT pursuant to Section 46A(7) of the Local Government Official Information and Meetings Act 1987, the following late items be accepted for discussion. - Fixed Assets Review Internal Audit Report - KPMG - Audit Arrangements Letter and Audit Engagement Letter Audit NZ The items were not on the agenda because the items were unavailable at the time of the agenda deadline. Discussion on the item could not be delayed as KPMG and Audit NZ representatives were in attendance, and it was an opportune time to have them present on the items to the Audit and Risk Committee. ARC17/23 Leonard/Milner CARRIED DECLARATIONS OF INTERESTS There were no interests declared. CONFIRMATION OF MINUTES: AUDIT AND RISK COMMITTEE MINUTES ( ) RESOLVED THAT the minutes of the Audit & Risk Committee Meeting held on Tuesday 14 February 2017 be confirmed and are a true and correct record. ARC17/24 Leonard/Smeaton CARRIED 1 Audit & Risk Committee Minutes Doc Ref:

8 ARC Agenda Page 8 LATE ITEM FIXED ASSETS REVIEW INTERNAL AUDIT REPORT - KPMG (Docs. # and ) KPMG Partner, Mr David Sutton and Director, Ms Bineeta Nand were in attendance. The KPMG representatives spoke on the internal audit review which had been undertaken to assess Councils processes in relation to asset management. A copy of the internal audit report (dated March 2017) was tabled and distributed along with a document showing common areas of focus for all councils both current and emerging. Cr Smeaton attended the meeting at 9.20am Mr Sutton and Ms Nand left the meeting at 9.40am RESOLVED THAT staff prepare a report for the next Audit and Risk Committee meeting recommending further areas for internal audit, and THAT the report is not released to the public. ARC17/25 Bennett/Tregidga CARRIED LATE ITEM AUDIT ARRANGEMENTS LETTER AND AUDIT ENGAGEMENT LETTER AUDIT NZ (Doc. # ) Maree Procter of Audit NZ introduced herself to the Committee. She advised that should will be taking over the Audit Manager role from Mr Naude Kotze. Maree presented the audit arrangement and engagements letters. RESOLVED THAT Audit and Risk Committee approve the audit arrangements, and audit engagement letters for signing by the Mayor. ARC17/26 Bennett/Tregidga CARRIED AUDIT AND RISK COMMITTEE FINANCIAL QUICK FACTS ( ) The Group Manager Corporate Services, for the information of the Committee, presented a report which provided them with quick financial facts reference guides for the current year. RESOLVED THAT the report be received. ARC17/27 Leonard/Milner CARRIED INFORMATION REPORT - PROGRESS AGAINST AUDIT NZ RECOMMENDATIONS ( , ) APPENDIX A: PROGRESS ON MATTERS RAISED BY AUDIT NZ ( ) For the information of the Committee, the Finance Manager presented the progress report against the matters raised by Audit New Zealand as a result of the 2015/16 audit. 2 Audit & Risk Committee Minutes Doc Ref:

9 ARC Agenda Page 9 RESOLVED THAT the report be received. ARC17/28 Bennett/Milner CARRIED FORECAST INTERNAL DEBT AT 30 JUNE 2017 ( ) The Group Manager Corporate Services provided an update on Council s internal debt position. RESOLVED THAT the report be received. ARC17/29 Bennett/Tregidga CARRIED HEALTH AND SAFETY REPORT TO AUDIT AND RISK COMMITTEE - 4 APRIL 2017 ( Human Resources Advisor Julie Sweeney and Health & Safety Advisor, Judy Nicholls were in attendance as part of their regular reporting to the Committee on key health and safety matters to ensure Council continues to meet its health and safety responsibilities under the Act. RESOLVED THAT the report be received. ARC17/30 Leonard/Milner CARRIED Maree Procter left the meeting at 11.12am. 3 Audit & Risk Committee Minutes Doc Ref:

10 ARC Agenda Page 10 MATTERS TO BE TAKEN WITH THE PUBLIC EXCLUDED RESOLVED THAT the public be excluded from the following parts of the proceedings of this meeting. The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows: Item No. General subject of each matter to be considered Reason for passing this resolution in relation to each matter Ground(s) Under Section 48(1) for the Passing of this Resolution 1 KPMG Internal Audit Reviews Progress report - March Rates in arrears (various ratepayers) 4 April 2017 Section 7(2)(f)(i) Maintain the effective conduct of public affairs through: (i) The free and frank expression of opinions by or between or to members or officers or employees of any local authority, or any persons to whom section 2(5) of this Act applies, in the course of their duty. Section 7(2)(a) Protect the privacy of natural persons, including that of deceased natural persons. Section 48(1)(a) That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist. Section 48(1)(a) That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist. 3 Rates in arrears (individual ratepayer) 4 April 2017 Section 7(2)(a) Protect the privacy of natural persons, including that of deceased natural persons. Section 48(1)(a) That the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist. ARC17/31 Milner/Leonard CARRIED 4 Audit & Risk Committee Minutes Doc Ref:

11 ARC Agenda Page 12 RESOLVED THAT the public be readmitted to the meeting and that the business in committee discussed is confirmed. ARC17/37 Bennett/Tregidga CARRIED AUDIT AND RISK COMMITTEE TREASURY REPORT AS AT 28 FEBRUARY 2017 ( ) The Group Manager - Corporate Services provided an update on the current position of the loan/debt status, against the parameters outlined in the Council s Financial Strategy and Liability Management Policy. Representatives from Price Waterhouse Coopers, Mr Brett Johansen and Mr Alex Wondergem were in attendance at 11.30am to provide a presentation on the Treasury function. RESOLVED THAT the report be received. ARC17/38 Bennett/Milner CARRIED Cr Harris left the meeting at 12.06pm and returned at 12.28pm. Acknowledgement of Katina Conomos (Contracted Strategic Planner) The Chairperson acknowledged and thanked Katina Conomos for her expertise in assisting with the formation of the Audit & Risk Committee and her valued input over her time as Strategic Planner supporting staff and the Audit & Risk Committee. Due to time constraints, it was agreed that the risk and work programme reports be deferred until the next meeting in June. The meeting closed at 12.45pm. CONFIRMED P Bennett Chairperson 20 June Audit & Risk Committee Minutes Doc Ref:

12 ARC Agenda Page 13 Information Report To: Audit and Risk Committee From: Health & Safety Advisor HR Advisor Date: Tuesday, 13 June 2017 File reference: Document: Meeting date: 20/06/2017 Subject: Health & Safety Recommendation: THAT the report be received. Purpose One of the responsibilities of the Audit and Risk Committee on behalf of the Council is to monitor the implementation of the requirements of the Health and Safety at Work Act This regular report is intended to brief the Committee on key matters to ensure Hauraki District Council continues to meet its health and safety responsibilities under the Act. This report focuses on 1. Updating the Committee on the implementation of the HDC Health & Safety at Work Action Plan developed by the HDC Health and Safety Team. 2. Reporting against the HDC Health, Safety & Wellbeing Charter goals, accountabilities & reporting framework. Our Vision: Everyone Safe and Well at the End of the Day 1. Implementation of the HDC Health & Safety at Work Action Plan The current focus for the Health and Safety team is around: Continuing to strengthen the Health and Safety culture at HDC by: o o Continuing to work with managers to assist them through the process of event reporting and investigation Implementing a very successful monthly induction programme that has been completely revised and rolled out to all new staff Page 1 of 18

13 ARC Agenda Page 14 o o o o Working with the Construction and Maintenance Business Unit Manager to formalize job position competency requirements for works staff. This will lead onto more thorough skill gap analysis and better tracking of the training and review dates. Next steps will be around development of these competency modules so there are formalized checklists and competency assessments for high risk processes. Utilising Wiremu Edmonds from Tuakiri Ltd initially as a guest speaker but then as a mentor for HDC to grow the safety culture through workshops. The Health and Safety team attended the national Safeguard Conference held in Auckland last week and heard an address by the Hon Michael Woodhouse (Minister for Workplace Relations and Safety) around the new Worksafe toolkit and framework which is expected to be released in September this year. The framework will identify a nationally recognized standard of what good performance looks like and will focus on the concept of continual performance review and improvement. There will be core concepts around leadership and worker engagement, and 10 benchmarks. There will be self-assessment tools available free from the Worksafe website, but in addition they will have available (at a cost) access to independent qualified onsite assessors to compare organizational procedures and practices to the toolkit framework. Health Monitoring HDC Staff Annual Health Checks 156 eligible including 13 Councillors 9 staff didn t participate as they had pre-employments within the last 6 months 129 Participated, 18 Non-participants, 9 Not Eligible Vision 111 Participated, 13 Outside Normal Range Not Referred, 10 Referrals Musculoskeletal 129 Participated, 7 Outside Normal Range Lung Function 61 Participants, 5 Outside Normal Range Not Referred, 5 Referrals Hearing Participated, 24 Outside Normal Range, 27 Referrals, 5 Notifiable Occupational Diseases System (NODS) Blood Pressure 111 Participants, 16 Outside Normal Range Cholesterol 115 Participants, 59 Outside Normal Range Flu Vaccinations 143 staff eligible plus 13 Councillors total eligible had vaccinations including 3 Councillors 21 staff were given enough Buccaline Berner for 2 courses 4 staff went to their own GP as they were eligible for free vaccinations o The H&S Team are currently investigating the feasibility of having an occupational nurse on-site for 1 day a fortnight. One of the advantages of this would be the nurse following up and supporting staff with referrals. The future focus for the Health and Safety team is around: Page 2 of 18 Completing the Job Safety Analysis (JSA s) for all high/medium risk processes this is particularly relevant for the Construction and Maintenance Business Unit, but will be rolled out to other areas of Council in due course. Developing JSA s involve consulting with key staff who regularly carry out these processes (such as Mowing with Machinery, Operating a Concrete Saw, Working in Confined Spaces) to systematically document each step of the procedure, consider the risks associated with the procedures, and then consider and factor in how those risks can be mitigated. These mitigations become part of the procedure to help reduce risk to the workers and other people. The JSA s are the foundation of training for those tasks, and help establish safe as processes. The key

