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.

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, 13 September 2018, 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.”

No.	Title	Page
a ⇩	Forward Work Programme	15

Audit and Risk Committee

05 December 2018

Final management report on the audit of Auckland Council for the year ended 30 June 2018

File No.: CP2018/21661

Te take mō te pūrongo / Purpose of the report

1. This report summarises the issues identified by the Office of the Auditor-General during the final audit for the year ended 30 June 2018 and outlines how Auckland Council is addressing the issues raised.

Whakarāpopototanga matua / Executive summary

2. Audit New Zealand is Auckland Council’s external auditor appointed by the Office of the Controller and Auditor-General to conduct the audit on his behalf. Audit New Zealand works with the 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.

3. The Office of the Auditor-General issues reports to the council throughout the year with recommendations on how the council can enhance and improve our processes, procedures and disclosures.

4. Following the completion of the final audit, a report has been issued which outlines issues identified and makes recommendations for significant items that need to be addressed. The report is attached (Attachment A).

5. The new recommendations made include:

· continuing to improve the processes and reporting of consenting service performance

· improving the quality of information provided to auditors

· ensuring appropriate financial and project information is obtained about the City Rail Link

· continuing the development and monitoring of consistent procurement practices

· addressing any change fatigue as a result of the project management-change programme

· project management:

o risk assessment processes

o risk tolerance and escalation processes.

6. The report also includes an update on prior year recommendations which are either in progress or have been resolved. Issues in progress are:

· project management:

o project closure lessons learnt and benefits realisation

o implementation of the Investment Delivery Framework

o benefits measurement

o extending gateway reviews

· procurement:

o continuing the development of consistent procurement practices

o conflict of interest management plans

· embedding contract management changes

· development of guidance on severance payments.

7. The matters which have been resolved are:

· completion of a NewCore benefits realisation plan

· documentation of achievement of targets in project management execution plans

· development of guidance for procurement planning

· identification and implementation of procurement lifecycle capabilities

· improvements to the systems, processes and controls for the food hygiene activities of council.

8. The council accepts the recommendations made and has provided a response outlining actions being taken to address each issue raised. Work is underway to address these matters.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

a) note the issues identified by the Office of the Auditor-General and the council’s responses to the matters raised in the final audit for the year ended 30 June 2018.

Horopaki / Context

9. This report summarises the issues identified by the Office of the Auditor-General during the final audit for the year ended 30 June 2018 and outlines how the council is addressing the matters raised.

Tātaritanga me ngā tohutohu / Analysis and advice

10. The Office of the Auditor-General issued their draft audit report on 27 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. The council responds to the items raised in the reports issued and indicates the actions we will undertake to resolve each recommendation.

Audit Reporting and Audit Opinion

11. At the May 2018 and August 2018 meetings of the Audit and Risk Committee, the Review Engagement Management Report for the six months ended 31 December 2017 and Interim Audit Management Report for the year ending 30 June 2018 respectively were provided to the committee arising from the work performed by the auditors in the 2017/2018 financial year. These reports contained recommendations made and the council’s actions to address issues.

12. The most significant items raised during the year related to the accuracy of reporting of statutory timelines for building and non-notified resource consents. The issues were unable to be resolved prior to 30 June 2018 and as a result, although the audit opinion on the financial statements was unmodified, a modified audit opinion was issued on the two consenting performance measures.

Key Audit Matters

13. As the Auckland Council group is an issuer of bonds, the group Annual Report audit opinion is required to include the auditor’s comments of the key audit matters. The five key audit matters identified were:

· performance reporting on housing and transport

· valuation of operational and infrastructure assets

· valuation of derivatives

· valuation of the weathertightness provision

· City Rail Link.

14. It was determined that the key audit matters were appropriately addressed by the council.

Audit Recommendations

15. Following the completion of the final audit, the recommendations arising and council’s responses are in relation to the following areas:

· consenting service performance reporting. During the 2017/2018 financial year the council commenced an internal review to identify process improvements and improved reporting. There had not been sufficient progress prior to 30 June 2018 which resulted in this matter receiving a modified audit opinion. However, staff understand the importance of continuing with the process improvement programme of work.

· quality of information for audit. A performance improvement project to identify shortcomings in the current quality review processes of all the volumes of the Annual Report is underway. This is because there were challenges in the preparation of the 2017/2018 Annual Report.

· City Rail Link. In its role on the joint sponsors team for City Rail Link, council is working to ensure that the financial and project information received from City Rail Link Limited is appropriate.

· continuing the development and monitoring of consistent procurement practices. As part of our ongoing improvements in our procurement practices we are undertaking refresher training for both procurement staff and those involved in procurement activities across council.

· project management.

o change programme. To address the possibility of change fatigue in project management because of ongoing changes being made to the system, processes and templates, a road map has been created to signal all initiatives being delivered in the 2018/2019 financial year.

o risk assessment processes. Risk processes and controls are being reviewed to ensure that appropriate controls are embedded in the Investment Development Framework.

o risk tolerance and escalation process. To ensure that risk tolerance and escalation processes are defined, any items outside those agreed in the project execution plan will be managed by a change request approval process.

Update on prior year audit recommendations

16. There are some recommendations made by the auditors in prior year’s which although the council agrees with the recommendation, and we have improvements underway to address the matters raised, the matters have not been fully resolved by 30 June 2018. The significant items are:

· project management.

o project closure lessons learnt and benefits realisation. As part of the Investment Delivery Framework (IDF), the council has developed a project health check as a form of independent quality assurance. A small number of reviews have occurred since the framework went live in the 2017/2018 financial year, as IDF projects move through their lifecycles we expect that in the 2018/19 financial year we can demonstrate that benefit tracking is occurring.

o implementation of the Investment Delivery Framework. As noted above the Investment Delivery Framework has been developed and implemented, the processes are being reviewed and improvements made to ensure the framework is effective.

o benefits measurement. Several changes have been introduced to assist with benefits measurement, this includes benefit identifications being incorporated into the business case process, business case templates have been redesigned to include benefit tables and the creation and reporting against benefits realisation plans.

o extending gateway reviews. The council has implemented electronic gating for all projects with a budget exceeding $1 million and for medium and high-risk projects. Proposals to use the gate panel to audit a sample of other projects is being considered as an enhanced control measure.

· procurement.

o continuing the development of consistent procurement practices. A consistent approach to procurement has been assisted with the implementation of Ariba. We are currently reviewing procurement guidance and training material to further enhance procurement capability.

o conflict of interest management plans. The Ariba system includes the requirement for documenting and approving conflicts of interest management. To ensure the requirements are managed consistently, the procurement team is working with the Internal Audit department to offer updated training on conflict recognition and management.

· embedding contract management changes. The auditors note that substantial progress has been made by the council in contract management practices. However, the council agrees with the comment made that ongoing work is required to implement and embed the changes made.

· development of guidance on severance payments. The council developed and adopted a severance payment policy and guidance in December 2017. At 30 June 2018 the auditors testing did not pick up any payments made following the adoption of the policy, so at this stage this remains an open item.

Audit matters addressed during the year

17. In the Interim Audit Management Report tabled in August 2018, several matters were identified as being addressed and therefore finalised in the year. The following matters have now also been resolved following the final audit:

· completion of a NewCore benefits realisation plan

· documentation of achievement of targets in project management execution plans

· development of guidance for procurement planning

· identification and implementation of procurement lifecycle capabilities

· improvements to the systems, processes and controls for the food hygiene activities of the council.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

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

Tauākī whakaaweawe Māori / Māori impact statement

19. The report does not affect the achievement or reporting on the council or the council group’s contributions towards Māori outcomes. The council’s contributions to Māori outcomes are reported in the Annual Report.

Ngā ritenga ā-pūtea / Financial implications

20. There are no financial implications directly arising from the information contained in this report.

Ngā raru tūpono / Risks

21. The council is actively addressing the issues raised, and we have assessed that the matters will not impact on the audit opinion of the council’s Annual Report.

