HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

 

 

Audit and Risk Subcommittee

 

 

5 March 2020

 

 

 

Order Paper for the meeting to be held in the

Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt,

on:

 

 

 

Thursday 12 March 2020 commencing at 2.00pm

 

 

Membership

 

 

Vacancy (Chair)

Mayor C Barry (Deputy Chair)

Cr D Bassett

Cr J Briggs

Cr C Milne

Cr A Mitchell

Cr N Shaw

 

 

 

 

 

 

 

For the dates and times of Council Meetings please visit www.huttcity.govt.nz

 

 

 

 

 

 

 

Have your say

You can speak under public comment to items on the agenda to the Mayor and Councillors at this meeting. Please let us know by noon the working day before the meeting. You can do this by emailing DemocraticServicesTeam@huttcity.govt.nz or calling the Democratic Services Team on 04 570 6666 | 0800 HUTT CITY


 


 

 

HuttCity_TeAwaKairangi_SCREEN_MEDRES

AUDIT AND RISK SUBCOMMITTEE
Membership:	Independent Chair and 6 Members
	Audit and Risk Subcommittee members should be appointed so that the subcommittee has a diversity of governance skills, experiences and personal qualities. Between them, the members should bring a mix of the following attributes:
1.	Broad governance experience;
2.	Familiarity with risk management disciplines;
3.	Understanding of internal control and assurance frameworks;
4.	 An understanding of financial and non-financial performance reporting;
5.	A good understanding of the roles of internal and external audit; and
6.	A sound understanding of the local government sector.
Use of the matrix below has assisted other councils to consider the best fit for membership of an Audit and Risk Committee.
Quorum:	Half of the members
Meeting Cycle:	Quarterly or as required
Reports to:	Council

 

 

PURPOSE

To provide objective advice and recommendations around the sufficiency, quality and results of assurance over the Council Group’s financial management practices, risk management, internal control systems and governance frameworks.

 

Consider and make recommendations to Council:

The effectiveness and robustness of the internal audit, risk management and internal control systems, processes and practices of the Council for each financial year:

        Review and approve the internal audit coverage and annual work plans, ensuring these plans are based on the Council’s risk profile.

        Review the adequacy of management’s implementation of internal audit recommendations.

        Review the internal audit charter to ensure appropriate organisational structures, authority, access, independence, resourcing and reporting arrangements are in place.

        Review whether management has in place a current, comprehensive and effective risk management framework and associated procedures for identifying, assessing and responding to the Council’s significant risks, potential opportunities and adverse effects in accordance with its risk approach.

        Monitor whether appropriate action is being taken by management to respond to the Council’s significant risks, potential opportunities and adverse effects.

        Review whether management has taken steps to embed a culture that is committed to probity and ethical behaviour.

        Review whether management has established and maintains a sound internal control system, policies and procedures so that activities are effectively controlled and carried out as planned towards the achievement of the Council’s objectives and safeguard the Council’s financial and non-financial assets.

        Review whether there are appropriate systems, processes and controls in place to prevent, detect and effectively respond to fraud.

The integrity and appropriateness of internal and external reporting and accountability requirements:

        Consider the processes for ensuring the completeness, reliability and quality of financial and operational information being provided to the Council, including information provided by Council Controlled Organisations and Council Controlled Trading Organisations .

        Seek advice periodically from internal and external auditors regarding the completeness and quality of financial and operational information that is provided to the Council.

        Review the appropriateness of the Council’s existing accounting policies, judgements, treatments and principles and any proposed change.

        Enquire of internal and external auditors any information that affects the quality and clarity of the Council’s financial statements and statements of service performance, and assess whether appropriate action has been taken by management in response.

        Satisfy itself that the financial statements and statements of service performance are supported by appropriate management signoff on the statements and on the adequacy of the systems of internal control.

        Confirm that processes are in place to ensure that financial and non-financial information included in the Council’s Annual Report and Long Term Plan is consistent with the audited financial statements.

Oversight of external auditor engagement and outputs:

        At the start of each audit, confirm the terms of engagement, including the nature and scope of the audit, timetable and fees, with the external auditor.

        Receive the external auditor’s management letters and monitor action to be taken by management on audit recommendations raised.

        Conduct a members’ only session (ie, without any management present) with external auditors to discuss any matters that the auditors wish to bring to the Subcommittee’s attention and/or any issues of independence.

Review the effectiveness of systems for monitoring the Council’s compliance with laws, regulations, standards, Council policies, plans, code of conduct and good practice guidelines as appropriate.