14 ARC Agenda Page 15 aspect of the JSA s is the conversations with the workers in writing them and also on an ongoing basis in training and reviews. This is to ensure the safe as processes and the culture (or practice in the field) are aligned. A clean-slate writing of the JSA s began last winter but due to workloads and the difficulty of bringing workers in from their businessas-usual roles during summer, these have not been progressed. The target date for completion of the high-risk JSAs is September Risk Management while the Job Safety Analysis aspect as mentioned above looks at process and risks associated with processes, the other side of risk management is associated with work sites and risks attached to sites (such as water treatment plants, offices, depots anything that the Council owns). The hazard registers of old are outdated and so a completely fresh look at risk management is required. This will involve working with all asset managers and many workers throughout the organization to identify risks specific to sites. A list of generic risks associated with many local government sites has been imported through our Vault health and safety management system in liaison with the local government account manager. Next steps are to develop HDC s unique risk register and record all the information in Vault so that it can easily be accessed for site-specific risk inductions and reporting. To ensure the risk management concept becomes ingrained into the HDC culture, we will be organizing training and education for staff through the process. The target date for completion of the risk management module is September Council will use the following risk assessment process (see figure below) to identify, assess and control our workplace hazards and risks. Figure 1: Risk Framework and Process Source: AS/NZS for Risk Management, AS/NZS31000:2009 Figure 2: Hierarchy of Controls Page 3 of 18

15 ARC Agenda Page 16 Contractor Management The number of councils and CCO s (Council Controlled Organisations) that are now signed up with the Waikato LASS Contractor Pre-Qualificiation Scheme is up to 20 with the recent inclusion of Taupo District Council, Waikato District Council and May Venues CCO to Tauranga City Council. Page 4 of 18

16 ARC Agenda Page 17 Page 5 of 18

17 ARC Agenda Page 18 Celebrating Success in Health, Safety & Wellbeing Stepping It Up Together in the Spotlight This section of the report will spotlight some of the great work happening to Step It Up Together at Hauraki District Council. An entry was made into our VAULT Health & Safety Management System (Audit ID #87) after a Visible Leadership Audit by CE Langley, Engineering GM Adrian and H&S Advisor Judy. The auditing team recognised that the 70kg chlorine bottles being transported between sites including the Ngatea Swimming Pool and the Kerepehi Water Treatment Plant were being transported in a way that posed great risk and an ineffective use of time. The issues identified were: o Only one 70kg cylinder was able to be transported at a time which was inefficient o The horizontal position of the cylinders being transported was a safety concern o The manual handling techniques in getting the cylinders onto the ute posed risk of injury To address these issues a corrective action (CA ID #151) was generated for the C&M Manager to work with the Workshop Manager to install a stand-up frame and cradle onto the ute to enable better transportation of the cylinders. The decking on the service vehicle being used was too light so the call was made to utilize another vehicle that was available.. Consultation with Utilities staff resulted in brainstorming options which were then investigated and actioned. The result is a flat deck truck fitted with a Tailgate Lifter and Hydraulics. Approximate costings: $4500 engineering, $500 certification, $500 purchase tail gate lifter, $1200 hydraulics lifter, $200 electrician, $2000 painting. The next step will be to develop a JSA in consultation with Utilities staff for the use of and transportation of the 70kg chlorine cylinders. The outcome from this investment is a safe and compliant process for transporting 70kg chlorine cylinders. Page 6 of 18

18 ARC Agenda Page 19 Implementation Health & Safety At Work - ACTION PLAN Everyone Safe & Well At The End of The Day Vision: Everyone Safe & Well At The End of The Day Milestones Actions Comment Strengthen Health & Safety Culture within HDC Roles and Responsibilities Health & Safety Reporting: develop a no-blame culture; use Vault H&S management system as key tool in capturing and managing H&S. Health & Safety Reps - Develop terms of reference, identify work groups, hold nominations, train reps. Shared Organisational Accountability Align department business plans with H&S Charter Procurement policy / procedures align with new Health and Safety at Work Act The training module within Vault has been rolled out to a number of teams within staff during the current Performance Management process. This module shows a comparison between job position competency requirements and an individual employee s training record so that any skill gaps can be identified. Uptake on utilizing this module is on a voluntary basis at present to allow time to gradually mentor individual staff on request. Feedback from those using it has been positive. The recording and monitoring of Personal Protective Equipment (PPE) is now fully functional within Vault and is allowing a better tracking and reporting system, particularly around expiries and renewals. A modular induction process is being developed to allow for inductions to be recorded in Vault as part of the training information for staff. Again this will provide a more formalized record of training. Near miss reporting is currently minimal and is something that will need to be promoted as a cultural norm on an ongoing basis. Latest meeting was 4 May 2017 Murray Rasmussen s last meeting Work Group Parks and General a replacement may need to be found depending on Work Group Awaiting confirmation of a Rep for Engineering Work Group H&S Rep training has been organised for 15/16 June 2017 with Vertical Horizon so we are making use of the considerable discount through Waikato LASS Reps and H&S Advisor are currently scheduling training for staff requiring refresher training including: Quad Bike, 4 Wheel Drive, and Confined Space The Health and Safety team are encouraging the alignment of business plans with the H&S Charter. Personal approaches have been made from people asking how they can personally improve their performances in this area pockets of the organization are very much on board in wanting to Step It Up Together. This is an area we continue to ask the Council to monitor when considering expenditure on projects and equipment have the Council staff answered the necessary questions around health and safety risks and management of those risks as part of their procurement proposal. Page 7 of 18

19 ARC Agenda Page 20 Milestones Actions Comment High Risk Areas Identify high risk areas then Develop Emergency Response Plans Schedule drills and audits Complete Job Safety Analysis for all tasks and processes related to high risk areas Identify risks / hazards Scheduled as noted earlier in this report. Page 8 of 18

20 ARC Agenda Page Reporting against the HDC Health, Safety & Wellbeing Charter goals, accountabilities & reporting framework The Health, Safety & Wellbeing Charter has been supplemented with a Goals, Accountabilities & Reporting framework that has been approved by the ELT (see Appendix A). As part of this, the Audit and Risk Committee can expect reporting on the following targets: Target Target Date Accountability Report on Actions This Quarter Visible Leadership Chief Executive and Group Manager carry out on-site visits to a range of high risk facilities within their specific areas of business on a 6-monthly basis to view worker / contractor practice, processes and equipment in action, with a H&S focus. Commitment at All Levels HDC Employee Survey indicates current work practices provide for a safe and healthy environment. Opportunities to Improve Identified Near misses are reported and corrective actions taken within 15 working days. Biannually by 30 June & 20 Dec Confirming visits have occurred and outlining good performance and areas for improvement and how this has been passed on to staff. Biennially following survey every 2 years (next survey 2017) Bi-monthly Chief Executive Group Managers Human Resources Health & Safety Team Since the last Audit and Risk Report We have not completed any since the last report but have June 12 scheduled for Corporate Services and 19 June for Engineering. The results of the 2017 HDC Employee Survey are now available. 123 staff (86%) completed the survey. Specific health and safety questions asked were: Current work practices in my team provide for a safe and healthy environment I take steps to continually improve health and safety in my workplace See the results of the survey attached to this report. See reporting in the charts produced below. Note that trending graphs are in the process of being produced for the next meeting agenda. And Resolved All staff have access to report incidents, accidents, risks and observations, and all reports are investigated by the applicable team leader and actions noted within 15 working days. Bi-monthly Health & Safety Team See reporting in the charts produced below. Causal analysis reports need some further refining before being presented to the Committee. The tables and charts attached in Appendix 1 are provided in accordance with the commitments identified above. Please note that there has been a recent upgrade to the Vault reporting module which has changed some of the report formats. We have also recently received a suite of report models from the Waikato Local Authority Shared Service project that we are working through so again, the section below is still very much in a work in progress format. Judy Nicholls Health & Safety Advisor Julie Sweeney Human Resources Advisor Page 9 of 18

