Agenda of Audit and Risk Committee

I hereby give notice that an ordinary meeting of the Audit and Risk Committee will be held on:

Date:

Time:

Meeting Room:

Venue:

Friday, 13 December 2013

9:00am

Boardroom
Auckland Town Hall
301-305 Queen Street
Auckland

Audit and Risk Committee

OPEN AGENDA

MEMBERSHIP

Chairperson	Sir John Walker, KNZM, CBE
Deputy Chairperson	Dr Cathy Casey
Members	Cr Cameron Brewer
	Cr Bill Cashmore
	Cr Sharon Stewart, QSM
	Cr Penny Webster
Ex-officio	Mayor Len Brown, JP
	Deputy Mayor Penny Hulse

(Quorum members)

Mike Giddey

Democracy Advisor

10 December 2013

Contact Telephone: (09) 307 7565

Email: mike.giddey@aucklandcouncil.govt.nz

Website: www.aucklandcouncil.govt.nz

Audit and Risk Committee

13 December 2013

ITEM TABLE OF CONTENTS PAGE

1 Apologies 5

2 Declaration of Interest 5

3 Confirmation of Minutes 5

4 Petitions 5

5 Public Input 5

6 Local Board Input 5

7 Extraordinary Business 5

8 Notices of Motion 6

9 Overview of the roles of Internal Audit and Risk Management 7

10 Office of the Auditor General 9

11 Management Report to the Governing Body on the Audit of Auckland Council for the year ended 30 June 2013 11

12 External Appointees to the Audit and Risk Committee 35

13 Update on Risk Management Activities 37

14 Report of the Controller and Auditor General Inquiry into the Mangawhai Community Wastewater Scheme 41

15 Chief Executive's update 43

16 Consideration of Extraordinary Items

PUBLIC EXCLUDED

17 Procedural Motion to Exclude the Public 45

C1 Update on Internal Audit activities 45

C2 Update on Ethics and Integrity Activities 45

C3 Appointment of Roy Tiffin to the Audit and Risk Committee 45

C4 Chief Executive's update - Confidential 46

1 Apologies

At the close of the agenda no apologies had been received.

2 Declaration of Interest

Members are reminded of the need to be vigilant to stand aside from decision making when a conflict arises between their role as a member and any private or other external interest they might have.

3 Confirmation of Minutes

There were no minutes to confirm.

4 Petitions

At the close of the agenda no requests to present petitions had been received.

5 Public Input

Standing Order 3.21 provides for Public Input. Applications to speak must be made to the Committee Secretary, in writing, no later than two (2) working days prior to the meeting and must include the subject matter. The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders. A maximum of thirty (30) minutes is allocated to the period for public input with five (5) minutes speaking time for each speaker.

At the close of the agenda no requests for public input had been received.

6 Local Board Input

Standing Order 3.22 provides for Local Board Input. The Chairperson (or nominee of that Chairperson) is entitled to speak for up to five (5) minutes during this time. The Chairperson of the Local Board (or nominee of that Chairperson) shall wherever practical, give two (2) days notice of their wish to speak. The meeting Chairperson has the discretion to decline any application that does not meet the requirements of Standing Orders.

This right is in addition to the right under Standing Order 3.9.14 to speak to matters on the agenda.

At the close of the agenda no requests for local board input had been received.

7 Extraordinary Business

Section 46A(7) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

“An item that is not on the agenda for a meeting may be dealt with at that meeting if-

(a) The local authority by resolution so decides; and

(b) The presiding member explains at the meeting, at a time when it is open to the public,-

(i) The reason why the item is not on the agenda; and

(ii) The reason why the discussion of the item cannot be delayed until a subsequent meeting.”

Section 46A(7A) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

“Where an item is not on the agenda for a meeting,-

(a) That item may be discussed at that meeting if-

(i) That item is a minor matter relating to the general business of the local authority; and

(ii) the presiding member explains at the beginning of the meeting, at a time when it is open to the public, that the item will be discussed at the meeting; but

(b) no resolution, decision or recommendation may be made in respect of that item except to refer that item to a subsequent meeting of the local authority for further discussion.”

8 Notices of Motion

At the close of the agenda no requests for notices of motion had been received.

