HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

Komiti Iti Ahumoni I Tūraru
Audit and Risk Subcommittee

20 June 2022

Order Paper for the meeting to be held in the

via Zoom,

on:

Tuesday 28 June 2022 commencing at 2.00pm

The meeting will be livestreamed on Council’s Facebook page.
Members of the public wishing to speak to an item on the agenda are asked to contact democraticservicesteam@huttcity.govt.nz

Membership

Ms Suzanne Tindal (Independent Chair)

Mayor C Barry (Deputy Chair)	Cr J Briggs
Cr S Edwards	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

OVERVIEW:

This Subcommittee has a monitoring and advisory role in reviewing the effectiveness of the manner in which Council discharges its responsibilities in respect to governance, risk management and internal control.

The Committee is primarily aligned with the Office of the Chief Executive.

Its areas of focus are:

§ Oversight of risk management and assurance across the Council Group with respect to risk that is significant

§ Internal and external audit and assurance

§ Health, safety and wellbeing

§ Business continuity and resilience

§ Integrity and investigations

§ Monitoring of compliance with laws and regulations

§ Significant projects, programmes of work and procurement, focussing on the appropriate management of risk

§ The LTP, Annual Report and other external financial reports required by statute.

PURPOSE:

To carry out a monitoring and advisory role and provide objective advice and recommendations around the effectiveness of the manner in which Council discharges its responsibilities in respect to governance frameworks, risk management, internal control systems and the Council Group’s financial management practices.

DELEGATIONS FOR THE SUBCOMMITTEE’S AREAS OF FOCUS:

§ The Subcommittee has no decision-making powers other than those in these Terms of Reference.

§ The Subcommittee may request expert advice through the Chief Executive where necessary.

§ The Subcommittee may make recommendations to the Council and/or Chief Executive.

Risk Management:

§ Review, approve and monitor the implementation of the risk management framework and strategy, including significant risks to the Council Group.

§ Review the effectiveness of risk management and internal control systems including all material financial, operational, compliance and other material controls. This includes legislative compliance (including health and safety), significant projects and programmes of work, and significant procurement.

§ Review risk management reports identifying new and/or emerging risks.

Assurance:

§ Review and approve, and monitor the implementation of, the assurance strategy and detailed internal audit coverage and annual work plans.

§ Review the coordination between the risk and assurance functions, including the integration of the Council’s risk profile with the internal audit programme. This includes assurance over all material financial, operational, compliance and other material controls. This includes legislative compliance (including health and safety), significant projects and programmes of work, and significant procurement.

§ Review the reports of the assurance functions dealing with findings, conclusions and recommendations (including assurance over risks pertaining to Council Controlled Organisations and Council Controlled Trading Organisations that are significant to the Council Group).

§ Review and monitor management’s responsiveness to the findings and recommendations, inquiring into the reasons that any recommendation is not acted upon.

Fraud and Integrity:

§ Review, approve and monitor the implementation of the assurance strategy, including the fraud and integrity aspects.

§ Review the arrangements in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or any other matters, and ensure that there is proportionate and independent investigation of such matters and appropriate follow-up action.

§ Review the procedures in relation to the prevention, detection, reporting and investigation of bribery and fraud.

§ Review and monitor policy and process to manage conflicts of interest amongst elected and appointed members, management, staff, consultants and contractors.

§ Review internal and external reports related to possible improprieties, ethics, bribery and fraud related incidents.

Statutory Reporting:

§ Review and monitor the integrity of the Long Term Plan and Annual Report including statutory financial statements and any other formal announcements relating to the Council’s financial performance, focussing particularly on the areas listed below.

§ Compliance with, and the appropriate application of, relevant accounting policies, practises and accounting standards.

§ Compliance with applicable legal requirements relevant to statutory reporting.

§ The consistency of application of accounting pollicies, across reporting periods, and the Council Group.

§ Changes to accounting policies and practices that may affect the way that accounts are presented.

§ Any decisions involving significant judgement, estimation or uncertainty.

§ The extent to which financial statements are affected by any unusual transactions and the way they are disclosed.

§ The disclosures of contingent liabilities and contingent assets.

§ The clarity of disclosures generally.

§ The basis for the adoption of the going concern assumption.

§ Significant adjustments resulting from the audit.

External Audit:

§ Discuss with the external auditor, before the audit commences, the nature, scope and fees of the external audit, areas of audit focus, and error and materiality levels.

§ Review, with the external auditors, representations required by elected members and senior management, including representations as to the fraud and integrity control environment.

§ Review the external auditor’s management letter and management responses, and inquire into reasons for any recommendations not acted upon.

§ Where required, the Chair may ask a senior representative of the Office of the Auditor General to attend meetings of the Subcommittee to discuss the office’s plans, findings and other matters of mutual interest.

Interaction with Council Controlled Organisations and Council Controlled Trading Organisations:

§ Other committees dealing with CCO and CCTO matters may refer matters to the Audit & Risk Subcommittee for review and advice.

§ This Subcommittee will inquire to ensure adequate processes at a governance level exist to identify and manage risks within a CCO. Where an identified risk may impact on Council or the Council Group, the Subcommittee will also ensure that all affected entities are aware of and are appropriately managing the risk.

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

Komiti Iti Ahumoni I Tūraru | Audit and Risk Subcommittee

Meeting to be held in the via Zoom on

Tuesday 28 June 2022 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. COVID-19 UPDATE (22/1421)

A verbal update will be provided by the Chief Executive.

