Agenda of Audit and Risk Committee

TERMS OF REFERENCE

Responsibilities

The Audit and Risk Committee will be responsible for:

· Providing objective advice and recommendations to the Governing Body regarding the sufficiency, quality and results of assurance on the adequacy and functioning of the council’s risk management, control and governance frameworks and processes.

· Exercising active oversight of all areas of Auckland Council control and accountability (including Council Controlled Organisations), in an integrated and systematic way, such that the results of risk and assurance reviews and external audits may be incorporated in the priority-setting and strategic planning processes.

· Liaison with Audit NZ and, where necessary, the audit committees of CCOs to ensure robust financial audits and reviews of the Auckland Council group

Exclusion of the public – who needs to leave the meeting

Members of the public

All members of the public must leave the meeting when the public are excluded unless a resolution is passed permitting a person to remain because their knowledge will assist the meeting.

Those who are not members of the public

General principles

· Access to confidential information is managed on a “need to know” basis where access to the information is required in order for a person to perform their role.

· Those who are not members of the meeting (see list below) must leave unless it is necessary for them to remain and hear the debate in order to perform their role.

· Those who need to be present for one confidential item can remain only for that item and must leave the room for any other confidential items.

· In any case of doubt, the ruling of the chairperson is final.

Members of the meeting

· The members of the meeting remain (all Governing Body members if the meeting is a Governing Body meeting; all members of the committee if the meeting is a committee meeting).

· However, standing orders require that a councillor who has a pecuniary conflict of interest leave the room.

· All councillors have the right to attend any meeting of a committee and councillors who are not members of a committee may remain, subject to any limitations in standing orders.

Independent Māori Statutory Board

· Members of the Independent Māori Statutory Board who are appointed members of the committee remain.

· Independent Māori Statutory Board members and staff remain if this is necessary in order for them to perform their role.

Staff

· All staff supporting the meeting (administrative, senior management) remain.

· Other staff who need to because of their role may remain.

Local Board members

· Local Board members who need to hear the matter being discussed in order to perform their role may remain. This will usually be if the matter affects, or is relevant to, a particular Local Board area.

Council Controlled Organisations

· Representatives of a Council Controlled Organisation can remain only if required to for discussion of a matter relevant to the Council Controlled Organisation.

1 Apologies

Apologies from Mayor LCM Brown and Deputy Mayor PA Hulse have 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

That the Audit and Risk Committee:

a) confirm the ordinary minutes of its meeting held on Tuesday, 15 September 2015, including the confidential section, as a true and correct record.

4 Petitions

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

5 Public Input

Standing Order 7.7 provides for Public Input. Applications to speak must be made to the Democracy Advisor, in writing, no later than one (1) clear working day 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 6.2 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 one (1) day’s 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 6.1 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

15 December 2015

Final Management Report on the audit of Auckland Council for the year ended 30 June 2015

File No.: CP2015/16638

Purpose

1. The final Audit New Zealand management report will be presented to the Committee.

Executive Summary

2. Audit New Zealand provided a briefing to the Audit and Risk Committee in September on the matters arising from the audit for the 2014/15 financial year. They have now issued a letter detailing their findings and the Council has supplied responses to the issues raised.

3. The key recommendations relate to procurement processes and contract and project management. The council is actively addressing the issues raised and has cleared, or is close to clearing many of the items raised in this and earlier reports.

Recommendation/s

That the Audit and Risk Committee:

a) note the responses to the issues identified by Audit New Zealand in their final management report on the audit of Auckland Council for the year ended 30 June 2015.

Comments

4. At the conclusion of the 2014/15 audit, Audit New Zealand has identified two key themes, the importance of contract and risk management. They state there is a need for effective use of contractual conditions and mechanisms to achieve the best outcomes for the Council and ratepayers. In addition they recommend that council continue to identify and address risks.

5. There are a range of issues and recommendations identified. However, Audit New Zealand acknowledges enhancements planned and already made by the Council over the past 12 months. Management responses are included in the letter, which indicate the specific actions and timeframes to address the matters identified by Audit New Zealand.

6. Some key areas of focus include:

· Procurement processes – the findings concluded that there had been a change within the Council’s procurement team to a more strategic approach to procurement. The result of the work performed by Audit New Zealand, was that the processes and procedures were in line with their expectations and based on good practice. Specific recommendations have been made to extend conflict of interest declarations and further enhancements for contract renewals.

