Hastings District
Council
Civic Administration Building
Lyndon Road East, Hastings
Phone: (06) 871
5000
Fax:
(06) 871 5100
WWW.hastingsdc.govt.nz
Open
A G E N D A
Risk and Audit Subcommittee MEETING
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Meeting Date:
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Monday, 5
November 2018
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Time:
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10.00am
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Venue:
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Landmarks
Room
Ground Floor
Civic
Administration Building
Lyndon Road
East
Hastings
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Subcommittee Members
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Chair: Mr J
Nichols
Ex Officio: Mayor Hazlehurst
Deputy Mayor Kerr (Deputy Chair)
Councillors
Nixon and Travers
(Quorum=3)
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Officer
Responsible
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Chief Financial Officer, Bruce Allan
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Committee
Secretary
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Christine Hilton (Ext 5633)
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Risk and Audit Subcommittee – Terms of Reference
A subcommittee of
the Finance and Risk Committee
Fields of
Activity
The Risk and Audit Subcommittee is responsible for
assisting Council in its general overview of financial management, risk
management and internal control systems that provide:
·
Effective management of
potential risks, opportunities and adverse effects; and
·
Reasonable assurance as to
the integrity and reliability of the financial reporting of Council; and
·
Monitoring of the Council’s
requirements under the Treasury Policy
Membership
(4 Members)
Chairman
appointed by the Council
The Mayor
Deputy Mayor
2
Councillors
An
independent member appointed by the Council.
Quorum – 3 members
DELEGATED
POWERS
Authority to consider and make recommendations on all matters detailed
in the Fields of Activity and such other matters referred to it by the Council
or the Finance and Risk Committee
The
subcommittee reports to the Finance and Risk Committee.
HASTINGS DISTRICT COUNCIL
Risk and Audit Subcommittee MEETING
Monday, 5 November 2018
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VENUE:
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Landmarks Room
Ground Floor
Civic Administration Building
Lyndon Road East
Hastings
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TIME:
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10.00am
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A G E N D A
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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 3 September 2018.
(Previously circulated)
4. Audit Report for
the Financial Year ended 30 June 2018 5
5. Risk Assurance
Update 11
6. Treasury Activity
and Funding 15
7. Annual Review of
Treasury Management Policy and Treasury Performance 25
8. General Update
Report and Status of Actions 33
9. Internal Audit
Update 37
10. Funding of Depreciation 41
11. Riskpool Call for 1 July 2019 45
12. Health & Safety Risk
Management Update 51
13. Additional
Business Items
14. Extraordinary
Business Items
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Financial Controller
Aaron
Wilson
SUBJECT: Audit
Report for the Financial Year ended 30 June 2018
1.0 SUMMARY
1.1 The
purpose of this report is to inform the Subcommittee about the Audit Management
Letter for the year ended 30 June 2018.
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 Audit Report for the year ended 30 June 2018 be received.
2.0 BACKGROUND
2.1 An
audit of the financial statements of the Council was completed for the year
ended 30 June 2018 by Audit New Zealand. An audit is undertaken every
year on the financial statements and working papers of the Council.
2.2 On
completion of the audit, an audit report is produced to highlight any issues
identified during the audit and suggested improvements.
2.3 Stephen
Lucy (Audit NZ Audit Director) will be in attendance at the Subcommittee.
3.0 CURRENT
SITUATION
3.1 The
report to Council from Audit New Zealand on the audit of Hastings District
Council and the group for the year ended 30 June 2018 has been received and is
attached as Attachment 1.
3.2 There
were significant improvements made to the end of the financial year and audit
processes this year. However there is still room for improvement and
officers will be working on an improvement plan and having further discussions
with Audit to ensure further efficiencies can be gained.
4.0 The
report from Audit New Zealand is broken into 4 sections which are covered off
below:
4.1 Audit
Opinion
4.2 Audit
issued an unmodified audit opinion dated October 25th 2018 which
ultimately means they were satisfied that the financial statements and
statement of service performance fairly reflected the activity for the year and
the financial position at the end of the year.
4.3 Matters
identified during the audit
4.4 This
year end it was the turn of the Water Infrastructure Assets (storm water,
wastewater and water supply networks), Land & Buildings, along with Heritage
& Cultural assets to be revalued and the report from Audit New Zealand
noted that Council has correctly accounted for the revaluation of these assets.
4.5 The
report also notes that there has been an improvement in the delivery of the
draft Annual Report and the supporting work papers in the current year, noting
also that there is still room for improvement, particularly in relation to
accessing information for some performance measures and the revaluations of the
water assets.
4.6 Uncorrected
Misstatements
4.7 The
financial statements are free from material misstatements, including omissions
4.8 Mandatory
Disclosures
4.9 The
report also covers off a number of Mandatory Disclosures that Audit New Zealand
are required to make and it is noted that there are no matters arising from
those disclosures.
|
5.0 RECOMMENDATIONS AND
REASONS
A) That the
report of the Financial Controller titled “Audit Report
for the Financial Year ended 30 June 2018” dated 5/11/2018
be received.
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Attachments:
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1
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Report to Council on the audit of Hastings District
Council and group for the year ended 30 June 2018
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CG-14-25-00065
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|
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Report to Council on the audit of
Hastings District Council and group for the year ended 30 June 2018
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Attachment 1
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REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Risk and Corporate Services Manager
Regan Smith
Risk Assurance Advisor
Dean
Ferguson
SUBJECT: Risk
Assurance Update
1.0 SUMMARY
1.1 The purpose of this report is to inform the Sub-Committee of the establishment of a Risk Assurance Charter
and associated review programme to undertake assessment of strategic risk
critical controls.
1.2 This
issue arises from adoption of the Enterprise Risk Management Framework and
strategic risk register.
