Agenda of Risk and Audit Subcommittee Meeting

HASTINGS DISTRICT COUNCIL

Risk and Audit Subcommittee MEETING

Monday, 4 September 2017

VENUE:

Landmarks Room

Ground Floor

Civic Administration Building

Lyndon Road East

Hastings

TIME:

2.30pm

A G E N D A

1. Apologies

An apology from Councillor Kerr has been received.

At the close of the agenda no requests for leave of absence had been received.

2. Conflict of Interest

Members need to be vigilant to stand aside from decision-making when a conflict arises between their role as a Member of the Council and any private or other external interest they might have. This note is provided as a reminder to Members to scan the agenda and assess their own private interests and identify where they may have a pecuniary or other conflict of interest, or where there may be perceptions of conflict of interest.

If a Member feels they do have a conflict of interest, they should publicly declare that at the start of the relevant item of business and withdraw from participating in the meeting. If a Member thinks they may have a conflict of interest, they can seek advice from the Chief Executive or Executive Advisor/Manager: Office of the Chief Executive (preferably before the meeting).

It is noted that while Members can seek advice and discuss these matters, the final decision as to whether a conflict exists rests with the member.

3. Confirmation of Minutes

Minutes of the Risk and Audit Subcommittee Meeting held Monday 19 June 2017, including minutes while the public were excluded.

(Previously circulated)

4. General Update Report and Status of Actions 5

5. 2016/17 Annual Report Update 29

6. Internal Audit Update 37

7. Treasury Activity and Funding 53

8. Health and Safety Risk Management Report 63

9. Risk Management Update on Strategic Risk Analysis 97

10. Water Services 105

11. Additional Business Items

12. Extraordinary Business Items

File Ref: 17/813

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: General Update Report and Status of Actions

1.0 SUMMARY

1.1 The purpose of this report is to update the Subcommittee on various matters including actions raised at previous meetings.

1.2 The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost–effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.

1.3 This report concludes by recommending that the report titled “General Update Report and Status of Actions” from the Manager Strategic Finance be received.

2.0 BACKGROUND

2.1 The Audit & Risk Subcommittee members requested that officer’s report back at each meeting with progress that has been made on actions that have arisen from the Audit & Risk Subcommittee meetings. Attached as Attachment 1 is the Audit & Risk Subcommittee Action Schedule as at 4 September 2017.

3.0 CURRENT SITUATION

3.1 Statutory Liability Insurance

3.2 Officers advised Council’s insurance brokers of the subcommittees concern that an exclusion had been provided for Resource Management Act breaches. The response received from the insurers was to confirm that they were unwilling to move from their position on the RMA cover, however if there is evidence to suggest that the approach towards prosecutions under RMA has improved they are certainly willing to review their position. Council’s broker also noted that council would run into similar problems approaching another insurer as this would need to be fully disclosed.

3.3 In light of the Hawkes Bay Regional Council prosecution following the Havelock North water contamination event in August 2016, a claim was lodged with insurers under this policy for costs incurred. In July a settlement was reached and the insurers agreed a payment of $220,705 plus GST for legal and investigation costs incurred.

3.4 2018-28 Long Term Plan

3.5 Attached as Attachment 2 for the Subcommittees information is a briefing paper prepared by Audit New Zealand for the 2018-28 Long Term Plan (LTP). The paper details some key findings and learnings from the 2015-25 LTP process from across the country.

3.6 The 2018-28 LTP will present Council with many challenges including the necessary capital response to the Water Supply Strategy endorsed by Council in August 2017. In November officers will report back to the Subcommittee with an updated draft Financial and Infrastructure Strategies along with reviewed prudential limits as required by the Local Government Act. These strategies will identify how Council is to address the issues and risks associated with amongst other things a heavy capital programme.

3.7 Also included in the November LTP update will be a discussion paper on the extent of the growth related infrastructure budgeted in the LTP and the risks associated with that. Council has signalled a desire to have a number of residential and industrial development areas available to the market at one time. To enable this to happen Council is required to make the necessary infrastructure available upfront and that carries risk for Council should the uptake of new development not happen as forecast.

4.0 SIGNIFICANCE AND ENGAGEMENT

4.1 This report does not trigger Council’s Significance and Engagement Policy and no consultation is required.

5.0 RECOMMENDATIONS AND REASONS

That the report of the Manager Strategic Finance titled “General Update Report and Status of Actions” dated 4/09/2017 be received.

Attachments:

1	Risk & Audit Subcommittee Action Sheet	CG-14-25-00008
2	Audit NZ - Learnings from 2015-25 LTP Process	CG-14-25-00015

File Ref: 17/818

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Chief Financial Officer

Bruce Allan

SUBJECT: 2016/17 Annual Report Update

1.1 The purpose of this report is to update the Subcommittee about progress made with the Annual Report and provide unaudited financial statements for the Subcommittee’s information and consideration.

