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 workprogramme - Updated 24 August 2020	13

Audit and Risk Committee

24 August 2020

Enterprise Risk Update - August 2020

File No.: CP2020/10273

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk Committee on risk management activities at Auckland Council and top risk interim update completed in the period June – August 2020.

Whakarāpopototanga matua

Executive summary

2. In response to the current risk landscape, which is continuously evolving and changing at speed, the risk team has adjusted its risk management activities and the focus of its programme. The focus is on speed, agility and supporting organisational resilience.

3. The overall risk system and the Enterprise Risk Framework remains in place and activities such as risk pulse checks and divisional top risk profiles have been added to enable real-time risk management, dynamic risk profiling, continuous “top down and bottom up” feedback and escalation.

4. The 14 top risks reported to the Audit and Risk Committee in May 2020 remain with unchanged risk ratings. Assessments and evaluations of the Financial Management, Recovery and Fraud and Corruption Top Risks has been completed and are summarised in Attachment A.

5. An enterprise wide risk pulse check process to gather data, insights and information from all divisions and departments on the drought and climate change is underway. This work will inform the quarterly top risk review to be reported to the executive leadership team (ELT) and Audit and Risk Committee in September. It will also feed into the drought response work being led by the Drought Crisis Management Team.

6. The Council has taken several actions to increase its management and control of its top risks. These include commencing a campaign for all staff to refresh the awareness of Our Charter and complete core e-learning modules on the topics of cyber security and integrity. A Transition Unit has been established to coordinate and lead the organisation model review and a drought crisis management team has been set up.

7. At the writing of this report, the Government has raised the COVID-19 alert level for Auckland Region to Alert Level 3 for an additional 12 days until 26 August 2020. The situation remains fluid and uncertain. The crisis management team and corporate resilience team are activated.

8. Verbal updates on the COVID-19 situation and council’s top risks, including the financial management and recovery risks, will be provided at the meeting.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the risk activities and enterprise top risk update

b) refer the Enterprise Risk Update to the Governing Body for information.

Horopaki

Context

9. 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 within Auckland Council.

10. This includes responsibility for reviewing the effectiveness of risk management systems and emerging risks and changes to the Auckland Council Top Risks.

Tātaritanga me ngā tohutohu

Analysis and advice

Risk Work Programme Update

11. Following the COVID-19 pandemic events, and in response to the current risk landscape, which is continuously evolving and changing at speed, the risk team has adjusted its risk management activities and its programme. The focus is on speed, agility and supporting resilience of the organisation so it can effectively prepare and thrive through the fast shocks (such as COVID-19) and slow shocks (such as climate change).

12. While the overall system and the Enterprise Risk Framework that has been previously endorsed by the Audit and Risk Committee remains in place, key enhancements and additional activity have been added to facilitate real time risk management, dynamic risk profiling, continuous feedback and escalation to the appropriate levels.

13. Key additional activities to support enterprise risk management include:

(a) Building Directorate/Division Top Risk profiles with each lead team that link up to the enterprise strategic top risks and down to the departmental operational risks and relevant project and programme risks. The risk partners will be supporting the division lead teams to review their risk profile’s monthly and adjust the mitigations and controls as required.

(b) Increasing the frequency of reporting and review of risks by ELT to every second strategic meeting (bi-monthly).

(c) Undertaking enterprise risk “pulse checks” across all council departments on key drivers, risk events and areas requiring an enterprise view to inform the top risk understanding and management. Following the pulse check on COVID-19 impacts, a pulse check is underway on drought and climate change. The data and insights gathered will inform our climate change and water top risk management and our operational response to the drought impacts and risks.

(d) Expert risk staff are embedded in key COVID-19, drought and recovery response work including the Auckland Emergency Response, Corporate Resilience Team, COVID Crisis Management team, Drought Crisis Management.

(e) Increasing the dynamic profiling of risk though use of data from assurance/internal audit, compliance data, insurance claims, speak up channels, and complaints.

14. The following high-level diagram shows the cycle of risk management oversight, review and reporting (including these additional activities).

Auckland Council Top Risk interim (bi-monthly) review July 2020

15. The Auckland Council top risks were reviewed and updated in the May 2020 after the COVID-19 pandemic event and three new emerging risks were added to the Top Risk Register. There are currently fourteen Top Risks identified.

16. Since the previous report to the Audit and Risk Committee in May 2020, the risk team have facilitated an assessment and evaluation of three top risks: Financial Management, Recovery and Fraud and Corruption. The completed risk assessments and updates were approved by the ELT as part of their bi-monthly review of top risks on 17 July 2020 and are in Attachment A.

17. Regular and increased monitoring and reporting of the Top Risks has commenced due to COVID-19 related disruptions, and the fast paced and changing nature of the external and internal environment can have a material impact on residual risk to the enterprise.