· Contract management – Audit New Zealand has recommended that Council develops policies and procedures to assist with contract management practices. Council acknowledges that improvements are required and has initiated a number of measures to address the deficiencies. Council plans by 31 July 2016, to implement a Centre of Excellence approach to contract management. This will include developing tools, policies and procedures, support and training and the development of a contract management competency framework.

· Project management – Audit New Zealand raised recommendations in prior years for the Council to strengthen project management practices. They have noted that the project management structure has changed significantly in the past year and have encouraged Council to continue implementing the improvements underway. Audit New Zealand has specifically recommended that the Council, improves the quality assurance processes currently in place, that project execution plans are used and that project tolerances of scope, risk, budget and time are defined.

7. Observations from the audit of the financial statements and the non financial performance measures are also provided. There are no significant outstanding matters.

Status of recommendations raised by Audit New Zealand in earlier reports

8. Audit New Zealand has cleared 11 items raised in prior years. This leaves 8 items to be resolved. Audit New Zealand has determined that progress has been made on all of the outstanding items. Council believes many of the remaining items are also very close to being resolved.

9. The items to be resolved are:

Outstanding issue	Current status
Risk identification and monitoring	Ongoing work, processes in place including quarterly reporting to the Audit and Risk Committee. We believe issue can now be closed.
Proactive fraud identification and mitigation	Ongoing work, Fraud and Integrity Assurance Strategy tabled at this meeting for approval. We believe issue can now be closed.
Improvements to the analytical review to budget of group financial results	We anticipate this will be cleared following the December 2015 review.
Completion of seismic assessments for Council owned assets	Assessment of the likelihood of severe earthquake in region is low. Therefore the scoping and project timeframes will be determined by end of March 2016.
Reconciliation between the fived asset register and asset management systems	Scoping and timeframes for this project will be completed by end of March 2016.
Timely disablement of system access for employees who leave the council	Automated user account leaver process in place, to reduce risk further we intend to create a link between HR service desk and the IS service desk.
Enhancements to the processes for IS disaster recovery of full system	Cloud strategy currently being finalised. A business case to fund the appropriate level of disaster recovery for the organisation will be included.
Consistent escalation of issues identified with IS backup failures	Approximately 5000 backup jobs are run each day. If a backup job fails, notification is received and the backup problem remediated. In the past year backup and restore processes have been formalised and more detailed reporting provided.

Consideration

Local Board views and implications

10. There are no specific implications for local boards.

Māori impact statement

11. The report does not have any particular benefit or adverse effects on Māori.

Implementation

12. There are no implementation issues.

Attachments

No.	Title	Page
a View	Mayor and Council Final Management Report	17

Signatories

Author

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Finance

Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

Auckland Council group pro forma half year financial statements and approval of accounting policies for 31 December 2015

File No.: CP2015/16639

Purpose

1. This report presents the pro forma group half year financial statements as at 31 December 2015 and the relevant accounting policies for adoption by the Committee.

Executive Summary

2. The Committee is asked to review and adopt the format of the group pro forma accounting policies and financial statements. The statements will be used in February 2016 for the purpose of reporting the financial results to the stock exchange for the six months ended 31 December 2015.

Recommendation/s

That the Audit and Risk Committee:

a) adopt the accounting policies contained within the group pro forma financial statements for the preparation of the 31 December 2015 half year Auckland Council Group financial statements.

b) delegate to Mr Roy Tiffin and/or Mr Paul Condor, to approve any amendments required to the format of the financial statements resulting from consultation with Audit New Zealand.

Comments

3. In February 2016 the financial results for the six months ended 31 December 2015 will be released to the stock exchange using the attached financial statement format. The 31 December 2015 group pro forma financial statements and notes should be read in conjunction with 30 June 2015 annual report. The accounting policies applied are consistent with those used at 30 June 2015.

4. The 31 December 2015 group pro forma financial statements are prepared in accordance with New Zealand Generally Accepted Accounting Practice and they comply with PBE IAS 34 Interim Financial Reporting.

5. The group pro forma half year financial statements have been sent to Audit New Zealand for review. Auckland Council is waiting for Audit New Zealand’s technical team to confirm whether they are comfortable with the format and disclosures. We expect that if any changes are requested they will be minor, and of a technical accounting nature.

Consideration

Local Board views and implications

6. This report applies to the preparation of the group pro forma half year financial statements for the Auckland Council Group which do not include reporting at a local board level. Accordingly the views of local boards have not been sought.

