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, Deputy Mayor PA Hulse and Member R Tiffin 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 Monday, 8 August 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

13 September 2016

Review of Forward Work Programme

File No.: CP2016/17954

Purpose

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

Executive summary

2. At its December 2015 meeting, the committee approved its forward work programme for 2016. 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 amendment:

i) debrief on the 2015-2025 Long-term Plan process (September 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 of relevance to the committee’s Terms of Reference, as contained in council’s Enterprise Risk Management “Top Risk” register;

· 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. There is one additional report for the September meeting of the committee:

· a debrief report on key learning’s from the 2015-2025 Long-term Plan process.

9. The updated 2016 work programme, which reflects the amendment referred to in paragraph eight above is attached at Attachment A to this report.

10. The committee should note that the work programme for the first meeting of the committee in the next term of council is subject to the review of the incoming chair of the committee.

Consideration

Local board views and implications

11. Not applicable.

Māori impact statement

12. Not applicable.

Implementation

13. Not applicable.

No.	Title	Page
a ⇩	Audit and Risk Committee Forward Work Programme	11

Attachments

Signatories

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

Audit and Risk Committee

13 September 2016

Monitoring of Treaty Audit Response Work Programme

File No.: CP2016/17953

Purpose

1. This report provides a progress update to the committee on the monitoring work performed by Internal Audit with respect to the Treaty Audit response work programme.

Executive summary

2. Internal Audit, as part of its routine work programme, monitors the council group’s implementation of the Treaty Audit response work programme. Inclusion of this activity in the Internal Audit work programme is in response to recommendations arising from the Independent Māori Statutory Board’s (IMSB) 2015 Treaty of Waitangi audit.

3. In accordance with this committee’s forward work plan, Internal Audit reports on a six-monthly basis to this committee.

4. This is the second six-monthly monitoring report. Internal Audit previously reported to the March 2016 meeting of this committee.

5. The primary focus of Internal Audit work to date has been the provision of “real time” feedback on Māori Responsiveness Plans. Internal Audit also participates in the Waharoa Group, which monitors progress against Treaty Audit recommendations.

6. As at the date of this report, five of 25 action groups have been assessed by the Waharoa Group as closed. (March 2016 one action group closed). Five departmental Māori Responsiveness Plans have been approved and are being implemented. A further five plans are in the final stages of development. Six plans remain on track to be completed before the end of this calendar year.

7. Based on the work performed to date council’s treaty audit response work programme is on track.

8. To provide assurance to the committee that the Treaty Audit response work programme remains on track the following monitoring and reporting work will occur over the next six months:

· Real time feedback on Māori Responsiveness Plans will continue as the plans are developed. Further Internal Audit will focus over the next six months on recommendations due to be implemented in quarter one to quarter three of 2016/2017.

· The Waharoa Group will shortly work through the Action Group Register (with respect to actions due to be delivered in the 2017 year) and work with action owners to revalidate closure criteria, actions and outcomes. The Action Group Register is subject to monthly review and update.

· To strengthen accountability for delivery of the Treaty Audit response work programme, Internal Audit will report the results of its work to the Te Toa Takitini executive leadership group.

Recommendation

That the Audit and Risk Committee:

a) receive the Monitoring of Treaty Audit response work programme report.

b) note the monitoring work that has been performed to date by Internal Audit.

c) note that Internal Audit will continue to report on a six-monthly basis to this committee.

Introduction

9. The IMSB’s Treaty of Waitangi audit process sets out a framework for assessing council’s performance against statutory responsibilities and requirements relating to Te Tiriti o Waitangi and to Māori.

10. The results of the second Treaty of Waitangi audit were reported to the Finance and Performance Committee on 21 May 2015 (Te Tiriti o Waitangi Audit Report 2015).

11. In response, the Finance and Performance Committee adopted a council Treaty Audit response work programme on 20 August 2015. The committee noted that quarterly reports on work programme progress will be provided to:

· Council’s Chief Executive and the executive leadership group of Te Toa Takitini;

· The Finance and Performance Committee; and

· Joint Governing Body and Independent Māori Statutory Board meetings

Bi-annual reports by Internal Audit on progress of the Treaty Audit response work programme and its operations will be provided to the Audit and Risk Committee during 2015-2018.

12. Te Tiriti o Waitangi Audit Report 2015 includes a “Summary of Recommended Actions”, in which 25 action groups are contained. These are linked to the 67 specific recommendations of the audit report.

