Agenda of Finance and Performance Committee


Membership:	10
Meeting Cycle:	Meets on a six weekly basis, as required or at the requisition of the Chair
Quorum:	Half of the members
Reports to:	Council

HUTT CITY COUNCIL

Finance and Performance Committee

Meeting to be held in the Council Chambers,

2nd Floor, 30 Laings Road, Lower Hutt on

Wednesday 2 August 2017 commencing at 5.30pm.

ORDER PAPER

Public Business

1. APOLOGIES

2. PUBLIC COMMENT

Generally up to 30 minutes is set aside for public comment (three minutes per speaker on items appearing on the agenda). Speakers may be asked questions on the matters they raise.

3. CONFLICT OF INTEREST DECLARATIONS

4. Recommendation to Council - 15 august 2017

Treasury Risk Management Policy Changes (17/1039)

Report No. FPC2017/3/182 by the Chief Financial Officer 7

Chair’s Recommendation:

‘That the recommendation contained in the report be endorsed.’

5. Insurance Update (17/601)

Report No. FPC2017/2/124 by the Chief Financial Officer 42

Chair’s Recommendation:

‘That the recommendation contained in the report be endorsed.’

6. Risk and Assurance Update and Operational Risk Profile 2017 (17/1010)

Report No. FPC2017/3/183 by the Risk and Assurance Manager 50

Chair’s Recommendation:

‘That the recommendations contained in the report be noted.’

7. Audit New Zealand Interim Management Report for the Year Ending 30 June 2017 (17/1042)

Report No. FPC2017/3/187 by the Financial Accounting Manager 66

Chair’s Recommendation:

“That the recommendation contained in the report be endorsed.’

8. Interim Finance Update (17/1041)

Report No. FPC2017/3/188 by the Budgeting and Reporting Manager 92

Chair’s Recommendation:

‘That the recommendation contained in the report be noted.’

9. Information Item

Finance and Performance Work Programme 2017 (17/803)

Report No. FPC2017/3/106 by the Committee Advisor 101

Chair’s Recommendation:

“That the report be noted.’

10. QUESTIONS

With reference to section 32 of Standing Orders, before putting a question a member shall endeavour to obtain the information. Questions shall be concise and in writing and handed to the Chair prior to the commencement of the meeting.

Annie Doornebosch

COMMITTEE ADVISOR SECRETARIAT SERVICES

7 02 August 2017

Finance and Performance Committee

03 July 2017

File: (17/1039)

Report no: FPC2017/3/182

Treasury Risk Management Policy Changes

Purpose of Report

1. The purpose of the report is to approve changes to the Treasury Risk Management Policy (incorporating Liability Management and Investment Policies) resulting from Officers triennial review of the policy and from recently approved changes to Councils Financial Strategy.

Recommendations

That the Committee recommends that Council approve the recommended changes to the Treasury Risk Management Policy attached as Appendix 1 to the report.

Background

2. The current Treasury Risk Management Policy was approved by Council in October 2014. This followed a comprehensive rewrite and consolidation of the previous Treasury, Liability Management and Investment Policies.

3. It is a requirement of the Treasury Risk Management Policy that the policy is formally reviewed on a triennial basis to ensure the policy continues to reflect best practice and prevailing debt capital and investment market requirements.

4. The recently approved changes to Council’s Financial Strategy, in particular changes to borrowing limits, also need to be incorporated into the policy.

Discussion

5. Price Waterhouse Coopers (PwC) are Council’s appointed Treasury Advisors and were the main authors of the current policy in 2014. PwC have assisted with the current triennial review and have recommended some minor changes to the policy.

6. Officers have also made minor changes, corrected position titles, updated references to the Finance and Audit Committee with the Finance and Performance Committee, and incorporated changes to align with Council’s updated Financial Strategy.

7. Changes to the policy have been tracked. A ‘marked up’ version of the revised policy is attached as Appendix 1 to the report.

8. Changes to the policy require Council approval. The Finance and Performance Committee are required to evaluate and recommend to Council amendments to the policy.