Māori impact statement

7. The group pro forma half year financial statements do not affect the achievement or reporting of Council’s contribution towards Māori outcomes.

Implementation

8. There are no implementation issues.

Attachments

No.	Title	Page
a View	Auckland Council Group Interim Report - 31 December 2015	39

Signatories

Author

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Finance

Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

Update on Enterprise Risk Management and Insurance Activities

File No.: CP2015/24891

Purpose

1. To update the Audit and Risk Committee on Enterprise Risk Management (ERM) and Insurance Activities at Auckland Council.

Executive Summary

2. The Executive Leadership Team (ELT) has completed a comprehensive review of Council’s top risks. The top risks report now includes all changes made to existing risk definitions and treatments, as well as four new risks.

3. An ELT risk sub-group has been established to assist with the delivery of ERM priorities.

4. Draft Risk Appetite Statements are being developed with the ELT risk sub group. Once approved by ELT, these will be incorporated into Council’s ERM Framework and brought to Audit and Risk Committee for approval.

5. The Risk team is making good progress with delivering against the Risk Strategic Plan 2015-17 outcomes. This includes completing training with all nominated risk champions and completing the majority of operational risk registers for Council departments.

6. Council is actively participating in Local Government New Zealand’s programme to explore establishing a Local Government Risk Agency. Council’s Head of Risk is a member of the advisory group working on the business case for establishment.

7. Insurance activity across Council shows a reduction in claims made against Council in this financial year and the Insurance team is actively working on improving risk based activity to reduce claims events further. Work has commenced on the renewal of Council’s insurance programme for 2016-17 and insurance strategy.

Recommendation/s

That the Audit and Risk Committee:

a) receive the update on Enterprise Risk Management and Insurance Activities report.

Comments

Top Risks

8. The Risk team completed a comprehensive review of Council’s top risks with the Executive Lead Team (ELT) in November 2015. The updated Top Risk report is attached.

9. The review included a workshop with ELT identifying their top risks and risk management priorities over the next 12 months and beyond. Subsequent discussions with each ELT members identified changes to the top risks and any new risks.

10. The ELT agreed to establish a risk sub-group to review any changes to the top risks prior to final ELT approval. The terms of reference for this sub-group includes ongoing consideration of any significant enterprise risk management strategy or structural changes prior to discussion with the full ELT.

11. The results of the review of the top risks include:

I. Updated risk descriptions,

II. Updated risk ratings,

III. Reclassification of risks between Special Focus and Core activity,

IV. New risk Owners, and

V. New risks being identified and aligned to Council’s strategies and priorities.

Risk Appetite

12. Risk appetite is defined as the amount of risk an organisation is prepared to take in pursuit of its objectives. It is traditionally closely linked to strategy setting, as higher risk levels are often required to achieve strategic objectives.

13. A well-defined risk appetite will result in better decision-making as managers will understand senior leaders’ risk comfort levels and priorities. It will convey what levels of risk are acceptable and “boundaries” or limits of risk they should be working within. This information will allow these operational decision-makers to work collaboratively with of senior leaders, within their delegated authority. It will allow for consistent risk-taking across the organisation and concentrate it in areas of strategic gain. Lastly, it gives a clear indication of what risks should be escalated to senior leaders.

14. Council’s ERM policy and framework do not currently have well-defined risk appetite statements for Auckland Council. This is an important missing piece of the risk management framework for an organisation like Council and an opportunity to define Council’s risk appetite across broad categories of significant risk.

15. The Risk team has started drafting risk appetite statements with the ELT, with particular input from the ELT risk sub-group. The statements will be closely aligned to Council’s strategic and operational objectives. Once ELT has confirmed the content of the risk appetite statements, the Risk team will refresh the ERM Framework to incorporate the statements and seek Audit and Risk Committee approval.

16. Following the update of the ERM Framework, the Risk team will update our training material and learning and development activity to help staff understand how to use the framework. A focus will be how to use the risk appetite statements and the framework for better decision making relating to risk and opportunities.

Enterprise Risk Management Activities

17. The Risk team has completed training for all nominated Risk Champions. We have completed approximately 30 workshops/training sessions in 2015 with departments in Council, and we continue to receive requests for more sessions. Our continuous engagement with staff is improving the awareness regarding risk within the organisation.

