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

· health, safety and wellbeing

· business continuity and resilience

· integrity and investigations

· monitoring of compliance with laws and regulations

· significant projects, programmes of work and procurement 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 the council’s CCOs and the council 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 other than those in these terms of reference.

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.

Assurance

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

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

· Review the co-ordination between the risk and assurance 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 assurance 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 Assurance Strategy, including the fraud and integrity aspects, including a detailed work programme.

· Review annually the ‘Speak Up’ and 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, Assurance, 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 Long-term Plan, 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 way 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:

o the nature, scope and fees of the external audit

o areas of audit focus

o 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 Assurance and the Chief Risk Officer are responsible for monitoring CCO risk and internal audit strategies with respect to risks and CCO 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.

No.	Title	Page
a ⇩	Audit and Risk Committee Forward Work Programme	13

Audit and Risk Committee

26 May 2020

Enterprise Risk COVID-19 Update

File No.: CP2020/05805

Te take mō te pūrongo

Purpose of the report

1. To brief the Audit and Risk Committee and seek approval of the refreshed Enterprise Risk Framework and Council’s Appetite Statement.

2. To update the Audit and Risk Committee on risk management activities at Auckland Council for the COVID-19 pandemic response period March – May 2020.

Whakarāpopototanga matua

Executive summary

3. The Enterprise Risk Framework in Attachment A has been revised to incorporate the ISO31000:210 Risk Management Standards. The framework was approved by the executive leadership team in February 2020 and is recommended for approval by the committee.

4. The Appetite Statement (Attachment A pages 12-13) was reviewed and confirmed by the executive leadership team on 15 May 2020 following the COVID-19 risk event and is recommended for approval by the committee.

5. Following the report to the extraordinary meeting of the Audit and Risk Committee on 14 April 2020, the risk team has facilitated a risk review and been deployed to support the internal and external emergency response.

6. The evolving nature and speed of the COVID-19 events and the emerging strategic and operational risks and issues has brought unprecedented challenge. However, the council’s response has been effective in managing risks and issues.

7. The council’s Top Risks have been reviewed and updated. The enterprise leadership reporting on top risks has been changed to a new format in Attachment B.

8. The overall risk profile is trending up. The velocity of the developments and the national and global impact of the pandemic are key drivers. The existing 11 top risks remain, and three new strategic risks have been identified to be added to the top risk register: financial management, recovery and Māori outcomes.

9. The health, safety and wellbeing risk remains a top priority and risks, hazards and incidents are continuing to be monitored and managed. The focus for the corporate health and safety department has been on supporting Auckland Council’s emergency response to the COVID-19 pandemic and managing people risks through the alert levels. There has been significant work required and new systems and processes have been developed at pace to respond and manage the emerging risks.

10. The financial impacts of COVID-19 on the Auckland Council group budget for 2020/2021 remain highly uncertain. A summary of a high-level risk assessment and the key current controls is in Attachment C. The process and methodology considered by this committee has been followed, and work has continued at pace on the financial scenario modelling. A verbal update will be provided to the Audit and Risk Committee on the process.

11. To maintain independent oversight through the modelling process in an efficient and agile way, between 14 April and 26 May 2020, management have briefed the Chair of the Audit and Risk Committee on financial management risks and refinements to the assumptions and financial position. The chair of the Audit and Risk Committee has provided independent oversight and feedback to management to ensure on the process and assumptions used to generate the 2020/2021 budget remain reasonable.

12. The current drought situation poses an increasing risk to Auckland and council’s water supply. Active mitigations and management measures are in place including the imposing of stage 1 restrictions and reduction is usage by council’s facilities.

13. Following the COVID-19 pandemic and disruptions, the council group and Ministry of Business, Innovation and Employment (MBIE) have been working closely with the America’s Cup event organiser, America’s Cup Event Limited, to work through scenario-based contingency planning. This will determine how the event can be delivered. The enterprise risk department continue to work with the Chair of the Joint Chief Executive Group (JCEG) and Chief Executive of ATEED, to ensure the programme risk management practices are fit for purpose as the programme shifts to event delivery.

14. The risk and insurance work programme has been adjusted in the short to medium term to focus on the strategic and recovery priorities and respond to resourcing constraints.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) approve the Enterprise Risk Framework and Council Appetite Statement.

b) note the risk activities and enterprise top risk update following the COVID-19 pandemic.

c) note the financial management risk and emergency budget/annual plan process update.

d) note that the Chair of the Audit and Risk Committee has maintained independent oversight and provided feedback to management on the approach and process informing the decision-making process and preparation of the emergency budget consultation materials. This was to ensure the process and assumptions used to generate the Emergency Budget 2020/2021 (annual plan 2020/2021) remain reasonable.

e) agree that an update on the financial management risks, the Emergency Budget 2020/2021 and Long-term Plan processes will be provided to the next Audit and Risk Committee on 24 August 2020.

f) refer the Enterprise Risk COVID-19 Risk Update report to the Emergency Committee, Governing Body and Finance and Performance Committee (as appropriate).

Horopaki

Context

15. This is an update on risk management activities to enable the Audit and Risk Committee to fulfil their governance and oversight role of the effectiveness of risk management.

16. This includes responsibility for reviewing and approving the enterprise risk framework and appetite statement, the effectiveness of risk management systems including health, safety and wellbeing, and emerging risks and changes to the Top Risk Register.

Tātaritanga me ngā tohutohu

Analysis and advice

17. There has been significant work completed to monitor, review, assess significant risks and mitigations during the crisis and response phases of the COVID-19 pandemic. Information and advice is provided on a range of matters including:

· Enterprise Risk Framework and Risk Appetite Statements (Attachment A)

· Risk assessment programme – COVID-19 risk pulse check

· Auckland Council Top Risks and emerging risks (Attachment B and C)

· Health, Safety and Wellbeing risk management and COVID-19 impacts

· Finance risk management update

· Drought emergency – council response and mitigations

· COVID-19 Impacts on AC36 Programme (America’s Cup)

· Refocused risk programme.

Enterprise Risk Framework and Appetite Statements

18. The updated Enterprise Risk Framework has been revised to incorporate the ISO31000:210 Risk Management Standards.

19. The framework was approved by the executive leadership team in February 2020 and is recommended to be approved by the Committee (Attachment A).

20. Key improvements to the Enterprise Risk Framework include:

(a) “Recording and Reporting” added as a key element to the risk process

(b) Highlighting of the leadership by top management and the integration of risk management

(d) Simplification of the risk categories and the impact and likelihood descriptions

(e) Risk Appetite statement revised to reflect current environment.

21. The Appetite Statement (Attachment A pages 12-13) was reviewed and confirmed by the executive leadership team on 15 May 2020 following the COVID-19 risk event and in accordance with the Enterprise Risk Framework.

22. The framework implementation and embedding is ongoing as part of all the activities in the enterprise risk work programme. The programme focuses on strengthening the “bottom up” processes and strengthening staff capability and council’s risk management culture.

23. The planned roll out and embedding activities include:

(a) Communications to raising awareness and understanding of framework improvements for example control effectiveness, risk and control ownership and accountability

(b) Risk Champions programme and risk business partnering

(d) Identifying and reporting enterprise risk themes, trends and insights

(e) Coaching and capability building with risk champions, leaders and report writers

(f) Working with the Assurance Services department (in its role as third line of defence) on key control effectiveness testing through the rolling audit programme.

Risk assessment programme – COVID-19 risk pulse check

24. Following the report to the extraordinary meeting of the Audit and Risk Committee on 14 April 2020, the risk team has facilitated a bottom up and top down risk review.

25. This was a positive exercise to:

· Ensure risks continue to be identified, evaluated and treated appropriately

· Ensure interconnected risks are not responded to in silos

· Capture real time risk assessments during the COVID-19 risk event and whether risks have changed

· Inform the strategy to recover and move to the new normal – know the risks so we don’t just “bounce back” but we “bounce forward”

· Inform ELT, Governing Body and Audit and Risk Committee reporting.

Risk review methodology

26. The risk review has included risk assessments, risk analysis of emerging risks, key leaders and team based brainstorming and internal and external scanning of the current environment.

27. To establish a clear and consistent context for the risk assessments, standard scenarios and assumptions have been considered that reflect the financial modelling assumptions, and council’s service provision during the transition from alert level 4 to alert level 3 and alert level 2.

28. Steps taken for the review included:

· Survey and engagement with the enterprise leaders’ group to assess the departmental risks and impacts associated with the COVID-19 event (risk pulse check)

· Engagement with departmental risk champions to assess emerging risks and issues and update risk registers

· Risk identification and assessment in the key emergency workstreams including business continuity, corporate resilience and Civil Defence Emergency Management

· A review of the council’s top risks (contained in the Top Risk Register) with executive and senior leaders, subject matter experts and control owners.

29. A risk pulse check with the council-controlled organisations has been completed to enable a council group risk view and Audit and Risk Committee oversight of significant group risks and mitigations. This will be reported separately to the Audit and Risk Committee.