Ngā koringa ā-muri / Next steps

22. The council will continue to address the recommendations made by the auditors.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Final Management Report for the year ended 30 June 2018	27

Ngā kaihaina / Signatories

Author

Morna Macfarlane - Financial Compliance Manager

Authorisers

Francis Caetano - Group Financial Controller

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Approval of the Audit New Zealand Review Engagement Letter for the six months ended 31 December 2018 and Audit Plan for the year ended 30 June 2019

File No.: CP2018/22020

Te take mō te pūrongo / Purpose of the report

1. To approve the following draft documents:

· draft Audit New Zealand Review Engagement Letter for the six months ending 31 December 2018

· draft Audit New Zealand Audit Plan for the audit of the Auckland Council and group 30 June 2019 annual report.

Whakarāpopototanga matua / Executive summary

2. Audit New Zealand has provided the draft Review Engagement Letter for the six months ending 31 December 2018, and the draft Audit Plan for the audit of the Auckland Council and group 30 June 2019 annual report for the council’s approval.

3. Both documents outline key audit/review matters, the areas of audit/review focus, significant business and reporting risks and administration matters such as logistics and timetables.

4. 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.

5. Jo Smaill, Audit New Zealand Director, is in attendance to answer any questions the committee may have.

Ngā tūtohunga / 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 2018 and draft Audit Plan for the 30 June 2019 audit of the annual report.

b) request Audit New Zealand to issue the final letters.

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

Horopaki / Context

Review Engagement

6. 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.

7. The review is performed in accordance with the Review Standards issued by the External Reporting Board and primarily involves enquiry, analytical procedures, the obtaining of representations and reconciliation of financial statements to the underlying accounting records.

8. The draft Review Engagement Letter outlines the following:

· the scope of the Audit New Zealand’s and the Auditor-General’s responsibilities

· the scope of the governing body and management’s responsibilities

· the areas of the review focus

· engagement logistics and timelines.

Annual Audit Plan

9. The Audit Plan outlines how Audit New Zealand will conduct their audit to obtain reasonable assurance that the 30 June 2019 financial statements and performance information are free from material misstatement resulting from error, omission or fraud.

10. The draft Audit Plan outlines the following:

· key audit matters

· Audit New Zealand’s response to accounting, business and service performance risks

· the audit process

· reporting protocols, logistics and timelines.

11. As the Auckland Council group is an issuer of bonds, the audit opinion on the group annual report is required to include the auditor’s comments of key audit matters. 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. The focus will be on:

· areas identified as involving significant risk or requiring significant auditor judgement

· areas in which the auditor encountered significant difficulty during the audit, such as obtaining sufficient, appropriate audit evidence

· circumstances that required significant modification of the auditor’s planned approach, such as the identification of a significant deficiency in internal controls.

Tātaritanga me ngā tohutohu / Analysis and advice

Review Engagement Letter

12. The draft review engagement letter includes the following areas of review focus:

· fair value assessment of fixed assets

· valuation of derivatives

· provisions

· Crown funding initiatives

· early adoption of accounting standards

· disestablishment of Auckland Council Investments Limited

· treasury and funding management

· management override of controls

· accounting for impairment and capitalisation of work in progress

· rates revenue recognition

· legislative compliance.

13. All accounting matters have been subject to formal accounting analysis by the Financial Control team with the exception of Crown Funding Initiatives for which the analysis is underway.

14. The proposed fee for the review engagement is $119,427 which is an increase of 2 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

15. The draft audit plan outlines the following key audit matters:

· valuation of operational and infrastructure assets

· valuation of derivatives

· valuation of the weathertightness provision

· City Rail Link

· reporting performance on housing, transport and water.

16. These key audit matters are consistent with the prior year except for the addition of water supply and wastewater to the reporting on performance on housing, transport and water.

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

· performance reporting of consenting and stormwater services measures

· Crown funding initiatives – including accounting for the Housing Infrastructure Fund, Crown Infrastructure Agreement (Wainui) and Regional Fuel Tax, focussing on non-compliance with the annual plan, funding covenants or ratios in relation to debt, including on appropriateness of reporting of financial impacts

· prudent expenditure decisions – focusing on whether expenditure is justifiable, preserves impartiality, is made with integrity, is moderate and conservative, and appropriate in all respects

· disestablishment of Auckland Council Investments Limited - including the tax and accounting impacts

· treasury function – focussing on treasury management processes and procedures and any breach of financial benchmarks and covenants

· Tāmaki Redevelopment Company Limited – ensuring any changes in the Joint Venture Agreement are accurately reflected in the financial statements

· risk of management override of internal controls – considering whether this has occurred and has impacted the financial reporting

· project management – including non-compliance with council policies, procedures and good practice, and whether this has resulted in waste or probity issues

· 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

· legislative compliance – including ensuring compliance in relation to rates setting, targeted rates, Regional Fuel Tax, Financial Markets Conduct Act and other Acts requiring specific disclosures in the annual report

· information systems control environment – ensuring that controls are in place to manage and protect the council’s data, and availability to support service delivery.

18. The draft Audit Plan also highlights five financial statement risks, namely:

· accounting for impairment, capitalisation of costs and recognition of completed assets

· other provisions

· early adoption of accounting standards

· unallocated receipts

· Watercare treasury activities.

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

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

21. The proposed fee for the 30 June 2019 audit is $1,213,434 plus disbursements of $16,000 (excluding GST). This sum was set out in the Office of the Auditor-General’s Audit fee proposal letter dated 3 March 2017, and was approved by this committee on 1 March 2017.

22. The two documents contain the audit timings and delivery dates for information. The 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.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

23. This report is about the financial performance of the Auckland Council group, which does not include reporting at a local board level.

Tauākī whakaaweawe Māori / Māori impact statement

24. The report is about the financial performance of the Auckland Council group and does not affect the achievement or reporting of council’s contribution to Māori outcomes.

Ngā ritenga ā-pūtea / Financial implications

25. This paper is about the reporting of the financial performance of the Auckland Council group. As such, there are no financial decisions required, and there are no financial implications as a result of this paper.

Ngā raru tūpono / Risks

26. No decisions beyond document approval and related delegations are sought from the committee and accordingly no risks need be considered.

Ngā koringa ā-muri / Next steps

27. Following the approval of the draft documents by the committee, we will request that Audit New Zealand issue the letters in final and the mayor and chief executive will sign the finalised letters. Staff will also confirm and finalise the delivery timelines.

Attachments

No.	Title	Page
a ⇩	Draft Review Engagement Letter for six months ending 31 December 2018	67
b ⇩	Draft Audit Plan for the year ended 30 June 2019	89
c ⇩	Audit Fee Letter 3 March 2017	123

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

Kevin Ramsay - General Manager Corporate Finance and Property

Matthew Walker - Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Risk and Insurance Update - December 2018

File No.: CP2018/21950

Te take mō te pūrongo / Purpose of the report

1. To update the committee on risk management and insurance activities at Auckland Council for 2018/2019 financial year.

Whakarāpopototanga matua / Executive summary

2. The quarterly review of council top risks was completed in November 2018 and approved by the council’s Executive Leadership Team (ELT) on 7 November 2018. For this quarter, no additional risks have been identified and there are no changes to the risk ratings. However, a number of changes have been made to the risk descriptions, causes, controls and rationales.

3. The ‘fit for purpose infrastructure and community assets’ top risk was subject to a deep dive. The risk rating of ‘moderate’ remains unchanged, however, improvement opportunities have been identified including alignment of asset and service strategy with the Strategic Service and Asset Management Plans (SSAMPS), clarity in roles and responsibilities for asset decision-making and quality and completeness of existing asset data.

4. The council risk team provides the reporting of the all of programme risks to the Joint Chief Executive Steering Group (JCEG) and continues to work with workstream leads for the 36th America’s Cup (AC36) to update risk registers, identify new or emerging risks, and review and challenge the reasonableness of risk ratings and mitigations. Currently, there are seven ‘high’ rated risks that management are actively reviewing and monitoring to ensure controls are in place and remedial activities are progressing with urgency.

5. A risk maturity assessment review has been completed by Deloitte. To move to the desired maturity level of 3, consistent and evidence-based risk management practices must be demonstrated across council under each of the four core domains of the All-of-Government Enterprise Risk Maturity Assessment Framework (gERMAF), those being:

· leadership and direction

· people and development

· processes and tools

· business performance.

6. The embedding processes and continuous improvement initiatives for Our Charter continue to progress as per the implementation plan. Quarterly reporting to the ELT on current and future initiatives and performance metrics to track awareness and staff understanding commenced in September 2018. In addition, an annual survey to assess staff awareness and understanding of Our Charter principles and the ‘Speak Up’ programme has been developed and will be sent out to all employees across council for completion by 4 December 2018.