18. This has also resulted in the Risk team receiving comprehensive operational risk registers from 20 departments within Council. This represents a lift from 34% of departments having completed risk registers in January 2015 to 63% in December 2015. The remainder are underway and in the process of being finalised. This enables us to improve our reporting capabilities and highlight areas of high risk and opportunities within Council’s operations.

19. As the risk team progresses with delivering outcomes from the Risk Strategic Plan 2015-2017, we need to establish mechanisms to measure and assess the lift in Council’s risk maturity as changes are implemented. While not an exact science, there are industry based criteria that can be used measure this maturity at an organisation level. The Risk team are currently:

a) Developing a Risk Maturity Framework which will be used to consistently measure and compare current state and proposed future state; and

b) Developing a risk maturity survey which will be sent to key stakeholders to quickly and effectively gain insights into the current state of risk maturity.

20. The results of the surveys will be measured against the framework and validated against the current Risk Strategic Plan activities. Key findings of this maturity assessment will be presented to Audit and Risk committee in May 2016.

21. Key deliverables for the Phase 3 implementation of the Strategic Plan are:

a) Disclosure committee review: Combine Disclosure committee and Risk committee and develop terms of reference and scope of the combined committee.

b) Regular reporting of organisational risk profile with analysis of risk exposures in identifiable departments/work areas: Develop monitoring/analytics (tools) and maintenance of Issues Register review of trends and systemic issues/problems

c) Organisational priorities matched with organisation risks and clear statements of risk appetite from ELT: Combine risk information from various sources of information and complete comprehensive and integrated Auckland Council Risk Report.

d) External confirmation of risk maturity of Council based on delivery of Strategic Plan 2015-17.

e) Prepare Strategic Plan 2018-20: Review results of 2015-17 and lessons learnt

Local Government Risk Agency

22. Local Government New Zealand (LGNZ) with assistance from the government is currently assessing the feasibility of establishing a Local Government Risk Agency (LGRA).

23. LGNZ has appointed an Establishment Board of independent experts to assist with this process. Council’s Head of Risk (Jazz Singh) is a member of the advisory group for the Establishment Board. The Board is developing a business case to make a recommendation regarding the feasibility of the LGRA.

24. LGNZ has conducted a series of workshops across NZ to gauge demand for services that an LGRA would deliver. The results of these workshops will be discussed at the next advisory group meeting early in 2016. This will all form part of the business case.

25. The type of services that an LGRA would deliver is still being worked through. The overall goal is to improve the risk management capability in the local government sector with a focus on natural hazard risks initially and moving to full enterprise risk management.

Insurance Activities

26. We are continuing to see a decline in the number of claims and incidents being dealt with by the Insurance team. In the period from 1 July to 25 November 2015, the Insurance team closed 212 claims. The majority of these claims are related to vehicles, trees and minor property damage to Council properties. The number of active claims and incidents (which have not resulted in a claim being made) are 277 as at 25 November. This represents a significant reduction in active claims which were in excess of 400 in January 2015.

27. This reduction is a result of focussed significant work by the Insurance team to deal with old claims, especially those that were low value but representing a significant time and social cost to our staff and customers. This represents a real lift in the customer service experience of claimants.

28. The Insurance team is also identifying trends in claims and working with the Risk and Internal Audit teams to actively target risk areas and improve mitigation plans. This includes tree and motor vehicle claims in particular and will focus on other areas in 2016.

29. Work is underway for the renewal of Council’s insurance programme for 2016-17 and insurance strategy. This will be presented to the Audit and Risk committee in early 2016.

Consideration

Local Board views and implications

30. Local boards are affected by many of the top risks as they represent risks to the entire Council organisation. While no specific consultation has been done for this report, risk management activity will have benefit for local board activities. The Risk team has engaged with the Risk Champions from Local Board Services which resulted in the completion of a comprehensive risk register.

Māori impact statement

31. This report identifies changes to core risk 18 that more clearly focuses on progress with Māori transformation shift activities and Treaty Audit response work programme. This aligns well with the risk treatment activities being undertaken in this regard across Council.

Implementation

32. None

Attachments

No.	Title	Page
a View	Auckland Council Top Risk Report - December 2015	67

Signatories

Author

Selvan Naidoo - Senior Risk Advisor

Authorisers

Jazz Singh - Head of Risk

Katherine Anderson - Director Legal and Risk

Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

Update on Health and Safety

File No.: CP2015/26703

Purpose

1. This report summarises the Health and Safety performance of Auckland Council, and the activities currently underway to improve that performance.