Emerging risks and themes arising from risk pulse check

30. The evolving nature and speed of the COVID-19 events and the emerging strategic and operational risks and issues has brought unprecedented challenge. However, the council’s response has been effective in managing risks and issues.

31. In several top risk areas, the focused response and urgent work undertaken has improved visibility and coordination of information and resources and resulted in a deeper appreciation of the risks and led to improved management and mitigation of those risks.

32. Consistent risk themes and challenges have been being identified. The following common risk themes have been identified across all departments:

(a) financial and resourcing risks

(b) uncertainty around core work programme activities, priorities and objectives

(d) recovery process - collaboration and informed prioritisation and decision making.

33. The drought emergency has been identified by several operations teams as being a key risk. COVID-19 related disruptions and challenges are compounding the impacts of the drought and an increase in the likelihood and consequences of disruptions to services has been identified. The risk business partners are supporting lead teams to capture the significant risks identified so they are monitored through their risk registers and risk management plans.

34. Staff from the Risk and Insurance department have been deployed to support the internal and external emergency response. Risk management practices, including facilitating risk identification and assessment sessions, preparation of risk registers, monitoring, reporting and escalation have been established in the Crisis Management Response, Corporate Resilience and Civil Defence Emergency operations functions.

35. The following four common top risk themes have been identified in these workstreams:

(a) continuously evolving demands and complex obligations to be met at pace

(b) coordination between multiple entities and clarity of roles and responsibilities (internal and external)

(d) redeployment and availability of required staff with necessary skills and expertise.

36. These risks are being controlled and mitigated through centralised and coordinated leadership of the CDEM controllers and redeployment processes and systems.

37. These risks continue as the civil defence and emergency management response transitions from emergency to recovery phase. A key risk is the conflicting demands on staff resource for business as usual roles and the Civil Defence Emergency Management requirements.

Auckland Council Top Risks

38. The Top Risks have been updated following the COVID-19 pandemic and through the executive leadership team’s scheduled quarterly review.

39. The executive leadership team reporting on top risks has been changed to a new format. The executive leadership team top risk report is in Attachment B.

40. The reporting highlights risk ownership, the rationale for the risk rating, monitoring and effectiveness of controls and additional controls under development. It summarises the detailed risk register which continues to be maintained and is in Attachment D.

41. Due to the rapidly changing risk environment, the executive leadership team has increased the frequency of risk reporting to monthly enterprise risk updates.

42. The overall risk profile is trending up as pressure and unique challenges have impacted existing and new internal controls. The velocity of risk and the national and global impact of the pandemic are key drivers.

43. All the top risks have been impacted to some degree by COVID-19 events and remain as strategic top risks at this time. The assessed likelihood of the risk eventuating has increased for three top risks: cyber, significant internal and external disruptions and service delivery.

44. The risk assessment for the service delivery top risk has increased from moderate to high due to the impacts and increased likelihood of service delivery from COVID-19. Cyber, significant internal and external disruptions risks have been assessed as having an increased likelihood of occurring, but the residual rating does not change. Additional mitigations and strengthening of controls and/ or the existing controls and mitigations have been implemented and are adequately mitigating the risks. These risks remain assessed as high. All other residual risk ratings remain unchanged.

Emerging Risks

45. Three strategic risks have been identified to be added to the top risk register concerning financial management, recovery and Māori outcomes.

46. The risk descriptions are being refined and assessed and further controls developed to address the evolving COVID-19 pandemic situation, anticipated government directions, ongoing restrictions and financing and recovery decisions.

47. Attachment B contains high-level analysis of the emerging risks:

(a) Financial management – inability to prudently manage Council’s financial obligations

(b) Recovery - failure to strategically support and execute Council’s recovery plan, obligations and realise its objectives

Health, Safety and Wellbeing risk update and COVID-19 response

48. The focus for the corporate health and safety department over the last quarter has been on supporting Auckland Council’s response to the COVID-19 pandemic. There has been significant work required and many new systems and processes have been developed at pace to respond and manage the emerging risks.

49. Representatives from the Health and Safety department have joined the Crisis Management Team since it was established and have staff deployed into Auckland Emergency Management. The team have also supported frontline business units that have continued to work over the lockdown in relation for the specific demands created by the pandemic and business as usual matters.

50. As a result of the lockdown, there has been a reduction in hours worked across the organisation. There were five total recordable injuries in April compared to 24 total recordable injuries in March 2020. April’s hours worked were approximately 4 per cent of March’s hours, which resulted in a lower injury rate.

51. Mental health and wellbeing risks are a top priority at this time, recognising the various additional stressors associated with COVID-19 on staff.

52. Employee Assistance Programme (EAP) usage initially increased at the start of the lockdown but has since reduced. To support staff and contractors, the People and Performance division has developed a wellbeing initiative, Te Papa Hauora. This is a dedicated hub on the Council’s intranet – Kotahi (Te Papa Hauora) for staff to access advice and information focused on all elements of wellbeing – spiritual, mental and emotional, physical, family and social and land or roots. This was based on 'Te Whare Tapa Whā', a holistic Māori health model developed by Sir Mason Durie.

53. In addition to Te Papa Hauora, a suite of initiatives have been implemented in response to COVID -19 to ensure we provide a safe environment for our people, staff, contractors and our communities. Key activities include:

· Corporate property department implementing increased cleaning, building loading, and managing fleet

· Two contactless technology solutions have been developed (Virtual Check-in and My Work GPS) to register who has accessed Council buildings and facilities, and people’s movements to ensure the safety of our people, visitors, contractors, and customers

· Guidance documents and templates are available online for people leaders targeted at leading teams through the COVID-19 crisis. These have included guidance on safety working remotely, what to do if someone returns a positive test for COVID-19, PPE usage, and managing vulnerable employees

· E- learning courses have been made available on risk assessments for returning to work

· Staff can access confidential counselling and support through employee support services such as Manawa Rahi and EAP

· Health and Safety staff have been redeployed to Auckland Emergency Management and Civil Defence Emergency Management to ensure a robust health and safety risk framework is in place, adequate Risk assessments are conducted, and risks are managed, particularly for staff redeployed over the lockdown

· The Council’s Our Charter Speak Up principles and processes are being reinforced in all relevant communications. The established channels are operating, with particular focus on coordinating and triaging matters being raised to support staff and resolve issues as quickly and effectively as possible.

Health, Safety and Wellbeing top risk

54. The health and safety top risk on Council’s top risk register was reviewed as part of the May 2020 top risk review. The health and safety top risk summary is in Attachment B (slide 9).

55. The health, safety and wellbeing risk remains a top priority and risks, hazards and incidents are continuing to be monitored through the risk manager online system.

56. While the potential health and safety hazards have altered with the outbreak of the pandemic, working from home requirements and redeployment of staff, the overall residual risk rating has not changed and is assessed as high.

57. The Health and Safety department are performing an assessment on critical health and safety risks to improve the risk monitoring and reporting. These risks will be documented in the departmental risk register.

58. A road map for health and safety is being developed to improve the integration of processes, procedures, and policies for health and safety risk identification and assessment across the organisation. The road map will be reported to the next Audit and Risk Committee in August 2020.

Financial management risk and Emergency Budget process

Financial risk update

59. The financial impacts of COVID-19 on the Auckland Council Emergency Budget for 2020/2021 remain highly uncertain. The work to prepare a budget has needed to be assumption driven and follow a systematic approach to scenario modelling.

60. The key drivers of the financial risks include the uncertain extent and length of disruption and its impacts, market volatility, legislative environment changes, capital contract complexity, and other broader economic aspects.

61. Following the COVID-19 enterprise risk review, the executive leadership team has agreed that, in light of the strategic impacts and magnitude of the COVID-19 related financial risks and challenges, financial management risk should be included in the council’s top risk register at this time.

62. The identified strategic risk is that the council is unable to prudently manage the council’s financial obligations. A summary of a high-level risk assessment and the key current controls is in Attachment C.

63. Further risk analysis, evaluation, and recording of the risk mitigations and the control measures being designed and implemented is underway. The details will be recorded in the top risk register and reported to the Audit and Risk Committee at its next meeting.

Emergency Budget Process - role of Audit and Risk Committee

64. The Audit and Risk Committee’s role in relation to the emerging financial risks from COVID-19 is to maintain independent monitoring and oversight of the financial risk management for the council group.

65. The Audit and Risk Committee received a briefing on the financial risks and approach being taken on 14 April 2020. The committee passed resolutions noting the risks and mitigations and advising the Emergency Committee and Governing Body that the methodology and assumptions underpinning the financial scenario modelling are reasonable given the circumstances. [AUD/2020/19]

66. A rapid process is required to prepare the budget and enable time for public consultation, consideration of feedback, decision making and adoption of the Emergency Budget and the setting of rates by end of July 2020.

