Agenda of Risk and Audit Subcommittee Meeting

HASTINGS DISTRICT COUNCIL

Risk and Audit Subcommittee MEETING

Monday, 3 September 2018

VENUE:

Landmarks Room

Ground Floor

Civic Administration Building

Lyndon Road East

Hastings

TIME:

10.00am

A G E N D A

1. Apologies

At the close of the agenda no apologies had 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 General Counsel or the Democratic Support Manager (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 2 July 2018.

(Previously circulated)

4. 2018 Annual Report Update and Interim Audit 5

5. 2018-28 Long Term Plan Audit Report 15

6. Treasury Activity and Funding 25

7. Governance Risk 35

8. Health and Safety Risk Management Update 49

9. Enterprise Risk Management Update 77

10. General Update Report and Status of Actions 103

11. Additional Business Items

12. Extraordinary Business Items

File Ref: 18/539

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: Chief Financial Officer

Bruce Allan

Financial Controller

Aaron Wilson

SUBJECT: 2018 Annual Report Update and Interim Audit

1.0 SUMMARY

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

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 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 2017/18 Annual Report, highlight any issues and provide a preliminary pre-audit update on the financial result.

2.2 The Council’s Risk & Audit Subcommittee will continue to be appraised of developments and issues that could affect the year-end financial arrangements and the audit of the annual report.

3.0 CURRENT SITUATION

3.1 Mr Stephen Lucy, Audit New Zealand Audit Director will be in attendance to speak to the Interim Audit Report and the upcoming 2018 Annual Report Audit.

3.2 Interim Audit Status Report

3.3 The key findings from the interim audit are detailed in the report which is attached as Attachment 1. The reports states, “Based on the work performed, we found that overall the management control environment, systems, key controls, and procedures at the District Council are operating effectively.”

3.4 The report does however identify some issues for improvement particularly around purchase card usage and un-editable files for bank uploads. Staff have made significant progress on both these areas to ensure policies are being adhered to and controls are being maintained.

3.5 The report notes that of the 15 recommendations made previously, 7 of those recommendations have been addressed with a further 8 remaining outstanding. We expect that 3 of those outstanding recommendations will be closed out with the Final Audit and the remaining 5 recommendations are requiring of longer term fixes but are being addressed. Those longer term fixes include amongst other things the implementation of reasonably significant software implementations.

3.6 Revaluation of Land and Buildings, Water services and Heritage and Cultural

3.7 All asset classes are on a revolving revaluation cycle, the Transportation and Parks and Reserves assets were revalued last year, this year the revaluation of all Land and Buildings, Water services and heritage and cultural assets have been the major revaluation activity.

3.8 The Land and Building asset revaluation has been undertaken by John Reid of Added Valuation. This year the valuation for Land and Buildings has seen the fair value assessed at $208.6m which is an increase of $46.8m in value. The main drivers for this increase are due to strong market and economic conditions, along with the increase in costs of rebuilding or constructing an asset of a comparable nature.

3.9 The water services revaluation covers the three main areas within water infrastructure, these being, Water supply, Wastewater and Stormwater. An external independent consultant, Waugh Infrastructure Management Ltd, was engaged to peer review the work and validate the information. A valuation report is prepared specifically for audit, showing what the prior valuation was for the different categories of the 3 waters assets and what it is now, with analysis on the drivers on increases/decreases in value of the various components.

3.10 This year the valuation of the 3 waters assets have shown a $113.5m increase in the Optimised Depreciated replacement cost. (This is the current replacement cost less allowance for physical deterioration and optimisation for obsolescence). The main driver for this is the unit rate adjustments that have been made, in particular in the rates of reticulation. This adjustment to unit rates was done on the recommendation of an Opus assessment report. Council rates have been historically low compared to the national average.

3.11 The Heritage and Cultural assets are revalued every five years. This class of asset involves the collection of Mayoral portraits. The valuation was completed by Webbs and had an adjustment downward adjustment of twenty-four thousand dollars.

