Agenda of Audit and Risk Committee

Audit and Risk Committee - 20 June 2019 - Open Agenda Item 1

Agenda Items

1. Risk Management Report June 2019

Type of Report:	Information
Legal Reference:	N/A
Document ID:	759266
Reporting Officer/s & Unit:	Ross Franklin, Consultant

1.1 Purpose of Report

To provide the Audit and Risk Committee (Committee) with an update on progress with risk management work and to report on the highest paid risks.

Officer’s Recommendation

The Audit and Risk Committee:

a. Note the Risk Management work being undertaken by the Napier City Council Risk Committee

b. Note the current Major Project risks

c. Receive the Risk Report Dated 11 June 2019

Chairperson’s Recommendation

That the Committee resolve that the officer’s recommendation be adopted.

1.2 Background Summary

Napier City Council (NCC) has a programme of work to develop and mature its enterprise risk capability. A risk maturity roadmap has been developed to guide this work.

The Committee supports this work by acting in a monitoring and advisory role. This report provides an update to the Committee on progress against the roadmap and reports the highest rated risks to ensure they are being actively managed.

NCC has a Risk Management Framework document together with a Risk Management Strategy. These document set out the NCC risk appetite and the risk management roles, responsibilities and reporting requirements.

NCC risks are recorded in a risk management software solution known as “Sycle”. Each risk is assigned a risk owner and the risk is rated based on an assessment against the NCC risk matrix and based on the level of residual risk once any control measures and actions (or work programmes) designed to prevent or mitigate the risk have been identified and implemented.

NCC has an internal Risk Committee made up of officers from different areas of the organisation. The role of the risk committee is to coordinate the risk management process; monitor the risk profile, risk appetite and effectiveness of controls; monitor & review high and extreme risks and report extreme and high risks to Council’s senior leadership team. The committee is chaired by the Manager Business Excellence & Transformation.

The Risk Management Strategy requires high and extreme risks to be reported to the Audit & Risk Committee. Recognising the level or NCC risk maturity all high\extreme strategic risks and extreme operational risks are reported to each Audit & Risk Committee meeting.

1.3 Issues

Since our last report to the Committee progress has continued to be made in the following areas:

· Further development of the Sycle Projects module

· Continuation of a Business Continuity Management programme of work

· Review risk processes, systems and of the risk register

Sycle Projects Module

As reported to the last meeting work continues to progress on the implementation of the projects module in Sycle.

Business Continuity Management

Work continues on Business Continuity Management (BCM) at NCC. A draft BCM policy and the draft Business Impact Analysis were presented to the committee at the March meeting. The next stage is to identify the BCM risks for each site, based on the business impact analysis and capture any key risk into the Corporate Risk Management framework

The BCM framework responds to the strategic risk SR5 – ‘Event causing disruption or destruction of critical business functions and/or production and delivery of council services’.

Risk Management at NCC

With the appointment of the Manager of Business Excellence & Transformation to another role within the organisation we have not been able to progress the update to the policy and framework further at this stage. A position description is currently being prepared for new dedicated risk management role to be added early in the new financial year. With this appointment there will be a significant uplift in the organisation’s capability and focus on risk management.

1.4 Significance and Engagement

There are no external consultation requirements for this report.

1.5 Implications

Risk

There are currently 5 strategic and 169 operational risks in the risk register. (Project risks have been excluded from reporting). Ten risks have been removed from the registers and two have been added since the last meeting of the Committee.

There are five risks to report to the Committee as the highest rated risks; one is an operational risk rated Extreme (OR164) and four are strategic risks rated High (SR2, SR3, SR5 and SR6).

These risks are reported in the attached spreadsheet. (Attachment A).

All five risks have treatment actions to further manage the causes or consequences of each risk.

Extreme Risks

The Extreme risk in the operational risk register is:

· OR164 Bluff Hill – fall from cliff top

These risks were previously reported to you on 28 March.

The previous risk relating to the Pandora Pond facility (OR 155) has been removed from the register as the water play facility will not be reinstated at Pandora Pond.

The project to replace the fence around the cliff top on Bluff Hill is underway and the fence is expected to be complete by the end of June.

High Risks

The four high risks in the strategic register are:

· SR2 Removal of three waters delivery and management

· SR3 Increased number and/or severity of major/natural disaster events

· SR5 Event causing disruption or destruction of critical business functions and/or production and delivery of council services.

· SR 6 Risk management practices

These risks were previously reported to you on 28 March and they have not changed. The risks are outside the control of NCC. The risks treatments listed against these risks are ongoing.