67. Since the 14 April 2020 report to the Audit and Risk Committee, the endorsed process and methodology has continued, and work has continued at pace on the financial scenario modelling.

68. The budget projections across the group have been updated based on a revised set of assumptions. As well as assessing the direct impacts of COVID-19 disruption, revised budget projections included a wide range of measures to mitigate the overall financial pressures on the group arising from this situation.

69. To maintain independent oversight through the process in an efficient and agile way, between 14 April and 26 May 2020, management have briefed the Chair of the Audit and Risk Committee on financial management risks and refinements to the assumptions and financial position.

70. Through this process, the chair of the Audit and Risk Committee has provided independent oversight and feedback to management to ensure the process and assumptions used to generate the 2020/2021 budget remain reasonable.

71. At the time of writing of this report, it is anticipated that a budget decision meeting of the Emergency Committee will be held on 21 May 2020. A proposed consultation document will subsequently be reported to the Emergency Committee on 28 May 2020, prior to the consultation with the public. A verbal update will be provided to the Audit and Risk Committee on the process.

Drought emergency – Council response and mitigations

72. Auckland is currently experiencing the worst drought since records began. As at 6 May 2020, total water storage was approximately 46 per cent of capacity. Since the start of 2020, Auckland has received less than half of the usual rainfall.

73. The management of water supply is primarily the responsibility of Watercare. A report from Watercare on the drought situation is included as Attachment F of the CCO Risk Update report in the confidential agenda.

74. On 7 May 2020, the Emergency Committee imposed mandatory stage 1 restrictions to manage and mitigate the risks of maintaining an adequate supply of drinking water to the Auckland metropolitan system due to the 2019/2020 drought.

75. A workshop has also been held with water suppliers, public health and emergency management agencies to consider the impacts of longer-term drought in the Auckland region.

76. In the short term, the risks to the council will be financial. There are significant costs to providing wellbeing water sources over summer and potentially in providing non-potable water sources to replace water restricted through Watercare’s restrictions, or in consequential impacts for example to our construction projects.

77. Community wellbeing is a high focus, and messaging continues to stress that measures are not affecting people’s ability to implement good personal hygiene.

78. Longer term, if the drought continues, there may be impacts on services with high water use and consequential impacts on Council’s assets such as sports fields or farm assets. The planning being done at present is considering how this will be prioritised and implemented if necessary.

79. Under the recent rural drought in Auckland, communities and individuals who gather and provide their own water via rain tanks experienced long waiting lists because of demand. The Healthy Waters department, under their small waters service, provided ‘wellbeing’ quantities of water to those water tank owners who were running low on supplies. They also worked with Watercare to implement a tanker-to-tanker fill to bring water to isolated areas and speed up the waiting lists. Watercare also added new tanker filling stations to its network to speed up deliveries. In some isolated areas where people rely on stream fills, the Healthy Waters department has also enabled provision of ‘wellbeing’ levels of water through upgrading or implementing new water bores.

80. In the summer, after discussions with Watercare, the council began to implement voluntary water restrictions to council operations, to work alongside Watercare’s public campaign for water restrictions. This includes stopping irrigation of parks, except for sports fields which are maintained as a capital asset, closing public fountains and water play areas, stopping external building cleaning, and improving water use monitoring to identify leakage issues early.

81. COVID-19 closures have also significantly reduced Council water use at swimming pools and leisure centres. Work is now underway to plan for any future increases in water restrictions. This includes identifying non-potable water sources which can be used to replace resources affected by Watercare’s restrictions and planning for further reduction measures. The impacts of regulation are also being considered, such as requirements for dust suppression in construction.

COVID-19 Impacts on AC36 Programme (America’s Cup)

82. The teams working on the planning of the 36^th America’s Cup (AC36) across Auckland Council Group and its key partners remain keenly focused on their respective projects and workstreams whilst being mindful of the need to adapt aspects of this activity in line with existing and yet to be determined guidance from Central Government.

83. Whilst the impacts of COVID-19 cannot yet be fully understood, critical factors will include New Zealand’s movement through the alert levels, restrictions on gatherings, and decisions around the opening of New Zealand’s borders. The impacts depend on both the New Zealand response and how other countries are able to manage COVID-19.

84. The council group and Ministry of Business, Innovation and Employment (MBIE) have been working closely with the America’s Cup event organiser, America’s Cup Event Limited, to work through scenario-based contingency planning. This will determine how the event can be delivered.

85. Consideration is also being given to wider interconnected risks such as any construction and infrastructure delays on work in and around the village area, when teams may be able to get to New Zealand to prepare for the event and impacts on other event suppliers and service providers.

86. Work that is continuing during this time includes city integration planning, transport planning, permitting, and crowd management planning; the development of business and community readiness kits; engagement with events partners on the Summer Festival Programme and planning for the supporting campaign, as well as forward planning to support the recovery.

87. Price Waterhouse Coopers have completed a review of the governance of the AC36 Programme. The Risk and Insurance department at Auckland Council will continue to work with the Chair of the Joint Chief Executive Group (JCEG) and Chief Executive of ATEED, to ensure the programme risk management practices are fit for purpose as the programme evolves with a stronger focus on event delivery.

88. The key risks to the outcomes of the programme currently include:

· Funding – insufficient funding to meet cost pressures

· Financial Management – poor budget management, monitoring and reporting

· On Water Safety – incident on the water involving participants or spectators

· Communications – ineffective communications to spectators, competitors, businesses, communities and public (benefits, excitement)

· Movement of People – ineffective land transport management

· Spectator Experience – spectator and fan experience compromised

· Competition – withdrawal of challengers

· Leverage opportunities relating to the event (including the Summer Festival

programme) impacted by financial prioritisation and ongoing event restrictions.

Refocused enterprise risk programme

89. The enterprise risk strategy remains unchanged with the focus to continuing to lift risk culture across the council.

90. The council is experiencing unprecedented financial constraints following COVID 19 and an ongoing period of change and uncertainty while it refocuses its objectives and priorities.

91. The deliberate and consistent risk assessment and management remains critical for good decision making and strong recovery.

92. We are continuing to review and refine the enterprise risk programme to adjust to available resourcing and emerging priorities.

93. The enterprise risk work programme has been adjusted in the short to medium term to focus on the following priorities:

(a) embedding and monitoring adherence to the risk management framework

(b) providing risk advice and support to the executive leadership team and critical recovery phase projects and activities: the recovery workstream, Auckland Emergency Management, shovel-ready projects, Annual Plan/Long-term Plan processes

(c) oversight, reporting and escalation of risks and issues to enterprise leaders, the Audit and Risk Committee and Governing Body

(d) partnership with divisions to improve consistency and capability. Leverage COVID-19 risk pulse checks - foundation for ongoing risk management through the recovery phase

(e) supporting the council group’s insurance programme – key policy risk reviews and risk strategy development

(f) risk champions programme (a reduced programme will continue to be delivered, focused on priority departments and critical internal control areas)

(g) collaboration and coordination and with council-controlled organisations.

94. The following activities and planned work have been suspended or deferred:

(a) Scoping and business case for an online risk management system

(b) Risk deep dive review programme. Deeper focused reviews of top risks have been suspended until the risk profile stabilises

(d) Line two control effectiveness assessments (Assurance Services audit programme will continue and inform risk assessments)

(e) General staff training and capability building. Quality advice training and risk management capability building has been deferred.

Tauākī whakaaweawe āhuarangi

Climate impact statement

95. The climate change adaptation and mitigation risk remains a top risk for Auckland Council. The residual risk has been assessed as High and remains unchanged at this time. The summary of the climate change top risk is in Attachment B slide11.

96. There are no direct climate change implications arising from this report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

97. The Risk and Insurance department has facilitated a council group approach to the risk management response to COVID-19. This has involved collaboration and development of a template for consistent targeted reporting suitable to gain oversight and assurance of risks across the group. The council-controlled organisation’s updates are contained in a separate report to the Audit and Risk Committee.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

98. Local boards are affected by many of the top risks as they represent risks to the entire organisation. The top risks will be referred to the Local Board Chairs for awareness and to assist local boards’ decisions.

Tauākī whakaaweawe Māori

Māori impact statement

99. The delivery of Māori Outcomes is a key strategic objective for Council.

100. COVID-19 is expected to have serious and prolonged impacts on all vulnerable communities. The potential risk that council may be unable to meet its responsibilities to Māori would have a range of significant impacts and consequences including social inequality, breach of statutory obligations and a loss of trust and confidence in Council.

101. Accordingly, it has been determined that the potential risk of not being able to deliver outcomes for Māori should be included in the top risk register at this time.

Ngā ritenga ā-pūtea

Financial implications

102. The financial management emerging risk has been identified and added to the Top Risk Register to enable adequate and ongoing risk management of this risk.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

103. The emerging risks and issues are addressed in the body of this report.

Ngā koringa ā-muri

Next steps

104. The risk business partners are leading the roll out of the refreshed Enterprise Risk Framework and cascade of the top risk review and COVID-19 departmental pulse checks throughout the organisation.