9. PwC will be in attendance at the Committee meeting to answer questions.

Consultation

10. This is an internal policy that does not require public consultation.

11. Ratepayers were consulted during the 2017/18 Annual Plan process on the proposed changes to Council’s Financial Strategy, which were subsequently approved by Council.

Legal Considerations

12. The updated policy meets the requirement of the Local Government Act 2002.

Financial Considerations

13. The changes to the policy are required to incorporate the recently approved changes to Council’s Financial Strategy. The changes will ensure that increased borrowing can continue to fund the investments laid out in the Annual Plan.

Other Considerations

14. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it ensures that funds to invest in local infrastructure assets can be obtained on the most efficiency terms possible.

Appendices

No.	Title	Page
1 ⇩	Treasury Risk Management Policy June 2017 Review	10

Author: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

41 02 August 2017

Finance and Performance Committee

05 April 2017

File: (17/601)

Report no: FPC2017/2/124

Insurance Update

Purpose of Report

1. To update the Committee on Council’s insurance arrangements.

Recommendations

That the Committee notes the report.

Background

2. Council together with Kapiti Coast District, Porirua City and Upper Hutt City Councils (collectively known as the Outer Wellington Shared Services Insurance Group or OWSS), has been purchasing insurance for their respective assets on a combined basis since 2009. This syndicate was necessary to provide the combined councils with scalability to benefit accessing wider domestic and off-shore insurers.

3. Greater Wellington Regional Council (GWRC) joined the OWSS in 2016 to insure their above ground assets only through the collective. For insurance purposes, the OWSS Councils and GWRC are collectively known as the Wellington Councils Insurance Group (WCIG).

4. As part of WCIG, Hutt City Council benefits from the expertise and resources made available to it through Aon Insurance Brokers (Aon). This includes extensive asset loss modelling, insurance risk profiling and insurance placements with off-shore insurers. Aon have been Council’s insurance advisor and broker since 2008 and Aon were appointed as OWSS’s insurance advisors and brokers in 2009 following a competitive tender.

5. Obtaining the most appropriate level of insurance cover involves weighing up risk against cost. For example it would be possible to have a more comprehensive insurance policy with lower excesses thus reducing risk to Council but the premiums could be exorbitant. Therefore the insurance cover taken out is designed to get the best possible balance between risk reduction and cost. Aon play a significant role for WCIG in this process.

6. One important factor in obtaining the most appropriate level of insurance cover at the best possible price is an accurate understanding of the risks involved and the probable maximum loss (PML) following an event. In order to better understand the earthquake and liquefaction risks to our infrastructure and be able to more accurately estimate the PML in the event of a natural catastrophe, Council engages consultants Tonkin and Taylor to undertake detailed geotechnical surveys. As a result of this work Council is able to present robust data to the underwriters when negotiating for insurance cover.

7. Representatives from Aon will be at the committee meeting to answer questions.

2016 Policy Renewal

8. Council has a comprehensive range of insurance policies which were renewed in June and October 2016. The policies and their annual premiums are:

Natural Catastrophe Damage to Infrastructure (for underground assets)	$896,568
Material Damage and Business Interruption (for aboveground assets)	$770,833
General Liability & Professional Indemnity	$70,000
Statutory and Employers Liability	$7,655
Residential Property	$15,806
Crime	$5,036
Hall Hirers’ Liability	$525
Motor Vehicle	$28,866
Overseas Travel	$407
Fine Arts	$38,898
Marine Hull	$1,440
Cyber Risks	$10,933

9. The Natural Catastrophe Damage (Infrastructure) policy (for underground assets) and the Material Damage and Business Interruption policy (for aboveground assets), account for 48 per cent and 42 per cent of Council’s $1.847 million of current insurance premiums. These two policies are discussed in more detail in the next section of this report.

10. Following several years of reducing insurance premiums, the insurance market had shown signs of tightening. During the 2016 renewal process, Aon recommended WCIG execute a Long Term Agreement (LTA) for both infrastructure assets (below ground) and above ground assets that secured insurance rates for two years from 1 October 2016 to 1 October 2018.