3.12 Changes to reporting standards

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

3.14 Reporting Timeframes

3.15 Audit NZ will arrive on September 3rd to undertake their audit and at the time of writing the Annual Report is on track to be principally completed for their review.

3.16 Financial result

3.17 Note that the financial results detailed below are provisional at the time of writing and are subject to change, although Officers do not believe that any changes will be significantly material.

3.18 The unaudited rating result for the 2017/18 year is a positive result and is as follows:

Rating Area 1	$	1,192,222
Rating Area 2	$	536,292
Total for the District	$	*1,728,514*

3.19 This result compares with a $1,158,369 rating surplus reported in 2016/17. Council will at its Finance and Risk Committee on September 11^th determine how this surplus will be allocated.

3.20 Set out below is a summary of the draft unaudited operating accounting result for the 2017/18 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	115,577	130,985	15,408
Less Operating Expenditure	111,709	116,770	(5,061)
Net Surplus/(Deficit)	3,868	14,215	10,347
Gain / (Loss) Revaluations	27,437	159,772	132,335
Net Surplus after accounting gains / losses	31,305	173,987	142,682

3.21 The draft unaudited financial result for the year ended 30 June 2018 before gains or losses on revaluations is a surplus of $14.2m with favourable variance to the budget of $10.3m

3.22 Revenue has a favourable variance of $15.4m. The increase in revenue compared to budget is made up of the following activities:

· Subsidies and grants make up a significant amount of the increase in revenue at $8.4m. Most of this is made up of NZTA subsidies that are reimbursements for capital work done, along with $3.75m granted to the Opera house project.

· Development Contributions are $0.84m above budget with large contributions received from the Irongate and Omahu Road development areas driving this increase.

· Fees and Charges are above budget by $2.7m. This increased revenue has been achieved across quite a number of Council activities including Landfill, Parking, and environmental consents, this is reflective of the stronger economic conditions.

· Water vested assets were above budget by $1.7m

3.23 Expenditure is higher than budget by $5m and higher than last year by $2.9m. The key drivers for this expenditure are in contracted services which are $4.8m above budget. Brought forwards from the prior 2016/17 year however, are an offset to a large portion of the higher expenditure at $4m. Personnel costs were higher, with the addition of personnel in the water area a key driver.

3.24 Draft Financial Statements

3.25 Attached as Attachment 2 for the Subcommittees information is an early view of the unaudited financial statements.

4.0 OPTIONS

4.1 This report is for information only and does not contain any options for the subcommittee.

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 The matters within this report do not trigger the thresholds within Council’s significance policy.

6.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Financial Officer titled “2018 Annual Report Update and Interim Audit” dated 3/09/2018 be received.

Attachments:

1	Interim Audit of Hastings District Council to Risk & Audit Subcommittee for the year ended 30 June 2018	CG-14-25-00058
2	Unaudited Financial Statements to 30 June 2018	CG-14-25-00057

File Ref: 18/540

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: Chief Financial Officer

Bruce Allan

SUBJECT: 2018-28 Long Term Plan Audit Report

1.0 SUMMARY

1.1 The purpose of this report is to inform the Subcommittee about the Audit Management Letter received for the 2018-28 Long Term Plan.

1.3 This report concludes by recommending that the Audit Management Letter from Audit New Zealand for the 2018-28 Long Term Plan be received.

2.0 BACKGROUND

2.1 The audit of the 2018-28 Long Term Plan is completed by Audit New Zealand and is undertaken in two parts, with the first part being an audit of the Consultation Document. The Audit management Letter for the Consultation Document was presented to the Subcommittee in May.

2.1.1 The second part of the Long Term Plan Audit process is to provide an Audit opinion on the overall Long Term Plan. Most of this work is undertaken at the time of assessing the quality of the information and assumptions used for informing the Consultation Document. As such the final audit process for the LTP is more about understanding the changes that have been made through the consultative process and any additional reporting requirements not included in the information are provided at the time of consultation.