105. Assessments and monitoring of the new top risks including control gaps and mitigations will be undertaken and reported to the executive leadership team in June 2020.

106. Monthly risk updates will be reported to ELT during the recovery period.

107. An update will be provided to the Audit and Risk Committee on the risk work programme activities and management of Council’s top risks (including the financial management risks), and the Emergency Budget process and Long-term Plan process on 24 August 2020.

108. An update will be provided to the next Audit and Risk Committee on the enterprise risk activities and management of Council’s top risks.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Auckland Council Enterprise Risk Framework	33
b ⇩	Executive Leadership Team Top Risks Review Report May 2020	57
c ⇩	Finance management top risk bow tie analysis May 2020	77
d ⇩	Top Risk Register	79

Ngā kaihaina

Signatories

Authors

Emma Mosely - Chief Risk Officer

Ann Brown - Senior Risk Advisor

Tama Rawhiti - Senior Risk Advisor

Caroline Innes Mehta - Senior Risk Advisor

Authorisers

Dani Gardiner - General Counsel

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

City Rail Link risk update May 2020

File No.: CP2020/05624

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk committee on the City Rail Link (CRL) project, including key risks and how they are being managed.

2. To update the committee specifically on how the CRL project is responding to the COVID -19 pandemic situation.

Whakarāpopototanga matua

Executive summary

3. Auckland Council is a joint project Sponsor with the Crown and a major financial contributor of the City Rail Link project. The Audit and Risk Committee maintains oversight of the risk management processes and sponsors’ risks.

4. The sponsors have appointed Advisian as CRL Sponsors’ Assurance Manager (CSAM). Advisian manages oversight of the Sponsors’ risks, primarily through regular workshops with Sponsor representatives.

5. Initially the Sponsors’ risk workshops were used to develop a detailed risk register that included over 100 risks, which was reviewed and updated periodically.

6. In order to provide greater visibility of the highest rated risks, a risk Dashboard was developed for the 4 December 2019 risk review. This consolidated the risks into 6 categories based on areas of high risk and key interest to Sponsors. The Dashboard focuses on controls and treatments, rather than assessing risk levels. As part of the December risk review, City Rail Link Limited (CRLL) reviewed the Sponsors’ Risks Register for those managed by CRLL. No major issues/gaps were identified.

7. Following the December risk workshop, the Dashboard was further developed so that it provided a reliable baseline. This included refining the definition of risks, existing controls and recommended treatments.

8. A recent Sponsors’ risk workshop was held on 24 April 2020 which covered specific discussion topics, including a focus on COVID -19 risks and an update of the Dashboard. During the workshop, a seventh category of risk was added to the Dashboard related to the impacts of COVID-19.

9. A key action for the Sponsors is to develop a roadmap to COVID-19 recovery. This will be developed by CRLL and will clarify the risk approach, to provide the Sponsors with the ability to put controls/processes in place. The Sponsors will seek an update from CRLL towards the end of May.

10. These COVID-19 risks are currently being managed by CRLL, however, the risks continue to evolve. CRLL has been asked by Sponsors to develop a Remedial Action Plan in response to the risks and issues that have surfaced due to COVID-19 (this occurs in response to an Adverse Event). The plan will outline the approach to recovery. From this the risk register will be revised and updated.

11. The risk management practices and internal assurance processes have been maintained and all key governance groups have continued to meet through the COVID-19 impact period.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the update on the City Rail Link project including key risks and how those risks are being managed, particularly those around the COVID -19 pandemic situation.

Horopaki

Context

12. Auckland Council is a joint project Sponsor with the Crown and a major financial contributor of the City Rail Link project. The Audit and Risk Committee maintains oversight of the risk management processes and sponsors’ risks.

13. Construction of the City Rail Link (CRL) is being jointly funded on an equal basis between the Crown and Auckland Council (Project Sponsors). City Rail Link Limited (CRLL), a Crown company, was established on 1 July 2017 and has full governance, operational and financial responsibility for CRL, with delivery targets and performance expectations.

14. Sponsors’ risk management responsibilities are led by the CRL Sponsors’ Assurance Manager CSAM), Advisian. This report is based on a brief prepared by Advisian, which summarises the regular risk review processes undertaken by Sponsors. This risk review process is supported by a comprehensive risk register and a short-form risk dashboard, which is maintained on behalf of Sponsors by Advisian.

15. A Sponsors’ risk workshop was held on 24 April 2020 which covered specific discussion topics, including a focus on COVID-19 risks and an update of the Dashboard. An additional output of the review process is a register of actions for controls/treatments. These documents are in the process of being finalised, and are attached in draft to this report.

Tātaritanga me ngā tohutohu

Analysis and advice

16. After the December 2019 risk review, a risk Dashboard was baselined and used as the basis for a risk review which took place on 24 April 2020. At this risk review, the following activities were undertaken:

a. Review risks: confirm existing risks are still relevant and accurate, update if required.

b. Review treatments: transfer treatments to controls if they have been applied.

c. Confirm additional treatments: add new controls to manage risks.

d. New risks: if required, add new risk categories to the Dashboard.

17. Attendees of the workshop were invited to bring up any outliers in the Dashboard, and several risk items were updated. A key objective of the workshop was to confirm specific actions that should be completed to manage risks. They are included in the Dashboard as treatments.

18. Given the recent COVID-19 Alert Level 4 restrictions, the focus of the 24 April workshop was on the recent changes and necessary actions to traverse the pandemic challenges. Key COVID-19 related risks were noted:

a. The key Link Alliance personnel are currently outside of New Zealand and there are issues with getting them into the country. These people are crucial to the work programme.

b. Cost and programme delay caused by changes to workplaces for COVID-19 health and safety responses (e.g. physical distancing, tracing etc.).

c. Keeping staff who have returned to work safe on site.

d. Auckland Transport’s significant revenue drop, which may impact its role as a Delivery Partner.

19. These COVID-19 risks are currently being managed by CRLL, however, the risks continue to evolve. CRLL has been asked by Sponsors to develop a Remedial Action Plan in response to the risks and issues that have surfaced due to COVID-19 (this occurs in response to an Adverse Event). The plan will outline the approach to recovery. From this the risk register will be revised and updated. A key focus for now is having quality conversations and maintaining transparency between Sponsors/CRLL and understanding of changes from week-to-week.

20. All other risk categories remain on the Dashboard and were updated during the 24 April workshop. Advisian’s most recent risk review, and the updated Dashboard, are both attached to this report (Attachment A and B respectively).

Tauākī whakaaweawe āhuarangi

Climate impact statement

21. This report is about an updated risk register. It therefore has no specific impacts on climate change.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

22. Auckland Transport has an integral role in the delivery of an operationally successful rail link. To that end, it has a formal role in the project as one of the ‘delivery partners’ (along with KiwiRail). Auckland Transport has done considerable work internally on understanding its own risks and council staff meet with Auckland Transport weekly alongside Ministry of Transport and KiwiRail staff to ensure its involvement is being managed appropriately, including managing any new specific risks arising from the COVID-19 situation.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

23. This report provides a general update on the risk profile and risk management processes of City Rail Link. There are no specific impacts on local boards.

Tauākī whakaaweawe Māori

Māori impact statement

24. This report provides a general update on the risk profile and risk management processes of City Rail Link. There are no specific impacts on Māori.

Ngā ritenga ā-pūtea

Financial implications

25. The committee is not being asked to make decisions with financial implications.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

26. This paper is about the management of Auckland Council’s investor (Project Sponsor) risk in the CRL project.

Ngā koringa ā-muri

Next steps

27. Staff propose to take the following steps in association with the Sponsors’ assurance manager:

a. Finalise the draft Brief and updated risk Dashboard provided by Advisian.

b. Work with CRLL on the Remedial Action Plan for COVID-19, then reassess risks and risk register.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Advisian risk review, April 2020	95
b ⇩	CRL Sponsors' Risk Dashboard, May 2020 update	101

Ngā kaihaina

Signatories

Author

Edward Siddle - Principal Advisor

Authorisers

Alastair Cameron - Manager - CCO Governance & External Partnerships

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

Building and Resource Consents Assurance Plan Update

File No.: CP2020/06108

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk Committee on the consents performance measure assurance activities and decisions made for generation of required performance results for the Annual Report concerning the processing of consents within 20 working days.

Whakarāpopototanga matua

Executive summary

2. In February we reported to this Committee that the building consents process is robust and operating effectively and will likely be able to generate a sufficiently reliable result from the processes and systems. However, we reported that for resource consents, progress made to date is not adequate to be able to test accuracy or be confident that it will be able to produce a sufficiently reliable result in time for the annual audit.

3. As such the process to generate reported performance for resource consents is a recalculation of a representative sample of consents. The sample is generated by Audit New Zealand.