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 This
report concludes by recommending that the report be received.
2.0 BACKGROUND
2.1 Risk
assessments for the 20 strategic risks adopted by Council have been completed.
In order to determine the effectiveness of critical controls identified by
these risk assessments a series of risk assurance reviews are planned.
2.2 The
purpose of these reviews are to provide confidence that the assessed level of
risk mitigation is likely to be achieved in practice. This is considered best
practice as set out by the 3 lines of defence model below, taken from The
Institute of Internal Auditors positioning paper: The Three Lines of Defence in
Effective Risk Management and Control (January 2013).
3.0 CURRENT
SITUATION
3.1 A
Risk Assurance Charter has been approved (refer attached) that establishes the
purpose and intended practices that will be followed by the Risk Assurance
function when acting in a 3rd line of defence role.
3.2 With
the Charter in place a programme of reviews have been developed in consultation
with the Chief Financial Officer and Health and Safety team (refer attached).
The review programme has been developed to focus on the areas of strategic risk
and complement the other audit work being undertaken across the organisation.
3.3 As a
result of this programme future reporting on strategic risks will include an
indication of the confidence in critical controls.
4.0 SIGNIFICANCE
AND ENGAGEMENT
4.1 While
risk management is a significant administrative practice, the Risk Assurance
practices are internal practices that do not trigger Council’s
Significance and Engagement Policy and no consultation is required.
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5.0 RECOMMENDATIONS
AND REASONS
A) That
the report of the Risk and Corporate Services Manager titled “Risk
Assurance Update” dated 5/11/2018 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
and local public services 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
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Attachments:
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1
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HDC Risk Assurance Charter - FINAL
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PMD-9-1-18-12
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Separate Doc
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|
2
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Risk Assurance Review Plan 2018 - 2021
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PMD-03-81-18-167
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Separate Doc
|
1.
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 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 October 2018:
|
Measure
|
Compliance
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Actual
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Min
|
Max
|
|
Liquidity
|
ü
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131%
|
110%
|
170%
|
|
Fixed debt
|
ü
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59%
|
55%
|
95%
|
|
Funding profile:
0 – 3 years
3 – 5 years
5 years +
|
ü
ü
ü
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41%
26%
33%
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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
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5%
71%
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 $95.2m as at 31 October 2018. This is
supported by the Debt Status Report as at 31 October 2018 (Attachment 1).
This report shows the net debt at $115.2m which includes the $20m loan with a
March 2019 maturity and its associated term deposit.
3.4 The
additional $10m of borrowing in October 2018 was required to fund the current
capital spend program being undertaken. The terms of new debt were:
|
Bank
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Amount
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Start Date
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Finish Date
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Interest Rate
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|
LGFA
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$5m
|
08-Oct-2018
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15-Apr-2026
|
BKBM + 0.595%
|
|
LGFA
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$5m
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08-Oct-2018
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15-Apr-2027
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BKBM + 0.67%
|
The BKBM rate (or more commonly known as
the 90 day Bank Bill rate) at 30th September 2018 was 1.89% making
the current all in interest rate 2.485% pa for the 2026 loan, and 2.56% pa for
the 2027 loan.
3.5 The
graph below shows the final position for the Council’s budgeted capital
spend program for the 2018-19 year and what it has managed to deliver to date:
3.6 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 2019 and indicates a forecast debt
position of $127m.
The chart identifies the major projects
underway, however the smaller debt funded renewal projects have been aggregated
into the “Other” heading.
3.7 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 (based on the LTP adjusted to reflect the current level of
activity). 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. This is through replacing older
“non-rated” debt with newer “rated” debt, and replacing
older higher interest rate swaps with newer lower interest rate swaps.
3.8 The
interest rate swap cover is near the Council’s lower limit for the next
12 months (which aligns with the Reserves Bank’s policy of keeping the
OCR rate on hold till 2020), and then moves to policy midpoint as the levels of
uncertainty increases further out into the future. Council is currently able to
take advantage of the BKBM rate of 1.89% plus margin, providing opportunities
for cheaper floating rate loans in the short term, with the knowledge that if
market indicators suggest increases to the short term rates, officers can
respond quickly and put interest rate swaps in place.
3.9 Officers and PWC advisors are currently comfortable with the level
of interest rate cover in place. Officers continue to monitor the situation as
Council brings on new debt. PWC are currently recommending a target level of
below 3.25% for retail swaps at the longer end of the yield curve.
3.10 The graph below shows the movement in 10 year wholesale interest
rate swaps over recent months:
3.11 Following the recent borrowing of $10m in October the Council debt
maturity has the following profile:
3.12 This
shows a liquidity ratio of 131% (thanks to the linked term deposits), and all
debt maturity ratios are maintained within policy.
3.13 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% on 27 September 2018. The RBNZ stated;
“The Official Cash Rate (OCR)
remains at 1.75 percent.
We expect to keep the OCR at this level
through 2019 and into 2020. The direction of our next OCR move could be up or
down.
Employment is around its sustainable
level and consumer price inflation remains below the 2 percent mid-point of our
target, necessitating continued supportive monetary policy. Our outlook for the
OCR assumes the pace of growth will pick up over the coming year, assisting
inflation to return to the target mid-point”.
4.2 Nick Tuffley (ASB Chief Economist) expects:
“The RBNZ will keep the OCR on
hold, and eventually lift the OCR in early 2020. However, the risks through
to mid-2019 are tilted to a lower OCR due to low levels of business
confidence. The RBNZ showed a slightly greater degree of caution about
the path forward: continued wariness over the domestic growth outlook (as we
expected), but also noting trade tensions more prominently than in the August
Monetary Policy Statement.
