HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

 

 

Audit and Risk Subcommittee

 

 

14 October 2020

 

 

 

Order Paper for the meeting to be held in the

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

on:

 

 

 

 

 

Wednesday 21 October 2020 commencing at 2.00pm

 

 

 

 

 

Membership

 

 

 Ms Suzanne Tindal (Independent 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

 

 

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

 

 

 

 

 

 

 

    


                                                                       5                                                                       

HUTT CITY COUNCIL

 

Audit and Risk Subcommittee

 

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

 Wednesday 21 October 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.       Naenae Projects Update (20/1120)

Report No. ARSC2020/6/216 by the Director Neighbourhoods and Communities           7

Chair’s Recommendation:

That the recommendations contained within the report be endorsed with new recommendations (ix) and (x) to read:

(ix)    notes that public consultation on funding for the Naenae Pool project was deferred due to the Covid-19 pandemic and that funding is now being included in the draft Long Term Plan (LTP) 2021-2031 that is subject to public consultation in March 2021 prior to inclusion in the final LTP 2021-2031 to be adopted by Council on 30 June 2021; and

(x)     notes the Naenae Pool project Risk Register - October 2020 (attached as Appendix 5 to the report) and that this will be reviewed and updated as part of the quarterly reporting to the Audit and Risk Subcommittee.

 

 

5.       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

DEMOCRACY ADVISOR     


                                                                                       7                                                      21 October 2020

Audit and Risk Subcommittee

28 September 2020

 

 

 

File: (20/1120)

 

 

 

 

Report no: ARSC2020/6/216

 

Naenae Projects Update

 

Purpose of Report

1.   To update the Subcommittee on the Naenae Projects (Pool and town centre development) and confirm reporting arrangements for the project.

Recommendations

That the Subcommittee:

(i)      notes the information in this report;

 

(ii)     notes that the Project Initiation Document (attached as Appendix 1 to the report) and Terms of Reference (attached as Appendix 2 to the report) approved for the Naenae Pool Project in February 2020 were updated in September 2020 to reflect the combined project;

 

(iii)    notes the project will be overseen by a Project Board which will make decisions within defined limits, as delegated by Council;

 

(iv)    notes project assurance will be provided by the Audit and Risk Subcommittee, led by Independent Chair, Suzanne Tindal;

 

(v)     notes the project will provide reports to the Community and Environment Committee six weekly and the Audit and Risk Subcommittee quarterly, unless there is a specific risk(s) or other matters which require an additional meeting;

 

(vi)    notes the reporting requirements in the co-funding agreement in place with Crown Infrastructure Partners 9 (attached as Appendix 3 to the report);

(vii)   notes recruitment is currently underway for an internal Client Project Manager (fixed term); and

 

(viii)  notes a Request for Proposal (RFP) process is currently underway for a Project Manager (external contract) approved as part of the original Naenae Pool Project and in accordance with Council’s Procurement Policy (attached as Appendix 4 to the report).

 

For the reason that the report is consistent with Council policies and processes around project management

 

Background

2.   In April 2019 Naenae Olympic Pool was closed to the public due to seismic issues.

3.   Following extensive community engagement in December 2019 Council agreed to progress, subject to funding, a proposal to build a new pool and fitness suite on the site of, or adjacent to, the current pool. This required an amendment to the Long Term Plan and a consultation document was prepared with a projected capital cost of $54M. 

4.   Council also directed officers to urgently start work on a Spatial Plan for the wider Naenae town centre, and agreed to retain the $9M already budgeted for a community hub in Naenae to invest in other projects, as determined by the Spatial Plan. Work on this is underway and the proposed approach as well as investment recommendations will come to Council in December 2020.

5.   In February 2020, a Project Initiation Document for the pool project was approved by the Corporate Leadership Team (CLT).  This was updated in September 2020 to reflect the combined project (refer paragraph 12 ) and is attached as Appendix 1.

6.   Public consultation on funding for the Naenae Pool project was due to start in early April 2020 as part of the Annual Plan/LTP amendment process. However, due to the Covid-19 pandemic, the amendment was put on hold and Council instead agreed to an emergency budget for the Annual Plan 2020/21. Funding for the Naenae Pool project is now being included in the draft LTP 2021-2031, which will go to public consultation in March 2021. The final LTP 2021-2031 is planned to be adopted by Council on 30 June 2021.