21 ARC Agenda Page 22 Chart 1: HDC Reported Events by Department (including Near Hit / Hazard) Rolling 12 Months Page 10 of 18

22 ARC Agenda Page 23 Chart 2: HDC Reported Events by Event Category Rolling 12 Months Page 11 of 18

23 ARC Agenda Page 24 Chart 3: HDC Event Investigation Status Rolling 12 Months Page 12 of 18

24 ARC Agenda Page 25 Chart 4: HDC Corrective Action Status : Events Rolling 12 Months Page 13 of 18

25 ARC Agenda Page 26 Chart 5: HDC Events by Injury/Illness Treatment Required Rolling 12 Months Page 14 of 18

26 ARC Agenda Page 27 Chart 6: Number of Events - Rolling 12 Months Page 15 of 18

27 ARC Agenda Page 28 Hauraki District Council Employee Survey Results 2017: Health and Safety Focussed Questions Chart 1: Total Organisation Responses Benchmarked 2017 v 2015 This information shows an improvement to both questions from the initial survey in 2015 compared to the current 2017 survey. Page 16 of 18

28 ARC Agenda Page 29 Chart 2: Responses by Department 2017 The department with staff facing higher risks has scored below organisational average in the question Current work practice in my team provide for a safe and healthy environment. Chart 3 below explores responses at a divisional level within the Engineering Services Department. Page 17 of 18

29 ARC Agenda Page 30 Chart 3: Engineering Services Department Responses by Division 2017 The responses within the Parks and General team suggest further exploration is required as an immediate focus. This survey data is yet to be discussed at Executive Leadership Team level. Page 18 of 18

30 ARC Agenda Page 31 Information Report To: From: Audit and Risk Committee Group Manager Corporate Services Date: Wednesday, 7 June 2017 File reference: Document: Meeting date: 20 June 2017 Subject: Treasury report as at 31 May 2017 Recommendation: THAT the report be received. Purpose This report is an update on the current position of the loan/debt status, against the parameters outlined in the Council s Financial Strategy and Liability Management Policy. The matter or suggested decision does not involve a new activity, service, programme, project, expenditure or other deliverable. Background The Audit and Risk Committee is delegated to monitor Council s treasury activities to ensure that it remains within policy limits, and make recommendations to Council to exceed policy where there are good reasons to do so. This report presents an update on the current loan/debt status as at 31 May Debt Management With respect to debt management, the Council has a range of policy which outlines the parameters within which debt must be managed. Financial Strategy The overall forecast quantum of net external debt per annum is outlined in the Council s Financial Strategy, and updated annually through the Council s Annual Planning process. External debt is defined as the debt that the Council owes to its external lenders, such as banks. Net external debt is external debt less Councils cash and other similar liquid assets. One of the three directions outlined in the Council s Financial Strategy relates to debt and states that the Council s intention is to prudently reduce debt levels. The Long Term Plan, Annual Plan and Annual Report do not report on internal debt specifically as this is not a requirement of any financial reporting standards. Page 1 of 5

31 ARC Agenda Page 32 The Council s Financial Strategy outlines four debt caps. The table below outlines the Council s performance against the target caps as at 30 June Financial Strategy debt caps Total net external debt will not exceed 175% of total revenue in any year. Net interest expense is 15% of rates revenue in any year. Net interest expense is 10% of total revenue in any year. Net external debt per rating unit is $5,000 in any year. Performance against debt caps as at 30 June 2016 Compliance with debt caps 94% YES 7% YES 5% YES $2,873 YES The Forecast Debt Cap for 2016/17 is 119%. For 2016/17 the Council s net external debt was forecast at a maximum of $42m. Council s actual external debt at 31 May 2017 was $38m. Liability Management Policy The Council stipulates a range of policies within its Liability Management Policy relating to the prudent management of debt. For the purposes of this report, these policies are each addressed separately, as relevant. Interest Rates The Liability Management Policy stipulates parameters for the fixed/floating interest rates meaning that the Council s debt/borrowings should be within the following limits. As at 31 May 2017 the actual results were as follows: Minimum fixed rate Maximum fixed rate Current fixed rate proportion Compliance with policy 55% 90% 88% YES The fixed rate amount at any point in time should be within the following maturity bands: Fixed Rate Maturity Profile Limit Period 1 to 3 years 3 to 5 years 5 years plus Minimum % Maximum % 15% 60% 15% 60% 15% 60% Fixed Rate Maturities 18% Compliance with policy YES 43% YES 39% YES Page 2 of 5

32 ARC Agenda Page 33 The following chart shows the dollar amount of debt that is fixed and how this changes as time progresses. The chart takes a snapshot as at 31 May The red part of the graph shows the amount of debt which is fixed (this includes fixed rate bonds together with payer swaps) meaning debt which gets repriced in one year or later. The top of the yellow area represents the forecast debt in a year's time. The yellow area therefore illustrates the amount of debt deemed floating and includes any forecast debt that has not been pre-hedged. Any existing loans or financial instruments which will be repriced within the next 12 months are included in the yellow area. A green line has been added to show Forecast Debt as per the 2015 Long Term Plan. Loan maturities The Liability Management Policy stipulates parameters for the maturity profile of Council s loans. The loan maturities at any point in time should be within the following bands: As at 31 May 2017 the actual results were as follows: Period Loan Maturity Profile Limit Minimum % Maximum % Proportion of maturities Compliance with policy 0 to 3 years 15% 60% 58% YES 3 to 5 years 15% 60% 22% YES 5 years plus 10% 40% 20% YES Page 3 of 5

33 ARC Agenda Page 34 This following chart shows the amount of debt by maturity date and demonstrates that Council is spreading its loan maturities. The amount showing as available on the chart is the amount of Council s BNZ flexible borrowing facility that is undrawn at 31 May Of the $7.0m facility for BNZ, all was undrawn at 31 May The Liability Management Policy requires that the Council will ensure that it has, at all times, sufficient funds available to meet its obligations as they fall due. Liquidity The Liability Management Policy states that external term loans and committed debt facilities together with available liquid short-term investments must be maintained at an amount exceeding 110% of existing total external debt. This ensures the Council has sufficient funds available to meet its immediate cash outflow obligations as they fall due and are payable. As at 31 May 2017 the actual results were as follows: Current Liquidity ratio Compliance with Policy Liquidity Ratio policy >=110% 118% YES The current liquidity ratio is compliance with Liability Management Policy. Credit-worthiness To give the Council reasonable certainty that obligations will be honoured, the Council s Policy requires that in all its borrowing and interest rate management transactions its counterparties have a long-term Standard & Poor s (or equivalent Fitch or Moody s rating) Credit rating of at least A+ or above and a short term rating of A-1 or above, as well as stipulates maximum borrowing amounts per counterparty. The table below sets out the Policy requirements and Council s current position. Counterparty Minimum S&P long term/shortterm credit rating S&P rating as at 21 April 2017 Maximum borrowing per counterparty Current amount borrowed Compliance with policy Page 4 of 5

34 ARC Agenda Page 35 ANZ A+ / A-1 AA- $10m $0.0m YES BNZ A+ / A-1 AA- $10m $0.0m YES LGFA AA- / A-1 AA+ Unlimited $38.0m YES Giving of loan guarantees The Liability Management Policy provides for Council to act as a guarantor to bank loans for incorporated organisations which will provide, improve or develop amenities for recreation, amusement or the instruction of the public. The total combined amount the Council may guarantee at any one time shall not exceed 10% of the general rates levied in any year. The maximum amount the Council may guarantee to any one qualifying organisation shall be 5% of total rates levied, except that in special circumstances the limit of 5% may be exceeded upon Council resolution. Organisation Guarantee Waihi Netball Association $50,000 Total guarantees $50,000 As a percentage of general rates levied for 2016/17 (NB: 10%) 0.4% Compliance with policy YES The Policy requires that for each organisation that the Council has provided a loan guarantee the Council shall be provided with: A six-monthly unaudited financial report within three months of the first six months of the financial year. An annual audited financial report within four months of the balance date. A statement from the bank lending the money to the qualifying organisation each year that shows the principal outstanding at the end of that period and payment made during the year. Council s Investment Management Policy refers to investments in organisations to meet Council s social or other priorities. Council has loaned money to two community organisations for this purpose, as follows: Organisation Goldfields Railway Goldfields Railway Waihi Gold Discovery Centre Overview of arrangement 5 years from 31 October 2014 for $30,000 for replacement of Waitete Bridge. Loan is unsecured and interest free. The balance as at 31 May 2017 is $15, years from 31 October 2016 for $20,000 for the replacement of the Waitekauri Bridge. Loan is unsecured and interest free. The balance as at 31 May 2017 is $17, years from 15 July 2016 for $100,000, unsecured with 4% with principal and interest repayments of $2, monthly commencing 1/7/19 with a final payment on 1/6/24. Conclusion It is recommended that the report be received and, if the Committee feels anything warrants it, that the report be submitted to Council for its consideration. Duncan Peddie Group Manager Corporate Services Page 5 of 5