4. The consents performance assurance plan was reported to this Committee in February and is currently being executed.

5. Progress in performing the recalculation has been impacted by COVID-19. Resource Consents is two weeks behind its planned timetable. This should not impact on Audit NZ annual report clearance dates but is being proactively managed.

6. A separate report is being provided to this Committee on 26 May 2020 from the Building Consents and Resource Consents departments on the work being undertaken to produce accurate reporting and improve performance overall.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) receive the update on the consents performance measure assurance activities and the generation of required performance results for the Annual Report concerning the processing of consents within 20 working days.

Horopaki

Context

7. The reliability of the systems data for building and resource consents has been an ongoing issue for Council over which the Audit and Risk Committee has had regular oversight.

8. For the 2018/2019 Annual Report the results for both resource and building consents were generated by a recalculation of a sample of consents that was completed by Assurance Services.

9. In February 2020 we reported that Assurance Services’ testing to date has indicated that:

· The building consents process is robust and operating effectively and will likely be able to generate a sufficiently reliable result from the processes and systems

· The resource consents process is also robust. However, progress made to date is not adequate to be able to test accuracy or be confident that it will be able to produce a sufficiently reliable result in time.

10. Based on the status of the processes and testing information available, it was decided that an alternative method of calculating the resource consent performance result is required.

11. For resource consents Audit NZ will use a use a random sample as the basis for a recalculation being performed by the Resource Consents department to generate a representative result (same process completed for 2018/2019 financial year for both resource consents and building consents).

12. While the quality and accuracy of the consenting data and performance has been improving over time, the processes remain complex and reliant on manual processes that are vulnerable to human error. Consequently, additional testing and quality assurance have been implemented under the Consents Performance Measure Assurance Plan.

13. The purpose of the assurance plan and additional checking processes is to ensure the data on the timeliness of the processing of consents is accurate and validated sufficiently that it can be relied on and reported in the Annual Report.

Tātaritanga me ngā tohutohu

Analysis and advice

14. Since February the following quality assurance checking on consents included in the Audit NZ sample has been performed by Assurance Services.

Resource consents

15. A random sample of 756 resource consents, selected by Audit NZ are being recalculated and internally reviewed by the consent's hub. The initial sample is 520 consents processed in the July 2020 to February 2020 period.

16. Of the initial sample of 519 consents, Resource Consents have at the date of this report completed and provided a sample size of 431 to Assurance Services for testing.

17. Assurance Services are performing ongoing quality assurance of completed samples.

18. Resource Consents has been liaising with Audit NZ so that Audit NZ could commence their testing in April.

19. Resource Consents have been impacted by COVID-19. They are two weeks behind the agreed date of 30 April for completion of the initial sample of 519 consents. This should not impact on Audit NZ year end clearance deadlines, but does need to be carefully monitored and managed.

Building Consents

20. Building consents have verified 10,271 consents for the first half of the year (July 219 to December 2019). These have been subject to quality assurance by Assurance Services on a sample basis and an agreed sample set of 24 records has been randomly selected by Audit NZ. These records have been supplied to Audit NZ and they have now commenced the audit process.

21. Verification of the next quarter results (3807 consents) is underway and will continue to be checked by Assurance Services, resulting in a similar sample set to be selected by Audit NZ

Tauākī whakaaweawe āhuarangi

Climate impact statement

22. There are no climate impacts arising from this report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

23. There are no council group impacts arising from this report.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

24. This report does not have any specific local impact or require local board input.

Tauākī whakaaweawe Māori

Māori impact statement

25. This report does not specifically benefit or have any adverse effects on Māori.

Ngā ritenga ā-pūtea

Financial implications

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

27. There is a risk that the Regulatory Services division will not be able to report accurate performance measures that can be adequately substantiated by Audit NZ, resulting in a modified audit opinion.

28. This risk is being mitigated through the Assurance Plan which will ensure close oversight and escalation of activities and issues to ensure either an effective checking process with errors being sufficiently resolved, or a recalculation approach if this cannot be achieved.

Ngā koringa ā-muri

Next steps

29. Assurance Services is continuing oversight and auditing of the building and resource consent processes to ensure they are operating adequately to generate accurate data for the full financial year.

30. Assurance Services will continue its leadership of the Steering Group and monitor and maintain oversight of the Regulatory directorate’s processes and the planned programme of work to implement systems controls and training to ensure quality data in the next financial year.

31. A further update will be provided to the Audit and Risk Committee in August 2020.

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Author	Mark Maloney - Head of Assurance Services
Authoriser	Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

Resource and Building Consents performance and improvement activities update

File No.: CP2020/06004

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk Committee on the progress towards having accurate processing time recording for Building and Resource Consents to confirm statutory performance results in the 2019/2020 Annual Report.

Whakarāpopototanga matua

Executive summary

2. The preparatory work to verify the reported statutory performance of (Resource and Building) consents issued within 20 working days continues as planned.

3. Impacts of the response to the COVID-19 lockdown have been mitigated to ensure the program of work is completed within planned timeframes.

4. Work undertaken on the results for first half of the financial year has progressed to the point of the audit having been started by Audit New Zealand.

5. The Regulatory Services directorate, with the support of Assurance Services are on track to have the remaining data sets verified and provided to Audit NZ to complete the timely confirmation of the 2020 Annual plan performance reporting.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the work that has been undertaken to respond to the resource consent and building consent processing time variances reported by Audit New Zealand in 2019.

Horopaki

Context

6. A report was provided to the committee at its meeting of 24 February 2020 detailing the actions taken to improve the performance of time recording for the resource and building consent departments, and specifically to identify the plan for verifying these key performance indicators in the 2019/2020 Annual Report.

7. Improved statutory performance was noted within the report and the focus was on the verification processes likely to be needed, working with Assurance Services and Audit NZ over the intervening period.

8. Further work has been undertaken in the business units relating to procedures, training, and identifying system enhancements required to eliminate the variances for future processing results.

9. Verification of 100 per cent of the raw data held within SAP has been continuing within the business units, and the testing of a representative sample has been continuing with Assurance Services.

10. Sampling processes and criteria have been agreed with Audit NZ to allow their testing of the data to progress for this year’s performance results.

11. Auditing of the first half of the year’s results for Building Consents has been commenced by Audit NZ.

12. The recent ‘Lockdown’ provisions of the COVID-19 response has provided some challenges for the completion of testing and may influence the final quantum of testing required to form a representative sample.

Tātaritanga me ngā tohutohu

Analysis and advice

13. There are currently 10 dedicated staff across the resource and building consent teams performing the validation of timeframes and the existence of compliant documentary evidence to support every consent record.

14. Resource adjustments needed to be made as a result of COVID-19 impacts as some of this resource was contracted and temporary in nature. Replacement staff have been re-tasked to these roles which has involved some delays through training requirements – but this is largely back on track now.

15. Whilst enhancing the accuracy of their reporting, the Resource Consent and Building Consent departments have also continued to work on improving the timeliness of consenting service delivery. This has resulted in substantive improvements over the financial year to date. The improvements in the last period have dipped slightly as a result of the disruption with COVID-19, but are anticipated to improve again throughout the remainder of the year [Refer table below.]

16. For building consents, the data for the first half of the year (July 2019 to December 2019) has been verified and an agreed sample set of 24 records has been randomly selected by Audit NZ. These records have been supplied to Audit NZ and they have now commenced the audit process.

17. Verification of the next quarter results (January 2020 to March 2020) is underway and will continue to be checked by Assurance Services, resulting in a similar sample set to be selected by Audit NZ.

18. For resource consents at the time of the February Audit and Risk Committee meeting there had been two options identified to verify the calculated performance results:

(a) Use a random sample to generate a representative result (same process completed for 2018/2019 financial year).

(b) Use a statistical methodology to extrapolate results from a cleansed subset of data across the whole data source.

19. Following a comprehensive review, it was agreed that it would be preferable to calculate performance for resource consents by following the approach outlined in Option (a). The recalculation sample size of 716 was based on available statistics and performance.

20. It was agreed that the sample would be undertaken in batches due to availability of data. An initial batch of 520 samples (July 2019 to February 2020) has been extracted from the system. The team of assessors will have completed this task by 15 May 2020. The remainder of the sample will be extracted in smaller batches (for March 2020 to June 2020 consents) and will be completed by 17 July 2020.

21. In addition to the recalculation process, the Resource Consents department has continued to assess completed applications, identifying, and resolving errors and inconsistencies. This process extends beyond statutory evidence by looking at additional search criteria such as billing accuracy, invoicing, and incomplete data fields.

22. To date this has shown an encouraging improvement in results. Between October 2019 and February 2020 data sets, overall passes in this process increased by 36 per cent.

Tauākī whakaaweawe āhuarangi

Climate impact statement

23. There are no climate impacts as a result of this report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

24. There are no council group impacts arising from this report.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

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

Tauākī whakaaweawe Māori

Māori impact statement

26. This report does not benefit or have any adverse effect on Māori.

Ngā ritenga ā-pūtea

Financial implications

27. This report does not require the committee to make decisions that have financial implications.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

28. This report outlines mitigations being taken by the Regulatory Services Directorate to avoid the risk of having reported Annual Report performance results being modified or qualified; and the implications such a result might have on public trust and confidence.