13. Recommendation 66 recommends that “the responsibility for monitoring the work programme completion should move from Te Waka Angamua to Internal Audit, an independent function comprising risk and controls experts, well versed in how to undertake substantive follow up activity and with a direct reporting line to the Audit and Risk Committee, a body charged with oversight of risk, control and compliance matters”.

14. The forward work programme of this committee (approved in December 2015) requires Internal Audit to report to this committee on a six-monthly basis, on its monitoring work with respect to council’s response to the recommendations as contained in the Te Tiriti o Waitangi Audit Report 2015.

15. The primary focus of Internal Audit work over the past six months has been the provision of “real time” feedback on Māori Responsiveness Plans. Internal Audit also participates in the Waharoa Group, which monitors progress against Treaty Audit recommendations.

16. The broad approach to the work performed by Internal Audit is:

· Review of Māori Responsiveness Plans and action owner’s individual project plans – assessing whether they are “fit for purpose” to achieve Treaty Audit recommendation objectives.

· Obtaining of regular updates from audit action owners as to progress in executing individual project plans.

· Periodic testing (via enquiry, observation, review and testing of underlying controls, processes and documentation) to assess whether individual project plans, internal controls and underlying processes are being implemented as intended.

· Review of the Treaty Audit response work programme component of the quarterly reporting to the Finance and Performance Committee of the quarterly Te Toa Takitini Māori Responsiveness Portfolio.

· Twice-yearly reporting to the Audit and Risk Committee.

Māori Responsiveness Plans

17. In assessing whether each Māori Responsiveness Plan is “fit for purpose” the focus of the review work has been whether:

· Initiatives as contained in the plans will achieve the objectives of Treaty Audit recommendations.

· Appropriate accountabilities have been put in place for delivery of the plans.

· Proposed performance frameworks within the plans are appropriate to assess whether outcomes will be achieved.

· Adequate budget and resource has been set aside to delivery on the plans.

· The proposed delivery timeframes of specific initiatives are realistic and “doable” given departmental priorities.

Contribution to the Waharoa Group

18. Internal Audit also discharges its monitoring responsibilities through its contribution to the work of the Waharoa Group. The Waharoa Group, comprised of representatives from Internal Audit, Te Waka Angamua and the IMSB Secretariat, has the role in monitoring progress and applying criteria for closure of actions and each related Treaty Audit recommendation.

19. The Waharoa Group’s work to date has reached agreement between the IMSB, Internal Audit and business owners as to what will constitute ‘closure’, and required evidence of “closure”, with respect to each specific recommendation in the 2015/2016 Treaty Audit response work programme. This should avoid future disagreements as to whether recommendations have been closed, increase resource efficiency in addressing the Treaty Audit recommendations and contribute to a more effective audit process moving forward.

Monitoring of Progress March to August 2016

20. Each of the actions recommended in Te Tiriti o Waitangi Audit Report 2015 has a set of agreed closure criteria. When these are met the Waharoa Group jointly agree to close the action (and the linked Treaty Audit recommendation). When all actions within a group are complete, the action group can be closed.

21. As at the date of this report five of 25 action groups have been assessed by the Waharoa Group as closed. (March 2016 one action group closed).

22. Māori Responsiveness Planning is progressing steadily. Five departmental Māori Responsiveness Plans have been approved and are being implemented. Five are in the final stages of development (Plans and Places, Research, Investigation and Monitoring Unit, Civil Defence, Arts, Culture and Events and People and Capability. A further six remain on track to be completed before the end of this calendar year.

23. Attachment A for the committee’s information is a summary of council’s progress in addressing the specific audit recommendations. Appendix B sets out the Treaty Audit response work programme for 2017. Appendix C summarises the status of the Maori Responsiveness Plans. This is the same information that was reported to the 9 August 2016 Finance and Performance Committee.

Monitoring work – next six months

24. To provide assurance to the committee that the Treaty Audit response work programme remains on track the following monitoring and reporting work will occur over the next six months:

· To strengthen accountability for delivery of the Treaty Audit response work programme, Internal Audit will report the results of its work to the Te Toa Takitini executive leadership group.