18. The risk team has engaged with risk owners and stakeholders to understand any changes in the risk profile. Whilst there are no material changes to report, it is recognised that the changing external and internal environment is increasing the threats of climate change / water and drought related risks, cybersecurity, and integrity risks.

19. Internal controls and risk management are operating, and no new risks have been identified or changes made to the top risk residual ratings.

Financial Management Top Risk

20. The recent COVID-19 events and related financial impacts have meant that there is a strategic Financial Management Risk for Council. This is the potential risk of the inability to prudently manage Council’s financial obligations as expected.

21. The Finance department lead team have considered the causes of this risk and the likelihood and impact should this risk eventuate. Several controls and mitigation actions are being taken to proactively manage and reduce the likelihood of it occurring.

22. The current control environment is operating to manage the risk proactively by the Auckland Council Group (Council Group). Whilst the Council Group is pivoting to be more efficient and responsive to the new financial environment and the emergency budget has been adopted, there are many variables and changing priorities which require time and investment to minimise medium/long term and emerging adverse impacts during this period.

23. Based on this rationale, whilst the inherent risk is critical, taking into account the current controls, the residual risk has been assessed and rated as high. The financial management risk is reported in Attachment A.

24. At the writing of this report the Government has raised the Alert level for Auckland region to Alert Level 3. The situation remains fluid and uncertain. The finance team are assessing the impact of the recent change in alert level and are modelling scenarios based on the evolving assumptions. A verbal update will be provided at the meeting on any developments and changes impacting this top risk.

Recovery Top Risk

25. The recovery from the economic and social impacts of the COVID-19 pandemic is a priority and challenge globally, nationally, and locally. The situation continues to unfold, is rapidly changing and complex with New Zealand border and Auckland region boundary controls and restrictions in place and outbreaks occurring in New Zealand and overseas.

26. The risks related to recovery are wide ranging. The government, business, community, and local government sectors will all have roles in managing and mitigating the risks, impacts and opportunities to enable a successful recovery.

27. The strategic risk to the Council as an organisation has been identified in this context and focuses on the key objectives of Council and its role and contribution to the recovery as Auckland’s unitary authority.

28. Key staff including the Group Recovery Manager COVID-19, Transition Unit (People and Performance directorate) and Principal Advisor Recovery have engaged with the risk team to define the recovery objective, key risk drivers, actions, and opportunities. The recovery risk summary report is in Attachment A.

29. The Council’s role and contribution to Auckland’s recovery is to address the economic hardship and community impacts and enable recovery through leadership, coordination and community liaison.

30. A steering group has been formed to coordinate with central and local government. A small project office is collating information, conducting analysis, identifying opportunities and developing a work programme. The Risk department is supporting this work and will update the recovery risk on actions as the work programme unfolds.

31. The likelihood of a major impact to Auckland remains high and the situation is fast moving. The risks are therefore evolving and need to be continuously evaluated and monitored and mitigations developed.

Fraud and Corruption Top Risk

32. Following direction from the ELT in May 2020, a review has been completed of Top Risk 11 Fraud and Corruption.

33. The description and title of the top risk and its controls has been updated to focus on the key risk events. The likelihood of fraud, corruption or other dishonest behaviours being undertaken against the council is increased in the current climate, and the inherent risk rating has been updated to reflect current threat levels.

34. However, there are adequate controls and mitigations in place that do not currently require an increase in the residual rating being increased. The updated Fraud and Corruption Top Risk is included in Attachment A.

Drought and Climate Change Risk Pulse Check

35. The risk team is conducting a climate change and drought pulse check with the enterprise leadership group to gain insights on what the potential risks and impacts may be across the organisation.

36. An update of the Water and Climate Change Top Risks will be completed as part of the quarterly full risk register quarterly review by the ELT. The insights and information received back from the pulse check will inform that review.

37. The data on the departments’ risks and impacts will also be used by Council’s Drought Crisis Management Team to help with planning and activities to manage Council’s water usage.

38. An analysis of the information received back from the organisation is underway to identify trends and insights. The full top risk report and updated risk register will be reported to the Audit and Risk Committee on 15 September 2020.

Drought Emergency - Council response and mitigations

39. The Auckland drought emergency and water restrictions are ongoing. A Drought Crisis Team has been established which includes the chief risk officer.

40. The role of the drought emergency team is to:

· oversee the achievement by Auckland Council of targeted water reductions from the Metropolitan Water Supply System consistent with Watercare’s Drought Management Plan.

· input to Council business continuity plans as to the implications of reduced water consumption, and possible increased restrictions

· develop initiatives to reduce water consumption

· liaise with Council Controlled Organisation’s including Auckland Transport, Regional Facilities Auckland, ATEED.