1.2 The presentation of this information arises from a request from the Subcommittee to be better informed of progress during the Annual Report process.

1.3 The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost–effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.

1.4 The objective of this decision relevant to the purpose of Local Government is to ensure the Subcommittee is well informed of financial matters pertaining to the Annual Reporting processes.

1.5 This report concludes by recommending that the report be received.

2.0 BACKGROUND

2.1 The purpose of this report is to provide the Subcommittee with an update on progress being made with the 2016/17 Annual Report preparation, highlight any issues and provide a preliminary pre-audit update on the financial result.

3.0 CURRENT SITUATION

3.1 Revaluation of Transportation and Parks & Reserves Assets

3.2 All asset classes are on a revolving revaluation cycle, the Three Waters assets were revalued last year, this year the revaluation of the Transportation and Parks and Reserves assets have been the major revaluation activity.

3.3 The Transportation asset revaluation has been undertaken by Stantec (formally MWH). This year the overall revaluation for the Transportation activities has assessed the depreciated replacement cost (DRC) of those assets at $1,101m with an increase of $12.2m in value, which represents a 9.3% increase on the depreciated replacement cost (DRC).

3.4 The Transportation asset revaluation process is based on accurate and complete asset registers and appropriate replacement costs and effective lives. The authors of the revaluation report state in their declaration that they are unaware of any reason why Council’s auditors should not place reliance in the revaluation prepared. The level of increase realised through this revaluation is not unexpected and takes into consideration increasing construction costs.

3.5 The Parks and Reserves revaluation is the first revaluation since the major undertaking of transferring and updating all Parks and Reserve asset information into the RAMM asset management system. This process of transferring the asset information has highlighted a number of previous gaps in information and understanding of assets held in this asset class and as such the revaluation has identified a significant uplift in the value of this asset class. The DRC has been calculated at $31.2m, a 47% increase on the written down value.

3.6 Following receipt of this revaluation report, officers are reviewing some of the assumptions made by Stantec in the preparation of this revaluation to ensure a high level of accuracy in the revaluation numbers.

3.7 Changes to reporting standards

3.8 There have been no changes to reporting standards for this year’s annual report.

3.9 Reporting Timeframes

3.10 Audit NZ will arrive on September 4^th to undertake their audit and at the time of writing the Annual Report is on track to be principally completed for their review.

3.11 Civic Square WIP Write-off

3.12 In the 2016 audit, Audit New Zealand noted and reported a misstatement in the 2015/16 Annual Report. That misstatement related to $718,000 of costs that had been incurred in developing the Civic Square concept plan which had been recorded as Work in Progress (WIP) and therefore shown on the Balance Sheet as an asset. Audits opinion was that this project was not likely to progress and the costs incurred should therefore be expensed.

3.13 While management disagreed with that assumption at that time, it is now more evident that the Civic Square project will not be proceeding in the manner for which those costs have been incurred and it is therefore prudent to expense those costs.

3.14 Landfill Forestry Harvest

3.15 The harvest of 43.2ha of mature forest at the landfill commenced in May 2017 and as at 30 June was 70% complete. From an accounting perspective the forest must be recorded as a Biological Asset under IPSAS27 and as such is not disposed of when harvested, but revalued to reflect the new value.

3.16 The Annual Report will reflect HDC’s share of the gross revenue received from the harvest as at 30 June and the gross costs of the harvest as well. There will also be an adjustment for the value of the forest. Previously the forest assets at the Landfill had only been valued at the capitalised cost of planting and maintaining the forest assets and had therefore not kept pace with the actual value of what had grown and had a recorded value of $214,572. The revalued forest will represent an increase in the recorded asset value despite the harvest of 70% of our mature block and will be revalued to $789,273 representing what is left of the mature block and a younger forestry block which is 2.9ha and 14 years old.

3.17 Building Control Liability

3.18 The Office of the Auditor General (OAG) has provided some guidance regarding the need for councils to consider disclosing a contingent liability with regard to the Carter Holt Harvey action. As an example the OAG have suggested that councils consider replicating Auckland Council’s liability statement. The disclosure below has been updated for Hastings and the proposed disclosure is:

“In April 2013, the Ministry of Education (MOE) initiated High Court proceedings against Carter Holt Harvey (CHH) and others alleging inherent defects in the cladding sheets and cladding systems manufactured and prepared by CHH. Subsequently, in December 2016, CHH commenced third party proceedings against 48 Councils, including Hastings District Council alleging a breach of duty in the processing of building consents, undertaking building inspections and issuing Code Compliance Certificates. The Councils have applied for orders setting aside and striking out CHH’s claims against them. The MOE’s claim against CHH is for 833 school buildings, 25 of which are located within the Hastings District. At present there is insufficient information to conclude on potential liability and claim quantum, if any.”