Audit and Risk Committee

13 December 2013

Overview of the roles of Internal Audit and Risk Management

File No.: CP2013/28237

Purpose

1. To inform the Audit and Risk Committee of the structure and roles of the Risk, Internal Audit, and Ethics & Integrity teams.

Executive Summary

2. The teams making up the former Risk and Assurance department have been realigned to reflect the three lines of defence model for risk management and assurance.

Recommendation/s

That the Audit and Risk Committee:

a) receive the Overview of the roles of Internal Audit and Risk Management.

Discussion

3. In September 2013 the Risk and Assurance team was split into its four constituent parts:

· Risk Management (reporting to HR)

· Assurance (reporting to Governance)

· Ethics & Integrity (reporting to HR)

· Insurance (reporting to Finance)

4. Assurance has recently been renamed Internal Audit to provide greater clarity and avoid confusion with Insurance and the previous Risk and Assurance structure.

5. The roles of Risk and Internal Audit reflect the three lines of defence model for risk management and assurance.

· Management (1st Line) is responsible for identifying and managing risks and establishing a robust control environment in their own business areas

· Risk (2nd Line) develops and leads implementation of the risk management policy and framework, provides training and risk advice, coaches and advises management, and monitors and reports risk at an organisation level

· Internal Audit (3rd Line) provides independent oversight of the organisation’s risk and control environment. Having a separate reporting line from Risk enables Internal Audit to also review the effectiveness of the 2nd line of defence. While Internal Audit works closely with management and ELT, its main responsibility is to provide assurance and transparency to the Audit and Risk Committee

6. Ethics and Integrity usually performs a 2^nd Line of defence role, for example providing ethics and integrity training, facilitating conflicts of interest management, and investigating allegations of staff misconduct to support HR. However in some cases Ethics and Integrity may support Internal Audit or external providers to deliver 3^rd Line assurance.

7. Further information on the operations of Risk Management, Internal Audit, and Ethics and Integrity is contained in separate activity reports provided by each area.

Consideration

Local Board Views

8. Consideration of Local Board views was not required for this report

Maori Impact Statement

9. The Report does not have any particular benefit to or adverse effects on Maori.

General

10. None

Implementation Issues

11. None

Attachments

There are no attachments for this report.

Signatories

Author	Nick Rennie – Internal Audit Manager
Authoriser	Grant Taylor - Governance Director

Audit and Risk Committee

13 December 2013

Management Report to the Governing Body on the Audit of Auckland Council for the year ended 30 June 2013

File No.: CP2013/26445

Purpose

1. To present Audit New Zealand’s final management report on the audit of Auckland Council for the year ended 30 June 2013.

Executive Summary

2. Audit New Zealand have completed the audit for the year ended 30 June 2013. The report sets out Audit New Zealand’s findings from the audit and draws attention to areas where Auckland Council is doing well or where recommendations have been made for improvements.

Recommendation/s

That the Audit and Risk Committee:

a) receive the final management report from Audit New Zealand on the audit of Auckland Council for the year ended 30 June 2013.

b) note the recommendations made by Audit New Zealand for improvements, and Council’s responses.

Discussion

3. The Audit New Zealand report highlights six substantive or significant items along with management's comments. This report updates progress on the items.

4. SSP reporting

Local authorities have two primary sets of measures of performance; financial and service level performance at times referred to as non-financial. The focus of attention generally tends towards the financial systems and control environment. Amendments to the Local Government Act (LGA) are directed at placing greater emphasis on and importance to the service level measures.

5. Audit New Zealand and the Auditor General have commented that while Auckland Council's performance measures and reporting meet the requirements of the LGA, it is an area where we could and should do better. The Auditor-General reinforced this in her presentation to the Governing Body in September 2013.

6. A good performance framework commences with the annual plan, is used by officers to manage the activities of Council and finishes with the annual report. In the report the performance measures along with the financial results are the cornerstone of accountability to the stakeholders.

7. Auckland Council should:

· Take steps in the 2014/15 annual plan to improve the standard of measures and targets

· Ensure the measures are used on a regular basis to monitor and manage performance

· Provide improved commentary relating to achievement of targets in annual reports.

8. The terms of reference of the Audit and Risk Committee extend to the performance framework, measures and targets.

9. Diversified Financial Asset Portfolio (DFA)

The DFA is a $318 million investment fund.