35 ARC Agenda Page 36 Information Report To: From: Audit and Risk Committee Group Manager Corporate Services Date: Wednesday, 14 June 2017 File reference: Document: Meeting date: Tuesday, 20 June 2017 Subject: Rates affordability Recommendation: THAT the report be received. Purpose The purpose of this report is to provide updated information to the Committee on rates affordability. Summary Staff have pulled together a range of sources of information to present to the Committee, to evaluate whether rates affordability is an issue in Hauraki. There is no one measure that appears to be a smoking gun. Overall the measures indicate that for a significant part of our community, rates are likely to be less affordable than an average community in New Zealand. The measures reviewed in this report include: The level of overdue rates Average residential rates Household Income Home Ownership Residential Rates vs. Costs per Ratepayer There are a number of options available for helping ratepayers with affordability issues. Some of these are cost neutral and don t shift the rates burden to other ratepayers The following options are briefly discussed in this report: Value Based Rates vs. Annual Charges More frequent instalments Alternative payment methods Discounts Rates Rebates increasing uptake Rates remission based on rates rebate scheme Rates Postponement Improving Household Income Page 1 of 11

36 ARC Agenda Page 37 Background At the previous meeting, it was requested the Committee be provided with information regarding rates affordability in the District. This report outlines some key statistics and information relating to rates and ratepayers in the Hauraki District. Discussion Affordability of Rates District statistics: There are 10,328 rateable properties in the Hauraki District; 7,350 of those rateable properties are connected to a Council water supply; The District s population is currently approximately 18,200 people, with just over 11,000 dwellings; For 2016/17 Council budgeted for total rates revenue of $26.6 million (including water rates). Overdue Rates: 1,135 ratepayers (11%) have overdue rates (Overdue Rates is where some of the current financial year s rates are overdue); 371 (4%) ratepayers have Rates in Arrears (Rates in arrears is where rates from the previous financial year(s) are still outstanding); o 157 have arrears over $500, and of these: o 34 have arrears between $5,000 and $10,000 o 16 have arrears between $10,000 and $20,000 o 5 have arrears over $20,000 As at 7 June 2017: The overdue rates balance was $1,410,000. Some of this will be for ratepayers who are paying monthly or weekly as they will be making more payments before the end of the year, (30 June). The rates in arrears balance was $1,120,000; Current water rates in arrears balance was $440,000 (this balance represents all water rates that are past due). Penalties In 2015/16 Council set $261,000 of penalties on late Instalment payments; In 2015/16 Council set $136,000 of penalties on Rates in Arrears Penalties; Council remitted $87,000 of these penalties. Page 2 of 11

37 ARC Agenda Page 38 Average Residential Rates: Rates affordability information: The Shand Report concluded that As a rough benchmark affordability problems arise where rates exceed 5% of gross household income. [Local Government Rates Inquiry, 2007]; This is the only measure that Council is aware of, that attempts to determine whether rates are affordable. Council s $2,061 average residential rate represents 5% of a household income of $41,200. The average rate, and average income, information presented in this report has been based on 2013 information as this matches the latest available census information. Also the Taxpayers Union, who reported the information in 2013, have collected the same information every year since but have not published it. Staff believe that it is unlikely that the relativity between the comparative data has changed substantially since then. Council s average residential rate is 5% higher than the average of these neighbouring authorities. If South Waikato was excluded, then Council would only be 1% higher than the average. Compared to Residential Neighbour Rates Average Hauraki % Matamata-Piako % Thames Coromandel % South Waikato % Waikato % Average of Neighbouring Councils 1963 Page 3 of 11

38 ARC Agenda Page 39 Household Income: Residential Rates Average Household Income (2013) Proportion of Income Area Unit ($) Waihi 45, % Paeroa 46, % Kerepehi 49, % Whiritoa 53, % Ngatea 61, % Kaiaua 64, % Remainder of Ohinemuri 67, % Turua 70, % Hauraki Plains 78, % NEW ZEALAND 63, % The data in the table above indicates that the average household in all of our towns should be able to afford to pay their rates. However, these are averages, and a significant proportion of households have income levels below $41,200, as seen below. 100% Household Income 75% 50% 25% 0% Household Income Not Stated $100,001 + $70,001 to $100,000 $50,001 to $70,000 $30,001 to $50,000 $20,000 to $30,000 < $20,000 Low income households are able to claim a rates rebate of up to $610. Once the rebate is deducted this equates to average residential rates of approximately $1,450. Page 4 of 11

39 ARC Agenda Page 40 No data is available on the number of households below $41,200, however of the 7,350 households in the Hauraki District, 2,050 (28%) have a household income lower than $30,000, and 3,500 (48%) have a household income lower than $50,000. We had 1,224 of ratepayers access the rates rebate in 2015/16 at a total value of $677k; The 28% of households below $30,000 is significant, as $1,450 is roughly equivalent to 5% of $30, % is higher than any other Waikato council, with the exception of Thames-Coromandel. Based on the Shand Report conclusion, approximately 28% of households are likely to have issues affording their rates. Home Ownership 67% of households in Hauraki own their own homes. This is fairly similar to Thames- Coromandel at 69% and Matamata-Piako at 64% The table below shows how many people own their home by age bands. Age group Total people Years Years Years Years Years Years Years Years Years Years Years Years Years Years 85 Years And Over Total People People who own their home (1%) (5%) (18%) (33%) (39%) (51%) (60%) (69%) (75%) (75%) (80%) (80%) (80%) (76%) (60%) The table below shows home ownership by income bands: Income Band Total people $0 - $30,000 $30,001 to 50,000 $50,000 And Over Total Households Households who own their home 5,952 3,987 (67%) 1,914 1,119 (58%) 1, (66%) 2,670 1,962 (73%) This information excludes a large number of households where income or tenure was not declared. Page 5 of 11

40 ARC Agenda Page 41 Residential Rates v Costs per Ratepayer If we consider residential rates on a total expenditure basis, Total Council Costs per Ratepayer is another factor to weigh up against residential rates. After excluding costs relating to drainage and to the extraordinary amount of water that Council produces for the rural dairy industry, Hauraki s costs are only 78% of the national average, and 74% of the average for other rural councils. This makes us the 5 th lowest of 67 councils, and 2 nd lowest out of 19 rural councils. The table below shows how our Adjusted Total Costs per ratepayer compares to our neighbouring councils. These councils are not included in the 19 rural councils referred to above. They are considered to be provincial councils. Excluding Drainage and excess Water Total Compared to Cost per Neighbour Rating Unit Average Hauraki % Matamata-Piako % Thames Coromandel % South Waikato % Waikato % Average of Neighbouring Councils 2847 Council s Adjusted Total Costs per Ratepayer is the lowest in the group. If we use Councils Unadjusted Total Costs per Ratepayer ($3,025) then Hauraki is the middle council in the group, compared to the revised average of $2,929. As stated above, Council s Average Residential Rate is slightly higher than average. It is difficult to draw strong conclusions from this comparison as factors such as number of ratepayers in each sector, and other sources of available funding are not taken into account, however the results do suggest that residential ratepayers are contributing a higher proportion of rates per ratepayer. A large amount of statistics was excluded due to the number of individuals in each bracket being too low to disclose because of privacy reasons. Page 6 of 11

41 ARC Agenda Page 42 Annual Charges Council currently collects 43% of total rates, or 53% of non-water rates, by way of Annual Charges. I have used 53% in the comparison table below due to the impact of Council s large rural water supply on the proportion of Annual Charges. Proportion of Rates Collected by Annual Charges Hauraki 53% Matamata-Piako 52% Thames Coromandel 67% South Waikato 51% Waikato 37% Average of Neighbouring Councils The proportion of rates collected by way of Annual Charges is similar to neighbouring authorities. Page 7 of 11

42 ARC Agenda Page 43 Discussion Options The Committee has in the past, considered a number of options that may help to improve the ability of ratepayers to pay their rates. The available options are summarised below. Value Based Rates vs. Annual Charge Rates Value based rates are sometimes seen as a method for helping affordability as this moves more of the rates burden onto higher value properties. This assumes owners of higher value properties have greater ability to pay. Council is considering this balance as part of its Revenue and Financing Policy decision-making. Number of Rates Instalments In previous Committee and Council discussions regarding rates affordability, it has been considered whether increasing the number of rates instalments in a year would help ratepayers better afford rates payments. While the quantum of rates would not change per rating unit, from a customer perspective, more instalments would mean each instalment is for a lesser amount. Council has resolved to increase the number of instalments from three per annum to four. This takes effect from the 2017/18 year with the first instalment for next year being sent out on 1 August. Staff are investigating the possibility of moving to six instalments per annum at a later date. Water Rates Instalments Staff previously investigated the costs and benefits of sending bills monthly or two-monthly to high water users in the District. Overall, savings of $5,000 could be made by changing to two-monthly readings for the 60 properties with consumption over 10,000Kl. Moving to monthly readings gave lower savings in all consumption bands. The Committee, and Council, resolved to propose water rates be changed to two monthly readings for properties with consumption over 10,000kl be developed, to be enacted from 1st July Page 8 of 11