3.19 Financial result

3.20 The unaudited rating result for the 2016/17 year is a positive result and is as follows:

Rating Area 1	$777,410	Surplus
Rating Area 2	$380,959	Surplus
Total for the District	$1,158,369	*Surplus*

3.21 This result compares with a $2,055,979 rating surplus reported in 2015/16. Council will at its Finance and Monitoring Committee on September 12^th determine how this surplus will be allocated.

3.22 Set out below is a summary of the draft unaudited operating accounting result for the 2016/17 financial year. Please note that this is not the same as the rating result.

Unaudited Operating Accounting Result	Budget Council $’000	Actual Council $’000	Variance $’000
Operating Revenue	113,431	126,879	13,448
Less Operating Expenditure	106,626	113,847	7,221
Net Surplus/(Deficit)	6,805	13,032	6,227
Gain / (Loss) Revaluations	59,562	29,118	(30,444)
Net Surplus after accounting gains / losses	66,367	42,150	(24,217)

3.23 The draft unaudited financial result for the year ended 30 June 2017 before gains or losses on revaluations is a surplus of $13.0m with favourable variance to the budget of $6.2m.

3.24 Revenue has a favourable variance of $13.4m. The increase in revenue compared to budget is made up of the following activities:

· NZTA Subsidies are $6.8m above budget with the Whakatu Arterial being the primary driver, note that this had been budgeted for in the previous year,

· Development Contributions are $2.3m above budget with large contributions received from the Irongate and Omahu Road development areas driving this increase.

· Fees and Charges are above budget by $4.9m. This increased revenue has been achieved across quite a number of Council activities with Rural Fire recoveries ($1.2m above budget), Landfill through increased tonnages ($1.6m) and Splash Planet attendance and insurance proceeds ($0.5m) being the larger contributors.

· There was also $2.4m of unrealised gains on interest rate swaps which are not budgeted for and form part of Other Revenue.

3.25 The unrealised gain on interest rate swaps is an accounting entry and reflects the potential gain available to Council of replacing all of its interest rate swaps at the prevailing swap interest rates on 30 June 2017. Council is however extremely unlikely to be put in that situation and the gain is therefore recognised as an ‘unrealised gain.

3.26 Expenditure is higher than budgeted by $7.2m and higher than last year by $10.0m. The key drivers for this increased expenditure above budget are:

· Water Supply operational costs are $2.3m over budget following the Havelock North water contamination event. Event response costs which were funded from the Contingency fund, insurance proceeds, a contribution from MCDEM and allocations from last year’s surplus amounted to $1.9m.

· Rural fire suppression costs were $1.1m over budget due to the large February fires.

· During the year a decision has made to expense the Civic Square redevelopment expenditure ($0.7m) as noted in paragraph 3.11, this is therefore shown as additional operating expenditure this year.

· Offsetting this increased expenditure was a saving against budget for finance costs of $1.0m

3.27 Draft Financial Statements

3.28 Attached as Attachment 1 for the Subcommittees information is an early view of the unaudited financial statements.

4.0 SIGNIFICANCE AND ENGAGEMENT

4.1 While the preparation of the annual report and adherence to reporting standards and legislative requirements is important, the matters raised in this report are not significant in terms of the Significance and Engagement Policy.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Financial Officer titled “2016/17 Annual Report Update” dated 4/09/2017 be received.

Attachments:

Unaudited financial statements

CG-14-25-00014

File Ref: 17/760

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Chief Financial Officer

Bruce Allan

SUBJECT: Internal Audit Update

1.0 SUMMARY

1.1 The purpose of this report is to update the Subcommittee about progress being made with our new Internal Audit provider and to seek guidance from the subcommittee on the proposed Internal Audit plan for the next three years.

1.3 This report concludes by recommending that the draft internal audit plan be adopted with any necessary amendments.

2.0 BACKGROUND

2.1 In June 2017 Council appointed Crowe Horwath as their Internal Audit provider following a competitive tender process jointly run with the five Hawkes Bay Councils.

2.2 The 2016/17 Internal audit programme included the following audits conducted by PwC:

· Review of Strategic Risk Register and Risk Framework

· Accounts Payable

· Electronic Bank Transfers

· Cash handling – Splash Planet

3.0 CURRENT SITUATION

3.1 Officers have been working with Crowe Horwath on developing a new Internal Audit Plan, picking up from the work Council has done previously with the support of Price Waterhouse Coopers (PwC). The draft Internal Audit Plan is attached as Attachment 1.