 

Matrix of Experience, Skills and Personal Qualities

Experience, Skills and Personal Qualities

Member A

Member B

Member C

Member D

Independent Chairperson

The recommended combination of experience is:

·           financial reporting

 

 

 

 

 

·           broad governance experience

 

 

 

 

 

·           familiarity with risk management disciplines

 

 

 

 

 

·           understanding of internal control and assurance frameworks

 

 

 

 

 

·           good understanding of the roles of internal and external audit

 

 

 

 

 

·           local government expertise

 

 

 

 

 

For an “advisory-oriented” audit committee, particular emphasis should be placed on:

·           Strategy

 

 

 

 

 

·           Performance management

 

 

 

 

 

·           Risk management disciplines

 

 

 

 

 

In determining the composition of the audit committee, the combined experience, skills, and personal qualities of audit committee members is critical. Members should bring:

·           the ability to act independently and objectively

 

 

 

 

 

·           the ability to ask relevant and pertinent questions, and evaluate the answers

 

 

 

 

 

·           the ability to work constructively with management to achieve improvements

 

 

 

 

 

·           an appreciation of the public entity’s culture and values, and a determination to uphold these

 

 

 

 

 

·           a proactive approach to advising the governing body and chief executive of matters that require further attention

 

 

 

 

 

·           business acumen

 

 

 

 

 

·           appropriate diligence, time, effort, and commitment

 

 

 

 

 

·           the ability to explain technical matters in their field to other members of the audit committee

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 


 


HUTT CITY COUNCIL

 

Audit and Risk Subcommittee

 

Meeting to be held in the Council Chambers, 2nd Floor, 30 Laings Road, Lower Hutt on

 Thursday 12 March 2020 commencing at 2.00pm.

 

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

Members are reminded of the need to be vigilant to stand aside from decision making when a conflict arises between their role as a member and any private or other external interest they might have          

4.       Insurance Renewal Update (19/1425)

Report No. ARSC2020/2/64 by the Financial Accounting Manager                  7

Chair’s Recommendation:

That the recommendations contained within the report be endorsed.

5.       Audit New Zealand Final Management Report for the Year ended 30 June 2019 (19/1399)

Report No. ARSC2020/2/65 by the Financial Accounting Manager                13

Chair’s Recommendation:

That the recommendation contained within the report be endorsed.

6.       Risk and Assurance Update and Strategic Risk Profile (20/18)

Report No. ARSC2020/2/66 by the Risk and Assurance Manager                   48

Chair’s Recommendation:

That the recommendations contained within the report be endorsed.

7.       Seismic Performance Register (20/175)

Report No. ARSC2020/2/69 by the Senior Advisor to the Chief Executive     67

Chair’s Recommendation:

That the recommendation contained within the report be endorsed.

8.       Information Items

Audit and Risk Subcommittee Work Programme 2020 (20/198)

Report No. ARSC2020/2/33 by the Head of Democratic Services                    70  

Chair’s Recommendation:

That the programme be noted and received.

 

9.       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.   

 

 

Toi Lealofi

COMMITTEE ADVISOR

                


                                                                                      10                                                        12 March 2020

Audit and Risk Subcommittee

20 December 2019

 

 

 

File: (19/1425)

 

 

 

 

Report no: ARSC2020/2/64

 

Insurance Renewal Update

 

Purpose of Report

1.    To provide the Subcommittee with an update regarding Council’s 2019/20 insurance programme renewal and an overview of several work streams currently underway to best protect Council against continued insurance market tightening, both in terms of insurance cover capacity and cost.

Recommendations

That the Subcommittee:

(i)    notes that Council has successfully renewed its insurance programme for policies commencing 1 October 2019 and 1 November 2019 for a 12 month term; and

(ii)   notes the remaining policies, due for renewal on 1 May 2020, will be negotiated post March 2020 visit to London by Council’s insurance advisors Aon and Mark de Haast (from Kapiti Coast District Council) representing the Outer Wellington Shared Service Insurance Group and the Wellington Councils Insurance Group.           

 

Background

2.    Council together with Kapiti Coast District (KCDC), Porirua City (PCC) and Upper Hutt City Councils (UHCC), collectively known as the Outer Wellington Shared Services Insurance Group (OWSS), has been purchasing insurance for their respective assets on a combined basis since 2009.

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

4.    Previous insurance updates provided to the Finance and Performance Committee, (Report FPC 2017/2/124 on 2 August 2017, Report No. FPC2017/5/304 on 29 November 2017 and FPC2018/328 on 28 November 2018) provided extensive background information regarding the nature of Council’s insurance programme since October 2017.