2.2 On completion of each stage of the audit, an Audit management letter is produced to highlight any issues identified during the audit and suggested improvements. Attached as Attachment 1 is the Report to Council from Audit New Zealand for Council’s Long Term Plan 2018-2028.

3.0 CURRENT SITUATION

3.1 The Audit Management letter confirms that an unmodified opinion was issued on 28 June 2018 and provides the following positive comment:

“We found that the District Council had prepared well and largely followed the project plan for the LTP. The District Council staff were responsive to our queries and corrected items in the LTP and the underlying information to ensure that this was as complete and accurate as possible for adoption by Council.”

3.2 Consistent with the Audit management Letter for the Consultation Document, Audit NZ identified Water Systems, Bridges and the Municipal Building as key risks and issues which were areas of emphasis during the audit

3.3 Audit did note some areas of improvement in relation to quality assurance processes over documents submitted for audit to ensure that there is consistency between them and that when changes are made that they flow through all of the documents that make up the LTP and underlying information. Management accept that improvements could be made to this part of the LTP process and have undertaken a full debrief with improvements identified and assigned to staff for action.

3.4 Officers have also identified a number of improvements that can be made to the financial model used to collate the LTP budget data, including how that data flows through to the Statement of Financial Position. These identified improvements will address the issues identified by Audit through the audit process.

4.0 RECOMMENDATIONS AND REASONS

A) That the report of the Chief Financial Officer titled “2018-28 Long Term Plan Audit Report” dated 3/09/2018 be received.

B) That the Audit New Zealand Report to the Council on the audit of the 2018-28 Long Term Plan be received.

Attachments:

2018/28 Long Term Plan Audit Report

CG-14-25-00054

File Ref: 18/549

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

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 2018-28 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 2018:

Measure	Compliance	Actual	Min	Max
Liquidity	ü	115%	110%	170%
Fixed debt	ü	65%	55%	95%
Funding profile: 0 – 3 years 3 – 5 years 5 years +	ü ü ü	43% 26% 31%	10% 20% 10%	50% 60% 60%
Net Debt as % Equity Net Debt as % Income Net Interest as % Income Net Interest as % Rates	ü ü ü ü	5% 67% 3% 5%	0% 0% 0% 0%	20% 150% 15% 20%

Council is currently compliant with Treasury Management Policy.

3.3 The current total core net external debt is $85.2m (net of pre-funding) as at 31 July 2018. This is supported by the Debt Status Report as at 31 July 2018 (Attachment 1). Core external debt has increased $10m from the July 2018 report.

3.4 The additional $10m was required to fund the current capital spend program being undertaken.

3.5 Three new interest rate swaps were transacted in July 2018.

Bank	Amount	Start Date	Finish Date	Interest Rate
Kiwibank	$5m	01-Dec-2018	17-Jun-2020	2.178%
Kiwibank	$3m	01-Dec-2018	30-Nov-2027	3.020%
ANZ	$5m	03-Jun-2019	30-Jun-2028	3.120%

See the diagram under 4.3 for details of the interest rate swap portfolio.

3.6 The graph below shows the final position for the Council’s budgeted capital spend program for the 2017-18 year and what it managed to deliver:

You’ll note that Council completed $70.6m of capital programs which is ahead of the previous years $54.1m, but lower than the $95.6m budgeted. This means that the majority of this shortfall will be carried forward to the 2018/19 year. The 2018/19 years budget is $83.1m before carry forwards get added.

4.0 FORECAST SITUATION

4.1 The chart below shows the key drivers of the expected movement in borrowings over the next 11 months. This is based on the 2018/19 annual plan and estimated carry forwards from 2017/18.

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

4.3 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 (discounted to 80% of projections). The projected external debt requirement for the next 12 months is forecast to increase, which coupled with the maturity of some existing LGFA debt, gives the Council the opportunity to take advantage of new longer term debt at historically low levels of interest.