3.2 The first focus for the plan will be to understand more fully the fraud risks that council faces and in order to do that Crowe Horwath will be undertaking some fraud risk gap analysis to help us understand where practical actions can be taken to move toward better practice. Complementing this will be some suspicious transaction analysis using Crowe Howath’s data analytic tools. This level of analysis is not unusual for organisations to undertake and would be considered good practice.

3.3 Mr Martyn Soloman (Crowe Horwath Associate Principal - Audit & Assurance) will be in attendance at the meeting to discuss with the Subcommittee the draft Internal Audit Plan and make introductions. Mr Soloman is also meeting with the Executive team prior to Risk and Audit to discuss internal audit priorities over the next three years.

3.4 Also attached as Attachment 2 is an updated Audit Action sheet providing the subcommittee with a view of the status of recommendations made from previous internal and external audits. Good progress has been made on addressing the recommendations made from these audits and we will expect almost all of the recommendations made through the external audit process to be closed following the 2016/17 audit.

4.0 OPTIONS

4.1 The Internal Audit plan attached has been provided for consideration and feedback on the proposed plan’s identified priorities is requested.

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 While this matter is not considered significant in terms of the Significance and Engagement Policy, the need to have a comprehensive Internal Audit Plan is important.

6.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Financial Officer titled “Internal Audit Update” dated 4/09/2017 be received.

Attachments:

1	Draft Internal Audit Plan 2017-18	CG-14-25-00011
2	Audit Action Sheet	CG-14-25-00010

File Ref: 17/814

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Manager Strategic Finance

Brent Chamberlain

SUBJECT: Treasury Activity and Funding

1.0 SUMMARY

1.1 The purpose of this report is to update the Subcommittee on treasury activity and funding issues.

1.2 The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost effective to households and businesses. Good quality infrastructure means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future requirements.

1.3 This report concludes by recommending that the report on treasury activity and funding is received.

2.0 BACKGROUND

2.1 The Hastings District Council has a Treasury Policy which forms part of the 2015-25 Long Term Plan and a Treasury Management Policy. Under these policy documents responsibility for monitoring treasury activity is delegated to the Risk and Audit Subcommittee.

2.2 Council is provided with independent treasury advice by Stuart Henderson of PricewaterhouseCoopers and receives weekly and monthly updates on market conditions.

2.3 Under the Treasury Policy, formal reporting to Council occurs quarterly and regular more in depth treasury reporting is provided for the Risk and Audit Subcommittee.

3.0 CURRENT SITUATION

3.1 Council’s debt portfolio is managed within the macro limits set out in the Treasury Policy. It is recognised that from time to time Council may fall out of policy due to timing issues as debt moves closer to maturity and shifts from one time band to another. The treasury policy allows for officers to take the necessary steps to move Council’s funding profile back within policy in the event that a timing issue causes a policy breach.

3.2 The following table sets out Council’s overall compliance with Treasury Management Policy as at 31 July 2017:

Measure	Compliance	Actual	Minimum	Maximum
Liquidity	ü	116%	110%	170%
Fixed debt	ü	95%	55%	95%
Funding profile: 0 – 3 years 3 – 5 years 5 years +	ü ü ü	42% 28% 29%	10% 20% 10%	50% 60% 60%

Council is currently compliant with Treasury Management Policy.

3.3 The current total core net external debt is $60.7m as at 31 July 2017. This is supported by the Debt Status Report as at 30 June 2017 (Attachment 1). Core external debt remains unchanged from the June report.

3.4 The following chart shows the level of total external debt over the past seven years, and the projected debt for the next 12 months.

3.5 The chart below shows the key drivers of the expected movement in borrowings over the next year. This is based on projects that have started already, or are highly likely to commence before 30 June 2018 and indicates a forecast debt position of $90.8m.

The chart identifies the major projects underway, however the smaller renewal projects have been aggregated into the “Other” heading.

3.6 The graph below shows the Council’s position for funding risk with $60.7 million of financing facilities as at 31 July 2017. Council is working towards getting an external credit rating by March 2018. There may be a need for additional facilities before then and the Local Government Funding Agency (LGFA) short term lending facilities are an efficient and cost effective option until the credit rating is in place. This will allow the Council to convert this short term debt to longer term debt at a later date making use of the discounted interest a credit rating attracts. The current liquidity ratio of 116% within the policy band of 110% - 170%. Council’s current debt profile is within policy, with good treasury management practices in place.