Significant Insurance Policies

Natural Catastrophe Damage (Infrastructure) Policy (below ground assets)

11. For this policy, a natural catastrophe event is defined as; earthquake, natural landslip, flood, tsunami, tornado, windstorm, volcanic eruption, hydrothermal and geothermal activity, and subterranean fire.

12. Collectively, the OWSS Group has a sum insured value of $2.768 billion for infrastructure assets. The sum insured value represents the full replacement costs of these assets. Whilst the full replacement cost considers technological advances in construction methods and materials, it assumes no change in the current level of service. Council’s infrastructure assets (including Hutt Valley Water Services) have a sum insured value of $1.173 billion.

13. Following extensive loss modelling and analysis, Aon has best estimated that an extreme earthquake event for the WCIG would be a magnitude 7.5 event on the Wellington fault that would likely result in a PML of $635 million across the Wellington Region (excluding GWRC infrastructure assets). The majority of the losses, $354 million, are expected to occur in the Hutt Valley.

14. Consequently, the OWSS has purchased natural catastrophe to infrastructure assets insurance cover with a Group Limit of $600 million per insurance renewal period (12 months). This includes maximum insurance cover of $350 million for Council’s (including Hutt Valley Water Services). Council has a $3 million deductible per claim per event.

15. Central government currently support local government by way of a 60/40 funding split for damage caused to infrastructure assets from natural catastrophe. This means that for each qualifying event, total insured losses suffered by Council that exceed a threshold of 0.0075% of the Council’s Net Rateable Value, will be 60% funded by central government. At the time of writing this report, the central government threshold for Council was approximately $810,000 based on the $10.8 billion rateable land value of Council’s General Rate.

16. The residual risks of natural catastrophe damage to infrastructure assets are managed by insurance. This means that for each qualifying event, total insured losses suffered by Council that exceed a threshold of $3 million, will be 40% funded from OWSS insurers, up to the PML of $350 million. Up to 40% of losses exceeding the PML will need to be fully funded by Council. This is explained by way of a diagram and examples below;

Material Damage and Business Interruption Policy (above ground assets)

17. The WCIG has a total sum insured value of $1.37 billion of above ground assets. Unlike natural catastrophe damage to infrastructure assets, the sum insured value provides for the estimated cost of replacement to the same levels of service and a Group Limit of $25 million of additional costs due to business interruption. In addition, HCC has up to $15 million of Enablement Costs to cover temporary rerouting of below ground assets to enable repairs of damage to line systems, eg., pump stations.

18. From their loss modelling analysis, Aon has best estimated that a region- wide maximum credible earthquake event could result in material damages of up to $485 million across the Wellington Region. Accordingly, the WCIG has purchased material damage and business interruption insurance cover with a combined Group Limit of $600 million. This includes a sum insured value of $247 million for Council’s above ground assets. Council reviews the sums insured for individual assets on an annual basis.

19. Losses suffered to above ground assets that are not caused by natural catastrophe trigger a deductible of $50,000 per claim per event. This means that losses below $50,000 will need to be fully funded by Council.

20. Losses suffered to above ground assets by natural catastrophe(s) trigger a deductible of 5% of the site sum insured, with a minimum Group deductible of $100,000 per claim per event and a maximum of $20 million. For example, the Council administration building in Laings Road has a sum insured value of $23 million. This means that in the event of a natural catastrophe loss to the building, Council would need to fund the first $1.15 million of the total insured loss before claiming from insurers.

21. In the unlikely event that losses arising from any one event exceed $600 million and losses are sustained by more than one Council, the amount paid to each Council who makes a claim in respect of that one event, will be in the same proportion as the Council’s actual loss bears to the combined total amount claimed.

Claims History and Kaikoura Earthquake

22. Council has not lodged an insurance claim for several years and as a result has a very good claims to premiums ratio.

23. The magnitude 7.8 Kaikoura earthquake that occurred on 14 November 2016 was significant with multiple aftershocks continuing across surrounding areas. Damage of significance to Council was fortunately limited to Petone Wharf and the pavilion at Naenae Park. Petone Wharf has only been insured for demolition costs for many years, and the cost to reinstate the Naenae Park pavilion to its pre-earthquake condition may result in a small claim being lodged by Council.