Ngā koringa ā-muri

Next steps

29. Audit NZ testing has commenced for Building Consents and will be underway in late May 2020 for Resource Consents.

30. We are on track to have the remaining data sets verified and provided to Audit NZ to complete the timely confirmation of the 2020 annual plan performance reporting.

31. The improvement plan items referred to the 24 February Audit and Risk Committee report are progressing with a focus on three key areas:

· Standardised and improved end to end procedures

· Staff training and feedback throughout the testing process

· System changes required into SAP have been specified and are waiting to be implemented within an ICT priority queue.

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Author

Peter Laurenson - Manager Project Assessment South

Authorisers

Ian McCormick - Manager Building Control

Ian Smallburn - General Manager Resource Consents

Craig Hobbs - Director Regulatory Services

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

Open discussion on the Auckland Council Group's 30 June 2020 year end reporting and audit requirements

File No.: CP2020/05946

Te take mō te pūrongo

Purpose of the report

1. To provide the Audit and Risk Committee with details of key aspects of the Auckland Council Group’s year end reporting and audit requirements.

2. To provide the Audit and Risk Committee with information to enable the approval of new accounting policies and key judgements applied in the preparation of the annual report and summary annual report.

3. To provide the committee with assurance over controls applied to ensure the year end reporting including the preliminary NZX release, annual report and summary annual report (annual reports) will contain valid, accurate and complete information.

Whakarāpopototanga matua

Executive summary

4. The Audit and Risk Committee’s terms of reference (delegations) assigns a responsibility to the committee to review and monitor the integrity of the Auckland Council Group’s interim and annual reports; including statutory statements and any other formal announcements relating to the group’s financial performance.

5. As part of executing this responsibility, the committee will recommend:

· at the 24 August 2020 committee meeting, that the chair and deputy chair of the Finance and Performance Committee recommend the mayor and chief executive to sign and release the group’s preliminary announcement to the NZX

· at the 15 September 2020 committee meeting, the annual reports for adoption by the Governing Body at its 24 September 2020 meeting.

6. This open report provides the committee with information and insights into the preparation processes for these documents including:

· financial year end processes

· representation letters

· the committee’s oversight of the management of fraud

· accounting policies adopted during the 2019/2020 financial year.

7. To encourage transparency in our committee reporting we have endeavored to discuss as much information as possible about the year end reporting and audit requirements in this report. However, there is some information which cannot be released to the public due to disclosure requirements of the NZX. Instead it will be presented in the confidential item “Auckland Council Group’s 30 June 2020 year end and audit requirements”.

8. The confidential report will provide additional insights into the preparation processes for these documents, as well as critical reporting matters and audit requirements, including:

· challenges to reporting requirements

· the effect of changes in accounting policies on the financial statements

· key judgement and assumptions applied in the preparation of financial reporting

· Audit New Zealand’s key audit matters

· draft representation letters as attachments

· additional confidential information on the accounting policies adopted during the 2019/2020 financial year and their effect on the financial statements

· an outline of the impact of the COVID-19 pandemic on the timing of the release of the group’s results and annual reports, as well as its impact on judgements, assumptions and disclosures within the annual reports.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the year end reporting matters information in this report and use it to supplement the information in the confidential item “Auckland Council Group’s 30 June 2020 year end and audit requirements”.

Horopaki

Context

Reporting requirements

9. The Auckland Council Group has complex financial reporting requirements due to it being an issuer of debt on the New Zealand (NZX), Singapore (SGX) and Swiss (SIX) stock exchanges, and a local government entity.

10. The preliminary NZX release and annual reports (year end reporting) are based on consolidated information obtained from Auckland Council, council-controlled organisations, Ports of Auckland Limited and City Rail Link Limited’s reporting packs. Reporting packs are supported by assurances obtained in representation letters.

11. In accordance with the NZX listing rules, the Financial Control team prepares the preliminary NZX release for lodgement within 60 days of financial year end. In addition, in conjunction with the Corporate Performance Reporting team, it prepares the annual report and summary annual report within 3 months of financial year end.

12. The SGX has limited reporting requirements, requiring the council to provide its annual report at the same time as it is released to the NZX.

13. The SIX requires the council to provide a URL to its annual report within four months of year end.

14. In addition to New Zealand reporting requirements, the SIX and SGX require reporting of differences between our financial reporting framework and International Financial Reporting Standards.

15. Further information on reporting requirements will be discussed in the confidential item “Auckland Council Group’s 30 June 2020 year end reporting and audit requirements”.

Auditor responsibilities

16. Audit New Zealand, on behalf of the Auditor-General as Auckland Council and Auckland Council Group’s auditor, issues an opinion on the group’s annual report and summary annual report.

17. Audit New Zealand will attend the Audit and Risk Committee meeting on 15 September 2020 to enable the committee to liaise with Audit New Zealand to ensure that a robust financial audit of the group has occurred.

Committee responsibilities

18. The Audit and Risk Committee reviews the quality of the year end reporting, the processes used to prepare the documents, and the judgements and assumptions applied to transactions, balances and disclosures. The chair and deputy chair of the Finance and Performance Committee review and enquire into the financial and operational performance of the group.

19. In fulfilment of its terms of reference the Audit and Risk Committee endorse the year end reporting and recommend to the chair and deputy chair of the Finance and Performance Committee that they recommend the mayor and chief executive approve and release the year end reporting.

Year end processes

20. The following diagram outlines the process to prepare the preliminary NZX release.

21. On 15 September 2020 the Audit and Risk Committee will recommend the annual reports to the Governing Body for adoption.

22. On 17 September 2020 the Finance and Performance Committee will review the financial performance of the group and also recommend these reports to the Governing Body.

23. On 24 September 2020, the Governing Body will adopt the annual report and summary annual report. The mayor and chief executive will then approve the annual report and the summary annual report for release to the NZX and to make them publicly available.

24. The following diagram outlines the process for annual report and summary annual report release.

Tātaritanga me ngā tohutohu

Analysis and advice

Accounting policy amendments during the year

25. The following accounting standards became effective on 1 July 2019:

· PBE IPSAS 34 Separate Financial Statements

· PBE IPSAS 35 Consolidated Financial Statements

· PBE IPSAS 36 Investments in Associates and Joint Ventures

· PBE IPSAS 37 Joint Arrangements

· PBE IPSAS 38 Disclosure of Interests in Other Entities

· PBE IPSAS 39 Employee Benefits

26. In addition, amendments to PBE IPSAS 21 Impairment of Non-Cash-Generating Assets and PBE IPSAS 26 Impairment of Cash-Generating Assets came into effect on 1 July 2019.

27. The 2019/2020 proforma financial statements outline the changes to accounting standards and their effect. The changes have been incorporated into the group’s accounting policies.

28. The adoption of these new standards has not resulted in any material changes to the accounting for existing arrangements.

Financial year end processes

29. The group’s annual report and summary annual report are produced for the year ending 30 June 2020. The annual report includes:

· Volume One: Overview and service performance

· Volume Two: Local boards (comprising 21 local board reports)

· Volume Three: Financial statements.

30. The process to finalise the NZX preliminary announcement, annual report and summary annual report includes the following.

Auckland Council Group’s financial statement consolidation

31. Auckland Council and CCO reporting packs, with auditor sign-off, are provided to the Financial Control department on 29 July 2020.

32. The group consolidation process is completed by the Financial Control team, and the consolidation workbook and information provided to Audit New Zealand.

33. The consolidation forms the basis for the NZX preliminary announcement, volume three of the annual report (financial statements) and the summary annual report.

NZX preliminary announcement

34. The preparatory steps for the NZX preliminary announcement are:

· The pro forma NZX preliminary announcement (‘announcement’) is prepared in consultation with the group chief financial officer and the Media Relations team.

· The council’s Legal Services department, in conjunction with Mayne Wetherell, reviews the announcement and provides feedback.

35. The internal clearance process is as follows:

· The Legal Services department provides sign-off that the announcement complies with the NZX rules.

· The group financial controller, group treasurer and general manager financial strategy and planning review and sign-off the NZX preliminary announcement and media release.

· The group financial controller and group treasurer meet with the group chief financial officer. At the meeting the group financial controller provides:

o a memo from the group financial controller to the group chief financial officer and the group treasurer (a draft, based on last year’s memo, is attached to the confidential report as Attachment A) discussing:

- council-controlled organisation’s long-form letters of representation (signed by the chair and chief executive of the council-controlled organisations) and any issues arising from the letters

- the preparation of the financial statements process

- the peer review, quality assurance and compliance sign-off

- key disclosures

- the final approval process

- management confirmations.

o the NZX preliminary announcement and media release

o management’s back-to-back letter of representation

o CCO long-form letters of representation

o Legal Services legal compliance sign-off.