4.4 The peak of the existing swap cover (years 2-3) is $80.5m, which is less than Council’s existing debt level of $87.7m, and sees Council’s interest rate cover sitting at mid-point of policy.

4.5 Officers and PWC are currently happy with the level of interest rate cover in place (being midpoint of policy). Officers continue to monitor the situation as Council brings on new debt. PWC are currently recommending a target level of below 3.6% for retail swaps at the longer end of the yield curve (swaps of 5 to 10 years in length).

4.6 Council has participated in the latest LGFA tender round to acquire $17.5m of pre-funding for the $20.0m LGFA loan due for refinancing in March 2019. The reason Officers have taken this decision is due the favourable difference in interest rates between retail deposit rates and wholesale borrower rates prevailing at the moment.

Council has borrowed:

Borrowing	Maturity	Today’s BKBM	Margin	Expected Interest Rate	Deposit Rates
$10.0m	April 2020	1.91%	0.19%	2.10%	3.25%
$7.5m	April 2022	1.91%	0.33%	2.24%	3.25%
$17.5m Total				2.16% Weighted Average	3.25% Average

This money will be put on term deposit (along with the existing $2.5m deposit) to mature in March 2019 at an expected interest rate of 3.25% pa.

This should provide the Council a net interest benefit of 1% pa for a period of 200 days, which will generate a net interest benefit of approx. $100,000.

This pre-funding of debt refinancing is an allowed activity under Council’s Treasury Policy where “Holding short term investments for working capital and liquidity requirements” is a permitted activity.

4.7 This prefunding also has the added benefit of improving Council’s liquidity ratio. Liquid funds are defined in the Treasury Policy as Overnight Bank Deposits, Term Deposits of less than 30 days in maturity, and Term Deposits linked to pre-funding of maturity term debt exposures.

4.8 Following this pre-funding transaction the Council debt maturity has the following profile:

4.9 This shows a liquidity ratio of 135% (thanks to the linked term deposits), and all debt maturity ratios are maintained within policy.

5.0 MARKET COMMENTARY

5.1 The Reserve Bank of New Zealand (RBNZ) last issued a Monetary Policy Statement on 9 August 2018 where the Official Cash Rate was held at 1.75%. The Reserve Bank Governor stated “We expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement. Risks remain to our central forecast. We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.”

5.2 Westpac Chief Economist Dominick Stephens says "An economic slowdown has taken businesses, markets, the RBNZ and the Treasury by surprise. But from our perspective, the slowdown is no surprise. In November last year we forecast annual GDP growth in 2018 of 2.4%. At that time, we predicted that the RBNZ would become more dovish when it inevitably downgraded its overly optimistic GDP forecasts. This is all still broadly proceeding as anticipated. What had changed was the leadership at the Reserve Bank, with Adrian Orr taking over as Governor in March.”

5.3 Below is ASB’s take on the OCR announcement, and how this has changed since May, and where they see interest rates going over the next 3 years:

5.4 At the last Risk and Audit Subcommittee meeting a request was made to include some KPI’s on the Hawkes Bay Economy. This information has been compiled, however it has been decided that it is more appropriate to include this as an update to full Council, through the Finance and Risk Committee, and as such this will be included on that agenda.

6.0 FUNDING FACILITIES

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

6.2 Council’s liquidity ratio of 115% at 31 July 2018 (based on net external debt of $85.2m and total facilities/investments of $97.7m) 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.

7.0 Recommendations

That the report of the Manager Strategic Finance titled Treasury Activity and Funding dated 3/09/2018 be received.

Attachments:

1	Risk & Audit - Debt Status July 2018	FIN-09-01-18-154
2	Risk & Audit - Funding & Interest Risk July 2018	FIN-09-01-18-155

File Ref: 18/740

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: District Customer Services Manager

Greg Brittin

Risk and Corporate Services Manager

Regan Smith

SUBJECT: Governance Risk

1.0 SUMMARY

1.1 The purpose of this report is to obtain a decision from the Subcommittee recommending to council whether or not Governance Risk is added to the Strategic Risk Register.