5.    Council’s 2019/20 insurance programme was renewed on 1 October and 1 November 2019.

6.    Aon and Brent Kibblewhite (Hutt City Council) were in London during September 2018, ahead of the 1 November 2018 renewal date, to present to underwriters and to obtain the best renewal options and terms for both OWSS and WCIG. Renewal terms of 18 months were sought and obtained for the OWSS’s Natural Catastrophe Damage to Infrastructure (NCDI) insurance requirements (for below ground assets) and for the offshore portion only of WCIG’s Material Damage and Business Interruption (MDBI) insurance requirements (for above ground assets). Terms of 18 months were sought to extend insurance cover at existing rates, amidst a tightening insurance market, both in terms of price and cover capacity. Despite an increase in premiums, obtaining full placement and for 18 months, was a very good outcome.

7.    The Annual OWSS/WCIG representation in London has always been well received by underwriters and further reinforces OWSS’s and WCIG’s strong commitment to its insurance requirements.  This year, Mark de Haast, General Manager Corporate Services, will represent OWSS and WCIG and accompany Aon to present to the London underwriters.

8.    This report builds on previous insurance updates and seeks to provide the Subcommittee with detailed information on Council’s 2020 insurance renewal challenges and highlight several work streams currently underway to best position Council against continued insurance market tightening, particularly for the Wellington region, and increasing premiums.

Discussion

2019/20 Insurance Renewal

Insurance Renewal Challenges

9.    The 7.8 magnitude Kaikoura earthquake that occurred on 14 November 2016 was significant. Numerous claims were lodged with insurers resulting in significant losses, particularly to New Zealand insurers, with most of them placing embargos on writing new business or changing limits and/or deductibles for existing policy holders.

10.  In addition to domestic events, recent “International” events such as the Australian bushfires, tropical cyclones and other natural/climate change occurrences could also impact domestic and international premiums.  We are unable to quantify this into a dollar or percentage increase at this time.

11.  With the passage of time, underwriters have increasingly perceived the Wellington market as extremely high risk and many New Zealand insurers have now exited the Wellington market. Those underwriters who continue to provide cover to the Wellington region are putting upward pressure on both premium and deductible levels.

12.  In regards to international markets, Lloyd’s of London have not made an underwriting profit for the past three years and as a result, has mandated that all Lloyd’s syndicates review their books of business and submit business plans to return to profit. 

13.  One way Lloyd’s suggested doing this was to remove or significantly reduce the least profitable lines of business, which for a number of syndicates was property in known earthquake zones such as Wellington. This has resulted in a reduction of insurance capacity available and indications are that this capacity will continue to reduce into next year as Lloyd’s continues to review the business plans of underwriting syndicates. This has resulted in the withdrawal of a number of syndicates who have previously supported New Zealand business.

14.  In terms of pricing, most underwriters have reverted to their own (and more expensive) “technical rates” for insurance cover offered, to reflect the perceived increased level of risk and are also seeking increases in deductible levels.

Summary of Council’s Insurance Programme

15.  As in previous years, Council’s two largest insurance policies relate to Material Damage and Business Interruption (MDBI), for above ground assets, and Natural Catastrophe Damage to Infrastructure (NCDI), for below ground assets. The latter insurance cover is based on 40% of the city’s Probable Maximum Loss (PML), with the remaining 60% at this stage still covered by central government (with conditions).

16.  Given the strong indications that insurance capacity for the Wellington area will continue to reduce, Council’s 40% share of NCDI from 2018 remains placed 100% offshore and the renewal term is for 18 months to 1 May 2020. However, MDBI is split between offshore underwriters (55%) and domestic New Zealand underwriters (45%). Similarly, the offshore placement (55%) is for a renewal term of 18 months to 1 May 2020. The domestic placement (45%) is for a renewal term of 12 months, being the maximum renewal term exposure currently tolerated by New Zealand underwriters, at this stage.

17.  The following chart provides a comparison between renewal terms for the renewal periods between 2016/17 and 2019/20.  Percentage wise, the significant cost increases relate to MDBI and NCDI, being Council’s more significant insurances within its total insurance programme.  These cost increases will be discussed separately below.

 

Material Damage and Business Interruption (11% cost increase reflected in 2019/20 financial year)

18.  The significant increase is due to:

(a)   market driven premium increases;

(b)   a catch up of premium increases avoided at 2017 renewal for offshore underwriters who honoured their two-year rate agreements;

(c)   having to seek new insurer capacity at higher “technical rates” to replace both domestic and offshore underwriters who withdrew cover; and

(d)   next renewal date is 1 May 2020 for the offshore underwriters component.

Natural Catastrophe Damage to Infrastructure (4% cost increase reflected in the 2019/20 financial year)

19.  The 2018 insurance renewal was particularly challenging with limited insurer appetite for Natural Catastrophe risk in the Wellington region. 

20.  Similar to Material Damage and Business Interruption, the significant increase is due to:

(a)   market driven premium increases;

(b)   a catch up of premium increases avoided at 2017 renewal for offshore underwriters who honoured their two-year rate agreements; and

(c)   having to seek new insurer capacity at higher “technical rates” to replace offshore underwriters who withdrew cover.