1.6 Options

N/A

1.7 Development of Preferred Option

N/A

1.8 Attachments

a Schedule of Extreme and High Risks as at 11 June 2019 ⇩

Audit and Risk Committee - 20 June 2019 - Open Agenda Item 6

6. Legislative Compliance - Update Report

Type of Report:	Operational
Legal Reference:	Local Government Act 2002
Document ID:	760953
Reporting Officer/s & Unit:	Caroline Thomson, Chief Financial Officer

6.1 Purpose of Report

To update the Committee on a number of legislative compliance reviews taking place.

Officer’s Recommendation

The Audit and Risk Committee:

a. Note the Legislative reviews being undertaken including the Rating review

Chairperson’s Recommendation

That the Committee resolve that the officer’s recommendation be adopted.

6.2 Background Summary

Council is currently undertaking a full review of its funding policy through a series of Council seminars.

The funding review process is split into two parts. Step one allows the incumbent Council to utilise its knowledge and understanding of the Local Government Act and process to form a view of how the operational and capital costs for each Council activity should be funded under Section 101 of the Local Government Act (2002). Step one involves considering for each activity:

· the community outcomes to which the activity primarily relates to

· who benefits

· period of benefit

· whose act creates a need (exacerbator)

· separate funding

· funding sources

· rationale

At the conclusion of step one a report will go to Council in September to formally approve the funding approach for each activity.

This will form the basis for the new Council (after the elections on 12 October) to complete step two which involves assessing the overall allocation of liability for revenue needs on the community.

The following chart shows the elements that make up the funding review process:

Reviews of the following Council policies are also underway as part of the full funding review:

· Revenue and Financing Policy

· Financial and Development Contributions Policy

· Rates Remission policy

· Rates Postponement Policy

6.3 Issues

No Issues

6.4 Significance and Engagement

There will be policy changes as a result of the above reviews. These will be consulted on as part of the next Annual Plan process once the work has been completed and approved by Council.

6.5 Implications

Financial

There may be changes to the way the activities are funded. Any changes to existing policies will be consulted with the community as part of the Annual Plan/Long Term Plan process.

Social & Policy

The current reviews will impact the following policies:

· Revenue and Financing Policy

· Financial and Development Contributions Policy

· Rates Remission policy

· Rates Postponement Policy

Risk

N/A

6.6 Attachments

Nil

Audit and Risk Committee - 20 June 2019 - Open Agenda

Audit and Risk Committee

Open Minutes

Meeting Date:	Thursday 28 March 2019
Time:	1pm-1.40pm
Venue	Council Chamber Hawke's Bay Regional Council 159 Dalton Street Napier

Present

John Palairet (In the Chair), Mayor Bill Dalton, David Pearson, Councillor Claire Hague and Councillor Kirsten Wise

In Attendance

Chief Financial Officer, Director Infrastructure Services, Director City Services, Manager People and Capability, Manager Property, Ross Franklin – Consultant, Manager Communications and Marketing

John Schellekens – Price Waterhouse Cooper

Administration

Governance Team

Apologies

Nil

Conflicts of interest

Nil

Public forum

Nil

Announcements by the Mayor

Nil

Announcements by the Chairperson

The Chair welcomed David Pearson to his first meeting as a new member of the Audit and Risk Committee.

Announcements by the management

Nil

Confirmation of minutes

Councillor Hague / Mayor Dalton

That the Minutes of the meeting held on 6 December 2018 were taken as a true and accurate record of the meeting.

Carried

Agenda Items

1. Annual Plan 2019/20 Underlying Documents

Type of Report:	Operational
Legal Reference:	Local Government Act 2002
Document ID:	715731
Reporting Officer/s & Unit:	Adele Henderson, Director Corporate Services Caroline Thomson, Chief Financial Officer

1.1 Purpose of Report

That the Committee review and provide feedback to Council on the Annual Plan 2019/20 underlying documents prior to the final adoption of the reports.

At the Meeting

The Chief Financial Officer spoke to the latest version of the Draft Annual Plan and Consultation Document (tabled at the meeting), and highlighted the following points:

· On 15 March 2019, Council were advised that there would be an average rates increase of 5.9% for 2019/20. Since that meeting information has been received indicating that kerbside recycling costs would increase further bringing the average rates increase to 6.4%.

· It is proposed to spread the increased costs of recycling across a three year period to smooth the rating impact.

· Council has received expert advice that recycling is likely to cost $72-$95 per ratepayer, and officers have budgeted on the higher figure of $95 per ratepayer.

In response to questions it was clarified that the updates and amendments to the underlying documents are simply tidying up policies, which will be fully reviewed in the 2019/20 year ahead of the Long Term Plan.

It was noted that any feedback from the Committee would be required over the next few days, and prior to the documents being taken to Council on 2 April 2019.