· The purpose of the meeting is for the group chief financial officer to counter-sign the memo which is provided to the Audit and Risk Committee meeting on 24 August 2020, and subsequently to the mayor and chief executive to support their signing of the NZX preliminary announcement for the year ended 30 June 2020.

36. Final approvals:

· On 24 August 2020, a meeting will be held with the Audit and Risk Committee to review and sign-off the NZX preliminary announcement and media release. Audit New Zealand will provide a verbal clearance at that meeting.

· A meeting is then held by the group chief financial officer and group financial controller with the chair and deputy chair of the Finance and Performance Committee (under delegated authority by the Financial and Performance Committee meeting in December 2019). At this meeting, the chair and deputy chair recommend that the mayor and chief executive sign-off the NZX preliminary announcement and media release.

· A meeting is then held with the mayor and chief executive who are asked to sign-off the NZX preliminary announcement and media release. The group financial controller provides:

o a memo to the mayor and chief executive discussing CCO letters of representation and any issues arising from the letters, Audit New Zealand’s verbal clearance, and management confirmations (a draft, based on last year’s memo, is attached to the confidential report as Attachment B)

o the NZX preliminary announcement and media release

o Legal Services team’s legal compliance sign-off

o a back-to-back letter of representation for the NZX preliminary announcement.

37. The NZX preliminary announcement and media release are made public within 30 days of year end.

Annual report and summary annual report preparation process

38. Volumes 1 and 2 of the annual report and the summary annual report are prepared by the council’s Corporate Performance and Reporting and Financial Control teams.

39. Volume 3 of the annual report (financial statements) is prepared by the Financial Control team.

40. The annual report and summary annual report (annual reports) follow a sign-off process:

· The group treasurer reviews the annual reports and, after all comments are incorporated, provides a sign-off.

· The group chief financial officer reviews the annual reports and, after all comments are incorporated, provides a sign-off.

· Mayne Wetherell and the council’s Legal Services team review the annual reports for compliance with legislation and the appropriateness of disclosure of legal matters such as legal contingencies. A legal compliance is provided once any issues have been resolved.

· On 15 September 2020 an Audit and Risk Committee meeting is held for the committee to recommend the annual reports to the Governing Body for adoption.

· On 17 September 2020, the Finance and Performance Committee meeting is held to review the financial performance of the group and recommend the annual reports to the Governing Body.

· On 24 September 2020, the Governing Body approves the annual reports.

· On 28 September 2020, Audit New Zealand issues their Independent Auditors’ Report, and the annual reports, accompanied by a media release, are made public via the NZX.

Quality assurance and compliance approvals

41. Quality assurance reviews are performed on the consolidated results and commentary and the year end reporting. The reviews focus on accuracy, completeness and reasonableness of disclosures, legislative compliance and adherence to Auckland Council communications standards. A summary of the reviews is as follows:

Reviewer	Consolidated results and commentary	Media release	Preliminary NZX release	Annual report and summary report
Group chief financial officer	ü	ü	ü	ü
Group treasurer	ü	ü	ü	ü
General manager financial strategy and planning	ü	ü	ü	ü
Group financial controller	ü	ü	ü	ü
Manager corporate and local board performance	ü	ü	ü	ü
Manager group accounting and reporting	ü	ü	ü	ü
Manager financial strategy		ü	ü	ü
Senior group reporting technical accountant	ü	ü	ü	ü
Head of Accounting Services/ Financial Compliance Manager		ü	ü	ü
Financial accounting manager	ü			ü
Senior specialist corporate communications		ü
Legal services			ü	ü
Mayne Wetherell			ü	ü

42. All the technical quality assurance reviewers performing reviews from a financial perspective are qualified Chartered Accountants (CA) or Certified Practicing Accountants (CPA) and have the appropriate technical accounting skills and knowledge.

43. Trust lens reviews are performed on the Annual Reports to ensure that we are telling a fair and balanced story, that good news stories are truthful and accurate and the poor performance stories are honest and transparent. They review the overall story for consistency through all volumes.

Management representation letters and management confirmations

44. Audit New Zealand will require the mayor and chief executive to sign a letter providing assurance that the control environment adequately supports the validity, accuracy and completeness of financial reporting, and that the financial statements comply with applicable standards and regulations (a draft, based on last year’s letter, is attached to the confidential report as Attachment C).

45. To support the mayor and the chief executive’s representations, the group chief financial officer, group treasurer and the group financial controller will sign back-to-back representation letters (drafts, based on last year’s letters, are attached to the confidential report. Attachment D is for the preliminary release and Attachment E is for the annual report release).

Representation letters

46. On a semi-annual basis the Financial Control team obtains representation letters from management of the key CCOs and Ports of Auckland Limited. These letters provide assurance over the financial information, including assurance that the financial information:

· complies with generally accepted accounting practices, including the New Zealand Public Benefit Entity International Public-Sector Accounting Standards

· fairly reflects the financial position as at 30 June 2020, financial performance and cash flows for the year ended 30 June 2020.

47. Representation letters are obtained in short and long form.

· Short form representation letters are received at the same time as group reporting packs and are signed by the relevant organisation’s chief financial officer. They contain summarised representations.

· Long form representation letters are received closer to finalisation of the preliminary NZX release and are signed by the chairs of the board/audit committee and chief executive officers. They contain detailed representations including a summary of uncorrected misstatements.

Other matters

48. During the year end process, should any significant risks or material judgements arise, or if there are unresolved significant disagreements between Auckland Council management and Audit New Zealand, the group financial controller will communicate these to the chair between committee meetings.

Draft representation on fraud and fraud questionnaire

49. Audit New Zealand make formal enquiries of the Audit and Risk Committee, senior management and the Internal Audit department of Auckland Council in relation to fraud using a fraud questionnaire. The questionnaire covers risk assessment, monitoring controls, mitigating systems and controls, risk communication and the assessment of fraud risk.

50. The committee formally respond to these enquiries in writing. The representations made are supported by questionnaires completed by senior management and Assurance Services.

51. The questionnaire has not changed from prior years and will be presented in draft to the committee at the 24 August 2020 committee meeting.

Tauākī whakaaweawe āhuarangi

Climate impact statement

52. This report relates to a financial reporting process and disclosures only and as such has no climate implications. Information relating to the Auckland Council Group’s climate impact will be included in the annual report and summary annual report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

53. Feedback will be sought from substantive CCOs, Ports of Auckland Limited and City Rail Link Limited to ensure that any matters that apply to them have been considered in preparation for the annual report and summary annual report. All matters have been incorporated into the work plan.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

54. Local boards will assist in the preparation of the local board content in Volume 2 of the annual report and will review their performance information for accuracy and validity.

Tauākī whakaaweawe Māori

Māori impact statement

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

Ngā ritenga ā-pūtea

Financial implications

56. There are no financial implications directly arising from the information contained in the report as no financial decision is sought.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

57. Risks and mitigations relating to the year end reporting and audit requirements are discussed in the confidential item “Auckland Council Group’s 30 June 2020 year end reporting and audit requirements”.

Ngā koringa ā-muri

Next steps

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop - Group Treasurer

Kevin Ramsay - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

The Deputy Auditor-General's Report to management for the six months to 31 December 2019

File No.: CP2020/05819

Te take mō te pūrongo

Purpose of the report

1. To summarise the matters identified by Audit New Zealand on behalf of the Deputy-Auditor General during the review engagement for the six months ended 31 December 2019 and management’s response.

Whakarāpopototanga matua

Executive summary

2. The Deputy Auditor-General is Auckland Council and Auckland Council Group’s external auditor, appointed by the Auditor-General to conduct the audit on his behalf. He uses his staff and his appointed auditor’s staff (Audit New Zealand) to review the statutory financial and performance reporting, and the internal controls on which it is reliant.

3. On a semi-annual basis, the Deputy Auditor-General provides a report to management which outlines areas in which internal controls and disclosures can be improved. The report issued, following the 31 December 2019 review of the group’s interim report, is attached (Attachment A).

4. Key recommendations were:

· improve processes over capitalisation and impairment of work in progress

· consider accounting disclosures for Eden Park Trust loan restructure

· progress work to obtain assurance that the controls in place over Regional Fuel Tax revenue and rebates at NZTA are sufficient

· consider timely capitalisation, accurate classification, fairness of valuation and disclosure of restrictions in relation to America’s Cup 36 assets

· review year-end processes to ensure completeness of vested assets.

5. Auckland Council accepts the recommendations and has provided a response outlining our actions being taken to address these matters.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the matters identified in the Deputy Auditor-General’s review engagement report to management, for the six months ended 31 December 2019, and management’s responses.

Horopaki

Context

6. This report summarises the matters identified by Audit New Zealand and the Deputy Auditor-General during their review engagement for the six months ended 31 December 2019 and outlines how Auckland Council management is addressing those matters.