7. Claims in 2017/2018 financial year have been managed effectively in terms of reduction in the average turnaround time for resolving claims, implementation of streamlined processes and an overall reduction in the number of claims received. Although the total number of claims received declined, the number of public liability claims recorded increased because of damage caused by the two major storms in January and April 2018. Measures to minimise the impact associated with weather events, including public education in preparation for an event and improved contract management for maintenance of critical infrastructure are being implemented by the Healthy Waters and Arboriculture departments. In addition, the council group insurance leadership team continues to develop a positive relationship with the new lead liability insurer, Berkshire Hathaway New Zealand. Processes and expectations for notifying liability related claims and its management have been agreed.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

a) note the update on enterprise risk management

b) note the update on the Auckland Council group’s insurance activities

c) note the update on the 36^th America’s Cup Programme.

Horopaki / Context

8. This report provides update on risk management activities, council’s quarterly review of the top risk register, insurance claims management and significant key projects.

Tātaritanga me ngā tohutohu / Analysis and advice

The Top Risks Register

9. Council’s top risks register for 2018 was endorsed by the Audit and Risk Committee in May 2018. The top risks register is reviewed on a quarterly basis by ELT to identify any changes to the risk profile, including identification of any emerging risks.

10. The quarterly review of council top risks was completed in November 2018 and approved by the ELT on 7 November 2018. Although additional risks have not been identified for the period, a number of changes have been made to the risk descriptions, causes, controls and rationales.

11. The top risk register comprises of eleven top risks, of which there are six ‘high’ and five ‘moderate’ rated risks. The council’s top risk register has been included within this report as Attachment A and a residual risk heat map is included in Attachment B.

12. The council’s top risk register and a risk heat map are reported to the Governing Body as endorsed by this committee. The top risks reported to this committee at the September 2018 meeting were presented to the Governing Body on 25 October 2018. It was well received and led to good risk discussions, specifically relating to the risk rating of the climate change risk. In addition, one of the councillors provided positive feedback on the effectiveness of risk workshop that was conducted with the governing body members in June 2017 and the quality of the top risk register.

Top Risks Deep Dive

13. Council’s top risks are subject to ‘deep dives’ by the Risk team on a rotational basis to provide assurance to ELT and the Audit and Risk Committee that risks are being effectively managed and controls are operating as intended.

14. The ‘fit for purpose infrastructure and community assets’ top risk was subject to a deep dive over the period August 2018 - September 2018. Following the deep dive, the risk rating of ‘moderate’ remains unchanged, however, across the value chain of council’s asset management, improvement opportunities have been identified. These include the need to align asset and service strategy with the Strategic Service and Asset Management Plans (SSAMPS), the need for further clarity in roles and responsibilities for asset decision-making and having a source of quality and complete asset data. The deep dive review outcome and recommendations will be presented to this committee at a workshop on 5 December 2018 and a separate paper is included in today’s committee agenda.

15. The Information Services department continues to progress with the implementation of actions arising out of the Cyber Security deep dive (reported to this committee in September 2018).

America’s Cup 36 Programme Risk Management

16. The AC36 programme risk workstream is being led by Auckland Council risk team to provide leadership, guidance and oversight for the risk management activities across the programme.

17. This committee has been included within the AC36 Programme Risk Management Framework as playing a role from a governance and oversight perspective to provide advice to the Governing Body that Auckland Council’s risks as project investor have been appropriately identified and managed.

18. The Risk Lead team continues to work with AC36 workstream leads to update risk registers, identify any new or emerging risks, review and challenge the reasonableness of risk ratings and mitigations.

19. An update on the AC36 programme risk profile and risk management activities, including escalation of ‘high and extreme’ rated risks (at a minimum) are reported to the AC36 Joint Chief Executive Group (JCEG) monthly. Currently, there are seven ‘high’ rated risks that management are actively reviewing and monitoring to ensure remedial activities are progressing well. The AC36 risk update for November 2018 is included in Attachment C.

20. In conjunction with Ministry of Business, Innovation and Employment, KPMG were engaged to facilitate initial risk identification workshops for the Inter-Agency Steering Group (IASG) in September 2018. As part of the engagement, the adequacy of the current AC36 Risk Management Framework and the ‘AC36 Programme Management Office All of Programme’ risk register was reviewed. Overall, the framework and Programme Management Office risk registers were assessed as being very comprehensive. Some minor continuous improvement recommendations were made which will be considered as part of the high-level framework review in February 2019.

Risk Maturity Survey

Scope and approach

21. A risk management maturity assessment review has been completed by Deloitte (June 2018 – November 2018). The objective of the review was to provide an independent view of the maturity of council’s risk management framework and how well it is embedded across the organisation. The results of the review will help validate the future programme of work as council progresses on its risk journey.

22. Deloitte performed an assessment of council’s risk management framework using the All-of-Government Enterprise Risk Maturity Assessment Framework (gERMAF) to evaluate existing practices across four core domains, covering twelve key elements, as shown below:

23. Given the unique nature and complexity of council, Deloitte adapted the model and survey questionnaire to better fit with council’s structures and risk management approach. The assessment comprised of documentation reviews, an employee awareness survey and interviews with a selection of key stakeholders including ELT and Audit and Risk Committee members.

24. The employee awareness survey was distributed to 140 staff and 69 responses were received (50 per cent response rate). The respondents comprised of the Senior Leadership Team, Risk Champions and business/risk owners.

Review outcome

25. The review acknowledges that risk management is an ongoing journey. However, in an organisation as large and complex as Auckland Council, operating in an evolving environment with emerging risks and complexities, the journey can be particularly challenging.

26. Council has made good progress against its risk strategy and has improved its risk maturity over the last two years. Through a refreshed approach and capability, this resulted in significant positive change in its journey to lift council’s risk maturity and capability. Some areas where a positive change has been noted include:

· development of council’s risk strategy

· significantly improved top risk identification and review processes

· development and implementation of the risk deep dive process, which gives assurance on effective management and mitigation of the risks

· in depth discussion of risks and mitigations at the ELT

· the risk team support and provide input, review and challenge for various significant projects such as 36th America’s Cup, City Centre Waterfront Portfolio, Long-term Plan 2018-2028

· roll out of Our Charter as a vehicle to make it easier to understand expected behaviours which align with policy.

27. The overall maturity rating is an aggregate of rating across each of the 12 elements of the gERMAF and is based on the review of:

· existing practices and supporting evidence

· outcome of employee awareness survey and interviews with ELT

· Audit and Risk Committee members and subject matter experts.

28. Deloitte have assessed council at an aggregate maturity level of 2.5 out of 5. To move to the desired maturity level of 3, consistent and evidence-based risk management practices must be demonstrated across council under each of the four core domains (and twelve elements) of the All-of-Government Enterprise Risk Maturity Assessment Framework (gERMAF); the four elements being:

· leadership and direction

· people and development

· processes and tools

· business performance.

29. The maturity assessment review and recommendations will be presented to this committee at a workshop on 5 December 2018.

Our Charter

30. Quarterly reporting to ELT on the progress towards tracking staff awareness and understanding of the principles in Our Charter commenced in September 2018.The September 2018 quarterly dashboard report provided to ELT is included in Attachment D.

31. An important part of Our Charter is speaking up when staff see something that does not align with any of the Our Charter principles. A ‘Speak Up focus fortnight’ campaign was completed in November 2018 to raise awareness and visibility of the ‘Speak Up’ channels. In addition, a ‘how to’ guidance on Speak Up been developed and communicated to staff.

32. All new staff are required to complete the Our Charter e-learning module as part of onboarding. The People and Performance department continue to monitor completion rates for the e-learning module. As at 5 November 2018, approximately, 4878 (64 per cent) of staff have completed the training module, which is an increase of 22 per cent since the last update in September 2018.

33. An annual survey to measure performance and assess staff awareness and understanding of the Our Charter principles and the ‘Speak Up’ programme has been developed and will be sent out to all employees across council. The first survey is expected be completed by 4 December 2018. The results will be reported to this committee in February 2019.

Significant Projects

34. Across the group there are a number of major infrastructure projects at various stages of development, from conception through to completion, including key transport, infrastructure and improvements related projects. These large projects are high risk due to their scale, prominence, the complexity of the procurement arrangements, and their financial impact. Council recognises that the programme and project delivery is a top risk and it is important to have robust monitoring and governance framework over programmes/projects to manage delivery.

