Agenda of Audit and Risk Committee

TERMS OF REFERENCE

Purpose

The purpose of the Audit and Risk Committee is to assist and advise the Governing Body in discharging its responsibility and ownership of governance, risk management, and internal control.

The committee will review the effectiveness of the following aspects of governance, risk management and internal control:

· enterprise risk management (ERM) across the Auckland Council group

· internal and external audit and assurance

· integrity and investigations

· monitoring of compliance with laws and regulations

· significant projects and programmes of work focussing on the appropriate management of risk

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

The scope of the committee includes the oversight of risk management and assurance across council’s CCOs with respect to risk that is significant to the Auckland Council group.

To perform his or her role effectively, each committee member must develop and maintain his or her skills and knowledge, including an understanding of the committee’s responsibilities, and of the council’s business, operations and risks.

Decision-Making Powers

The committee has no decision making powers.

The committee may request expert advice through the chief executive where necessary.

The committee may make recommendations to the Governing Body and / or chief executive.

Tenure

External members will be appointed for an initial period not exceeding three years, after which they will be eligible for extension or re-appointment, after a formal review of their performance, and have not already served two terms on the committee. Councillors appointed to the committee will automatically cease to hold office at the time of the local authority triennial elections. They may be eligible for re-appointment post those elections if they are returned to office and have not already served two terms on the committee.

The chief executive, and the senior management team members will not be members of the committee.

The members, taken collectively, will have a broad range of skills and experience relevant to the operations of the council. At least one member of the committee should have accounting or related financial management experience, with an understanding of accounting and auditing standards in a public sector environment.

Committee’s responsibilities

The committee’s responsibilities are detailed below.

Forward Work Programme

The committee will agree and approve annually a forward work programme – which will consist of in depth briefings and reviews of specific significant risks and assurance strategies, as contained in the ERM “Top Risks” or Auckland Council’s work plan.

Risk management

· Review, approve and monitor the implementation of the ERM policy, framework and strategy (including risks pertaining to CCOs that are significant to the Auckland Council group).

· Review and approve the council’s “risk appetite” statement.

· Review the effectiveness of risk management and internal control systems including all material financial, operational, compliance and other material controls. This includes legislative compliance (including Health and Safety), significant projects and programmes of work, and significant procurement.

Review risk management reports identifying new and / or emerging risks, and any subsequent changes to the ERM “Top Risk” register.

Internal Audit

· Review annually the Internal Audit Charter – which confirms the authority, independence and scope of the function.

· Review and approve annually and monitor the implementation of the 3 year Internal Audit Strategy and 12 month detailed Internal Audit Plan.

· Review the co-ordination between the risk and internal audit functions – including the integration of the council’s ERM risk profile with the Internal Audit programme. This includes assurance over all material financial, operational, compliance and other material controls. This includes legislative compliance (including Health and Safety), significant projects and programmes of work, and significant procurement.

· Review the reports of the Internal Audit functions dealing with findings, conclusions and recommendations (including assurance over risks pertaining to CCOs that are significant to the Auckland Council group)

Review and monitor management’s responsiveness to the findings and recommendations – enquiring into the reasons that any recommendation is not acted upon.

Fraud and Integrity

· Review and approve annually, and monitor the implementation of, the Fraud and Integrity Strategy, including detailed work programme.

· Review annually the whistleblowing procedures and ensure that arrangements are in place by which staff, may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or any other matters, and that there is proportionate and independent investigation of such matters and appropriate follow-up action.

· Review the procedures in relation to the prevention, detection, reporting and investigation of bribery and fraud.

· Review and monitor policy and process to manage conflicts of interest amongst elected members, local board members, management, staff, consultants and contractors.

Review reports from the Risk, Internal Audit, Integrity and Investigations, external audit and management related to whistle blower, ethics, bribery and fraud related incidents.

Statutory Reporting

Review and monitor the integrity of the interim and annual report including statutory financial statements and any other formal announcements relating to the council’s financial performance, focussing particularly on:

· compliance with, and the appropriate application of, relevant accounting policies, practices and accounting standards

· compliance with applicable legal requirements relevant to statutory reporting

· the consistency of application of accounting policies, across reporting periods, and the Auckland Council group

· changes to accounting policies and practices that may affect the way that accounts are presented

· any decisions involving significant judgement, estimation or uncertainty

· the extent to which financial statements are affected by any unusual transactions and the manner in which they are disclosed

· the disclosure of contingent liabilities and contingent assets

· the clarity of disclosures generally

· the basis for the adoption of the going concern assumption

significant adjustments resulting from the audit.

External Audit

· Discuss with the external auditor before the audit commences:

· the nature and scope of the external audit

· areas of audit focus

· error and materiality levels.

· Review with the external auditors representations required by elected members and senior management, including representations as to the fraud and integrity control environment.

· Review the external auditors management letter and management responses, and inquire into reasons for any recommendations not acted upon.

Where required, the chair may ask a senior representative of the Office of the Auditor General to attend the committee meetings to discuss the office’s plans, findings and other matters of mutual interest.

Interaction with Council Controlled Organisations

Other committees dealing with CCO matters may refer matters to the Audit and Risk Committee for review and advice.

This committee will enquire to ensure adequate processes at a governance level exist to identify and manage risks within a CCO. Where an identified risk may impact on Auckland Council or the wider group, the committee will also ensure that all affected entities are aware of and appropriately managing the risk.

The Head of Risk and Head of Internal Audit are responsible for the provision of quality risk, assurance, insurance and ethics and integrity services for all CCOs except Auckland Transport and Watercare (with the exception of insurance services which are provided to Auckland Transport). Auckland Transport and Watercare have their own risk and assurance functions. The Head of Risk and Head of Internal Audit are responsible for monitoring CCO risk and internal audit strategies with respect to risks that are significant to the Auckland Council group.

Annual Report on the work of the committee

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.

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

06 December 2017

ITEM TABLE OF CONTENTS PAGE

1 Apologies 11

2 Declaration of Interest 11

3 Confirmation of Minutes 11

4 Petitions 11

5 Public Input 11

6 Local Board Input 11

7 Extraordinary Business 12

8 Notices of Motion 12

9 Audit and Risk Committee Forward Work Programme 13

10 Final management report on the audit of Auckland Council for year ended 30 June 2017 19

11 Approval of the Audit New Zealand Review Engagement Letter for the six months ended 31 December 2017 and Audit Plan for the year ended 30 June 2018 57

12 Approval of the Audit New Zealand Engagement Letter for the Audit of the Consultation Document and Long-term Plan 2018-2028 117

13 Office of the Auditor-General Review of Service Performance 135

14 Risk and Insurance Quarterly Upate 137

15 Quarterly Health, Safety and Wellbeing Report 175

16 Building Consenting Capacity and Performance 185

17 Annual Report on the Performance of the Audit and Risk Committee 191

18 Consideration of Extraordinary Items

PUBLIC EXCLUDED

19 Procedural Motion to Exclude the Public 195

C1 Financial status update for the Auckland Council Group New Zealand Stock Exchange Announcement and Interim Report for the six months ended 31 December 2017 195

C2 Office of the Auditor-General and Audit New Zealand briefing 195

C3 Approval of the 31 December 2017 half year pro forma financial statements and accounting policies 196

C4 Council-controlled organisations - quarterly risks reports 196

C5 Legal Risk Report 197

C6 City Rail Link Project Update 197

C7 Internal Audit and Integrity Activity Report 198

C8 Progress against the Integrity and Fraud Assurance Strategy 198

C9 Severance Payments guidelines 198

1 Apologies

An apology from Mayor P Goff has 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 Thursday, 14 September 2017, 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 Governance 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

There were no notices of motion.

Audit and Risk Committee

06 December 2017

Audit and Risk Committee Forward Work Programme

File No.: CP2017/24452

Purpose

1. To review and update the Audit and Risk Committee’s three-year forward work programme.

Executive summary

2. The committee approved its three-year forward work programme at its 29 May 2017 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.

3. There are no substantive changes recommended to the forward work programme that arise from a change in the risk profile of council.

