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

Date:                       Time: Meeting Room: Venue:	Monday, 8 August 2016 1.30pm Meeting Room 1 Level 26 135 Albert Street Auckland
Audit and Risk Committee OPEN AGENDA

MEMBERSHIP

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

(Quorum 5 members)

Mike Giddey

Democracy Advisor

1 August 2016

Contact Telephone: (09) 890 8143

Email: mike.giddey@aucklandcouncil.govt.nz

Website: www.aucklandcouncil.govt.nz

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.

Audit and Risk Committee 08 August 2016

ITEM   TABLE OF CONTENTS                                                                                        PAGE

1          Apologies                                                                                                                        7

2          Declaration of Interest                                                                                                   7

3          Confirmation of Minutes                                                                                               7

4          Petitions                                                                                                                          7

5          Public Input                                                                                                                    7

6          Local Board Input                                                                                                          7

7          Extraordinary Business                                                                                                8

8          Notices of Motion                                                                                                          8

9          Review of Forward Work Plan                                                                                     9

10        Office of the Auditor-General and Audit New Zealand briefing                             13

11        Management Report to council Interim Audit 2016                                                 17

12        Pro forma Group Financial Statements                                                                    31

13        Health, Safety and Wellbeing August 2016 update                                                137

14        Update on Enterprise Risk Management Activities                                               139

15        Stone cladding repairs- 135 Albert Street                                                              181

16        Update on Insurance Activities                                                                                201

17        Consideration of Extraordinary Items 

PUBLIC EXCLUDED

18        Procedural Motion to Exclude the Public                                                               205

C1       Update on Internal Audit Activity                                                                            205

C2       Internal Audit Plan for year ending 30 June 2017                                                  205

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

That the Audit and Risk Committee:

a) confirm the ordinary minutes of its meeting held on Tuesday, 24 May 2016, 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 08 August 2016

Review of Forward Work Plan

File No.: CP2016/14595

Purpose

1.       To review and update the Audit and Risk Committee’s 2016 forward work programme.

Executive summary

2.       The committee approved its forward work programme for 2016 at the December 2015 meeting.  It is good practice to review the forward work programme at each committee meeting, to ensure that it can be adapted quickly if council’s risk profile changes and that it remains relevant to the needs of the committee.

Recommendation/s

That the Audit and Risk Committee:

a)      re-confirm the approved 2016 forward work programme, which will include the following amendments:

i)        progress on recladding of 135 Albert Street (to be reported on twice annually)

ii)       debrief on the 2015-25 Long-term Plan process (August 2016)

iii)      report on Council’s insurance renewal programme (August 2016 deferred from May 2016).

Comments

3.       The Audit and Risk Committee’s forward work programme for 2016 was approved at the December 2015 meeting of the committee.

4.       The forward work programme reflects:

·   governance, risk management and internal control matters as contained in council’s Enterprise Risk Management “Top Risk” register relevant to the committee’s Terms of Reference;

·   areas of focus in the Internal Audit programme; and

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

5.       It is good practice that the committee, as a standing item at each meeting, review and confirm its forward work programme.  This is to ensure that the work programme is flexible, can be adapted quickly if council’s risk profile changes and remains relevant to the needs of the committee.

6.       For example, it would be appropriate for the committee to consider a change to the approved forward work programme in the event there has been a significant change in the risk profile of council as reflected in the “top risk” register.  Similarly a significant event occurring either within council, or in the wider operating environment could result in a change in the work programme of the committee. 

7.       No such change in council’s risk profile, or significant event, has occurred since the last meeting of this committee.

8.       However, from August 2016 we propose adding a progress report on the recladding of 135 Albert Street.  It is proposed that the committee receives a progress report twice per year over the course of the project.

9.       In addition there are two additional reports for the August meeting of the committee:

·   a debrief report on key learnings from the 2015-25 Long-term Plan process; and

·   a report on Council’s Insurance renewal programme (deferred from May 2016).

10.     The updated 2016 work programme, which reflects the amendments referred to in paragraphs 8 to 9 above is attached at Attachment A to this report.

Consideration

Local board views and implications

11.     Not applicable.

Māori impact statement

12.     Not applicable.

Implementation

13.     Not applicable.

Attachments

No.	Title	Page
aView	Audit and Risk Committee Workplan 2016	11

Signatories

Author	Nick Rennie - Internal Audit Manager
Authorisers	Mark Maloney - Head of Internal Audit Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Office of the Auditor-General and Audit New Zealand briefing

File No.: CP2016/00936

Purpose

1.       To provide an opportunity for the Auditor-General’s representative, Jo Smaill the Audit Director, Audit New Zealand, to address the committee.