Work Streams Underway to Best Position Council

21.  For the three waters underground network assets, OWSS place an order for insurance cover up to 40% of the Probable Maximum Loss (PML) for the Wellington region. The remaining 60% will, at this stage, be met by Central Government. The PML for the OWSS was last determined in 2019 and was estimated to be $1,158M, with Council’s PML estimated to be up to $676M.  This is an increase on the 2015 assessment and OWSS may need to seek additional cover for the amended PML estimates.

22.  The OWSS has engaged Aon to recalculate the PML (including landslide damage), for the OWSS Council assets and has engaged consultants to review and recommend the best methodology for allocating the total cost of premiums between the OWSS member Councils (currently based on PML).

23.  In light of increasing likelihood of reduced insurance capacity for the Wellington market, OWSS engaged Aon to complete a criticality and risk assessment of the three waters network, in partnership with Wellington Water Limited, for this Council, PCC and UHCC. The results of this analysis will enable OWSS to make informed decisions regards what assets Council might choose not to insure in the event that there was insufficient insurance capacity for the Wellington market, or as a means to reduce insurance premiums. Phase 1 of this study has been completed. Council need to determine if we will proceed with Phase 2.

24.  In September 2019 an analysis of the premium allocation for both above and below ground assets of OWSS and WGIC was completed by Aon.  As a result Councils percentage of the premium allocation increased by 6.8% for the below ground assets and 3.8% for the above ground assets.  In dollar terms this resulted in a phased increase of $132k in annual premium payable. This unbudgeted amount equated to an extra $66k per annum paid in this renewal period, and a further $66k per annum to be paid in the 2020/21 renewal period.

25.  In an effort to limit or reduce premium increases officers enquired as to increasing the levels of deductible.  As a number of policies are part of the OWSS we were unable to amend without agreement from other members, which we did not seek.  For those policies where changes were able to be made, the cost in percentage or dollar terms was immaterial.

Significant asset classes not covered by any insurance policy

26.  Roading infrastructure assets are not covered under Council insurance policies while wharves are currently covered for demolition costs only.  Officers have obtained quotes and are now finalising cover to insure Rona Bay Wharf now that it has been fully restored. Officers will obtain full cover for Days Bay and Petone wharves after completion of their respective restorations.

Consultation

27.  There are no consultation matters arising from this report.

Legal Considerations

28.  There are no legal matters arising from this report.

Financial Considerations

29.  The total cost of insurance for 2019/20 will be $3.15M against a budget of $3.03M resulting in an unfavourable year-end budget variance of $120,000.

Appendices

There are no appendices for this report.   

 

 

Author: Darrin Newth

Financial Accounting Manager

 

 

Author: Glenn Phillips

Treasury Officer

 

 

Reviewed By: Jenny Livschitz

Chief Financial Officer

 

 

Approved By: Brent Kibblewhite

General Manager Corporate Services

 


                                                                                      17                                                        12 March 2020

Audit and Risk Subcommittee

12 December 2019

 

 

 

File: (19/1399)

 

 

 

 

Report no: ARSC2020/2/65

 

Audit New Zealand Final Management Report for the Year ended 30 June 2019

 

Purpose of Report

1.    To provide the Subcommittee with Audit New Zealand’s management report for the year ended 30 June 2019.

Recommendation

That the Subcommittee notes Audit New Zealand’s management report for the year ended 30 June 2019, attached as Appendix 1 to the report.

 

Background

2.    The primary purpose of the external audit is to complete checks that enable Audit New Zealand (Audit NZ) to issue an audit opinion on Council Groups’ performance results for the year end.

3.    The Audit NZ interim management report for the year ended 30 June 2019 was presented to the Finance and Performance Committee meeting held on
4 September 2019.

4.    The Group Annual Report was approved and adopted by Council on 9 October 2019. Audit NZ issued an unmodified audit opinion on this date.

5.    Audit NZ issued the year end management report in December 2019 which is attached as Appendix 1.

 

 

 

 

Summary of most recent audit findings for the year ended 30 June 2019 

 

Improvement recommendation by category

Number

Commentary

In progress to be implemented/ resolved

10

Annual review of network access rights not performed. Network and payroll passwords settings can be improved. IT Disaster Recovery Plans require testing.  High level of manual adjustments in reporting “number of new dwellings”. Sensitive expenditure. Independent review of journals. Documented procedures for key systems. Property, plant and equipment. Creditor and payroll masterfile changes. Financial delegations.

Limited progress in addressing

2

Outdated procurement policy. Process for reviewing policies.

New recommendations from 2018/19 audit

2

Accuracy and reliability of Rating Information Database. Non-financial performance reporting information.