4. The work programme has however been updated to:

· allow for a briefing to this committee on the initiatives underway to manage the pressures on council’s building consents processes that are increasing the length of time to issue code compliance certificates

· reflect the fact that the legal risk report and internal audit update reports were deferred at the September meeting

· recognise that regular risk reporting by council-controlled organisations has now commenced.

Recommendation/s

That the Audit and Risk Committee:

a) reconfirm its forward work programme.

Comments

5. The Audit and Risk Committee’s three-year forward work programme was approved on 29 May 2017. It is reviewed and reconfirmed at every meeting of this committee.

6. The forward work programme is provided in Attachment A.

7. 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 this committee’s Terms of Reference

· areas of focus in the Internal Audit programme

· the annual cycle including the audit of council’s Annual Report and the risk, internal audit and integrity, and investigations functions.

8. 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.

9. 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.

10. Council has recently begun to face criticism about the increasing length of time taken to issue code of compliance certificates. Given this, the work programme has been updated to reflect the fact that council officers will brief this meeting of the committee on:

· the underlying drivers causing the increased time to issue code of compliance certificates

· initiatives underway to address the issues.

11. Because of this the planned workshop items (City Rail Link project, and contract management) have been deferred (date to be confirmed).

12. The work programme has also been updated to recognise that quarterly reporting on council-controlled organisation risk is commencing as from December 2017.

13. The committee should note that at the September 2017 meeting, two reports (legal risk and the internal audit update) were deferred.

Consideration

Local board views and implications

14. The views of local boards have not been sought for this report.

Māori impact statement

15. This report is for information only and does not have direct impact on Māori.

Implementation

16. The forward work programme will be reviewed regularly to meet the needs of the committee.

Attachments

No.	Title	Page
a ⇩	Forward Work Programme	15

Signatories

Author

Mark Maloney - Head of Internal Audit

Authorisers

Matthew Walker - GM Financial Strategy and Planning

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Final management report on the audit of Auckland Council for year ended 30 June 2017

File No.: CP2017/21902

Purpose

1. This report summarises the issues identified by Audit New Zealand during the final audit for the year ended 30 June 2017 and outlines how the council is addressing the issues raised.

Executive summary

2. Audit New Zealand is the council’s external auditor appointed by the Office of the Controller and Auditor-General to conduct the audit on its behalf. Audit New Zealand works with council throughout the year reviewing our internal controls, half year report and disclosures to both the New Zealand and overseas stock exchanges and auditing our annual report. Audit New Zealand provides reports to council throughout the year with recommendations on how the council can enhance and improve our processes and procedures and disclosures.

3. The report of the findings of the audit of the Annual Report has been issued and is attached to this item.

4. The recommendations made include;

· completion of a report on the benefits that have been achieved through the New Core project

· continuing development and application of consistent procurement practices;

· ongoing development of policies procedures and training to support effective contract management practices

· improvements to the processes, systems and controls over consenting activities

· continuing to improve the systems, processes and controls in relation to the food hygiene activity

· providing guidance to management on the principles and processes to be followed in relation to severance payments.

5. The council accepts the recommendations made and has provided a response outlining the actions being taken to address the issues raised.

6. The report also contains an update on issues raised in prior years. There are eight matters which have been addressed and cleared, while ongoing work is continuing to address issues identified in project management documentation, benefit realisation and consistency in cash handling processes.

Recommendation/s

That the Audit and Risk Committee:

a) note the issues identified by Audit New Zealand and the council’s responses to the matters raised in the final audit report for the year ended 30 June 2017.

b) note the issues that have been cleared from previous years, the issues that are still outstanding and council’s responses to address these.

Comments

7. The Office of the Auditor-General issued their unmodified audit report on 28 September 2017 on the Auckland Council group’s Annual Report. As part of the audit process the auditors undertake reviews to evaluate the council’s systems, controls and processes including financial statement preparation and matters identified during the audit are reported to the council. Council responds to the items raised in the reports issued and indicates the actions we will undertake to resolve each recommendation.

8. At the July 2017 meeting of the Audit and Risk Committee, the Review Engagement Management Report for the six months ended 31 December 2016 and Interim Audit Management Report for the year ending 30 June 2017 were provided to the committee arising from the work performed in the 2016/17 financial year. These reports contained recommendations made and the council’s actions to address issues in regard to the following areas:

· process issues relating to invoicing development contribution revenue

· the value and volume of unallocated receipts

· inconsistences in the application of council’s cash handling procedures

· increase in the level of rates debtors

· system and controls issues for reporting on consenting activities

· issues with reporting on performance measures on the housing accord, storm water and food grading.

9. The council put in place actions to address the issues raised, and was confident that the matters would not impact on the audit opinion of the council’s annual report.

10. Following the completion of the audit of the Annual Report for the year ended 30 June 2017, a new report has been issued. The report sets out the audit findings and draws attention to areas where Auckland Council is doing well and makes recommendations for improvement. The recommendations arising and council’s responses are in relation to the following areas:

· completion of a report on the benefits that have been achieved through the NewCore project. A project completion report was presented to the Finance and Performance Committee meeting on 26 July. A closure report for the project including a post-implementation review and the benefits that have been achieved will be presented to this committee early in the new year.

· continuing the development and application of consistent procurement practices. Council is continuously improving our procurement practices in line with international best practice, as well as local government guidance. We have taken further steps to introduce more formalised and consistent compliance practices and guidance for staff through the implementation of a new procurement management system (named ‘Ariba’) for sourcing activities in July 2017.

· ongoing development of policies, procedures and training to support effective contract management practices. Council has put the following measures in place to address the deficiencies that have been identified, namely:

o the introduction of the contract management ‘Centre of Excellence’

o the development of a contract management framework and an implementation strategy

o a range of tools, templates, training, support and guidance through the Centre of Excellence

o a business case is being developed to bring about the culture change required in council to implement the contract management framework. This includes recommendations for monitoring and reporting on implementation and uptake throughout the next 18 months.

· improvements to the processes, systems and controls over consenting activities. The council has a number of improvement strategies in place within the consent processing area. These include:

o an ongoing focus on ensuring that current processes can deliver optimal regulatory outcomes, (including documentation standards)

o ensuring that staff are following agreed processes, supported by ongoing quality control processes

o time and motion tests which are underway to identify solutions around delays between stopping the clock and requests for further information communications

o the ongoing digitisation project of paper records across service centres which is a major enabler to removing unnecessary steps in processes

o the Internal Audit team will, as part of their work plan, review the effectiveness, processes, systems and controls over consent processing and monitor the progress of improvements over the next six months to 31 March 2018.

· continue to improve the systems, processes and controls for the food hygiene activities of council. The council is continuing to make improvements in this area, including the work to embed the Food Act 2014 transition project. This includes:

o the implementation of digital solutions and advanced procedures

o pursuing Quality Management System accreditation via Internal Accreditation New Zealand.

· providing guidance to council’s management on the principles and processes to be followed in relation to severance payments. The Employment Relations team will be developing guidance for management about making severance payments to staff. This guidance will include principles, processes (including approvals and consultations) and legislative requirements in line with the Controller and Auditor-General’s publication “Severance payments: A guide for the public sector”.

11. The report summarises the progress made to clear recommendations made in previous audits. Eight recommendations previously raised have been addressed and have been cleared. Four of the items are in relation to project management process and practices. The resolution of these items was assisted by the introduction of the Investment Development framework which brings a more structured approach to investment approval and project management.

12. The remaining four items addressed were:

· performing a fair value assessment of asset values for year-end financial reporting

· increasing the level of disclosure on the weather-tightness provision in the annual report

· addressing the issues identified in the interim audit about the billing of development contributions

· the timely collection of rates debt.

13. A summary on three matters raised in the prior financial year which remain outstanding is provided. Progress on addressing the three items has been made. However, some additional improvements are required. The three areas are:

· project management –documentation. The council is addressing the outstanding issues on project closure and documenting the benefits that have been achieved upon completion of a project through the implementation of the Investment Development Framework. Work in this area is ongoing and is expected to be fully operational by 30 June 2018.

· project management – documentation describing how targets will be achieved and who is responsible for these. The Investment Development Framework contains project minimum standards and a system of change controls. We expect this issue to be resolved by 30 June 2018.