The discussions with Audit New Zealand centred on technical financial reporting issues. There were no concerns regarding the management of the fund or appropriateness of the investments.

An important aspect of the discussions was on inconsistent accounting treatment over the years and between the annual plans and reports.

To maintain the "fair value through profit and loss" classification Council will need to implement:

· Changes to the presentation of the income and transactions in the profit and loss account and cash flow statement.

· Management practices based on fair value.

10. PPE valuations

Council revalues major classes of fixed assets on a regular cycle. A condition of revaluing is a requirement to re-assess the fair value of the assets in the years between full revaluations. If the fair value (market value) increases too much, a new earlier revaluation may be required.

11. With the rapid increase in property values in Auckland the fair value of the operational land and buildings asset class may have changed sufficiently to trigger a revaluation. At this stage we believe the values from June 2012 will be acceptable for the December 2013 accounts. More work and discussion with Audit New Zealand is required to determine if the values will be acceptable for the June 2014 accounts.

12. Asset Management Plans and Procurement

An update will, be provided at the meeting.

13. Unrecorded misstatements

During the course of the audit, Audit New Zealand identified items for which the accounting treatment was not correct.

The misstatements are not material individually or cumulatively.

Management does not dispute Audit New Zealand's view and will make the necessary corrections in 2013/14.

Consideration

Local Board Views

14. The issues raised by Audit New Zealand in their report are related to the accounts of the entity and do not affect financial reporting to local boards. As such the views of local boards have not been sought.

Maori Impact Statement

15. The issues raised by Audit New Zealand do not affect the achievement or reporting of Council’s contribution towards Maori outcomes.

General

16. There are no financial or resourcing issues arising from the adoption of this report.

Implementation Issues

17. There are no implementation issues.

Attachments

No.	Title	Page
a	Final Management Report to the Governing Body on the Audit of Auckland Council for the year ended 30 June 2013	15

Signatories

Author

Robert Nelson – Financial Controller

Authorisers

Kevin Ramsay - Manager Finance

Grant Taylor - Governance Director

Audit and Risk Committee

13 December 2013

External Appointees to the Audit and Risk Committee

File No.: CP2013/28243

Purpose

1. To describe the role of external members on the Audit and Risk Committee and recommend the appointment of two external members.

Executive Summary

2. The role of external members on the Audit and Risk Committee is to provide technical knowledge and experience. Although previously there was only one external member, adding an additional external member would provide significant benefit through bringing a broader range of experience and technical knowledge, and allowing continuity when new external members are appointed.

Recommendation/s

That the Audit and Risk Committee:

a) receive the External Appointees to the Audit and Risk Committee Report.

b) recommend to the Governing Body that two external members be appointed to the Audit and Risk Committee.

Discussion

3. In Auckland Council’s first term, the Audit and Risk Committee had one external appointed member, Mr Roy Tiffin.

4. The role of the appointed member is to bring relevant technical finance, risk and business knowledge to the committee, for example covering technical accounting matters, risk management, or general business management. In practice this involves the following:

5. Before the meeting

· Meet with the Chair and Council officials to agree on the agenda items for the meeting

· Meet with the Office of the Auditor General and Audit NZ to discuss any issues arising from their reports.

· Meet separately with the Chair immediately before the meeting to review the agenda papers, and to advise on any particular issues which are likely to arise and any significant areas of focus.

· Discuss any significant issues with the relevant Council officials (Risk Management, Internal Audit or Financial Accounting), if required, to clarify issues.

6. During the meeting

· Lead the Committee’s discussion on technical matters, where necessary

· Provide independent advice to the Chair and the Committee members on any technical or other issues

· Contribute to the smooth running of the meeting by participating in the discussions as a Committee member

7. Between meetings

· Meet with Council officials on a regular basis to discuss significant issues and any emerging issues

· Meet with the Office of the Auditor General and Audit NZ to discuss significant issues and any important sector issues

Liaise with the Chief Executive on specific matters, as requested.

8. It is currently common practice to have two external members on the committee. This approach is supported by Audit New Zealand. The benefits of this would be:

· the ability for the external members to bring a broader range of experience to the committee

· providing continuity and retaining institutional knowledge by having overlapping terms for each external member so that when a new member joins the committee, the other is partway through their term.