Total 

14

 

Implemented and closed

3

Information and communications technology policies. Lack of formal documentation of cost allocation percentages. Revenue from the pools and the Dowse.

 

6.   In the Audit NZ management report there are 12 improvement recommendations raised by Audit NZ which remain open from the previous report. A number of these matters date back many years.  Details of these, along with status updates are included in the management report attached.

7.   There were resourcing challenges during 2018/19 which impacted and limited progress on a number of the Audit NZ recommendations. During 2019/20 these matters are being given a high priority and improved progress is being achieved. The three recommendations reported as closed in the final audit report are evidence of improved performance here.

8.   Two further matters have been recently resolved since the audit and are expected to be closed after a review by Audit NZ at the next interim audit:

a)   Financial delegations: A financial delegations policy was approved by Council in September 2019 and has subsequently been implemented.

b)   Creditor and payroll masterfile changes:  Improvements were made to controls in September 2019 to address the Audit NZ recommendation. There are further opportunities to improve controls by making better use of technology which are being investigated.    

9.    There are two new recommendation raised by Audit NZ during the final audit which are being addressed as a priority.

a)    The accuracy and reliability of the Rating Information Database (RID) data: A project has been set up to review the RID as well as processes related to data maintenance. The project is aiming to complete a full review of the RID and will leverage the latest data available from the triennial revaluation completed by QV in November 2019. Detailed investigation of differences in the RID compared to the QV data is currently underway and where errors are identified these will be rectified ahead of setting the rates for 2020/21.

A process improvement is in development which includes the replacement of current manual data entry processes with an automated data flow between QV and the RID. This is expected to significantly reduce risks of errors in the RID going forward. 

b)    Sources of information for non-financial performance reporting results: Council has plans in place to review performance measures. This review will address the collection and source of these measures. Council uses a web based performance management system – Opal3 and the intention is that all performance measures reported in the Annual Report will be recorded in Opal3 including the source of the information.  The work plan also includes improving variance explanations.

Legal Considerations

10. There are no legal considerations arising from this report.

Financial Considerations

11. The financial considerations are detailed in this report in the relevant areas.

Appendices

No.

Title

Page

1

Appendix 1 Management Letter for the year ended 30 June 2019

16

 

Author: Darrin Newth

Financial Accounting Manager

 

Reviewed By: Jenny Livschitz

Chief Financial Officer

 

Reviewed By: Brent Kibblewhite

General Manager Corporate Services

 

Approved By: Jo Miller

Chief Executive

 


Attachment 1

Appendix 1 Management Letter for the year ended 30 June 2019

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


                                                                                      55                                                        12 March 2020

Audit and Risk Subcommittee

15 January 2020

 

 

 

File: (20/18)

 

 

 

 

Report no: ARSC2020/2/66

 

Risk and Assurance Update and Strategic Risk Profile

 

Purpose of Report

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

Recommendations

That the Subcommittee:

(i)    notes the information in this report; and

(ii)   notes the Strategic Risk Profile 2019/20 as approved by the Corporate Leadership Team, attached as Appendix 1 to the report.

For the reason that risk reporting provides the Subcommittee with information to support its governance role. Periodic reporting is stipulated in the internal audit charter and the internal audit functional reporting line to the Audit and Risk Subcommittee supports its authority, objectivity and independence.

 

Background

2.    The Risk and Assurance Manager provides an update quarterly[1] 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 former Finance and Performance Committee meeting on 17 July 2019.

Discussion

Strategic Risk Profile

3.    Attached as Appendix 1 to the report is the Strategic Risk Profile, as approved by the Corporate Leadership Team and the Risk Management Working Group.

4.    The risk treatment actions have been updated for activity since the previous profile. There are some changes proposed to risk ratings for Urban Growth Strategy (a decrease or improvement) and an increase (worsening) for Infrastructure Strategy and Financial Strategy. Refer to the section below for details of key changes since the previous Strategic Risk Profile presented to the former Finance and Performance Committee on 28 November 2018.

5.    Strategic risks are those that affect the achievement of Council’s strategies, strategic objectives, key goals and strategic execution.

6.    Risk can be defined as the effect of uncertainty on the achievement of objectives. Council’s purpose has been updated to align with Local Government (Community Well-being) Amendment Act 2019.

7.    The co-design of a compelling vision is underway to bring together and replace Councils existing strategies. This profile considers each strategy in place now and provides a high level snapshot of strategic risk context, plans and treatment actions.

8.    Risk ratings are derived from a combination of consequence and likelihood assessments for the risk based on the risk ranking matrix[2]. The risk status update provides an indication of a decrease, no change or increase in the risk ranking since the previous profile.

9.    Some commentary has been included to detail how risk rankings have been derived.

10.  Responsibilities and supporting processes of the risk management framework are reinforced regularly. Managers periodically review risk in their respective division, identifying emerging themes, and provide assurance on risk treatment actions in place and any issues. Divisional Managers reported on operational risk in January 2020.