· consistent adherence to cash handling policies and processes. This is an ongoing focus for council. The Internal Audit team has a routine programme of cash handling audits in place. Findings are communicated and followed up. This will shortly be supplemented with a control self- assessment programme for cash locations which will be implemented by 31 March 2018 and overseen by the team.

Consideration

Local board views and implications

14. There are no issues relating to reporting at a local board level. Accordingly the views of local boards have not been sought.

Māori impact statement

15. The report does not affect the achievement or reporting on Auckland Council or the council group’s contributions towards Māori outcomes. Council’s contribution to Māori outcomes are reported in the annual report.

Implementation

16. There are no implementation issues as this report is for information only.

Attachments

No.	Title	Page
a ⇩	Final Management Report 30 June 2017	23

Signatories

Author

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - GM Financial Strategy and Planning

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Approval of the Audit New Zealand Review Engagement Letter for the six months ended 31 December 2017 and Audit Plan for the year ended 30 June 2018

File No.: CP2017/21903

Purpose

1. To provide for approval of two draft documents those being the:

· Audit New Zealand draft Review Engagement Letter for the six months ending 31 December 2017

· draft Audit Plan for the 30 June 2018 audit of the annual report for the Auckland Council and group, for approval before the final letters are signed by the mayor and chief executive.

Executive summary

2. Audit New Zealand has provided the draft Review Engagement Letter for the six months ending 31 December 2017 and the draft Audit Plan for the 30 June 2018 audit of the annual report for the Auckland Council and group for council’s approval.

3. The Review Engagement Letter outlines the terms of the review engagement, the scope of the governing body responsibilities and summarises the areas of the review focus. A review engagement provides the Office of the Auditor General a moderate level of assurance to be able to state that nothing has come to its attention that causes it to believe that the interim financial statements do not fairly reflect the Auckland Council group’s financial position, performance and cash flows for the period. This moderate level of negative assurance (as it is known) is at a lower level than that of an audit.

4. Both documents outline key audit matters, the areas of audit focus and significant business and reporting risks. There is an outline of Audit New Zealand’s audit response to the risks, together with logistical matters such as the audit team, audit timing and reporting deliverables.

5. The risks identified are appropriate for the Auckland Council and group, and there are no specific items which need to be brought to your attention. Jo Smaill, Audit New Zealand Director, will be in attendance to answer any questions the committee may have.

6. As Auckland Council group is an issuer of bonds, the Group Annual Report audit opinion is required to include the auditors’ comments of the key audit matters. The key audit matters identified are:

· valuation of operational and infrastructure assets

· valuation of derivatives

· valuation of the weathertightness provision

· significant performance reporting issues – housing and transport.

7. Audit New Zealand are considering whether to include the City Rail Link as a new item due to the risks associated with the size and complexity of the project and Auckland Council’s funding and reporting requirements.

8. These documents are provided in draft and are required to be approved by the Audit and Risk Committee before Audit New Zealand issues the final letters for signing by the mayor and chief executive.

Recommendation/s

That the Audit and Risk Committee:

a) approve the draft Audit New Zealand Review Engagement Letter for the six months ending 31 December 2017 and draft Audit Plan for the 30 June 2018 audit of the annual report for the Auckland Council and group

b) request Audit New Zealand to issue the final letters

c) delegate the mayor and chief executive to sign the finalised letters.

Comments

9. Audit New Zealand has issued two draft documents for council’s approval:

· the draft Review Engagement Letter for the six months ending 31 December 2017

· the draft Audit Plan for the 30 June 2018 audit of the annual report for the Auckland Council group.

10. Both draft documents articulate the areas of audit focus including the key audit matters, significant business and reporting risks and Audit New Zealand’s audit response to these, together with logistical matters such as the audit team, audit timing and reporting deliverables.

Review Engagement Letter

11. The Review Engagement Letter for the six months ended 31 December 2017 discusses the terms of the review engagement, the scope of the governing body responsibilities and outlines the areas of the review focus. A review engagement provides the Office of the Auditor General a moderate level of assurance to be able to state that nothing has come to its attention that causes it to believe that the interim financial statements do not fairly reflect the Auckland Council group’s financial position, performance and cash flows for the period. This moderate level of negative assurance (as it is known) is at a lower level than that of an audit.

12. The review is performed in accordance with the Review Engagement Standards issued by the External Reporting Board and involves primary enquiry, analytical procedures and discussion. The areas of review focus include:

· the control environment

· overall analytical review

· fair value assessment of fixed assets

· valuation of derivatives e.g. interest rate swaps

· provisions for potential liabilities e.g. weathertightness

· City Rail Link Limited

· early adoption of accounting standards

· treasury and funding management

· management override of controls

· accounting for impairment and capitalisation of work in progress

· rates

· legislative compliance.

13. The proposed fee for the review engagement is $117,085 an increase of 1.1 per cent of the fee charged for the similar period last year. We consider the areas of review focus and the proposed fee are appropriate, given the size and complexity of the review engagement.

Audit Plan for the 30 June 2018 audit of the annual report

14. As was the case last year, Audit New Zealand will again report on key audit matters as part of the audit report on the group’s financial statements for the year ending 30 June 2018.

15. Key audit matters are defined as those matters that, in the auditor’s professional judgement, are of the most significance in the audit of the financial statements of the current period. The focus will be on areas of significant auditor attention, including:

· areas identified as significant risk or involving significant auditor judgement

· areas in which the auditor encountered significant difficulty during the audit, including with respect to obtaining sufficient appropriate audit evidence

· circumstances that required significant modification of the auditor’s planned approach to the audit, including as a result of the identification of a significant deficiency in internal control.

16. As Auckland Council group is an issuer of bonds, the group annual report audit opinion is required to include the auditors’ comments of the key audit matters. The key audit matters identified are:

· valuation of operational and infrastructure assets

· valuation of derivatives

· valuation of the weathertightness provision

· significant performance reporting issues – housing and transport.

17. Audit New Zealand are considering whether to include the City Rail Link as a new item due to the risks associated with the size and complexity of the project and Auckland Council’s funding and reporting requirements.

18. The Audit Plan also outlines other business and reporting risks which include:

· Tāmaki Redevelopment Company Limited – including recording of the investment and managing risks associated with a large scale redevelopment

· Crown funding initiatives – including non-compliance with funding and borrowing covenants

· prudent expenditure decisions – focusing on whether expenditure is justifiable, preserves impartially and is made with integrity

· performance information reporting - ensuring the reliability of information used for service performance reporting

· Auckland Council Investments Limited - including the tax and accounting impacts if changes are made in the shareholding

· Public Transport Operating Model – ensuring the arrangement does not cause the council and group to breach the debt ratios

· project management – including non-compliance with council policies, procedures and good practice

· procurement – including non-compliance with council policies, procedures and good practice and procurement decision making

· contract management – including contract monitoring arrangements, good practice processes and delivery by contractors

· in addition, the areas of review focus which are outlined above, which are part of the review engagement, will also be considered in the audit of the group’s financial statements for the year ending 30 June 2018.

19. To view the detailed explanations of the risks and the audit responses please refer to the draft Audit Plan provided as Attachment A.

20. The proposed fee for the annual audit for the year ended 30 June 2018 is $1,189 641 plus disbursements of $16,000 excluding GST, was set out in the Office of the Auditor-General’s Audit fee proposal letter, which was approved by this committee at its meeting on 1 March 2017.

21. The key audit matters and other business and reporting risks have been reviewed by management and are appropriate. These matters are part of council’s business as usual and no specific items need to be brought to your attention.

22. The two documents contain the audit timings and delivery dates for information. Council is currently working with Audit New Zealand to finalise the agreed dates so that the council and group can meet the reporting requirements of the New Zealand Stock Exchange. The dates will be finalised and documented separately.

Consideration

Local board views and implications

23. There are no issues relating to reporting at a local board level. Accordingly the views of local boards have not been sought.

Māori impact statement

24. The report does not affect the achievement or reporting on Auckland Council or the council group’s contributions towards Māori outcomes. Council’s contribution to Māori outcomes are reported in the annual report.

Implementation

25. Following the approval of the draft documents by the committee, we will request that the letters be issued in final and will request the mayor and chief executive to sign the finalised letters. We will also confirm and finalise the delivery timelines.