5. External audit update - Hutt City Council (22/1322)

Report No. ARSC2022/3/118 by the Financial Accounting Manager 20

Chair’s Recommendation:

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

6. Sensitive Expenditure Disclosures (22/1321)

Report No. ARSC2022/3/108 by the Financial Accounting Manager 50

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

7. Payroll tax compliance evaluation update (22/1343)

Report No. ARSC2022/3/12 by the Finance Project Manager 54

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

8. Holidays Act Compliance (22/1344)

Report No. ARSC2022/3/119 by the Finance Project Manager 60

Chair’s Recommendation:

“The the recommendation contained in the report be endorsed.”

9. Risk Management Update (22/1406)

Report No. ARSC2022/3/120 by the Risk and Assurance Manager - Finance 63

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

10. Tupua Horo Nuku Project Update (22/1405)

Report No. ARSC2022/3/121 by the Head of Transport 86

Chair’s Recommendation:

“That the recommendations contained in the report be endorsed.”

11. Building Consent Authority Accreditation Update (22/1404)

Report No. ARSC2022/3/122 by the Director Environment and Sustainability 92

Chair’s Recommendation:

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

12. Information Items

a) Naenae projects - progress update (22/1348)

Memorandum dated 8 June 2022 by the Project Manager (Naenae) 96

Chair’s Recommendation:

“That the recommendation contained in the memorandum be endorsed.”

b) Audit and Risk Subcommittee Forward Programme 2022 (22/1422)

Report No. ARSC2022/3/109 by the Senior Democracy Advisor 104

Chair’s Recommendation:

“That the recommendation contained in the memorandum be endorsed.”

13. 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.

Kate Glanville

SENIOR DEMOCRACY ADVISOR

10 28 June 2022

Audit and Risk Subcommittee

06 June 2022

File: (22/1322)

Report no: ARSC2022/3/118

External audit update - Hutt City Council

Purpose of Report

1. To provide an update on the plans for the preparation and external audit of the Group Annual Report for the year ended 30 June 2022.

2. The Audit New Zealand Audit Director will attend the subcommittee meeting.

Recommendations

That the Subcommittee receives and notes the Audit New Zealand audit plan for the Group Annual Report for the year ended 30 June 2022, attached as Appendix 1 to the report.

Background – Group Annual Report 2020/21

3. Hutt City Council’s Group Annual Report and Summary Annual Report 2020/21 were finalised and adopted by Council on 21 December 2021. This was ahead of the statutory deadline of 31 December 2021.

4. Whilst an unmodified audit opinion was issued by Audit NZ on the financial statements, there was a qualified opinion issued on performance measures relating to Council’s water activities. This was due to issues identified with the Wellington Water Ltd underlying systems and information. The other shareholding councils of Wellington Water Ltd that were impacted by these issues also received similar modified audit opinions.

5. The audit opinion also included an emphasis of matter in relation to the Government’s Three Waters Reform programme announcements. This was consistent with other impacted organisations across New Zealand.

6. The Audit NZ management report on the audit of the Group Annual Report 2020/21 was reported to the Audit and Risk Subcommittee on 15 February 2022 (refer ARSC2022/1/8).

7. External specialist advice was sought where deemed necessary in preparing the financial statements for the year ended 30 June 2021. Advice was sought in the wind-up of the Hutt City Community Facilities Trust and the Holidays Act Compliance and Remediation Liability provision. The audits of these areas were completed successfully and there are no audit issues raised.

8. Over the last three years there has been good progress achieved in closing out long standing Audit NZ audit recommendations. Further progress was achieved in 2020/21 with three audit recommendations closed. A summary of the “open” audit findings is presented in table 1, together with commentary on progress in addressing these in 2021/22.

Table 1: Summary of audit recommendations after final audit

Improvement recommend-ation by category	Num-ber	Brief description of audit recommendation	Management commentary on progress as at June 2022
In progress to be implemented/ resolved	1	IT Disaster recovery (DR) plans require testing.	A partial DR test was completed in March 2022 across our core cloud systems. All cloud environments have redundancy in place (hosted in at least 2 data centres) and are backed up to enable recovery. Work has also been completed on our on-premises virtual server environment ensuring we have full redundancy across the environment. We are currently working through a programme of work (Go Digital) to move/replace the remaining on-premises applications with cloud solutions over the next 2 to 3 years. This work includes a Core Infrastructure refresh project that will provide an updated DR plan. On premise systems are backed up to the cloud and restores have been completed on some of these systems during the past year however a full DR test of the whole environment has not been completed. Due to the continuing work underway we do not expect a full DR test to be completed until next year so the audit issue will not be closed out this year.
Limited progress in addressing	2	Wellington Water Ltd performance reporting issues in relation to the performance measures: (1) Maintenance of the reticulation network – water supply (water loss). (2) Total number of complaints received -Water supply, wastewater and stormwater.	(1) Wellington Water Ltd has undertaken the planned works to install small area monitors to better calculate water loss. These will not have been in place for the full audit period so are unlikely to fully satisfy the audit requirements. (2) There has been some progress in working through this however it is expected to continue to be an issue for the 2022 audit. As was the case in the 2020/21 audit, all the shareholding councils of Wellington Water Ltd are expected to be impacted by these matters in a similar way.
New recommend-ations	2	(1) Segregation of duties within FMIS. (2) Annual review of network rights not performed.	(1) Segregation of duties matter is expected to be closed following finance system changes implemented May 2022. (2) This item is expected to be closed out as part of this audit as the annual review of network rights has been completed.
Total	5

Group Annual Report 2021/22

9. Planning is well progressed for the preparation and external audit of the Group Annual Report 2021/22, refer Appendix 1. The interim audit is planned for early July 2022 and the final audit will start on 19 September 2022. The final audited Group Annual Report is expected to be available for Council adoption in late November 2022. The statutory deadline for the completion of the Group Annual Report is the 31 December 2022.