24. However significant damage was sustained in the Wellington CBD including damage to GWRC’s head office. Numerous claims have been lodged with insurers resulting in significant losses, particularly to domestic insurers, with a number of domestic insurers immediately placing embargos on writing new business or changing limits and/or deductibles for existing policy holders.

2017/18 Renewal Possible Impacts

Changes to Long Term Agreement (LTA) Rates

25. As previously noted, the OWSS/WCIG has executed a two year rate agreement for both infrastructure assets and above ground assets. The main advantage of this was to best protect or hedge the WCIG against the trend of rising insurance premiums.

26. However, the LTA includes a provision that allows insurers a right to review the terms and conditions, including premium rates and deductibles, if any of the following occurs:

a. There has been any material change in risk;

b. The incurred insured claims under the policy exceed 50 per cent of the net written premium received for the first period of insurance;

c. There is a reduction in insurers’ reinsurance facilities or substantial alterations to the terms and conditions of reinsurance previously offered to insurers.

27. Notwithstanding this, WCIG was advised that New Zealand insurers are adopting different positions regards LTA rates, with three main insurers signaling premiums in Wellington to now be based on more expensive technical rates (ie., insurer’s general rates derived from their own loss modelling). This could result in premium increases ranging from 25 per cent to 500 per cent (depending on engineering reports and/or compliance with National Building Standards and/or the previous year’s base rate). In addition, they are also looking to remove capped deductibles on losses to above ground assets caused from natural catastrophe.

28. Aon further advised that the London property insurance market has incurred large losses from New Zealand catastrophes over the last six years. Consequently, premium increases ranging from 10 per cent to 15 per cent are possible and preservation of LTA rates will be dependent on the loss ratio of incurred insured claims to net premiums not exceeding 50 per cent.

Insurance Renewal Costs

29. The Natural Catastrophe Damage policy (for infrastructure assets) contains a LTA. The placement is predominately placed with offshore insurers and with a clean claims experience, the renewal for this policy is likely to be charged at the same rate as the initial insurance renewal, ie., the London market is likely to honour the 2 year rate agreement. However there is a small amount placed with domestic insurers, which could result in an overall minor premium increase to Council.

30. The Material Damage and Business Interruption policy (for above ground assets) also contains a LTA, however the Kaikoura earthquake has resulted in a number of claims. The issue for WCIG is the on-going challenge in defining and quantifying the scope and cost of the damage reinstatement to the Shed 39 ground floor fitout (GWRC’s head office).

31. 60 per cent of our Material Damage and Business Interruption policy is underwritten by domestic insurers with Vero the lead underwriter. Vero New Zealand has incurred substantial losses in the Wellington market from the Kaikoura earthquake, and they will not be honouring the two year rate agreement.

32. AIG as co insurer could potentially pick up some of Vero’s share. To further reduce expected premium increase, a greater percentage of the Material Damage and Business Interruption policy could also be placed in the London market, subject to availability of capacity.

33. Aon will be in London during September ahead of the renewal date to obtain the best renewal options and terms for the WCIG. A representative of the WCIG will accompany Aon in London.

Further Potential Financial Risks

Central Government Review of 60/40 Funding Split for Natural Catastrophe to Infrastructure Assets

34. In 2016, central government initiated a review of their 60/40 funding split which is being led by Treasury. There has been very limited input from or direct involvement with the local government sector. Promised public consultation in 2016 was postponed several times.

35. Potentially, central government could withdraw completely from the current 60/40 funding split for natural catastrophe damage to infrastructure assets. More information is required from Central Government to fully understand their intentions and the consequential impacts thereof.

Multiple Deductibles and Capped Claim Settlements

36. Council has a $3 million deductible per event for losses to infrastructure assets caused by natural catastrophe. An event is deemed to be a single loss or series of losses incurred during a continuous 72 hour period. Multiple natural catastrophe events to infrastructure assets will give rise to millions of dollars of deductibles that will need to be fully funded by Council.

37. Losses to above ground assets caused by natural catastrophe trigger a deductible (subject to minimum and maximum limits) based on 5 per cent of the site sum insured value for each above ground asset per event. A natural catastrophe event could result in losses to multiple above ground assets which will give rise to millions of dollars of deductibles that will need to be fully funded by Council.