Executive Summary

2. The Health and Safety risks for our employees has been identified as one of Auckland Council’s top risks and therefore is an area of special focus for the organisation. Activities have been completed and more are underway to improve the performance and culture of the organisation to meet this challenge.

Recommendation/s

That the Audit and Risk Committee:

a) receive this update on Health and Safety activities.

Comments

Health and Safety Performance

3. Council collects a wide variety of information about health and safety performance. For this financial year council has chosen to formalise council wide metrics and targets using a Balanced Scorecard. The health and safety metric on the Balanced Scorecard is the traditional measure of Lost Time Injury Frequency Rate (LTIFR).

4. Our target is 2.25 lost time injuries per million hours worked representing a 20% improvement over the previous year. Council continues to perform very well against this metric delivering a current rate of 2.77 (see table below).

5. A robust Health and Safety system relies on all people in the organization finding issues or potential issues and fixing them so that they prevent future harm to people. Typical measures of these activities are levels of reporting of Hazards and Near Misses.

6. Despite excellent progress in reducing people being hurt, reporting measures at Auckland Council are poor (see table below). It is doubtful that such significant improvement in injury rates is possible without people systematically finding and fixing these issues. Therefore it seems likely that ‘finding and fixing’ activity is occurring but staff are not recording these actions.

Health and Safety Culture

7. Thought leadership and best practice in delivering Health and Safety performance tells us that attitudes and behaviours towards Health and Safety are the key enabler of significantly improved performance. In May 2015 Auckland Council commenced the delivery of a behavioural based safety program called Ready Set Go. This program has now been delivered to over 600 people leaders and Health and Safety Representatives across Council.

8. The aim of the program is to challenge current attitudes to health and safety and foster new, positive behaviours. Feedback from the first module of the program has been excellent (see below).

	Strongly Agree	Agree	Neutral	Disagree	Strongly Disagree
The objectives of the session were clearly defined	228	285	26	3	2
Participation and interaction were encouraged	274	262	6	-	2
The topics covered were relevant to me	252	269	19	1	2
The content was organized and easy to follow	248	279	14	-	2
The materials distributed were helpful	216	295	27	2	2
The training experience will be useful in my work	236	268	32	3	1
The trainer was knowledgeable about the training topics	370	171	-	-	2
The trainer was well prepared	376	165	1	-	2
The time allotted for the training was sufficient	288	219	25	8	4
Total	2488	2213	150	17	19

9. To continue to change behaviours the aim is to provide other modules on aspects of a strong health and safety system such as reporting, managing contractors, and incident investigation. The content for these modules is largely complete and ready for launch to the business in early 2016.

Leadership

10. Engaged and visible leaders are critical to successful culture change. To support our Executive Leadership team (ELT) the Council has developed training programs and a schedule of activities for health and safety.

11. In January 2016 two one day training sessions for ELT are planned, covering:

· being a visible leader in health and safety, and particularly how to have conversations in the business about health and safety practices;

· understanding what a good incident investigation looks like, understanding the root cause of an incident and the role of leaders in incident investigation.

12. The aim of these two training sessions is to change both behaviours and practices in health and safety and help ELT meet their legislated obligations under health and safety legislation.

Consideration

Local Board views and implications

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

Māori impact statement

14. This report does not have any particular benefit or adverse effects on Māori.

Implementation

15. None

Attachments

There are no attachments for this report.

Signatories

Author

Mark Lipman - Head of Health and Safety

Authorisers

Christine Etherington - People & Capability Director

Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

Review of Audit and Risk Committee

File No.: CP2015/26034

Purpose

1. This report provides the results of a review, requested by the Mayor, of Council’s Audit and Risk Committee, and makes recommendations designed to improve the effectiveness of the committee.

Executive Summary

2. Audit and risk committees can make a valuable contribution to improving the governance and performance of council. The role and purpose of the committee is unique and different to that of other council committees. It is advisory in nature. Its effectiveness relies on members having the right mix of skills relevant to the terms of reference of the committee.

3. The current terms of reference are very brief, and pitched at too high a level. In order for committee members to perform their role effectively, they need to have a clear and detailed understanding of their responsibilities.

4. The committee does not currently have a forward work programme. Good practice is that the committee should have an agreed forward work programme aligned to councils Enterprise Risk Management Framework and council work programme.

5. There is currently no professional development programme in place for committee members. A professional development programme should be implemented - given the advisory role the committee has in improving the governance, and the scope of committee responsibilities as contained in the proposed terms of reference.