Te Tiriti o Waitangi Audit – Action Follow-Up Health Check

25. The IMSB has commissioned an “Audit Action Follow Up Health Check” to assess and comment on the current “follow-up” framework. The objective of this assessment was to:

· Assess the design and operating effectiveness of the follow-up framework (including assignment of responsibilities, delivery and reporting) that council and the IMSB rely on to drive the progress of Te Tiriti o Waitangi Audit recommended actions;

· assess the follow-up framework against good practice;

· identify recommendations to improve the follow-up framework.

26. As at the date of this report, a draft report has been issued for comment.

27. While the current framework is working well, the review team in conjunction with the Waharoa Group have identified areas where the framework can be enhanced (e.g. developing a charter for the Waharoa Group, enhancements to the annual planning and closure criteria processes; enhancing the visibility of the work of the Waharoa Group with the executive leadership group).

28. The Waharoa Group is currently scoping the implementation of the recommendations.

Consideration

Local board views and implications

29. Local boards through their advisors have been consulted in the identification of local board Māori transformational shift activity. Local boards will be included in the business partnering process to support the implementation of the monitoring and reporting system Māori transformational activity.

Māori impact statement

30. The Treaty of Waitangi Audit response work programme enables the council to strengthen their responsiveness to Māori through targeted actions and improvements.

Implementation

31. The monitoring role of Internal Audit will continue through the course of the Treaty Audit response programme.

No.	Title	Page
a⇩	Treaty Audit Register July 2016	19
b ⇩	Treaty Audit Response Programme 2016-2017	23
c ⇩	Māori Responsiveness Plan Status	31

Attachments

Signatories

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

Audit and Risk Committee

13 September 2016

Improved budget and project management processes

File No.: CP2016/19318

Purpose

1. This report outlines on-going improvements to the budget and project management processes for the Auckland Council group that respond to audit findings and recommendations.

2. In this report “budget processes” refer to all aspects of preparing, consulting on and agreeing a long-term plan, while “project management processes” refer to all aspects of planning, monitoring and controlling projects and programmes.

Executive summary

3. In Audit New Zealand’s management report on the 2015-2025 Long-term Plan (LTP) the Auditor General noted the advice provided to councillors about significant potential risks to the council’s finances if the LTP had not been adopted by the legislative deadline of 30 June 2016. The Auditor General suggested that the council complete a formal debrief/lessons learnt process to ensure that consultation and adoption risks are formally considered and appropriately addressed for future LTP rounds.

4. Other audit feedback on the budget processes for the council group noted good progress had been made in areas such as asset management, infrastructure strategy, financial strategy and performance measurement. The Auditor General expects to see further progress in these areas to support high-quality discussions with the community about key risks and trade-offs for major investment decisions, supported by a strong evidential base and appropriate analysis of alternative options.

5. Audit feedback has also consistently included recommendations to better manage risk through strengthening project management practices across the council group, particularly in the areas of project governance and reporting.

6. Staff have completed a formal debrief process for the 2015-2025 LTP and have continued to implement improvements to budget and project management processes in line with the audit recommendations.

7. As part of commencing work on planning for the next LTP, staff are now investigating some key changes with the aim of improving and better aligning the council’s budget and project management processes.

8. Given that legislation requires Auckland Council’s budget process to be led by the Mayor of Auckland, any proposed changes to budget process would need to be confirmed after the next local body election in October.

Recommendation/s

That the Audit and Risk Committee:

a) receive the Improved budget and project management processes report.

Comments

Background

9. In Audit New Zealand’s management report on the 2015-2025 LTP the Auditor General noted the advice provided to councillors about significant potential risks to the council’s finances if the LTP had not been adopted by the legislative deadline of 30 June 2016. The Auditor General suggested that the council complete a formal debrief/lessons learnt process to ensure that consultation and adoption risks are formally considered and appropriately addressed for future LTP rounds.

10. Other audit feedback on the budget processes for the council group noted good progress had been made in areas such as asset management, infrastructure strategy, financial strategy and performance measurement. The Auditor General expects to see further progress in these areas to support high-quality discussions with the community about key risks and trade-offs for major investment decisions, supported by a strong evidential base and appropriate analysis of alternative options.

11. Audit feedback has also consistently included recommendations to better manage risk through strengthening project management practices across the council group. They have acknowledged the work that is still on-going to implement these recommendations. The key changes that Audit New Zealand would like to see include:

· improved quality assurance to support stronger project governance

· improved reporting of projects including quarterly consolidated reporting

· use of a quality project management framework which:

o highlights the need to have quality business cases to support investment

o includes project closure reports and a lessons learnt process

o has clear minimum project standards and tolerances for key aspects of project management (scope, risk, budget and time) across the council group

· capability building to improve project management knowledge and expertise.