Committee's recommendation

David Pearson / Councillor Wise

That Council:

a. Receive the Annual Plan 2019/20 underlying documents:

· Draft Annual Plan

· Revenue and Financing Policy

· Rates Remission Policy

b. Recommend to Council for information to be approved for consultation

Carried

2. Risk Management Report March 2019

Type of Report:	Information
Legal Reference:	N/A
Document ID:	715748
Reporting Officer/s & Unit:	Adele Henderson, Director Corporate Services

2.1 Purpose of Report

To provide the Audit and Risk Committee (Committee) with an update on progress with risk management work and to report on the highest rated risks.

At the Meeting

Ross Franklin spoke to the report noting that there have been no significant changes. It was noted that work within the register has been limited due to current workloads and the Manager Business Excellence and Transformation being seconded to another area of Council. Once the team returns to full capacity the draft updated policy and strategy will be reviewed and will then be brought to the Committee.

In response to questions, the following points were clarified:

· Council’s major projects are not currently sitting within the Sycle risk register as they are dealt with on a project by project basis. Each project has a project risk register and a governance structure in place to monitor this. Any significant risks identified through this governance structure are elevated to the senior leadership team to be assessed and identified as strategic organisational risks.

· Newly identified risks can always be added to Sycle but only significant risks are raised with the Committee. There will always be risks that Council has no control over, but risks identified in the risk register are those that Council is able to mitigate and manage.

· The Bluff Hill project is currently underway and expected to be downscaled shortly.

· The increase of insurance premiums has been identified as a new risk as this was raised by Council’s insurance brokers. This is addressed in the insurance arrangements item.

Committee's recommendation

Councillors Wise / Hague

That Council:

a. Note the risk management work being undertaken by the Napier City Council Risk Committee.

b. Note the current Major Project risks.

c. Receive the latest Risk Report Dated 7 March 2019.

Carried

3. Risk Management - Insurance Arrangements

Type of Report:	Operational
Legal Reference:	N/A
Document ID:	711491
Reporting Officer/s & Unit:	Bryan Faulknor, Manager Property

3.1 Purpose of Report

To outline Council’s current insurance programme, discuss any issues and to provide the opportunity for the Committee to provide feedback for insurance arrangements for the upcoming financial year 2019/20.

At the Meeting

The Manager Property spoke to the report which notes the current insurance arrangements, and invited the Committee to provide feedback into the arrangements for 2019. He advised that an exercise in loss modelling is currently being carried out by AON for the five Hawke’s Bay Council’s together with the Manawatu Councils, noting that benchmarking is necessary to ensure the valuation of infrastructure is sound and there is a good understanding of replacement values. The current figure of $120Million is from 2015 and it is timely to reassess this. Council intends to feed the new figure into the insurance arrangements for 2019; however, that can be updated at any time.

In discussing the settlement claim, insurance providers indicated that there may be ramifications in future but this is unknown.

Committee members requested that the Manager Property investigate increasing the indemnity limit for crime insurance as well as cyber-crime cover.

Committee's recommendation

Mayor Dalton / David Pearson

That Council:

a. Resolve to receive the report on current insurance arrangements.

b. That any feedback from the committee be considered for incorporation into the insurance arrangements for the insurance year commencing 1 July 2019.

Carried

4. Risk Management - Business Continuity Plan Update

Type of Report:	Operational
Legal Reference:	N/A
Document ID:	715767
Reporting Officer/s & Unit:	Adele Henderson, Director Corporate Services

4.1 Purpose of Report

Update on progress towards the development of a Business Continuity Management programme for Napier City Council.

At the Meeting

It was noted that the intention is to extend the impact analysis to include payroll and accounts. The risk analysis is essentially completed through the process of confirming the impact analysis and timeframes. It is expected that this exercise should be complete in around six months’ time.

Committee's recommendation

Councillors Hague / Wise

That Council:

a. Receive the Draft Business Continuity Plan update.

b. Receive the Draft Business Impact Assessment.

c. Provide feedback to Council officers for inclusion in final plans.

Carried

5. Health and Safety Report

Type of Report:	Operational
Legal Reference:	N/A
Document ID:	712384
Reporting Officer/s & Unit:	Sue Matkin, Manager People & Capability

5.1 Purpose of Report

The purpose of the report is to provide the Audit and Risk Committee with an overview of the health and safety performance as at 31 December 2018.

At the Meeting

The Manager People and Capability spoke to the report, highlighting the following:

· There were eight lost time injuries at this time last year compared to only three in this period.

· Safe work practices have resulted in less medically treated injuries.

· Continued participation at the Health and Safety meetings from various areas of Council has helped to increase together with good information sharing amongst committee members.

· In relation to the Site Wise programme for contractors, there are now only seven contractors in the red with this number continuing to improve.

· A number of Council staff are currently taking part in various activities planned for health and safety wellbeing awareness week.