6. This paper makes recommendations based on generally accepted good practice for audit and risk committees, designed to take effect as from December 2015 with respect to:

· adopting the detailed proposed Terms of Reference at Attachment A , which clarify explicitly the role and responsibilities of the committee

· implementing a forward work programme for the committee aligned to the Enterprise Risk Management framework, as attached at Attachment B – Proposed Forward Work Programme

· implementing an ongoing programme of professional development for the committee.

7. The more independent the committee members are, the better enabled the committee will be to offer “full and frank” independent advice to the Governing Body and management. However in the local government context this needs to be balanced against the need to have elected members appointed to the committee. This will ensure that Governing Body views are represented, and enables the outcome of committee deliberations to be effectively communicated back to the Governing Body. The Chair has a critical role to play in ensuring the effectiveness of the committee.

8. This paper makes recommendations about the Committee Chair and balance of membership, designed to take effect from the beginning of the next term of Council. The paper recommends that the Audit and Risk committee have:

· An independent chair

· An equal number of elected members and external members.

Recommendation/s

That the Audit and Risk Committee:

a) receive this report.

b) note that the report provides for:

· a new Terms of Reference that clarifies explicitly the committee’s mandate and responsibilities.

· a forward work programme for the committee that reflects governance, risk management and internal control matters as contained in Council’s Enterprise Risk Management “Top Risks” Register relevant to the Committee’s Terms of Reference.

· the development of an ongoing professional development programme for committee members.

· the appointment of an external member to the role of Chair.

· a change in composition of the committee – increasing the number of external members to three, and reducing the number of elected members appointed to the Committee to three.

c) recommend to the Mayor that the proposed Terms of Reference as attached at Attachment A be adopted with effect immediately.

d) approve the proposed forward Work Programme as attached at Attachment B.

e) recommend to the incoming Mayor and Council that the provisions relating to the appointment of an independent chair and changing the composition of the committee take effect in the next term of office, following the Local Government elections in October 2016.

Comments

Terms of Reference for Committee

9. In order for committee members to perform their role effectively, they need to have a detailed and clear understanding of their responsibilities, as well as council’s business, operations and risk profile.

10. The current Terms of Reference are very brief, pitched at a high level and are not sufficiently detailed to provide clear direction to committee members as to their responsibility. This lack of clarity heightens the risk that matters that should attract governance oversight and scrutiny are either not identified, or not appropriately responded to.

11. A proposed draft Terms of Reference for the committee is attached at Attachment A. They reflect that the committee’s core areas of responsibility are:

· Enterprise Risk Management

· Internal and external Audit

· Integrity and investigations

· Monitoring compliance with laws, and regulations

· Significant projects and programmes of work focusing on the appropriate management of risk

· Oversight of risk management and assurance across Council’s Council Controlled Organisations

· Oversight of preparation of the LTP, Annual Report, and other external financial reports required by statute.

12. Matters to Note:

· an increased focus on the Risk and Internal Audit functions

· responsibility for risk and assurance with respect to legislative compliance, and projects and programmes of work is specifically included

· a forward programme work for the committee is incorporated

· the requirement for the committee to annually assess its own performance

· the requirement for the chair of the committee to report annually to the Governing Body on the work of the committee.

Forward Work Programme

13. The committee is currently “passive” and “reactive” i.e it receives at each committee meeting information updates as to activity from Finance, Risk, Internal Audit, Health and Safety and External Audit.

14. Good practice indicates that the committee should have a clear “forward work programme” aligned to the Enterprise Risk Management framework. A forward programme of work will allow the committee to:

· give time and focus to significant council risks and associated assurance strategies

· systematically consider and review all relevant significant matters pertaining to governance, risk and internal control over time

· provide forward looking and timely recommendations to the governing body.

15. The topics included in the forward work programme should reflect:

· risks identified by the ERM framework

· areas of focus of the Internal Audit programme

· the annual cycle with respect to the audit of the Annual Report, Risk, Internal Audit and Integrity and Investigations.

16. It is recognised that for the Committee to give due consideration to the specific areas contained in the forward work programme, sufficient time needs to be devoted. We believe that the most effective means of considering specific topics in a “full and frank” manner is by way of workshops.

17. A proposed forward Work Programme for the 2016 calendar year is contained at Attachment B.

Professional Development

18. There is currently no specific Audit and Risk related professional development in place for committee members. This gap needs to be rectified - given the specific skill sets required for committee members, and the need to maintain these skill sets in order for committee members to effectively discharge their responsibilities.