Work completed

12. Staff have completed a formal debrief process for the 2015-2025 LTP and have continued to implement improvements to budget and project management processes in line with audit recommendations. Staff have also reviewed national and international best practice to see what lessons can be learned for improving these processes further.

LTP debrief

13. The debrief identified the following key opportunities for improvement:

· improved planning and clearer internal guidance to reduce timeline and resourcing pressures

· better leveraging internal and external networks to improve our ability to engage with all Aucklanders, and further exploring innovative approaches to consultation

· strengthening the analytical base across all council business areas ahead of the next LTP to enable timely critical analysis

· more structured opportunities to provide political direction

· more focus on agreeing the specific wording of consultation questions, not just the issues for consultation.

14. Council staff have begun to factor these process improvements into the early forward planning for the 2018-2028 long-term plan.

Budget process changes for Annual Plan 2016/2017

15. The process of developing and agreeing an annual plan is typically shorter and simpler than the process for a long-term plan. Nevertheless, some changes were implemented in response to the Auditor General’s concerns about adoption risk and the learning’s from the LTP debrief. Key changes included:

· enabling the Financing and Performance committee to identify specific areas of the budget for detailed review

· having the Finance and Performance committee agree the key items for consultation ahead of the mayoral proposal

· obtaining early feedback from councillors and a review from an external market research expert on the specific wording of the consultation questions

16. Council staff will recommend to the new council that these steps are incorporated into the process for preparing the next LTP to help mitigate adoption risk.

Review of central government approach

17. In 2014, the Treasury introduced a systematic approach to managing the Crown’s investment in public assets. This approach is based on international best practices and closely linked with Treasury’s work on implementing Better Business Cases methodology across the state sector.

18. This investment management approach aims to ensure the Crown owns the right assets, manages them well, funds them sustainably, that risks are managed and that the benefits promised are realised. The Treasury aims to eventually extend this approach to all Crown expenditure, but the current focus is to get capital investments performing well.

19. This approach assists government ministers and agency chief executives to have confidence that:

· investment decisions are well informed and evidence based

· decisions are prioritised well and aligned to government's long-term strategic goals

· the Crown’s portfolio of investments is delivering high public value

· investment decision making and asset management across the State sector is robust, transparent, effective and efficient.

20. Central government is doing this because they want to ensure they get the best value out of their substantial investment in public assets. They recognise that the more efficient and effective they can make their investment processes, the more resources they can redeploy to priority areas, the more likely they are achieve the outcomes they want and the more confidence they will have in tackling more challenging and complex issues.

21. Council staff consider there are many parallels between the central and local government investment contexts, and some excellent opportunities to apply aspects of the central government approach to improve value, transparency and confidence in the council’s investment decision making. Some key elements of that approach have already been implemented as improvements to the council’s project management processes.

Project management process improvements

22. The following key improvements to project management process have been implemented:

· an Investment Delivery Framework (IDF) for portfolio/programme/project management processes

· a new business case approach that incorporates the key principles of the internationally recognised Better Business Case (BBC) Five Case Model. These principals form the foundation of the central government approach to investment

· establishment of a business case centre to build internal capability and expertise

· a Project Quality Management System to enhance quality assurance

· established a forum to collaborate across the group to improve overall quality and delivery of portfolio/programme/project management.

The council’s new business case approach has been tested for all new internally facing investment projects with lessons learnt prompting further process refinements. Staff have also road tested the project health check process, a critical component of the new Project Quality Management System.

Next steps

23. Staff consider that there significant opportunities to further apply key elements of the central government approach to the council group’s budget and project management processes. In particular, there is an opportunity to bring these two processes closer together as a single combined approach focused on improving public confidence in council’s investment decision making and on driving better outcomes for Aucklanders.

24. For the next LTP, this would mean staff taking a business case approach to advising elected members on options for different levels of capital and operating expenditure in each activity area, with clear advice on what can be achieved with differing levels of spend. It would mean staff advice will be more focused the link between budget choices and the council’s long-term strategic priorities. At the same time, staff would also provide advice about what the group and its contractors can realistically achieve within a given timeframe.

25. On an on-going basis, it would mean improved reporting of how the council’s investments are performing, a more disciplined process for ensuring value for money spending within budget delegation after the LTP budget is agreed, and an increased focus on reviewing past investments to inform future investment decisions.