Consideration

Local Board Views

9. Consideration of Local Board views was not required for this report

Maori Impact Statement

10. The Report does not have any particular benefit to or adverse effects on Maori.

General

11. None

Implementation Issues

12. None

Attachments

There are no attachments for this report.

Signatories

Author	Nick Rennie – Internal Audit Manager
Authoriser	Grant Taylor - Governance Director

Audit and Risk Committee

13 December 2013

Update on Risk Management Activities

File No.: CP2013/28430

Purpose

1. This report summarises the activities undertaken by the Risk Management Department since the last report to the Audit and Risk Committee in September 2013.

Executive Summary

2. The Risk Management Department continued to implement the Enterprise Risk Management (ERM) Policy and Framework across the Council through stakeholder engagement, workshops and development of risk frameworks in high risk areas.

3. The Risk Management Department in collaboration with the Executive Leadership Team (ELT) is reviewing the Enterprise Risk Management Policy and Framework which will be reported to the committee at a future meeting.

Recommendation/s

That the Audit and Risk Committee:

a) receive the Update on Risk Management Activities report.

Discussion

4. Organisation-wide Risk Registers

· Strategic and operational risks are recorded in the centralised business reporting system (Opal3). Ongoing monthly reporting by risk owners commenced from September 2013 through the automated system. Risk owners are required to update actions taken to mitigate risks, which are highlighted in monthly reporting to the Executive Leadership Team (ELT). Ongoing support and focus on risk management by ELT and the Senior Leadership Team is contributing towards a better risk culture within Council.

5. Strategic Risks

· The key strategic risks for Council are those that may potentially affect the delivery of its strategic direction including the delivery of the Auckland Plan.

· The top 20 risks were reviewed by ELT in November 2013 and consideration is being given to the validity of the real risks affecting Council. Risk Management is currently engaging with ELT and the Risk Owners to clarify the top 20 risks. It has been agreed with ELT that a “hot topics” risk report will be tabled at the monthly meeting to discuss the unforeseen issues/incidents that requires immediate consideration (these risks may not form part of the top 20 risks but could occur on an ad hoc basis).

6. Operational Risks

· Key operational risks are being identified by each business unit on an ongoing basis.

· Risk Management has initiated a top-down approach, commencing with ELT to ensure that all risk registers are migrated onto Opal3 to provide single point visibility for effective risk management.

7. Enterprise Risk Management Framework

· The Enterprise Risk Management Framework identifies risk categories (generally referred to as risk universe). To ensure adequate mitigation is in place, specific risk frameworks are being developed in high risk/strategic areas to get greater coverage from a risk management perspective. The following are in progress:

· Programme Risk Framework – ongoing monitoring of NewCore programme level risks continues, which also includes monthly review of the NewCore risks with the project team.

· IT Risk Framework – Risk Management is in the process of reviewing key risks in the Information Services division as part of the targeted risk review program, due to it being a critical enabler in providing services both internally and externally.

· Liability Risk Framework – to ensure that Council minimises potential risk exposures around financial liability, through contractual arrangements, health & safety and other regulatory or compliance requirements, a Procurement Risk Guideline providing guidance on managing liability within contractual agreements was completed. This guideline provided ground-level risk management guidance to the broader Council-wide insurance and liability project currently being undertaken by Operations, Legal Services, Insurance & Claims Management, Procurement and Risk Management and led by the Chief Operating Officer.

· Treasury Risk Management – quarterly and ad hoc meetings are held with the Treasurer to review treasury risks, potential non-compliance to policy and emerging risks in the debt markets.

· Asset Management Planning – in planning phase in conjunction with the project team to incorporate risk management within the process in identifying critical asset for future maintenance planning.

· Fraud Risk Framework – working in conjunction with Ethics & Integrity Officer to enable Council to minimise fraud risk as reported in the “Fraud Risk Management Gap Analysis” report which highlighted gaps in comparison to “better practice” fraud control programme benchmark as per AS8001-2008 Fraud and Corruption standards. As reported previously by the Ethics and Integrity department, areas where Council is approaching/equal to better practice were fraud control strategy, responsibility structure, employment screening and third party due diligence, fraud reporting systems, investigations and insurance.

8. Risk Management Workshop

· Risk workshops are being conducted with various parts of the business as required.

· Risk Management conducted a workshop for 45 Financial Advisors, providing guidance on the risk reporting improvement initiative.

· Workshops are also held in conjunction with the Asset Management Project team for both Council and CCO participants.

9. CCO Engagement

· ATEED approached Risk Management to provide project risk management for the World Masters Games (2017). As a result a Service Level Agreement is being discussed between Council and World Masters Games 2017 Ltd.

· Auckland Council Property Ltd (ACPL) approached Risk Management to provide guidance on the sale of contaminated land and landfill areas. As a result, Risk Management is in the process of implementing a risk management framework that will be developed in conjunction with Legal, Operations and ACPL.

10. Project Risk Management

· Risk Management provides advice and support to the various project teams by ensuring risks are identified, documented and monitored as part of the Programme and Project Risk Framework.

· The projects that Risk Management are actively involved in are:

o NewCore

o Workplace Strategy

o The Southern Initiative

o Asset Management Planning

o Payment Card Industry Data Security Standards(PCIDSS)

o Waiheke Library

o Lopdell House and Gallery Refurbishment

o Project Connect

Consideration

Local Board Views

11. Local boards have not been consulted because the report primarily deals with internal management issues.

Maori Impact Statement

12. This report does not have any particular benefit or adverse effects on Maori,

General

13. None

Implementation Issues

14. None

Attachments

There are no attachments for this report.

Signatories

Authors

Aashmita Naikar – Risk Manager

Authorisers

Alan Brookbanks - Human Resources Director

Grant Taylor - Governance Director

Audit and Risk Committee

13 December 2013

Report of the Controller and Auditor General Inquiry into the Mangawhai Community Wastewater Scheme

File No.: CP2013/28455

Purpose

1. To advise the committee of a report which will be provided to its next meeting.

Executive Summary

2. The Auditor General recently released her comprehensive report on the inquiry into how the Kaipara District Council managed the Mangawhai Community Wastewater Scheme, including the role played by her office and other agencies.

3. An analysis of the report will be carried out with a view to assessing the risks and lessons which may be relevant to Auckland Council. It is intended to provide a report on this analysis to the Audit and Risk Committee at its next meeting.

Recommendation/s

That the Audit and Risk Committee:

a) note that a report will be presented to its meeting on 18 February 2014 on the Auditor General’s report with respect to the Mangawhai Community Wastewater Scheme and the risks and lessons arising from that report which may be of relevance to Auckland Council.

Attachments

There are no attachments for this report.

Signatories

Author	Grant Taylor - Governance Director
Authoriser	Grant Taylor - Governance Director

Audit and Risk Committee

13 December 2013

Exclusion of the Public: Local Government Official Information and Meetings Act 1987

That the Audit and Risk Committee:

a) exclude the public from the following part(s) of the proceedings of this meeting.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution follows.

This resolution is made in reliance on section 48(1)(a) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by section 6 or section 7 of that Act which would be prejudiced by the holding of the whole or relevant part of the proceedings of the meeting in public, as follows:

C1 Update on Internal Audit activities

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.

In particular, the report contains financial and operational information and details of Internal Audit activity which if released may jeopardise the effetive delivery of Internal Audit services.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

C2 Update on Ethics and Integrity Activities

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 6.

s6(a) - The making available of the information would be likely to prejudice the maintenance of the law, including the prevention, investigation, and detection of offences and the right to a fair trial.

In particular, the report contains financial and operational information regarding investigations which if released my jeopordise the effective delivery of Ethics and Integrity services.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 6.

C3 Appointment of Roy Tiffin to the Audit and Risk Committee

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(a) - The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person.

In particular, the report contains personal information including a CV relating to the appointment of a committee member.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

C4 Chief Executive's update - Confidential

Reason for passing this resolution in relation to each matter

Particular interest(s) protected (where applicable)

Ground(s) under section 48(1) for the passing of this resolution

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

s7(2)(a) - The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person.

In particular, the verbal report may contain financial and operational information regarding Council activities which if released may jeopardise the effective delivery of those activities.

s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.

In particular, the verbal report may contain financial and operational information regarding Council activities which if released may jeopardise the effective delivery of those activities.

s48(1)(a)

The public conduct of the part of the meeting would be likely to result in the disclosure of information for which good reason for withholding exists under section 7.

Author	Mike Giddey - Democracy Advisor
Authoriser	Grant Taylor - Governance Director