Attachments

No.	Title	Page
a ⇩	Draft Review Engagement Letter for the six months ending 31 December 2017	61
b ⇩	Draft Audit Plan for the 30 June 2018 audit of the annual report for the Auckland Council and group	79

Signatories

Author

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - Acting Group Chief Financial officer

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Approval of the Audit New Zealand Engagement Letter for the Audit of the Consultation Document and Long-term Plan 2018-2028

File No.: CP2017/24812

Purpose

1. To approve the draft Audit New Zealand engagement letter for the audit of Auckland Council group’s Consultation Document and the Long-term Plan 2018-2028.

Executive summary

2. Audit New Zealand has provided the draft Audit Engagement letter for the audit of the consultation document and Long-term Plan 2018-2028.

3. The process outlined in the letter is appropriate for the Auckland Council and group, and there are no specific items which need to be brought to your attention.

4. We consider the areas of audit focus and the proposed fee are appropriate, given the size and complexity of the audit engagement.

Recommendation/s

That the Audit and Risk Committee:

a) approve the draft Audit New Zealand Audit Engagement letter for the audit of Auckland Council group’s Consultation Document and the Long-term Plan 2018-2028.

b) request Audit New Zealand to issue the final letter

c) delegate the mayor to sign the final letter once it is received.

Comments

5. Audit New Zealand has provided the draft Audit Engagement Letter for the audit of the Consultation Document and Long-term Plan 2018-2028 (Attachment A).

6. The Audit Engagement letter outlines:

i. terms of the audit engagement

ii. audit scope and objectives

iii. approach taken to complete the audit

iv. areas of audit emphasis

v. audit logistics

vi. professional fees.

7. The process identified is appropriate for the Auckland Council and group, and there are no specific items which need to be brought to your attention. Jo Smaill, Audit New Zealand Director, will be in attendance to answer any questions the committee may have.

8. We have provided a detailed work-plan for the development of the Long-term Plan 2018-2028 to Audit New Zealand and provide regular updates on key issues and timelines.

9. The Long-term Plan 2018-2028 work-stream leaders have provided responses to self- assessment questions requested by Audit New Zealand. Further information on internal controls, has also been provided, to assist Audit New Zealand in their engagement.

10. The proposed fee for the audit engagement is $685,000 excluding GST, a decrease of 1.7 per cent of the fee quoted for the similar period at last Long-term Plan 2015-2025. Staff consider the areas of audit focus and the proposed fee are appropriate, given the size and complexity of the audit engagement.

Consideration

Local board views and implications

11. There are no issues relating to reporting at a local board level. Accordingly the views of local boards have not been sought.

Māori impact statement

12. The report does not affect the achievement or reporting on Auckland Council or the council group’s contributions towards Māori outcomes.

Implementation

13. Following the approval of the draft document by the Committee, we will request that the letter be issued in final and will request the Mayor to sign the finalised letter.

Attachments

No.	Title	Page
a ⇩	2018 LTP Audit Engagment Letter	119

Signatories

Author

Tushar Shreyakar, Principal Advisor, Investment Management, Financial Strategy

Authorisers

Ross Tucker - Manager Financial Planning and Strategy

Matthew Walker - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Risk and Insurance Quarterly Upate

File No.: CP2017/23569

Purpose

1. To endorse the draft Risk Strategy 2018-2020 and update the committee on risk management and insurance activities at Auckland Council.

Executive summary

2. Council's Top Risk Register, maintained by the Executive Leadership Team has been updated to reflect changes in the last quarter. New risks are regularly reviewed and evaluated for inclusion into the Top Risk register, and controls and mitigations are reviewed for their effectiveness.

3. In February 2018, through workshops, the Executive Leadership Team will be undertaking an annual review of the top risks. The key focus of these workshops will be to:

· identify new/emerging risks

· review existing risks, with the objective of clearly articulating what the risk and impact is and capturing the cause/drivers of risk

· reviewing treatment plans against the causes and assessing if these are adequate

· confirming risk ownership.

4. A Risk Strategy for 2018-2020 has been developed and is attached as Attachment A for endorsement by the Audit and Risk Committee. The objective is to lift the risk culture, capability and maturity of council by embedding the core elements of risk management to support good decision-making and maximising opportunities.

5. The key areas of focus to deliver on this vision are:

· raising risk awareness and understanding for staff and elected members

· improving quality of risk information captured and reported for decision-makers

· increasing cross function collaboration and improving risk monitoring and reporting.

6. Following the last survey of risk maturity completed in March 2016, a risk maturity survey is planned for next quarter to establish a baseline for our current risk maturity. This will also be used to measure the success of the implementation of the Risk Strategy. Options for the survey tool are being considered.

7. Through the Risk Team, staff are making considerable progress on the development of a new approach to designing, implementing and embedding corporate policies in the council group. This is based on common principles that are simple and easy to understand for the group. High risk and priority areas that are in-scope include health and safety, fraud and integrity and discretionary spending. The project is on track with an intended roll out in March 2018.

8. Preparatory work for the next insurance renewal is underway. The areas of priority include:

· verifying the integrity of the property schedules

· confirming key sites and undertaking key underwriting reports of 13 key sites as a requirement of the primary insurer

· benchmarking the valuation figures

· reviewing premium spends against key policies

· reviewing risk appetites and applying deductibles and limits

· reviewing policies purchased this year against claims and other data to assess optimisation of the covers for future policy purchase.

Recommendation/s

That the Audit and Risk Committee:

a) receive the update on Enterprise Risk Management.

b) receive the update on Insurance activities.

c) receive and endorse the Risk Strategy 2018-2020.

Comments

Top Risks

9. Scheduled quarterly discussions with the council’s Executive Lead Team members in November 2017 have resulted in a few minor changes to the Top Risk Report since September 2017.

10. The two key changes made are:

(a) the change to the risk rating for Top Risk No 13 (Regulatory) from ‘moderate’ to ‘high’ reflecting recent developments in the regulatory function. This relates specifically to risk of not meeting statutory timeframes for processing consents (particularly, building consents). Many factors have combined to increase the likelihood of this risk eventuating. These include:

· the recent restructure of the regulatory division impacting on staff turnover and processing capacity

· increase in volume and complexity of resource consent and building consent applications and code compliance certificates

· the need to respond to applications containing innovative materials and building methods while taking account of the potential litigation and liability risk exposure (similar to leaky building issues).

These regulatory issues are the subject of a separate report to today’s committee meeting.

(b) A new top risk has been identified in relation to the potential impact of the signalled changes in policy and legislation by the new Government in the areas of housing, climate change, fuel tax, resource management and local government. The scope and details are not yet available and therefore the extent of any impact on council is unknown. Engagement with central government and monitoring is ongoing to mitigate this uncertainty. The risk is noted as ‘moderate’.

11. As part of the top risk annual review process over the period February – March 2018, the Executive Leadership Team have highlighted that a number of the top risks will be reviewed in terms of their descriptions, treatment plans and risk ownership.

12. For the communications and engagement top risk, both ‘satisfaction with council performance’ and ‘trust in council decision-making’ measures have shown significant improvement, moving up from 17 per cent to 20 per cent for the latest quarter rolling average (fourth quarter 2016 - third quarter 2017).

13. The result is that of the 28 top risks, there are 12 high risks, 15 moderate risks and one low ranked risk.

14. The Risk team will facilitate the annual review of top risks in February 2018 to identify, review and agree on the key enterprise risks for council. The objective will be to:

· enable a fresh assessment of existing and emerging risks against current and future conditions

· review effectiveness of existing mitigations

· reframe risks

· create a risk register for the upcoming calendar year.

15. The ‘refreshed’ top risk register will be reported to the Audit and Risk Committee in the quarter following completion of the review.

16. A copy of the updated snapshot and detailed Top Risk report (Auckland Council Risk Report December 2017) is attached as Attachment B and C respectively.

Updates on key projects and other significant matters previously reported to Audit and Risk Committee

17. There are two items (Update on Long Term Plan and Refurbishment work on 135 Albert Street) included within this report as Attachment C. These items relate to matters previously reported to this Committee and for which regular updates are provided for the committee’s information.