26. Once implemented, these process improvements would mitigate project governance risks, increase transparency and better support the council to have high-quality, well informed discussions with the community about key risks and trade-offs for major investment decisions. Staff consider that these improvements would go a long way towards addressing the key concerns that Audit Zealand have raised over recent years.

Consideration

Local board views and implications

27. Improvements to budget and project management processes may include improvements to local board processes that would enhance transparency and/or better support high-quality investment decision-making at the local level. Discussions have commenced and are on-going.

Māori impact statement

28. Improvements to budget and project management processes will provide an opportunity for Māori outcomes to be more consistently considered when making investment decisions and when reviewing the performance of past investments. Work with Te Waka Angamua in this regard is on-going.

Implementation

29. Given that legislation requires Auckland Council’s budget process to be led by the Mayor of Auckland, any proposed changes to budget process would need to be confirmed following the local body elections.

Attachments

There are no attachments for this report.

Signatories

Authors

Ross Tucker - Manager Financial Planning and Strategy

Ramari Slattery - Head of Strategic Portfolio and Programme Office

Authorisers

Matthew Walker - GM Financial Strategy and Planning

Phil Wilson - Governance Director

Audit and Risk Committee

13 September 2016

Annual Report on the Performance of the Audit and Risk Committee

File No.: CP2016/19354

Purpose

1. To review and summarise the activities of the Audit and Risk Committee for the 15-month period to September 2016.

Executive summary

2. The committee’s responsibilities are set out in its Terms of Reference.

3. The Terms of Reference provide that the chair of the committee will submit a written review of the performance of the committee to the Chief Executive on an annual basis. The review will summarise the activities of the committee, and how it has contributed to the council’s governance and strategic objectives. The Chief Executive will place the report on the next available agenda of the governing body.

4. Further, it is good practice that Audit and Risk Committees should review their performance on an annual basis. This is the first annual review of this committee’s performance.

5. This report covers the 15-month period from 1 July 2015 to present. The committee has met seven times through this period.

6. This report summarises the key actions performed by the committee, in response to the committee’s responsibilities as contained in the committee’s Terms of Reference.

7. The committee has fully discharged its responsibilities as contained in that Terms of Reference.

Recommendation/s

That the Audit and Risk Committee:

a) receive this Annual Report on the Performance of the Audit and Risk Committee report.

b) recommend that the Chief Executive place the report on the next available agenda of the governing body.

Introduction

8. The Audit and Risk Committee 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 most other committees. It is advisory in nature.

9. The Terms of Reference of the committee are based on good practice – focusing on governance, enterprise risk management and internal control.

Key actions performed by the Audit and Risk Committee through the period

10. A review of the functioning of the committee was requested by the Mayor. The review made recommendations designed to improve the effectiveness of the committee and was considered at the committee’s December 2015 meeting.

11. The key recommendations made were:

· Adopting a new detailed Terms of Reference, which clarified the roles and responsibilities of the committee;

· Implementing a forward work programme, aligned to the Enterprise Risk Management Framework;

· Transitioning to an independent chair and an equal number of elected members and external members. This will take effect in the next term of office, following the Local Government elections in October 2016.

12. A forward work programme has been established (effective December 2015). This has provided for in-depth sessions in workshops for the committee to be briefed on key risks and mitigations with respect to

· NewCore;

· Health and Safety, and in particular the Health and Safety at Work Act 2015;

· The “Do it Right” Legislative Compliance Programme; and

· Council’s programmes and projects.

13. The committee has regularly reviewed a summary of health, safety and well-being performance information. This discharges due diligence responsibilities under the Health and Safety at Work Act 2015.

14. Through the period, the committee has regularly reviewed the Enterprise Risk Management work programme. This has included:

· Reviewing the council’s “Top Risks” and risk mitigations;

· Monitoring the implementation of the Enterprise Risk Management Strategy and Plan 2015-2017;

· Reviewing and approving council’s risk appetite as expressed in “Risk Appetite Statements”. This included a workshop on risk appetite statements.

· Receiving and reviewing risk updated from council’s substantive Council-controlled Organisations; and

· Reviewing council’s Risk Maturity results in May 2016.