10. Officers requested an earlier audit timeframe to enable the Annual Report to be adopted ahead of the local government elections (8 October 2022). Audit NZ however have advised that they do not have available resourcing to achieve this date and have rather indicated the audit being completed in November 2022 (refer Appendix 2).

11. Officers plan to present the unaudited Group Annual Report content to the Audit and Risk Subcommittee on 28 September 2022 and the Policy, Finance and Strategy Committee on 6 October 2022. The intent will be to seek endorsement of this content subject to the completion of any audit adjustments and receipt of final audit clearance from Audit NZ. The new incoming Council will determine the timing of meetings post the election.

12. To further support this process, a briefing of the Audit and Risk Subcommittee is planned for 12 September 2022. This will be an opportunity for the subcommittee to review the draft Annual Report content and provide feedback to officers.

13. The audit plan (Appendix 1) highlights a number of focus areas for the audit. Of particular note is the focus on the valuation of property, plant and equipment. An asset revaluation is currently being undertaken by specialists ahead of the financial year end and to ensure we are able to meet the requirements of the accounting standards.

Climate Change Impact and Considerations

14. The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide. There are no climate change impacts or considerations arising from this report.

Legal Considerations

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

Financial Considerations

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

Appendices

No.	Title	Page
1 ⇩	Audit plan from Audit NZ	25
2 ⇩	Correspondence from Audit NZ re. timing of the audit for 2021/22	48

Author: Ben Wu

Financial Accounting Manager

Approved By: Jenny Livschitz

Group Chief Financial Officer

1 28 June 2022

Audit and Risk Subcommittee

01 June 2022

File: (22/1321)

Report no: ARSC2022/3/108

Sensitive Expenditure Disclosures

Purpose

1. The purpose of this report to provide the subcommittee with a listing of Sensitive Expenditure incurred by Elected Members, Chief Executive and Directors for the period 01 January 2022 to 31 March 2022.

Recommendation

That the Subcommittee:

(1) receives and notes the report; and

(2) notes the Sensitive Expenditure disclosure information attached as Appendix 1: Summary of Sensitive Expenditure 01 January 2022 to 31 March 2022 to the report.

Background

2. Information has been extracted from our financial system from relevant cost centres and expenditure codes where sensitive expenditure is highly likely to be coded to.

3. The list of transactions for the quarter 01 January 2022 to 31 March 2022 is attached as appendix 1 to the report.

4. This information will also be published on Council’s website. http://www.huttcity.govt.nz/Your-Council/sensitive-expenditure/

Appendices

No.	Title	Page
1 ⇩	2022-03 Summary of Sensitive Expenditure 01 January 2022 to 31 March 2022	52

Author: Ben Wu

Financial Accounting Manager

Approved By: Jenny Livschitz

Group Chief Financial Officer

1 28 June 2022

Audit and Risk Subcommittee

08 June 2022

File: (22/1343)

Report no: ARSC2022/3/12

Payroll tax compliance evaluation update

Purpose of report

1. Council approved a tax risk governance framework in May 2018. At a meeting of the subcommittee in April 2022, the subcommittee noted and received a report on the payroll tax compliance evaluation, a requirement of this governance framework. The evaluation was conducted in January 2022 and reported on in March 2022.

2. The subcommittee also noted and received the planned actions arising from the evaluation recommendations. The purpose of this report is to provide an update on the actions.

Recommendations

That the Subcommittee:

(1) notes and receives the update on the planned actions arising from the recommendations made in the payroll tax compliance evaluation report attached as Appendix 1 to the report; and

(2) notes the good progress of having addressed 12 of the 14 recommendations made by PwC, with the remaining recommendations expected to be closed by August 2022.

Progress on the actions

3. PwC determined that Council had a high-level of Pay As You Earn (PAYE) compliance, and commended Council on its commitment to meeting its PAYE compliance obligations and ensuring its tax risks are managed appropriately.

4. Notwithstanding this high-level of compliance by Council, certain recommendations were made by PwC. There has been good progress in addressing these recommendations with twelve items closed. There are two items which remain outstanding at the time of writing as follows:

Finding	Commentary on progress
Identification of Withholding Tax (WHT) – development of procedural document for identifying WHT and seeking assistance if not comfortable determining treatment.	The Accounts Payable Team have indicated that they are confident with their understanding and identification of WHT, and in applying the correct treatment for WHT. The procedural document to be developed will help to formally document the WHT knowledge and process.
Trauma Insurance - treatment of this allowance as subject to PAYE in the future and filing a voluntary disclosure with Inland Revenue for historic treatment.	The insurance is undergoing review to determine the nature of allowance, to ensure that any changes made to the value is in line with Council’s obligations (contractual or otherwise) to the staff holding this insurance. In conjunction with this, the resulting impacts on calculation of PAYE will be determined as will the accompanying disclosure requirements to the IRD.

5. Both of these recommendations are in progress, with intended closing dates of July and August 2022 respectively.

6. The detailed list of actions is attached in Appendix 1.

Appendices

No.	Title	Page
1 ⇩	Detailed update on progress to address actions	57

Author: Angela Leong

Finance Project Manager

Approved By: Jenny Livschitz

Group Chief Financial Officer

1 28 June 2022

Audit and Risk Subcommittee

02 June 2022

File: (22/1344)

Report no: ARSC2022/3/119

Holidays Act Compliance

Purpose of Report

1. The purpose of this report is to provide an update to the Audit and Risk Subcommittee on Hutt City Council’s compliance with the Holidays Act 2003 (the Act).

Recommendation

That the Subcommittee notes and receives the report.

Background

2. The Audit and Risk Subcommittee received a first formal report on Council Holidays Act 2003 pay compliance at the meeting held on 23 April 2021. Follow up reports were presented to the subcommittee on 9 September 2021, 11 November 2021, 15 February 2022 and 19 April 2022.

3. Compliance with the Holidays Act 2003 (the Act) is a current issue for many organisations in New Zealand. In November 2020 Ernst & Young (EY) was engaged to undertake a review of Council’s compliance with the Act. Following on from EY findings, a Holidays Act Remediation Project (the project) was initiated to calculate and handle remediation calculations and bring Council payroll systems and processes into compliance with the Act.

4. A Holidays Act compliance provision of $2.5M was recorded in the financial statements for the year ended 30 June 2021. This comprised an estimated $0.5M for project costs and $2M for potential remediation payments to staff.

Progress update since April 2022 report

5. The payroll remediation calculations process, utilising a payroll calculation specialist, is progressing well. There have however been some delays due to staff resourcing challenges (which include the impact of COVID).

6. Testing of the calculations have been carried out from April to June 2022 by the specialist, alongside the Holidays Act Remediation Project (HARP) project team at Council. To ensure that target test levels and high levels of confidence are achieved from the testing, the HARP Project Steering Group has decided to delay the payments to affected staff, by one month. This will allow time for both parties to fully address all test findings. Thereafter, the first tranche payment for the period March 2015 to March 2022, is expected to be paid to affected current staff in the final week of July 2022 (revised from final week in June 2022). The second tranche will be to address any remaining remediation owing up to the date at which Council payroll systems and processes become Act compliant.

7. At the time of writing, the exact total value of the remediation liability, the identification of the those expected to receive payments and the amounts owing to them, has not been finalised.

8. Former staff receiving remediation payments, will be requested to lodge personal details via a portal on the Hutt City Council website from late July onwards. Once their details are verified, these former staff will be able to be paid.

9. A webpage on Council’s external website has been created to provide information about non-compliance with the Act. It provides Frequently Asked Questions, instructions on how to submit questions, and how former employees are able to register contact details should they wish to do so.

10. As part of the Go Digital Programme, a HRIS and Payroll system project is underway. The new system was originally planned to go-live mid-2022, however several implementation delays have occurred and this date has now been pushed out to indicatively, April 2023. At this time compliance with the Act will also be achieved.

11. As a result of the delay in achieving compliance, Council will be required to remediate for a longer period than originally provided for at the time of setting aside the Holidays Act provision in the financial statements at 30 June 2021. It is therefore anticipated that the forecast project costs will be higher by approximately $265k due to additional remediation calculation and project costs (from $500K to $765K). This additional cost is expected to be covered by contingency set aside within the $2M remediation provision.

12. A further report and update to the Audit and Risk Subcommittee will be presented on 30 August 2022.

Climate Change Impact and Considerations

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

Consultation

14. Not applicable.

Legal Considerations

15. EY have advised that there are a number of risk areas in our compliance with the Holidays Act 2003. Council is working with a remediation calculation specialist to traverse risks areas and seeks legal advice as appropriate.

Financial Considerations

16. There are a range of financial matters raised in this report.

Appendices

There are no appendices for this report.

Author: Angela Leong

Finance Project Manager

Approved By: Jenny Livschitz

Group Chief Financial Officer

1 28 June 2022

Audit and Risk Subcommittee

07 June 2022

File: (22/1406)

Report no: ARSC2022/3/120

Risk Management Update

Purpose of Report

1. This report is an update to the Audit and Risk Subcommittee on activities undertaken to maintain and improve risk management at Hutt City Council (Council).

2. Council’s Risk Register as at 31 May 2022 is also reported to the Subcommittee.

Recommendations

That the Subcommittee:

(1) notes and receives the information in this report; and

(2) notes the Risk Register attached as Appendix 1 to the report.

Background

3. The Risk and Assurance Manager provides quarterly updates on the activities to maintain and improve Council’s risk management awareness. The previous Risk Management update was presented to this Subcommittee on 15 February 2022.

4. The Council’s Risk Register (“the register”) is a living document that is updated periodically through consultation with risk owners. It is a means of providing relevant and timely information to key stakeholders (Corporate Leadership Team (CLT), the Chief Executive, staff and members) enabling meaningful conversations about how risk is managed and ensures sufficient attention is focused on key matters. It also supports planning, managing, and responding to high-level risks and good decision making.

Risk Management Update

5. There continues to be steady growth in business unit’s awareness of risk profiling and use of the Risk Management intranet content, which provides a self-service guide for risk management basics including links to the risk management framework, the risk appetite statement, roles and responsibilities for risk management, criteria for assessing risk, the risk management quick reference guide and the risk register template.

Council’s Risk Register

6. Attached as Appendix 1 to the report is the Risk Register as at 31 May 2022.

7. The risk register was last considered by this Subcommittee on 15 February 2022.

8. There is ongoing review and refining of the risk register, ensuring that the strategic/top risks are appropriately identified, evaluated, and assessed, and that appropriate risk mitigations are in place to reduce the risk likelihood or significant impact on Council’s objectives. This is ongoing, the register will continue to be improved.

9. There are 14 risks on Council’s strategic risk register.

10. The risk relating to “Building Consents Accreditation” has been added to the register. Council’s key focus is on maintaining its accreditation with the next audit taking place in August 2022.

11. This risk was previously noted in the risk management memo to this Subcommittee on 15 February 2022 and reported on verbally at the meeting on 19 April 2022.

12. Council will continue to monitor this risk closely and apply resources to mitigate the risk. Reporting on this matter will continue until the risk is removed.   

13. The register has been updated, through individual discussions /consultation held with the risk owners. It has also been reviewed and approved by the Corporate Leadership Team (CLT) ahead of this Subcommittee meeting.

14. Of the top 14 risks identified, 29% (or four) have a residual risk rating of high and 71% (or ten) have a residual risk rating of medium. The risks with a high residual rating relate to workforce, asset planning, COVID-19 and building consent accreditation. Building better understanding and awareness of risk management and improving risk awareness in the Council continues to evolve with our focus on ensuring that appropriate resources are allocated to these areas to reduce both the likelihood and impact of the risks with the intention to bring it in line with the risk appetite that Council has set.

15. Overall residual risk ratings remain unchanged, with the exception of two risks. The majority of the planned mitigations treatments are still ongoing since the last update provided.

16. The Health and Safety Risk (Risk 5) had components of its rating decreased with the residual rating reducing from high to medium. The change to the risk likelihood (likely to possible) resulted in the overall residual risk rating reducing. This is reflective of Council’s confidence that good practices are in place, that should the risk eventuate, control treatments and planned mitigations would provide effective measures to minimise its impact. Contributing factors to the reduction in the residual risk rating also included:

a. No incidents occurring in the last six months; and

b. The shift in New Zealand’s approach to live with COVID-19.

17. Additionally, the Reputational Risk, Trust and Confidence (Risk 14) had components of its rating increase with the residual rating increasing from low to medium. The change to risk impact (minor to moderate) resulted in the overall residual risk rating change. This change is reflective of current known risk drivers and the current environment Council is operating in.

18. Risks that are not captured on the risk register continue to be monitored via operational risk registers by the respective business unit leads and escalation occurs as required in alignment with the risk assessment criteria set. Risk and Assurance continue to provide support to business units in developing their operational risk registers.

19. CLT regularly monitors and has oversight of issues (i.e., uncertainties that have eventuated) to ensure treatment plans are in place and actions are within an acceptable level. This process is available to raise any emerging issues in relation to the above risks.

20. There are currently 12 active issues. Of these, two issues have a high rating, and ten issues are rated as medium.

21. The two high rated issues relate to:

a. Workforce capacity, capability and engagement (Risk 1); and

b. Building Consents Accreditation (Risk 4).

22. Additionally, the CLT is actively monitoring the percentage of building consents processed within statutory timeframes and the percentage of non-notified resource consents processed within statutory timeframes. Refer: Infrastructure and Regulatory Committee meeting on 3 May 2022, “Regulatory Matters” paper for detailed statistics (IARCC2022/2/76).

Assurance activities update

23. Business continuity planning has been a key focus, ensuring business unit plans were current and practical to activate in the current environment as the impacts of Covid -19 continue to affect Council’s operations.

24. The Receiving Gifts Policy and Conflict of Interests Policy has been refreshed as part of its periodic update with minor amendments being made. Refreshing of these policies included review of guidance for public sector organisations, ensuring alignment. The CLT reviewed and approved the updated policies.

25. Additionally, over the past three months Risk and Assurance has completed the fieldwork for one planned internal audit and is currently performing fieldwork on two other reviews.

Below is a status update on the assurance engagements.


Internal audit reviews	2021/22	Status update
Sensitive Expenditure	Q2	Draft reporting stage
Accounts Payable end to end	Q3	Draft terms of reference
Procurement and contract management	Q4	Fieldwork in progress
Privacy Management – change review	Q1	To be completed in July 2022
Cash Handling – high level review	Q3	Fieldwork in progress

26. There has not been any significant material pre-liminary findings identified in the sample testing carried out for the sensitive expenditure review. A full report outlining the detailed findings and proposed recommendations will be reported to the CLT and a summary of these findings will be reported to this Subcommittee.

Climate Change Impact and Considerations

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

Consultation

28. Not applicable.

Legal Considerations

29. Not applicable.

Financial Considerations

30. Not applicable.

Appendices

No.	Title	Page
1 ⇩	Strategic Risk Register - May 2022	68

Author: Nishana Reddy

Risk and Assurance Manager - Finance

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

Approved By: Jo Miller

Chief Executive

1 28 June 2022

Audit and Risk Subcommittee

07 June 2022

File: (22/1405)

Report no: ARSC2022/3/121

Tupua Horo Nuku Project Update

Purpose of Report

1. To update the Subcommittee on the Tupua Horo Nuku (Eastern Bays Shared Path) Project (the Project).

Recommendations

That the Subcommittee:

(1) notes the key risks and updates on the Tupua Horo Nuku (Eastern Bays Shared Path) Project;

(2) notes the increasing construction costs to deliver the overall Tupua Horo Nuku (Eastern Bays Shared Path) Project and that discussions are on-going with Crown Infrastructure Partners (CIP) and Waka Kotahi to seek additional funding and that the costs for the remaining four bays will go to Council for approval in late 2022.

(3) notes the Tupua Horo Nuku (Eastern Bays Shared Path) Project budgets (both capital expenditure and revenue) approved by Council in the Long-Term Plan 2021-2031 following public consultation and updated for Council decisions made in the preparation of the Annual Plan 2022-23, as detailed in the “Financial Considerations” section of the report; and

(4) notes that Council will be required to approve any increase in funding requirements which exceeds Council’s approved budgeted position and that the impact of the significance of increases on requirements for Council to consult on changes will be considered alongside the outcome of discussions with funding partners.

For the reasons outlined in this report.

Background

2. Total funding currently available to the Project is $30M which includes $15M of Crown Infrastructure Partner (CIP) funding, and $7.5M allocated from both Hutt City Council and Waka Kotahi.

3. Funding for the Project was included in the draft LTP 2021-2031, which went to public consultation in April 2021. Council confirmed funding for the project in the decisions to finalise the Long Term Plan 2021-2031.

4. Last December 2021, Hutt City Council (HCC) approved to proceed with the Te Ara Tupua Alliance (the Alliance) to undertake design and construction for the first two bays of the Project – Sunshine Bay and Windy Point. Council agreed cost to construct the first two bays is at $16.8M.

Discussion

5. The detailed design stage is complete for the first two bays and construction drawings are being developed. The Alliance is also completing the required management plans and procurement of materials is in progress.

6. Pre-cast plant to be set-up in June 2022 and construction is set to commence in August 2022 with service relocations at Sunshine Bay. Installation of the first pre-cast seawalls is expected to start in September 2022 on Windy Point section.

7. The Alliance has also commenced concept design and development of the target outturn cost (TOC) for the northern four bays (Point Howard, York, Lowry, and Mahina bays).

8. Te Ara Tupua Project Alliance Agreement (PAA) is due to be signed by Waka Kotahi and partners (Downer, HEB, Tonkin and Taylor) in mid-July 2022 once the Waka Kotahi Board has approved additional implementation funding for Ngauranga to Petone section of Te Ara Tupua. This will mark the formal establishment of the Alliance. The Waka Kotahi and HCC Partners Agreement will be signed in conjunction with the PAA.

9. The Waka Kotahi – HCC Partner Agreement has been finalised and due to be formally signed in conjunction with the PAA.

Risks

10. The key Project risks are appended to this report.

Climate Change Impact and Considerations

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

Consultation

12. The Alliance and HCC team presented to the Eastbourne Community Board last May to address comments on the BSUDP and provided information on the planned construction methodology and programme.

Legal Considerations

13. There are no legal considerations to this report.

Financial Considerations

14. Current approved costs by HCC for the construction of Windy Point and Sunshine Bay:

Item	Note	Value
Alliance design, construction, and risk	Risk still to be validated	$15,143,832
Client managed costs (3%)	Salaries, Advisors, comms/events	$454,314
Insurance (estimate based on $952,000 for 6 bays)	Contract works, indemnity etc.	$250,000
Client retained contingency	Estimate	$1,000,000
Cost for Windy Point and Sunshine Bay		$16,848,146

15. With the costs of the first two bays being higher than they were originally budgeted for, this will mean that the costs for completion of the remaining bays will also be higher than currently budgeted for.

16. A key risk to the overall project delivery is the rising costs in the construction sector due to Covid-19. Design and value engineering/management initiatives to minimise the increase in cost are being investigated.

17. The Alliance has also started the development of the target outturn cost (TOC) to deliver the other four bays of the Project. This work is due to be completed in late 2022 and will inform additional funding discussions with Waka Kotahi and CIP.

18. Discussions with CIP and Waka Kotahi officers are on-going to request for additional funding required to deliver the other four northern bays.

19. Table 1 and 2 show the budgets in the Long-Term Plan 2021-2031 which were approved by Council following the public consultation process and updated for Council decisions made in the preparation of the Annual Plan 2022-23. This shows the timing of the capital investment as well as the funding from Waka Kotahi and from the COVID response and recovery fund. The Financial Delegations Policy states that Council approval is required to exceed the total budget level. A detailed report presented to the Long Term Plan/Annual Plan Subcommittee on 16 December 2021 confirmed Council approval to proceed with the construction of the first two bays. Further decisions will be progressed when the costing information for the other four bays has been completed in Q4 2022.

20. The significance of impact of any future budget decisions will be considered alongside the outcomes of discussions with our funding partners. This will include the consideration of whether there is any need for Council to consult on a Long Term Plan amendment.

Table 1: Revenue/Funding sources

Financial year $M	2021/22 Forecast	2022/23	2023/24	2024 /25	2025-31	Total
Annual plan 2022/23	(1.89)	(15.48)	(4.57)	-	-	(21.94)
Waka Kotahi subsidy funding	0.64	5.23	1.57			7.40
CIP funding*	1.25	10.25	3.00			14.50

*Covid Response and Recovery co-funding pays for up to $15M share of the Capital outlay of $30M – Crown Infrastructure Partners

Table 2: Capital budgets – This is aligned with the signed crown funding agreement

Financial year

2021/22

Forecast

2022/23

2023/24

2024/25

2025-31

Total

Annual Plan 2022/23

2.50

20.50

6.00

29.00

Appendices

No.	Title	Page
1 ⇩	Tupua Horo Nuku Risk Register June 2022	90

Author: Jon Kingsbury

Head of Transport

Author: Deepu Nunnian

Senior Management Accountant

Approved By: Kara Puketapu-Dentice

Director Economy and Development

1 28 June 2022

Audit and Risk Subcommittee

07 June 2022

File: (22/1404)

Report no: ARSC2022/3/122

Building Consent Authority Accreditation Update

Purpose of Report

1. To provide an update to the subcommittee on the progress and management of the Building Consent Authority Accreditation.

Recommendation

That the Subcommittee notes and receives the Building Consent Authority Accreditation update.

Background

2. All Building Consent Authorities (BCAs) in New Zealand are required to be assessed against the building accreditation regulations to ensure the BCA is accredited to carry out its building functions. Accreditation is undertaken on a regular two-yearly re-assessment period.

3. As stated in the Regulatory Matters report for the Infrastructure and Regulatory Committee on 1 March 2022, in February 2022, Hutt City Council’s Building Consent Authority functions (BCA) were assessed by IANZ (International Accreditation New Zealand).

4. The outcome of this assessment was that 18 non-compliances were raised. IANZ had few concerns with the technical quality and competence of the work undertaken with the ‘main areas of concern being around the implementation of the quality systems’.

5. However, the two factors that made the risk high from IANZ’s perspective were that “the BCA reported it did not have sufficient resources to address all of the identified non-compliances”, and as a result of recurring non-compliances.

6. IANZ noted that the recruitment of a quality assurance person into the team “If that occurred and the person had sufficient knowledge/skills/experience/ability in quality assurance then the BCA might be able to address the findings in an appropriate manner”. Since that time, the team has successfully recruited a Principal, Quality Assurance.

7. As a result of the audit, the Building Team was required to provide several pieces of work to IANZ:

· An action plan to address the non-compliances

· Evidence of the non-compliances being addressed

· An action plan for continued accreditation by way of monthly updates.

8. This risk was then noted in the risk management memo to the Audit and Risk Subcommittee on 15 February 2022 and reported on verbally at the meeting on 19 April 2022.

9. Reporting on BCA accreditation to this Subcommittee will continue via the regular risk management updates.

10. Progress has been reported to the Infrastructure and Regulatory Committee on 3 May 2022 and will continue to be reported in the Regulatory Matters report.

Discussion

11. The Building Team has met all deadlines for providing the above-mentioned information to IANZ to date.

12. A response received by IANZ on 12 May 2022 provided conditional continued accreditation, subject to meeting four conditions, as follows:

· Monthly updates to IANZ (as above)

· Continuing to meet the requirements of accreditation

· Notification of IANZ of any significant changes to the BCA

· That the assessment in August demonstrates compliance.

13. The next scheduled IANZ audit of the building control function is due in late August 2022, exact date yet to be confirmed.

14. As noted above, the risk is being monitored closely and resources applied to mitigate. Reporting on this matter will continue until the risk is removed.

15. Additional resource has been employed to assist the BCA with the actions required of it. A team has been set up with the aim of returning the BCA to a regular two yearly IANZ re-assessment period.

16. The key phases of this work are:

a. Phase 1 – Complete: Action Plan for non-compliances and evidence of these being addressed.

b. Phase 2 - 50% complete: Delivery of the “action plan” for continued accreditation (monthly updates until accreditation visit).

c. Phase 3 – Underway: Preparation for next accreditation visit in August. 2022.

17. Please find following a roadmap showing key activities required to be actioned prior to the IANZ accreditation visit in late August 2022:

Climate Change Impact and Considerations

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

Consultation

19. This has been reported to the Infrastructure and Regulatory Committee and the Audit and Risk Subcommittee about the progress of the BCA accreditation.

Legal Considerations

20. The Building Consent Authority is assessed against the building accreditation regulations to ensure that it has appropriate policies, procedures and systems, quality assurance systems, and sufficient skills and resources to undertake its building control functions.

Risk

21. Accreditation as a Building Consent Authority is the key to mitigating risk to Council of legislative compliance and the reputational risk around its ability to perform its core building functions.

22. As such, this is noted on Council’s strategic risk register that is also reported to this subcommittee.

23. Additionally, BCA accreditation is also listed on Council’s issues register. This register is regularly monitored by the Corporate Leadership Team to ensure treatment plans are in place and actions are within an acceptable level to address the issue and return to business as usual as soon as possible.

24. Having sufficient resources (staff) with sound technical knowledge is key to addressing this issue.

25. Current mitigation strategies put in place to date include:

· Focus on recruitment and retention of building control staff, including assessment of resourcing levels.

· Satisfaction surveys of staff and increasing resourcing where required.

· Securing a Principal Quality Assurance Officer.

· Setting up a team to analyse procedures and quality processes and embed changes, including training and on-going monitoring, in the Building Team.

· Weekly leadership meetings to monitor progress against the necessary actions, and regularly reported to the Chief Executive.

Financial Considerations

26. There are financial risks if the BCA does not maintain the accreditation of building functions, with higher costs associated with re-obtaining the accreditation (including MBIE officials time, higher auditing and IANZ costs).

Appendices

There are no appendices for this report.

Author: Helen Oram

Director Environment and Sustainability

Approved By: Jo Miller

Chief Executive

MEMORANDUM 1 28 June 2022

Our Reference 22/1348

TO: Chair and Members

Audit and Risk Subcommittee

FROM: Andrew Quinn

DATE: 08 June 2022

SUBJECT: Naenae projects - progress update

Recommendation

That the Subcommittee receives the memorandum and notes the following progress that has been made on the Naenae projects:

a) the completion of the demolition and the commencement of site establishment;

b) the signing of the main construction contract with Apollo Projects;

c) the inclusion of a second bulkhead and two hydro-slides in the scope of the Naenae Pool;

d) the Naenae Pool and Fitness Centre is tracking well to the budget of $68M and the confidence rating of successful delivery is improving;

e) the loan application to the Local Government Funding Agency under the Green, Social and Sustainability Lending Programme; and

f) the first drawdown of co-funding of $2.7M from Crown Infrastructure Partners.

Purpose of Memorandum

1. To provide an update to the Subcommittee on the progress and management of the Naenae Project (pool and town centre development) since the last meeting held on 19 April 2022.

Naenae Pool and Fitness Centre

2. Since the last report in April 2022, there has been good progress on the Naenae Pool and Fitness Centre. Work continues to progress on all aspects of the project to maintain the programme agreed with Crown Infrastructure Partners (CIP).

3. The design team are currently engaged on the detailed design stage, having satisfactorily completed design development in May 2022.

4. The application for resource consent has been reviewed by an independent consultant and final conditions are being exchanged. Uplift of the resource consent is expected to take place mid-June 2022, and this will enable the team to apply for the first stage of building consents.

5. Demolition of the old pool is now coming to an end with most of the buildings and underground structures removed. As reported previously most (up to 80%) of the material that would normally end up in the clean fill tip has been recycled. This includes concrete from the old pool tanks which has been crushed and will be re-used to fill in the excavations.

6. More underground structures were discovered than expected and this has delayed the completion of demolition. We are however, on track to commence fencing of the worksite in June 2022 followed by the commencement of groundworks in July 2022. A blessing of the construction site by local iwi is planned for Friday 17June 2022.

7. The art on the current panels on the fence will be re-used, and additional panels will be installed to tell the story of the project and provide updates.

8. The main construction contract with Apollo Projects is being finalised for signature by the parties. Meantime procurement of the major items required for the pool has commenced under a Letter of Intent, starting with the pool tank, moveable floor, and the hydro-slide.

9. As agreed by the Major Projects Board and following a cost and risk review of the project; the Nanae Pool will now include two (2) bulkheads for the main 50m pool and a second hydro-slide. Pictures of what the slides will look like can be seen at Appendix 1.

Naenae Town Centre development

10. Having acquired the old Naenae Post Office back in late 2011, good progress has been made on plans to convert the building into a Community Centre.

11. Currently we are at the preliminary design stage following a series of co-design workshops with the Naenae Community Advisory Group (CAG).

12. Next month we will prepare for lodgement our application for resource consent which will outline how we intend to strengthen the building and protect its heritage through the sensitive restoration of the original façade and the fit-out of the interior spaces.

Risk

13. The cost of the Naenae Pool and Fitness Centre continues to be reviewed at regular intervals. The current estimated cost of the project is $67.52M plus demolition costs of $1.88M.

14. When these results were subject to quantified risk analysis, the results show that the probability of delivering the project under the $68M project budget has improved from 90% to 95%.

15. The ten (10) top-rated risks for the Naenae Pool and Fitness Centre project are reported to this Subcommittee and included at Appendix 2 of this report. There are no major changes in the risk profile to report, although the risk of disruption to worksite productivity due to COVID19 sickness remains high.

Financial Considerations

16. The project team reviewed and updated the current financial profile of the project against the Long-Term Plan 2021-2031 (specifically for the 2022/23 Annual Plan). As reported above, the project is still tracking well to the capital expenditure budget of $68M.

17. Crown Infrastructure Partners (CIP) provide co-funding of $27M through the COVID-19 response and recovery fund. Now that demolition is complete, Council will be able to drawdown the first milestone payment of $2.7M in June 2022.

18. Council has applied to the Local Government Funding Agency’s Green, Social and Sustainability Lending Programme for the Naenae pool and fitness centre project to be accepted under the programme. This aligns with decisions of Council, refer PFS2022/2/69.

Climate Change Impact and Considerations

19. The Greenstar rating system has been developed by the NZ Green Building Council to encourage building owners to use sustainable technologies and energy saving devices to reduce the carbon footprint whilst in use. The system tool is used to evaluate environmental performance of the building across the nine (9) categories of management, indoor environment quality, energy, transport, water, materials, land use & ecology, emissions, and innovations.

20. As previously reported, the design team are developing environmentally sustainable technologies working in conjunction with Callaghan Innovation. It is expected that the building when operational will achieve as a minimum, a Greenstar rating of 5 (New Zealand Excellence). Examples of design features and initiatives include:

· High level of maintenance and serviceability of services and structure

· A building that is resilient to the impacts of a changing climate and natural disasters

· Metering and monitoring of energy and water use

· Re-cycling of demolition waste products and ability to separate operational waste

· High quality indoor air quality; high standards of acoustic, lighting, visual and thermal comfort

· 100% reduction in Green-house gases from the previous pool

· EV parks with charging points and secure bike stands

· The use of glu-laminated timber for the main pool hall structures

Legal Considerations

21. The main construction contract with Apollo Projects has been signed, following review and approval of legal counsel.

Appendices

No.	Title	Page
1 ⇩	Picture of Naenae Pool hydro-slides	100
2 ⇩	Top-ten rated risks_June 22	101

Author: Andrew Quinn

Project Manager (Naenae)

Approved By: Andrea Blackshaw

Director Neighbourhoods and Communities

1 28 June 2022

Audit and Risk Subcommittee

08 June 2022

File: (22/1422)

Report no: ARSC2022/3/109

Audit and Risk Subcommittee Forward Programme 2022

Recommendation

That the Subcommittee receives and notes the Forward Programme for 2022 attached as Appendix 1 to the memorandum.

Purpose of Memorandum

1. To provide the Audit and Risk Subcommittee (the subcommittee) with a Forward Programme of work planned for the subcommittee for 2022.

Background

2. The Terms of Reference for the subcommittee requires the subcommittee to have a monitoring and advisory role in reviewing the effectiveness of the manner in which Council discharges its responsibilities in respect to governance, risk management and internal control.

3. The Forward Programme for 2022 provides a planning tool for both members and officers to co-ordinate programmes of work for the year. The forward programme is attached as Appendix 1 to the memorandum.

Forward Programme

4. The Forward Programme is a working document and is subject to change on a regular basis.

Appendices

No.	Title	Page
1 ⇩	Appendix 1 Audit and Risk Subcommittee Forward Programme 2022	106

Author: Kate Glanville

Senior Democracy Advisor

Approved By: Kathryn Stannard

Head of Democratic Services