7.   In April 2020, the Government launched a Covid Response and Recovery Fund seeking infrastructure projects for potential investment to reduce the economic impact of the pandemic. The Naenae Pool project was successful in receiving co-funding of $27M, which will be managed through Crown Infrastructure Projects (CIP).

8.   The main benefit sought by CIP is job creation, with the project expected to create the equivalent of 200 full time jobs. A series of project milestones have been agreed and the project will receive co-funding instalments at the completion of each milestone. The Schedule of Reporting requirements agreed with CIP are attached as Appendix 3. 

9.   As required in Part 1, point 7 of the Funding Agreement, officers advised CIP when, in September,  Council approved co-funding for the project be included in the draft Long Term Plan 2021-2031. (Minute No. LTPAP 20503)

10. In late July a ‘pre-mortem’ workshop was held on the Naenae Pool project, to identify risks and ensure they were being appropriately managed. Two of the key risks identified were: 

a)    Potential misalignment of the Naenae Pool and Spatial Plan projects leading to a less than optimal outcome; and

b)    Managing the uncertainties around funding (including confirmation of both detailed costs and Council’s co-funding contribution, meeting the requirements of crown funding and the uncertain economic environment due to Covid-19).

11. To mitigate these risks a decision was made to bring the Naenae Pool and Spatial Plan projects together, and to update Council in October on the combined project approach.

Discussion

Naenae Projects

12. In September 2020 the Project Initiation Document and the Terms of Reference for the Naenae Pool project were updated to reflect the combined project. These are attached as Appendix 1 and 2. They include details on roles and responsibilities at each level of the project structure.

13. Key points include:

a)     The project will be overseen by a Project Board comprising the Mayor, the Chairs of Council’s Committees (Deputy Mayor Tui Lewis, Cr Simon Edwards and Cr Deborah Hislop), the Chief Executive and Project Sponsor. The Project Board will make decisions within the defined limits of the project as delegated by Council (to be determined through the Project Plan). The Project Board will meet monthly from November 2020. The Chief Financial Officer and Chief Legal Officer will attend Project Board meetings to provide advice;

b)     The project sponsor will be Andrea Blackshaw, Director Neighbourhoods and Communities;

c)     The project will provide reports to the Community and Environment Committee six weekly and the Audit and Risk Subcommittee quarterly, unless there is a specific risk which requires a special meeting.

 

 

 

 

 

 

Project structure

14. From January 2020 to October 2020, the Pool Project was led by Council’s Strategic Assets and Projects Manager (Parks & Recreation). Recruitment is currently underway for an internal Client Project Manager (fixed term).

15. An RFP process is also currently underway for a Project Manager (external contract).  This follows the procurement process approved as part of the original Naenae Pool Project and also Council’s procurement policy (attached as Appendix 4). Key dates are:  

August 2020

·    ROI for Project Management Services (further detail below)

September 2020

·    ROIs assessed and competitive dialogue held with five shortlisted companies

·    RFP issued

October 2020

·    RFP evaluated

·    further interviews if needed

November 2020

·    Project Board approve recommendation on Project Manager

·    contract awarded

 

16. The Registration of Interest (ROI) process was completed in August with 22 companies expressing an interest.

17. The selection panel shortlisted five companies to progress to the competitive dialogue stage. This process allows an opportunity for both parties to discuss the project and outcomes sought, consider innovative solutions and ideas for the project and discuss proposed contract term. This was completed late September. 

18. There has been positive feedback from all companies on the way Council has chosen to complete the procurement for this service and they have found the process to date beneficial to assist them in completing their Request for Proposal (RFP).

Lessons learned

19. In September, the officers had an initial discussion with Audit New Zealand Mana Arotake Aotearoa about appropriate risk management and assurance. A follow-up meeting with one of their technical specialists is being scheduled to inform the Project Plan which will be developed by the Project Manager.

20. Officers have also made contact with Auckland Council regarding their review of the Albany Pool Project and had met online to discuss lessons learned.  The Albany Pool project was initiated under North Shore City Council and completed under the new Auckland Council, and took 10 years from inception to completion.