15. The committee has reviewed on a regular basis through the period the Internal Audit work programme. This has included:

· Approving the Internal Audit Charter, which establishes the independence, mandate, scope and authority of the Internal Audit department;

· Reviewing, approving and monitoring the implementation of the Internal Audit Strategy 2015-2018, and the Integrity and Ethics Strategy;

· Reviewing, approving and monitoring the implementation of the detailed Internal Audit programme;

· Reviewing the status of outstanding audit recommendations; and

· Conducting regular committee only sessions have been held with the Internal Auditor.

16. The Committee has reviewed the work of external audit. This has included:

· Reviewing the areas of audit focus as contained in the Annual Audit Arrangements Letter (audit of annual report) and the Interim financial Statements Review Engagement Letter (review of six month interim group financial statements);

· Reviewing the interim and final management reports with respect to each engagement;

· Reviewing the status of outstanding external audit recommendations;

· Conducting regular committee only session with external audit.

17. In addition, the committee has reviewed and provided feedback on the draft Annual Report and draft interim group financial statements prior to consideration by the Finance and Performance Committee.

18. The committee has annually reviewed council’s insurance renewal programme.

Conclusions

19. The committee has discharged its responsibilities under its Terms of Reference.

Consideration

Local board views and implications

20. Nil applicable.

Māori impact statement

21. Nil applicable.

Implementation

22. Nil applicable.

Attachments

There are no attachments for this report.

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

Signatories

Audit and Risk Committee

13 September 2016

Draft 2015/2016 Annual Report and Summary Annual Report for Auckland Council and Group

File No.: CP2016/17178

Purpose

1. To inform the Audit and Risk Committee of the process followed to prepare the 2015/2016 Annual Report and Summary Annual Report for the Auckland Council group. The Auditor-General will comment on the audit process and status at this meeting.

Executive Summary

2. The Governing Body, at the meeting to be held on 29 September 2016, will be asked to adopt the 2015/2016 Annual Report and Summary Annual Report for the Auckland Council group. Preparing and publishing an Annual Report and Summary Annual Report is a legislative requirement.

3. The 2015/2016 Annual Report covering the twelve months to 30 June 2016 has been prepared by council officers and audited by Audit New Zealand on behalf of the Auditor-General. The 2015/2016 Annual Report compares and comments on the performance of council and the group against the budgets and performance targets set in the Long-term Plan (LTP) 2015-2025.

4. The Auditor-General will comment on the audit process and status of the 2015/2016 Annual Report and Summary Annual Report audits at this meeting.

5. There are no significant outstanding audit or process issues in respect of the 2015/2016 Annual Report and the Summary Annual Report for Auckland Council and group.

Recommendation/s

That the Audit and Risk Committee:

a) note that there are no significant outstanding audit issues in respect of the audit and process of preparing the 2015/2016 Annual Report and the Summary Annual Report for Auckland Council and group.

b) recommend the 2015/2016 Annual Report and the Summary Annual Report for Auckland Council and group to the Finance and Performance Committee for recommendation to the Governing Body for adoption.

Comments

6. The Audit and Risk Committee reviews the quality of the annual report, and the processes used to prepare it, while the Finance and Performance Committee reviews and enquires into the financial and operational performance of the group. As part of its Terms of Reference, the Audit and Risk Committee is required to liaise with Audit New Zealand to ensure robust financial audit and reviews of the Auckland Council group.

7. This agenda, together with the comments from the Auditor-General at this meeting and the report from Audit New Zealand, assists this committee to fulfil their duty as noted under the terms above.

Preparation of the financial statements Volume 3 of the annual report

8. As reported to this committee on 8 August 2016, during this financial year the proforma financial statements have been streamlined to improve their readability and flow, and to remove duplicate and immaterial information. These comprise Volume 3 of the Annual Report. Further streamlining work undertaken resulted in the 2015/2016 Annual Report and Summary Annual Report reducing by 116 pages from 800 to 684 pages, a 15 per cent reduction.

9. At the meeting on the 8 August 2016 the Audit and Risk Committee approved the revised financial statements, subject to any changes identified during the current audit process. Delegated authority was given to the independent members of this committee Mr Conder and Mr Tiffin to approve any such amendments. There were no significant changes to the proforma financial statements during the audit process.

10. The Audit and Risk Committee also delegated authority to Mr Conder and Mr Tiffin to review and comment on the draft 2015/2016 Annual Report and Summary Annual Report for the Auckland Council group. As part of their delegation, they were requested to verbally report to the September 2016 meeting of the committee on the process, findings and conclusions on the suitability of reports for adoption.