Executive Summary

2.       The Auditor-General’s representative, Jo Smaill, Audit Director, Audit New Zealand, will address the meeting in relation to the briefing paper provided as Attachment A.

Recommendation/s

That the Audit and Risk Committee:

a)      receive the information provided by the Auditor-General’s representative, Jo Smaill the Audit Director, Audit New Zealand.

Attachments

No.	Title	Page
aView	Audit and Risk Committee briefing paper 8 August 2016	15

Signatories

Author	Francis Caetano - Group Financial Controller
Authorisers	Kevin Ramsay - General Manager Corporate Finance and Property Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Management Report to council Interim Audit 2016

File No.: CP2016/04523

Purpose

1.       To report to Auckland Council on the issues identified by Audit New Zealand during its second interim visit.

Executive Summary

2.       Audit New Zealand has identified several issues which the council needs to address to strengthen the financial controls in place to ensure the financial and service performance information is fairly stated. The issues identified are not significant and they will not impact on the audit opinion for the 2015/16 financial year. Council’s responses to the issues raised are included in Audit New Zealand’s report and these responses outline how these issues are being addressed.

Recommendation/s

That the Audit and Risk Committee:

a)      receive the report and note the recommendations made by Audit New Zealand and the council’s responses.

Comments

3.       The attached report issued by Audit New Zealand covers the findings from its second interim audit.  The focus of the interim audit is to review the systems and controls the council operates to ensure the financial and service performance information is fairly stated.

4.       The areas identified by Audit New Zealand and the actions undertaken by council are:

·   Payroll systems and controls

The review of the payroll area by Audit New Zealand identified some instances where manual checks or controls did not always operate consistently.  In all cases Audit New Zealand was satisfied that either there were additional compensating controls or that council is taking corrective action.  In response staff have been reminded of the importance of applying policy and controls.  Internal Audit performs audits of payroll on a cyclical basis as part of the routine Internal Audit programme.  Payroll was last subject to Internal Audit review in 2014.  It is scheduled to be reviewed in 2017.

·   Information systems controls - user access

Audit New Zealand recommends improvements to the process for managing and removing user access to the council’s IT systems.  When staff leave or change roles within the council, their access to information systems needs to be terminated or amended on a timely basis.  The Information Services department has implemented a number of initiatives to monitor user access.  These include: working with payroll to identify when staff leave the council; running a monthly report that identifies users who have privileged access; reviewing generic user accounts; and investigating the possibility of running a process to automatically disable dormant user accounts.

·   Information systems - generic user accounts

Audit New Zealand noted that there were a number of generic user accounts.  IS security must approve all new generic user accounts and that process is being operated appropriately.  However it was noted that a number of generic accounts were created prior to the current process.  The Information Services department is currently undertaking a review of user access and as part of the process will review generic accounts created prior to the implementation of the current approval process.

·   Service performance reporting framework, systems and controls

During the 2015/16 financial year Internal Audit included in its programme of work a review of the effectiveness of internal controls and reporting of Service Performance reporting.  Audit New Zealand recommends that council continues with this practice.

·   Review of pro forma financial statements

Audit New Zealand has recommended that the Audit and Risk Committee should approve the pro forma group financial statements.  As is our usual practice, the pro forma group financial statements are approved annually by the Audit and Risk Committee.  The pro forma group financial statements contain the format and disclosures of financial information in the annual report prior to finalising the financial results.  They are revised each year as the legislative requirements and accounting standards are constantly changing.  This year the council has also undertaken a new initiative to reformat and streamline the group the financial statements to make them easier to read.  A separate agenda item to this committee outlines the process followed and contains the revised pro forma group financial statements for approval.

Consideration

Local Board views and implications

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

Māori impact statement

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

Implementation

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

Attachments

No.	Title	Page
aView	Management Report to council Interim Audit 2016	19

Signatories

Authors	Francis  Caetano - Group Financial Controller
Authorisers	Kevin Ramsay - General Manager Corporate Finance and Property Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Pro forma Group Financial Statements

File No.: CP2016/00937

Purpose

1.       To present the pro forma group financial statements for the year ended 30 June 2016 for approval.

Executive Summary

2.       In the current year Auckland Council initiated a project to review and improve our financial statements. It is our intention to continue streamlining the financial statements in the next few financial years.

3.       The 2016 pro forma group financial statements have undergone a streamlining project with the objective to improve the readability and flow of the financial statements, and to remove duplicate and immaterial information so readers can focus on the relevant and important information.  The independent members of the committee, Paul Conder and Roy Tiffin, reviewed and provided comments as part of the project. 