11.  A risk update for the quarter ending 30 September 2019 was provided to the Corporate Leadership Team.

Risk rating changes since the previous Strategic Risk Profile

12.  The Urban Growth Strategy risk rating has decreased (improved) to Medium from High as the likelihood rating has decreased to Possible or the ‘event might occur’.

13.  The November 2019 approval of the District Plan Change 43 for medium density developments in eight suburban areas will support the achievement of growth targets. A number of other initiatives, including RiverLink, the interlinked upcoming review of the District Plan, development of a city spacial plan and new housing strategy seek to manage future growth within the city and advance the UGS. Targets will be reviewed as part of the overall vision refresh, as current demand looks to outstrip existing UGS ambitions. Along with ensuring Council is in a position to support growth/housing targets.

14.  The Infrastructure Strategy overall risk rating has increased (worsened) to High from Medium as the likelihood rating has increased to Possible or the ‘event might occur’.

15.  Key uncertainties revolve around essential infrastructure networks (water treatment and supply, wastewater disposal, stormwater drainage, flood protection, roading and footpaths) being reliable, resilient, fit for purpose, affordable and sustainable for the long term. New information available has found current funding for infrastructure is inadequate to meet expectations and that large investment is needed now to maintain future service levels and to cope with the upcoming challenges of climate change. Particularly for the three waters infrastructure assets. An amendment to the LTP 2018-2028 (out for consultation from 6 April 2020) provides additional funding and proposes changes to infrastructure programmes to address these matters.

16.  The Financial Strategy overall risk rating has increased (worsened) to High from Medium as the likelihood rating has increased to Possible or the ‘event might occur’.

17.  Council has challenging decisions ahead with regards to investment in priority projects, maintaining debt at prudent levels and setting rates at fair and affordable levels. To address these matters, changes to rates (for higher rate increases) and the Financial Strategy (to revise debt to revenue limit upwards) are proposed in the upcoming Annual Plan 2020/2021 and proposed amendment to the LTP 2018-2028. NB: information in the Amendment to the LTP 2018-2028 and the associated Consultation Document are audited by Audit New Zealand, on behalf of the Auditor General.

18.  Risk ratings for other strategic risks in the profile are unchanged. The underlying risk factors are dynamic and change overtime. In turn, awareness of moving/changing risk factors and circumstances are met by corresponding activity and treatment actions to address the arising opportunities and threats.

Internal Audit

19.  The Cash Handling internal audit was completed on 3 September 2019. The overall objective was to assess the adequacy and effectiveness of internal controls over cash handling functions and to identify opportunities for improvement. To ensure cash received is completely and accurately recorded, appropriately safeguarded and deposited intact on a timely basis. Audit work aimed to avoid gaps and overlaps with other sources of assurance.

20.  The Cash Handling internal audit opinion on management control is ‘effective’. The control framework is appropriate and effective. Controls are appropriately designed and executed as intended. One ‘medium’ rated finding was raised regarding health and safety matters and a ‘low’ rated finding around physical security.

21.  A high level review in relation to the Animal Control Services Contract with Wellington City Council was completed on 29 November 2019. 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 (ie, "Negative Assurance").

22.  No significant or material issues were identified during the review that would imply an audit is required. Overall processes at Animal Services Moa Point are controlled at an adequate level at to ensure it meets its obligations under the three year services contract with Wellington City Council for animal control services.

Two low rated findings were raised, regarding health and safety matters and opportunities
to optimise costs and revenue.

23.  Fieldwork for the Procurement and Contract Management internal audit is to commence. A full update will be provided to this Subcommittee in the next Risk and Assurance update.

24.  Frontier Software, provider of Councils CHRIS21 payroll system, has been engaged to undertake a review of Councils compliance with the Holidays Act 2003, particularly in regards to the calculation (and payment) of holiday pay. A full update will be provided to this Subcommittee in the next Risk and Assurance update.

25.  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. Outstanding findings include:

a)   Public Records Act 2003 - Compliance Maturity Review - follow up review of September 2015 ‘medium’ rated finding that back up recovery testing has not been undertaken for CM9 document management system. CM9 back up files are an upcoming priority, with the aim to have a full test done by the end of the year.

b)   Fraud Risk Review of July 2018 – ‘low’ rated finding will be closed out with the development and rollout in 2020 of a fraud control plan that will establish a robust fraud management framework encompassing prevention, detection and response, and sits alongside the Fraud Policy.

c)   Cash Handling of September 2019 – a finding from this review is linked to emergency evacuation procedures. Progress to clear this will be tracked via the Risk Management Working Group (refer paragraph 30).

d)   Animal Control Services Contract high level review of November 2019 – There are some low rated findings around inefficiencies that will be addressed with technology solutions, when resourcing/budget is available. In the meantime, manual processes continue to operate.