11. As part of the year end process the draft financial statements were provided on 18 August 2016 to both Mr Conder and Mr Tiffin, along with the NZDX preliminary announcement and media release (issued to the NZX on 29 August 2016). Feedback was received by Financial Control from both Mr Conder and Mr Tiffin, which was incorporated into the final version of the financial statements.

12. The draft 2015/2016 Annual Report and draft Summary Annual Report were provided to Mr Conder and Mr Tiffin on 1 September 2016 and 30 August 2016 respectively, as part of the year end process, to assist with the verbal report to the Audit and Risk Committee.

Disclosures

13. The financial statements contain disclosures required by the financial reporting standards, New Zealand Stock Exchange and the Local Government Act 2002.

14. In the Overview and service performance Volume 1 of the Annual Report we disclosed revenue and costs for each group of activities. The form of the funding impact statement is specified in the Local Government Act.

Financial Statements

15. The following commentary relates to the Annual Report for Auckland Council group Volume 3: Financial statements.

Asset revaluations

16. The group is required to report major asset classes at fair value. To meet this, it is planned that the classes of assets are revalued on a three-yearly cycle, however due to significant price increases in the Auckland region’s property markets, two classes of assets were required to be revalued out-of-cycle as at 30 June 2016. Operational land and buildings were previously revalued at June 2014 and restricted land and buildings (parks and reserves) at 30 June 2015. All other asset classes were assessed to confirm they are still recorded at Fair Value.

17. The total net revaluation gain was $1,614 million. The gain was largely due to the revaluation of operational land and buildings ($874 million), restricted land and buildings ($689 million) and the infrastructure at train stations ($51 million).

18. Although there is an increase in the value of the assets, there is a financial cost in that the valuations are performed by external valuers. This financial year the Auckland Council Rates and Valuation team performed a peer review of the valuations, providing confirmation that the valuations performed were within expectations.

Property, Plant and Equipment (PPE), Intangibles and Work in Progress (WIP)

19. Significant work has been performed during the financial year to capitalise the WIP within the Auckland Council group. New and updated policies and procedures have assisted in capitalising the WIP for PPE ($1,339 million) and Intangibles ($223 million).

20. Included within the Intangibles capitalisation is $90 million for the NewCore project, with the balance expected to be capitalised during the 2016/2017 financial year.

Provisions

21. At the end of each year we the Auckland Council group undertake a comprehensive review of all provisions.

22. Our largest provision at $257 million is for the liability for weathertightness claims. As expected, there has been a reduction in single unit claims during the current financial year, but this has been partly offset by an increase in multi-unit claims. This has resulted in the overall provision decreasing by $19 million. As part of the financial year end process, Auckland Council worked in conjunction with external actuarial valuers to review the assumptions and judgments used in valuing the liability for the weathertightness claims.

23. The review of the contaminated land provision ($88 million as at June 2016) resulted in an increase of $3 million. This was mainly due to detailed reassessment of the Taipari Strand site.

24. The provision against financial guarantees, issued by Auckland Council for Eden Park Trust Board (EPTB) bank loans, was evaluated by Auckland Council and was assessed as still being at fair value. The exercising of the guarantee will be dependent on the financial stability of the EPTB, which will vary over time.

Statement of Service Performance (SSP)

25. The Statement of Service Performance (SSP) is reported in Volume 1: Overview and service performance, which provide an overview of financial and non-financial performance as well as key achievements for each theme and its respective groups of activities.

26. The 2015/2016 year is reported against the LTP 2015-2025 measures.

27. At the time of writing this report, Audit NZ are still completing the audit of the SSP therefore a verbal update will be provided at the committee meeting.

28. Audit NZ will report on any matters arising from their audit in their final management report.

Preparation of SSPs reported in Volume 1 of the draft 2015/2016 Annual Report

29. For each of the activities delivered by the council, the LTP includes level of service statements and associated performance measures. The annual report shows our performance results compared to the targets set in the LTP.

30. The performance measures included in the LTP 2015-2025 changed from the previous LTP. The 2015/2016 Annual Report is the first time that the council is reporting back externally against the performance measures as contained in the LTP. A number of the measures are new.

31. The Internal Audit department reviewed and tested underlying business processes that produce the information to report back against performance measures by the Auckland Council parent entity. The purpose of this work was to provide comfort to the external auditors that the underlying business processes have integrity and that information being produced and reported is complete and accurate.