Risk Strategy

18. The Risk team has developed the Enterprise Risk Management Strategy for 2018-2020 which is provided in Attachment A and seeks the endorsement of the Strategy by the Audit and Risk Committee.

19. This strategy has been developed in conjunction and in consultation with Executive Leadership Team, other key stakeholder groups within the council including the Internal Audit, Financial Control and Health and Safety teams. The strategy has also received input from external local government risk practitioners.

20. The strategy prioritises areas that will take the council forward in lifting risk management culture, capability and maturity. The strategy seeks to embed and bring to life the existing risk management framework and policy across council groups to improve its effectiveness and relevance. A number of actions and activities proposed in the strategy will support the achievement of that outcome.

21. The strategy also aims to improve cross-group collaboration within the business and other risk functions and assurance activities across council (for example the Health and Safety Integrity, Auckland Emergency Management and Finance teams). It aims to ensure that these operate within a consistent framework and that key risks are appropriately managed and reported through to the Executive Leadership Team and the Audit and Risk Committee. A particular focus will be on project and contract management risks where there is presently limited co-ordinated monitoring of high risk projects.

22. The key areas of focus to deliver on this vision are:

· raising risk awareness and understanding for all staff and members

· improving quality of risk information captured and reported for decision-makers

· increasing cross function collaboration and improving risk monitoring and reporting.

Risk Maturity Survey

23. A risk maturity survey is planned for next quarter to measure against the perception survey undertaken in March 2016 and to establish a baseline measure for the Enterprise Risk Management strategy. Options for the survey tool are being considered.

Quarterly Risk and Compliance Champions Forum

24. As part of the Risk Champions Programme, in November 2017, the Risk team hosted the second quarterly risk champions forum which was attended by over 37 staff from across Auckland Council. These are staff members who are embedded within the business and have both been identified as a champion for their group and have received training from the risk team.

25. The agenda included presentations and discussion on health and safety risks and cyber security risks led by the head of health and safety and the information services security manager respectively. A follow up session with the champions to discuss the previous topic on fraud and integrity was also included. The feedback from participants was that the session was extremely beneficial. Planning for the next calendar year of forums in consultation with the champions is underway focusing on further key risk issues and areas for upskilling.

Our Charter - corporate policy ‘Do the Right Thing’ policies project

26. The new approach for enterprise-wide corporate (behavioral) policies – named ‘Our Charter’ is currently being developed with the objective to provide an overarching framework for corporate policies for the council group and encourage staff to ‘do the right thing’ and speak up.

27. A principle based approach has been taken with underlying messages that are simple and easy to understand and apply. It is intended that the foundation principles and hard lines will apply to the council group and specifically form a group policy position for sensitive expenditure.

28. An update will be provided to the Financial and Performance Committee in late February 2018, with the planned roll out to commence in March 2018.

Quality Advice Programme – council report template - mandatory risk section

29. The Risk team has been collaborating with the Quality Advice programme team to develop a new mandatory risk section under a fixed heading in a new report template that will be used for all future reports to council committees and local boards.

30. It is anticipated that the new template will be implemented in February 2018.

31. Tailored guidelines and training materials to support the use of the new template are being developed and workshop training has commenced.

Elected member governance and risk workshops

32. Governance and risk workshops, run as part of the Kura Kawana Elected Member Development programme commenced in November 2017.

33. The first risk and governance session was held on 20 November 2017. Further workshops are planned to be made available from February 2018.

Insurance Update

Claims protocol, workplan progress update, other

34. Preparations for the insurance renewal for 2017-2018 for the council group has commenced. A number of actions undertaken include:

· verifying the integrity of the property data

· confirming and undertaking key underwriting reports of 13 key sites as a requirement of the primary insurer

· benchmarking the valuation figures of those key sites

· reviewing premium spends against key policies

· reviewing risk appetites of the council controlled organisations and levels of deductibles and limits

· reviewing policies purchased this year against claims and other data to assess optimisation of the covers for future policy purchase. In addition, discussions are underway with the lead insurer (AIG) on developing a claims protocol which is intended to enable a smooth and efficient process of handling claims particularly given council’s high deductibles.

35. There have been post-placement workshops held with AIG on cyber and environmental cover in the last two months. The purpose of the workshops was to enable engagement between council group key staff, Aon New Zealand (council’s broker) and AIG (council’s lead insurer) to obtain information from council group to be able to assess and validate cover requirements for future placements.

Consideration

Local board views and implications

36. 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.

37. The risk team engaged with the risk and compliance champions from Local Board Services, to assist them in the completion and maintenance of a risk register.

Māori impact statement

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

39. Māori outcomes and, in particular, council obligations to meet established legal and other responsibilities to Māori and satisfy all reasonable expectations of responsiveness is included and managed through the Enterprise Risk Framework - Top Risks register.

40. Meeting outcomes for Māori has been identified as a strategic risk to council (refer Top Risk No. 17 for the risk treatment plan summary in place to address this risk). The treatment plan includes:

· initiatives being led by council’s Te Waka Angamua department

· oversight by the council’s Te Toa Takitini Executive Leadership Group on transformational Māori initiatives

· a monitoring and reporting framework

· a Treaty of Waitangi internal audit work programme.

Implementation

41. The Enterprise Risk Management Strategy will be delivered through a series of programmes, which commenced in November 2017.

42. Updates and progress will be reported to the Audit and Risk Committee as part of the regular Enterprise Risk reporting process.

Attachments

No.	Title	Page
a ⇩	Enterprise Risk Management Strategy 2018-2020	143
b ⇩	Snapshot - Auckland Council Top Risks December 2017	151
c ⇩	Auckland Council Risk Report December 2017	153
d ⇩	Key projects and significant risk matters update	173

Signatories

Authors

Emma Mosely - Strategic Advisor Risk and Compliance

Cecilia Tse - Head of Risk

Authorisers

Cecilia Tse - Head of Risk

James Hassall - Director Legal and Risk (Acting)

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Quarterly Health, Safety and Wellbeing Report

File No.: CP2017/24857

Purpose

1. To provide a summary of health, safety and wellbeing performance as of end of October 2017 to support the committee’s due diligence responsibilities.

2. To provide an update on priority actions since last reporting period to the Audit and Risk Committee.

Executive summary

3. Auckland Council is committed to being a high performance council, where our elected and appointed members, employees, contractors, volunteers and people who use our council facilities and services are safe and all major risks are reduced and managed effectively. Council is committed to being a ’best in class employer’ in its approach to health and safety.

4. This report provides a snapshot summary of council’s health and safety performance for the last quarter. It provides an update on the key work programmes for implementing a strong health, safety and wellbeing culture.

5. In October the executive lead team agreed a new Safety Management Framework and strategy for Health and Safety Management at council. The framework is focused towards supporting four main objectives: Safety Leadership, Worker Engagement, Sensible Risk Management and Continuous Improvement.

6. Council currently tracks various key performance indicators made up of lead and lag indicators. The Lost Time Injury Frequency Rate is the most well-known of these. Council is looking to balance this measure with better proactive lead indicators.

Recommendation/s

That the Audit and Risk Committee:

a) receive the update report on health, safety and wellbeing

b) refer this report to the governing body for its consideration

c) note that this report will also be provided to all local boards for their information.

Comments

Council’s Health and Safety strategy

7. The Health and Safety Strategy for council is a three-year plan to move the organisation from being largely reactive to being proactive.

8. The strategy has the following six goals to achieve our vision of becoming a ‘best in class’ organisation for health and safety:

· safety leadership: we will have strong and sustainable leadership in health and safety

· competence: we will have the competence to carry out effective risk assessment, to identify hazards and to ensure that risks are controlled as far is reasonably practicable

· embracing safety: our people are fully engaged in health and safety.

· know what to do: our people understand our vision and objectives; know their responsibilities; and can easily locate, understand and apply safety tools to mitigate risks.

· continual improvement: we will raise the standard, and continually improve our health and safety performance

· communicate - we will effectively communicate health and safety issues and performance.

9. Figure 1 below presents the new ‘Plan Do Check Act’ model for safety management adopted by council. The implementation phase is due for completion by end of February. The next steps will be to embed the practices and progress the strategy by continually improving our performance and culture.