1.2 This issue arises from a Council workshop in May 2018, where Councillors requested the Risk and Audit Subcommittee undertake further evaluation of “Governance Risk” in the Hastings District Council (HDC) context.

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 Governance function of Council performs effectively in order 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.

1.5 This report concludes by recommending that Governance Risk is added to Council’s strategic risk register.

2.0 BACKGROUND

2.1 Governance has been defined as “the system by which companies are directed and controlled” (Committee on the Financial Aspects of Corporate Governance, 1992).

2.2 For governance to be effective an appropriate separation of duties between the governors and management is required.

2.3 The Institute of Directors (IOD) consider that Governance makes decisions on: “What” activities are undertaken, “Where”, and “Why” and Management decide “How” these activities are implemented.

2.4 The IOD define four pillars of good governance as:

2.4.1 Determining Purpose: Take ownership of the organisation’s strategic direction by defining purpose (the Local Government Act defines this), goals and strategy.

2.4.2 Effective Governance Culture: Add value by acting as a team with a high performance culture committed to engaged, quality governance of the organisation. It celebrates debate, diversity, thoughtful challenge and respectful dissent.

2.4.3 Holding to Account: Value-adding governance holds management strictly and continuously to account through informed, astute, effective and professional oversight.

2.4.4 Effective Compliance: Add value by ensuring the organisation is, and remains, viable. It ensures the probity of financial reports and processes and a high standard of compliance with regulatory environments. Risk management is a key feature of the board’s capability and the board should scan and manage existing and prospective risk to the organisation.

2.5 Relevance for Council

2.5.1 Effective Governance is critical for all organisations and in general terms the following is applicable in the Council context.

2.5.2 If the organisation’s goals and strategy are not well defined the organisation will struggle to deliver the desired results

2.5.3 If the governance body is not able to work effectively (together; with the Chief Executive; or with external/internal stakeholders), it is very unlikely that effective decisions will be made. Inability to make effective decisions on goals, strategy or policy will severely impact the organisation’s ability to successfully deliver intended outcomes.

2.5.4 Failure to monitor the achievement of desired outcomes, leaves the attainment of goals to management. This fails to create sufficient accountability for delivery of outcomes aligned with strategy.

2.5.5 Failing to achieve sufficient legal compliance exposes the organisation to significant financial, service delivery and reputation risks.

2.5.6 Therefore, if any of these functions are not delivered effectively there is less certainty that goals will be successfully achieved.

3.0 CURRENT SITUATION

3.1 The Council adopted a Risk Management Policy and Framework, and Tier 1 Strategic Risk Register in July 2017 and recognises the importance of managing risk.

3.2 The Tier 1 Strategic Risk Register captures the major risks facing the Council and Governance Risk is not currently included.

3.3 Operational risk management is evolving through a structured project and the Risk and Audit Subcommittee receive regular updates on the work being carried out. The subcommittee provide professional oversight to the work programme to ensure it remains aligned with objectives.

4.0 OPTIONS

4.1 Option 1: Recommend to Council that Governance Risk is added to Council’s Strategic Risk Register.

4.2 Option 2: Retain status quo I.e. recommend that Governance Risk is not added to Council’s Strategic Risk Register

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 While Governance Risk is a significant concept within the Council context, its inclusion, or not in Council’s Strategic Risk Register does not trigger Council’s Significance and Engagement Policy and no consultation is required.

6.0 ASSESSMENT OF OPTIONS (INCLUDING FINANCIAL IMPLICATIONS)

6.1 The attached Governance risk analysis considers potential threats or risks to effective Governance in the Council environment and highlights the current controls in place within HDC to prevent the risk eventuating.

6.2 The HDC contextual information has been formulated by staff based on discussions at previous workshops and committee meetings.