38. As was shown with the Christchurch earthquakes, there is a possibility of multiple events within an insurance year. If this occurs, it creates multiple instances of claims and associated deductibles.

Legal Considerations

39. The detailed terms and conditions of our Natural Catastrophe Damage (Infrastructure) and Material Damage and Business Interruption (above ground asset) policies, are independently reviewed to ensure they provided adequate cover. Other policies which are less complex are reviewed internally and by Aon.

Financial Considerations

40. Insurance budgets have been increased in 2017/18 to $1.968 million. At this stage it is too early to know if the $121,000 budget increase will be sufficient to cover expected (but unknown) increases in premiums when policies are renewed in September 2017.

41. In addition to expected premium increases, Council will be required to pay higher fire service levies at renewal due to the creation of Fire and Emergency New Zealand from 1 July 2017. Council’s fire service levies are expected to increase from $84,000 to $117,000. This increase will be offset by Council no longer providing direct funding for rural fire services. The previous budget for rural fire services was reallocated to the insurance budget in the 2017/18 Annual Plan.

Other Considerations

42. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it provides elected members with the information needed to undertake their governance role.

Appendices

There are no appendices for this report.

Author: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

49 02 August 2017

Finance and Performance Committee

28 June 2017

File: (17/1010)

Report no: FPC2017/3/183

Risk and Assurance Update and Operational Risk Profile 2017

Purpose of Report

1. The purpose of this report is to update the Committee on risk and assurance actions and activities to maintain and improve Council’s internal control framework and to present the Operational Risk Profile.

Recommendations

That the Committee:

(i) notes the information in this report; and

(ii) notes the Operational Risk Profile 2017 as approved by the Strategic Leadership Team, attached as Appendix 1 to the report.

Background

2. The Risk and Assurance Manager provides an update twice a year on the actions and activities to maintain and improve Council’s assurance and risk management framework. The Risk and Assurance Update was last presented to the Finance and Performance Committee meeting on 1 March 2017.

Discussion

Operational Risk Profile

3. Attached as Appendix 1 to the report is the Operational Risk Profile for 2017, which outlines the top operational risks across Council, as approved by the Strategic Leadership Team (SLT) and Risk Management Working Group.

4. Operational risk is uncertainty that arises from internal processes, people and systems or from external events. The profile provides a snap shot high level means of identifying context, risk and treatment actions.

5. Operational risk has been assessed in accordance with the Risk Management System. Risk ratings are derived from a combination of consequence and likelihood assessments for the risk based on the risk ranking matrix. Risk ratings have remained unchanged.

6. Additions to the profile include the emerging community consultation and engagement risk and adequate resourcing of operations and projects. The previously separate risk of bridge collapse has been incorporated into natural hazard risk. Works on the last remaining bridge on the seismic strengthening programme will commence in 2020/2021.

7. Responsibilities and supporting processes of the risk management framework are reinforced regularly. Managers periodically review operational risk in their respective division, identifying emerging themes, and provide assurance on risk treatment actions in place and any issues. Processes are in place for escalation outside of the regular reporting channels. Divisional Managers’ last reported on risk in July 2017.

8. The operational risk profile was last presented to the then Finance and Audit Committee on 13 July 2016.

Internal Audit

9. The Community Funding and Grants internal audit was completed on 24 July 2017. The overall objective of this review was to determine the adequacy and effectiveness of controls and systems in place to manage funding and grants expenditure, and to identify any improvement opportunities. Audit work aimed to avoid gaps and overlaps with other sources of assurance.

10. The Funding and Grants internal audit opinion on management control is that it is effective. The control framework is appropriate and effective. Controls are appropriately designed and executed as intended. One low rated finding was raised regarding the implementation of application assessment sheets to document assessment criteria and funding decision rationale across all funding and grant streams.

11. A high level review of controls around official information requests was completed on 19 April 2017. The objective of a high level review (limited scope) is to assess the controls over key risk to confirm there are no significant or material issues (i.e. "Negative Assurance"). No significant or material issues were identified during the review that would imply an audit is required. Overall the official information request process is controlled at an adequate level.