35. It is intended that a workshop will be held with the Audit and Risk Committee to provide an update on council’s programme and project management processes and obtain feedback on the project risk framework and options for future reporting to this committee.

36. For the current period, there are no significant updates for the projects that were reported to this committee in September 2018 (i.e. Asset Risk Assessment Programme, 135 Albert Street, and Operation Rawene).

37. The City Centre and Waterfront Portfolio is a cross-council group that has been formed to establish oversight of the significant projects and strategic planning impacting the city centre and waterfront area in the next five years. The City Centre and Waterfront Portfolio includes:

· significant infrastructure programmes (Downtown, Midtown and Uptown, America’s Cup 36 infrastructure, Wynyard Quarter and Westhaven infrastructure, Central Rail Link)

· major events (including America’s Cup 36, APEC leaders meeting and Te Matatini)

· strategic planning for the city centre and waterfront area including the Waterfront Plan and City Centre Master Plan.

38. There is a high level of interdependency between the infrastructure work programmes and other projects being delivered across the council group as well as the private sector development. The Executive Steering Group and Portfolio Working Group’s purpose is to ensure cross-council alignment, prioritisation, resolution of complex issues and a joined-up narrative and coordinated engagement.

39. The Risk team has developed a Portfolio Risk and Issues Governance Framework, which was endorsed by the executive steering group on 15 November 2018. The objectives of the framework are to:

· manage the interdependency and common risks to enable portfolio level oversight, coordination and integration between key delivery programmes and forward planning and strategy planning

· establish oversight of high and extreme programme and project risks that may impact on the portfolio to ensure early and proactive escalation and resolution of risks and issues.

40. The next step is for the Portfolio Risk and Issues Governance Framework to be implemented. The risk team will support the portfolio working group to develop the portfolio risk register, risk reporting and escalations processes and risk appetite statements in the next quarter.

Insurance Update 2017/2018

Claims performance

41. As part of the council group’s insurance strategy (2018-2020), the council group is to identify and proactively manage clear trends in claims received and reduce where possible claims and prevent future losses.

42. Claims are triaged and managed as they are received based on the nature and impact of the claim on the council or a third party. Some claims take a considerably longer time to manage, whereas other lesser valued claims, particularly those below deductibles, are handled quickly within a targeted turnaround time of 90 days. New processes have been put in place that have improved the average turnaround time for all claims in the 2017/2018 financial year to be within 100 days. This is an improvement from the previous three years average of 120 days for claims to be resolved. These claims are from both internal and external sources.

43. During 2017/2018 financial year 953 claims were received comprising of 515 liability claims, 306 motor vehicles and 132 property claims. A number of proactive steps have been initiated in the last 18-24 months resulting in an overall reduction of 24 per cent in claims compared 2016-2017.

44. The number of public liability claims recorded significantly increased because of damage caused by the two major storms in January and April 2018. A majority of the claims related to strong gale force winds bringing down trees and branches causing damage to private property. A total of 106 storm-related claims were lodged by members of the public, which is the highest number recorded in the last eight years. The Healthy Waters and Arboriculture departments are implementing additional measures to minimise the impact associated with weather events, including public education in preparation for an event and improved contract management for maintenance of critical infrastructure.

Insurer relationship and leveraging council size and scale

45. It is important for council to build effective relationships with insurers, proactively convey risk information and demonstrate effective risk mitigation strategies are in place to minimise loss exposure.

46. The council group insurance leadership team continues to develop a positive relationship with the new lead liability insurer, Berkshire Hathaway New Zealand. Processes and expectations for notifying liability related claims and its management have been agreed.

47. Insurance cover for 120 council affiliated entities (e.g. community-owned buildings located on council land) in excess of $100 million has been purchased through council group’s insurance programme, resulting in considerable cost savings for community organisations and reducing liability exposure for council.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

48. 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.

Tauākī whakaaweawe Māori / Māori impact statement

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

Ngā ritenga ā-pūtea / Financial implications

50. There are no financial implications directly arising from this information report.

Ngā raru tūpono / Risks

51. This report addresses the key risk and insurance activities. Risk management activities relating to all matters in this report have been summarised above.

Ngā koringa ā-muri / Next steps

52. The next quarterly update report to the Audit and Risk Committee will be in February 2019.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Top Risk Register 7 November 2018	139
b ⇩	Council's Top Risk Heat Map November 2018	149
c ⇩	AC36 Risk Update November 2018	151
d ⇩	Our Charter Dashboard September 2018	159

Ngā kaihaina / Signatories

Author

Shivali Kukreja - Principal Advisor Risk

Authorisers

Cecilia Tse - Head of Risk

Dani Gardiner - General Counsel (Acting)

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Quarterly Health and Safety Report - Quarter One FY 2019

File No.: CP2018/22576

Te take mō te pūrongo / Purpose of the report

1. To update the Audit and Risk Committee on Auckland Council’s health and safety performance during the first quarter of the 2018/2019 financial year.

Whakarāpopototanga matua / Executive summary

2. Auckland Council’s strategic health and safety vision is ‘to become a leading organisation for health and safety by 2020’. Over the last quarter, most of our key health and safety metrics continue to track in the right direction.

3. Council is now using Safe365 as a tool that measures capability at a level set by the Executive Leadership Team as required based on risk. 47 council business units are currently using the tool.

4. The ‘Five Ways to Wellbeing’, mental health workshops have just started to be rolled out across the organisation.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

a) receive the report on Auckland Council’s health and safety performance for the first quarter of the 2018/2019 financial year.

b) refer this report to the Governing Body and draw the attention of elected members to their duties under the Health and Safety at Work Act 2015.

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

Horopaki / Context

5. Under the Health and Safety at Work Act 2015, all elected members are deemed ‘officers’ and must exercise a duty of due diligence in relation to health and safety. These quarterly reports provide information to assist elected members to carry out that role.

Tātaritanga me ngā tohutohu / Analysis and advice

Key metrics

6. Council’s key safety indicators include four key metrics: Lost Time Injury Frequency Rate (LTIFR), near misses, unsafe conditions, and corrective actions/critical risks. The council’s performance over the last quarter for each of those metrics is set out below.

7. In September 2018, the Executive Lead Team introduced a new tool to allow the measurement of safety capability, called Safe365. This will provide capability insights into 47 of council’s business units and allow us to track health and safety maturity across them and therefore a better risk, compliance and capability picture of Auckland Council as a whole. This measure will be the focus of next quarter’s performance report and a proposed workshop.

Lost time Injury Frequency Rate

8. In 2015, council set an aspirational target for the LTIFR of <2.25. This measures the number of lost time injuries per one million hours worked. We have seen an increase over the last quarter which took us over the target in September 2018. This was due to some incidents being reclassified from medical injuries to loss-time injuries. We also had four incidents in September 2018 which has resulted in the increase.

9. In the third quarter of the 2017/2018 financial year we introduced the Total Recordable Injury Frequency Rate (TRIFR) measure. This measures the number of all Lost Time Injuries and Medically Treated Injuries standardised over a period of 1,000,000 working hours. This measure is considered a more accurate reflection of an organisation’s injury profile and approach to injury prevention.

Summary of lost injury trends

	Trend	Oct	Sep	Aug
Rolling LTIFR (indicative)		2.34	2.28	2.11
Number of Lost Time Injuries (LTI)		1	4	2
Rolling TRIFR		16.15	16.76	16.93

Near misses and unsafe conditions

10. The council uses the Risk Manager System to report near misses and unsafe conditions. At the end of the first quarter:

· there was an increase of 15 per cent in the number of reported unsafe conditions

compared to previous quarter.

· there was a decrease of six per cent in the number of reported near misses compared to the previous quarter.

Corrective actions/critical risks

11. The Risk Manager System also allows the council to identify and categorise our critical risks and track corrective actions. ‘Critical risks’ are health and safety hazards that are present in the business and if they occurred have the potential for a critical outcome, for example, fatality, permanent disability or significant loss of plant/equipment. These can now be identified through the system. This is important to drive improvement and reduce risk.