21. Two major themes came from the discussion:

a)    Pools are complex buildings and require experienced project managers, operators, design teams and the construction companies; and

b)    The importance of strong governance and project management with clear roles and responsibilities, especially around reporting, identifying and managing risk and decision making.     

22. Officers involved in the competitive dialogue process also held discussions with shortlisted companies on lessons learned from other pool projects they have been involved within.

23. Officers have also reviewed lessons learned from previous projects Council has been involved in including Fraser Park Sportsville and the Lower Hutt Events Centre.

24. The table below details common themes from this work and our approach to managing risk, based on the advice we have received.


 

 

Lessons Learned

HCC Response

Good Governance requires high quality reporting and clear roles and responsibilities in particular around management of risk and decision-making.

Officers identified this risk in the pre-mortem workshop and changes have been made to the structure. The Project Initiation Document includes initial roles and responsibilities, and once developed the Project plan will provide further detail.

Scope and design should be approved by the Project Board and any changes reviewed against the business case/ project outcomes and signed off appropriately.

Officers identified this risk in the pre-mortem workshop. The Project Board will approve the overall project plan including scope and design and will have delegation to sign off significant changes.

Due diligence investigations need to be completed early so any issues can be incorporated in to the design especially with geotechnical investigation.

Officers identified this risk in the pre-mortem workshop. We will work with the external project services team to complete due diligence investigation early. 

Significant changes in key staff during a project can cause risks and delays and increase costs.

Council is looking to establish a Project Management Office and centres of excellence for project management, procurement and contract management. This is both to strengthen our approach and to build internal capability to provide back-up to key projects.

It will also provide common project management systems and processes, which will help mitigate risk should there be any changes in personnel.

If any changes occur, provision will be made for appropriate hand-over including of key relationships.

The future operators of a facility should be involved from the start of the project and in particular should provide advice on design to ensure the facility is both effective and efficient over time.

Council has an experienced aquatic operating and asset team, who both operate pools and have delivered new pool projects.  They will be closely involved in the project, particularly the operating model and design aspects.

Robust stakeholder engagement and communication at each stage of a project is critical. They assist to manage community expectations and maintain trust and confidence.

Initial communications and engagement plans are being developed. Plans for the duration of the project will be developed as part of the Project plan.

Risk

25. The Project Risk Register is attached as Appendix 5.

Financial considerations

26. High level QS estimate of a new pool is $54M including inflation, with $27M being co-funded from Central Government as part of the Covid-19 Response and Recovery Fund, and the balance ($27M) proposed to be co-funded by Council.

27. Project operating expenditure will amount to $2.1M with $1.5M spent in 2020/21 for design and demolition work.

28. Until the completion date, which is currently estimated as 1 August 2024, temporary activities to support Naenae are budgeted to cost $0.9M p.a. These costs include: public access to Naenae Primary School pool, extension of hours and services at other pools, Naenae activation fund, Hillary Court pop-up gym, site security and building insurance. It is assumed that these costs will cease or return to normal levels when the new Naenae Pool opens.

29. With regards to the ongoing operating model, post completion the new Naenae pool, the budgeted expenditure and revenue assumes continued operation of the service in-house by Council.

30. The facility is expected to achieve 520K visits in the third year of operations (2026/27) which equates to a per visit operating cost before Council overheads of $5.04 per visit.

31. The Financial tables 1, 2 and 3 that follow show a comparison of the budget in the Annual Plan 2020/21(AP) to the draft LTP 2021-2031. This information  was reviewed by the LTP Subcommittee on the 24 September 2020. The proposed changes to the budgets were endorsed by the LTP Subcommittee to be included in the draft LTP 2021-2031 which is currently being developed. In line with the Council’s Revenue and Financing policy, the Council’s share of the capital expenditure will be funded from borrowing and the net operational expenditure will be funded from general rates (after adjusting for fees and charges revenue from pool users and other revenue sources).  The phasing of the proposed budgets for the LTP has been aligned with the signed crown funding agreement.