Figure 1 –Council’s ‘Plan Do Check Act’ Model

10. The ‘Plan Do Check Act’ model achieves a balance between the systems and behavioural aspects of management. It also treats health and safety management as an integral part of good management generally, rather than as a stand-alone system.

Performance Report

11. A key performance metric for council is the Lost Time Injury Frequency Rate. This is a lag measure^{^[1]}.

12. We now want to introduce lead measures e.g. near misses and unsafe conditions^{^[2]}.

13. See Attachment A for detailed graphs supporting the following performance report sections.

Lost Time Injury Frequency rate

14. In 2015, council set an aspirational Lost Time Injury Frequency Rate of <2.25^{^[3]} target.

15. Table 1 below summarises the downward lost time injury trend.

Table 1 Summary of lost injury trends

Trend Oct 17 Sep 17 Aug17
Rolling Lost Time Injury Frequency Rate (indicative)	2.46	2.63	2.7
Number of LTI	0	2	1
Number of all injuries inclusive of first aid, medical treatment and lost time	23	27	28

Incidents, near misses and unsafe conditions

16. A new risk management system has recently been implemented, known as Risk Manager System. This system enables improved reporting on near misses and unsafe conditions/actions. This is significant as unsafe conditions/actions are a precursor to near misses.

17. In the period to October 2017, results for unsafe conditions, incidents and near misses were:

· an increase of 25 per cent in the number of reported unsafe conditions compared to September. This result, which is the highest since April, is a positive indicator and shows people are engaged in reporting potential hazards

· A higher number of reported incidents than the previous month. This is also a positive indicator

· A decrease of five per cent in the number of reported near misses compared to the previous month.

Corrective actions and critical risks

18. The Risk Manager System also allows us to identify and categorise our critical risks, and track corrective actions. This is vital to drive improvement and reduce risk.

19. The number of completed corrective actions was on an upward trend until September 2017. However there was an 11 per cent drop in the number of recorded corrective actions in October. Completing these actions is essential to mitigate risks and learn from incidents.

Critical Risks

20. Health and safety hazards that could occur, would likely have a critical outcome: e.g. fatality, permanent disability or significant loss of plant/equipment. These can now be identified through the Risk Manager System.

21. As these significant hazards are now visible they can be assessed for risk and control measures put in place and tracked. This helps minimise the likelihood of these risks.

22. The chart below shows the critical risks that have currently been identified within council through reporting.

Chart 1 Rolling critical risks

23. Work programmes are in place to address these critical risks. This report focuses on the highest recurring risk-violence.

Workplace violence

24. In recognition of the high violence statistic, the following programme of activity is underway:

· a project to review the risks to our front facing service staff. This included two staff workshops to identify the effectiveness of current controls and make recommendations for improvement particularly through design

· an audit programme of sites to test the effectiveness of their controls. The project will review and identify learnings from incidents of note such as at the Ministry of Social Development in Ashburton, the Department of Corrections and the Accident Compensation Corporation as well as working with other organisations in the CBD exposed to similar risks

· a senior manager-led action group is directing and reviewing the work of the project group.

Wellbeing initiatives

25. A summary of council’s key health and wellbeing initiatives includes:

· Mental Health Awareness week: to support and raise awareness of mental health, staff were encouraged to join the Workplace Lockout on the 10 October. The ‘nature is key’ theme encouraged staff to ‘lock’ themselves outside for an hour to experience how the outdoors can lift wellbeing and encourage people to work this into their day

· Ready steady quit: a programme to help staff stop smoking was introduced and will run from October through to December. Twelve volunteers have already signed up to the programme

· A wellbeing strategy: In response to the outcomes of the wellbeing 360 survey, a new wellbeing strategy has been developed. The focus for 2018 is to implement an integrated wellbeing programme to improve our performance in key areas (e.g. mental health).

Due Diligence Duties

Information on the six aspects of the due diligence duty

26. Officers of council (i.e. those in a governance role including elected members, the chief executive and potentially other members of the executive leadership team) must exercise a duty of due diligence. There are six aspects to that duty, listed and discussed below. All officers have equal and personal responsibility.

27. To assist elected members in their role as officers, systems to enable councillors and local board members to have access to relevant information to fulfil their due diligence responsibilities, are being developed. The systems will include:

· developing new quality advice guidance to assist staff preparing advice on projects where a health and safety assessment is necessary for decision-making

· providing quarterly performance reports to this committee, the governing body and local boards

· including health and safety information and training in the elected member induction programme.

28. Staff are also working with the Independent Māori Statutory Board and council’s co- governance entities such as the Maunga Authority, the Parakai Recreation Reserve Board and the Ngāti Whātua Ōrākei Reserves Board to ensure they have information and support to assist them with complying with their Person or organization Conducting a Business or Undertaking duties collectively and individually. A presentation was given to Te Motu a Hiaroa on 11 October in this respect.

Duty 1: acquire and keep up to date with health and safety knowledge and health and safety matters

29. To comply with the officer’s due diligence duty, it is critical that council’s elected members, chief executive and Executive Leadership Team understand the key elements of the new legislation and regulations.

30. To ensure elected members and senior management are well informed and up to date on health and safety matters, training has been ongoing.

31. To date, 10 local board specific sessions were delivered to 61 elected members. The remaining 10 will be delivered in 2018 through the elected member development programme, Kura Kawana. The mayor also received his training on 20 July 2017.

Duty 2: understand the council’s operations and the associated hazards and risks

32. To ensure that officers have a sufficient visibility of the breadth and variety of council operations to comply with their due diligence duties, we will highlight key activity on council’s operations related to health and safety as part of our regular reporting.

33. A health and safety site visit plan for the chief executive, executive lead team members and elected members will be developed.

34. The new Safety Management Framework will set lead key performance indicators for all people leaders, including the Executive Leadership Team. This will enable them to carry out safety observations at their locations. This will be tracked by the Health Safety and Wellbeing Committee This will create better visibility and understanding of council operations and the health and safety risks in their parts of the organisation.

Duty 3: ensure the council has appropriate resourcing and processes to eliminate or minimise risks to health and safety

35. As part of the organisational strategy for transition into the new health and safety legislation, a business case highlighted the need for the council to move from the previous hazard assessment approach to the more proactive risk-based approach. This business case also considered the level of resourcing for health and safety within the organisation. A substantial funding gap was closed until financial year 2018-2019.

36. As we look now to continually improve risk awareness through education and the shift towards proactive safety, a further resourcing review will be required to ensure it can be maintained beyond 2019. This evaluation, set against our new framework, will include an assessment of gaps, needs and demands based on risk.

37. A key focus of the current strategy is to build capability within the organisation and prioritise high risk business areas.

38. A corporate training programme has now been agreed mandating all people leaders to complete a one day managing safely course. This course has been developed from the Institute of Occupational Safety and Health’s own Managing Safely course, a well-respected and known standard throughout the world.

39. Two further courses, risk assessment and incident investigation training, will become available in the new year.

40. Various members of the Health and Safety team have recently become accredited trainers. We can now deliver appropriate training across the organisation as needed. This approach brings benefits such as having good knowledge of the organisation and the risks it faces. It also means we can deliver bespoke courses. We estimate it will save Council $280,000 in the delivery of the managing safely course alone.

Duty 4: ensure the council has appropriate processes for receiving and considering information regarding incidents, hazards and risks and for responding in a timely way to that information

41. Health, safety and wellbeing performance reporting has been improved enabling better access to information on incidents, hazards and risks.

42. There is ongoing work to revise the incident management and notifiable event plans. This work ensures council has processes in place to respond to incidents, hazards and risks. The plans provide clear, step by step guidance for staff in various situations, including in an emergency situation.

43. A fit for purpose safety management system and timely reporting is crucial to enable the council to identify, act on, receive and consider information on incidents, hazards and risks. This area has been revitalised and improved through the Risk Manager System.

44. The new safety management framework will complement the system. It will be designed ensure robust safety governance, processes, guidance and positive behaviours around health and safety.

45. Confirmation was received on 15 November 2017 from WorkSafe NZ that no enforcement action will be taken against Council in relation to a sauna death at Moana Nui a Kiwa Leisure Centre on 27 August 2016.