43 ARC Agenda Page 44 Encouraging the Uptake of more frequent payments Separately from increasing the number of instalments, the Committee has also looked at options for encouraging the use of Direct Debits as these are easier to manage than other payment methods, for both ratepayers and staff. The two charts below show how payment methods have changed between 2014 and The proportion of 2017 Mail/Over the Counter payments is probably overstated as this does not yet include June payments which are typically very low for Mail / Over the Counter. Mail / Over the Counter 28% 2014 Method of Payment (by value) Rebates 3% Direct Debits 28% On Line / AP 41% 2017 Method of Payment (by value) Rebates 2% Mail / Over the Counter 20% Direct Debits 31% On Line / AP 47% Page 9 of 11

44 ARC Agenda Page 45 There are currently approximately 3,400 Direct Debit arrangements set up for rates, and 1,850 for water. These range from weekly to annual as seen below. ANNUAL 1% Direct Debits WEEKLY 13% INSTALMENT 39% FORTNIGHTLY 18% Approximately 40% of ratepayers arranging direct debits prefer to pay on instalment, or annually, with the other 60% wanting more frequent payments additional arrangements were set up after the option was promoted in the last rates billing. Staff intend to run another promotion involving prizes next year. Early payment discounts MONTHLY 29% The Audit and Risk committee have also previously queried whether an early payment discount would have merit to encourage timeliness of rates payments. Staff investigated this, and reported to the Committee that the scheme was not self-funding, so would cost the Council. The cost of the discounts for Waikato Regional Council, prior to them removing the early discount payment they had on rates, was $1.395m with $1.15m passed on to ratepayers via an increase in rates. Ratepayers who need to spread out their rate payments over a year for financial reasons, would not receive the discount, so would effectively be receiving an increase in rates. Staff recommended not pursuing further investigation on early payment discounts, as at first investigation it appeared that the burden would likely fall to those who could least afford it. Rather than assisting those who struggle to pay their rates, it would instead increase their rates bill. Rates rebate 1,224 ratepayers accessed the rates rebate in 2015/16. Information provided to the Rates Billing Working Party last year, noted an uptake of approximately 70%, by those eligible for the rebate in the Hauraki District, which is high compared to other TLA s. We note the only information available relates to the first year the rebates were available, with an accurate calculation of the number of eligible ratepayers not possible with available statistical information. Staff recommend further investigating options to increase the uptake of Rates Rebates. Rates remission similar to the rates rebate scheme The Committee could recommend that Council implement a remission to extend the effect of the Rates Rebate scheme. This is a more targeted way of addressing affordability than increasing Value Based Rates and reducing Annual Charges Page 10 of 11

45 ARC Agenda Page 46 Rates Postponement This is a scheme similar to reverse mortgages, whereby the council carries the rate debt until the property is sold. The interest cost is on-charged to the ratepayer, and is also collected when the property is sold. This could be of great value, particularly to older ratepayers who are struggling to pay the rates on their home. However, it is costly to administer, and the half a dozen councils who have implemented such a scheme have had very little uptake by ratepayers. Improving Household Income The Committee has previously looked at increasing household income as one method of improving rates affordability. Staff have not included any information on Council s economic development initiatives in this report. Conclusion It is recommended that this report be received by the Committee. Duncan Peddie Group Manager Corporate Services Page 11 of 11

46 ARC Agenda Page 47 Information Report To: From: Audit and Risk Committee Group Manager Corporate Services Date: Wednesday, 7 June 2017 File reference: Meeting date: Subject: Document: Appendix: Tuesday, 20 June 2017 Overheads Report for the period to 30 April 2017 Recommendation: THAT the report be received. Summary The attached report shows Council s Overhead expenditure for the ten months to 30 April Total overheads for this period, before allocation, is $7,493,000. This is $269,000 (4%) more than budgeted for the same period. Planning and Environmental, and Corporate Services are the main areas where overheads are higher than budgeted. The additional overheads in the Planning and Environment department are mainly due to additional staff resources required as a result of the increased activity in planning and consents. These increased overheads are offset by the additional revenue received as a result of the increased activity. The increased revenue is shown in the main Council financial report so doesn t show here. Corporate Services overheads are higher than budgeted mainly due to an additional staff member in the Network Services team (Matthew Hunt) and increased water meter reading costs. Detailed summaries, together with explanations of significant variances, are included in Appendix A. Duncan Peddie GROUP MANAGER CORPORATE SERVICES

47 ARC Agenda Page 48 OVERHEAD DEPARTMENTS SUMMARY POSITION AS AT 30 April 2017 YEAR TO DATE '000 Actual Budget Variance % Budget Annual Budget Expenditure Management 1,091 1, % 1,417 Asset Managers (35) -5% 807 Community Services (20) -4% 641 Corporate Services 2,570 2,482 (88) -4% 3,142 Planning & Environmental 2,190 2,029 (161) -8% 2,453 Other (31) -8% 471 Total Cost of Service 7,511 7,232 (279) -4% 8,931 Less Revenue Corporate Services (13) 0 13 n/a 0 Management n/a 0 Planning & Environmental (5) (7) (2) 34% (9) Total Revenue (17) (7) 10 (1) (9) NET COST OF SERVICE 7,493 7,224 (269) -4% 8,922 Expenditure by Overhead Department ( $'000s) Other, 418 Management, 1,091 Planning & Environmental, 2,190 Asset Managers, 697 Community Services, 545 Corporate Services, 2,570

48 ARC Agenda Page 49 Appendix A MANAGEMENT YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Chief Executive (19) -7% 320 Group Manager: Engineering (14) -8% 231 Community Services Manager % 370 Corporate Services Manager % 241 Planning & Env. Services Manager % 255 Total Cost of Service 1,091 1, % 1,417 Less Revenue Chief Executive Income n/a 0 Engineering Services Manager n/a 0 Community Services Manager n/a 0 Planning & Env. Services Manager n/a 0 Total Revenue n/a 0 NET COST OF SERVICE 1,091 1, % 1,417 1 Costs for Katina were not budgeted ($34k). This was partially offset by savings in staff training ($5k) and LAPP recoveries ($5k). 2 Accommodation is currently $6k over budget, and levies is $5k higher than budgeted. 3 The underspend is mainly attributable to consultant fees/ external contractors that still have some budget. Additional costs related to the Graffiti Management Plan, HRT Discussion Document and Community Services Support (Geoff Canham) are expected. 4 Salaries are lower than budget ($23k), and training is below budget ($19k). Partially offsetting this underspend, was the KPMG asset management review ($17k) which was not budgeted for. 5 Savings in Operational ($4k), Staff ($8k) and training ($5k) costs.

49 ARC Agenda Page 50 ASSET MANAGERS YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Asset Mgr. - Drainage (7) -7% 119 Asset Mgr. - Roading % 145 Utilities Manager (7) -6% 147 Utilities Engineer (1) -1% 98 Utilities Engineer - Waste (0) 0% 93 Asset Management Administrator (8) -20% 51 Engineering Department Administrator (1) -2% 49 Temporary Resource (JH) n/a 0 Asset Strategy & Planning Manager (13) -16% 105 Project Manager n/a 0 Net Cost of Service (35) -5% A contractor was employed while the Utilities Manager position was vacant. This resulted in Contractors being $32k over budget, however this was partially offset by the $24k salary savings while the Utilities Manager position was vacant. 7 An additional part-time staff member was employed, which was not budgeted. 8 Personnel and vehicle operating costs are higher than budgeted. COMMUNITY SERVICES YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Community Development Officer (1) -1% 82 Parks & Reserves Manager % 112 Council Secretary (0) 0% 66 Property Officer % 111 Community Services Support Officer % 53 Community Facilities Manager (6) -9% 85 Community Services Manager % 132 Community Pools & Events Facilities Officer (40) n/a 0 Net Cost of Service (20) -4% New position (Community Pools, Facilities and Events Officer) established

50 ARC Agenda Page 51 CORPORATE SERVICES YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Insurance (4) -11% 39 Administration % 37 Printing & Copying % 141 Information Management % 363 Finance Manager (1) -1% 135 Finance - Revenue (58) -17% 422 Finance - Accounts (52) -26% 350 Finance - Reporting % 116 Finance - Assistant Accountant % 56 Finance - Management Project Acc (17) n/a 0 Payroll Processing (12) -24% 61 Treasury (1) -2% 32 Information Services Manager (4) -4% 131 Network Operations (89) -13% 814 Telephony % 36 Property Information Services % 115 Geographic Information Systems (21) -27% 101 Web Administration % 96 Database Administration (15) -19% 97 Total Cost of Service 2,570 2,482 (88) -4% 3,142 Less Revenue Information Management Income (1) 0 1 n/a 0 Finance - Accounts Income 21 (11) 0 11 n/a 0 Total Revenue (13) 0 13 n/a 0 NET COST OF SERVICE 2,557 2,482 (75) -3% 3, New photocopying 'lease' arrangement began in October 2015 where we have switched to a per copy arrangement which is delivering under-spends against the printing and leasing budget. 11 Routine maintenance ($17k), Salaries ($8k), Communications ($16k) and Depreciation ($28k) are below budget. 12 Charges for water meter reading catch-up exceeds budget by $52k as well as operational costs with $32k and salaries $16k. This total overspend above is partially offset by a cost recovery ($55k) from Waikato Regional Council. 13 Additional resources employed in order to manage increased workload, resulting in $52k overspend in Salaries 14 New role created which was not in the 2016/17 budget. 15 Software development and Depreciation are under budget by $11k and $22k respectively. These savings are offset by overspend in Servicing and repairs (19k),Consumables and parts ($38k) and communications ($12k). There is also an additional spend in salaries of $45k, as a result of additional staff. 16 Routine maintenance and Depreciation under budget by $7k and $9k respectively. 17 Personnel costs are $13k under budget for the period. 18 Personnel costs are under-spent by $58k which is offset by an overspend of $74k on GIS consulting.