4.       There have been no changes to the financial performance and financial position of the Auckland Council Group (the Group) as a result of the streamlining project. 

5.       These pro forma group financial statements have been reviewed and cleared by Audit New Zealand subject to the finalisation of the current year financial statements and disclosures.

.

Recommendation/s

That the Audit and Risk Committee:

a)      approve the 2016 pro forma group financial statements for Auckland Council and Group, subject to the pro forma being updated for any changes identified during the current audit process and delegate to Mr Paul Conder and Mr Roy Tiffin authority to approve any such amendments.

b)      delegate authority to Mr Paul Conder and Mr Roy Tiffin to review and provide comments on the draft 2015/2016 Annual Report and Summary Annual Report to Auckland Council and Group and verbally report to the September 2016 meeting of this Committee on the process, findings and conclusions on the suitability of the reports for adoption.

Comments

6.       The financial statements of Auckland Council Group are complex and due to the large number of disclosures required by Accounting Standards and legislative requirements are difficult to read and understand.

7.       The council has initiated an improvement project to streamline the presentation of the financial statements, while maintaining compliance with our reporting requirements. This work incorporates research on global trends and best practice in financial reporting, including reviewing the recently streamlined financial statements of large corporates.  The aim of this exercise is to improve the readability and flow of the financial statements, and to remove duplicate and immaterial information so readers can focus on the relevant and important information.

8.       As a result of this streamlining project, a number of changes have been made to the 2016 pro forma group financial statements.  The major changes are outlined below:

·   The pro forma group financial statements are now grouped in themes and the ordering of the notes is based on the relevance of information to the readers.  The results of the year are presented first, followed by long-term assets, borrowings and financial instruments, working capital and equity, and financial risk management.  Other statutory disclosures are presented at the end.  Previously the ordering of the notes to the financial statements followed the ordering of the line items in the financial statements.

·   Significant accounting policies have been moved to the relevant note disclosures.  Traditionally, significant accounting policies are presented in a separate section between the primary financial statements and the notes to the financial statements.  This resulted in some information being presented in two places in the document, and increased the risk of duplication.  Presenting the accounting policies together with the relevant note disclosures improves the flow of information and ensures that all relevant details on a particular disclosure can be found in one place.

·   Certain financial tables have been restructured and combined to enable clearer presentation of information.  For example in the property, plant and equipment note, we have combined the individual movement schedules for each asset class into one table, thereby improving the transparency and comparability of all the asset classes within property, plant and equipment.

·   Various signposts have been inserted throughout the document for improved readability.  These signposts highlight applicable accounting policies, significant judgements and estimates, explanations of significant variances against budget and required local government act disclosures.

·   Other statutory disclosures, such as the local government specific disclosures and commentary on major variances against budget, are now included in the notes to the financial statements.  Previously these disclosures were presented in separate sections at the back of the financial statements.

9.       There have been no material changes in the accounting standards and local government legislation affecting financial reporting and disclosures during the year.  There have been no changes to the prior year comparative financial performance and financial position of the Group as a result of the streamlining project.

10.     The pro forma group financial statements have been reviewed by the two independent members of this Committee, Paul Conder and Roy Tiffin.  Overall their comments were positive and their suggested changes have been appropriately incorporated in these pro forma group financial statements.

11.     The pro forma group financial statements have been reviewed and cleared by Audit NZ subject to the finalisation of the current year financial statements and disclosures.  Feedback provided by Audit NZ has been considered, and the appropriate changes have been reflected in these pro forma group financial statements.

12.     It is the intention to continue streamlining the financial statements in the next few financial years.

Consideration

Local Board views and implications

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

Māori impact statement

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

Implementation

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

Attachments

No.	Title	Page
aView	Pro forma Group Financial Statements 2016	35

Signatories

Author	Francis Caetano - Group Financial Controller
Authorisers	Kevin Ramsay - General Manager Corporate Finance and Property Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Health, Safety and Wellbeing August 2016 update

File No.: CP2016/16182

Purpose

1.       To present a summary of health, safety and wellbeing performance and risk profile as at the end of July 2016, information to support the committee’s due diligence responsibilities and an update on priority actions since the May 2016 Audit and Risk Committee meeting.

Executive summary

2.       Auckland Council is committed to being a high performance council, where our elected and appointed members, employees, contractors, volunteers and the people who use our council facilities and services are safe and all major risks are reduced and managed effectively.