6.3 Councillor training was identified as a critical control in managing Governance Risk and the current framework has been reviewed as part of the analysis.

6.4 Option 1: Recommend to Council that Governance Risk is added to Council’s Strategic Risk Register.

6.4.1 Including the risk in the strategic risk register recognises the importance of effective governance in relation to achieving the purpose of Local Government.

6.4.2 Successful risk management increases the likelihood of achieving objectives, encourages proactive management and protects value.

6.4.3 Although Council are aware of the importance of risk management, adding Governance Risk to the strategic risk register formalises the commitment to proactively managing the risk.

6.4.4 If option 1 is preferred – an additional item for consideration is for staff to review the current training programme for elected members (a critical control in managing the risk) with a view to providing options for enhancement of the future development package.

6.4.5 There are no immediate financial considerations to consider, however new initiatives to manage the risk, for example improvements or expansion of the elected member development programme may incur costs.

6.5 Option 2: Retain status quo i.e. recommend that Governance Risk is not added to Council’s Strategic Risk Register

6.5.1 The current Council is aware of the importance of managing risk, evidenced by the adoption of the Risk Management Policy and Framework, and Tier 1 Strategic Risk Register in July 2017.

6.5.2 The subcommittee may consider that sufficient work is being done and that there is limited value in adding Governance Risk to Council’s Strategic Risk Register.

7.0 PREFERRED OPTION/S AND REASONS

7.1 Option 1: recommending to Council that Governance Risk is added to Council’s Strategic Risk Register.

7.2 The addition of Governance risk to the strategic risk register recognises the importance of Governance in the Council context.

7.3 Items on the register are regularly discussed at subcommittee meetings and inform operational management of the organisation.

8.0 RECOMMENDATIONS AND REASONS

A) That the report of the District Customer Services Manager titled “Governance Risk” dated 3/09/2018 be received.

B) That the Risk and Audit Subcommittee recommends to Council that “Governance Risk” is added to Council’s Strategic Risk Register and that further work is done to investigate and present options for an elected member development programme to support the delivery of effective governance.

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, local public services, and performance of regulatory functions in a way that is most cost-effective for households and business by:

i) Setting a clear direction for Council to follow to help achieve the strategic objectives defined in the Long Term Plan and meet statutory obligations.

ii) Increasing certainty that strategic goals will be achieved.

Attachments:

Governance Risk Analysis

PMD-03-81-18-158

File Ref: 18/749

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: Health and Safety Manager

Jennie Kuzman

SUBJECT: Health and Safety Risk Management Update

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 Health and Safety at Work Act 2015 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.

2.2 This report serves as the report which is required to be provided quarterly to the Risk and Audit Subcommittee on Health and Safety risk management.

3.0 CURRENT SITUATION

3.1 Overview of Health and Safety Risk Management

3.2 As previously reported to the Risk and Audit Subcommittee during the May 2018 meeting, the 12 critical Health and Safety risks are currently being analysed by officers using “Bow Tie” risk evaluation software.

3.3 It is anticipated that this process will be completed by late November 2018 after which, they will be provided to the Risk and Audit Subcommittee at subsequent meetings.

3.4 Effectiveness of Control Measures

3.5 Attachment one provides a summary of Council’s twelve critical Health and Safety risks, their controls and limitations and a score to demonstrate effectiveness of these controls.

3.6 The purpose of this summary report is to provide information to the subcommittee in order to gain an insight into the effectiveness of the Health and Safety risk control measures which are in place.

3.7 The Health and Safety risk control measures have each been evaluated on a scale of 1-4, where one is the lowest score indicating that inadequate controls are in place, a score of two indicates that the risk is partially controlled but further improvements are required, a score of three indicates that adequate controls are in place and four is the highest score indicating that robust controls are in place.

3.8 Currently all of Council’s critical Health and Safety risk control measures have been scored at level three indicating that adequate control measures are in place.