51 ARC Agenda Page Webhosting is $9k less than budgeted, and no external contractors ($7k) have been used to date. 20 External contractor costs are over budget. 21 Kaihere Farm balance suspense cleared. PLANNING & ENVIRONMENT YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Strategic Planning Project Manager (1) -1% 182 Plan Processing (44) -28% 196 Supervisor Resource Management Services % 126 Supervisor Health Services % 134 Consents Officer (Planning) (68) -47% 153 Senior Planner (5) -6% 94 Monitoring Officer % 92 Building Inspectors (12) -4% 342 CSA Manager n/a 0 Customer Services % 690 CSA Ngatea n/a 0 CSA Waihi n/a 0 Strategic Planner (58) -51% 137 Policy Analyst % 143 Communications - Internal n/a 0 Communications - External (17) -48% 44 Strategic Planning Administrator (0) -1% 63 Planning & Environmental - Executive Officer % 58 Total Cost of Service 2,190 2,029 (161) -8% 2,453 Less Revenue Customer Services - Income (5) (7) (2) 34% (9) CSA Ngatea Income n/a 0 Policy Analyst Income n/a 0 Total Revenue (5) (7) (2) 34% (9) NET COST OF SERVICE 2,186 2,022 (164) -8% 2, Additional demand in this activity, has meant additional staff have been required. 23 Personnel costs are $64k over budget due to the appointment of additional resources to cover additional activity. This increase costs are offset by the increase in income in the activity area. 24 Salary costs are $30k over budget. This is partially offset, as Contractors have not been used year to date, for which there is a budget of $20k. 25 Staff costs are more than budgeted. 26 Personnel costs account for the under spend - just over 1.0 FTE is being charged compared to the budget which allows for approx. 1.5 FTE. 27 Communications officer appointment more than budget.

52 ARC Agenda Page 53 OTHER YEAR TO DATE '000 Annual Note Actual Budget Variance % Budget Budget Expenditure Executive Assistant % 69 Assistant - Corporate Serv and Engineering 1 0 (1) n/a 0 Human Resources % 175 Organisational Staff Training % 53 Health & Safety (50) -52% 116 Quality Assurance (20) -312% 8 Telemetry % 29 Radio Telephones % 20 Net Cost of Service (31) -8% Training costs are under budget. 29 Health and safety employed additional resources, and $11k more was spent on medical expenses 30 Health and safety salaries are charged to Quality Assurance where applicable, but the budget was too low. 31 No routine monitoring, maintenance or repairs was needed in the first 10 months of the year. Also, no communication charges against the budget provided.

53 Audit and Risk Committee 20 June 2017 PUBLIC EXCLUDED SECTION (pages 54-97)

54 ARC Agenda Page 98 Information Report To: From: Audit and Risk Committee Finance Manager Date: Wednesday, 7 June 2017 File reference: Document: Appendix A: Meeting date: Tuesday, 20 June 2017 Subject: Audit NZ recommendations Progress report Recommendation: THAT the report be received. Purpose The purpose of this report is to present a progress report against the matters raised by Audit New Zealand as a result of the 2015/16 audit. This is a standing item on the Committee s agenda. Background As the Committee is aware, at the December meeting Leon Pieterse, Director from Audit NZ, presented the management report findings for the 2015/16 year. Staff have been working to clear a number of the issues raised in the report. Content Appendix A outlines the recommendations made by Audit NZ, management comments, and progress to date. Of the 19 items raised: Six have been cleared Eight are in progress Five have not been started. Staff continue to work towards clearing the outstanding items. We note that there are some items which are quite dependent on resourcing, specifically project management and contract management. Management are still to consider what action to take in regards to these items. Page 1 of 2

55 ARC Agenda Page 99 Key changes since this was reported on at the April meeting are: - A project management/contract management system is currently being trialled. - Staff are working on agreeing a scoping document with BNZ regarding the software for P cards. Budget Implications At this stage, most of the proposed responses outlined to Audit NZ will be undertaken by existing personnel within existing budget. Conclusion The report presents to the Audit and Risk Committee staff progress against items raised by Audit NZ. Kelly Vatselias Finance Manager Page 2 of 2

56 ARC Agenda Page 100 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Matters raised in the Interim Audit Report Recommendation Current status Priority Management comment / Expenditure controls proposed action HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 We recommended that the District Council assess whether all employee roles require the $100 financial delegation. We also recommended that formal guidelines for the use of this delegation should be developed and training provided to staff. We acknowledge that management are continuing their efforts to improve processes within the Authority system. We hope to see an increase in the use of electronic purchase orders and appropriate segregation of duties being implemented. Issue outstanding The policy and system that allow purchases under $100 without a purchase order was implemented in November Group training is provided to all staff. The Finance Team still requires employees incurring the expenditure to provide invoice/receipts as evidence of the expenditure being reasonable and for business purposes. The invoice/reimbursement forms relating to such expenditure also requires one-up approval. We understand the District Council is also considering the use of p-cards in future for such small purchases. CARRY OVER The system still allows senior management to raise and approve purchase orders, receipt the goods and approve the invoices for payment. We understand the Accounting Team Leader will be reviewing a system generated report of all such transactions in future and report any issues identified to the Chief Executive and Group Manager Corporate Services. Urgent In September 2016, the $100 blanket delegation to all staff was removed. Throughout September and October 2016 purchasing training has been provided to all staff with delegation, with a particular emphasis on purchasing policies, rules and expectations. Staff are reminded frequently that it is not appropriate to complete the whole purchasing and approval process. HDC staff propose that the first part of this issue is cleared, but that the second part (marked in red text) is carried forward. We request that the priority rating of this should be reassessed. We will only be able to reassess this at the next interim audit in 2016/17. Hence, we will report the status of the cleared and carried over matters in the next Interim Management Report. Cleared $100 blanket delegation issue previous cleared. Not started. In regards to the carry over item, no further progress has been made. We aim to have this process in place by July Page 1 FRED_n

57 ARC Agenda Page 101 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 NEW ITEM: The paperless accounts To be Management are still We suggest bringing This can be done in the next In progress. payable system is used by most provided. investigating purchasing cards through the comments interim management report issued departments, however we note that manual purchase orders are still being used in some areas such as the Construction and Maintenance Business Unit. We understand that the District Council is considering the use of purchasing cards (p- and other possible avenues for replacing manual Purchase Orders. Management believe that manual purchase orders in the Construction and Maintenance Business Unit are appropriate to that work environment and that from item 2.2 in the Interim Report as a new item. A priority rating needs to be provided for this item. in 2016/17. Priority rating: Beneficial. Management still considering P cards. Staff are in discussions with BNZ regarding a scoping agreement for the software for P cards. cards) in future to reduce the along with other controls; they instances of manual purchase provide a reasonable and orders being used. effective control mechanism for purchasing in the interim. Suspense accounts Transactions posted to suspense Issue outstanding Necessary Staff availability in 2015/16 That this item is carried Noted In progress. accounts should be reconciled and cleared promptly. This is important as suspense accounts can be used as a tool to perpetrate fraud if not regularly monitored, reconciled and cleared. Also, there may be items in suspense accounts that should be included in the financial statements. If not cleared regularly, this could impact on the integrity of the District Council s monthly financial statements. We reviewed the contractor retentions suspense account reconciliations. For the two months selected for review, we noted the reconciliations were not prepared and reviewed in a timely manner: August 2015 reconciliation was prepared and reviewed in January 2016; and March 2016 reconciliation was prepared and reviewed in May. We also reviewed the payroll suspense account reconciliations and noted that impacted on the timeliness of reconciliations. Management have implemented a plan to reconcile suspense accounts regularly and intend to employ an additional staff member to enhance the capacity of the finance team. over and staff continue to report on progress. An additional staff member has been appointed to the finance team, and is currently progressing this item. Most of this work is complete. This is well underway, and we intend to have this completed by the end of June. these were not subject to independent review. Project management Specific policies or guidance Issue progressing Necessary Management acknowledge this That this item is carried Noted. Not started. material be developed so that a consistent approach is applied for managing projects across the District Council. The District Council is currently working on developing a project management policy/manual. comment and finding however due to other priorities this has not been progressed at this time. over and staff continue to report on progress. No further progress at this time. Largely dependent on resourcing. Page 2 FRED_n