12. The next two audits as per the Internal Audit Plan 2016-2018 (approved by SLT on 5 December 2016) are Rates and the Silverstream Landfill.

13. Monitoring processes are in place to track and follow up findings from internal audits, to ensure corrective actions are cleared as the resolution date falls due.

14. Monthly reporting continues to assess compliance with legislative and regulatory requirements. For the 2016/2017 year there have been two breaches in relation to official information request responses not meeting the statutory timeframe.

Risk Management Working Group

15. The Risk Management Working Group (RMWG) has met twice since the 1 March 2017 update provided to Finance and Performance Committee.

16. Emergency power testing at the Laings Road administration building includes monthly testing of both the generator and uninterrupted power supply by Urban Plus Limited. Instructions for the external emergency power feed are being documented.

17. The Divisional Manager Regulatory Services and the Health and Safety Manager will report to SLT on security assessments review recommendations made by Opsec Jack Milford in January 2015. This report will detail all recommendations actioned, not implemented (and reasons why) and additional extra changes that strengthen workplace safety that were not part of original recommendations.

18. The RMWG agreed to the updated crisis management concept. Documenting the crisis management plan redesign and implementation is underway. Training and testing will then be scheduled.

19. The new approach will establish a crisis management leadership team who will be called upon to go to any of the 19 Council sites. These officers will liaise with the onsite Manager, undertake the initial assessment after staff have been evacuated and apply their expertise to determine what needs to be done before staff can safely return to work at that site. The crisis management leadership team may consist of a Crisis Manager (Chief Financial Officer), an Information Technology person, a Building team member, and a Health and Safety and site building/operations manager.

20. Presently the Laings Road crisis team is large and the plan requires 12-14 Divisional Managers and a Fire Warden to recommend a plan that is put forward to the Chief Executive. Other sites may not have crisis management plans for their building. The proposed new approach would allow for clear instructions and expertise to ensure the building is structurally sound and safe and a responsive decision making path. For example, if the crisis plan at Market Grove was activated, decisions would be made by the General Manager Community Services in conjunction with the crisis team.

21. The Chief Information Officer is investigating options to reduce the potential recovery timeframes and availability between production and recovery site. Information Technology is looking at putting more data into cloud based storage and moving away from the old technology of backup tapes. GIS backups are already cloud based.

22. Coordinated Incident Management System training continues to take place approximately six weekly and is run by Wellington Regional Emergency Management Office staff.

23. All sites have emergency evacuation plans and regular drills.

24. It is noted that the Civil Defence Emergency Management Wellington Region Joint Committee is chaired by the Mayor of Hutt City and the Wellington Coordinating Executive Group is chaired by the Chief Executive of Hutt City Council.

Options

25. Not applicable.

Consultation

26. Not applicable.

Legal Considerations

27. Not applicable.

Financial Considerations

28. Not applicable.

Other Considerations

29. In making this recommendation, the Risk and Assurance Manager has considered the purpose of local government in section 10 of the Local Government Act 2002. The Risk and Assurance Manager believes that this recommendation falls within the purpose of the local government in that it provides the Finance and Performance Committee with information to support their governance role. It does this in a way that is cost-effective because it provides assurance on the effective and efficient management of risk within Council.

Appendices

No.	Title	Page
1 ⇩	Operational Risk Profile 2017	55

Author: Enid Davids

Risk and Assurance Manager

Approved By: Joycelyn Raffills

General Manager, Governance and Regulatory

64 02 August 2017

Finance and Performance Committee

04 July 2017

File: (17/1042)

Report no: FPC2017/3/187

Audit New Zealand Interim Management Report for the Year Ending 30 June 2017

Purpose of Report

1. The purpose of the report is to update the Committee on Audit New Zealand’s findings and officers’ comments following the interim audit for the year ending 30 June 2017.

Recommendations

That the Committee note this report.

Background

2. The primary purpose of the interim audit is for Audit New Zealand to update their understanding of Council’s control environment and evaluate Council’s internal controls.