We remain of the view that inflation
pressures will pick up sooner than what the RBNZ has been forecasting to
date. In particular, we expect a greater degree of wage inflation and subsequent
flow-through to consumer prices. That is why we expect that when the OCR
eventually rises, it will occur sooner than the late-2020 indication from the
RBNZ.”
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 131% at 31 October 2018 (based on net external debt of
$95.2m and total debt facilities of $125.2m) is within policy (policy 110% -
170%). This includes the impact of the linked term deposit. Excluding this the
ratio is 111% which is still in policy.
5.3 Both
PwC and Officers are comfortable with this ratio, and note that Council has 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 5/11/2018 be received.
|
Attachments:
|
1
|
Debt Status October 2018
|
FIN-09-01-18-162
|
|
|
2
|
Funding & Interest Risk October 2018
|
FIN-09-01-18-160
|
|
|
Debt Status October 2018
|
Attachment 1
|
|
Funding & Interest Risk October 2018
|
Attachment 2
|
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Manager Strategic Finance
Brent
Chamberlain
SUBJECT: Annual
Review of Treasury Management Policy and Treasury Performance
1.0 SUMMARY
1.1 The purpose of this report is to update the Subcommittee on the
outcome of the annual review of the Treasury Management Policy and Treasury
Performance.
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 the Annual Review of Treasury
Management Policy and Treasury Performance be received and that the Subcommittee
recommend to the Finance and Monitoring Committee changes to the Treasury
Management Policy.
2.0 BACKGROUND
2.1 The Treasury Management Policy requires that an annual review be
conducted which includes a review of Treasury Performance as set in Section 6
of the Treasury Management Policy.
3.0 CURRENT
SITUATION
3.1 In
accordance with Council’s Treasury Management Policy, an annual review of
the Treasury Policy has been conducted in conjunction with Alex Wondergem of
PricewaterhouseCoopers New Zealand (PwC), Council’s Independent Treasury
Advisor.
3.2 The
current policy has been converted to the current Hastings District Council
Policy template, and names of sub-committees updated. This version is Attachment
1.
3.3 Officers
have discussed with PwC a number of possible changes to the existing policy.
4.0 OPTIONS
4.1 Proposal
One: 3.1 External Debt Ratios and Limits
4.2 Currently
Hastings District Council has limited its maximum debt level to be no more than
150% of income.
4.3 Officers
investigated lifting its policy to be 175% of revenue, which would give a
larger buffer for unforeseen circumstances.
4.4 Option
1: The Risk and Audit Subcommittee recommend to the Finance and Risk
Subcommittee that clause 3.1 External Debt Ratios and Limits of the Treasury
Management Policy changed so the first Macro Limit: Net External debt as a
percentage of income to be 175%.
4.5 Option
2: The Risk and Audit Subcommittee recommend to the Finance and Risk
Subcommittee that clause 3.1 External Debt Ratios and Limits of the Treasury
Management Policy remain unchanged so the first Macro Limit: Net External debt
as a percentage of income remain at 150%.
4.6 Proposal
Two: 5.1.3 Interest Rate Risk Control Limits
4.7 The
Council’s Treasury Policy sets out minimum and maximum levels of fixed
versus floating interest rate loans the Council is permitted to hold at any
point in time. The policy is to guide officers of to the Council’s risk
tolerance to interest rate rises, and equally interest rate falls.
|
Debt Period Ending
|
Minimum Fixed
|
Maximum Fixed
|
|
Current
|
50%
|
95%
|
|
Year 1
|
45%
|
95%
|
|
Year 2
|
40%
|
90%
|
|
Year 3
|
35%
|
85%
|
|
Year 4
|
30%
|
80%
|
|
Year 5
|
25%
|
75%
|
|
Year 6
|
15%
|
70%
|
|
Year 7
|
0%
|
65%
|
|
Year 8
|
0%
|
60%
|
|
Year 9
|
0%
|
55%
|
|
Year 10
|
0%
|
50%
|
|
Year 11
|
0%
|
45%
|
|
Year 12
|
0%
|
40%
|
|
Year 13
|
0%
|
35%
|
|
Year 14
|
0%
|
30%
|
|
Year 15
|
0%
|
25%
|
|
Year 16
|
0%
|
20%
|
4.8 Officers
proposed the change in 4.9 which would give the Council a higher level of
flexibility to take advantage of the cheaper floating interest rates for years
1-3 when all market signals are that the risk of significant interest rate
rises in this period will be minimal:
4.9 Option
1: The Risk and Audit Subcommittee recommend to the Finance and Risk
Subcommittee that clause 5.1.3 Interest Rate Risk Control Limits of the
Treasury Management Policy be altered to so the table of limits be altered as
follows:
|
Debt Period Ending
|
Minimum Fixed
|
Maximum Fixed
|
|
Current
|
50% 40.0%
|
95%
|
|
Year 1
|
45% 37.5%
|
95%
|
|
Year 2
|
40% 35.0%
|
90%
|
|
Year 3
|
35% 32.5%
|
85%
|
|
Year 4
|
30%
|
80%
|
|
Year 5
|
25%
|
75%
|
|
Year 6
|
15%
|
70%
|
|
Year 7
|
0%
|
65%
|
|
Year 8
|
0%
|
60%
|
|
Year 9
|
0%
|
55%
|
|
Year 10
|
0%
|
50%
|
|
Year 11
|
0%
|
45%
|
|
Year 12
|
0%
|
40%
|
|
Year 13
|
0%
|
35%
|
|
Year 14
|
0%
|
30%
|
|
Year 15
|
0%
|
25%
|
|
Year 16
|
0%
|
20%
|
4.10 Option 2: The
Risk and Audit Subcommittee recommend to the Finance and Risk Subcommittee that
clause 5.1.3 Interest Rate Risk Control Limits of the Treasury Management
Policy remain unchanged.
5.0 ASSESSMENT
OF OPTIONS
5.1 Proposal
One: 3.1 External Debt Ratios and Limits
5.2 Based
on the 2018-2028 LTP Hastings District Council external debt peaks at $169.1m
in 2021-22 which is 122% of that years projected revenue. This leaves Council
with the head room of 28% of revenue, or the ability to borrow an additional
$38m in unforeseen circumstances such as a natural disaster.
5.3 Currently
the LGFA will lend up to a maximum of 250% of revenue for rated Councils which
is a much higher threshold.
5.4 Officers
are investigating a lift to the policy to be 175% of revenue, which would give
a larger buffer for unforeseen circumstances. While this change will allow
Council to borrow more than at present, Officers don’t foresee the need
to utilise this increase unless circumstances change. It simply provides for
more headroom if required in the future.
5.5 PwC’s
response was: “these are determined according to Council's own risk
tolerances. That said, given Council's expected debt level increases and our
observations of peers in the sector, an increase to 175% is not unreasonable,
particularly given the LGFA's lending covenant is set at 250% for rated
Councils.”
5.6 Proposal
Two: 5.1.3 Interest Rate Risk Control Limits
5.7 Hastings
District Council currently borrows debt through the LGFA on a floating interest
rate basis. The LGFA can also lend on a fixed rate interest basis, however
Council traditionally has used Interest Rate Hedge Derivatives to achieve its
fixing.
5.8 Under
an Interest Rate Hedge the Council agrees to pay the other party (typically a
Bank) a fixed interest rate on an sum of money, and in return the other party
will pay the Council the current BKBM rate (the 90 day bill rate) which is
essentially a floating rate (this gets reset every three months). If the fixed
rate is higher than the current floating rate then the interest rate swap costs
the Council the difference between the two rates, however if on the other hand
the current floating rate exceeds the fixed rate then the Council receives the
difference.
5.9 The
Council chooses to use these instruments because it offers additional
flexibility. A traditional fixed rate term loan would see the Council agreeing
to fix 100% of the loan for 100% of the loans term (or length). However using
an interest rate swap the Council might choose to only fix a percentage of loan
and leave some floating, or it might choose to fix only a percentage of the
term (or length) of the loan i.e. only fix the last 5 years of a 7 year loan.
5.10 The table above
demonstrates the interest rate yield curve (the premium you pay for adding in
extra risk) and the cost for each type of financial instrument.
5.11 The purple line is
BKBM which is currently 1.9% pa – this is the banks floating rate (or
cost of funds).
5.12 The blue line is the
cost of taking out a floating rate loan with the LGFA (at today’s BKBM
rate). The margin you pay over the banks cost of funds reflects the higher
perceived level of risk to the bank for Council borrowing for a longer term
rather than a shorter one.
5.13 The grey line is the
cost of buying an interest rate swap. Remembering that the bank will pay you
the BKBM rate, and the Council will pay the amount shown on the grey line. So
really it is the margin (or gap) between the two lines.
5.14 The orange line is the
cost to borrow from the LGFA using a traditional fixed interest rate loan.
5.15 Let’s work
through an example:
The
Council needs to borrow $5m for 7 years, what are some of its options:
|
|
LGFA Floating
|
LGFA Floating with 100%
Interest Rate Swaps
|
LGFA Floating with 50%
Interest Rate Swaps
|
LGFA Fixed
|
|
LGFA Interest
|
2.45%
|
2.45%
|
2.45%
|
2.73%
|
|
Swap Interest - HDC Pays
|
|
3.14%
|
3.14% x 50%
|
|
|
Swap Interest - HDC Receives
|
|
(1.90%)
|
(1.90%) x 50%
|
|
|
Total Interest Cost
|
2.45%
|
3.69%
|
3.07%
|
2.73%
|
Assuming interest
rates don’t change for the next 7 years the floating rate would be the
cheapest option. However if rates did go up by more than 0.3% then the fixed
rate becomes cheaper.
5.16 While the Interest
Rate Swaps give you more flexibility, they are currently the most expensive way
of avoiding interest rate volatility risk.
5.17 Currently the Hastings
District Council has the following interest rate swaps in place:
|
|
Active Swaps Amount
|
Active Swaps Avg Interest
Rates
|
Future Swaps Amount
|
Future Swaps Avg Interest
Rates
|
|
ANZ
|
$22.5m
|
4.8%
|
$39.0m
|
3.6%
|
|
ASB
|
$6.0m
|
5.3%
|
$16.0m
|
4.2%
|
|
BNZ
|
$3.0m
|
5.1%
|
Nil
|
N/A
|
|
Kiwibank
|
$6.0m
|
4.0%
|
$30.5m
|
3.6%
|
|
WBC
|
$19.0m
|
5.5%
|
$8.0m
|
3.3%
|
|
TOTAL
|
$56.5m
|
5.0%
|
$93.5m
|
3.7%
|
5.18 The Council’s
Treasury Policy sets out minimum and maximum levels of fixed versus floating
interest rate loans the Council is permitted to hold at any point in time. The
policy is to guide officers within the Council’s risk tolerance to
interest rate rises, and equally interest rate falls.
|
Debt Period Ending
|
Minimum Fixed
|
Maximum Fixed
|
|
Current
|
50%
|
95%
|
|
Year 1
|
45%
|
95%
|
|
Year 2
|
40%
|
90%
|
|
Year 3
|
35%
|
85%
|
|
Year 4
|
30%
|
80%
|
|
Year 5
|
25%
|
75%
|
|
Year 6
|
15%
|
70%
|
|
Year 7
|
0%
|
65%
|
|
Year 8
|
0%
|
60%
|
|
Year 9
|
0%
|
55%
|
|
Year 10
|
0%
|
50%
|
|
Year 11
|
0%
|
45%
|
|
Year 12
|
0%
|
40%
|
|
Year 13
|
0%
|
35%
|
|
Year 14
|
0%
|
30%
|
|
Year 15
|
0%
|
25%
|
|
Year 16
|
0%
|
20%
|
5.19 In recent times New
Zealand has enjoyed a period of benign interest rates, with interest rates remaining
low for a long period.
5.20 While there are signs
internationally that interest rates are starting to rise (particularly in the
USA), the New Zealand Reserve Bank Governor has signalled that it expects that
the New Zealand OCR will remain at 1.75% through 2019 and into 2020.
5.21 As is clearly
demonstrated in the line graph above entitled “cost of different loan
instruments”, fixed interest rate loans come at a cost premium to reflect
that you are essentially passing the interest rate risk to another entity.
5.22 Officers have asked
PwC whether in this period of benign interest rates whether Council should be
holding 50% of its short term debt as fixed, or whether there is an opportunity
to soften this level of interest rate cover and save the rate payer some money.
5.23 Officers investigated
the following change which could give the Council a higher level of flexibility
to take advantage of the cheaper floating rates for years 1-3 when all market
signals are that the risk of significant interest rate rises in this period
will be minimal:
|
Debt Period Ending
|
Minimum Fixed
|
Maximum Fixed
|
|
Current
|
50% 40.0%
|
95%
|
|
Year 1
|
45% 37.5%
|
95%
|
|
Year 2
|
40% 35.0%
|
90%
|
|
Year 3
|
35% 32.5%
|
85%
|
|
Year 4
|
30%
|
80%
|
|
Year 5
|
25%
|
75%
|
|
Year 6
|
15%
|
70%
|
|
Year 7
|
0%
|
65%
|
|
Year 8
|
0%
|
60%
|
|
Year 9
|
0%
|
55%
|
|
Year 10
|
0%
|
50%
|
|
Year 11
|
0%
|
45%
|
|
Year 12
|
0%
|
40%
|
|
Year 13
|
0%
|
35%
|
|
Year 14
|
0%
|
30%
|
|
Year 15
|
0%
|
25%
|
|
Year 16
|
0%
|
20%
|
5.24 PwC’s response
to the proposal was “our preference would be to maintain the minimum
parameters, supporting Council's continued prudent stewardship of financial
risks and delivery of interest costs which met expected budgets and plans.
Despite the view
that the interest rate market in NZ will remain reasonably benign over the next
few years, we'd see this as informing the strategy of where to be positioned
within the risk control limits, rather than indicating a need to change the
parameters themselves.
The current
risk control limits remain very consistent with the sector and continue to
allow significant flexibility and participation in the low floating interest
rate environment without exposing Council to undue risk should interest rates
not match currently expectations (especially against the backdrop of
anticipated debt level increases).”
5.25 Officers have also had
informal discussions’ with another treasury advisor who also advises New
Zealand Councils. Their clients also have fixed interest minimum and maximum
exposures but have grouped their banding into Years 0-2, 2-4, 4-7, and 7-10.
5.26 They are currently advising
clients to be at or just below minimums in years 0-2, and not to have any cover
in years 7-10. They believe there is little risk of interest rate rises at the
short end, and the risk premiums being charged at the longer end outweigh, in
their view, the risk of possible interest rate rises being in excess of those
premiums.
5.27 Both advisors take is
that policies are a guide of what an average prudent Council would have as
interest rate cover on an average day. Councils should then monitor economic data,
take advice, and form a view on where they think interest rates are likely to
go, what is likely to happen to their Councils debt levels in the future, and
from this set an interest rate strategy that takes all this (including their
policy) into account.
6.0 PREFERRED
OPTION/S AND REASONS
6.1 Proposal
One: 3.1 External Debt Ratios and Limits
6.2 After
much deliberation by Officers, while the proposed ratio of 175% isn’t
unreasonable, based on the 2018-2028 LTP the minimum headroom being available
being $38m is considered more than enough in normal conditions.
6.3 Increasing
the limit to 175% would contradict the Financial Strategy contained in the LTP
where the goal is to repay debt as quickly as possible recreating the necessary
headroom and utilising rating surpluses where possible.
6.4 It is
also acknowledged that while our policy sets Councils limit at 150% of revenue,
this doesn’t preclude Council from breaching policy and utilising
LGFA’s higher limit of 250% in the case of an emergency such as a natural
disaster.
6.5 Therefore
on balance Officers are recommending Option 2, that the current limit of 150%
remain unchanged.
6.6 Proposal
Two: 5.1.3 Interest Rate Risk Control Limits
6.7 After
considering the advice of both treasury advisors Officers are of the opinion
that Interest Rate Risk Control Limits only provides a guiding framework for a
prudent Council. It’s the Council’s Interest Rate strategy that
guides what it does within this framework that gives the Council its
flexibility.
6.8 Therefore
on balance Officers are recommending Option 2, that the current interest rate
risk control limits remain unchanged.
|
7.0 RECOMMENDATIONS
AND REASONS
A) That
the report of the Manager Strategic Finance titled “Annual
Review of Treasury Management Policy and Treasury Performance”
dated 5/11/2018 be received.
B) That
the Risk and Audit Subcommittee recommend that Council approves the
attached Treasury Management Policy (PMD-02-06-03-18-37) as written.
|
Attachments:
|
1
|
Treasury Policy Draft October 2018
|
PMD-02-06-03-18-37
|
Separate dOC
|
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
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 5 November
2018.
3.0 CURRENT
SITUATION
Credit Rating
3.1 Standard
& Poor’s will be on-site on 13 November 2018 to undertake their
annual review of our credit rating.
Monthly Financial
Reporting to Council
3.2 Following
recommendations from Risk & Audit to increase the frequency of financial
reporting to Council, staff have developed a high level financial report that
was presented to Council for the first time at the October 25 Council meeting.
It is expected that this report will evolve over time but provides Officers
with the opportunity to update Council on risks that the organisation is facing
in the delivery of programmes of work that the Council has approved through the
Long Term Plan and subsequent Annual Plans.
Bridge Insurance
Cover
3.3 Council
currently insures its bridges through AON and as part of the MWHBLASS
Infrastructure Insurance Group. At the time of writing Council had been
advised that the overall increase in premiums for the group will be 26% with
10% from increased asset values and with a 16% increase in the overall premium
rate.
3.4 Advice from AON is that this level of increase is not unreasonable
due to the continued hardening market post Kaikoura and natural disasters
globally in 2017 and a slight increase in values. The situation has not
been helped by less insurers providing capacity with some withdrawing
completely.
3.5 The final allocation of premiums to the participating Councils has
yet to be provided.
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 5/11/2018
be received.
|
Attachments:
|
1
|
Status of Actions 31 October 2018
|
FIN-09-01-18-159
|
|
|
Status of Actions 31 October 2018
|
Attachment 1
|
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
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 the Internal Audit plan.
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 Internal Audit update be received.
2.0 CURRENT
SITUATION
Data Analytics
2.1 This
is the second year that we have had Crowe Horwath undertake the data analytic
assessment across the Accounts Payable and Payroll masterfiles and the years
transactional data, this time from 1 July 2017 to 30 June 2018. The objective
of the data analytics was to perform a data analysis review that involved an
analysis of master file data and transaction data for payroll and vendor
(accounts payable) payments. The data analysis work did not include assessment
of the respective internal controls within the business processing areas and
was limited to factual reporting of identified data anomalies as per the
specified tests undertaken.
2.2 The
testing outcomes were achieved by the extraction, validation and analysis of
the relevant data files from the payroll and finance application systems. This
data was then imported into data analysis software where the specified tests
are performed upon the logical structure and reasonableness of the data, to
identify any anomalies.
2.3 Crowe
Horwath have provided workbooks of the high level summary findings of the
testing, associated risks and where appropriate recommendations for further
investigation of transactions or masterfile data should be undertaken and noted
that there were no significant concerns that arose from the testing.
2.4 The
analysis provided 45 recommendations or comments on the outcomes of the
analysis on the tests for the payroll and vendor masterfile and transactional
data. Officers are reviewing the recommendations and have not found any
suspicious transactions. Officers will also review the outcomes of the
results from the tests undertaken and consider if there are opportunities for
making improvements to current practices.
2.5 Contract
Management Review
2.6 Crowe
Horwath have recently completed a review of Council’s contract management
practices, a copy of the report is attached as Attachment 1. As part of
that review, Crowe Horwath reviewed a large amount of documentation,
interviewed staff and reviewed three contracts currently in place. The three
contracts chosen for review involved three different parts of Council and three
different types of contracts:
· MCL – Heretaunga Street Laneway (construction)
· Technology One – Software Licencing (service)
· Fulton Hogan – Roading Maintenance (maintenance
contract)
2.7 Crowe
Horwath have separated their findings into four sections:
· Policies and Procedures;
· Roles and Responsibilities;
· Contract Risk Management; and
· Contract Management Performance
2.8 A key
part of their recommendations they have identified that there is a lack of
council wide contract management policies, procedures, templates and manuals.
While these exist in places, they have been developed for particular areas of
Council or by specific staff to meet their own needs.
2.9 This
review has highlighted for Council that while work has been done to improve the
robustness of council’s contract management, it has often been done at a
group or team level and not with the wider organisations needs in
consideration. There is significant opportunity to improve these practices.
2.10 There are 14
recommendations made with the majority of those recommendations assessed as
having moderate risk to the organisation.
2.11 With the draft report
only received on October 18th, and the final report on 26th
October, Officers have yet to work through how the recommendations can be
implemented, over what time frame and what resources will be required to
deliver on those recommendations. It is expected that an updated report on this
review along with an action plan for the recommended improvements will be
prepared and provided to the next Risk & Audit Subcommittee meeting.
2.12 Audit Action Plan
2.12.1 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 recommendations. Note that at this stage
the most recent contract management audit has yet to be added to this schedule
as there is some work required to understand how those recommendations can be
delivered, the resources required and the time needed to do so.
|
3.0 RECOMMENDATIONS
AND REASONS
A) That
the report of the Chief Financial Officer titled “Internal
Audit Update” dated 5/11/2018 be received.
|
Attachments:
|
1
|
Crowe Horwath - Contract Management Review - October
2018
|
CG-14-25-00067
|
Separate Doc
|
|
2
|
Audit Action Sheet - October 2018
|
CG-14-71-00011
|
|
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Chief Financial Officer
Bruce
Allan
SUBJECT: Funding
of Depreciation
1.0 SUMMARY
1.1 The
purpose of this report is to inform the Subcommittee about the appropriateness
of Council’s approach to funding depreciation.
1.2 This
issue arises from request a from the Risk & Audit Subcommittee for
assurance that Council is appropriately considering the need to adequately fund
the renewal of its infrastructure assets.
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 This
report concludes by recommending that the report be received.
2.0 BACKGROUND
2.1 Council’s
Financial Strategy included in the 2018-28 Long Term Plan includes an overview
of how depreciation is treated and how it relates to the level of asset
renewals budgeted for. The following is an excerpt taken from the current
Financial Strategy:
“2.2.2 Funding Depreciation
Depreciation
Overview
Depreciation reflects the use or consumption of the service potential implicit
in an asset.
As depreciation reflects
the consumption of the asset over its useful life, there are two critical factors in determining this expense.
The first is the asset cost or revalued
amount, and the second
is the asset’s useful
life. It is therefore
not related to the physical wearing
out of the asset.
The purpose of depreciation
is not to provide
for the replacement of the asset(s); however
this may be an intended
or unintended consequence.
Depreciation is especially important as it ensures that today’s ratepayers pay their
fair share (and only their fair share) of consumption of the assets. Depreciation is therefore a vital component in the process
of setting rates and charges.
As depreciation is a non-cash item of expenditure, the inclusion of
the depreciation expense within total operational expenditure will result in a
funding surplus from operations. It is then a council’s decision as to
how that surplus funding should be allocated. Broadly, there are four options:
1) Repay debt
2) Pay for renewal expenditure
3) Acquire new assets
4) Transfer to a
reserve for the replacement or future renewal of an asset.
There is no direct legal requirement to “fund
depreciation” in a way where there is the transfer of the depreciation
expense to a specific reserve or accumulation of cash to be used either for the
replacement of an asset or for the loan repayment associated with the
acquisition of that asset. However, there is a requirement to be prudent in the
setting of funding levels.
Balanced Budget Overview
Section 100(1) of the Local Government Act 2002 (the 2002 Act)
requires local authorities to set each year’s operating revenue at a
level sufficient to meet operating expenses, i.e. “balance the
budget”. However, section 100(2) of the 2002 Act allows a local authority
to set projected operating revenues at a different level from that which would
be necessary to meet operating expenses, in certain circumstances where it is
financially prudent to do so.
Council’s overarching principal is that it will operate a
balanced budget and take an approach to fully funding depreciation where it is
appropriate to do so given the intergenerational nature of infrastructure
assets. Where assets are young and renewals are not currently required, the
approach is to ensure that the current generation only pays its share through
the repayment of debt associated with the new infrastructure in place and any
future provision for its replacement in the future.
Depreciation is important because it is designed to ensure that
today’s ratepayers pay their “fair share” for the amount of
the council’s assets that they consume, essentially through wear and
tear. So what we describe as a depreciation expense is essentially the cost of
undertaking necessary maintenance and renewal to ensure council assets continue
to perform as expected: something that reflects good governance and stewardship
of our community’s built up investments.
Depreciation is the key driver that council uses to ensure
sufficient investment in asset renewals is being undertaken, it creates the
bottom line and provides a consistency of approach, assuming the depreciation
calculations are correct.
While the overarching principal is to fund depreciation, there are
some asset classes where this is not necessary or sustainable at the current
time.
Council’s Balanced budget 2018-28 Long Term Plan
Council’s overarching policy is to run a balanced budget.
There are however pressures on Council to achieve this in the early years of
the 2018-28 LTP with significant increases in operational expenditure for the
water services delivery activity. There is expected to be a period of time
where Council will struggle to achieve the balanced budget while it adjusts the
water supply targeted rate to meet the new expenditure profile for water.
However, under the defined benchmark calculation in the Local
Government Act 2002 Council is running a balanced budget despite the large
increase in operational expenditure required for the Water Supply activity and
the Council approach of introducing a staged programme of water supply targeted
rate increases which will require some short term borrowing to fund the water
supply operating account deficit while this programme of targeted rate
increases take effect.
Depreciation funding by activity
In summary the approach to funding depreciation in this plan is as
follows:
1) Roading
a) Policy of fully funding
depreciation dependent upon New Zealand Transport Agency funding
b) The forecast plan shows
depreciation fully funded
2) Wastewater
a) Policy adopted to fully funding
depreciation
b) From year 5 of the LTP,
escalations commence introducing additional rates funding to fund the
depreciation gap
c) A strategy needs to be developed
to fund waste water treatment plant replacement in the future (about 30 years)
3) Stormwater
a) The uninflated 30 year
Infrastructure Strategy renewal programme is aligned with current rates funding
policy of $625,000 per annum
b) Within this plan the $625,000 funding
provision has been inflation adjusted
4) Water Supply
a) Depreciation is fully funded. A
proposal to combine the rating areas water supplies is included in this plan
5) Parks
a) Depreciation is fully
funded”
2.2 Attached
as Attachment 1 is the work paper prepared to inform the policy position
included in the 2018-28 Long Term Plan. The work paper highlights some areas
where further clarification is required and highlighted some areas where
changes were required to the current funding arrangements. The Long Term Plan
has put in place changes for Wastewater in particular where an increase in
rates funding is to be provided to meet the ongoing renewal requirements, some
of which have historically been loan funded.
2.3 While
it is acknowledged that depreciation is a method of calculating the expected
value of asset renewals, it is by no means an accurate assessment and in some
asset classes, Stormwater for example, applying the depreciation value as a
default for asset renewals would be inappropriate given the young age of these
assets and the very low level of asset renewals required.
2.4 Council’s
Asset Management Plans should be the most appropriate way of determining the
level of asset renewals required and it is these Plans that have informed the
2018-28 Long Term Plan and Infrastructure Strategy.
|
3.0 RECOMMENDATIONS
AND REASONS
A) That
the report of the Chief Financial Officer titled “Funding
of Depreciation ” dated 5/11/2018 be received.
|
Attachments:
|
1
|
Depreciation Funding Policy 2018-28 Long Term Plan
Financial Strategy
|
CP-10-1-18-217
|
Separate Doc
|
REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Chief Financial Officer
Bruce
Allan
SUBJECT: Riskpool
Call for 1 July 2019
1.0 PURPOSE
1.1 The purpose of this report is to inform the Committee about the
advice received from the Board of RiskPool that they will be making a call on
Council for a shortfall in the mutual pool’s funds.
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 RiskPool
was a mutual liability fund owned by its member Councils giving cover
previously provided by commercial liability insurers. It provided Public
Liability and Professional Indemnity cover for its members from 1997 to
2017.