41. Key risks at this time include:

(a) Deployment of water restrictions reduces Watercare’s income while additional costs will be incurred in mitigating and managing a limited water supply. In response Watercare may require budgetary support from Council.

(b) Ongoing drought (lack of rain) presents enhanced hazard of wildfires, including fires within parkland, especially Maunga given their policy not to use animals to reduce grass, within the urban area.

(c) Water restrictions do impact adversely upon sectors of the Auckland economy reducing employment and slowing the economic and employment recovery from the effects of the COVID 19 lockdown.

(d) Water restrictions threaten the appearance, health and usability of public gardens and sports fields especially during 2021 – a reduced capacity to provide for sports will impact not only community sports but more significant sports events.

(e) more severe water restrictions may affect availability of municipal water in bulk to rural communities.

(f) The adverse impact of the interplay between water restrictions and any resurgence of community transmission of the COVID19 virus is not clear.

Improvements and additional risk mitigation measures

Core cyber security and integrity e-learning modules mandatory for all staff

42. In July 2020, on the recommendation of the risk, ICT and assurance departments, the ELT agreed that four core eLearning modules be made mandatory for all staff and for a campaign be undertaken as part of a refresh of Our Charter awareness and understanding. The campaign will include council and RFA, Panuku and ATEED.

43. The continuing awareness, understanding and compliance by everyone of the system requirements, guidelines and bottom lines is critical to mitigating the cyber security and fraud and corruption top risks.

44. Council must support its people so that they know what is expected and they can do the right things and help manage these significant risks to council.

45. The four mandatory eLearning modules relate to security awareness, preventing cybercrime, securing social media, and integrity.

46. This step is to strengthen our controls in the post Covid-19 environment. The numbers of staff working flexibly and remotely is significantly increased. The risks of integrity and behavioural issues are also increased as the current operating model review and organisational change processes are completed.

47. A project group led by the ICT department has been formed. It is anticipated that the campaign will be able to begin in September 2020. The risk department will be monitoring and reporting the completion rates of the eLearning modules across all directorates and divisions.

Organisation Model Review – Transition Unit

48. The council has commenced a whole of organisation model review with the objective of designing efficient ways to organise council services, activities and how we do things so our people can best serve Tāmaki Makaurau now and in the future.

49. A transition unit has been established to coordinate and lead this work and recovery efforts to avoid ad hoc or siloed changes that could result in poor outcomes for our people, customers and communities.

50. Council’s financial shortfall of $120 million requires an organisation-wide approach to operating model changes so that decisions are not made in isolation. The Transition Unit will coordinate work to identify initiatives that will contribute to $30million of the $120 million savings target. The unit is made up of people from across council to provide the technical and planning support needed for a change of this magnitude.

51. There are significant opportunities and risks associated with this work driven in part by the required pace to realise the required financial management and efficiency outcomes. The Risk department is supporting the unit to identify and effectively manage the risks and challenges.

52. The establishment of the unit with relevant expertise is a key mitigation of the risks of disruption and unintended impacts from the changes being implemented. A standardised, clear, coordinated and transparent process is a critical control. The process includes a review and challenge step by an enterprise leaders’ group and engagement with staff through a big-brainstorm process. The PSA also have representation on the enterprise group and form part of all approved programme processes.

53. Risks include loss of talent and intellectual property, health and wellbeing of staff, unintended outcomes to customers and conflicting stakeholder requirements are being managed. The ELT are retaining a critical sponsor and decision-making role in the process.

COVID activities

54. The situation concerning COVID-19 alert levels and restrictions remains fluid and council is in close contact and monitoring the situation closely.

55. At the writing of this report Auckland has been placed in Alert Level 3 until 26 August 2020. A verbal update will be provided to the Audit and Risk Committee on 24 August on the latest situation.

56. This update is to confirm steps being taken to manage the evolving situation and ensure potential risks are being effectively mitigated and scenarios planned and prepared for.

57. The COVID-19 Auckland Council Crisis Management Team was stood up again at the end of July 2020 to prepare and be ready for a potential resurgence based on trends overseas and some issues with managed isolation in Auckland.

58. This crisis team is being led by Ian Maxwell and briefings have been provided to the Mayor, Councillors, IMSB and Local Board members. CCO Chief Executives were advised of the heightened concern with respect to COVID-19. The Crisis Management Team which includes council and each of the CCOs was re-established.

59. Stocks of personal protection equipment (PPE) continue to be enhanced, including masks. We are deploying QR Codes appropriate to the NZ Covid Tracer app. We are redeploying social distancing and hygiene practices.

60. Since Auckland moved to Alert Level 3, other than essential workers, staff are working from home. The capacity for people to work from home is high. Procedures are in place to respond should we be advised that a staff member / visitor has COVID-19 and for closure of services / facilities / construction sites should that be required.