58 ARC Agenda Page 102 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Sensitive expenditure testing HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 All credit card expenditure is approved on a one up basis and is correctly coded. Issue outstanding We selected a sample of credit card transactions incurred during the period and reviewed them for compliance with the District Council s policies and accepted good practice in the public sector. We noted one item of expenditure that was incurred and approved by the same employee. As this expenditure was below $100, the self-approval financial delegation for all purchases below $100 was applicable in this instance. We recommend that the District Council consider whether this self-approval financial delegation is appropriate for credit card purchases. Necessary Management believe that the item noted by Audit NZ is an anomaly, not the norm, and the staff member concerned has been spoken with. Management believe that all credit card transactions should be approved on a one-up basis. That this item be cleared. We will only be able to reassess this at the next interim audit in 2016/17. Hence, we will report the status of the cleared and carried over matters in the next Interim Management Report. Cleared. Item previously cleared. Revenue controls A master file change report showing all changes made to the rating system should be printed and independently reviewed (and evidenced as such). This will help to provide assurance that the changes made to the rating system are correct and bona fide. Issue outstanding There has been no change to this issue. Within the next financial year, the District Council intend to start running a report, and for this to be printed and independently reviewed. Necessary This work has not yet commenced, however, Management intend to implement this report as recommended by Audit NZ. That this item is carried over and staff continue to report on progress. Noted. Not started. No progress at this time. We aim to have this cleared by the end of July Page 3 FRED_n

59 ARC Agenda Page 103 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action General ledger reconciliations HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 The District Council continue to Issue outstanding Necessary Management concur with the That this item is carried Noted. In progress. work towards ensuring monthly reconciliations between the FAR and the GL are performed. This will help to provide assurance that the asset values in the financial statements accurately reflect the District Council s assets. We noted the following issues from our testing of general ledger reconciliations: Reconciliations between the fixed asset register and general ledger have not been prepared more frequently. Reconciliations between the Rating Information Database (RID) and Shared Valuation Database (SVDS) were independently reviewed, however there is no physical evidence of this review. We sighted a memo signed by the Information Services Manager, which confirms that he has undertaken a review of the reconciliation. However there is no evidence of the independent requirements identified by Audit NZ for additional reconciliation activities. At the beginning of 2016 a number of these reports were put in place, but due to staffing shortages in the Finance Team, these have not continued as planned. At the time of writing, recruitment for a Finance Manager is underway. In addition, Management have approved the employment of an additional staff member in the Finance team, which will enable the team to perform these reconciliations with appropriate regularity. over and staff continue to report on progress. An additional staff member has been appointed to the finance team, and will have oversight of the general ledger reconciliations. This is well underway, and we intend to have this completed by the end of June. review by the Revenue Team Leader. Sundry debtors and rates control account reconciliations were prepared, however there is no physical evidence of review. For rates control reconciliations, review was only performed when a discrepancy was identified. We selected two months of water rates control reconciliations for review and noted that the reconciliations were not prepared and reviewed in a timely manner. Page 4 FRED_n

60 ARC Agenda Page 104 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Contract management HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 The District Council consider Issue progressing Necessary Comments are noted. That this item is carried Noted. In progress. implementing a fully functional contract management system. This system should: capture all contracts; have the functionality to link directly to the Finance System Management are looking to purchase a contract management software, which we expect to be implemented during the 2016/17 year. This will also enable a contracts register to be generated. The Contracts Procedure Manual is over and staff continue to report on progress. A project management system is currently being trialled, which can also be used for contract management. The trial is (Authority) so that payments currently under review to align it to the expected to last for the next throughout the contract can NZTA procurement policy and the District 6 months be readily monitored; Councils own procurement policy and provide sufficient information delegations. on performance throughout the contract that can be used to assist in contract renewal decisions; and the Contracts Procedure Manual should also be reviewed and updated to ensure it is in line with best practice and reflects the current processes and delegations of the District Council. Page 5 FRED_n

61 ARC Agenda Page 105 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Asset Management Plans HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 Details be included in the improvement plans, around having specific timeframes for each improvement action, and the staff member responsible for achieving each improvement action. Issue outstanding We understand that the Asset Management Plans (AMPs) were updated after the adoption of the 2015/25 Long Term Plan (LTP) to ensure the financial forecasts in the AMPs were consistent with the LTP. Necessary Work on the asset management plans has now commenced, in preparation for the 2018 Long Term Plan. That this item is carried over and staff continue to report on progress. Noted. In progress. Work is continuing on the asset management plans. We obtained the 2015/18 Improvement Programmes for Water & Wastewater. These were extracted from the respective AMPs. The programmes detail the improvement actions to be taken, but do not contain specific timeframes for each improvement action or the staff member responsible for achieving them. There is also a section showing progress with the 2012/15 Improvement Plan, which states the improvement required, the actions taken and the outcome (that is, completed, underway, etc). We make the same comments as above for this section. Fraud policy and assessment of areas susceptible to fraud The District Council update their fraud policy, which would include a requirement to implement a system for undertaking regular reviews of transactions, activities, or locations that may be susceptible to fraud. Issue progressing The fraud policy was updated last year. Refer to comments in section 1.2 regarding the assessment of areas susceptible to fraud. Necessary Comment noted That this item be cleared. We suggest that a new item relating to fraud is to be included (see below). This can be done in the next interim management report issued in 2016/17. Cleared. This item was previously cleared. Page 6 FRED_n

62 ARC Agenda Page 106 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 NEW ITEM: That the District Council review transactions, activities or locations that may be susceptible to fraud, as soon as practically possible. To be provided The internal audit reviews undertaken so far have reviewed transactions and activities associated with fraud risk. The forward internal audit work programme is yet to be confirmed and will be done so in liaison with the Council s Audit and Risk Committee. Management will work with our internal and external auditors to consider the value of a fraudspecific risk assessment in light of the reviews already undertaken. We suggest bringing through the comments from item 1.2 in the Interim Report as a new item. A priority rating needs to be provided for this item. This can be done in the next interim management report issued in 2016/17. Priority rating: Necessary. In progress As a result of KPMG s internal audits, particularly the review of cash handling, some areas of risk have been identified, and a number of actions put in place to reduce the risk. A fraud-specific risk assessment could be considered for the Audit and Risk Committee work programme. Compliance with significant legislation The District Council implement a system that ensures they are provided with assurance that all applicable legislation has been identified and is being complied with. Issue outstanding No change from prior year. Necessary The Executive Leadership Team review all new legislation and assign responsibility for each new requirement to a particular Group Manager. Management believe this is an appropriate process to ensure compliance. That this item be cleared. We will only be able to reassess this at the next interim audit in 2016/17. Hence, we will report the status of the cleared and carried over matters in the next Interim Management Report. Cleared. We expect that this item will be cleared by Audit NZ. Page 7 FRED_n

63 ARC Agenda Page 107 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Risk management HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 That a formal risk register be implemented, detailing the risks affecting the District Council and mitigating activities undertaken to reduce the risks. We would expect the risk register to be reviewed at least annually. This would provide assurance that all relevant risks have been identified and addressed by the District Council. Also that a risk management policy be adopted. We would expect the policy to detail the criteria for identifying, categorising and evaluating the significance of each risk. The policy should also provide a clear statement of the risk tolerance level of the District Council and defined levels of accountability for risks across the organisation. Issue progressing Refer to section 1.1 for our comments. Necessary Comments noted. The Council adopted a Risk Management Policy in December That this item be cleared. Section 1.1 of the interim management report highlighted that there was still work needed to get risk management practices fully implemented (i.e. risk management policy/register adopted but updating/reporting on risks to be integrated into business as usual practices). We will only be able to reassess this at the next interim audit in 2016/17. Hence, we will report the status of the cleared and carried over matters in the next Interim Management Report. In progress. Risk register has been implemented, as previously noted. Work to continue on risk management and reporting. Page 8 FRED_n