3.7 Officers are currently working with PWC on reviewing its interest rate strategy. In recent months the interest rate market has stabilised post President Trump’s first 100 days in office, and the realisation by the financial markets that life as usual continues. This combined with a benign inflation outlook has seen the Reserve Bank referring to 3.75% interest rates as the “new” neutral. Based on the above PWC is recommending that Council targets further 10 year interest rate swaps, with forward starts at years 3 to 5, at a 3.75% level or less. A watching brief has been taken with this recommendation.

3.8 Officers are actively managing the interest rate and funding risk and currently there is adequate interest rate cover in place based on the projected funding requirements.

3.9 The following graph shows Council’s fixed debt is within the policy minimum and policy maximum set out in Council’s Treasury Management Policy. This graph also incorporates Council’s forecast debt over the long term. The projected external debt requirement for the next 12 months is forecast to increase which will provide Council with the opportunity to take advantage of funding longer term debt at historically low levels of interest.

Fig: Interest Swap Profile

3.10 Council’s weighted average cost of debt (after netting off interest received against interest paid) is 4.97% as at 30 June 2017 (5.25% as at 30 June 2016). The chart below shows the Council’s declining cost of capital over time.

3.11 As stated in section 3.7 above, the new neutral position is considered to be 3.75%, however due to the existing swap positions currently in place that were taken out in different financial times, it’ll be many years before the Council will get close to this level. Current swaps in play as at 31 July 2017 have an average fixed interest rate of 5.17%. By 30 June 2018 this will have fallen to 4.95% as some of the older, higher swaps mature and are replaced. Officers continue to actively manage the swap portfolio.

3.12 Any new debt will be considered along with Council’s working capital requirements and liquidity ratios.

4.0 MARKET COMMENTARY

4.1 The Reserve Bank of New Zealand (RBNZ) has held the Official Cash Rate at 1.75% in August 2017. The RBNZ stated;

“Global economic growth has become more broad-based in recent quarters. However, inflation and wage outcomes remain subdued across the advanced economies, and challenges remain with on-going surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are at record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.

The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar. A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.

GDP in the March quarter was lower than expected, adding to the softening in growth observed at the end of 2016. Growth is expected to improve going forward, supported by accommodative monetary policy, strong population growth, an elevated terms of trade, and the fiscal stimulus outlined in Budget 2017.

House price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions. This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth and resource constraints in the construction sector.

Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. The outlook for tradables inflation remains weak. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2 percent.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

4.2 Following the RBNZ OCR announcement the Westpac’s Weekly Commentary said: “The Reserve Bank left the Official Cash Rate unchanged at 1.75% in its August Monetary Policy Statement, and the guidance that it provided was very similar to its previous reviews. The RBNZ believes that monetary policy will need to remain accommodative for a long time, to support growth and guide inflation towards the target on a sustained basis. We agree with that view, and we think that interest rate hikes will be delayed a lot longer than the market expects. Previously, we expected the first hike to be delayed until the March quarter of 2019; we now expect it to be in the December quarter of that year. ”

4.3 The graph below shows how the NZ interest rate curve has moved over the past 21 months.

The PWC Treasury Advisory Team believe that while the OCR rate is unlikely to change in the next 12 months, New Zealand banks source much of their funding from overseas and it is predicted that this will get more expensive as the world economy continues to recover. It is expected the New Zealand floating rates will increase by 0.25%-0.50% pa over the next 12 months.

5.0 FUNDING FACILITIES

5.1 Attachment 2 shows details of Council’s current debt facilities together with details of expiry dates and margins.

5.2 Council’s liquidity ratio of 116% at 31 July 2017 (based on net external debt of $60.7m and total debt facilities of $70.7m) is within policy (policy 110% - 170%). Officers are comfortable with this ratio because of continued uncertainty on debt forecasts and the ability to increase debt from the LGFA at relatively short notice.

6.0 Recommendations

That the report of the Manager Strategic Finance titled Treasury Activity and Funding dated 4/09/2017 be received.

Attachments:

1	Public Debt Status 30 June 2017	CG-14-25-00012
2	Funding and Interest Rate Risk 31 July 2017	CG-14-25-00013

File Ref: 17/409

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Health and Safety Advisor

Jennie Kuzman

SUBJECT: Health and Safety Risk Management Report

1.0 SUMMARY

1.1 The purpose of this report is to provide an update to the subcommittee in regards to the management of Health and Safety risks within Council.

1.2 This issue arises due to the introduction of new legislation in relation to Health and Safety, and the requirement of that legislation for elected members to exercise due diligence to ensure that Council complies with its Health and Safety duties and obligations.