3.9 Current Focus Areas

3.10 Officers are currently focusing on the following critical Health and Safety risks due to either the release of specific regulations or a targeted focus from WorkSafe NZ:

· 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

3.11 The following paragraphs provide a summary in relation to each of the bullet points above.

3.12 The Health and Safety at Work (Asbestos) Regulations 2016 place a duty on businesses to have asbestos management plans in place for their buildings and workplaces where asbestos is likely to be found, by April 2018. Officers have completed a project to develop an overarching plan which has now been approved by the Chief Executive and will be implemented over the next 6 months.

3.13 The Health and Safety at Work (Hazardous Substances) Regulations 2017 were released in December, these supersede a large portion of the Hazardous Substances and New Organisms Act of 1996, setting out major changes to the way that Hazardous Substances are managed in New Zealand. Officers are currently working through a project to implement the required changes across Council. Given the number of areas that Council works across, these Regulations present a considerable amount of work for staff.

3.14 WorkSafe NZ have issued a strong mandate through their strategic plan for organisations to focus equally on ‘Health’ risks not just ‘Safety’ risks. Health risks relate back to the harmful effects from exposure to hazardous substances or equipment which can have a detrimental effect upon worker health. For example, exposure to asbestos fibres can cause lung disorders and cancers.

3.15 Considerable progress that has been made in regards to implementing risk control measures in these areas. Council expanded its exposure monitoring programme in 2017/18 utilising specialist Occupational Hygienists to carry out monitoring testing in relation to activities where workers are potentially exposed to harmful levels of noise, vibration, dust, or biological hazards.

3.16 Council employed an in-house Occupational Health Nurse in December 2017 to coordinate and improve its existing health monitoring programme (which had previously been outsourced).

3.17 Officers are currently working on developing specific Fatigue Management and Mental Wellbeing policies to replace the existing Stress & Fatigue Policy. There are well established process in place to support workers experiencing fatigue, stress and mental ill health, which will be reviewed as part of this process.

3.18 Officers have completed and released a Conflict and Violence Management Policy, this builds on the extensive planning work and training that has been provided to workers across the organisation.

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 Manager titled “Health and Safety Risk Management Update” dated 3/09/2018 be received.

Attachments:

Human Resources (NO PERSONAL INFORMATION) - Health and Safety - Hazard Identification Assessment & Management - Hazard/Risk Assessments - Review of Effectiveness of Control Measures for Critical Health and Safety Risks - August 2018

HR-03-6-4-18-94

File Ref: 18/776

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: Risk and Corporate Services Manager

Regan Smith

District Customer Services Manager

Greg Brittin

SUBJECT: Enterprise Risk Management Update

1.0 SUMMARY

1.1 The purpose of this report is to obtain a decision from the Subcommittee adopt the updated Hastings District Council (HDC) Enterprise Risk Management Policy and Framework and obtain feedback on the proposed Key Risk Indicators (KRI).

1.2 This issue arises from adoption of the existing Risk Management Policy and Framework in July 2017.

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 The objective of this decision relevant to the purpose of Local Government is to provide a robust framework that promotes effective and efficient management of risks in core business processes.

1.4 This report concludes by recommending to Council that the updated Enterprise Risk Management Policy and Framework be adopted.

2.0 BACKGROUND

2.1 Council adopted the Risk Management Policy and Framework on 13^th of July 2017. The annual review required under this policy is now due.

2.2 Feedback from application of the current policy has identified areas for improvement, particularly relating to the risk matrix and associated impact classification table.

3.0 CURRENT SITUATION

3.1 The Risk Management Policy and Framework has been reviewed in light of the feedback received and an update version has been drafted that incorporates relevant improvements (refer Attachment 1), which is tabled for consideration.

3.2 The changes to the policy and framework include:

· Addition of an Architecture section describing the risk reporting structure, and roles and responsibilities.

· The risk principles have been updated to match those included in the recently updated ISO31000:2018 Risk Management standard.

· Updated wording relating to risk appetite and tolerance.