46. Confirmation was received on 28 November 2017 from WorkSafe NZ that no enforcement action will be taken against Council in relation to an incident at the Botanical Gardens in November last year. Council as a response to that investigation has reviewed the safety of all its powered gates in the asset register to ensure lessons are learnt and risk mitigated in this area.

Duty 5: ensure the council has, and implements, processes for complying with any duty or obligation

47. A crucial aspect of ensuring that council has systems in place for complying with its obligations is the setting of high level policy and strategic direction.

48. The chief executive and mayor have recently reviewed the organisational Policy Statement and it will be implemented alongside the new framework. It will focuson developing the right behaviours within the organisation: in short being open, honest, working with others, embracing safety, communicating clearly and trusting your instincts.

49. Effective and supported health and safety representatives also contribute to council complying with its health and safety obligations. A health and safety representative training plan has been developed, and is in place. Safety representatives have also been better aligned to the operations as the new framework advocates a more collaborative approach by aligning health and safety representative meetings to operational meetings, making safety an agenda item for all teams in council.

Duty 6: take reasonable steps to verify the provision and use of resources and processes through reviews and audits

50. At regular intervals the Audit and Risk Committee will consider council’s compliance with its Person or organisation Conducting a Business or Undertaking obligations and council officers’ compliance with their due diligence duty.

51. The organisation’s auditing framework is currently being reviewed. The new framework takes a ‘layers of defence approach’ as per the Enterprise Risk Management Framework as follows:

· local assurance (first line of defence)

· departmental assurance (second line of defence)

· corporate assurance (third line of defence).

Consideration

Local board views and implications

52. Briefings for elected members, including local boards, have been provided since February this year. To date 10 Local Board specific sessions were delivered to 61 elected members with the remaining 10 to be delivered in 2018 through the elected member development programme, Kura Kawana. The Great Barrier Local Board have declined health and safety training.

53. This report and a briefing will be made available to all local boards.

Māori impact statement

54. The health, safety and wellbeing of Māori staff, elected and appointed members, volunteers and members of the public is a priority as are the Māori wellbeing priorities identified in the council’s Māori responsiveness framework, Te Toa Takitini work programmes, and other relevant documents.

55. The Health, Safety and Wellbeing team are working with the Independent Māori Statutory Board and other entities, such as:

· the Tūpuna o Tāmaki Makaurau Maunga Authority

· Te Poari o Kaipātiki ki Kaipara (formerly known as Parakai Recreation Reserve Board)

· the Ngāti Whātua Ōrākei Reserves Board

· Te Motu a Hiaroa (Puketutu Island) Governance Trust

This support was provided so that these entities have information and support to comply with their ‘Person or organisation Conducting a Business or Undertaking’ duties (as a board) and their officer duties (as individual members).

Attachments

No.	Title	Page
a ⇩	Graphs and Charts	183

Signatories

Author

Oliver Sanandres – Head of Health, Safety and Well-Being

Authorisers

Patricia Reade - Transformation Director

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Building Consenting Capacity and Performance

File No.: CP2017/24910

Purpose

1. This report is to provide the Audit and Risk Committee an update on the capacity and performance of the Building Consents Department to deliver quality and timely building consent and code compliance certificate services to the Auckland development community.

Executive summary

2. The shortage of housing in New Zealand is putting pressure on the development sector to build new housing at an unprecedented rate. The pressure to build both quickly and cheaply is being felt in Auckland in particular given the rate of population growth. This pressure is generating a demand on council for building consents and, once construction is completed, code compliance certificates to be issued quickly.

3. The rise in the number of medium and high density housing developments introduces an increase in design and construction complexity not generally seen with standard standalone houses. For a number of the high-volume home builders this additional complexity is new and is causing challenges for their designers and also for council through the consenting process.

4. Council has recently begun to receive criticism over its building consenting service levels and in particular the time taken to issue code compliance certificates once construction has been completed and the ‘final’ building inspection has been signed-off.

5. In recent months the timeframes for processing and issuing code compliance certificates have been greater than usual and our performance measured against the 20 statutory day has declined and is lower than we, and our customers, expect. In October, we reached a low point of 70 per cent within 20 statutory days. Over the past four weeks we have increased our performance iteratively through to 75 per cent of code compliance certificate applications being completed within 20 statutory days (as at 13 November 2017). The original decline in performance was due to the culmination of a number of factors, some outside of council’s control, occurring concurrently. We are working on a package of measures to address these issues and lift performance back to normal levels by Christmas.

6. In addition to the measures to redress current timeframes, we are working on enhancing our qualified partner and premium services to be able to effectively manage the anticipated increase in building consent and code compliance certificate applications once Central Government’s Kiwi Build initiative commences. This is likely to be in the form of a partnership model with Housing New Zealand Corporation and their construction firms.

Recommendation/s

That the Audit and Risk Committee:

a) receive the report and acknowledge the current issues and challenges faced by the Building Consents department and the initiatives in place to address these.

Comments

7. The development community is under great pressure to design, consent and construct new homes to address the shortage of housing in Auckland. It’s reported that Auckland needs to build 13,000 new homes per year to keep up with population growth.

8. With the demand for affordable housing, the pressure is to build both quickly and affordably. This had led to more terraced housing and apartments being built.

9. Medium and high density housing developments introduce additional New Zealand Building Code requirements over and above those generally required for standard standalone houses. These primarily relate to fire safety, accessibility, and soundproofing. This additional complexity is new and is causing challenges for some of the developers and also for council through the consenting process.

10. Council has been criticised recently over service levels and in particular the time taken to issue code compliance certificates.

11. In recent months the timeframes for processing and issuing code compliance certificates have been greater than usual. The most well recognised measure of code compliance certificate processing performance is the percentage of applications processed within 20 statutory days. This measure counts business days, but does not count the days where the council has requested and is awaiting additional information to be supplied. Against this measure, in October, we reached a low point of 70 per cent within 20 statutory days. Over the past four weeks, we have increased our performance iteratively through to 75 per cent of code compliance certificate applications being completed within 20 statutory days (as at 13 November 2017). The decline in performance resulted from a number of contributing factors outlined below.

Quality of applications for code compliance certificates

12. With the time pressure on designers and developers, in some sectors the quality or completeness of building consent applications may be poor. Common issues include:

· insufficient drainage, geotechnical or structural engineering information for in-fill housing where the sites are steeply sloping and/or the ground is unstable

· insufficient fire safety details on multi-unit and apartment developments

· insufficient details on how the proposed building products comply with the performance standards of the New Zealand Building Code

· insufficient information is the most frequent cause of delays to processing and being able to issue building consents.

13. To meet the demand for new housing the number of builders and construction workers has increased. This has resulted in large numbers of workers joining the sector. In some cases their supervisors have limited experience with the more complex designs we now typically see being built. Consequently a large number of building inspections undertaken find that the elements of construction being inspected do not meet the required standard.

14. To aid the builders to carry on with some parts of the build while they resolve issues in other areas, the inspections are given a ‘partial pass’ decision, rather than a ‘fail’ which would prevent the builders carrying out any other work until all issues were resolved. While this approach helps keep construction moving, it causes additional work and time during the assessment of the code compliance certificate application to determine that the entire scope of work has been inspected, and that where deficiencies were identified these have been remedied, re-inspected and approved.

15. In order to lower the cost of construction, the temptation is for developers to substitute products approved as part of the building consent, with alternatives that may be more readily available or which they may be more familiar with, without going through the appropriate approval process. During the assessment of a building consent application, the applicant needs to demonstrate that the specified products meet the minimum performance standards set out in the New Zealand Building Code and this forms part of the approved building consent.

16. Where products are substituted for alternate brands or type of products during construction without going through an approval process, it is not possible to verify that the substitute products will perform to the required standards. Commonly substituted products include plumbing pipes, framing, insulation, windows, cladding, wall linings, roofing, waterproof membranes, structural steel.

17. Visually the substitute products look identical to the approved products. This makes it very hard for the building inspectors to pick the substitutions up. The substitutions are often picked up through the assessment of the code compliance certificate application when the product warranties and certificates from installers do not match the approved consent details. This again results in additional work and delays issuing the code compliance certificate until the performance of the substitute product can be verified.