2.0 BACKGROUND

2.1 At its June 2016 meeting, Council accepted the recommendations from the Audit and Risk Subcommittee in relation to Health and Safety reporting. The recommendations were:

a) Monthly reporting in the form of a ‘high level dashboard report’ to Council

b) Quarterly reporting at a more detailed level to Council and

c) Quarterly reporting on Health and Safety risk management to the Audit and Risk Subcommittee.

2.2 This report serves as a quarterly report to the Risk and Audit Subcommittee on Health and Safety risk management.

3.0 CURRENT SITUATION

3.1 Health and Safety Legislative Update

3.2 A number of parliamentary regulations supporting the Health and Safety at Work Act 2015 have been released in the past 12 months, including the following which have significant implications for Council operations.

· Health and Safety at Work (General Risk and Workplace Management) Regulations 2016

· Health and Safety at Work (Worker Engagement, Participation and Representation) Regulations 2016

· Health and Safety at Work (Asbestos) Regulations 2016

· Health and Safety at Work (Hazardous Substances) Regulations 2017

3.3 Further Regulations are expected to be released over the next 2-3 years.

3.4 Additionally, WorkSafe have released a number of updated codes of practice and guidelines over the past 12 months, including (but not limited to) the following which have significant implications for Council operations.

· Conducting Asbestos Surveys

· Crane Safety for Construction Site Managers

· Dealing with Violence at Work

· Excavation Safety

· Exposure Monitoring

· Health Monitoring

· Local Exhaust Ventilation

· Management and Removal of Asbestos

· Preventing and Responding to Bullying at Work

· Respiratory Protective Advice

· Scaffolding in New Zealand

· Silica Dust in Construction

· WorkSafe Strategic Plan for Work Related Health

· Workplace Exposure Standard and Biological Exposure Index Review – Lead and inorganic compounds as lead

· Worker Engagement, Participation and Representation

3.5 These regulations, codes of practice and guidelines continue to be reviewed and strategies developed in order for Council to adopt the requirements of these regulations and minimise risks to operations.

3.6 These regulations, codes of practice and guidelines are likely to have a financial impact on operations.

3.7 Health and Safety Strategic Plan

3.8 Council’s Health and Safety Strategic Plan was approved in May 2016. Its purpose is to set out a clear path for the organisation to meet its legislative requirements, develop and mature its health and safety management systems and grow a positive health and safety culture. A copy of this document is provided as attachment one.

3.9 The Strategic Plan sets out an action plan with 22 actions required to achieve the target conditions set out in the Strategic Plan. These actions are broken down into four subsections covering:

· Policy and Planning

· Delivery

· Monitoring

· Review

3.10 Progress towards completion of these 22 action items is displayed below in a ‘traffic light’ context.

Policy and Planning

Delivery

Monitoring

Review

Key

Completed

Partially Completed

No Action

3.11 Officers are working through the remaining items to be completed and it is expected that they will be completed within the next 6 months.

3.12 Final completion of the action plan is required by the 30 June 2018. Following this a new Health and Safety Strategic Plan will be developed for the period 2018-2020.

3.13 Health and Safety Risk Management

3.14 As previously reported to the Audit and Risk subcommittee during the February 2017 meeting, the 12 critical Health and Safety Risks have been identified and these risks are currently being analysed by officers using “Bow Tie” risk evaluation methodology.

3.15 “Bow Tie” is a risk evaluation method which allows development of a diagram to effectively communicate how critical risks should be managed. A Bow Tie diagram is able to give an overview of multiple plausible scenarios and how they can be prevented and mitigated in a single diagram.

3.16 The 12 critical Health and Safety risks are listed below (in no particular order):

· Risk of fatality from exposure to plant and machinery

· Risk of fatality from exposure to a moving vehicle

· Risk of fatality when working in confined spaces

· Risk of fatality when working in excavations

· Risk of fatality when working at height, resulting from a fall from height or a falling object

· Risk of serious health and/or safety effects from manual handling of loads or repetitive or forceful movements

· Risk of serious health effects from exposure to asbestos

· Risk of fatality from loss of containment and/or exposure to a hazardous substance

· Risk of fatality or serious health effects from exposure to harmful levels of noise, vibration, dust, or biological hazards

· Risk of serious health effects from exposure to factors causing stress

· Risk of serious health and/or safety effects from fatigue and working while fatigued

· Risk of adverse physical and mental health effects from exposure to aggression, physical violence and verbal abuse from members of the public and service users

3.17 It is expected that the analysis of the risks identified and listed above in 3.15 will be completed by early 2018.

3.18 Prior to the next Risk and Audit subcommittee meeting, a workshop will be held for Elected Members to provide an overview of the ‘Bow Tie’ risk evaluation methodology.