 

 

Table 1:Revenue/Funding sources - Comparison of AP 2020/21 and Draft LTP

Financial year

$M

2020/21

2021/22

2022/23

2023/24

2024 /25

2025-2031

Total

Annual Plan 2020/21

0.0

 

 

 

 

 

0.0

Draft LTP 2021-2031 – Subtotal

0.0

7.6

12.3

6.5

1.6

7.6

35.6

User Fees

0.0

0.0

0.0

0.0

1.0

7.6

8.6

Central government  subsidy  *

2.7

4.9

12.3

6.5

0.6

0.0

27.0

Variance

2.7

(7.6)

(12.3)

(6.5)

(1.6)

(7.6)

(35.6)

*Covid Response and Recovery co-funding pays for $27M share of the Capital outlay.

Table 2: Operational budgets - Comparison of AP 2020/21 and Draft LTP

Financial year

$M

2020/21

2021/22

2022/23

2023/24

2024/25

2025-2031

Total

Annual Plan 2020/21

2.4

 

 

 

 

 

2.4

Draft LTP 2021-2031

2.4

1.6

1.4

1.8

3.8

23.4

34.4

Project OPEX Costs

1.5

0.6

 

 

 

 

2.1

Operating Costs

0.9

0.9

1.0

1.0

1.9

12.6

18.3

Depreciation

0.0

0.0

0.0

0.0

1.0

6.4

7.4

Interest

0.0

0.1

0.4

0.8

0.9

4.4

6.6

Variance

0.0

(1.6)

(1.4)

(1.8)

(3.8)

(23.4)

(32.0)

 

Table 3: Capital budgets – This is aligned with the signed crown funding agreement

Financial year

$M

2020/21

2021/22

2022/23

2023/24

2024/25

2025-2031

Total

Annual Plan 2020/21

0.2

 

 

 

 

 

0.2

Draft LTP 2021-2031

0.00

15.1

24.6

13

1.3

 

54

Variance

0.2

(15.1)

(24.6)

(13)

(1.3)

 

(53.8)

Climate Change Impact and Considerations

32.  The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide.

33. The whole life cycle of the Naenae Pool project and building are being looked at through an environment lens. Pools are high energy users and the design will be critical not only for just the environmental impact of the built facility, for example the imbedded carbon in the building, but the ongoing operational cost.  The design of this facility is critical in assisting Council in achieving its sustainability goal of being carbon natural by 2050.

Communications & Consultation  

34. Extensive community engagement was carried out to determine which pool option to progress. Community engagement on pool design will be held in early 2021.

35. Several small community workshops have been held on the Spatial Plan design this year. On 6 October, this work was taken to a community meeting at Naenae Library for further socialisation.

36. On Saturday 24 October, there will be a community engagement event as part of the Naenae Markets in Hillary Court.

Legal & Regulatory  

37. Currently only the legal agreement entered into is for the pool with CIP, which has specific requirements for Council to meet to receive government funding.

Appendices

No.

Title

Page

1

Appendix 1 Project Initiation Document - Naenae Projects ( Pool + Fitness, town centre redevelopment)

16

2

Appendix 2 - TOR Naenae Projects

28

3

Appendix 3 - Schedule of CIP Reporting Requirements

31

4

Appendix 4 - HCC Procurement Policy

32

5

Appendix 5: Naenae Projects - Risk Register - October 2020

39

 

Author: Andrea Blackshaw, Director Neighbourhoods and Communities

 

Author: Kara Puketapu-Dentice, Director Economy and Development

 

Author: Stephen Keatley, Strategic Assets & Project Manager

 

Author: Jenny Livschitz, Chief Financial Officer

 

Approved By: Jo Miller, Chief Executive

 


Attachment 1

Appendix 1 Project Initiation Document - Naenae Projects ( Pool + Fitness, town centre redevelopment)

 


 


 


 


 


 


 


 


 


 


 


 


Attachment 2

Appendix 2 - TOR Naenae Projects

 


 


 


Attachment 3

Appendix 3 - Schedule of CIP Reporting Requirements

 


Attachment 4

Appendix 4 - HCC Procurement Policy

 


 


 


 


 


 


 


Attachment 5

Appendix 5: Naenae Projects - Risk Register - October 2020