64 ARC Agenda Page 108 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Audit of service performance information HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 Some of the performance measures are based on the time taken to attend or resolve a service request. We noted the following weaknesses in the systems in place for such measures: 1. Reliance is placed on field staff to ensure they record the correct time for attending or resolving service requests. This potentially affects such time sensitive performance measures. A scenario where this system will be especially stressed will be no water or flooding incidents affecting several properties. In such instances, the field staff will busy attending to the service requests and will then have to enter the data into the database retrospectively. There is no independent verification of the response time made when this is later recorded. 2. For stormwater or land drainage issues, the public also has the ability to contact the Drainage Manager or Drainage Overseer directly (as well as the CSAs). There is a risk that all service request incidents may not be recorded in the customer service request system; especially during heavy rainfall events when the Drainage Manager and Overseer will be busy. The District Council should consider upgrading the customer service request system. A system that is integrated with hand held devices (such as tablets or smartphones) would enable field staff to record response times and comments more accurately and in a timelier manner. Where the public contact field staff directly, an integrated system would enable the field staff to log a service request in the database, even if they are not on Council premises. Issue progressing The performance measures have changed as a result of the adoption of the 2015/25 LTP. We also noted that the AMPs now provide definitions of emergency, urgent, priority and routine. These are the priority levels now used in the (non-mandatory) performance measures for responding to customer service requests. The AMPs also elaborate on the actions expected to be taken within the target response times. However, there are still some improvements which can be made to the customer service request system. Refer to section 2.4 for further details. Necessary Comments noted. Management have agreed to: 1. Move the land drainage and stormwater customer request system to the CRM module of Authority (action pending) 2. Asset Management Plans will be updated to include guidance on classifications in the customer request system (urgent, priority, routine etc), and what constitutes a response. That this item is carried over and staff continue to report on progress. However, the recommendation from Audit NZ has changed slightly. The former recommendation was: The District Council add additional fields in the customer service request system so that the data required for the above measures can be adequately captured for reporting purposes. Policies or guidance should also be implemented to ensure staff are aware of how each service request should be classified in the customer service request system and what constitutes a response. The latest recommendation should be included in forward reports. The recommendation highlighted in yellow was made in previous years (because there were no guidelines on when service requests should be classified as urgent or nonurgent and no clear definition of what a response is). As stated, the performance measures have changed and now a part of that recommendation has been addressed. The comments highlighted in blue were raised in section 2.4 of the interim management report. These were also noted in prior years, hence our initial recommendation was marked as progressing. To avoid confusion, in the next interim management report, we can separate the two recommendations. The yellow highlighted recommendation can be marked as cleared. We will follow-up on the blue highlighted recommendation and report accordingly. In progress. Asset management plans are currently being updated. Council is having an external review of the Authority system, and will consider what other modules should be used. Page 9 FRED_n

65 ARC Agenda Page 109 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management comment / proposed action Earthquake prone buildings HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 The District Council should consider having its other (infrastructural) buildings assessed to determine whether they meet the required percentage of code and the impact on the levels of service, if any. Issue outstanding The timeframe for performing assessments has changed due to changes to the earthquake strengthening rules. A medium earthquake risk profile is applied to the district. The District Council have assessed the three main offices in Paeroa, Ngatea and Waihi. Other Council buildings will be reviewed to meet the legislative timelines. Comments noted. NB: further management comments/actions pending. That this item is carried over and staff continue to report on progress. Updated comments were received and added to the final management report Not started. No further progress has been made at this stage. Tender deposits The balances should be reviewed and written-back as required. We also recommend that the District Council review all contractor retention balances to ensure that the District Council s records accurately reflect retention liabilities at balance date. Issue progressing The total value of deposits and bonds has decreased from $430k to $350k this year. From our review of the breakdown of this balance, we noted that one account with longstanding tender deposits has been cleared. Management is working towards clearing the remaining historical deposits and bonds. Necessary These balances have been reviewed and balances will be written off where appropriate Staff would like further clarification/discussion on this item The recommendation refers to contractor retention balances, but the issue discussed deposits and bonds. The current status disclosed was written in a manner similar to last year s management report. Basically the total balance of deposits and bonds in the statement of financial position is $350k. The tender deposits balance was part of this balance in prior years. The account called Tender Deposits is nil, however there are other things in the Deposits and Bonds category that are longstanding and still need to be cleared. Not started. As part of the reconciliation process most of these items have been either cleared and written back, or have been identified as valid deposits or bonds. We aim to have this completed by July This was communicated to management and the final management report was updated with management comments. Page 10 FRED_n

66 ARC Agenda Page 110 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Final audit report Recommendation Current status Priority Management s proposed action HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 Property, plant and equipment revaluation and fair value assessments NEW ITEM The District Council revalued their land assets as at 30 June We noted that not all land had been included in the revaluation. PBE IPSAS 17 Property, Plant and Equipment, paragraph 51 states that if an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. We recommend that the District Council ensures all land is included in future revaluations. No rating provided as contained in letter, not schedule. Management note the comments made by Audit NZ and acknowledge that three properties were missed in error. This will be corrected in the 2018 revaluation. Request that this new item be noted, but not carried through for ongoing reporting. Staff acknowledge this error. The next valuation is to occur in Final management report updated with management comments. Priority rating of Necessary was already added as a footnote in the management report. We still intend to include this matter in future management reports, but include it under the heading Matter to be addressed in 2018/19 year. That way, we can still keep track of this recommendation and ensure it is followed up in future. Cleared. We are aware of this error, and will ensure it is addressed during the next valuation, due in Page 11 FRED_n

67 ARC Agenda Page 111 Progress on matters raised by Audit NZ in the 30 June 2016 Interim Audit and the Final Audit Reports, as at 31 May 2017 Recommendation Current status Priority Management s proposed action HDC staff recommendation regarding status of recommendation Audit NZ Response Status as at 31 May 2017 Payment dates for targeted rates for water supply NEW ITEM The High Court said that a rates resolution should include calendar dates for the due dates for rates. It was not sufficient to define the due date by reference to some other document. No rating provided as contained in letter, not schedule. Management acknowledge the comments raised and will seek independent legal advice on this matter as it relates to HDC. Request that this new item be included and staff continue report on progress. A priority rating needs to be provided for this item. Final management report updated with management comments. Priority rating of Necessary added as a footnote in the management report. Cleared. It is appropriate for all councils to consider the High Court s view of the requirements of section 24 of the Local Government (Rating) Act 2002, and how the judgment might affect them. We recommend that the District Council review its rates resolution and, if appropriate, seek independent advice over whether its resolution meets the requirements of section 24 of the Local Government (Rating) Act 2002 in relation to payment dates for targeted water rates. Page 12 FRED_n

68 ARC Agenda Page 112 Decision Report To: From: Audit and Risk Committee Finance Manager Date: Tuesday, 6 June 2017 File reference: Document: Appendix A: Meeting date: Tuesday, 20 June 2017 Subject: Internal audit function and priorities Recommendation: THAT the report be received, and THAT the Committee make a decision as to the function and priorities of internal audit. Purpose The purpose of this report is to assist in the Committee s decision as to the future of the internal audit function. The Audit and Risk Committee Terms of Reference outline that it is the Audit and Risk Committee s role to approve the internal audit work programme The matter or suggested decision does not involve a new activity, service, programme, project, expenditure or other deliverable. Background In 2015, KPMG was appointed as HDC s internal auditors. The initial work programme consisted of five reviews, which were conducted over an 18 month period. These reviews were: 1. Procurement 2. Cash handling 3. Accounts payable 4. Payroll 5. Asset management. Page 1 of 3

69 ARC Agenda Page 113 Now that the initial work programme is completed, the Audit and Risk Committee should determine whether the Council engages KPMG to complete further internal audit work. Staff have outlined three options below and provided some commentary around the advantages and disadvantages of each of the options. Issues and options Option 1 Work with KPMG to develop a new work programme with further areas for internal audit review. One option is for the Committee to choose to continue with the internal audit function, and engage KPMG to develop a further work programme for the Council. The benefit from this option is that the organisation can continue with the momentum gained from the first internal audit reviews. A disadvantage is the pressure this would put on staff resources. Staff are currently working to clear recommendations made by KPMG as part of the previous internal audit reviews. In addition, staff are also maintaining business as usual tasks, as well as the additional work required from the LTP process. If this option were chosen, KPMG would develop the plan taking into account the key risks, strategic objectives and areas identified by Management and the Audit and Risk Committee. One area the Committee may like to consider for internal audit review is Risk Management. This is an area Council has been working on to improve, and a review may assist in progressing this. Appendix A includes a table from KPMG which shows some of the common areas of internal audit review undertaken at Bay of Plenty, and Waikato Local Authorities. Option 2 Delay further internal audit reviews. Another option is for the Committee to decide to delay completing further internal audit reviews for a period. An advantage to this option is that staff will then be able to focus on clearing the outstanding items raised in the reports from the first five reviews. It will also allow staff to focus on the LTP, which will use significant staff resources over the next year. This decision could then be reviewed in 12 months time, with the intention of developing a further internal audit programme at this time. A possible disadvantage to this option, is that some momentum gained during the initial internal review programme, may be lost. However, staff believe this is unlikely as the organisation will be continuing to progress the recommendations made by KPMG as part of the initial review programme. Option 3 Complete no further internal audit reviews. The Committee have the option of choosing to complete no further internal audits. This would allow staff to focus on the recommendations already made in the KPMG reviews, as well as business as usual tasks, and the LTP. However, this is not the preferred option of staff, as we would view the internal audit function as an important tool in continuous improvement of the organisation. Page 2 of 3

70 ARC Agenda Page 114 Significance and Engagement Assessment This decision is not considered significant because it does not trigger the Significance and Engagement thresholds. Budget Implications The five reviews completed to date have ranged in price from $13,000 to $18,000, with a total cost of almost $80,000, and were deficit funded. Further internal audit reviews would likely be somewhere in this range, though this would be dependent on the areas selected for review. Recommendation Staff recommend that further internal work is delayed - option 2 above. This will give staff the opportunity to focus on clearing the items raised as a result of the completed reviews, and also acknowledges the pressure on staff resources with the development of the LTP this year. Staff recommended this item is reconsidered in 12 months time, with a view to developing a further internal audit programme at this time. Kelly Vatselias Finance Manager Page 3 of 3

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