3.       The main priority for council right now is preparation for the ACC Worksafe Safety Management Practices (WSMP) audit, which will take place in October this year. The outcomes of the pre-audit assessment programme conducted throughout May, June and July are informing our audit objectives and longer term continuous improvement programme.

4.       Since the last report in May, work to embed the new legislation into health and safety processes has continued including officer training for elected members across the region. In addition, the business case for additional investment in Health, Safety and Wellbeing was approved which enables the FY 17 programme of work to progress.

5.       A presentation will be delivered to the committee at the 8 August meeting that covers the following:

·   a summary of council’s current health and safety performance and targets, including an overview of any notifiable incidents, key risks and actions that are being taken to address these risks. Three critical risks for council right now are driving risks, quad bike use and staff safety as a result of serious threats and abuse.

·   an update on the key milestones and deliverables for implementing a strong health, safety and wellbeing culture to ensure council effectively meets its responsibilities as a PCBU (person or organisation conducting a business or undertaking). This will include an update on regional roadshows and staff recognition, the pre-audit assessment programme and business case deliverables.

·   Information on the six aspects of due diligence and work that is being undertaken to support council officers to meet their duties and responsibilities.

6.       Overall, since the last report in May, significant work has occurred to advance the strategic goals for 2016 – 2017 particularly in the areas of health and safety leadership, contractor management, proactive reporting and developing a new risk based approach across the organisation.

7.       However, the number of serious incidents and notifiable events are too high.  The good practice foundation needed across the organisation will take time to achieve, despite there being some very good practice in some business units.  Therefore, the focus in the next six months will be to take action to mitigate as many critical risks as possible. The current focus on proactive return to work programmes for staff who have been injured will also continue.

Recommendation/s

That the Audit and Risk Committee:

a)      receive the update report and presentation on Health, Safety and Wellbeing.

b)      refer this report to the Finance and Performance Committee for its consideration.

c)      refer this report to all Local Boards for their information.

Attachments

There are no attachments for this report.    

Signatories

Author	Claire Richardson – Head of Health, Safety and Wellbeing
Authoriser	Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Update on Enterprise Risk Management Activities

File No.: CP2016/14315

Purpose

1.       To update the Audit and Risk Committee on Enterprise Risk Management (ERM) at Auckland Council and to seek the committee’s endorsement of a Risk Appetite Statement for council.

Executive summary

2.       The council has recently introduced an organisational strategy for the delivery of key outcomes over the next three years.  It is necessary to review and align the council’s top risks against the strategy.

3.       This, coupled with the recent Deloitte risk survey results assessing council’s risk maturity level, requires that the Risk Strategic Plan 2015-2017 set by this committee in 2015 be refreshed.

4.       A number of initiatives, including a Risk Refresh programme, are being implemented with the intention to raise the risk maturity of the council over the next 12-18 months.

5.       The completion of a Risk Appetite Statement which sets the tone for risk culture is an important component of our risk maturity.  Following earlier discussions, this is attached for the committee’s endorsement.

Recommendation/s

That the Audit and Risk Committee:

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

b)      endorse the Risk Appetite Statement as attached (Attachment B) to the report.

Comments

Organisational Strategy

6.       In April 2016, Auckland Council launched a three-year organisational strategy to deliver six outcomes through a number of prioritised initiatives, to deliver on council’s Long Term Plan, Auckland Plan and on council’s vision.  In light of this, it is important that staff identify and understand what risks link to the organisational strategy and impact on the success of its delivery.  This will bring a level of comfort and transparency in knowing what those key risks are and what mitigation strategies might need to be implemented.  A copy of the organisational strategy is attached as Attachment A.

Risk Maturity Survey Results

7.       In May 2015, the Audit and Risk Committee endorsed the Risk Strategic Plan 2015-2017 enabling Auckland Council decision-makers to make quality and well-informed decisions embedding a positive risk culture.  Its vision was to achieve an Advanced level of risk maturity by 2017.  A risk assessment was undertaken in March 2016 and Deloitte assisted the council in its assessment of council’s risk maturity.  The tool used in the assessment was a risk maturity survey to capture the perception of risk maturity within the council by staff.  In the May 2016 report to the committee, the outcome of the risk survey report was highlighted.  Key points from the risk survey are:

·   An overall score of 2.63 out of 5.  This result is deemed “fair”, considering the size and complexity of Auckland Council.

·   Headway has been to embed good risk management practices, but not all of those are well understood or known.

·   Current state of risk maturity could be set back if there is insufficient or inconsistent focus to pursue positive change.