3. The attached Management Report outlines the findings from Audit New Zealand’s interim audit and officers’ comments on the findings. The work carried out during the interim audit will enable Audit New Zealand to confirm their approach for the final audit which commenced on 3 July 2017. The final audit will enable Audit New Zealand to issue an opinion on the financial and performance information contained within Council’s 2017 Annual Report.

Discussion

4. Overall, Audit New Zealand concluded that the control environment and relevant internal controls for key financial and performance information systems remained “appropriate”.

5. There are eleven new key recommendations in the report none of which are required to be urgently addressed.

6. In terms of findings from previous years, four of the twelve recommendations have been accepted by Audit New Zealand as being resolved. Good progress is being made to resolve the seven remaining recommendations and Officers expect these to be closed out prior to Audit New Zealand issuing their final Management Report for the 2017 audit.

7. Officers’ comments to the new recommendations and updated comments on the progress with resolving prior year recommendations, are included in the Management Report attached as Appendix 1 to the report.

Consultation

8. There is no requirement to consult.

Legal Considerations

9. There are no legal implications.

Financial Considerations

10. The financial considerations are included in the report.

Other Considerations

11. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it gives elected members the necessary information to carry out their governance role

Appendices

No.	Title	Page
1 ⇩	Interim management letter 30 June 2017	68

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

90 02 August 2017

Finance and Performance Committee

04 July 2017

File: (17/1041)

Report no: FPC2017/3/188

Interim Finance Update

Purpose of Report

1. The purpose of the report is to present the Committee with Council’s unaudited financial performance for the 12 months ending 30 June 2017.

Recommendations

That the Committee notes the unaudited 2016/17 full year financial performance and year-end position.

Background

2. The report provides information comparing unaudited full year actual results against budgets set by Council in its 2016/17 Annual Plan.

Summary

3. Full year revenue and operating costs (excluding gains/losses) are under budget giving a favourable operating variance of $11.3M.

4. $10.6M of this variance relates to under spending on CFT projects.

5. Capital expenditure is under budget by $42.1M with only $50M of the $92.1M annual budget being spent.

6. Net Debt at year end is $118.7M which is $33.6M under budget.

Operating Position: (excluding Gains/Losses)

7. There is a full year operating deficit of -$3.3M compared to a budgeted deficit of -$14.6M giving a favourable variance of $11.3M.

8. Revenue is under budget by -$2.4M mainly due to reduced capital and operating subsidies (-$4.3M) because of the deferral of some Roading projects including the shared path & cycleway projects, offset by higher rates ($0.3M), user charges ($0.4M), interest income ($0.3M) and vested assets ($0.9M).

9. Operating expenditure excluding CFT grants is under budget by $3.1M mainly due to reduced Roading costs ($0.5M), Development Stimulus Package payments ($0.9M), plus savings in interest costs ($1.3M) due to underspend in capital projects plus lower than budgeted interest rates and lower depreciation expense ($1.1M). There have been additional costs arising from the November earthquake and storm events ($1.0M) and higher landfill operating costs ($0.7M) due to increased volumes and difficult operating conditions (offset by higher revenue), plus unbudgeted costs for remediation work ($0.5M) to address soil contamination at the former Summit Road depot. Many of these costs have been offset by savings in other operating budgets.

10. CFT grant payments are under budget by $10.6M mainly due to delays with Fraser Park Sportsville and Stokes Valley Community Hub.

11. Significant operating carryovers have been approved for Capital subsidies of $5.8M, CFT grants of $8.6M, and $1.0M for the Development Stimulus Package.

Revaluation of Financial Instruments:

12. The revaluation of interest rate swaps has resulted in an unrealised gain of $5.2M due to higher market floating interest rates relative to interest rates fixed by Council.

Capital Expenditure:

13. There is a favourable variance of $42.1M against a budget of $92.1M.

14. This is mainly due to delays and forecast underspends in some major projects including: Stokes Valley Hub ($1.3M); Avalon Park ($1.7M); Making Places Riddiford Gardens ($2M); Roading Projects including cycleway/shared path projects and Civic Precinct parking ($13.1M); Civic Events Centre project ($15.7M), and Making Places Projects ($1.9M). Carryovers have been approved for all of these projects.