61. The Corporate Resilience team (CRT) is part of the Crisis Management Team. CRT’s focus is staff wellbeing and operational effectiveness and providing a safe and productive workplace and while working remotely. CRT also provides support for essential workers during lockdown periods.

62. Consideration is being given to splitting teams responsible for the delivery of essential services, management of staff who may be (or their family) are especially vulnerable to COVID-19 and how governance, in particular local boards may work should they be impacted by a local lockdown. Policy on leave and pay is being reviewed. There is a focus on staff welfare with the resurgence of COVID-19, the ongoing structural changes and the long-term financial implications for Auckland Council.

63. It is to be noted that this resurgence of COVID-19 would impact council revenues associated with the 2020-21 Emergency Budget. Via the regular quarterly forecast process, Council retains the ability to respond appropriately should this be required. The existing regular meetings of Financial Controllers drawn from each agency within the Council Group provides a basis for a watching brief on this issue.

64. Recent preparedness activities include the following:

a) ‘A Case in Our Midst Triage Process’ has been reviewed and is now confirmed. Following an assurance test of the process, a senior risk advisor has been appointed lead of the internal track and trace process to ensure a robust and effective process. The assurance review is discussed in the Assurance department update report to the Audit and Risk Committee.

b) We have reviewed and are preparing additional key messages which we will insert progressively in various communications. There is on-going messaging on the digital noticeboards throughout the region.

c) ICT checks have confirmed all remote working systems are ‘good-to-go’, nothing has been turned off since the last COVID-19 level 4 period and some further improvements have been undertaken. No issues have been noted after the recent move to Level 3.

d) PPE stock levels have been reviewed and supply chains confirmed. Consolidation points established under lock and key at Orewa, Auckland House and Manukau Civic have been replenished including facemasks, and supply chains confirmed.

Tauākī whakaaweawe āhuarangi

Climate impact statement

65. The climate change adaptation and mitigation risk remains as a top risk for Auckland Council. The residual risk has been assessed as high and remains unchanged at this time.

66. 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

67. There are no direct impacts on the Council Group arising from this report. The risk department continues to work with the risk managers and key staff in the CCOs to collaborate and manage the group risks.

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

Local impacts and local board views

68. 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

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

70. 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.

71. The Māori Outcomes top risk will be reported to the Audit and Risk Committee in September when the evaluation and reporting of the risk to the executive leadership team is completed.

Ngā ritenga ā-pūtea

Financial implications

72. Financial management has been identified as a key risk for the council and is included within the Top Risk Register to enable adequate and ongoing management of the risks.

73. There are no financial funding decisions required as a result of this report, and consequently there are no direct financial implications.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

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

Ngā koringa ā-muri

Next steps

75. The Top Risk quarterly review (including the climate change and drought pulse check) will be reported to the Audit and Risk Committee on 15 September 2020 as part of the Risk Update.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Top Risks Interim Bi-Monthly Update July 2020	31

Ngā kaihaina

Signatories

Authors

Emma Mosely - Chief Risk Officer

Caroline Innes Mehta - Senior Risk Advisor

Ann Brown - Senior Risk Advisor

Matthew Kerly - Risk Advisor

Authorisers

Helen Wild - General Counsel

Phil Wilson - Governance Director

Audit and Risk Committee

24 August 2020

30 June 2020 annual report progress

File No.: CP2020/11038

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk Committee on key aspects of the Auckland Council Group’s year-end reporting and audit requirements.

Whakarāpopototanga matua

Executive summary

2. The COVID-19 pandemic has had a significant impact on the finances of the group and has given rise to additional uncertainty to areas of risk that are dependent on judgement and assumptions.

3. Because of the heightened risk associated with judgements and assumptions, Audit New Zealand has placed additional quality control measures in place, which has resulted in additional documentation being requested, and extensions of timeframes for closure of technical matters.

4. To encourage transparency in our committee reporting we have endeavored to discuss as much information as possible about the annual report progress in this report. However, there is some information which cannot be released to the public due to disclosure requirements of the NZX. Instead these will be presented in the confidential item “Confidential report on the 30 June 2020 annual report”.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the revised timeline for finalisation of the annual report

b) note the year end reporting matters information in this report and use it to supplement the information in the confidential item “Confidential report on the 30 June 2020 annual report”.

Horopaki

Context

5. In accordance with the NZX listing rules, Auckland Council Group must lodge a results announcement with the NZX within 60 days of the financial year-end, and the annual report within 3 months of the financial year-end.

6. The COVID-19 pandemic has had a significant impact on the financial performance, position, cash flows and service performance of the group which has resulted in significant increase in disclosures, particularly around judgements and assumptions underlying financial estimates.