8.       The committee should note that the survey alone does not necessarily provide a true assessment of the risk maturity of the organisation.  Typically, a number of other tools are also used in addition to a survey, such as workshops, interviews, and review of documents.  Deloitte’s Risk Manager acknowledges that council is likely to be in a more advanced position than that indicated by the scores.  However, there were a number of common themes arising from the survey which were useful for staff to consider, and these are summarised below:

·   Common Definition of Risk across the organisation

This includes providing staff with a common understanding of council’s risk framework, all the tools in place including registers, policies, procedures, matrices, risk appetite statements and tolerance levels and ensuring these are communicated to the business units and all staff.

·   Clarity of Roles and Responsibilities

Every staff member should have a clear understanding of their role and responsibility (including their own) for risk and risk management.  This includes the governors (the committee), to the risk team, the managers and Executive Leadership Team (ELT), and individual staff.

·   Reporting

A review of the different reporting and monitoring systems and tools currently in place for risks, and evaluating the effectiveness and accuracy of these.

·   Communication and Training

This came out clearly in the recommendations – for example, creating, enhancing or taking more opportunities to inform and train staff including senior leaders to become competent in understanding risk management.  Evaluating staff competency and tailoring the programme to meet their needs.

9.       Deloitte recommends that a realistic target will be for the council to achieve an integrated state in the next 12-18 months, which will see the council move to a point score of between three-four.

10.     For an entity the size and scale of Auckland Council it is common to see differing views coming through a survey of this type.  However, it does give a reasonable indication of where council is placed on the maturity scale.  Given the activities that have taken place and the dedicated resources within the Risk Management team it is clear that progress has been made to implement and embed healthy elements of risk management practices.  However, it is apparent that not all of these elements are as well understood (or even known about) council wide.  In line with the recommendations suggested by Deloitte, Council’s Risk Strategic Plan aspiration, of achieving an advanced level of risk maturity should be reset, to achieve an integrated level of risk maturity by end 2017.

Refresh Risk Programme

11.     To achieve this end, it is imperative that we reassess the risk work programme for the next 12-24 months.  Targeted focus areas will be worked on as we aim to improve risk culture and maturity within Auckland Council.

12.     The Risk team has devised the “Risk Refresh programme”, which aims to address the gaps outlined in the report with a view to making stepped changes to improve the risk culture and maturity in council.  The programme includes a mixture of new and existing actions and initiatives, and is designed to accelerate and encourage good risk management practices through to all staff in the organisation. Included in the work programme are the following:

·   A refreshed Enterprise Risk Management (ERM) Framework and Policy

·   Refreshed Risk Champions and Register Programme

·   Training and Development using different channels

·   Developing an effective reporting tool

·   Profiling and Communication to staff

·   Integrating other compliance activities within council e.g. Audit Programme, Legal Compliance

·   Adoption and implementation of the Risk Appetite Statement.

Refreshed ERM Framework and Policy

13.     In line with the steps being taken as part of the Refresh Programme, the risk team is working with the Transformation team to redesign the ERM framework and policy.  The intention is to make the document user friendly and practical.  While the substance will not change, the way the framework will look and the key messaging will be different, and the intention is that it will speak to the individual staff more effectively.

Risk Registers and Risk Champions Program

14.     Through the implementation of the Risk Champion Programme, senior leaders within the departments were asked to produce their respective Departmental Risk Registers every quarter.  The quality of the information in the Risk Registers is being reviewed and feedback provided to ensure that the information is useful to both senior leaders and executive Leadership members in terms of oversight and management.  As part of the Risk Refresh Programme, the Risk team will work with the Audit team and the business units to ensure that any gaps identified from the audits are captured and reflected in the groups Risk Registers and that these are managed effectively.

Top Risks

15.     The top risks comprise of the special focus and core activity risks which are identified by ELT. These are reviewed and reported on every quarter. Given significant changes in business activities over the last financial year and the introduction of the organisational strategy, it is timely for the top risks to be reviewed by ELT.

16.     Over the next the next three-four months, the risk team will be holding workshops with individual ELT members and their teams to refresh Auckland Council’s top risks.  In the interim, the Top Risks Report for the last quarter is attached as Attachment C.

Risk Appetite Statement

17.     The Risk Appetite Statement is an important part of setting the tone for the organisation’s risk tolerance and provides guidance to staff on what is/are or is/are not acceptable levels of risk/s.  Following feedback received from the workshop on 5 July 2016, the amended Risk Appetite Statement is now attached in Attachment B.  We recommend that the Audit and Risk Committee endorses the Risk Appetite Statement for Auckland Council. 