12. The number of completed corrective actions for this quarter decreased from 171 in the last quarter to 117. Overdue actions from last quarter increased from 29 to 63. This means that council people-leaders are not completing actions allocated to mitigate risks within the two-week window expected. The Corporate Health and Safety Team are now reviewing this through a new triage process to ensure high consequence actions are addressed.

13. Concurrently however we have seen our incident response rates increase, which indicates that people leaders are responding to the system and notifications sent to them. This is an improvement on previous months. Reporting incidents remains the same from last quarter.

14. As critical risks are now visible, they can be assessed, and control measures put in place including tracking. This helps minimise the likely outcomes of these risks.

Rolling year trend - critical risks

15. This chart represents all critical risks as reported by the business over the last quarter

Critical risks – quarterly

Risk	Quarterly Trend	Current Quarter	Last Quarter
Confined space	-	8 (4%)	9 (4%)
Driving vehicles		61 (27%)	40 (17%)
Explosive atmospheres	-	0 (0%)	0 (0%)
Falling objects		43 (19%)	50 (21%)
LOLE (Lifting operation, lifting equipment)		5 (2%)	0 (0%)
Lone working		0 (0%)	6 (3%)
Mental fatigue		4 (2%)	2 (1%)
Physical fatigue		31 (14%)	20 (8%)
Plant and equipment		60 (26%)	102 (43%)
Use, handling and storage of hazardous substances		4 (2%)	7 (3%)
Waterways, dams and ponds		4 (2%)	1 (0%)
Working at height		8 (4%)	3 (1%)

Security incidents (Current quarter)

Health and Wellbeing

16. Following the approval our Workplace Wellbeing Strategy in September 2018 various programmes are currently being rolled out.

Wellbeing Ambassadors

17. In a role similar to the Health and Safety representative these volunteers across the organisation have been specifically trained to support their local teams within their departments in all matters of wellbeing. We currently have 63 ambassadors recruited and active across all departments and directorates.

Five Ways to Wellbeing

18. Council has partnered with the Mental Health Foundation NZ to roll out their Open Minds programme to our people. Using the New Zealand Mental Health Foundation 'Five Ways to Wellbeing' actions: 'connect', 'be active', 'take notice', 'keep learning' and 'give', our people will learn: tools and tips to strengthen their ability to cope with the normal stress of life and the workplace, why it’s important to think about wellbeing at work, how to take notice of their mental health and that of their colleagues. It also shows how people leaders can use the Five Ways to Wellbeing and how these can be used to improve mental wellbeing as a team.

19. The corporate health and safety team are currently preparing a stress standard for the organisation. This will be accompanied by a tool to allow people leaders and our people to more effectively understand and act upon any stresses our people may be under that are work related. We will look to align this into current mechanisms in place such as the MyTime conversations.

20. A wellbeing 360 survey is also being planned for February 2019 which will look to gauge the levels of stress and other wellbeing indicators amongst our people.

The Wellbeing Hub

21. Our Wellbeing hub is a centralised electronic location from where to get the latest information and tips including the option to book places on health events such as mole mapping and flu vaccinations. It hosts competitions, programmes and critically access to 24/7 expert advice. Our people are able to customise their Re:NEW hub to help them achieve personal goals, from improvements in general fitness or healthy eating to accessing help and services within and external to council. Since launch it has been brought onto the single sign on platform and is available to any employee with an Auckland council login.

Due diligence duties

22. As officers, elected members have the duties set out in the table below. This also shows measures underway to support those duties.

Duty	Support provided
Duty 1 - Acquire and keep up-to-date with health and safety knowledge and matters	Health and safety training has been ongoing to ensure elected members and senior management are well informed and up to date on health and safety matters, Refresher training and an update session was held with Governing Body in July 2018. Council also completed training of all its Local Board officers. The Kura Kawana (elected member development) programme will now focus on more practical skills for its members. A new process has been introduced for new Directors to receive a bespoke health and safety induction, covering their departmental risk profile, their critical risks and establishing expectations for our senior leaders on health and safety.
Duty 2 - Understand council’s operations and associated hazards/risks	A health and safety site visit plan for the chief executive, executive lead team members and elected members is in place. The executive lead team operates as the Health Safety and Wellbeing Committee which creates better visibility and understanding of council operations and the health and safety risks in their parts of the organisation. These have been taking place quarterly.
Duty 3 - Ensure the council has appropriate resourcing and processes to eliminate/minimise risks	A key focus of the current strategy is to build capability within the organisation and to prioritise high risk business areas. 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 international standard. We have trained 294 managers to date; 96 are registered and are waiting to attend. We are on track to hit our target of 400 by the end of the year. We have prioritised high risk departments for this training first and communicated the importance of attendance. The corporate health and safety team have also recently provided all people leaders with a risk assessment e-learning tool and are currently preparing to launch a drive on risk assessment across the council.
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	A management framework is now in place. It is designed to ensure robust safety governance, processes, guidance and positive behaviours around health and safety. Risk Manager is also working effectively as our reporting tool for unsafe conditions, incidents and near misses.
Duty 5 - Ensure the council has, and implements, processes for complying with any duty or obligation	The chief executive and mayor have signed the Health and Safety Policy Statement, and this has been implemented alongside the new Health and Safety Framework. The health and safety section in Our Charter (we look after our safety and wellbeing) is being prepared for application to all council-controlled organisations. A working group has met and agreed the first draft.
Duty 6 -Take reasonable steps to verify the provision and use of resources and processes through reviews and audits	Safe365 audits have been carried out across the operations division. This has identified capability of departments and allowed council to see gaps at the departmental and council divisional levels. It is expected this will be the focus of an upcoming workshop. Staff are developing an assurance framework for use within the council working alongside Internal Audit department.

Duty

Support provided

Duty 1 - Acquire and keep up-to-date with health and safety knowledge and matters

Health and safety training has been ongoing to ensure elected members and senior management are well informed and up to date on health and safety matters, Refresher training and an update session was held with Governing Body in July 2018. Council also completed training of all its Local Board officers. The Kura Kawana (elected member development) programme will now focus on more practical skills for its members.

A new process has been introduced for new Directors to receive a bespoke health and safety induction, covering their departmental risk profile, their critical risks and establishing expectations for our senior leaders on health and safety.

Duty 2 - Understand council’s operations and associated hazards/risks

A health and safety site visit plan for the chief executive, executive lead team members and elected members is in place.

The executive lead team operates as the Health Safety and Wellbeing Committee which creates better visibility and understanding of council operations and the health and safety risks in their parts of the organisation. These have been taking place quarterly.

Duty 3 - Ensure the council has appropriate resourcing and processes to eliminate/minimise risks

A key focus of the current strategy is to build capability within the organisation and to prioritise high risk business areas. 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 international standard. We have trained 294 managers to date; 96 are registered and are waiting to attend. We are on track to hit our target of 400 by the end of the year. We have prioritised high risk departments for this training first and communicated the importance of attendance.

The corporate health and safety team have also recently provided all people leaders with a risk assessment e-learning tool and are currently preparing to launch a drive on risk assessment across the council.

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

A management framework is now in place. It is designed to ensure robust safety governance, processes, guidance and positive behaviours around health and safety. Risk Manager is also working effectively as our reporting tool for unsafe conditions, incidents and near misses.

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

The chief executive and mayor have signed the Health and Safety Policy Statement, and this has been implemented alongside the new Health and Safety Framework.

The health and safety section in Our Charter (we look after our safety and wellbeing) is being prepared for application to all council-controlled organisations. A working group has met and agreed the first draft.

Duty 6 -Take reasonable steps to verify the provision and use of resources and processes

through reviews and audits

Safe365 audits have been carried out across the operations division. This has identified capability of departments and allowed council to see gaps at the departmental and council divisional levels. It is expected this will be the focus of an upcoming workshop.

Staff are developing an assurance framework for use within the council working alongside Internal Audit department.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

23. Briefings for elected members, including local boards, have now been completed across all local boards.

24. This report will be provided to all local boards together with a briefing from staff.

Tauākī whakaaweawe Māori / Māori impact statement

25. Council staff are working with the Independent Māori Statutory Board and the council’s co-governance entities, such as the Tūpuna Maunga Authority, Te Poari o Kaipātiki ki Kaipara, the Ngāti Whātua Ōrākei Reserves Board and Te Motu a Hiaroa (Puketutu Island) Trust to ensure they have information and support to comply with their duties under the legislation.