19. The Governance Division is currently developing the concept of a “Governance Centre of Excellence”. One of the initial programmes of work that has been identified is that of “Elected Member Learning and Development”. The Head of Internal Audit will work with the programme leader to develop an ongoing programme of professional development for audit and risk committee members relevant to their areas of responsibility.

20. In developing this we will take into account current relevant professional development offerings from LGNZ and NZ Institute of Directors.

Proposed Composition – Committee chair and membership in the next term

21. An effective audit and risk committee has a valuable contribution to make in improving governance, and in turn the performance of Auckland Council. An effective committee can provide objective advice and insight into council’s Enterprise Risk Management framework and related assurance strategies. This includes advice and insight into council’s “risk appetite” statement. In doing so they can identify opportunities for improvements to governance, risk management and control practices, including advice designed to ensure that governance and internal control practices are consistent with councils “risk appetite”.

22. It is important to acknowledge that the committee does not displace or change accountability arrangements. Accountability for and ownership of governance, risk management and internal control rests with, and will always rest with the council’s Governing Body.

23. As such the role and purpose of the committee is unique and fundamentally different from other council committees. Its purpose is to assist and advise the Governing Body in discharging the Governing Bodies responsibility and ownership of governance, risk management and internal control.

24. Accepted best practice as to the critical success factors for ensuring an effective committee consistently emphasises:

· The importance of the role of chair of the committee. The chair is the most important committee member. They need to have expertise and experience in governance - and to bring personal qualities to the role that will openly and effectively involve all those the audit committee needs to work with

· Committee members having relevant experience and expertise to be able to bring valuable insights and perspectives to matters of governance, risk management and internal control

· Members of the committee need to be independent of the management team in order to be able to provide objective and impartial advice

· The majority of committee members be independent of the governing body. This is due to a belief that externally appointed independent members are better equipped to express their views freely, unconstrained by potential conflicts created by their position on the governing body i.e this better enables them to provide “full and frank” independent advice to both the Governing Body and management.

25. The more independent and competent the committee is, the better it will be able to add value to the governance of Council.

26. This creates challenges in the context of local government where the practice historically has been that audit and risk committee members have been democratically elected members of the Governing Body. It is recognised that in the local government context there is a very real need to have elected member representation on the audit and risk Committee. This will ensure that Governing Body views are represented, and enable outcomes of audit and risk committee deliberations are able to be effectively communicated to the Governing Body.

27. By its very nature this places constraints on independence and a challenge in ensuring the right mix of expertise and skill sets are represented around the committee table.

28. Auckland Council has responded to these constraints by appointing external members to advise the Audit and Risk Committee. Historically there has been one external appointment. In 2014 this was increased to two appointments. These external members were appointed for their expertise in matters relevant to the Audit and Risk Committee’s Terms of Reference.

29. However it is also acknowledged in discussions with the Committee Chair and external members that the current structure of 7 elected members and 2 independent experts does not provide the right balance between external members and elected members. We believe this imbalance should be addressed.

30. Council has a range of options in this respect – from having no external members appointed through to having a majority of externally appointed members. While current practice across local government and the wider public sector is varied, there is a current move, in line with best practice to strengthening independence through increasing the number of external members. Best practice is for the chair of the committee to be externally appointed.

31. We believe the balance between the need for independence and the ensuring that Governing Body views are represented is best addressed by moving to an equal number of elected members (three) and external members (three) on the committee from the beginning of the new term commencing in October 2016.

32. The skill sets of the external members should reflect wider issues of governance, risk and control that reflect key strategic and organisational risks e.g. project and programme delivery, transformational organisational change, asset management, and reputation management.

33. There is also an opportunity to further strengthen the effectiveness of the committee by changing the committee terms of reference by allowing for the appointment of one of the external members to the role of chair of the committee. Such an appointment would recognise the critical role the chair has to ensuring the committee’s effectiveness.

Best Practice Guidance on Audit and Risk Committees

34. The following best practice guidance was researched as the basis for the recommendation in this report:

· Audit Committees in the Public Sector (Office of the Auditor General NZ March 2008)

· Discussion Document - Making the Most of Audit Committees in the Public Sector (Office of the Auditor General NZ 2014)

· Audit Committee Guide – Directors Responsibilities – How Audit Committees add Value – PWC June 2012

· NZX Listing Rules

· Institute of Directors Principles of Best Practice for NZ Directors

Consideration

Local Board views and implications

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

Māori impact statement

36. The recommendations arising from this report do not have any particular benefits or adverse effects on Māori.

Implementation

37. The recommendations are that the Terms of Reference and Forward Work Programme come into effect as from December 2015. The recommendations with respect to changes to the committee structure and appointments to the committee come into effect as from October 2016.