Consideration

Local board views and implications

18.     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

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

Attachments

No.	Title	Page
aView	Organisational Strategy	143
bView	Risk Appetite Statement for Auckland Council	159
cView	Auckland Council Top Risk Report	163

Signatories

Author	Selvan Naidoo - Senior Risk Advisor
Authorisers	Cecilia Tse - Head of Risk Katherine Anderson - Director Legal and Risk Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Stone cladding repairs - 135 Albert Street

File No.: CP2016/15479

Purpose

1.       This report provides information on risk assessment and mitigation strategies and actions for the works required to address maintenance issues with the stone cladding at 135 Albert Street.

Executive summary

2.       An issue exists regarding the stone cladding on 135 Albert Street, and more specifically the degradation and/or inadequacies of the fixing systems holding the stonework in place.

3.       Council has established a project to remove the current stone, repair the fixings, and reclad the building using a light weight substitute product for the lower columns and the existing stone at the lower podium level.

4.       The project and its budget has been approved by the Finance and Performance Committee and the selection of suppliers approved through the Tenders and Procurement Committee. On an ongoing basis the project team reports through to a steering group tasked with monitoring the risks and mitigations of the project.

5.       Initial safety works were completed to protect council staff and the public, and further enabling works have been carried out to prepare for the works and to further address public and contractor safety as the work proceeds.

6.       The scope and methodology of the works was chosen through a robust risk management and safety in design process to reduce the level of risk associated with the works.

7.       Risks with the work are documented, control measures are established and tracked, and the risk register is regularly reviewed.

8.       On site incidents are carefully reviewed and controls are put in place to prevent similar occurrences.

9.       This report is the first of a series of reports that will be provided to this committee during the course of the project, which is expected to extend for 18 to 24 months.

Recommendation/s

That the Audit and Risk Committee:

a)      receive the report on the management of risks associated with the 135 Albert Street cladding repair works.

Comments

10.     An issue exists regarding the stone cladding on 135 Albert Street, and more specifically the degradation and/or inadequacies of the fixing systems holding the stonework in place. On 12 April 2016 the Finance and Performance Committee approved the preferred option, proposed methodology and budget for the repair works.

11.     A procurement plan to conduct an open expression of interest process to identify contractors to undertake the repair works was approved by the Tenders and Procurement Committee on 26 April 2016. The same Committee, on 17 May 2016, then approved the selection of the head contractor, resulting from that expression of interest process, as well as specialist consultancy services, such as façade engineers, project managers and cost advisors.

12.     A project team meets weekly to monitor detailed performance of the delivery of the project, and this team reports to a steering group, which includes four Executive Team members and specialist property and communication staff, which is tasked with monitoring the risks and mitigations of what is a material capital project.

13.     The safety of occupants and visitors to the building and surrounding area is paramount and so works have been undertaken to mitigate immediate risks. This includes the fencing of the perimeter of the building, the erection of a hanging scaffold around the top section of the building, and the construction of an engineered structure above the canopy with the dual purpose of providing a safe working platform and a safety deck to catch any objects that may fall during the work. We have also captured the stonework in a sticky plastic layer that has stabilized the stone should any residual risk of a loose stone exist.

14.     In parallel to these safety and enabling works, detailed design work has been undertaken to address the substantive works required to address the issue around stonework fittings and confirm the final scope. A risk management and Safety in Design process has been used to minimise risk to contractors and the public during the works.

15.     The project team has agreed a scope of works, and a substitute material will be used to clad the building columns, as this will make the work on the columns safer to manage. Mast climber technology will be used to provide a safe and secure working platform, further reducing the risk of objects falling from the building during the works.

16.     Regular risk management and Safety in Design reviews are being conducted, and risks are being eliminated (where possible) or minimised through safety structures, processes and systems.

17.     The following table provides a summary of the assessed project risks, the established treatments, and the current status of the risk.  A more detailed risk register is appended to this report.

Risk                                           Treatment                                          Current Status