7. The COVID-19 pandemic has also had a significant impact on the group’s resources as management has been focussed on addressing the impact through changes to operations and the preparation of the Emergency Budget; which has diverted resource from the preparation of the annual report.

8. The Office of the Auditor-General (OAG) and Audit New Zealand have indicated that current year audits are taking significantly longer to complete given the uncertainty, increased disclosures and heightened level of risk.

9. The OAG/Audit New Zealand and management have agreed that it is prudent to delay the release of the council’s financial results for the year ended 30 June 2020 to ensure sufficient time to complete the annual report and its audit. Therefore, management has relied on the NZX Class Waiver dated 3 April 2020 in relation to NZX Listing Rules 3.5.1 and 3.6.1.

10. Attached is a copy of our media release announcing that we expect to release our results to NZX no later than 28 September 2020 and our annual report no later than 30 October 2020 (Attachment A).

11. This has meant a significant shift in key year-end milestones, which is outlined below:

Original date	Revised date	Milestone
29 July	29 July	Group reporting packs received from CCOs and Ports of Auckland Limited
5 August	5 August	Consolidated results provided to Audit NZ
17 August	31 August	Draft NZX release provided to Audit NZ
25 August	7 September	Audit NZ technical feedback on financial statements
24 August	15 September	Audit and Risk Committee to provide clearance on group results and NZX release
24 August	15 September
28 August	28 September	NZX preliminary release
8 September	7 October	Audit NZ verbal clearance on annual report and summary annual report
15 September	14 October	Audit and Risk Committee to recommend adoption of annual report and summary annual report
25 September	29 October	Audit opinion issued
25 September	30 October	Annual report and summary annual report final release
28 September	6 November	Audit NZ management report issued in draft

Tātaritanga me ngā tohutohu

Analysis and advice

12. The preparation of the financial statements requires judgements, estimates and assumptions. Application is based on future expectations as well as historical experience and other factors, as appropriate to the circumstances. The financial impact of the COVID-19 pandemic has been far reaching. It has affected several areas where judgements and estimates are applied, introducing several new areas of significant judgement.

13. The main areas impacted by the increased uncertainty impacting significant judgements and estimates are:

· revaluations of investment properties and various property, plant and equipment

· valuations of derivative financial instruments

· provision for weathertightness and associated building defect claims

· provision for contaminated land and closed landfills

· accounting for the council’s investment in Auckland International Airport Limited

· Eden Park loan

· City Rail Link Limited

· Regional Fuel Tax.

14. Details of these will be discussed in the confidential item “Confidential report on the 30 June 2020 annual report progress”.

15. The Financial Control team is remaining alert for any subsequent events that might require disclosure in the financial statements. Potential items have been discussed in the confidential item “Confidential report on the 30 June 2020 annual report progress”.

Climate change risk disclosure

16. A climate change risk disclosure, prepared in terms of the Task Force on Climate-related Financial Disclosures Framework, will be presented in the annual report.

17. It includes additional disclosures to those presented at 31 December 2019. In particular, it will now include the Scope 1 and 2 emissions inventories of the CCOs and Ports of Auckland Limited.

18. As the group is still in its infancy in terms of climate change disclosures, we have not yet undertaken scenario analysis in order to describe the resilience of the group’s strategy. Such scenario analysis takes into consideration different climate-related scenarios, including a 2°C or lower scenario. We intend to commence scenario analysis for the next annual report; however, this is dependent on the ability to secure resource to undertake this work.

Tauākī whakaaweawe āhuarangi

Climate impact statement

19. 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

20. 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

21. 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

22. This 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 Volume 1 of the annual report.

Ngā ritenga ā-pūtea

Financial implications

23. 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

24. The following risks have been identified and are being actively monitored by the financial control team and Audit New Zealand:

· the incorrect disclosure or omission of the impact of the COVID-19 pandemic on transactions and disclosures

· delays in technical clearance of complex accounting matters and disclosures.

25. These risks are being managed through ongoing communication and tracking of issues, and regular dialogue with financial advisors within operational units.

Ngā koringa ā-muri

Next steps

26. The following diagram summarises the steps towards finalisation of the annual report and summary annual report.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Media release - annual report release delay - 04 August 2020	43

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

24 August 2020

Interim audit management report for the year ending 30 June 2020

File No.: CP2020/10600

Te take mō te pūrongo

Purpose of the report

1. To provide members with a summary of the matters identified by the Office of the Auditor-General during the interim audit for the year ended 30 June 2020 and outline how Auckland Council is addressing those matters.

Whakarāpopototanga matua

Executive summary

2. In their recent audit report, Audit New Zealand highlighted the service performance of consenting activities as a continuing area for improvement; specifically to processes, systems and controls to accurately record consent processing times.

3. There was one new recommendation, that management prepares a group analysis and expected annual report disclosures related to the impact of COVID-19.