26. The People and Performance department are currently looking at further integrating our Health and Safety Strategy into council’s Māori employment strategy (known as the Mahi Strategy).

Ngā ritenga ā-pūtea / Financial implications

27. There are no financial implications arising from the advice in this report.

Ngā raru tūpono / Risks

28. The risk of non-compliance with health and safety is recorded in the council’s top risk register. As set out above, controls are in place to monitor and respond to critical risks through the Risk Manager System.

Ngā koringa ā-muri / Next steps

29. Staff will continue with the implementation of the Health and Safety Strategy, embedding the new Health and Safety Framework, which now includes our Wellbeing Strategy.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Graphs and Charts	169

Ngā kaihaina / Signatories

Author

Oliver Sanandres - Head of Health, Safety and Wellbeing

Authorisers

Patricia Reade - Director People and Performance

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Fit for Purpose Community Assets Risk Deep Dive - October 2018

File No.: CP2018/22026

Te take mō te pūrongo / Purpose of the report

1. To update the committee on the results of the ‘deep dive’ on fit for purpose community assets risk.

Whakarāpopototanga matua / Executive summary

2. A deep dive, focused on above ground community assets, was completed in October 2018 as outlined in the deep dive schedule.

3. The risks relating to the utilisation and maintenance of council’s community facilities have been reviewed and the top risk and impact description, drivers, controls and risk rating assessment have been amended as a result.

4. The overall risk rating of moderate has not changed following the review.

5. Observations and recommendations have been made for two control areas:

a) data and information: The central asset meta-data and information tools need to be further developed and integrated. Existing data set workstreams and the development of an integrated single source of asset information for all asset processes and decision-making should be completed as a priority

b) strategy and processes: Asset strategy and processes should be further developed to:

· clarify and simplify roles and responsibilities for decision-making

· establish processes for receiving assets from developers and within the council group

· further integrate and advance strategic, tactical and operational decision processes for asset maintenance and renewals including through completion of the Strategic Service and Asset Plan (SSAMP).

6. A review of the Asset Risk Assessment Programme has found that the risk assessment methodology and processes for the programme are robust. It is recommended that the policy for seismic management and assessments of the remaining building portfolio be completed as a priority.

7. The council departments have agreed the actions that are summarised in the table at paragraph 20 and Attachment B. These will be reviewed in six months for progress and a deep dive into the remaining aspects of the fit for purpose asset risk will be completed as part of the rolling deep dive review schedule.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

a) note the outcome of the deep dive of fit for purpose community assets risk.

Horopaki / Context

8. Council’s top risks are subject to risk deep dives on a rotational basis. These deep dives are to provide assurance to the Executive Leadership Team and the Audit and Risk Committee that the top risks are being effectively managed, controls are operating as intended and the risk ratings assigned remain appropriate.

9. The following ‘fit for purpose assets’ risk is on the top risk register:

Failure to effectively manage and protect council owned assets so they are fit for purpose, which may result in the inability to meet growth demands and deliver the planned level of services to support social, environmental and economic outcomes sought by Aucklanders, health and safety issues, financial loss (e.g. loss of investment, significant unbudgeted maintenance and repair costs) and reputational damage.

10. The council’s assets generally fall into three broad categories:

a) above ground structures and buildings (community and corporate)

b) infrastructure at ground level or land – e.g. streetscapes, parks, open spaces, and cemeteries

c) below ground infrastructure (e.g. pipes for storm water services).

11. The council’s above ground building assets are currently valued at $4.5 billion with a total floor area of more than 300,000 square metres. The asset portfolio includes community facilities such as libraries, community and sports centres, outdoor facilities, arts centres and corporate buildings. It consists of over 3,100 individual facilities of varying size and complexity from Auckland House to toilet facilities. Council’s building portfolio on average is over 30 years old requiring renewals of building components at their end of their design lives.

12. Managing and maintaining the asset portfolio so it is fit for its intended purpose and meets the service requirements is central to delivering the council’s strategic vision to make Auckland a great place to live and delivering the Auckland Plan and Long-term Plan 2018-2028 objectives and outcomes.

13. If council does not have effective controls and processes in place to manage and protect its assets, there is a risk that an asset may fail earlier than its design life. There are risks of health and safety harm to employees and the community, financial risks due to increased or unbudgeted costs and council may be unable to support the delivery of social and economic outcomes for Aucklanders.

Tātaritanga me ngā tohutohu / Analysis and advice

Introduction and scope

14. A deep dive focused on the management of the above ground community building assets was completed in October 2018 as per the deep dive schedule.

15. The scope was focused on the utilisation and maintenance of above ground community facilities assets. Council’s corporate, civil defence, animal shelters and solid waste and water facilities are not managed by the community facilities department and were therefore outside the scope of the deep dive.

16. The Asset Risk Assessment Programme was specifically included within the scope because it has developed key policy, process and system controls that inform council’s capital investment programme and manage risks of asbestos containing material within buildings, seismic rating of buildings and compliance with the building code.

17. The terms of reference for the deep dive are included in Attachment A.

Observations and Recommendations

18. In line with the focused scope of the deep dive, initial management responses have been provided by council’s community facilities and community services departments.

19. A summary report and analysis containing the issues, impacts and agreed actions is in Attachment B. The observations and recommendations have been made to the chief operating officer and the business owners who have been primarily engaged in the deep dive (Community Facilities and Community Services departments).

20. The following are the key observations and recommendations and the agreed actions underway that respond to the observations:

Observation/ issue	Recommendations	Response / control development	Anticipated completion date
Asset Data and Information
1. The central asset meta-data and information tools need to be further developed and integrated. 2. The Central Reporting Asset Management (CRAM) tool is not fully integrated with systems and processes or being used for all asset decisions. 3. Not all asset information (e.g. strategies, asset performance, asset utilisation) is held in SAP / GIS systems or captured centrally.	Existing data set workstreams and the development of an integrated single source of asset information for all asset processes and decision making should be completed as a priority. A single source of asset information that is integrated into all asset processes and decision-making must continue to be developed. The Central Reporting Asset Management (CRAM) data should be consistently leveraged to drive decision-making and optimise efficiencies to make process improvements.	Review completed projects and include information in CRAM. Develop processes for information to be provided by council departments to update data set in CRAM. Embed and expand CRAM tool as a single source of truth through increased system and process integration and an embedding programme for staff.	March 2019 March 2019 June 2019
Processes / Roles and Responsibilities
4. The roles and responsibilities for managing community assets require clarification and simplification to improve decision- making and optimise cost, risk management and performance.	Clearer roles and responsibilities for asset management and planning are required to support effective coordination, communication, collaboration and greater integration of decisions, processes and risk management. Strategic, tactical and operational decision processes for asset maintenance and renewals including the Strategic Service and Asset Plan (SSAMP) should be integrated and aligned.	Develop action plan for improvements to way of working and map key processes and identify and decide what where it can be simplified or clarified. Complete the 2019/2020 local board work programmes using integrated quality advice programme.	March 2019 June 2019
5. Newly vested assets from developers require attention to ensure sufficient strategic planning, budgeting and risk assessment before council accepts the assets.	Develop an effective process to ensure assets are fit for purpose, ongoing maintenance and costs and obligations on council are accounted for and that the provision of the asset is in line with the strategic and policy outcomes.	Establish processes to enable timely and effective. Communication with third party developers before an asset is vested.	June 2019
6. Process improvements are needed to ensure assets transferred within the council group are fit for purpose and to avoid unforeseen unbudgeted renewal and maintenance spend	Implement processes and monitoring to ensure transferred assets from the council-controlled organisations are of an acceptable standard and condition.	Establish processes to enable timely and effective communication with council-controlled organisations and other council departments before an asset is vested.
7. A strategic service and asset management plan is needed to inform asset management investment and decisions concerning maintenance, utilisation and renewal and achieve consistent and forward-looking decisions and alignment with the capital development programme.	The Strategic Service and Asset Management Plan (SSAMP) that is being developed should be completed as soon as possible. The Strategic Service and Asset Management Plan (SSAMP) should align to the adopted policy, Auckland Plan – Development Strategy and Infrastructure Strategy.	The Strategic Service Asset Management Plan – community services (SSAMP) is currently being developed.	April 2019

Asset Risk Assessment Programme

21. The Asset Risk Assessment Programme is a cross-council collaborative programme led by Community Facilities and involving Auckland Council, Panuku Development Auckland Limited, and Regional Facilities Auckland.