Health and Safety
Stone fall from building current state	Replace stone with lightweight cladding	Work proceeding as quickly as possible
Stone fall from building during construction	Install sticky plastic sheets over stone to capture movement	Complete
Stone fall from building current state	Limit access around the building with a fence. Working platform designed to contain objects that drop from height	Complete
Contractor injury on site	Site Specific Safety Plan, Inductions, regular toolbox meetings, safety barriers, safe working platforms	Ongoing
Fire on site	Inductions, hot work permits, trial evacuations, review emergency plans for the building	On going
Financial
Inadequate resources to complete the project	Early contractor involvement	Complete
Products and equipment are coming from abroad and the project is a multiyear event	Contingency for Forex changes	In place on going
As built information not complete	Contingency and limited research and investigation to test assumptions	Complete
Construction
Uncontrolled site traffic movements	Compliance with agreed Traffic Management Plans set up with Auckland Council, inductions	On going
Helicopter activities for loading out	Planning, induction, pre start meetings, barriers, TMPs	Complete
Excess noise	Construction impact team set up to manage communications, set up places for people to move to avoid the noise, test to determine the levels, signs to communicate daily impacts	Complete
Contract
Contractor business failure	Contract Bond Continuity Guarantee with subcontractors Retentions are taken from monthly payments	Complete Complete On going
Specialist resourcing not available	Define the scope to use local resources as far as possible Some materials and equipment are from overseas so Forex contingency added	Complete
Council Reputation
Panel falls from building	Remove the stone at height and replace with lightweight cladding	Underway
Negative public perception of the proposed works	Careful choice of project title, strong project sponsor and experienced communications team	In place on going
Negative media coverage	Strong project sponsor and experienced communications team	In place on going
Future
Safe access to the building after the work is completed for maintenance	Install new BMU which can reach the entire perimeter of the tower	Design works underway
Compliance with new regulations	Life-cycle risk analysis implemented as part of design process, consistent with newly published Health and Safety regulations Risk reviews of the design, construction, operations and demolition stages of the buildings life	Underway continuing
Lightweight cladding	Easy maintenance and warranty	Underway on going

18.     Reported Health and Safety incidents to date are as follows:

            Date                Incident                          Impact                                  Controls

3 May 2016	Broken pane of glass	Near miss	Boards and scrim and defined space to be set up
28 May 2016	Scaffold plank falls onto Sky City roof	Near miss	Product recall All planks secured with additional brackets
5 June 2016	Hammer fall	Near miss	All hand held equipment to be tethered to the operatives
19 June 2016	Fall from height during slinging operation, caught by harness	Near miss	No one to be in the vicinity of slinging operations
29 June 2016	Man slips on roof during very heavy rain storm and a scaffold pole falls to the ground off the canopy	Near miss	Scrim in place to all open fence areas, carpet installed on the canopy roof to reduce the possibility of slips

Consideration

Local board views and implications

19.     Local Board views have not been sought in this case as there are no implications for local boards with this regional corporate building.

Māori impact statement

20.     No direct impacts on Māori have been identified in relation to this request and resulting construction works. Work will be undertaken to ensure that the contract works are consistent with the existing Māori design features incorporated into the building, especially in the lobby area.

Implementation

21.     The report is for information only - no implementation is required.

Attachments

No.	Title	Page
aView	HSE040 Safety in Design and Project Risk Assessment	187
bView	Risk Register - 135 Albert Street - 1 July 2016	197

Signatories

Authors	John O’Brien - Manager Corporate Property Andrew Hollis - Project Manager
Authorisers	Kevin Ramsay - General Manager Corporate Finance and Property Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Audit and Risk Committee 08 August 2016

Update on Insurance Activities

File No.: CP2016/15627

Purpose

1.       To update the Audit and Risk Committee on the insurance renewal programme for the 2016/17 year.

Executive summary

3.       Council’s insurance policies are renewed annually on 30 June.  This includes all the policies that the council group (excluding Watercare) purchases in order to transfer insurable risks into the insurance markets.

4.       The insurance covers for the group were rolled over as at 30 June 2016, with materially the same insurers and policy terms as the previous year.

5.       The most significant changes to the insurance covers are:

·   The inclusion of below ground assets in the property insurance policy (refer below for more detail).

·   The formation of a group policy (excluding Watercare) for public liability and professional indemnity insurance.

6.       Insurance market conditions remain benign – the premiums are at or below previous premium rates and within budgeted cost.

7.       Staff have asked the brokers to explore the option for cyber risks and statutory liability cover.

Recommendation/s

That the Audit and Risk Committee:

a)      note the insurance renewal programme for the 2016/17 year and the changes to the insurance cover;

b)      note the intention to seek Expressions of Interest and/ or Requests for Proposals for the appointment of Council’s insurance brokers for a new term from 1 April 2017 with the process due to commence shortly.

Comments

Insurance Renewal Update 2016/17

8.       The insurance covers for the group (excluding Watercare) were rolled over as at 30 June 2016, with materially the same insurers and policy terms as the previous year, with minor changes as outlined in paragraph 11.

9.       Insurance market conditions remain benign – the premiums are at or below previous premium rates and within budgeted cost.

10.     The most significant changes are:

·   The inclusion of below ground assets in the property insurance policy (refer below for more detail).