26.  There have been neither reports of suspected or detected fraud, including no reports via the online reporting Jotform, launched June 2019.

27.  In November 2019 there was an ‘Obtain by Deception’ offence whereby an external perpetrator falsely/fraudulently requested a bank account change to Payroll. One salary payment was subsequently paid to the perpetrators account. The majority of the payment was recovered by Council’s bank with the overall loss to Council being less than $500. The Police have tracked down the thief and are now looking at prosecution. Risk and Assurance investigated the matter with a focus on assessing how the situation was handled and changes required to strengthen the internal control environment, particularly controls directly impacting the fraud incident and how it occurred. Controls have been implemented or improved to rectify weaknesses to prevent further frauds of this nature. Follow up meetings were held in January 2020 to confirm improvement measures have been implemented and are operating as designed.

28.  Monthly reporting continues to assess management’s compliance with legislative and regulatory requirements. For the year 2019/2020 to date, there have been no significant cases of non-compliance.

Risk Management Working Group[3]

29.  The Risk Management Working Group has met three times since the previous update provided to the former Finance and Performance Committee on 17 July 2019.

30.  Emergency evacuation procedures in the event of armed aggression and/or panic alarm activation have been confirmed for the Administration Building. The plan will be updated, floor wardens trained and testing undertaken in the first half of 2020. Arrangements will then be rolled out to other sites. CCTV footage at each site can be viewed on floor warden devices/screens and also remotely by designated staff. This allows for an informed evacuation strategy.

31.  A proposal is being investigated to have site specific video inductions (over next 6-18 months), in conjunction with training every 3-4 monthly on emergency evacuation procedures. The video will provide timely site specific induction in between training sessions. This will be progressed by Health Safety and Wellbeing, IT and Facilities Management.

32.  The power required for emergency power generators for use in a city wide emergency is being confirmed and will have an impact on the purchase options (for connections at Admin Building and community evacuation centres).

33.  Over this time, the group has had oversight of emergency controllers, system recovery testing, planning for business disruption risk (business continuity) and facility seismic assessments.

34.  The risk management system is due for its three yearly review. The criteria for risk impact/consequence and likelihood guides will be updated, particularly the financial impact guide. Progress updates will be provided to this Subcommittee in due course.

Appendices

No.

Title

Page

1

Appendix 1 Strategic Risk Profile 2019-20.

54

 

 

Author: Enid Davids

Risk and Assurance Manager

 

 

Approved By: Brent Kibblewhite

General Manager Corporate Services


Attachment 1

Appendix 1 Strategic Risk Profile 2019-20

 


 


 


 


 


 


 


 


 


 


 


 


 


                                                                                      71                                                        12 March 2020

Audit and Risk Subcommittee

20 February 2020

 

 

 

File: (20/175)

 

 

 

 

Report no: ARSC2020/2/69

 

Seismic Performance Register

 

Purpose of Report

1.    To provide an update to the Subcommittee on Council’s programme of work to assess the seismic strength of Council-owned buildings. This update will be provided to each meeting. A six-monthly report will be provided to Council.

Recommendation

That the Subcommittee notes and receives the report.

 

Background

2.    Council published a seismic performance register in November 2019 which lists council-owned buildings, identifies their seismic rating and links to the latest assessment report. A link to the register can be found here: http://huttcity.govt.nz/seismicregister

3.    An operational management policy is being developed that will provide staff with a framework for undertaking engineering assessments for Council buildings going forward. This will provide guidance on determining significant and non-significant buildings, when and what type of assessments are required for buildings, the acceptable New Building Standard (NBS) percentage operating minimum for buildings, NBS percentage targets for buildings and other information required for decision making on strengthening, stating a building may be classified as earthquake-prone based on a risk (non-engineering) assessment and will remain so until an Initial Seismic Assessment (ISA) or Detailed Seismic Assessment (DSA) confirms it is not, priority vs significance and whether an earthquake prone building is continued to be occupied by staff and the public or closure of that building.

Discussion

4.    Since publishing the register, assessments have been added as they are completed. Some buildings that were originally on the register have now been removed following engineering advice from WSP that assessments are not required. This includes mainly public toilets, small kiosks and some changing rooms. The rationale for this is that these structures present limited risk to the public due to being single level, construction occurred post 1976 when the first significant seismic codes were introduced in New Zealand and that occupancy is low. Council is maintaining a list of these buildings, but has removed these from the website link above.