External provider ceasing to trade

18. In April this year, Compass Building Consultants Ltd who processed and inspected approximately 30 per cent of building consents in the old Manukau City Council area ceased operating at fairly short notice. This resulted in council having to pick up all the active building consents) and their associated code compliance certificate applications.

19. Unfortunately, we were only able to get six of the Compass Building Consultants Ltd staff to work for us (the rest chose to work in the private sector), and so we have had to absorb the majority of this work within existing resources. The Compass Building Consultants Ltd data was all held in their GoGet system, and while this is the same system as used by our Manukau Building Consultants team, not being able to transfer the data to our SAP system has limited the resources available to process these applications.

Process and systems issues

20. For some time customers have told us that they want to be able to apply of building consents and code compliance certificates online and not in hard copy. To respond to our customers, we have introduced interim on-line processes to make it easy for customers to apply for consents and the code compliance certificates electronically though council’s website. However, the online ‘front end’ is not yet integrated into our ‘back end’ systems - SAP and document management system. This means that while it’s easier for customers to apply, there is a significant increase in administration time needed to manage these before they can be dealt with by technical teams.

21. In June 2017 we completed the consolidation of legacy regulatory systems with the Introduction of SAP. As in all such major platform changes, it takes staff time to gain mastery and familiarity with the system and to get their productivity back to, or above, their previous level with the old platform. Ongoing training and support is being provided and we are working with the Information Services teams on ways to streamline the workflows in SAP.

22. We have experienced problems recruiting technically qualified staff for some of our vacant roles, particularly code compliance certificate assessors. The industry is generally short of skilled people and we are not able to match the private sector for the remuneration they are offering.

23. We do have contracts with a number of private companies and agreements with other Territorial Authorities to provide us with additional resourcing through overflow models. However the private providers and other Territorial Authorities are also under load and have limited spare capacity.

Initiatives underway to address issues

24. We are actively working on a range of initiatives to address our current capacity and timeframe constraints. These include:

a) upskilling our lodgement staff to be better able to identify gaps in the technical quality or completeness of building consent applications so that we do not accept sub-standard applications. The higher the quality of application, the faster we can process and grant the consent

b) refine and enhance our streamline consent process whereby simple, low risk applications can be processed with minimal review needed

c) enhance our streamlined consent process to manage applications to amend previously issued consents. Customer feedback is that requested changes to the approved consents take too long to process and may be the cause of un-approved product substitutions and deviations from approved designs

d) enhance our qualified partner services whereby high volume developers who have a track record of high quality consent applications and on-site construction can take advantage of faster consent processing, less regulatory oversight during the construction, and faster code compliance certificate issuance

e) working with our colleagues from Information Services to develop and implement way to streamline the management of information from online applications and reduce the data entry and data management within SAP

f) reviewing our processes to remove duplication of effort, unnecessary steps in processes and to ensure staff know how to use the new system efficiently and effectively

g) continue with a rolling recruitment approach to attract new skilled staff to fill vacant roles

h) deploy additional short-term resource whilst systems are optimised and fully embedded including bringing forward our 2018 graduate programme class

25. While there is no ‘silver bullet’ to address current timeframe issues, we are confident that with the above range of initiatives we will recover over the next few weeks and be back at normal performance levels by Christmas.

Consideration

Local board views and implications

26. Local boards have not been engaged directly in this issue to date. Whilst building consent services are delivered on a regional basis, local board areas with a high level of development may be impacted to a higher degree than areas where little development is currently taking place.

Māori impact statement

27. The current timeframes for delivering code compliance certificate services will impact developments carried out by Māori equally to those experienced by other developers. Improving overall timeframe performance will benefit all developers including Māori.

Implementation

28. The development and implementation of initiatives to reduce the wait times for code compliance certificates will be a rolling programme. Individual initiatives will be rolled out as soon as they are ready and the efficacy reviewed to ensure anticipated improvements are being realised.

Attachments

There are no attachments for this report.

Signatories

Author

Ian McCormick – General Manager Building Consents

Authorisers

Penny Pirrit - Director Regulatory Services

Phil Wilson - Governance Director

Audit and Risk Committee

06 December 2017

Annual Report on the Performance of the Audit and Risk Committee

File No.: CP2017/24506

Purpose

1. This purpose of this report is to review and summarise the activities of the Audit and Risk Committee in 2017.

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 Committee should review their performance on an annual basis.

5. 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.

6. This report is the first report for this term of council. The committee has formally met six times in this term of council.

7. In this term the committee has transitioned to a new structure – with an independent chair, and an equal number of elected and independent members.

8. The new structure has enabled the committee to increase its effectiveness through the development of relationships and the provision of advice to the mayor, elected members, the chief executive and management.

9. The committee has particularly focussed on the development of a healthy and productive relationship with the Office of the Auditor General and Audit New Zealand.

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

11. The relationship that the committee has with the mayor, elected members , the chief executive, management, the Office of the Auditor General and Audit New Zealand is pitched at the right level, achieving the right balance between achieving a productive working relationship, whilst maintaining an independent oversight of key organisational risks and the management of those risks.

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.

Comments

Introduction

12. The Audit and Risk Committee makes 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. In summary it acts as an independent check on council’s systems of governance and internal control. It provides assurance to council that key risk organisational risks are being identified and appropriately managed.

13. 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

14. A review of the functioning of the committee was requested by the mayor in the last term of council. The review made recommendations designed to improve the effectiveness of the committee and was considered at the committee’s December 2015 meeting.

15. 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 has now taken effect in the current term of council, following the Local Government elections in October 2016.

16. The new structure has enabled the committee to enhance its effectiveness through:

· allowing it to make recommendations to the governing body and other committees

· the provision of advice to the mayor, elected members and management.

17. The new committee met for the first time formally in March 2017. It has met formally six times up to and including December 2017. The committee is chaired by an independent Chairperson, Sue Sheldon CNZM.

18. A three-year forward work programme has been developed and was approved by the committee in May 2017. This is reviewed at every meeting of the committee. This has provided for in-depth sessions in workshops for the committee to be briefed on:

· the programmes of Internal Audit and Risk

· council’s Enterprise Risk Management Framework

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

· the management of Fraud and Integrity Risk (including council-controlled organisations)

· council’s insurance renewal programme

· assurance processes in place with respect to the 2018-28 Long-term Plan

· pressures causing increased processing times for code compliance certificates, and initiatives underway to address this.

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

20. 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

· receiving and reviewing risk updates from council’s substantive council-controlled organisations

21. As from December 2017 the committee has commenced receiving quarterly updates on council-controlled organisation risk management (previously these updates had been received annually) and the management of legal risk.

22. The committee is of the view that Enterprise Risk Management is developing – in particular risk consciousness.

23. 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, and the Integrity and Fraud Management Strategy

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

· reviewing the status of outstanding audit recommendations.

24. The committee has reviewed the key professional judgements, assumptions and management assertions with respect to the:

· announcement to the New Zealand Stock Exchange (NZX) for the release of financial information for:

o the six months ended 31 December 2016

o the 12 month period ended 30 June 2017

o the six month period ended 31 December 2017

· the interim financial statements for the six months ended 31 December 2016

· the Annual Report (including financial statements) for the year ended 30 June 2017

25. The committee has placed particular emphasis on the development of a productive working relationship with the Office of the Auditor General and Audit New Zealand. 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 (including management responses to these recommendations).

26. Regular committee-only sessions have been held with the Office of the Auditor General, Audit New Zealand and Internal Audit.

27. The committee has reviewed council’s insurance renewal programme for the year ending 30 June 2018.

Conclusions

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

29. The relationship that the committee has with the mayor, elected members, the chief executive, management, the Office of the Auditor General and Audit New Zealand is pitched at the right level, achieving the right balance between achieving a productive working relationship, whilst retaining independence.

Consideration

Local board views and implications

30. Local board views were not required for this report.

Māori impact statement

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

Implementation

32. Implementation plans are contained in the three-year forward work programme of the committee.

Attachments

There are no attachments for this report.

Signatories

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

Audit and Risk Committee

06 December 2017

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 Financial status update for the Auckland Council Group New Zealand Stock Exchange Announcement and Interim Report for the six months ended 31 December 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