22. The main drivers have been to address the long-term risks and compliance requirements associated with seismic, asbestos, secondary and non-structural elements of buildings and building fitness.

23. The programme has developed a risk-based methodology for prioritizing and completing building assessments and an online system to capture all the information. The asset condition and assessment programme is ongoing. It is anticipated that the assessments of all council assets will be completed in December 2019.

24. Following our interviews and review of key documents and systems, we have concluded that the programme’s project management, and the risk and prioritization methodologies that are being implemented are robust.

25. Resourcing and timeframes of the assessment programme should be monitored and maintained so the assessments can be completed. The Asset Risk Assessment Programme steering group should continue.

26. It is recommended that the planned policy concerning seismic strengthening, reinstatement and renewal be completed as soon as possible. The policy is a necessary control for consistent decisions about renewals, disposal and budget and needs to work with the context of the wider strategy for council assets.

27. Further background and a status report for the Asset Risk Assessment Programme is in Attachment C.

Updates to controls

28. In addition to the actions to be completed that are responding to the deep dive observations and recommendations, management are working on the following controls to strengthen the control environment:

· SSAMP Risk Registers and Improvement Plans are being developed and their design will to ensure that prioritisation of effort and resourcing across departments is aligned and consistent to delivery priority outcomes

· a refreshed Operations Asset and Infrastructure Steering Group is to be established to provide oversight to operations delivery of the SSAMPs.

29. Attachment D outlines the five key risks impacting asset utilisation and maintenance and the controls identified for each risk.

Risk Rating

30. While the deep dive has identified some controls that require further development or implementation and embedding, the overall risk rating of moderate remains unchanged.

31. Based on the discussions with control owners and senior leadership, the controls in place are operating sufficiently to mitigate the risks to a moderate level. However, the executive leadership team has:

(a) updated the likelihood of the risk realising from unlikely to possible

(b) reduced the residual consequence from high to moderate.

32. The likelihood and consequences of a significant proportion of the asset portfolio failing to a significant extent is considered unlikely considering the breadth and size of council’s $45 billion asset portfolio. The change in the likelihood from ‘unlikely’ to ‘possible’ reflects the developing understanding of the condition of council’s assets and the risks associated with asset management at this time.

33. Council has multiple options to respond to external or internal events that may damage or close its facilities and can mitigate the impacts on its service to the community and operations. The timeframe for addressing the seismic strengthening work in Auckland under statute is 35 years from 2017. Work is progressing to address buildings that have been prioritised based on several factors including use, location and condition of the buildings.

34. A further consideration is that, should an asset fail, its impact will generally be localised. While there may be revenue implications with facility closures and a reduction of service levels, the council has alternative facilities and options for mitigating a failure of a specific asset. For example, while not ideal, if a council swimming pool is required to be closed, the council has options for other facilities that can be used in the interim.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

35. The roles and responsibilities of local boards regarding decision-making for certain council assets in their local areas was not in scope for this review.

36. Some of the observations recommendations and actions arising from the deep dive are relevant to local boards. Engagement with local boards about the planned actions will be undertaken by the relevant council department as required.

Tauākī whakaaweawe Māori / Māori impact statement

37. This information report does not have any impact on Māori. The scope of the review did not include any assets of particular significance to Māori.

Ngā ritenga ā-pūtea / Financial implications

38. There are no direct financial implications arising from this report. However, effective management of the ‘fit for purpose asset’ risk is important to achieve value for money and avoid unforeseen costs to council.

39. The Asset Risk Assessment Programme is providing detailed asset condition data for 2012 assets that includes seismic and asbestos risks and issues to be addressed. The Asset Risk Assessment Programme findings are currently not part of the asset renewals modelling. More work needs to be done to understand the potential financial impact of the seismic, asbestos and other condition assessment information, in parallel with the seismic policy development. This work will clarify the potential financial impacts and inform the long-term planning process in 2020.

Ngā raru tūpono / Risks

40. Risks are covered in the main sections of this report. Overall, the completion of the risk deep dive and reporting to the Executive Leadership Team and Audit and Risk Committee has supported and enabled improved awareness, understanding and control of the risks that may impact on council’s assets. It has provided a foundation for future deep dives and ongoing improvements of controls and mitigations for council for its fit for purpose asset risk.

Ngā koringa ā-muri / Next steps

41. The agreed actions will be reviewed in six months and a deep dive into the remaining aspects of the fit for purpose asset risk will be completed as part of the rolling deep dive review schedule.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Asset Management Risk Deep Dive Terms of Reference	181
b ⇩	Deep Dive Observations Summary	183
c ⇩	ARAP Programme Summary	187
d ⇩	Deep Dive Key Controls	189

Ngā kaihaina / Signatories

Authors

Emma Mosely - Strategic Advisor Risk and Compliance

Dean Hemens - Senior Risk Advisor

Authorisers

Cecilia Tse - Head of Risk

Dani Gardiner - General Counsel (Acting)

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Possible audit of amendment to Long-term Plan 2018-2028

File No.: CP2018/22683

Te take mō te pūrongo / Purpose of the report

1. To inform the committee of:

· the nature of a possible audit of an amendment to the Long-term Plan 2018-2028 (LTP), together with the proposed timetable

· the committee’s responsibility with respect to the review of the Consultation Document (CD) and amended LTP, should the amendment proceed

· the likely recommendations that will arise from this committee’s review of the CD and amended LTP, should the amendment proceed.

Whakarāpopototanga matua / Executive summary

2. It is possible that Auckland Council will consult in 2019 on the transfer of the ownership of strategic land within the Auckland Council group.

3. Tax law is changing on 1 July 2019. One implication of this change is that after 1 July any transfer of land holdings from subsidiaries to parent cannot be made without creating a substantial tax liability.

4. While leaving the land holdings unchanged for the foreseeable future is an option, if there is an appetite to transfer land to parent ownership for governance or strategic reasons, then it is prudent that this should be considered before the new tax laws come into effect. Council officers are currently providing advice to the Finance and Performance Committee on this matter.

5. Consultation is dependent on a decision by the Finance and Performance Committee which won’t occur until 11 December 2018. Should it be approved, it will trigger the Special Consultative Procedures outlined in the Local Government Act 2002. The Consultation Document and amended LTP would be required to be audited by the Office of the Auditor-General.

6. To discharge its responsibilities, should the amendment proceed, two special meetings of this committee would need to be scheduled in 2019.

7. This paper confirms what this committee’s responsibilities are, the scope of the audit by Audit New Zealand, and the likely recommendations that would arise from this committee’s review of the Consultation Document and amended LTP.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

a) receive this report.

Horopaki / Context

The Possible Amendment to the long-term plan

8. The subject matter of the amendment is the transfer of ownership of strategic land holdings within the council group.

9. Because these land holdings are strategic assets, any transfer of ownership from a council-controlled organisation or council organisation to the council parent can only be done via an LTP amendment using the Special Consultative Procedure. As an LTP amendment this process would require audit review and an audit opinion from the Auditor-General.

10. The legal ownership of waterfront land and related assets such as wharf structures, marinas, and investment properties currently sit with Panuku Development Auckland (a council-controlled organisation) and Ports of Auckland Limited (a Council Organisation) rather than at parent (Auckland Council) level.

11. The issue of legal ownership is a separate issue to the management and operational use of the land. For example, roading assets are legally owned by Auckland Council but managed and accounted for by Auckland Transport.

12. The current ownership arrangements were put in place when Auckland Council was established in 2010 and have not been reviewed since.

13. Tax law is changing on 1 July 2019. One implication of this change is that after 1 July any transfer of land holdings from subsidiaries to parent cannot be made without creating a substantial tax liability.

14. While leaving the land holdings unchanged for the foreseeable future is an option, if there is an appetite to transfer land to parent ownership for governance or strategic reasons, then it is prudent that this should be considered before the new tax laws come into effect.

15. The changing tax law is not a reason in and of itself to change legal ownership. Rather, if the council considers that there may be good governance or strategic benefits to hold these assets more centrally in the future, then considering this now is important to enable land to be transferred before 30 June 2019 to keep the council’s long-term strategic options open.

16. Council officers will be providing advice to the Finance and Performance Committee on practical options available to council on 11 December 2018, when that committee will make a decision whether this proposed amendment proceeds.