· Council are developing a domestic violence/ family violence policy and currently applying for White Ribbon accreditation. Council officers intend to select a number of White Ribbon ambassadors from within Council, including the Chief Executive, to help raise awareness.

Committee's recommendation

Councillor Wise / David Pearson

That Council:

a. Receive the Health and Safety report as at 31 December 2018

Carried

6. External Accountability - Investment and Debt Report

Type of Report:	Operational
Legal Reference:	N/A
Document ID:	713474
Reporting Officer/s & Unit:	Caroline Thomson, Chief Financial Officer

6.1 Purpose of Report

To consider the snapshot report on Napier City Council’s Investment and Debt as at 28 February 2019.

At the Meeting

The Chief Financial Officer spoke to the report noting that the average interest rate decreased due to a large sum having to be held on short term deposit. As at the end of March there is around $50Million on term deposit but this amount will fluctuate with the rate take coming in.

It was noted that Council’s Treasury Policy must be adhered to in relation to investments:

· 30-80% must be invested between 0-6 months,

· 20-70% must be invested between 6-12 months,

· An upper limit of 50% can be invested between 1-3 years, and

· Up to 20% can be invested between 3-5 years.

Committee's recommendation

David Pearson / Councillor Hague

That Council:

a. Receive the snapshot report on Napier City Council’s Investment and Debt as at 28 February 2019.

Carried

7. External Audit - Audit Arrangements for Year Ending 30 June 2019

Type of Report:	Operational
Legal Reference:	Local Government Act 2002
Document ID:	713477
Reporting Officer/s & Unit:	Caroline Thomson, Chief Financial Officer

7.1 Purpose of Report

To outline the audit arrangements for the audit of the Napier City Council for the year ending 30 June 2019.

At the Meeting

The Chief Financial Officer spoke to the report and the Draft Audit Plan for the year ending 30 June 2019 (tabled at the meeting), which sets out what the auditors intend to cover at the year-end audit scheduled for 12 August 2019. It was noted that the Audit New Zealand are currently on site completing the 2018/19 interim audit and there appears to be a particular focus on bribery and corruption. Audit New Zealand have requested to come back in June to get a head start on the year end audit.

The Committee were advised that they now have an opportunity to comment on any specific areas that they want the auditors to look at, that have not already been indicated as an area of focus.

It was confirmed that capital projects are already noted in the plan. The Director Infrastructure Services has completed the project management framework, which will come through to the senior leadership team shortly. This is a comprehensive programme linking through to Sycle and will include the financial information for these projects also.

The Chief Executive advised that the current focus on bribery and corruption is a direction from Parliament’s Finance and Expenditure Committee, and that Council has already updated the code of conduct to make stronger linkages to the State Services Commission standards of integrity and conduct for public servants.

The Chair directed the Committee to review the draft audit plan and provide any feedback directly to Council officers.

Committee's recommendation

Councillor Hague / Mayor Dalton

That Council:

a. Resolve that the audit arrangements for the year ending 30 June 2019 as set out in the audit arrangement letter from Audit New Zealand is received.

Carried

PUBLIC EXCLUDED ITEMS

Mayor Dalton / Councillor Wise

That the public (with the exception of John Schellekens from Price Waterhouse Cooper) be excluded from the following parts of the proceedings of this meeting, namely:

1. Control Framework - Freeholding Framework

Carried

The general subject of each matter to be considered while the public was excluded, the reasons 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 were as follows:

General subject of each matter to be considered.	Reason for passing this resolution in relation to each matter.	Ground(s) under section 48(1) to the passing of this resolution.
1. Control Framework - Freeholding Framework	7(2)(i) Enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations)	48(1)A That the public conduct of the whole or 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: (i) Where the local authority is named or specified in Schedule 1 of this Act, under Section 6 or 7 (except 7(2)(f)(i)) of the Local Government Official Information and Meetings Act 1987.

The meeting moved into committee at 1.40pm.

Approved and adopted as a true and accurate record of the meeting.

Chairperson .........................................................................................................................

Date of approval ..................................................................................................................

Committee Members	John Palairet (In the Chair), Acting Mayor Faye White, David Pearson, Councillor Claire Hague and Councillor Kirsten Wise
Officer Responsible	Director Corporate Services
Administration	Governance Team
	Next Audit and Risk Committee Meeting Thursday 5 September 2019

Audit project	2018/19 plan	2019/20 plan
Sensitive Expenditure	Apr-19
Fraud Gap Analysis	May-19
Grants	Jun-19
Follow up activities		Sep-19
Contract Management		Nov-19
Payroll procedures & practices		Feb-20
Business Continuity & Disaster Recovery Planning		Apr-20

Meeting Date:	Thursday 20 June 2019
Time:	1pm
Venue:	Council Chamber Hawke's Bay Regional Council 159 Dalton Street Napier