4. Several matters raised in previous reports have been resolved. The following prior year recommendations remain in progress:

· building and resource consent processing times

· capitalisation of assets

· review of DFA policy and SAP delegation

· Procurement team access to the vendor Masterfile.

5. Auckland Council accepts the recommendations made and has provided a response outlining actions being taken to address each matter raised.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the matters identified by the Office of the Auditor-General during its 30 June 2020 interim audit and Auckland Council’s responses to those matters.

Horopaki

Context

6. Audit New Zealand, as Auckland Council’s appointed auditor, undertakes the audit on behalf of the Deputy Auditor-General.

7. Audit New Zealand works with the council throughout the year reviewing the interim report, the annual report and NZX disclosures. Their audit procedures include a review of the systems, processes and controls that support the preparation of these key documents.

8. In terms of auditing standards, an auditor is required to communicate any significant observations that relate to financial reporting and service performance, to those charged with governance. Accordingly, the Office of the Auditor-General issues reports to the council with recommendations for enhancing and improving processes, controls and disclosures.

9. Following the completion of the interim audit for the year ended 30 June 2020, a report was issued which outlines matters identified and makes recommendations for improvement. The report is attached (Attachment A).

10. Management has responded to these matters within the report.

Tātaritanga me ngā tohutohu

Analysis and advice

11. Audit New Zealand completed their second interim audit visit in March and April 2020. Their focus was on:

· updating their understanding of Auckland Council’s systems and controls that support financial and service performance information

· assessing the effectiveness of those controls and of the overall control environment.

12. Key messages relate to the impact of the COVID-19 pandemic on financial reporting and the service performance of building and resource consents.

13. There is one new recommendation in the report, being that the council finalises the group impact analysis and provides expected draft COVID-19 related annual report disclosures as early as possible. A memo has been prepared assessing the risks of the council and the group, along with a COVID-19 reporting checklist. In addition, pro forma COVID-19 disclosures have been provided to Audit New Zealand.

14. Updates were also provided on the following previously raised recommendations that are still in progress:

· Building and resource consent processing times – This is an ongoing recommendation for the improvement in the recording and reporting of compliance with statutory time frames for the processing of consents. It remains a challenge for management to address, particularly for resource consents.

· Capitalisation of assets – Management has improved its processes.

· Review of DFA policy and SAP delegation – Management has started a project to review delegated financial authorities, which at a minimum will include a review of the framework.

· Procurement team access to the vendor Masterfile – Management have updated control processes relating to Masterfile changes.

15. The following matters were resolved and/or have been closed by Audit New Zealand:

· Our Charter

· Treasury and funding management

· cash handling

· internal audit report finalisation in relation to a treasury review

· payroll systems and controls – monitoring

· food grading

· domestic kerbside refuse per capita.

Tauākī whakaaweawe āhuarangi

Climate impact statement

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

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

17. 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

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

Tauākī whakaaweawe Māori

Māori impact statement

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

Ngā ritenga ā-pūtea

Financial implications

20. The matters in this report relate to internal controls and processes and such, do not have any direct financial implications.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

21. There is a risk that actions undertaken by management to address internal control deficiencies may not be considered sufficient or appropriate to address Audit New Zealand’s concerns.

Ngā koringa ā-muri

Next steps

22. Audit New Zealand will validate all matters which management has recommended for closure.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Interim audit report - 30 June 2020	49

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

No.	Title	Page
a ⇩	Presentation	79

Audit and Risk Committee

24 August 2020

Treaty Audit Monitoring Update

File No.: CP2020/11113

Te take mō te pūrongo

Purpose of the report

1. This report provides an update on:

· the ongoing monitoring of the council’s Te Tiriti o Waitangi Audit Response Programme (Treaty Audit Response Programme) to implement the recommendations contained in Te Tiriti o Waitangi Audits (Treaty Audits) of the council. These Treaty Audits are commissioned by the Independent Māori Statutory Board every three years.

· risks and controls with respect to Māori Responsiveness Planning Implementation and Reporting.

Whakarāpopototanga matua

Executive summary

2. Over the last six months, the Waharoa Group has continued to perform an oversight role with respect to the monitoring and reporting on the delivery of Treaty Audit Response Programme.

3. Of the 15 open Treaty Audit recommendations reported to the Audit and Risk Committee in February 2020, five have since been closed. Of the ten remaining open recommendations, six are being substantially progressed and are scheduled to be put forward to the Waharoa Group for formal closure by October 2020.

4. The Audit and Risk Committee resolved at its May 2020 meeting (AUD/20/22) that the Assurance Services department report to the Committee in August 2020 on Māori Responsiveness Plans implementation and reporting across the Council Group with a view to whether there are adequate risk management and controls in place.