·   The formation of a group policy (excluding Watercare) for public liability and professional indemnity insurance.

Background

11.     Council group currently insures a range of risks including property damage, professional indemnity and public liability, crime, fine arts, motor vehicle, rolling stock and others.  For matters not expressly covered by insurance policies, council effectively ‘self insures’ the risk of all financial loss not covered by those policies.

12.     The insurance covers for council and CCO’s were rolled over as of 30 June 2016 with materially the same insurers and policy terms as for the previous year, with the exception of minor changes to the Marine Insurance (new insurer, QBE), Material Damage Business Interruption (Zurich New Zealand as co-insurer) and Public Liability and Professional Indemnity (the CCO’s are now included in the council’s policy).

13.     Staff have been working in conjunction with council’s insurance broker Jardine Lloyd Thompson (JLT) to identify changes in the risk landscape for council as well as the insurance markets.

14.     Council has requested JLT to investigate purchasing Statutory liability and Cyber liability covers.  Staff and JLT will be holding a workshop in September to discuss the risks, the types and extent of cover sought for Cyber liability.

15.     The final placement of all insurance policies have been delegated to the Group Chief Finance Officer and the Director Legal and Risk, and this would include recommendations on Cyber liability cover.

Property Insurance - Above and Below Ground

16.     Historically Auckland Council has only insured its buildings and above ground infrastructure (and has not insured below ground assets).

17.     Above ground assets have been insured in a group policy, excluding Watercare.  Watercare operates separate insurance arrangements through a different broker. It does not currently insure its below ground assets.

18.     Based on natural hazards and fire modeling and allowing a buffer, council currently purchases a limit of $500 million for above ground assets based on a total insurable asset value of $6.6 billion.

19.     With respect to below ground assets, in general terms, the Crown is currently responsible for 60 per cent of damage and local government 40 per cent.

20.     The Crown has signaled a review of this arrangement. Future cost sharing arrangements may result in council being responsible for the first layer of loss (up to a defined point based on Probable Maximum Losses (PML)) and then for a cost sharing arrangement (with the Crown) to apply for losses above this level.  However there is a high degree of uncertainty about the timing and the level at which the defined point of loss will be set.  Staff are working with Local Government New Zealand on this review.

21.     In preparation of this anticipated change, council has had our broker complete natural catastrophe modeling of losses on below ground council group assets (excluding Watercare).  These consist mainly of pipelines and manhole assets with a total value (optimised replacement cost) estimated at approximately $3 billion.  The catastrophe modeling estimates the following PMLs:

·   Return period 1 in 10,000 years : $18 million

·   Return period 1 in 1000 years : $1.29 million

·   Return period 1 in 500 years : $0.14 million

22.     This has reaffirmed council’s view that the natural hazard risk is low in the Auckland region.  It should be noted, however, that while the modeling is based on scientific assumptions the results should only be taken as a guide.

23.     Based on the modeling, staff have put in place (for the 2016/17 year) an overall property insurance limit of $600 million covering both below and above ground assets, with a sub-limit of $100 million for below ground assets.

24.     Below ground cover was put in place because:

·   There are now sufficient insurance markets world-wide which are prepared to underwrite below ground risks at reasonable cost. The combination of policies (above and below ground) also results in less combined insurer capital being utilised and therefore will be less expensive than two separate policies.

·   The likely change in government policy which will potentially expose local government to a greater share of the financial risk for this class of assets.

·   The below ground insurance coverage further protects council’s balance sheet and therefore credit rating.

25.     For the 2017/18 year and beyond, staff will continue to investigate a range of risk funding options which may enable the council group to retain more risk while ensuring price stability in the long term.

Insurance Brokers 1 April 2017

26.     The present contract for services from JLT is due to expire on 31 March 2017.  Council staff will shortly be commencing a process of seeking Expressions of Interest and/ or Requests for Proposals for the appointment of brokers commencing 1 April 2017.

Consideration

Local board views and implications

27.     Local boards were not consulted on this report as this is a region-wide issue and not specific to a particular local board.

Māori impact statement

28.     Cover is in place for the three co-governance entities and the Independent Māori Statutory Board.

Implementation

29.     The policies have now been renewed and expire on 30 June 2017.

Attachments

There are no attachments for this report.     

Signatories

Author	Cecilia Tse - Head of Risk
Authorisers	Katherine Anderson - Director Legal and Risk Sue Tindal - Group Chief Financial Officer

Audit and Risk Committee 08 August 2016

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 Activity

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.

C2       Internal Audit Plan for year ending 30 June 2017

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.