2.2 It
operated on the basis that all members made an annual contribution, part of
which was used to purchase reinsurance and this along with the fund provided
cover for claims made against members. The Trust Deed provided that if in
any year claims exceed reinsurance resources and member’s contributions
the Board may make a call on the members of the fund for that particular year.
2.3 The
following table outlines the premiums paid and the calls made during the time
HDC was a member of Riskpool:
Riskpool Premiums
& Calls History (excl GST)
|
Membership
Year
|
Premium
|
Call
|
|
15/16
year
|
94,740
|
|
|
14/15
year
|
78,950
|
|
|
13/14
year
|
75,190
|
|
|
12/13
year
|
73,000
|
|
|
Jul-12
|
|
88,299
|
|
11/12
year
|
64,000
|
|
|
Jul-11
|
|
88,300
|
|
10/11
year
|
59,000
|
|
|
Jul-10
|
|
88,300
|
|
Sep-09
|
|
40,360
|
|
09/10
year
|
51,000
|
|
|
08/09
year
|
61,000
|
|
|
07/08
year
|
66,400
|
|
|
06/07
year
|
73,796
|
|
|
05/06
year
|
71,997
|
|
|
04/05
year
|
70,241
|
|
2.4 When
a local authority withdraws from the fund the liability to respond to
subsequent calls remains for the years that it was a member. Council last
participated in the fund in 2015/16.
3.0 CURRENT
SITUATION
3.1 Attached
as Attachment 1 is a letter received from Riskpool dated 12 October 2018
outlining the need to make another call on its members. The first since
2012. Also attached as Attachment 2 is a copy of the
Chairman’s report from the 2018 Riskpool Annual Report. The
Chairman’s report provides a bit more context to the current situation
for Riskpool.
3.2 Riskpool
is now in a “runoff” phase with the decision made last year that
new covers from Riskpool would not be offered from 1 July 2017. It was
acknowledged by the Riskpool Board that it was a difficult decision to make,
but support from the sector had dropped, particularly from the larger
Council’s. Without support from the sector Riskpool could not offer
the competitively priced cover it had been able to offer in the past.
3.3 Members
were advised last year that further additional contributions from members
(calls) would be required.
3.4 As at
30 June 2018, Riskpool’s accounts show a deficit of $7.4 million. The
deteriorating claims experience in 2017‐18
means that Riskpool needs to make at least one interim call before a final call
is made on wind up. The call will be $6 million payable on 1 July 2019, split
$3 million each to fund years 7 (2003/04) and 10 (2006/07).
3.5 The
amount of this call for Hastings District Council will be $55,805 payable on 1
July 2019.
3.6 Another
and hopefully final call from Riskpool is likely in 2022 or 2023. It is
expected that the amount of that call will be less than this one.
4.0 SUMMARY
4.1 This
report is provided for information purposes and Council is legally obliged to
meet this call. Officers will assess whether this call can be met
from existing budgets or be incorporated into the 2019/20 Annual Plan.
|
5.0 RECOMMENDATIONS
AND REASONS
A) That
the report of the Chief Financial Officer titled “Riskpool
Call for 1 July 2019” dated 5/11/2018 be received.
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Attachments:
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1
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Letter from Riskpool 12 October 2018
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IRB-3-12-18-164
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|
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2
|
Chairman's Report from Annual Report for the year
ended 30 June 2018
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CG-14-25-00063
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|
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Letter from Riskpool 12 October 2018
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Attachment 1
|
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Chairman's Report from Annual Report for the year ended
30 June 2018
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Attachment 2
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REPORT TO: Risk
and Audit Subcommittee
MEETING DATE: Monday 5
November 2018
FROM: Health and Safety Manager
Jennie
Kuzman
SUBJECT: Health
& 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 an update report to the Risk and Audit Subcommittee on Health
and Safety risk management.
3.0 CURRENT
SITUATION
3.1 Effectiveness
of Health and Safety Control Measures
3.2 A
report regarding the effectiveness of Health and Safety risk management
controls was provided to the Risk and Audit Subcommittee at the September 2018
Meeting. This report identified that Council’s current control measures
are ‘adequate’ and that Council is meeting its Health and Safety
legal obligations (as deemed through an internal assessment).
3.3 During
the Risk and Audit Subcommittee meeting in September, committee members queried
what would be required to move from ‘adequate’ controls to
‘robust’ controls, to be addressed at the November 2018 meeting.
3.4 Any
assessment of ‘robustness’ should be undertaken externally via an
audit process; it is not something that is appropriate to be assessed
internally. External audit verification benchmarks Council’s Health and
Safety system and performance against a recognised Health and Safety standard
and provides an independent view of the effectiveness of Council’s Health
and Safety system. An external audit also assists Council to better
understand the risks and effectiveness of controls and compare how well Council
is performing in relation to other organisations.
3.5 From
February 2019, Council’s current external audit certification (ACC WSMP
accreditation) lapses, and the scheme is now defunct. This means from March
Council will have no external verification of Council’s H&S systems.
Given this, officers have been giving consideration to alternative external
audit options.
3.6 The
Chief Executive has now authorised implementation of the international Health
and Safety standard ISO 45001:2018 which has been adopted by New Zealand
(replacing all previous NZ standards).
3.7 Officers
are currently working through a procurement process to engage a specialist
consultant to develop an implementation plan, this will include a gap analysis
of what is required to meet the standard and an initial audit assessment. It is
anticipated that the implementation plan will be completed by the end of the
first quarter of 2019.
3.8 Once
this process has been completed, officers will be able to provide an update to
the Subcommittee regarding what would be required to move from
‘adequate’ controls to ‘robust’ controls,
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
& Safety Risk Management Update” dated 5/11/2018
be received.
|
Attachments:
There are no
attachments for this report.