5. The implementation of the Maori Outcomes Framework represents a step change and strengthening in the mechanism through which Maori Responsiveness Plan (MRP) initiatives are delivered and reported on. Key MRP initiatives will be reflected in, and delivered through departmental, divisional, and Council Controlled Organisation (CCO) business plans. Reporting on progress towards the achievement of Maori Outcomes will be given effect to through regular business plan reporting. This will be overseen and guided by Māori Outcome Leads. Māori Outcome Leads will help ensure that initiatives are aligned to the Māori Outcomes Framework. This mechanism will mitigate against key risks of lack of capability and resource devotes to MRP initiatives, and misalignment with the Māori Outcomes Framework.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) receive the update on the monitoring and progress of the Treaty Audit Response Programme and assessment of risks and controls with Māori Responsiveness Planning

b) note the oversight and monitoring that has been performed by the Assurance Services department in relation to the Treaty Audit Response Programme and Māori Responsiveness Planning Implementation and Reporting

c) note that the Assurance Services department will continue to report on a six-monthly basis on progress against the Treaty Audit Response Programme to this committee.

Horopaki

Context

6. The Independent Māori Statutory Board’s Treaty Audit sets out a framework for assessing council’s performance against council’s statutory responsibilities and requirements relating to Te Tiriti o Waitangi and to Māori.

7. The third treaty audit was completed and received by the Finance and Performance Committee in July 2018, and by the Audit and Risk Committee in September 2018.

8. Te Tiriti o Waitangi Audit Report 2018 noted that council had made a considerable effort over the previous 12 months to address the outstanding recommendations from the previous two audits. It also recognised that progress has been made in the development of Māori Responsiveness Plans (MRPs).

9. Te Tiriti o Waitangi Audit Report 2018 recommends that the Assurance Services department continue monitoring and reporting to the Audit and Risk Committee and that the council’s ‘follow-up’ framework is used by the Waharoa Group.

10. The Te Tiriti o Waitangi Treaty Audit Response Programme is the basis for the Assurance Services department’s monitoring and reporting to the Audit and Risk Committee.

Tātaritanga me ngā tohutohu

Analysis and advice

The Waharoa Group

11. The Waharoa Group comprises representatives from the Assurance department, Nga Mātārae and the Independent Māori Statutory Board Secretariat.

12. The Waharoa Group provides oversight of Te Tiriti o Waitangi Treaty Audit response programme, including monitoring, guidance and support to action owners and their executives, and agrees closure of recommendations. Assurance Services provides independent oversight and reporting of progress.

Te Tiriti /Treaty Audit Response Work Programme

13. In February 2020 we reported that the strengthened process for monitoring the delivery of the work programme had enabled an increase in the rate of closure of audit recommendations. Improved documentation of the work plans to respond to each recommendation and clearer tracking documents have been implemented.

14. Of the 10 remaining open audit recommendations five have approved project plans in place which are being monitored by the Waharoa Group.

Audit Year

Total No of Recommendations

Closed Feb 2020-August 2020

Total Open

August 2020

Project Plan Status

2012 and 2015

6 (Feb 10)

3 in development

2 monitored

2018

4 (Feb 4)

1 in development

3 monitored

15. The following six recommendations are scheduled to be closed imminently:

· Closure Criteria for all open actions (Recommendation 1 – 2018)

· Mana Whenua Participation in Resource Consents (Recommendation 34 and 58B – 2015)

· Performance Measure Framework (Recommendation 67 – 2015)

· Evolution of MRP’s (Recommendations 6&7 – 2018)

16. Work is currently being progressed to develop Project Plans for the Waharoa to approve with respect to:

· Clarification of the previously approved plan with respect to Contract Management System (Recommendation 31)

· Taonga Management Policy (Recommendation 12)

· Protection of Sensitive Information (Recommendation 13)

· Relationship Agreements (Recommendation 10)

Māori responsiveness Plans

17. Māori Responsiveness Plans (MRP’s) across the Auckland Council parent, and Council Controlled Organisations (CCO’s) are at varying stages of maturity and review.

18. With the development of the Māori Outcomes Framework, mechanisms are being implemented that will use MRP’s to drive progress towards the achievement of Māori Outcomes, while establishing a clear reporting framework at directorate and CCO level to report on progress towards the achievement of Māori outcomes.

19. Key departmental, directorate and CCO MRP initiatives will be included in respective business plans. Progress will be reported on routinely through the year and at year end.

20. It is expected the clarity to be provided by the Māori Outcomes Framework will guide the development of MRPs to be realistic and relevant to the different directorates of council and CCO’s. This clarity will enable the business planning of directorates and CCOs and ensure the appropriate resource and skill is applied to delivery, and that initiatives are aligned to the Māori Outcomes Framework.