Tātaritanga me ngā tohutohu / Analysis and advice

The audit of the proposed amendment

17. The indicative Arrangements Letter for the audit of the possible amendment is attached at Attachment A. This sets out the scope of the work that will be performed by Audit NZ, should the amendment go ahead.

18. It is critical to clarify the responsibility of the Audit and Risk Committee, and contrast this with that of the Governing Body.

The responsibility of the Governing Body

19. The Governing Body is responsibility for adopting the CD and amended LTP.

20. The Governing Body clearly has the responsibility for the merits of the content of the CD and amended LTP – in particular the key matter being consulted on.

21. The Governing Body is also responsible and accountable for the following ‘compliance’ aspects of the preparation of the CD and amended LTP:

· meeting all legal requirements relating to its processes, decisions, consultation, disclosures and other actions relating to the preparation and publication of the CD and amended LTP

· having systems and processes in place to provide the supporting information and analysis the council needs to be able to prepare a CD and amended LTP that meets the purposes set out in the Act

· ensure that any amendment to forecast financial information has been prepared in accordance with generally accepted accounting practice in New Zealand.

22. To discharge its responsibility and accountability for these ‘compliance’ aspects the Governing Body takes the advice of this committee – to provide it with assurance that these responsibilities have been discharged.

The responsibility of the Audit and Risk Committee

23. The purpose of the committee is to assist and advise the Governing Body in discharging its ‘compliance’ responsibilities with respect to the CD and amended LTP.

24. Specifically, the committee’s role is to review the effectiveness of governance over, the risks and the design and operation of internal control over the preparation of the CD and amended LTP.

25. The committee does not have any responsibility for setting or changing any policy in the LTP.

26. The committee will discharge its responsibilities by receiving a report from council officers about the draft CD (supplemented by enquiry of relevant council officers) that outlines:

· the status of key controls including key assumptions underpinning the CD

· key risks and risk team sign off

· results of legal review and legal sign off

· financial control review and sign off

· receiving a report and briefing from the Office of the Auditor-General as to audit progress, and an assessment of any outstanding audit issues.

27. The committee will have a specific focus on key assumptions, risks and the management there of those risks. This will focus on:

· satisfying themselves that project risks have been managed appropriately

· understand from a process perspective, how key assumptions have been applied within the CD and amended LTP

· satisfying themselves that the risks around application of the assumptions have been articulated appropriately

· satisfying themselves that there are appropriate processes in place to provide the assurance that key assumptions and risks are complete, accurate and reasonable.

Recommendation from the Audit and Risk Committee

28. The committee can make recommendations to the Governing Body. It is likely that the committee will resolve:

· that there are no significant outstanding audit issues relevant to the scope of the committees review of the CD and amended LTP. If there are significant outstanding issues, then this will be noted in the recommendation.

29. The recommendation will note that the draft CD is still subject to:

· consideration by the Governing Body

· final management review

· any specific requirement of management to complete documentation prior to adoption by the Governing Body.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

30. There is no impact on local boards on the decision this committee is being asked to make.

Tauākī whakaaweawe Māori / Māori impact statement

31. There is no impact on Māori arising from the decision this committee is being asked to make.

Ngā ritenga ā-pūtea / Financial implications

32. This report does not require the committee to make decisions with financial implications.

Ngā raru tūpono / Risks

33. The committee is not being asked to make decisions in which they need to be informed about risk.

Ngā koringa ā-muri / Next steps

34. Implementation actions are contained in the body of this report.

Ngā tāpirihanga / Attachments

No.	Title	Page
a ⇩	Indicative Audit Arrangments Letter	199

Ngā kaihaina / Signatories

Author

Mark Maloney - Head of Internal Audit

Authorisers

Matthew Walker - Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

05 December 2018

Annual Report on the performance of the Audit and Risk Committee

File No.: CP2018/22112

Te take mō te pūrongo / Purpose of the report

1. This purpose of this report is to review and summarise the activities of the Audit and Risk Committee in 2018.

Whakarāpopototanga matua / 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 the 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 second report for this term of council. The chair of the committee previously reported to the December 2017 Committee on the performance of the committee encompassing the period March 2017 to December 2017. Since then the committee has formally met seven times (up to and including the December 2018 meeting).

7. In 2017 the chair reported that 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. In 2018 the Committee has ensured maintenance of that relationship.

8. The committee has focussed on supporting senior management’s development of Enterprise Risk Management across Council. It has provided guidance and stretch to ensure the continuing advancement of capability.

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

10. 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 a productive working relationship, whilst maintaining an independent oversight of key organisational risks and the management of those risks.

Ngā tūtohunga / Recommendation/s

That the Audit and Risk Committee:

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

b) recommend that the chief executive place the report on the next available agenda of the governing body.

Horopaki / Context

Introduction

11. 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 organisational risks are being identified and appropriately managed.

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

13. 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.

14. 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.

15. 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.

16. In 2018, the Committee has met formally seven times up to and including December 2018.

17. The committee is chaired by an independent Chairperson, Sue Sheldon CNZM.

Tātaritanga me ngā tohutohu / Analysis and advice

Key actions performed by the Committee in 2018

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

· Assurance processes in place with respect to the Long- Term Plan (including the Consultation Document)

· Governance over the Americas Cup Programme

· 2018/19 Insurance Renewal

· Outcome of the Internal Audit review of aspects of procurement

· Risk maturity

· Deep dives on specific “top risks” – Cyber security and “Fit for Purpose” Infrastructure and Community Assets

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

· meeting with senior management and board representatives from substantial council- controlled organisations to better understand their risk management processes, especially at board level.

21. In May 2018 the committee reviewed and endorsed a refreshed “Top Risk” register. The Committee now at each meeting conducts a “deep dive” on key mitigations over specific top risks. To date Cyber Risk and “Fit for Purpose” Infrastructure and Community Assets have been reviewed.

22. In June 2018, the committee oversaw the first Elected Member Governance and Risk workshop – to which all Governing Body members were invited. The committee was disappointed that only approximately 50% of the Governing Body members attended the workshop which was designed to specifically hear their individual thinking on key risks. In view of the important role of the Governing Body members in risk management, further workshops will be held.

23. In December 2017 the committee commenced receiving quarterly updates on council-controlled organisation risk management (previously these updates had been received annually) and six-monthly updates on legal risk. This has continued through 2018.

24. The committee is of the view that Enterprise Risk Management capability is at a developing level within Council. Consciousness of the risks facing Council and processes needed to mitigate are led by professional management but there needs to be further focus on the development of Elected Members. Processes need to be embedded down into the organisation. Good progress has been made by officials during this term.

25. 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.

26. The Committee performed a review role with respect to the production of the 2018-28 Long Term Plan (including the Consultation Document), including the management of risks specific to the Long- Term Plan. This was the first time this responsibility has been discharged by the Committee. The role of the committee in discharging this responsibility was formally clarified by the committee.

27. The committee has clarified and confirmed its role with respect to its review of major projects e.g. the City Rail Link project, where Council has an investment role.

28. 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 2017

o the 12 month period ended 30 June 2018

o the six month period ended 31 December 2018

· the interim financial statements for the six months ended 31 December 2017

· the Annual Report (including financial statements) for the year ended 30 June 2018

29. The committee has placed particular emphasis on maintaining 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 Arrangements letter for the Audit of the 2018-28 Long Term Plan (including Consultation Document), 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).

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

31. The committee has reviewed council’s insurance renewal programme for the year ending 30 June 2019.

Conclusions

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

33. 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 an appropriate level, achieving a productive working relationship, whilst retaining independence.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe /
Local impacts and local board views

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

Tauākī whakaaweawe Māori / Māori impact statement

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

Ngā ritenga ā-pūtea / Financial implications

36. The Committee is not making a decision with financial implications.

Ngā raru tūpono / Risks

37. The committee is not being asked to make a decision to which they need to be informed about risk.

Ngā koringa ā-muri / Next steps

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

Ngā tāpirihanga / Attachments

There are no attachments for this report.

Ngā kaihaina / Signatories

Author

Sue Sheldon, CNZM - Chairperson

Audit and Risk Committee

05 December 2018

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 process status update for the Auckland Council group New Zealand Stock Exchange Announcement and Interim Report for the six months ended 31 December 2018

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