Tātaritanga me ngā tohutohu

Analysis and advice

7. Audit New Zealand and the Deputy Auditor-General, on behalf of the Auditor-General, conducted a review of the 31 December 2019 Auckland Council Group interim report. A review engagement provides a moderate level of negative assurance in which the auditor states that nothing has come to his attention that causes him to believe that the interim report does not fairly reflect the Auckland Council Group’s financial position, performance and cash flows for the six-month period. This level of assurance is at a lower level than that of an audit.

8. Following the review engagement, the Deputy Auditor-General issued a report to management outlining internal control and disclosure matters identified during the engagement.

9. The report confirms that the review went smoothly with the timely delivery of the information and effective communication.

10. The report includes an uncorrected financial misstatement related to hedge accounting. This misstatement first arose in the 2013/2014 financial year. It relates to the release of hedge accounting balances which should have been amortised. The misstatement will continue to arise until the amortisation period has come to an end, which is approximately nine years. Management does not consider this misstatement to be material to the financial report and accordingly, has not corrected it.

11. Key recommendations in the report include:

Recommendation	Management comment
1. Quality and timeliness of information - Management should consider how input into key documents can be completed sooner	We continue to look for efficiencies through better planning and early involvement of stakeholders
2. Accounting for impairment and capitalisation of work in progress - Systems and processes need improvement to ensure timely capitalisation of assets	In the prior year we had staff vacancies and absences. Since January 2020 we have had our full complement of staff in the assets team. We have reviewed our processes and are now working more closely with project managers and departments to ensure we identify assets to be capitalised on a timely basis. This has resulted in a significant increase in the amount capitalised.
3. Eden Park Trust - Management should review its accounting for the Eden Park Trust loan	Management is currently assessing loan commitment accounting treatment.
4. Regional Fuel Tax - Assurance should be obtained over NZTA’s controls in relation to Regional Fuel Tax revenue and rebates	Management is working with Audit New Zealand, NZTA and their auditors to determine the best way to get adequate and appropriate assurance.
5. America’s Cup assets - In relation to America’s Cup assets, management should: o Ensure timely capitalisation o Consider impairment o Consider accounting classification o Consider accounting for events management contracts o Consider additional disclosures such as restrictions over the assets	America’s Cup assets mainly comprise infrastructure and would follow the same capitalisation and classification process as other assets. The assets are not solely for use in America’s Cup, so will be assessed as part of the general impairment review. The 2019/2020 annual report will include disclosures in relation to the restrictions on America’s Cup assets and related party transactions.
6. Vested assets - Management should determine whether additional assurance can be obtained over completeness of vested assets	Management will review its vested asset processes to determine if additional assurance can be obtained regarding the completeness of assets vested.

Tauākī whakaaweawe āhuarangi

Climate impact statement

12. There are no items covered by this agenda item that impact on climate change.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

13. There are no items covered by this agenda item that impact the Auckland Council Group so the views of group entities have not been sought.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

14. 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

15. The report does not affect the achievement of or reporting on the Auckland Council Group’s contributions towards Māori outcomes.

Ngā ritenga ā-pūtea

Financial implications

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

17. Auckland Council is actively addressing the issues raised. We have assessed the matters will not impact on the audit opinion of the Auckland Council Group’s 2019/2020 annual report.

Ngā koringa ā-muri

Next steps

18. Auckland Council will continue to work with the auditors to ensure they are satisfied with the intended annual report disclosures.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Review engagement management report 31 December 2019	127

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop - Group Treasurer

Kevin Ramsay - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

Assurance process for the Annual Green Bond Report 2020

File No.: CP2020/05941

Te take mō te pūrongo

Purpose of the report

1. To provide the Audit and Risk Committee with details of Auckland Council’s assurance process for the Annual Green Bond Report 2020.

Whakarāpopototanga matua

Executive summary

2. Auckland Council established a Green Bond Framework in early 2018 and first issued green bonds in June 2018.

3. Under the framework, the council is required to report annually on the use of proceeds from green bond issuance and the environmental outcomes delivered by the assets/project. The council is also required to seek assurance from an independent assurer.

4. The council published its first Annual Green Bond Report in June 2019 with assurance undertaken by EY. The council has again appointed EY to provide independent assurance for the 2020 report.

5. This paper provides the committee with insights into the assurance process to be followed in the preparation and finalisation of the Annual Green Bond Report 2020.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note that EY has been appointed independent assurer for Auckland Council’s Annual Green Bond Report 2020

b) note the assurance process that EY will follow in relation to this report

c) note that the draft Annual Green Bond Report 2020 will be presented to this committee for approval in September 2020.

Horopaki

Context

6. A green bond is defined as a bond issued to finance or refinance projects or assets that deliver positive environmental outcomes.

7. Auckland Council established a Green Bond Framework in early 2018 which was subsequently updated in April 2019 (Attachment A).

8. The framework addresses how the proceeds from the bond will be used, the process of evaluation and selection of projects and assets (eligible assets), management of the proceeds and reporting.

9. Examples of projects and assets that can be funded via green bonds are low carbon transport assets (i.e. electric trains, public walking and cycling infrastructure etc), sustainable water and wastewater management, waste management, low carbon and efficient buildings.

10. To ensure robust assessment of the framework and the underlying eligible assets in any green bond issuance, the council may seek to employ one or more external review options. These include the option to seek assurance from an independent assurer and/or certification from the Climate Bonds Initiative or Climate Bond Standards.

11. Under the framework, the council is required to report annually on the use of proceeds and provide a summary of the environmental outcomes that have been delivered by the assets/projects.

12. The council has issued green bonds in June 2018 and July 2019 since the establishment of the framework. The value of green bonds issued to date is $350 million.

13. The proceeds from the green bonds have been used to refinance borrowings deemed to be attributed to electric trains and public cycleway assets.

14. The first Annual Green Bond Report was published in June 2019 (Attachment B).

Tātaritanga me ngā tohutohu

Analysis and advice

15. Over the last year, the council has increased the green bond eligible asset pools to over $2 billion to include water and wastewater assets, office building and public transport assets (including City Rail Link). The council’s eligible asset pool now includes assets that qualify under Green Bond Principles and Climate Bonds Initiative.

16. EY has been engaged to provide limited assurance on whether anything has come to their attention that the green bonds issued by the council do not continue to meet the requirements of the Climate Bonds Standard and Green Bond Principles, and relevant criteria in all material respects.

17. EY’s assurance approach will be conducted in accordance with the International Standard on Assurance Engagements (New Zealand) 3000: Assurance Engagements Other than Audits or Reviews of Historical Financial Information (‘ISAE (NZ) 3000’).

18. EY’s assurance approach will be divided into three stages, the brief timeline is as follows:

Milestone/Service	Completion Date
Document request submitted to data owners	12 June 2020
Obtain requested data from data owners	31 July 2020
Stage 1: Planning, Risk Identification & Assessment, and Strategy	7 August 2020
Stage 2: Execution	21 August 2020
Stage 3: Issue Assurance Report	31 August 2020

19. EY’s assurance report will include the scope and procedures, limitations of their work, and conclusion based on the outcomes of the engagement.

20. The Annual Green Bond Report 2020 is expected to follow the same form as used in the 2019 report, with advice from EY on best practice principles to make further improvements to the report.

21. The draft Annual Green Bond Report 2020 will be presented to the Audit and Risk Committee for approval in September 2020 before it is published.

Tauākī whakaaweawe āhuarangi

Climate impact statement

22. The Annual Green Bond Report 2020 will enhance the council’s transparency around funding for climate related activities and the associated environmental outcomes. The report will include an impact assessment, disclosing relevant information pertaining to the environmental and social benefits of the green bonds issued in the years prior. The impact assessment will provide measurement of the impact on greenhouse gas emissions and any broader benefits, where applicable. The disclosure of this data will be assured by EY as part of this process.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

23. While the green bonds are raised for a variety of environmental projects across the group, the assurance process is managed by Auckland Council, and so no group view is required.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

24. Debt raising and associated processes are undertaken at the Governing Body level and have no direct impact on local boards

Tauākī whakaaweawe Māori

Māori impact statement

25. While the green bonds are raised for a variety of environmental projects of interest to Māori, this report is dealing the administrative process around providing assurance and so has no direct impact on Māori.

Ngā ritenga ā-pūtea

Financial implications

26. The assurance costs and the cost of publishing the Annual Green Bond Report 2020 will range between $15,000 and $20,000. These costs will be met within existing budgets.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

27. The EY assurance report is confirmation that the council is complying with its obligation under the Green Bond Framework and bond issuance documentation.

Ngā koringa ā-muri

Next steps

28.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Green Bond Framework - updated 4 April 2019	153
b ⇩	Annual Green Bond Report 2019	159

Ngā kaihaina

Signatories

Author

Andrew John - Treasury Funding Manager

Authorisers

John Bishop - Group Treasurer

Kevin Ramsay - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

26 May 2020

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 Council-controlled Organisations' Quarterly Risk Updates - May 2020

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