Attachments

No.	Title	Page
a View	Proposed Terms of Reference	93
b View	Proposed Forward Work Programme	99

Signatories

Author

Mark Maloney - Head of Internal Audit

Authorisers

Deborah James - Executive Officer

Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

Audit NZ Arrangements for Six Month Review Engagement and 30 June 2016 Audit of Annual Report

File No.: CP2015/26715

Purpose

1. To provide an opportunity for representatives of Audit NZ to brief the committee on the areas of focus for the review of the six month interim financial statements and the audit of the 30 June 2016 annual report.

Executive Summary

2. Attached at Attachment A is Audit NZ’s draft engagement letter re the review of the six month interim financial statements. Attached at Attachment B is Audit NZ’s draft arrangements letter re the audit of the 2016 annual report.

Recommendation/s

That the Audit and Risk Committee:

a) receive the Audit NZ Arrangements for six month review engagement and 30 June 2016 audit of annual report.

Comments

3. Attached at Attachment A is Audit NZ’s draft engagement letter re the review of the six month interim financial statements. Attached at Attachment B is Audit NZ’s draft arrangements letter re the audit of the 2016 annual report.

4. Audit NZ representatives (Athol Graham – Associate Director) and Robert Sutherland (Audit Manager) will brief the committee on the areas of focus for these respective engagements.

5. The areas of focus for the review of the six month interim financial statements are:

· Whether there is any indication of impairment of assets being carried at cost (including an assessment of work in progress).

· Whether there has been any material movement in the fair value of asset classes that are on a revaluation cycle.

· Whether debt levels and interest exposure remain within policy settings, and that all debt and associated instruments are accounted for correctly.

· Whether there has been any change in the underlying assumptions that could materially impact on the value of the Group’s provisions.

6. The areas of focus for the audit of the 2016 annual report are:

· Newcore – compliance with Council’s policies, procedures and good practice expectations for managing projects, the carrying value of NewCore in Council’s accounts, data migration processes used by Council.

· Project Management – compliance with Council’s policies, procedures and good practice expectations when managing projects, and the financial impact of projects on the 2016 financial statements.

· Procurement – compliance with Council’s policies, practice and good practice, and whether there is any indication that procurement process has resulted in poor purchasing decisions.

· Contract management - whether contact monitoring arrangements are fit for purpose, whether council processes are in line with good practice, and if there are any indicators of poor or non delivery by contractors. They will also consider accuracy of reporting of levels of service where the service is delivered by contractors.

· Infrastructure and financial strategy – watching brief will be maintained for any investment and/or level of service decisions that could trigger an amendment to the Long Term Plan, testing to ensure that funding and financing decisions do nor adversely impact compliance with treasury policies and debt covenants, and monitoring of how Council is continuing to progress financial and infrastructure strategies, and asset management practice.

Consideration

Local Board views and implications

7. Nil applicable

Māori impact statement

8. Nil applicable

Implementation

9. Nil applicable

Attachments

No.	Title	Page
a View	Draft engagement letter for 31 December 2015 interim group financial statements	103
b View	Draft audit arrangements for 30 June 2016 annual report	119

Signatories

Author	Mark Maloney - Head of Internal Audit
Authoriser	Phil Wilson - Governance Director

Audit and Risk Committee

15 December 2015

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 Integrity and Investigation 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 investigation and other activty, which if released may compromise the effective delivery of our integrity and investgation 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.

C2 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)(c)(ii) - The withholding of the information is necessary to protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely to damage the public interest.

In particular, the report contains financial and operational information and details of internal audit activity, which if released may jeopardise the effective 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.

Chairperson	Cr Bill Cashmore
Deputy Chairperson	Mr Paul Conder, CA
Members	Cr Cameron Brewer
	Cr Ross Clow
	Cr Linda Cooper, JP
	Cr Sharon Stewart, QSM
	Mr Roy Tiffin, FCA
	Cr Sir John Walker, KNZM, CBE
	Cr Penny Webster
Ex-officio	Mayor Len Brown, JP
	Deputy Mayor Penny Hulse