32. At the completion of Internal Audit’s review work, there were no significant unresolved issues remaining. Where issues have been identified they were rectified by the business unit at the time of the review. The results of Internal Audit’s work have been reported to the Audit and Risk Committee.

33. The SSP content has been reviewed by Internal Audit, including in particular the areas where it was identified that additional disclosure was required in the annual report against a performance measure.

34. The draft SSP content was sent to Mr Conder and Mr Tiffin for review on 25 August 2016.

Preparation of Local Boards content, Volume 2 of the draft 2015/2016 Annual Report

35. The format of the local board reports has been amended this year to include more comprehensive explanations about performance measure results.

36. Financial reporting requirements were amended, which require from this year that Local Board Funding Impact Statements be included in Volume 2: Local Boards of the 2015/2016 Annual Report.

37. The draft local board reports have been presented to each of the local boards for their review.

38. The draft local board volume was sent to Mr Conder and Mr Tiffin for review on 25 August 2016.

Preparation of the draft Summary Annual Report

39. The content of this section has been reviewed in order to improve the quality of information presented.

40. An early discussion on the proposed content of the Summary Annual Report took place with Mr Conder and Mr Tiffin in June 2016. The feedback received was incorporated into the development of Summary Annual Report.

41. The draft Summary Annual Report was sent to Mr Conder and Mr Tiffin for review on 31 August 2016.

Internal compliance reviews

42. To ensure the 2015/2016 Annual Report and Summary Annual Report comply with the legislation and financial reporting standards a number of internal processes and reviews are completed as a part of the financial year end. These include:

· Auckland Council Legal Services provide legal compliance sign-off of the 2015/2016 Annual Report and Summary Annual Report to the chief executive, prior to adoption by the Governing Body.

· Auckland Council works with the CCOs at many levels throughout the year to support them with their financial reporting. Each CCO provides a financial reporting pack, based on a standardised pack issued by Auckland Council Financial Control. The information in the pack is confirmed by the auditor of the CCO. The audited financial information of all CCOs was consolidated to compile the group financial statements.

· The draft 2015/2016 Annual Report and Summary Annual Report were peer reviewed by the external members of the Audit and Risk Committee, Mr Conder and Mr Tiffin.

· Similarly in relation to the preparation of the SSPs, the council works with the CCOs to agree the process to be used for the collation and presentation of the information. A guidance document specifies the detailed requirements and timelines. A review process of the content received ensures that these requirements are met.

43. During the year we work closely with Audit NZ to discuss and resolve issues and the accounting treatment required. Auckland Council has also worked with Audit NZ to implement process improvement initiatives, such as an indirect cash flow model, to support the existing cash flow disclosure process, and financial statements consolidation model, to provide greater transparency over the information and reduce work required by Audit NZ. This process improvement work is on-going and further areas of improvement have been identified for the coming year.

Financial Markets Conduct Act

44. The Financial Markets Conduct Act (FMCA) governs all retail bonds issued by Auckland Council since amalgamation in November 2010 (under its Master Trust Deed). During the financial year council completed a review of the Debenture Trust Deed (which governs the retail bonds issued by the former Manukau City Council). The Deed was updated to ensure it fully complies with the requirements of the FMCA.

Consideration

Local Board views and implications

45. The Annual Report Volume 2: Local Boards, highlights activities and achievements in the local board areas. Local boards’ views were sought in identifying these highlights.

46. Reporting requirements were amended, which requires from this financial year that Local Board Funding Impact Statements (FISs) are included in Volume 2: Local Boards of the 2015/2016 Annual Report.

Māori impact statement

47. The Annual Report Volume 1: Overview and service performance includes information and activities relevant to achieving the outcomes with and for Māori. There were no process issues with how these were measured and reported.

Implementation

48. There are no implementation issues.

Attachments

No.	Title	Page
a ⇨	Draft Summary Annual Report 2015/2016 (Under Separate Cover)
b ⇨	Draft Annual Report 2015/2016 - Volume 1: Overview and service performance (Under Separate Cover)
c ⇨	Draft Annual Report 2015/2016 - Volume 2: Local Boards (Under Separate Cover)
d ⇨	Draft Annual Report 2015/2016 - Volume 3: Financial statements (Under Separate Cover)

Signatories

Author

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Phil Wilson - Governance Director

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