3.19 An analysis report for the period 1 July 2016 to 30 June 2017 has been completed regarding significant incidents and mitigation measures for the 12 critical Health and Safety Risks. This report is attached for review.

3.20 Officers are currently finalising organisational Health and Safety goals and objectives for the 2017/18 year linking back to these 12 critical risks.

4.0 SIGNIFICANCE AND ENGAGEMENT

4.1 This report does not trigger Council’s Significance and Engagement Policy and no consultation is required.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Health and Safety Advisor titled “Health and Safety Risk Management Report” dated 4/09/2017 be received.

Attachments:

1	Human Resources (NO PERSONAL INFORMATION) - Health and Safety - General - Health and Safety Strategic Plan 2016-2018 - Version 4 (CURRENT)	HR-03-01-16-164
2	Human Resources (NO PERSONAL INFORMATION) - Health and Safety - General - An overview of significant incidents and mitigation measures for the 12 critical Health & Safety Risks - 1 July 2016 - 30 June 2017	HR-03-01-17-234

File Ref: 17/845

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Quality Assurance and Business Services Manager

Regan Smith

SUBJECT: Risk Management Update on Strategic Risk Analysis

1.0 SUMMARY

1.1 The purpose of this report is to update the Subcommittee on progress made on analysis of the strategic risks adopted by Council and to present initial results for; Civil Defence Emergency Response and Health & Safety Event risks.

1.2 This issue arises from adoption of the Strategic Risk Register by Council on 13 July 2017.

1.4 This report concludes by recommending that the report be received and further analysis of the critical controls be undertaken.

2.0 BACKGROUND

2.1 Council adopted the Strategic Risk register containing 20 areas of organisational risk on 13 July 2017.

2.2 In order to provide confidence that the level of mitigation indicated in the register is being achieved, further analysis was required to document how each risk is being managed.

2.3 The Bow Tie risk assessment method was selected to develop this understanding as it is an effective tool to demonstrate causal relationships in complex systems. The method takes its name from the shape of the diagram that is created, which looks like a men’s bowtie. A Bowtie diagram does two things. First of all, it gives a visual summary of all plausible accident scenarios that could exist around a certain Hazard. Second, by identifying control measures the Bowtie displays what a company does to control those scenarios.

3.0 CURRENT SITUATION

3.1 Workshops where held on the 10^th and 18^th of August to gather information required to build the first stage of the Bow Tie diagrams for six of the top strategic risks.

3.2 The workshops involved relevant subject matter experts from within Council and partner agencies (in particular, Hawke’s Bay Civil Defence and Emergency Management Group and Hawke’s Bay District Health Board), and were facilitated by Dan Davis of IPMAC, who provided guidance and advice on applying the Bow Tie method to the strategic risks.

3.3 Due to the volume of information gathered at the workshops and the need to validate the accuracy of the information, focus was placed on the top three risks initially for presentation to the Subcommittee.

3.4 Water Supply Contamination risk:

The current water service change project covers a wide range of activities across the Water Services team. The change project details are discussed in the Water Supply report. A component of this work relates to identification of critical control points and monitoring system assurance. Council has brought in Carly Price (former water regulator from NSW, and Sydney Water employee) to lead and assist in the enhancement and creation of process control documentation and compliance dashboard reporting. This work builds on the recent review and updating of the approved Water Safety Plan and the associated risk assessments. This work is a key element in addressing the water supply contamination strategic risk. This work will be summarised in to a Bow Tie diagram as part of the review project.

3.5 As a result the first stage of the Bow Tie analysis has been documented in a Bow Tie diagram and an associated 1-page summary for the following risks, which are the attached for consideration;

3.5.1 Civil Defence Emergency:

Initial analysis has looked at the systems for mounting the response to an event. The resulting Bow Tie diagram relates directly to the Incident Management Office Transformation Project with the objective “To ensure a fit for purpose Hastings District Council incident management centre that is flexible, modular, safe and scalable so that it can be tailored to circumstances specific to any level or type of incident, and is underpinned by robust processes, procedures and staff training to ensure effective response and recovery”. As a result, delivery of this project will improve the robustness of the risk controls identified in the Bow Tie analysis. Further assessment of specific natural hazard risks will be undertaken as part of the second phase of analysis work for the Civil Defence Emergency risk.

3.5.2 Health & Safety Events:

The Health & Safety Bow Tie diagram reflects the level of effort applied to developing Council’s systems for managing the risk of harm to people as a result of work activities. There are several layers of defences and reporting in place to support these.

4.0 Next Steps

4.1 Analysis will be completed of the following strategic risks for presentation at the next Risk & Audit Subcommittee meeting;

4.1.1 Water supply contamination.

4.1.2 Infrastructure service failure.

4.1.3 Ineffective regulatory oversight.

4.1.4 Demographic change.

4.1.5 Adverse Environmental Change.

4.1.6 Information security failure.

4.2 In addition the second phase of the Bow Tie analysis will be completed to confirm the effectiveness of the controls listed in the Civil Defence and Health & Safety Bow Tie diagrams for presentation at the next Risk & Audit Subcommittee meeting.

5.0 RECOMMENDATIONS AND REASONS

A) That the report of the Quality Assurance and Business Services Manager titled “Risk Management Update on Strategic Risk Analysis” dated 4/09/2017 be received.

B) That further analysis of critical controls for Civil Defence Emergency and Health & Safety Event risks be completed.

With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities for good quality local infrastructure and local public services in a way that is most cost-effective for households and business by:

i) Ensuring strategic risks to the Council are effectively managed.

Attachments:

1	Summary Civil Defence Emergency Response	PMD-03-81-17-97
2	Risk Bow Tie Analysis Civil Defence Emergency Response	PMD-03-81-17-98
3	Health and Safety	PMD-03-81-17-99
4	Governance Strategic Risk Bow Tie Analysis Health and Safety (PMD-03-81-17-100)	CG-14-25-00016

File Ref: 17/832

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 4 September 2017

FROM: Chief Executive

Ross McLeod

SUBJECT: Water Services

1.0 SUMMARY

1.1 The purpose of this report is to enable staff to update the Subcommittee on progress with the Water Services Change Programme.

1.2 The Water Services Change Programme was commissioned by the Chief Executive in June 2017, following receipt of the capability and capacity review into the water services area that recommended that change work be undertaken. This followed on from the Havelock North water contamination event, and issues identified in some of Council’s water supply arrangements.

1.3 In terms of governance oversight of the programme, Council asked that the Chief Executive report progress on the change programme to the Risk and Audit Subcommittee on a regular basis. Council is also receiving updates.

1.4 The Council is required to give effect to the purpose of local government as prescribed by Section 10 of the Local Government Act 2002. That purpose is to meet the current and future needs of communities for good quality local infrastructure, local public services, and performance of regulatory functions in a way that is most cost–effective for households and businesses. Good quality means infrastructure, services and performance that are efficient and effective and appropriate to present and anticipated future circumstances.

1.5 The objective of this decision relevant to the purpose of local government is to provide governance oversight to the water services change programme in order to help Council ensure safe drinking water and fit for purpose, effective and efficient water services across the three waters.

1.6 This report concludes by recommending that the information be received.

2.0 BACKGROUND

2.1 The Havelock North water contamination event led to the identification of some areas of Council’s organisational arrangements and performance that were not at the required standard. While the Inquiry found that Council did not cause the contamination event and outbreak (surface water from a pond in the Mangateretere Stream contaminated the aquifer and was drawn into the water supply), the Chief Executive moved to address the issues identified and undertaken a significant review and improvement programme across the three waters activities.

2.2 The Chief Executive commissioned a capability and capacity review of the water services area. This was part of wider array of initiatives to ensure water safety and improve systems and performance that included additional resourcing and support, modified processes and the use of new systems. The review was carried out by a review team comprising Bruce Robertson, Ross Waugh and Neil Taylor. A copy of the review report has been circulated separately.

2.3 The review identified a number of findings and implications of those findings. It made a number of recommendations which the Chief Executive adopted without modification.

2.4 In order to deliver on the review recommendations and enable improvement more broadly, a change management programme was initiated. This is led by a change management team (CMT) that made recommendations to the Chief Executive. The CMT is led by an independent Chairman, Mr Garth Cowie, and comprises a number of senior staff and an independent technical advisor, Mr Jim Graham, a water industry expert from Opus.

2.5 The CMT is supported by a programme/change manager, and work is carried out through a series of workstreams that involve a combination of internal staff and external expertise.

2.6 The aim of the work being undertaken is to deliver a water supply that is among the safest in the country and, more broadly, the most cost-effective three waters arrangements. “Operationalised” risk management is one of the key areas of focus for the CMT.

3.0 CURRENT SITUATION

3.1 Work on the change programme is well underway. The Chief Executive and members of the CMT will brief the Risk and Audit Subcommittee on aspects of the work programme and be available to answer questions.

4.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Executive titled “Water Services” dated 4/09/2017 be received.

With the reasons for this decision being that the objective of the decision will contribute to meeting the current and future needs of communities for good quality local infrastructure in a way that is most cost-effective for households and business by:

i) Providing for effective Governance oversight of the water services change programme.

Attachments:

There are no attachments for this report.

Hastings District Council

Lyndon Road East, Hastings