· The risk impact classification table and risk matrix has been revised, including a more even distribution of low, medium, high and extreme zones on the risk matrix and incorporation of a calculated risk score.

· Minor amendments to the risk analysis and evaluation sections of the risk process.

3.3 Due to the proposed changes to the risk matrix an updated strategic risk register has also been included (refer Attachments 2 - 4) so the effect of the revised matrix can be seen. The updated register includes the following changes:

· Inherent and Current risk score recalculated based on the new matrix.

· Numerical risk value included with each risk score.

· Proposed KRI measure included for Health and Safety, Inadequate Funds Available and Economic Downturn risks. Updated one page summaries have also been included for these risks, which include additional measures and an amended list of critical controls with an associated status indicator.

4.0 OPTIONS

4.1 The options are to either accept the proposed update to the Enterprise Risk Management Policy and Framework, or request officers consider further changes to the policy.

5.0 SIGNIFICANCE AND ENGAGEMENT

5.1 While risk management is a significant administrative practice, the Risk Management Policy and Framework does not trigger Council’s Significance and Engagement Policy and no consultation is required

6.0 ASSESSMENT OF OPTIONS (INCLUDING FINANCIAL IMPLICATIONS)

6.1 Adopting the updated Enterprise Risk Management Policy and Framework facilitates implementation of improved risk management practices to achieve effective and efficient management of risk within Council.

6.2 Requesting further development on the policy or framework will delay the adoption of the updated policy, but as the current policy is still in place there is no significant financial or service impact from such a delay.

7.0 PREFERRED OPTION/S AND REASONS

7.1 The preferred option is to recommend that the draft Enterprise Risk Management Policy and Framework be adopted.

7.2 The reason for this being that the updates to the policy are relatively minor and implement improvement recommendations received during application of the current policy.

8.0 RECOMMENDATIONS AND REASONS

A) That the report of the Risk and Corporate Services Manager titled “Enterprise Risk Management Update” dated 3/09/2018 be received.

B) That the Risk and Audit Subcommittee recommend to Council to adopt that the updated Enterprise Risk Management Policy and Framework.

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, local public services and performance of regulatory functions in a way that is most cost-effective for households and business by:

i) Providing a robust framework that promotes effective and efficient management of risks in core business processes.

Attachments:

1	DRAFT Hastings District Council Risk Management Policy and Framework V3.2	PMD-03-81-18-159
2	Proposed Governance Tier 1 Strategic Risk Register and Measures	PMD-03-81-18-160
3	Inadequate Funds Available Strategic Risk One Page Summary with Proposed Metrics	PMD-03-81-18-162
4	Economic Downturn Strategic Risk One Page Summary with Proposed Metrics	PMD-03-81-18-161

File Ref: 18/814

REPORT TO: Risk and Audit Subcommittee

MEETING DATE: Monday 3 September 2018

FROM: Manager Strategic Finance

Brent Chamberlain

Chief Financial Officer

Bruce Allan

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.

1.3 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 Risk & Audit Subcommittee members requested that officer’s report back at each meeting with progress that has been made on actions that have arisen from the Risk & Audit Subcommittee meetings. Attached as Attachment 1 is the Risk & Audit Subcommittee Action Schedule as at 31 July 2018.

3.0 CURRENT SITUATION

3.1 Internal Audit

3.1.1 The first review of the financial year has been undertaken by Crowe Horwath which was a repeat of the data analytics review over payroll and accounts payable transactions and masterfiles. While the report notes that there are no significant concerns arising from the testing, staff are yet to check the results and recommendations made to confirm that there are no significant areas for concern.

3.1.2 The results of this audit and any other internal work that has been completed will be reported to the November Risk & Audit Subcommittee meeting.

4.0 SIGNIFICANCE AND ENGAGEMENT

4.1.1 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 3/09/2018 be received.

Attachments:

Risk & Audit - Status of Actions 31 August 2018

FIN-09-01-18-156

Hastings District Council

Lyndon Road East, Hastings