15. $41.3M of the 2016/17 unspent budget was approved to be carried over to 2017/18.

Asset Sales

16. $1.2M of Asset Sales has been achieved this year against a budget of $1.1M

Net Debt

17. Net Debt at 30 June 2017 was $118.7M which is $33.6M under budget mainly as a result of the underspend in capital and the favourable variances in operating costs and asset sales. Lower than planned borrowing favourably impacted interest costs.

Treasury Compliance

18. All limits within the Treasury Risk Management Policy have been fully complied with.

19. The Treasury Compliance Report as at 30 June 2017 is attached as Appendix 2 to the report.

Annual Leave Liability

20. Annual Leave liability has reduced slightly over the past 24 months as shown on the following graph.

21. Annual Leave Liability peaks around the end of November and reaches a low point around the end of January as staff take holidays over the Christmas/New year period.

Consultation

22. There is no requirement to consult.

Legal Considerations

23. There are no legal considerations.

Financial Considerations

24. The financial considerations are covered in the report.

Other Considerations

25. In making this recommendation, officers have given careful consideration to the purpose of local government in section 10 of the Local Government Act 2002. Officers believe that this recommendation falls within the purpose of the local government in that it provides it provides Councillors with the necessary information to effectively undertake their governance role.

Appendices

No.	Title	Page
1 ⇩	Financial Tables 30 June 2017	96
2 ⇩	Treasury Compliance Report 30 June 2017	99

Author: Philip Benseman

Budgeting and Reporting Manager

Reviewed By: Brent Kibblewhite

Chief Financial Officer

Approved By: Tony Stallinger

Chief Executive

Attachment 1

Finance and Performance Work Programme for 2017

Finance & Performance Committee Work Programme 2017

Cycle 4 - 27 September 2017	Officer	For Council
Finance Update – 2016/2017 Provisional Year End Position	B Kibblewhite
Annual Reports for CCOs – UPL, SML, CFT	B Kibblewhite	·
Living Wage Assessment Results	J Beck	·
Rates Postponement Scheme for Residential Ratepayers Aged 65 and over	B Kibblewhite	·
Report back on Strategic Properties	G Craig
Sale & Supply of Alcohol (Fees) Regulations 2013 – Regulation 19(1) – Reporting by Territorial Authorities	R Govinda
Finance & Performance Work Programme	A Doornebosch
18 October 2017	Officer	For Council
Hutt City Council’s Annual Report	W Moore	·

Cycle 5 - 29 November 2017	Officer	For Council
Finance Update	B Kibblewhite
Long Term Plan 2018-2028 – process, timeline and budget assumptions	B Kibblewhite	·
Annual Report for LGFA	B Kibblewhite
Risk and Assurance Update and Strategic Risk Register	E Davids
Audit NZ Final Management Report	D Newth
Activity Report – Information Technology	L Allott
Insurance Update	B Kibblewhite
Finance & Performance Work Programme	A Doornebosch

Pending

Rating Policy for sporting, recreational, cultural and community facilities –B Kibblewhite

Review of Revenue and Financing Policy – Rates Differential and Freeze – B Kibblewhite

Appointment of Director SML and UPL – 31 March 2018

Council Asset Revaluations – Cycle 1 or 2, 2018

CCO Lending – due for review 30 June 2018

Review of Agreement with GWRC to collect rates – on or before 30 June 2018

Appointment of Directors to CFT/SML – 10 July 2018

Libraries Clubhouse Teen Summit Travel 2018

Activity Report – Organisation – Cycle 5, 2018

Appointment of Director to UPL – 30 September 2018

Fraser Park Sportsville Update – Including progress against FPS Business Case – M Reid – June 2019

Deputy Mayor D Bassett	Cr G Barratt
Cr J Briggs	Cr M Cousins
Cr S Edwards	Cr M Lulich

Cr L Sutton	Mayor W R Wallace (ex-officio)


FINANCE AND PERFORMANCE COMMITTEE
Membership:	10
Meeting Cycle:	Meets on a six weekly basis, as required or at the requisition of the Chair
Quorum:	Half of the members
Reports to:	Council

Determine and monitor: