HuttCity_TeAwaKairangi_BLACK_AGENDA_COVER

KOMITI ITI AHUMONI I TŪRARU|Audit and Risk Subcommittee

16 April 2021

Order Paper for the meeting to be held in the

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

on:

Friday 23 April 2021 commencing at 2.00pm

Membership

Ms Suzanne Tindal (Independent Chair)

Mayor C Barry (Deputy Chair)	Cr D Bassett
Cr J Briggs	Cr S Edwards
Cr A Mitchell	Cr S Rasheed
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

17 23 April 2021

Audit and Risk Subcommittee

11 March 2021

File: (21/371)

Report no: ARSC2021/2/79

Risk management update, including the setting of risk appetite

Purpose of Report

1. The purpose of this report is to provide an update to the Audit and Risk Subcommittee on activities underway to maintain and improve risk management at Hutt City Council (Council).

2. This report includes a proposal for the Subcommittee to review and endorse the proposed ‘Risk appetite statement’ ahead of it being submitted to Council for approval. The ‘Criteria for assessing risk’ is also presented for review and endorsement by the Subcommittee.

3. The Council’s risk register to 31 March 2021 is also reported to the Subcommittee.

Recommendations

That the Subcommittee:

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

(2) notes the risk management framework, as attached as Appendix 1 to the report.

(3) notes the recommendation to develop ‘Risk appetite statement’;

(4) endorses for approval by Council the draft ‘Risk appetite statement’ as attached as Appendix 2 to the report. This recommendation will be considered by Council on 1 June 2021;

(5) endorses the ‘Roles and responsibilities for risk management at Hutt City Council’ updated in respect of risk appetite aspects as attached as Appendix 3 to the report;

(6) endorses the updated risk rating assessment criteria as attached as Appendix 4 to the report;

(7) notes the Risk Register as updated by the Corporate Leadership Team, attached as Appendix 5 to the report; and

(8) notes and receives the Covid-19 risks update. Officers will update members at the meeting if there are any changes to be reported during the meeting.

Background

4. The Risk and Assurance Manager provides a quarterly update on the activities to maintain and improve Council’s risk framework. The previous Risk Management Update was presented to the Audit and Risk Subcommittee on 25 November 2020.

5. The risk management framework was previously updated in March 2017. A review is currently underway. Updates so far include the risk reporting from September 2020, the roles and responsibilities for risk management and the establishment of the Risk Steering Group (the terms of reference for this cross council representation groups were outlined to this Subcommittee on 17 September 2020).

6. Attached as Appendix 1 is the risk management framework.

7. The proposed risk documents in this report have been reviewed by external risk consultant, Cecilia Tse. Cecilia is an industry leader in legal, risk and assurance management, with many years of experience supporting organisations in their risk maturity journey. Cecilia has provided guidance in their development and confirmed that these are in line with industry best practice and recognised international risk management standards and guidance (ISO 31000:2018). Cecilia will be attending the Subcommittee meeting and be supporting the presentation of this report.

Setting risk appetite

8. Attached as Appendix 2 to this report is the draft ‘Risk appetite statement’ for review and endorsement by the Audit and Risk Subcommittee ahead of submission to Council for approval.

9. Setting risk appetite is a key first step in the risk management process.

10. The key objectives for setting risk appetite:

§ Enables the sitting Council to exercise appropriate oversight and governance by setting boundaries for the business activities;

§ Expresses the sitting Council’s attitude to risk to promote a risk aware culture;

§ Provides a framework for making business/risk based decisions;

§ Empower staff to take more calculated risk; and

§ Limit staff from taking excessive risk.

11. Risk appetite outlines the amount of risk Hutt City Council is willing to accept in pursuit of its strategies, priorities and business plans.

12. Risk appetite is set by the Council. Council, through the Audit and Risk Subcommittee, expects to have oversight on how risks are managed within the parameters set, through regular risk monitoring and other reporting.

13. Council is prepared to take appropriate, controlled risks to achieve its strategic objectives.

14. Risk appetite provides boundaries for activities. When applied, it reduces/limits staff from taking excessive risks and empowers staff to take more risks to achieve goals.

15. Risk appetite can be expressed in a number of ways to ensure that it is commonly understood and consistently applied across the programme. In line with other local Councils, the proposed risk appetite is expressed in the form of high-level qualitative statement across key risk categories that aim to articulate Council’s attitude and level of acceptance of different risks.

16. The risk criteria matrix, tabled in this report, provides quantitative measures in some areas.

17. The key risk appetite areas have been chosen as they are important to local councils. The Council’s top risks have also been considered in preparing these.

18. Various other local authorities’ appetite statements were reviewed as part of the process, which included Crown Infrastructure Partners, Porirua City Council and Auckland Council. The proposed appetite statement for Hutt City Council is in line with other local authorities in New Zealand.

19. The Risk Steering Group^{^[1]}, with cross council representation, was involved in the initial development of the appetite statement.

20. It is important that the Council (with some responsibilities delegated to the Audit and Risk Subcommittee) monitors compliance with the risk appetite set. This will form part of the future monitoring and reporting to ARSC.

21. Once set, Council requires management to effectively communicate this risk appetite statement to all staff and to ensure that business plans and activities are aligned accordingly.

22. Attached as Appendix 3 to the report, the “Roles and responsibilities for risk management’^{^[2]} have been updated for risk appetite. I.e. Council sets the risk appetite and ARSC monitors to ensure the Corporate Leadership Team are managing risk within those boundaries.

Criteria for Assessing Risk

23. Risk criteria are used to assess risk. It provides a consistent way to discuss, analyze, evaluate and rate risk, in terms of its level of severity. This allows risk to be ranked and mapped relative to each other and against risk appetite.

24. The risk criteria were last updated in March 2017.

25. Risk management aids the understanding and proactive management of risk exposures and opportunities that may have a potential effect on Council’s strategic priorities. To do this, it requires:

§ Consistent language so that risks can be considered in a consistent and strategic way;

§ A guide outlining different levels of likelihood of a particular risk occurring; and

§ A guide outlining different levels of impact that an event may have.

26. Risk analysis may be influenced by any divergence of opinions, biases, perceptions of risk and judgements. Having documented criteria provides a consistent way to discuss, assess, evaluate and prioritise risk at Council.

27. Risk analysis and risk evaluation is part of risk assessment in the risk management process.

ISO 31000:2018 Risk Management - Guidelines

28. ‘Risk’ can be defined as the effect of uncertainty on objectives.

An ‘effect’ is a deviation from the expected. It can be positive, negative or both, and can address, create or result in opportunities and threats.

Risk is usually expressed in terms of risk sources, potential events, their likelihood and consequence.

Likelihood is the chance of something happening

Consequence is the result or effect of a particular event occurring that impacts objectives.

29. A number of other council’s criteria were considered in the development of the new criteria. The proposed criteria has been tailored and chosen as a good fit for Hutt City Council and the context Council operates in. The risk factors selected represent impacts that are important to Council.

30. Early input of the impact/consequence thresholds was sought from subject matter experts for each risk area. These are the managers who are technical/function leads for the individual risk factors.

31. The Risk Steering Group, with cross council representation, was involved in the initial development of the risk criteria.

Summary of updates to the criteria for assessing risk:

32. Thresholds for Likelihood criteria have generally been adjusted upwards to broaden the bands and align with other local authorities and accepted practice.

Consequence/Impact criteria:

33. The impact criteria have five levels. This approach is largely consistent with most other councils.

34. Impacts for Financial, People, Legal, Regulatory and Compliance, Service Delivery, Environmental and Trust, Confidence and Reputation have been updated better align to other local authorities and public sector impact criteria.

35. NEW thresholds for assessing project risk are proposed.

36. The risk rating table, as set out in Appendix 4 attached to the report, has a legend that outlines the response action required for each risk level. The response actions have been updated to better define the escalation requirements and expected risk treatment.

Council’s Risk Register

37. Attached as Appendix 5 to the report is the risk register to 31 March 2021, as approved by the Corporate Leadership Team. The details the top risks at Hutt City Council.

38. The risk registers were last put forward to Council’s Audit and Risk Subcommittee on 25 November 2020.

39. We are reviewing top risk to ensure there is a focus on critical uncertainties and effects that have a significant impact on Council objectives and operations. The risk register is next due to be presented to this Subcommittee on 8 July 2021 and we expect a number of changes and refinements and rationalisations to be made to top risks reported in the risk register. There are a number of enhancements suggested by the risk consultant Cecilia Tse that will be taken up in future risk registers.

40. The risk register, as attached as Appendix 5, applies the updated risk criteria as attached as Appendix 4.

41. The overall risk ratings have remained unchanged. Mitigating actions have been separated out between current and future controls. The residual risk is determined based on current controls in place.

42. Individual meetings were held with risk owners to update the risk register. The risk register has been reviewed by the Risk Steering Group and a high-level review undertaken by the external risk consultant, Cecilia Tse. The risks in the risk register are in alignment to the top 10 risks identified by the Sector Manager Local Government of the Office of the Auditor-General’s reflections on local authorities’ approaches to managing risk.

43. Reporting of Top Risk is proposed, as opposed to the splitting out strategic from operational risk. Risks included in the risk register provide a spot light on the top risk. This is in line with organisations, such as Ministry of Social Development, who won a risk management award for ‘Best Plain English; as it removes any debate about whether a risk is strategic or operational.

44. A number of previously reported risks have been rationalized to reflect this focus and will be refined in future risks registers.

45. The following risks, which were included in the last risk registered reported to this subcommittee on 25 November 2020, are not captured under the risk register for Top Risks. These will continue to be monitored via operational risk registers by the respective business unit leads and escalated as required in alignment with the risk assessment criteria set out in Appendix 4. This includes:

a) The previously stated risk around Inadequate or inconsistent systems or processes or internal controls, has been rationalized and is impacts are captured by tops risks regarding procurement and contract management, financial management and fraud/economic crime;

b) Insurance. Risk here continues to be managed through our insurance lead, the Financial Accounting Manager who will provide an Insurance Renewal Update to this Subcommittee on 8 July 2021. The last Insurance Renewal Update (view) was provided to this Subcommittee on 12 March 2020. Advice is provided by AON insurance and Council is part of the Outer Wellington Shared Services risk consortium;

c) The potential withdraw of central government funding for the Healthy Families initiative affects community's expectations of Council's support and services. This continues to be tracked as an emerging risk.

46. Risk Appetite is being put forward to this Subcommittee ahead of approval by Council at the meeting on 1 June 2021. Until then, it is not proposed to apply the risk appetite in the risk register, attached as Appendix 5.

COVID-19 Risks

47. An update was provided to this Subcommittee on 25 February 2021 in the written report on Managing Covid-19 Risks and a comprehensive verbal update provided during that meeting. Updates to this Subcommittee provide assurance that risk around Council’s response to Covid-19 is being managed appropriately.

48. Hutt City Council remains vigilant and ready to respond in the event of any resurgence of Covid-19.

49. Since the update provided on 25 February 2021, on 28 February 2021 Auckland moved up to Alert Level 3 and the rest of New Zealand to Alert Level 2. These alert levels were moved back from 7 March 2021, with Auckland subsequently joining the rest of the country in Alert Level 1 from 12 March 2021.

50. Council continues to have a methodology in place for continuous service delivery to seamlessly transition between Alert Levels 1, 2 and 3 and to manage and minimise the risk of Covid-19.

51. Hutt City Council is proud to be supporting the Ministry of Health’s efforts to roll out the Covid-19 vaccine. This involves vaccinations being provided at one of our centres to border workers’ household contacts and frontline health and emergency workers. Five community centres are now in operation across the region. A full site safety plan was submitted and approved prior to the Walter Nash Centre being approved for use as a Covid-19 vaccine clinic, to ensure the service could be provided safely for contractors, staff and other facility users.

52. A full update on Managing Covid-19 Risks will be provided to this Subcommittee on 8 July 2021.

53. The Chief Executive’s statement provided to each Council meeting and the quarterly performance report to the Policy, Finance and Strategy Committee also provides details on how Council is responding to Covid-19.

Options

54. Not applicable.

Climate Change Impact and Considerations

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

56. The risk appetite statement for Strategy will have implications on future actions/decisions associated with climate change and environmental risks.

57. The criteria will be used to assess risk that has environmental implications.

Consultation

58. Not applicable.

Legal Considerations

59. The risk appetite statement for Compliance Risk will have implications on future actions/decisions.

60. The criteria will be used to assess risk that has legal implications.

Financial Considerations

61. The risk appetite statement for Financial Risk will have implications on future actions/decisions.

62. The criteria will be used to assess risk that has financial implications.

Appendices

No.	Title	Page
1 ⇩	Appendix 1: Risk Management Framework	18
2 ⇩	Appendix 2: DRAFT Risk Appetite Statement - 2021	19
3 ⇩	Appendix 3: DRAFT Roles and Responsibilities for Risk Management - 2021	21
4 ⇩	Appendix 4: Risk Assessment Criteria - 2021	25
5 ⇩	Appendix 5:Risk Register - Top Risk - March 2021	29

Author: Enid Davids

Risk and Assurance Manager

Approved By: Jenny Livschitz

Chief Financial Officer

54 23 April 2021

Audit and Risk Subcommittee

06 April 2021

File: (21/564)

Report no: ARSC2021/2/81

Petone Wharf Refurbishment Project

Purpose of Report

1. The purpose of this report is to inform the sub-committee on the risk profile of the proposed Petone Wharf refurbishment project and the way risks are and will be managed, including lessons learned from previous wharf projects.

Recommendations

That the Subcommittee:

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

(2) notes the draft Project Risk Register attached as Appendix 1 to the report; and

(3) notes that a Quantitative Risk Analysis process is being carried out for the project.

For the reasons to understand the risks and implications of undertaking this project.

Background

2. A summary history of Petone Wharf is included in a report to the Long Term Plan / Annual Plan sub-committee meeting held on 10 February 2021 and an update was presented in a report to the Audit and Risk sub-committee on 25 February 2021. Refer to following links:

http://infocouncil.huttcity.govt.nz/Open/2021/02/LTPAP_10022021_AGN_2879_AT_WEB.htm

http://infocouncil.huttcity.govt.nz/Open/2021/02/ARSC_25022021_AGN_2886_AT_WEB.htm

3. Several structural piles were damaged during two minor earthquakes in December 2020 and January 2021, resulting in closure of the wharf to the public and commencement of emergency works.

4. The aim of the works was to repair the damage and complete some planned maintenance work ahead of schedule. This work is now complete.

5. Concurrently Calibre Consulting Limited (Calibre) has been carrying out a detailed condition assessment on the structure of Petone and other wharf structures. The report is due back on 8 April 2021.

6. Preliminary observations suggest that there are a number of piles on the wharf head that are in very poor condition and we are likely to receive the recommendation that the wharf should remain closed until these piles are repaired.

7. The Council is consulting, through the Long Term Plan (LTP) process, on a recommendation to bring forward the full refurbishment of Petone Wharf to address these maintenance concerns in the short term.

Discussion

8. The Petone Wharf currently poses potential health and safety risks related to the structural integrity of the piles and supports. This risk is currently being managed through closure of the wharf, completion of emergency works and commissioning of a detailed engineering condition survey.

9. The proposed Petone Wharf refurbishment project holds inherent risks to Council, most notably that of financial uncertainties and reputational risk. These are recorded in the table in appendix 1 and discussed in more detail below.

10. Whilst we are currently undertaking detailed condition assessment of the structural timbers on Petone Wharf, there is still a lot of work that cannot be identified until the concrete deck is removed and deck beams are exposed and/or timbers are dismantled. Damage by Teredo Worm for example impacts on the internal part of the timber (particularly the piles) and often cannot be seen from the outside. Internal rotting also can sometimes look solid from the outside of the timber. This means that there is a high likelihood of structural replacements needed that cannot be accurately planned for.

11. The main learning from the Days Bay and Rona Bay refurbishments is to adopt a ‘worst case’ approach in terms of the number of pile and beam needing replacement. Both Days and Rona Bay projects required a budget increase, despite a contingency a budget of 25% in the contract, which was due mainly to an underestimate of the number of piles and beams requiring replacement. The condition of beams which from the underside looked to be in reasonable condition but once the deck was removed were found to be in poor condition in sections on top where rainwater had seeped in from the deck.

12. The difficulty in assessing the condition of the piles and the delays due to inclement weather were also factors which contributed to the cost increases.

13. The total project cost for Rona Bay Wharf refurbishment was $4.2M against a budget of $3.9M. Total forecasted spend for Days Bay wharf is $4.6M including an approved budget adjustment of $700,000. The original budget was $3.9M.

14. Calibre has considered these learnings when assessing the scope of the Petone Wharf refurbishment for the likely type and quantity of works along with the time that it will take. In addition Calibre will take a highly conservative approach to pile upgrades in the knowledge that there is some likelihood of damage between the high and low water marks to piles due to Teredo worm.

15. Additionally officers are undertaking a Quantitative Risk Assessment process in order to provide a ‘worst case’ cost, accommodating all the risk factors and their likelihood. This process can begin once we have received the condition assessment and scope of work. This will provide some security and predictability around these works, reducing the risk factor.

16. While Council will not receive the detailed condition assessment until April 2021 an initial rough order cost estimate of $14M has been provided by engineers based on predicted condition and knowledge from recently completed works. Due to the high level of uncertainty and risk a budget estimate of $15M to $20M is currently being used for the draft LTP consultation. An update will be reported to the LTP subcommittee on 20 May 2021.

17. The other top risks associated with this project are:

a. Health and Safety – Given the structural uncertainties associated with the wharf there is the risk of further loss of piles and localised structural failure. This risk is low and managed through closure of the wharf. Contractors completing the repairs will set up procedures to keep staff safe during works, which will be approved by a qualified engineer.

b. Weather – Petone is subject to strong southerly and north-westerly winds which make conditions unsafe to work in. This could affect programming and is difficult to plan for. An assessment of non-work days will be made based on previous year’s weather information.

c. Supply – The work is reliant on supply of large hardwood timbers, generally from South America. These are becoming more difficult to source and questions are being raised about the ethics and sustainability of this practice. This will be managed by investigating alternative wood sources, such as Australia and alternative products including concrete or composite materials.

d. Heritage – Petone Wharf is a heritage structure under the District Plan and has been nominated for Heritage status with Heritage New Zealand. This could add a level of complexity to the project increasing time and costs.

e. Communications - Previous communication stated a completion date for re-opening. This commitment cannot now be met and could lead to loss of trust. This is being managed through a communications plan supported by evidence and information. This includes early communication to the Chair of the Petone Community Board and other key stakeholders and signage on-site.

18. If the project is approved by Council (June 2021) and budget brought forward, project updates will be provided to the Audit and Risk Sub-committee on project initiation and then six (6) monthly until completion.

Options

19. There are no options of this report.

Climate Change Impact and Considerations

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

21. The proposed project includes sourcing of timbers from South America to meet heritage requirements which raise sustainability and carbon emissions concerns. Alternative acceptable materials and or sourcing will be explored during project initiation.

22. Being located on the foreshore the project will be subject to sea level rise considerations which will need to be addressed through project scoping

Consultation

23. In 2017, as part of the annual plan consultation, Council engaged with the community over the future of all four wharves. Additionally public meetings were held in Petone and Eastbourne and wider consultation was carried out. As a result the decision was made to refurbish Petone Wharf, including the removal of 48m off the outer end. As referenced earlier, the current decision on the wharf is also included in the draft LTP 2021-24, which is currently being consulted on.

Legal Considerations

24. There are no legal considerations at this time.

Financial Considerations

25. The following tables set out the proposed changes to budget for the Petone Wharf Project which is currently being consulted on.

Table 1: Operational budgets

Petone Wharf	2020/21	2021/22	2022/23	2023/24	2024/25	2025-2031	Total
Annual Plan 2020/21							$0
LTP 2021-2031		$0.5M					$0.5M
Variance		$0.5M					$0.5M

Table 2: Capital budgets

Petone Wharf	2020/21	2021/22	2022/23	2023/24	2024/25	2025-2032	Total
Annual Plan 2020/21		$0.8M	$0			$8M	$8.8M
LTP 2021-2031	$0.45M	$7.05M	$7-12M				$14.5M- $19.5M
Variance	$0.45M	$6.25M	$7-12M				$5.7M - $10.7M

26. Updated cost estimates and cost risks will be reported to the LTP/AP Subcommittee on May 20 once all additional information has been received.

Appendices

No.	Title	Page
1 ⇩	Appendix 1: Draft Project Risk Register	55

Author: Janet Lawson

Reserves Asset Manager

Author: Marcus Sherwood

Head of Parks and Recreation

Author: Aaron Marsh

Team Leader Parks

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

Approved By: Andrea Blackshaw

Director Neighbourhoods and Communities

61 23 April 2021

Audit and Risk Subcommittee

09 April 2021

File: (21/587)

Report no: ARSC2021/2/82

RiverLink Project Update

Purpose of Report

1. The purpose of this report is to update the Subcommittee on the RiverLink Project (the Project) since the last report dated 5 February 2021.

Recommendations

That the Subcommittee:

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

(2) notes the updated Project Risk Register attached as Appendix 1 to the report; and

(3) notes that initial cost estimates for the RiverLink project have been received and are currently being reviewed by the project office and project partner representatives

Project Update

2. The consultant team have been progressing towards a 31 May 2021 submission date for the resource consent application. There are some concerns about the quality of the resource consent application. The consultant team have noted this concern to the RiverLink Project Partner Board who has agreed to an extended resource consent submission date of 30 June 2021.

3. The extended resource consent submission deadline from 31 May to 30 June 2021 is of low risk to Hutt City Council (HCC). However, Waka Kotahi has funding and construction deadlines and Greater Wellington Regional Council (GWRC) has a very strong desire to address the flooding risk to Hutt City as soon as possible.

4. In considering the extended resource consent submission deadline the RiverLink Project Partner Board agreed that producing a high quality resource consent application was priority one as it would mitigate risks around a protracted approval process.

5. In parallel with finalising the resource consent submission, other work is required to achieve milestones associated with the delivery of the Project. All three partner organisations have gaps in their client-side teams which is making progress on this aspect of the Project slower. This could compromise the milestones that Waka Kotahi needs to achieve under their New Zealand Upgrade Programme (NZUP). Funding approvals from the Waka Kotahi Board is scheduled for late May 2021.

6. The RiverLink Project Partner Board is currently seeking a Project Director –Delivery to fill this capability and capacity gap. It is anticipated that the Project Director – Delivery would build a small team to work in conjunction with project office established for the consenting phase of the Project.

7. An independent Quantity Surveyor has been working on cost estimates for the whole project. These cost estimates and the apportionment between partners arrived with the project team on 16 and 17 March 2021.

8. The project partners have agreed in principle to a ‘hybrid alliance’ delivery model for RiverLink. The commercial framework and memorandum of understanding are currently under development. A workshop with HCC and GWRC Councillors on the proposed hybrid alliance delivery model took place in March 2021.

Project Governance

9. The Project Governance structure is shown on the proceeding page.

10. The Project is overseen by the RiverLink Project Partner Board which includes two representatives each from the three partner entities (Greater Wellington Regional Council, Hutt City Council and Waka Kōtahi New Zealand Transport Agency).

11. The CEO Relationships Board provides a further layer of oversight for the project and provides a forum for strategic and relationship matters and issues within each of the respective organisation to be identified and addressed.

12. The Project will also be reporting into the recently created internal Hutt City Council Major Projects Board.

13. A paper will be prepared for approval by Council which sets out the appropriate project governance process, delegations and reporting lines as the Project transitions into the delivery phase.

Risk

14. The Project Risk Register is attached as Appendix 1 to the report and will be updated ahead of the next subcommittee meeting to align with the project delivery decisions taken. The key risks are as follows:

a. Failure to meet NZUP milestones compromising Waka Kotahi funding approvals

b. Managing the relationship among partner organisations

c. Hutt City Council does not achieve the objectives and deliverables expected from the Project - against stakeholder expectations, needs and outcomes for the city.

d. Managing the uncertainties around the allocation and availability of sufficient budget to deliver project

Project Milestones

Milestone	Date
Submission of resource consent application * best estimate at this point in time	31 May 21 – Delayed to 30 June 2021
Design/construction contract awarded	First quarter 22
Construction start on site	Last quarter 22
Construction completion (Melling interchange 1^st, followed by stopbanks, landscaping and regeneration)	2026-27

Financial Considerations

15. As a part of the 2018-2028 LTP, Council agreed to a budget of $57M (all numbers are inflated) for the design, consenting and delivery of the RiverLink Project. An increase of $64.5M is being sought as a part of the draft 2021-2031 LTP. This brings the total budget from $57M to a proposed $121.5M.

16. The increased capital investment includes:

a. Further property purchases

b. Upgrades to the local transport network including connections with Melling Bridge

c. Cost increases associated with the pedestrian bridge and the river edge / promenade construction and enhancements

d. Provision of project contingency

e. Project delivery costs

17. Co-funding from Waka Kōtahi (for roading projects) and revenue from the sale of surplus land in later years is expected to be $27.5M.

18. Table 1 below shows the budget in the draft LTP 2021-2031. The public consultation on the draft LTP is occurring from 6 April 2021 to 6 May 2021. The final LTP 2021-2031 is scheduled for adoption by the Council on 30 June 2021.

19. In line with the Council’s Revenue and Financing Policy, Council’s share of the capital expenditure will be funded from borrowing and rates.

Table 1: 2021/31 Draft LTP Budget for RiverLink

Financial year

2020/21

2021/22

2022/23

2023/24

2024 /25

2025-2031

Total

Draft LTP 2021-2031

2.72

10.90

25.09

23.67

20.79

38.32

121.49

20. Next steps for cost estimates:

a. Cost workshops with the Quantity Surveyor and partner organisations.

b. An independent expert is to be engaged to review the cost estimates produced by the Quantity Surveyor.

c. A fully costed budget plan is likely to be available by early May.

Partners and Stakeholders

21. A high level external stakeholders and partners list has been developed:

· Partners

o Greater Wellington Regional Council

o Hutt City Council

o Waka Kōtahi

· Iwi Partners

o Taranaki Whānui

o Ngāti Toa

· Stakeholders

o Waka Kōtahi (co-funding of specific transport initiatives)

o Residents and business alongside the river edge

o Hutt City rate payers and residents

o General public regional/national

o Community boards

o Local Schools

o Media

Climate Change Impact and Considerations

22. The Project seeks to ensure greater resilience for Hutt City against flooding and the effects of climate change. The designs for the Project have taken into account climate change modelling for the Hutt River / Te Awa Kairangi.

Consultation

23. Extensive community engagement has been undertaken since 2016 on the Project with open days, workshops, online and printed media. In November 2020 and February 2021 the project office undertook open days in order to inform the resource consenting process. Over 400 people participated in the open days.

24. The request for a further increase in the RiverLink Project budget (noted at para 15 above) has been included in the consultation document for the Long Term Plan which commenced on 6 April 2021 and closes on 6 May 2021.

Legal Considerations

25. The only legal agreement HCC has entered into is the RiverLink Project Partner Agreement which sets out each partner’s responsibilities and requirements for the partnership.

Appendices

No.	Title	Page
1 ⇩	Appendix 1: Riverlink Risk Register - February 2021	62

Author: Tom Biggin

Project Manager Riverlink

Approved By: Kara Puketapu-Dentice

Director Economy and Development

74 23 April 2021

Audit and Risk Subcommittee

01 April 2021

File: (21/560)

Report no: ARSC2021/2/83

External Audit Update - Hutt City Council

Purpose of Report

1. To provide an update on the Audit NZ management report on the audit for the Group Annual Report 2019/20.

2. To provide an update on the Audit NZ management report on the audit of the Long Term Plan 2021-2031.

3. The Audit New Zealand Audit Director will attend the Subcommittee meeting.

Recommendations

That the Subcommittee:

(1) notes the Audit New Zealand management report on the audit of the Group Annual Report for the year ended 30 June 2020, attached as Appendix 1 to the report; and

(2) notes the Audit NZ management report on the audit of the Long Term Plan 2021-2031, attached as Appendix 3 to the report.

Update on the audit of the Group Annual Report 2019/20

4. The Group Annual Report 2019/20 was finalised and adopted by Council on 21 December 2020 and the Audit NZ audit opinion issued. This was ahead of the statutory deadline of 31 December 2020.

5. There were audit issues and delays in finalising the Wellington Water Ltd audit which impacted all shareholder Council’s in the Wellington region. This was largely in relation to Wellington Water performance reporting information.

6. Whilst an unmodified audit opinion was issued on the Hutt City Council (HCC) financial statements, there was a modified opinion issued on certain performance information relating to the Department of Internal Affairs mandatory performance measures for Council’s water activities. This was due to significant issues identified with the Wellington Water underlying systems and information.

7. An improvement plan has been developed by Wellington Water to address these matters, with implementation underway in 2020/21. It is expected the audit issues will not however be fully resolved before 30 June 2021. As a result the Hutt City Council audit opinion is expected to be impacted in a similar manner. Officers are working proactively with Wellington Water and Audit NZ to plan ahead for the next audit and manage the risks related to the performance reporting issues. It is important to note that this impacts all Wellington Water shareholder Councils.

8. The Audit NZ interim management report for the year ended 30 June 2020 was reported to the Audit and Risk Subcommittee on the 17 September 2020. It was noted in the report that there had been good progress achieved in closing out long-standing audit recommendations. The table that follows provides a summary of all the items reported as closed.

Table 1: Summary of audit recommendations previously closed out

	Audit NZ recommendation	First raised by ANZ	Date reported as closed per ANZ
1.	Information and communications Technology Policies require review	2016/17	Dec 2019
2.	Lack of formal documentation of cost allocation percentages	2016/17	Dec 2019
3.	Revenue from the pools and Dowse – reconciliation process	2015/16	Dec 2019
4.	Creditor and payroll Masterfile changes	2018/19	July 2020
5.	Process for reviewing policies	2017/18	July 2020
6.	Annual review of network access rights not performed	2016/17	July 2020
7.	Financial delegations policy and related controls	2015/16	July 2020
8.	Property, plant and equipment – policy and procedure improvements	2014/15	July 2020

9. The final Audit NZ management report for the Group Annual Report 2019/20 was received by HCC on 14 April 2021. A summary of the audit findings are presented in table 2 that follows. Table 3 provides information on audit recommendations that were closed out through the final audit process. The full detailed report is available in Appendix 1.

Table 2: Summary of audit recommendations after final audit

Improvement recommendation by category	Number	Commentary
In progress to be implemented/ resolved	1	Network and payroll passwords settings can be improved
Limited progress in addressing	2	IT Disaster Recovery Plans require testing. High level of manual adjustments in reporting “number of new dwellings”.
New recommendations	3	Wellington Water performance reporting issues. Non-compliance with mandatory performance measure guidance. Approval of the Chief Executive’s and Mayor’s expenditure.
Total	6

Table 3: Summary of audit recommendations closed out at final audit

	Audit NZ recommendation	First raised by ANZ	Date reported as closed per ANZ
1.	Accuracy and reliability of Rating Information Database data	2018/19	Apr 2021
2.	Performance reporting source of information not disclosed appropriately	2018/19	Apr 2021
3.	Outdated Procurement Policy	2017/18	Apr 2021
4.	Sensitive expenditure	2016/17	Apr 2021
5.	Independent review of journals	2015/16	Apr 2021
6.	Documented procedures for key systems	2014/15	April 2021

10. Approval of the Chief Executive’s and Mayor’s expenditure: The audit report comments that the Council “should consider the appropriateness of the current approval process and consider updating the process to include the Mayor’s expenditure being approved by the independent Chair of the Audit and Risk Committee”. Officers can confirm that this audit recommendation has been agreed to and is now in place.

Update on the audit of the Long Term Plan 2021-2031(LTP)

11. The engagement letter for the audit of the consultation document and Long Term Plan 2021-2031 was reported to the Audit and Risk Subcommittee on 25 February 2021. The audit plan noted that the main focus areas for the audit include:

o Impact of the economic downturn caused by Covid-19 on Council’s forecasts

o Financial strategy and infrastructure strategy

o Assumptions

o Quality of asset-related forecasting information.

12. The first stage of the audit was successfully completed and the audit opinion issued on the 31 March 2021. The next stage of the audit will be completed in June 2021 when the final LTP Council decisions are progressed and the LTP adopted. The Audit NZ management report on the first stage of the audit is attached as Appendix 3.

13. An unmodified audit report was issued by Audit NZ. There were three emphasis of matter paragraphs in the audit report drawing attention to the disclosure in the Consultation Document (CD) on the following:

1. Uncertainty over three waters reforms (all councils across New Zealand received this audit point )

2. Uncertainty over the delivery of the capital programme (many councils across New Zealand received this audit point)

3. Uncertainty over the three waters forecasts (all Wellington Water shareholder councils were impacted by this audit point).

14. There is a range of positive feedback and endorsement from Audit NZ for the approach taken in the preparation of the Consultation Document and underlying Draft LTP 2021-2031. Extracts of some key comments from the audit report follow:

- We reviewed the Council’s approach to considering the impact of Covid‑19 and how this has been factored into the underlying policies, strategies and assumptions used to prepare the LTP………We are therefore satisfied that Council’s assumptions in respect of Covid‑19 are reasonable and this has been appropriately factored into the underlying information.

- The Council clearly documents the key principles underlying its financial strategy. It focuses on strong fiscal management whilst addressing the growing demands for increased capital expenditure in core infrastructure assets. Funding implications detailed in the infrastructure strategy have been consistently reflected in the financial strategy. We concluded that the financial strategy is financially prudent and based on reasonable assumptions.

- Overall, we are satisfied that the infrastructure strategy can demonstrate accountability to the community. It describes what the Council wants to achieve, the challenges and how it plans to respond so that it can continue to deliver the outcomes that have been set by the Council.

- The quality of the Council’s financial forecasts is significantly affected by the assumptions on which they are based. We reviewed the appropriateness of the significant assumptions used by the Council to prepare the financial forecasts and were satisfied that these were reasonable at the time of preparing the CD.

Table 4: Key audit findings with improvement opportunities for the future

	Audit finding	Action underway
1.	Initial draft of the CD included a very large number of consultation topics, some of which did not meet the Council’s significance and engagement policy (refer section 3.1 of report).	The final CD excluded a number of these matters and there was a significant effort to ensure the CD was carefully designed to help readability. Future planning for the next LTP will give better consideration to this audit finding.
2.	Quality of asset related forecasting information (including condition and performance information for critical assets). Related to Wellington Water asset management practices (refer section 3.5 of report).	Critical asset condition assessment work underway with delivery expected August 2021. Asset management plans to be completed post this.
3.	Performance framework – and appropriateness of the performance information (refer section 3.6 of the report).	Further review underway ahead of finalising the LTP 2021-2031.

15. The previous management report on the LTP 2018-2028 is included as Appendix 4. It is interesting to note the comparison in nature to the feedback points raised in the previous report and the improvements that have been delivered since then, for example:

- Unadjusted misstatement in 2018 LTP ; none in 2021 LTP,

- Rates setting process legislative compliance issue 2018 LTP; addressed subsequently and resolved,

- Project management concerns raised in 2018 LTP with commentary about various delays and inefficiencies; improved practices in 2021 LTP with audit commenting on effectiveness of the control environment,

- Budget approval and review processes not appropriately documented and evidenced in 2018 LTP; no issues in this regards in 2021 LTP.

Climate Change Impact and Considerations

16. The matters addressed in this report have been considered in accordance with the process set out in Council’s Climate Change Considerations Guide. The audit management report for the LTP comments that there was feedback by Audit NZ to expand the disclosures in the Draft LTP 2021-2031 Consultation Document in regards to climate change, specifically in regards to the risks to the community and how this may affect the Council and community. Officers agreed with this feedback and included additional disclosure in the Consultation Document ahead of it being finalised for public consultation.

Legal Considerations

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

Financial Considerations

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

Appendices

No.	Title	Page
1 ⇩	Appendix 1: Audit NZ management report on the audit of the Group Annual Report for the period ended 30 June 2020	75
2 ⇩	Appendix 2 - Office of the Auditor General bulletin issued 6 April 2021 - Audit Report on long-term plans	103
3 ⇩	Appendix 3: Audit NZ management report on the Draft LTP 2021-2031 Consultation document and underlying information.	105
4 ⇩	Appendix 4 - Final 2018-28 LTP Management Report	122

Author: Darrin Newth

Financial Accounting Manager

Reviewed By: Jenny Livschitz

Group Chief Financial Officer

Approved By: Jo Miller

Chief Executive

Contents

Key messages. 3

1 Recommendations. 5

2 Our audit report. 7

3 Matters raised in the Audit Plan. 9

4 Matters arising during the audit. 16

5 Public sector audit. 19

6 Group audit. 20

7 Useful publications. 21

Appendix 1: Status of previous recommendations. 24

Appendix 2: Disclosures. 27

Key messages

This report sets out our findings from the audit for the year ended 30 June 2020 and draws attention to areas where the Hutt City Council (the City Council) is doing well and where we have made recommendations for improvement.

Audit opinion

We issued a non‑standard audit opinion on 21 December 2020.

Our opinion included:

· An unmodified audit opinion on the financial statements, which means we were satisfied that the financial statements present fairly the City Council’s activity for the year and its financial position at the end of the year.

· A modified audit opinion on certain performance information relating to the Department of Internal Affairs (DIA) mandatory performance measures for the Council’s water activities. This was due to significant issues identified with the underlying systems and information.

These performance measures included:

¡ Fault response times – Water supply, Wastewater and Stormwater

¡ Maintenance of the reticulation network – Water supply

¡ Total number of complaints received – Water supply, Wastewater and Stormwater

¡ Number of dry weather sewerage overflows – Wastewater

· Without further modifying our opinion, an emphasis of matter paragraph drawing the reader’s attention to the disclosures about the COVID‑19 impacts on the Council.

Key audit findings

We comment on the following key matters in this report:

· COVID 19 pandemic ‑ we are satisfied that the impact of COVID‑19 has been appropriately considered and that the relevant disclosures have been made.

· Valuation of property, plant and equipment ‑ we performed audit procedures to gain assurance over the valuation of the City Council’s land and buildings and infrastructure assets. There are no significant matters to bring to your attention.

· Impairment assessment for property, plant and equipment ‑ we agree with the City Council’s final impairment assessment and did not identify any significant matters to bring to your attention.

· Performance reporting (results provided by Wellington Water) ‑ Wellington Water was unable to provide reliable data for some of the City Council’s performance measures, which resulted in a modified opinion.

· Risk of management override of internal controls – we did not identify any issues that indicated management override.

Thank you

We would like to thank the Council, management and staff for their assistance during the audit. Last year was a challenging year for everyone, and we acknowledge and appreciate the constructive manner in which the City Council has worked with us for the 2020 audit.

Andrew Clark

Appointed Auditor

Draft _ 7 April 2021

1 Recommendations

Our recommendations for improvement and their priority are based on our assessment of how far short current practice is from a standard that is appropriate for the size, nature, and complexity of your business. We use the following priority ratings for our recommended improvements.

Priority	Explanation
Urgent	Needs to be addressed urgently These recommendations relate to a significant deficiency that exposes the City Council to significant risk or for any other reason need to be addressed without delay.
Necessary	Address at the earliest reasonable opportunity, generally within six months These recommendations relate to deficiencies that need to be addressed to meet expected standards of best practice. These include any control weakness that could undermine the system of internal control.
Beneficial	Address, generally within six to 12 months These recommendations relate to areas where the City Council is falling short of best practice. In our view it is beneficial for management to address these, provided the benefits outweigh the costs.

1.1 New recommendations

The following table summarises our recommendations and their priority.

Recommendation	Reference	Priority
Wellington Water performance reporting issues The City Council should continue discussions with Wellington Water to understand the plans in place to address the performance reporting issues.	4.1	Urgent
Non‑compliance with mandatory performance measure guidance The City Council should review their procedures and ensure compliance with the DIA guidance when measuring the number of complaints.	4.2	Necessary
Approval of the Chief Executive’s and Mayor’s expenditure The City Council should consider the appropriateness of the current approval process, and consider updating the process to include the Mayor’s expenditure being approved by the independent Chair of the Audit and Risk Committee.	4.3	Necessary

1.2 Status of previous recommendations

Set out below is a summary of the action taken against previous recommendations. Appendix 1 sets out the status of previous recommendations in detail.

Priority	Priority
Priority	Urgent	Necessary	Beneficial	Total
Open	‑	3	‑	3
Implemented or closed	‑	6	‑	6
Total	‑	9	‑	9

2 Our audit report

2.1 We issued a non‑standard audit report

We issued a non‑standard audit report dated 21 December 2020 as follows:

· An unmodified audit opinion was issued on the audited information, excluding the statement of service provision, which means we were satisfied that the financial statements present fairly, in all material respects, the City Council’s activity for the year and its financial position at the year of the year.

· A qualified opinion on the statement of service performance provision as we identified a number of significant issues with certain water related performance measures. This is discussed in detail in section 4.1 of this report.

· An emphasis of matter for drawing the reader’s attention to the disclosures and related COVID‑19 impacts on the City Council.

In forming our audit opinion, we also considered the following matters.

2.2 Uncorrected misstatements

The financial statements are free from material misstatements, including omissions. During the audit, we have discussed with management any misstatements that we found, other than those which were clearly trivial.

2.3 Uncorrected disclosure deficiencies

The financial statements are free from material disclosure misstatements, including omissions. During the audit, we discussed with management any disclosure improvements that we found.

All our comments and disclosure issues were appropriately addressed and updated in the annual report.

2.4 Quality and timeliness of information provided for audit

Management needs to provide information for audit relating to the annual report of the City Council. This includes the draft annual report with supporting working papers. We provided a listing of information we required to management on 22 January 2020. This included the dates we required the information to be provided to us.

The financial information provided was of a good quality with appropriate internal reviewing processes.

We appreciated the positive and professional manner in which the various teams at the City Council engaged with us during the audit process.

3 Matters raised in the Audit Plan

In our Audit Plan of 11 June 2020, we identified the following matters as the main audit risks and issues:

Audit risk/issue	Our audit response
COVID‑19 pandemic
On 11 March 2020, the World Health Organisation declared the outbreak of coronavirus (COVID‑19) a pandemic. The New Zealand Government has taken steps deal with the spread of COVID‑19 which has included significant restrictions on the movement and interaction of people within New Zealand. This has and will have potentially significant effects on individuals, communities, the economy, businesses, the wider public sector and each public sector entity. It was important that the City Council considers the impact on the various aspects of its operations and the information included in the annual report. We expected the City Council to complete an assessment of the impact of the COVID‑19 pandemic on its operations and any effect this has on the financial and performance information included in the annual report, including any additional disclosures which may need to be included.	We held discussions with the management about the impact of the COVID‑19 pandemic on the City Council and its control environment. Our audit procedures included the review of the City Council’s impact assessment of the COVID‑19 pandemic on the financial statements and performance information. We also performed sample testing of transactions and did not identify any significant matters to bring to your attention. We concluded that the control environment and internal controls continue to operate as designed. We discussed and reviewed the additional disclosure included in the annual report describing the impact of COVID‑19. We are overall satisfied that the impact of COVID‑19 have been appropriately considered and that the relevant disclosures have been appropriately made in the annual report.
Valuation of property, plant and equipment
The City Council periodically revalues its land and buildings, aquatic assets and infrastructure assets. PBE IPSAS 17, Property, Plant and Equipment, requires that valuations are carried out with sufficient regularity to ensure that the carrying amount does not differ materially from fair value.	We performed audit procedures to gain assurance over the valuation of the City Council’s land and buildings and infrastructure assets. Our work included: · A review of the scope of the revaluation performed and ensured it has been completed in accordance with the appropriate standards.
	· We ensured the entire asset class was revalued. · We reviewed how the City Council ensured completeness over the asset data. · We determined how the age and condition of the assets has been determined, and how this has been reflected in the determination of the remaining useful life of the assets and the valuation calculation for those assets. · We confirmed our understanding of the valuation methodology and key assumptions. We assessed these for compliance with PBE IPSAS 17 and evaluated their reasonableness based on our experience and knowledge of other valuations of similar assets. · We reviewed explanations of variances between the latest and prior years’ valuations for reasonableness. · We obtained a confirmation from the independent valuer. · We reviewed how changes in the value of assets were accounted for and disclosed in the financial statements. There are no significant matters to bring to your attention.
Impairment assessment for property, plant and equipment
PBE IPSAS 21 Impairment of Non Cash Generating Assets and PBE IPSAS 26 Impairment of Cash Generating Assets respectively require that an entity assess, at the end of each reporting period, whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. The standard also provides guidance on some indicators that an asset may be impaired.	In addition to performing a review of the valuation work above we reviewed the robustness of the City Council’s assessment and whether there are any indicators of impairment for all its assets, and the resulting accounting treatments. We reviewed the City Council’s assessment of whether there are any indicators of impairment. We considered other audit information and our wider knowledge of the City Council.
We expected the City Council completes an impairment assessment to determine whether any assets would need to be impaired.	We concluded that we agree no material impairment was required to be recognised.
Performance reporting (results provided by Wellington Water)
The City Council makes use of a service provider, Wellington Water Limited (Wellington Water), for specific services and to provide the results for certain performance measures that the City Council uses for reporting in the annual report. We are aware, through discussions with the City Council, that there have been changes in the Wellington Water approach and systems to support the information that the Council relies on for this performance reporting. During our planning stage, we raised that it was important that the City Council continues discussions with Wellington Water to ensure that there are appropriate performance results available and there is robust evidence available to support the performance results provided.	The City Council is heavily reliant on the information received by Wellington Water, including for certain water related performance measures which the City Council is required to report in the annual report (required by the Department of Internal Affairs). Wellington Water was unable to accurately report the results of a number of the City Council’s performance measures, resulting in a modified audit opinion. Further details are included in section 4.1 of this report.
The risk of management override of internal controls
There is an inherent risk in every organisation of fraud resulting from management override of internal controls. Management are in a unique position to perpetrate fraud because of their ability to manipulate accounting records and prepare fraudulent financial statements by overriding controls that otherwise appear to be operating effectively. Auditing standards require us to treat this as a risk on every audit.	Although we do not have any indications that the level of risk of management override of controls for the City Council is not low, the risk is nevertheless present in all entities. We designed our audit approach to address the potential risk of management override of controls, including: · We reviewed the journals system and completed journals testing, including year‑end journals. · We considered accounting estimates for bias.
	· We maintained awareness of any significant transactions that were outside the normal course of business, or that otherwise appear to be unusual given our understanding of the City Council and its environment, and other information obtained during the audit. From our work we did not identify any issues that indicated management override.
Rates
Rates are the City Council’s primary funding source. Compliance with the Local Government (Rating) Act 2002 (LGRA) in rates setting and collection is critical to ensure that rates are validly set and not at risk of challenge. The City Council should ensure it has appropriate processes in place, including seeking legal advice where appropriate, to ensure compliance of its rates and rating processes with legislation.	We reviewed the process for setting rates by the City Council as part of our audit. As part of this review, we considered the City Council’s processes for calculating the rates in the rates strike process, as well as the systems and controls in place for invoicing and collecting rates from rate payers. We are satisfied the City Council’s rates setting and collection, for the purposes of our audit, complies with the Local Government (Rating) Act 2002. We also performed sample testing of properties to agree the information per Quotable Value (QV) to the City Council’s system. There are no significant matters to bring to your attention.
Elected members – remuneration and allowances
The Local Government Act gives the Remuneration Authority responsibility for setting the remuneration of local government elected members. The Authority also has the role of approving a Local Authority’s policy on allowances and expenses. The City Council's annual report must disclose the total remuneration received by or payable to each member of the local authority in the reporting period^{^[3]}. A local authority must disclose remuneration paid or payable to each member from both the local authority and any council organisation of the local authority.	We assessed the City Council’s compliance with the requirement to disclose the remuneration of each member of the local authority in the annual report against the relevant Local Government Elected Members Determination and any amendment to that Determination. We have also confirmed whether the payments are within the Determination set by the Authority. We did not identify any non‑compliance and matters to bring to your attention.
Local Member's Interest Act
The OAG's guide to the Local Authorities (Members’ Interests) Act 1968 is clear on the principles and factors to apply to work out whether there is a financial interest that might prohibit a councillor participating in council decisions. It also makes clear, for those who wish to apply to OAG for approval to participate or approval for a member to have a contract with the local authority worth more than $25,000 in a financial year, the information the OAG needs to be able to process the application promptly.	We reviewed the City Council’s processes implemented to monitor Councillors’ transactions. This includes an assessment of the current interest register, annual declarations and where required, action plans adopted to address the relevant conflict of interests. There are no significant matters to bring to your attention.
Funding Impact Statements (FIS)
The City Council’s annual report must identify and explain any significant financial and service performance variances from those planned. While the FIS incorporates two years’ comparative information, we expect the primary focus of variance explanations will be against year 1 of the 2018‑28 LTP forecasts.	We performed audit procedures to gain assurance over the City Council’s FIS. Our work included: · review of the City Council’s reported performance against the 2018‑28 LTP and 2019 Annual Plan. We assessed the reasonableness and completeness of the variance analysis and explanations in the annual report; and · consider the implications and impact, of any significant variations from the LTP’s planned performance, on the financial strategy. There are no significant matters to bring to your attention.
Mandatory performance measures
The Non‑Financial Performances Measures Rules 2013 promulgated by the Department of Internal Affairs specify a set of standard performance measures for local authorities (the mandatory measures). The measures were included in the City Council's 2018‑28 long term plan, and must be reported against in the 2020 annual report.	The City Council has reported against the mandatory measure in its annual report. For our selected material measure (except for certain water performance related measures), we confirmed the reported result back to supporting information. Wellington Water Limited were unable to provide reliable data for all measures reported by the City Council as discussed in section 4.1 of this report.
The City Council needs to ensure that reliable systems are in place for the entire year to enable accurate performance reporting in the annual report.	No other issues were identified.
Annual report disclosures
Schedule 10 of the Local Government Act and the Local Government (Financial Reporting and Prudence) Regulations 2014 detail disclosures to be included in the annual report. The City Council should review these requirements to ensure all disclosures have been included in the annual report appropriately.	We reviewed the annual report and concluded that the City Council has appropriately disclosed the requirements of Schedule 10 of the Local Government Act and the Local Government (Financial Reporting and Prudence) Regulations 2014 in the City Council’s annual report.
Information Technology
The City Council is dependent on its IT systems. The reliability of the IT systems, technology platforms, and associated controls is critical to maintaining the integrity of the City Council’s data and ensuring continuity of services to its customers. The integrity of the IT systems supports the timely reporting of a quality annual report.	We reviewed the City Council’s IT General Controls (ITGC). This review consisted of two parts. The first is a high–level assessment on IT Governance effectiveness. We considered the overall attitude, awareness, and actions of the Chief Information Officer (CIO) and ICT Management in establishing and maintaining effective management procedures and internal controls. We have not identified any significant deficiencies in internal control with regard to the entity’s IT governance process. The second part is an assessment as to the design effectiveness of Activity Level controls. These control areas cover the organisation’s ability to manage risk and include the following areas: Manage Security Services, Manage Changes, Change Acceptance and Transitioning, Manage Service Requests and Incidents, Manage Continuity, and Manage Availability and Capacity, and Manage Suppliers.
	Overall, we are satisfied activity controls have remained design effective. Therefore, we can place reliance on these for the purposes of our audit. The work performed highlighted matters previously raised that are yet to be fully resolved. These are included in Appendix 1.
Debenture Trust audit
As the City Council's auditor we also issue a report to the trustees of the City Council’s Debenture Trust Deed (the deed). This requirement is included in the City Council’s deed. The City Council needs to make its report to the trustees available for us to audit as soon as possible, so we are able to issue our report to the trustees within the due date.	There were delays in providing management and the Trustees with our report. This could only be completed after the annual report audit was finalised and was also delayed due to the audit work on the City Council’s long‑term plan audit. Our report has been finalised.

4 Matters arising during the audit

We have also identified the following matters during the audit.

4.1 Wellington Water performance results

As you are aware there are six councils, including the City Council, that are joint shareholders in Wellington Water Limited (Wellington Water). Wellington Water manages the six councils’ water assets and services on their behalf. A Committee represented by a member of each shareholding council monitors the performance of Wellington Water.

Wellington Water reports its performance in respect of water services provided to the six councils. In addition to the performance measures which Wellington Water develop themselves, there are also mandatory performance measures which all Councils (and Wellington Water) are required to report against in their annual report. These measures are mandated by the Department of Internal Affairs and cannot be changed or amended.

Our audit approach includes relying on the work of the Wellington Water auditor to provide assurance for certain performance results which are reported by Wellington Water on behalf of the City Council.

We understand that there have been a number of changes to the way in which Wellington Water collates and manages the underlying information which is used to support the results for the performance measures.

We identified a number of significant issues with certain material performance measures. These are described in summary as follows:

· Fault response times – Water supply, Wastewater and Stormwater

Wellington Water was unable to accurately report on fault response times for each of the three water services. The information produced by the system used to report on fault response times was not reliable because attendance and resolution times for service requests were not always recorded at the point in time that they occurred.

· Maintenance of the reticulation network – Water supply

Wellington Water was unable to report a reliable water loss percentage for each shareholding council due to the limited number of water meters across the reticulation network.

Instead, the water loss percentage for the City Council was reported at a regional level. However, the reliability of this regional water loss percentage was also affected by the limited number of water meters.

· Total number of complaints received – Water supply, Wastewater and Stormwater

Wellington Water was unable to accurately report the number of complaints for each of the three water services. Complete records of all complaints were not available, and the after‑hour complaints system used also did not classify complaints between wastewater, water supply and stormwater.

· Number of dry weather sewerage overflows – Wastewater

Wellington Water was unable to accurately report the number of dry weather sewerage overflows, as the system used for recording events included blockages in the wastewater network that did not necessarily result in an overflow.

As a result of these issues, our work was limited and there were no practicable audit procedures we could apply to obtain assurance over the reported results for the performance measures described above.

We recommend that the City Council continue discussions with Wellington Water to understand the plans in place to address these issues.

Management comment

Wellington Water has developed an improvement plan to address most of the issues raised and this has been ratified by Council officers. However the improvement plan will not address in the short term the water loss issue as there are no plans to significantly increase the installation of network or individual meters in order to address this issue.

4.2 Non‑compliance with mandatory performance measure guidance

We reviewed the City Council's process for recording requests for services (RFS). This information contributes to certain mandatory performance measure results relating to customer satisfaction. Such as, the total number of complaints received by the local authority about drinking water clarity, drinking water taste and so on. We found that the City Council has not been fully complying with the DIA guidance on measuring this performance information.

The DIA guidance states, "Where there is more than one complaint per event, each complaint is counted separately, not each event or occurrence." The City Council’s processes do not meet this guidance requirement as not all complaints are recorded separately. There is therefore a risk that complaints recorded are understated.

We recommend that the City Council reviews their procedures and ensures compliance with the DIA guidance to measure the related performance measures.

Management comment

Council is reviewing the process for recording RFSs, noting that this will likely be a resourcing issue. The initial view is that the cost of complying with this requirement is expected to exceed any benefit to the community of recording multiple requests on a single issue.

4.3 Approval of the Chief Executive’s and Mayor’s expenditure

From our review of the system of sensitive expenditure approvals, we found that there is a reciprocal approval process of expenditure between the Chief Executive and the Mayor. This is not considered best practice.

The City Council now has an independent Audit and Risk Committee chair which provides an opportunity for an independent review and approval process for the Mayor’s expenditure.

We recommend that the City Council should consider the appropriateness of the current approval process, and consider updating the process to include the Mayor’s expenditure being approved by the independent Chair of the Audit and Risk Committee.

Management comment

Agree with this recommendation and implementation is underway.

5
Public sector audit

The City Council is accountable to their local community and to the public for its use of public resources. Everyone who pays taxes or rates has a right to know that the money is being spent wisely and in the way the City Council said it would be spent.

As such, public sector audits have a broader scope than private sector audits. As part of our audit, we have considered if the City Council has fairly reflected the results of its activities in its financial statements and non‑financial information.

We also consider if there is any indication of issues relevant to the audit with:

· compliance with its statutory obligations that are relevant to the annual report;

· the City Council carrying out its activities effectively and efficiently;

· the City Council incurring waste as a result of any act or failure to act by a public entity;

· any sign or appearance of a lack of probity as a result of any act or omission, either by the City Council or by one or more of its members, office holders, or employees; and

· any sign or appearance of a lack of financial prudence as a result of any act or omission by a public entity or by one or more of its members, office holders, or employees.

There are no significant matters to draw to your attention.

6 Group audit

The group comprises:

· Hutt City Council

· Urban Plus Limited and group

· Seaview Marina Limited

· Hutt City Community Trust

We have not identified any of the following during our audit for the year ended 30 June 2020:

· Instances where our review of the work of component auditors gave rise to a concern about the quality of that auditor’s work.

· Limitations on the group audit.

· Fraud or suspected fraud involving group management, component management, employees with significant roles in group‑wide controls, or others where the fraud resulted in a material misstatement of the group financial statements.

7 Useful publications

Based on our knowledge of the City Council, we have included some publications that the Council and management may find useful.

Description	Where to find it
COVID‑19 Impact on Public Sector Reporting
The state of emergency in response to the COVID‑19 coronavirus has significantly impacted most public sector entities. The consequences for the completion of annual reports and the annual financial statements are one part of this impact.	On our website under good practice. Link: COVID‑19 bulletins
Client updates
As part of our response to the COVID‑19 situation, we developed online client updates to replace the in‑person sessions that were cancelled. This year’s material is accessible via video presentations on our website. You can explore the material at a pace that takes account of your busy schedule. The themes respond to challenges that our clients now face, such as planning for unexpected events or dealing with additional reporting requirements related to COIVD‑19 and climate change.	On our website under publications and resources. Link: Client updates
Model financial statements
Our model financial statements reflect best practice we have seen. They are a resource to assist in improving financial reporting. This includes: · significant accounting policies are alongside the notes to which they relate; · simplifying accounting policy language; · enhancing estimates and judgement disclosures; and · including colour, contents pages and subheadings to assist the reader in navigating the financial statements.	Link: Model Financial Statements
Client substantiation file
When you are fully prepared for an audit, it helps to minimise the disruption for your staff and make sure that we can complete the audit efficiently and effectively. We have put together a tool box called the Client Substantiation File to help you prepare the information you will need to provide to us so we can complete the audit work that needs to be done. This is essentially a tool box to help you collate documentation that the auditor will ask for.	On our website under good practice. Link: Client Substantiation File
Conflicts of interest
The Auditor‑General has recently updated his guidance on conflicts of interest. A conflict of interest is when your duties or responsibilities to a public organisation could be affected by some other interest or duty that you have. The update includes a printable A3 poster, an animated video on predetermination and bias, gifts and hospitality, and personal dealings with a tenderer. There is also an interactive quiz. These can all be used as training resources for your own employees.	On the Office of the Auditor‑General’s website under 2019 publications. Link: Conflicts of interest
Severance payments
Because severance payments are discretionary and sometimes large, they are likely to come under scrutiny. The Auditor‑General has released updated good practice guidance on severance payments. The guide is intended to help public sector employers when considering making a severance payments to a departing employee. It encourages public organisations to take a principled and practical approach to these situations. The update to the 2012 good practice guidance reflects recent case law and changes in accounting standards.	On the OAG’s website under 2019 publications. Link: Severance payments
Good practice
The OAG’s website has been updated to make it easier to find good practice guidance. This includes resources on: · audit committees; · conflicts of interest; · discouraging fraud; · good governance; · service performance reporting; · procurement; · sensitive expenditure; and · severance payments.	On the OAG’s website under good practice. Link: Good practice
Procurement
The OAG are continuing their multi‑year work programme on procurement. They have published an article encouraging reflection on a series of questions about procurement practices and how processes and procedures can be strengthened. Whilst this is focused on local government, many of the questions are relevant to all types of public sector entities.	On the OAG’s website under publications. Link: Procurement article

Appendix 1: Status of previous recommendations

Open recommendations

Recommendation	First raised	Status
Necessary
High level of manual adjustments in reporting “number of new dwellings” The City Council should review the process to confirm that is the most appropriate way to measure performance in this area. We expect this review would include considering what independent review is required.	2017/18	In progress During the 2020 audit, there remained a manual exercise at year‑end to calculate the performance results for this measure without a robust independent review process in place. From our sample testing, we also found a number of issues with this supporting information, such as two dwellings included which related to a different year, two dwellings incorrectly included as new dwellings, and one dwelling which was included twice. We will reconsider this matter at our 2020/21 audit visit. *Management update* Further investigation is underway to consider the ability to automate the data collection process. There is also investigation underway to consider replacing this performance measure with alternatives in the Long Term Plan 2021-2031.
Network and payroll passwords settings can be improved The City Council should consider strengthening the network password controls, and that consideration should also be given to implementing controls around CHRIS 21.	2016/17	In progress The City Council has commenced a security review which includes the review of password policies and intended to finalise their approach by the end of the 2019/20 calendar year. We will reconsider this matter at our 2020/21 audit visit. *Management update* Completed March 2021. New password controls have been implemented for the network. User passwords must have a minimum length of ten characters, and consist of a minimum of three character types i.e. a lower case, an upper case, and a digit or a special character. Chris 21 Payroll use is integrated and uses the network passwords.
IT Disaster Recovery Plans (DRP) require testing The City Council should performs IT DRP Testing, ideally in a suitable environment to reproduce authentic conditions in so far as this is feasible.	2016/17	In progress We understand that the City Council intends to progress this recommendation further in 2020/21 as part of the Digital Transformation programme. We will obtain an update on this matter at our next audit visit. *Management update* We are working through implementation of a new backup solution that will cover both on premise and cloud backups. The Digital Transformation programme is progressing with a Cloud first approach. As we currently have a hybrid environment we have not completed a full DR test. As applications are moved to the cloud we ensure full redundancy is in place using replicated datacentres (Azure and AWS) and have a full backup process implemented. We plan to update the DR plan in 2021/2022 and complete a DR test on our critical services.

Implemented or closed recommendations

Recommendation	First raised	Status
Accuracy and reliability of the Rating Information Database (RID) data We recommended that the Council performs a review of their inputted data in the RID to ensure the correct number of units are charged.	2018/19	We confirmed errors were rectified ahead of setting rates for 2020/21. We did not identify any further issues from our substantive procedures.
Performance reporting source of information not disclosed appropriately We recommended the City Council reviews this aspect for all performance measures to ensure they best reflect the source of information.	2018/19	We confirmed that the source of information disclosed in the 2019/20 annual report is materially accurate.
Outdated Procurement Policy The City Council should review and update the Procurement Policy where it considers necessary. This policy should be well communicated and readily available to all relevant staff.	2017/18	We obtained and reviewed the updated Procurement policy and confirmed this was circulated to staff. We assess that the recommendation has been sufficiently implemented to close the recommendation at this stage.
Sensitive expenditure The City Council should: · consider its processes for ensuring sensitive expenditure policies are fully complied with; · remind staff, and approvers of sensitive expenditure, of the City Council’s sensitive expenditure policies in relation to entertainment; and · ensure sensitive expenditure is appropriately and consistently coded. In 2018 our testing identified insufficient narration for sensitive expenditure items. The City Council should ensure that sufficient narration is documented and retained for all sensitive expenditure items prior to the approval.	2016/17	We reviewed the updated Sensitive Expenditure policy and are satisfied this is consistent with the OAG's good practise guidelines. We assessed a sample of sensitive expenditure and did not identify any issues.
Independent review of journals The City Council should ensure all manual input journals are appropriately reviewed and supported, to confirm that the journal is correct before being posted.	2015/16	We reviewed the updated Journals policy and tested a sample of journals. We did not identify any issues from our work performed.
Documented procedures for key systems The City Council should document procedures and processes for its key systems with financial implications and the relevant internal controls to ensure consistency of these systems regardless of staff changes.	2014/15	We reviewed the Council's document management system and confirmed that key finance processes have been included. The Council intend to continuously update these systems as processes evolve. We are satisfied that our recommendation can be closed at this stage.

Appendix 2: Disclosures

Area	Key messages
Our responsibilities in conducting the audit	We carried out this audit on behalf of the Controller and Auditor‑General. We are responsible for expressing an independent opinion on the financial statements and performance information and reporting that opinion to you. This responsibility arises from section 15 of the Public Audit Act 2001. The audit of the financial statements does not relieve management or the Council of their responsibilities. Our Audit Engagement Letter contains a detailed explanation of the respective responsibilities of the auditor and the Council.
Auditing standards	We carried out our audit in accordance with the Auditor‑General’s Auditing Standards. The audit cannot and should not be relied upon to detect all instances of misstatement, fraud, irregularity or inefficiency that are immaterial to your financial statements. The Council and management are responsible for implementing and maintaining your systems of controls for detecting these matters.
Auditor independence	We are independent of the City Council in accordance with the independence requirements of the Auditor‑General’s Auditing Standards, which incorporate the independence requirements of Professional and Ethical Standard 1 (Revised): Code of Ethics for Assurance Practitioners, issued by New Zealand Auditing and Assurance Standards Board. Other than the audit, we have no relationship with, or interests in, the City Council or its subsidiaries.
Fees	The audit fee for the year is $184,118, as detailed in our Audit Proposal Letter. Other fees charged in the period are $4,500, for the debenture trust deed engagement. No other fees have been charged in this period.
Other relationships	We are not aware of any situations where a spouse or close relative of a staff member involved in the audit occupies a position with the City Council or its subsidiaries that is significant to the audit. During the year, an Audit New Zealand staff member joined the City Council’s finance team. We are satisfied this situation did not affect our independence in carrying out the City Council’s audit. We are not aware of any other situations where a staff member of Audit New Zealand has accepted a position of employment with the City Council during or since the end of the financial year.

279 23 April 2021

Audit and Risk Subcommittee

22 March 2021

File: (21/467)

Report no: ARSC2021/2/85

Internal Audit Charter and Internal Audit Plan 2021-2024

Purpose of Report

1. To gain approval from the Audit and Risk Subcommittee for the updated Internal Audit Charter and the Internal Audit Plan 2021-2024.

Recommendations

That the Subcommittee:

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

(2) approves the Internal Audit Charter, attached as Appendix 1 to the report;

(3) agrees with prioritisation of the internal audits; and

(4) approves the Internal Audit Plan 2021–2024, attached as Appendix 2 to the report.

Background

2. The Risk and Assurance Manager provides an update quarterly on the actions and activities around internal audit at Council. The Internal Audit Update was last presented to Council’s Audit and Risk Subcommittee on 25 November 2020.

3. Internal auditing is an independent, objective assurance and advisory activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

[Definition of internal auditing from the Institute of Internal Auditors Professional Practices Framework, which captures the fundamental purpose, nature, and scope of internal auditing].

Discussion

Internal audit charter

4. Attached as Appendix 1 to this report is the updated Internal Audit Charter, that establishes the internal audit mandate, scope of work, independence and accountabilities.

5. The internal audit charter was last approved by the former Finance and Performance Committee on 4 July 2018 (refer Link).

6. There are no substantive changes. The 2018 Internal Audit Charter document has been updated for designations and reporting line changes.

7. The internal audit charter aligns with best practice and complies with the Institute of Internal Auditors International Professional Practices Framework. The model template for internal audit activity charter, is used by many internal audit functions within New Zealand and internationally.

8. It is a requirement of these auditing standards that the Charter is approved by the Audit and Risk Subcommittee (or equivalent).

9. It is proposed that the internal audit charter be reviewed and submitted to the Audit and Risk Subcommittee (or equivalent) for approval at the commencement of each triennium. This will reinforce Council’s commitment to ensuring internal auditing can continue to function with independence and objectivity.

Internal audit plan 2021-2024

10. Attached as Appendix 2 is the draft Internal Audit Plan 2021-2024, as approved by the Corporate Leadership Team.

11. The three-year internal audit plan will be updated annually on a rolling basis for the approval by the Audit and Risk Subcommittee to ensure ongoing relevance with Council’s risk profile and priorities.

12. The internal audit plan was last approved by the former Finance and Performance Committee on 17 July 2019.

13. The Internal Audit Charter, updated and attached at Appendix 2 to this report, requires the Audit and Risk Subcommittee to approve the internal audit plan .

14. The proposed plan was developed through consultation with senior management to obtain an understanding of the key risk areas, priorities, challenges, initiatives and any management concerns. The plan has been reviewed and adjusted in response to changes in Council’s business, risks, operations, programmes, systems and controls.

15. Further details about the development of the plan and its prioritisation can be found in the document attached as Appendix 2 to this report.

16. The internal audit plan for the period to 30 June 2022 includes:

i. A fraud risk review and fraud focussed data analytics (unusual transaction analysis). This is a two yearly review, per the Fraud Policy. This is further reinforced by the Covid-19 pandemic and a need to focus on integrity and controls for managing the risks of corruption and fraud in times of emergency;

ii. Strategic change / enterprise portfolio – a proposal of continuous monitoring is to be developed, agreed and implemented;

iii. Privacy management change review to analyse the implementation of new processes to ensure compliance with the Privacy Act that came into effect from 1 December 2020;

iv. Sensitive expenditure internal audit, which aligns to fiscal responsibility and OAG best practice guides;

v. Cash handling high level review around the consistency of processes across facilities and systems;

vi. Accounts Payable end to end review following the implementation of the new electronic purchasing order processes; and

vii. Procurement and contract management – following the establishment of the Procurement Office and embedding of its processes. Identified as an OAG priority area of focus for 2021: Understanding and managing the risk of service disruption from the failure of strategic suppliers.

17. Status updates and reporting back with regards to progress against the internal audit plan is provided to this Subcommittee in the quarterly Internal Audit Updates. Progress against the Internal Audit Plan 2019-2020 was provided to this Subcommittee on 17 September 2020.

Internal audit update

18. Some assurance activities to note since the last internal audit update provided to this Subcommittee on 25 November 2020:

i. Ernst & Young have issued the draft report around the discovery review of Council’s compliance with the Holidays Act 2003 and officers are working to finalise this. A separate report will be provided to this Subcommittee on 8 July 2021;

ii. PricewaterhouseCoopers has been engaged to run fraud focussed data analytics/unusual transaction analysis for the period 1 September 2018 to 31 January 2021. An update will be reported to this Subcommittee on 8 July 2021;

iii. Audit New Zealand audit of the Draft Long term plan 2021-2031 Consultation Document has been completed successfully and was reported to the LTP Subcommittee 31 March 2021;

iv. IANZ Building Consent Authority two yearly audit in February 2021. Some issues identified and remediation action plans have been developed;

v. JAS-ANZ annual Quality Management Scheme assessment for Food Regulations to visit the Environmental Health team in April 2021;

vi. There have been no reports of suspected or detected fraud, including no reports via the online reporting Jotform.

Options

19. Not applicable.

Climate Change Impact and Considerations

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

Consultation

21. Not applicable.

Legal Considerations

22. Not applicable. There is no legislation, regulations or guidance documents regarding internal auditing across the public sector in New Zealand (or Australia). (As opposed to the requirement for external audit which form part of the Public Audit Act 2001).

23. LGA2002 Principle 14.1(g) outlines that a local authority should ensure prudent stewardship and the efficient and effective use of its resources in the interests of its district or region.

24. Internal audit is considered important to robust governance and the internal control environment.

25. The internal auditing profession has a single set of global standards, covering all countries, jurisdictions and sectors. These have not been adopted by the New Zealand government.

Financial Considerations

26. The activity proposed in the internal audit plan is reliant on external resourcing, depending on the agreed prioritisation. Budget will be prioritised within existing baseline budgets.

Appendices

No.	Title	Page
1 ⇩	Appendix 1: DRAFT Internal Audit Charter - 2021	281
2 ⇩	Appendix 2: DRAFT Internal Audit Plan (April 2021- June 2024)	285

Author: Enid Davids

Risk and Assurance Manager

Approved By: Jenny Livschitz

Chief Financial Officer

[1] The existing Risk Steering Group members: Economy and Development (Acting Facilities Manager and Traffic Asset Manager), Neighbourhoods and Communities (Head of Parks and Recreation), Strategy and Engagement (Strategic Projects Manager), Environment and Sustainability (Head of Regulatory Services and Emergency Management), Head of Chief Executive’s Office, Digital Transformation Manager, Health Safety Wellbeing Manager and Finance Systems and Projects Manager.

[2] The Roles and Responsibilities for Risk Management were tabled at the Audit and Risk Subcommittee on 17 September 2020.

[3] Schedule 10, clause 18, Local Government Act 2002

Risk	High, Med, Low	Risk Mitigation
COVID-19 resurgance (or other pandemic) resulting in lockdown, restricts ability to roll-out bins in time for start of service on 1 July.	Med	Obtain clearance from MBIE to classify roll out as an essential service to enable roll-out to commence or continue. Arrangement in place with rubbish bag supplier to provide bags at short notice for distribution throughout the City should they be required.
Bins or vehicles not available on time to commence the service on 1 July	Low	Contingency plans in place with WML to secure vehicles and bins from its existing operations in NZ and with bag supplier should bins not be available.
BAU software and processes in place on time to commence the service on 1 July	Low	Arrangements to be put in place with Saber, used for the initial bin capture process, for its software to be made available for BAU.

Issue	High, Med, Low	Issue Mitigation
Possibility of misinformation circulated from those with a vested interest.	Med	Provide Council and the community with factual independent advice based on the business case and sound data.
Increased opposition to the new services generated through social media and other means.	Med	Coordinated information campaign is in place to ensure reasons for change are clearly outlined and appropriately socialised.
Adequate resourcing required to ensure roll-out occurs on time.	Med	Additional people resources, either new or re-prioritised from existing resources, assigned to the project. Budget variation sought.
Organisational change programme impacts project through loss of key staff or staff engagement generally.	Med	Managed change programme in place. Key staff separately contracted.
Three week delay in delivery of bins	Med	The subcontractor Rotaform had built in a six week contingency. Subsequent shipments have been re-routed to bypass Auckland. Additional staff and resources on board for assembly and delivery. Working Saturdays will claw back a week.