5.    Council has a number of buildings or spaces that are classified as earthquake prone, ie, <34% NBS.

6.    Wainuiomata changing room: An ISA found that the building containing the women’s and girls’ changing rooms was at 30% NBS. Council had to meet a number of conditions for building consent which included new emergency lighting and fire system for the whole complex. This delayed consent which was obtained in February. Strengthening work on the changing rooms will begin when the pool closes for the summer season. The cost of this is being met through the current operational budget.

7.    Walter Nash corridor: A DSA for Walter Nash was received in November 2019. The assessment found that a corridor in the building was rated at 20% NBS. Other parts of the building were rated at varying NBS% and this information is available on the seismic register. Council is currently meeting with the structural engineer and primary contractor to discuss design requirements to remediate the space that is earthquake prone. Work is due to begin within four to six weeks. At this stage the cost will be met partly through the current operational budget, but is dependent on design requirements to strengthen the corridor. As such, a proposal to bring forward $300k from the 2020/21 budget allocation of $2.5M for seismic strengthening will be considered by the Policy, Finance and Strategy Subcommittee at its meeting to be held on 3 March 2020.

8.    Little Theatre: An ISA for the Little Theatre indicated a 15% Initial Seismic Assessment (ISA) and seismic grade E. A decision was taken at the time of receiving the report to not take any future bookings and this arrangement continues.

9.    Engineers have now reviewed the geotechnical report that was undertaken by WSP covering the area around the Little Theatre and the War Memorial Library building. A DSA has been received reflecting this information and has been published to the register. The Little Theatre has received a 30% NBS with a seismic grade (D). A meeting is being held with WSP and a primary contractor to discuss strengthening options and make recommendations. The cost of engaging this expertise will be met from operational budgets in the current financial year. Once designs have been finalised decisions will be made about how costs to strengthen the building will be met.

10.  War Memorial Library: The War Memorial Library is rated at 40-45% NBS which means it is not earthquake prone. The engineering assessments have identified parts of the building that could be improved by strengthening work. Budget has been set aside in the 2020/21 financial year for strengthening work on the War Memorial Library. Preliminary discussions with the structural engineer and primary contractor will identify priority areas that will be considered for remediation. Costings will be identified and this will be considered by management in the coming month.

Consultation

11.  There are no consultation implications arising from this report.

Legal Considerations

12.  There are no legal considerations arising from this report.

Financial Considerations

13.  There are no financial considerations arising from this report.

Appendices

There are no appendices for this report.   

 

 

 

Author: Caryn Ellis

Senior Advisor to the Chief Executive

 

 

 

Reviewed By: Andrea Blackshaw

Acting General Manager City and Community Services

 

 

 

Approved By: Jo Miller

Chief Executive

  


                                                                                      72                                                        12 March 2020

Audit and Risk Subcommittee

27 February 2020

 

 

 

File: (20/198)

 

 

 

 

Report no: ARSC2020/2/33

 

Audit and Risk Subcommittee Work Programme 2020

 

 

 

 

 

Recommendation

That the programme be noted and received.

 

 

Appendices

No.

Title

Page

1

Title Appendix 1 Audit and Risk Subcommittee Work Programme

71

 

 

Author: Kathryn Stannard

Head of Democratic Services

 

 

 


Attachment 1

Appendix 1 Attachment to report (Title Appendix 1 Audit and Risk Subcommittee Work Programme)

 

Audit and Risk Subcommittee – Work Programme –2020

 

 

Description

Author

Cycle 4

16 June

Cycle 5

17 September

Cycle 6

25 November

Pending

2021

Treasury Risk Management Policy

J Livschitz

 

 

 

Risk and Assurance Update and Operational Risk Register

E Davids

 

Tax Risk Management Update

D Newth

 

 

 

Seismic Performance Register (Reported to Council every six months)

C Ellis

Internal Audit

E Davids

 

 

 

Audit NZ Interim Management Report

D Newth

 

 

Mayor’s Grants and Donation

J Griffiths

 

 

 

Audit NZ Final Management Report

 

 

 

 

Audit NZ Arrangement Letters

D Newth

 

 

 

Outstanding Management Report Matters

D Newth

 

 

 

CCO Audit Report

D Newth

 

 

 

Interim Year End Performance Results and External Audit

J Livschitz

 

 

 

 



[1] In previous trienniums, Risk and Assurance updates were provided twice a year.

[2] The risk matrix will be revised as part of the upcoming Risk management system review.

[3] RMWG membership includes Director Transformation and Resources, Chief Digital Officer, Chief Financial Officer, Head of Emergency Management and Regulatory Services, Head of People and Capability, Risk and Assurance Manager, Community Facilities Manager, Crisis Manager, Health and Safety Manager and others as required.

RMWG work collaboratively to promote risk management at Council. To assist, advise and have oversight around the risk management system. It provides support to and acts as a sounding board to the risk advisor, Risk and Assurance Manager.