21. The directorates of council, and CCO’s will be responsible for monitoring the performance of the MRPs, on the advice of the Maori Outcome Leads. The directorates of council will report to Nga Mātārae at the end of each annual planning cycle regarding the alignment of delivery to the Māori Outcomes Framework.

22. Assurance Services will retain independent oversight of the implementation of the above MRP planning and reporting framework.

23. Key risks include:

· Lack of adequate capability and resource devoted to the delivery of MRP initiatives.

· Lack of alignment of MRP initiatives to the Māori Outcomes Framework.

24. These are mitigated through:

· The requirement to include key MRP initiatives in business plans, and report on progress against those initiatives during the year. Accountability for delivery sits with respective departments and CCO’s.

· Maori Outcome leads providing guidance to departments and CCO’s at each planning cycle will mitigate the risk of MRP initiatives not being aligned to outcomes.

Tauākī whakaaweawe āhuarangi

Climate impact statement

25. There are no impacts on climate from this report. However, the Māori Outcomes Framework is based on wellbeing and includes environmental wellbeing.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

26. The Treaty Audit Response Programme work enables the council group to strengthen responsiveness to Māori through targeted actions and improvements cited in the Maori Outcomes Framework. The Māori Outcomes Framework is intended to provide clarity and guidance to the council group.

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

Local impacts and local board views

27. The views of local boards have not been sought in relation to this report.

Tauākī whakaaweawe Māori

Māori impact statement

28. The Treaty Audit response work programme enables the council group to strengthen responsiveness to Māori through targeted actions and improvements cited in the Maori Outcomes Framework.

Ngā ritenga ā-pūtea

Financial implications

29. The committee is not being asked to make a decision with financial implications.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

30. The meeting of council’s obligations to Māori and honouring of its Treaty obligations is a priority objective of council.

31. Key risks to achieving this objective are lack of resources and capability and oversight and monitoring of the Audit work programme. The independent oversight and monitoring by Assurance Services, membership of the Waharoa Group and six-monthly reporting to the Audit and Risk Committee are key mitigations of these risks.

Ngā koringa ā-muri

Next steps

32. The Assurance Services department will continue to attend the Waharoa Group and monitor the Treaty Audit Response Programme and report to the Audit and Risk Committee in accordance with the Assurance plan, and the committee’s forward work programme.

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

24 August 2020

Risk management and assurance approach for the Long-term Plan 2021-2031

File No.: CP2020/10389

Te take mō te pūrongo

Purpose of the report

1. To provide an update on the steps involved in finalising the Emergency Budget 2020/2021.

2. To outline the Long-term Plan 2021-2031 (LTP) assurance process and the role of the Audit and Risk Committee in this process.

Whakarāpopototanga matua

Executive summary

Update on the Emergency Budget 2020/2021 process

3. In the Enterprise Risk COVID-19 Update report to this committee on 26 May 2020, a brief update on the Emergency Budget process was included. On 28 May 2020, the Governing Body adopted consultation materials for the Emergency Budget based on the consultation budget approved by the Emergency Committee on 21 May 2020.

4. Public consultation on the proposed draft Emergency Budget opened on 29 May 2020 and closed on 19 June 2020. Budget discussions between council officers and representatives from council-controlled organisations (CCOs) were workshopped with the Finance and Performance Committee between 30 June and 8 July 2020. Local Board feedback was also heard in a workshop held on 14 July.

5. Finance staff reviewed and updated group budget projections for 2020/2021 based on the latest information, advice and feedback received from council departments, CCOs and Local Boards prior to the decision-making meeting on 16 July 2020.

6. The decisions required to finalise the Emergency Budget were agreed by the Governing Body on 16 July 2020 and on 30 July the Governing Body adopted the final Emergency Budget 2020/2021, including the 21 local board agreements.

Long-term Plan 2021-2031 (LTP) assurance process

7. According to the Local Government Act 2002, the council must have an LTP adopted before the beginning of the first year to which it relates and utilise the special consultative procedure to consult with its community.

8. Section 94 of the Local Government Act 2002 requires the LTP to be audited by and contain a report from the Auditor-General. To deliver an LTP that achieves an unqualified audit opinion, it is critical for the council group to ensure that:

· LTP processes are robust

· information contained in the LTP is materially complete and reliable

· any risks associated with the LTP process are minimised and

· the LTP meets the requirements of all relevant legal requirements, including those set out in the Local Government Act 2002, and the Local Government (Auckland Council) Act 2009.

9. A programme of work has now commenced to develop Auckland Council’s Long-term Plan 2021-2031 (also referred to as the council’s 10-year Budget). Various workstreams have been setup to deliver this programme, overseen by an LTP Project Control Group.

10. Phase one of the LTP project focuses on developing the consultation document and supporting information, to be adopted by the Governing Body in early February 2021. This will be made available throughout the region for public consultation in mid-February 2021.

11. Phase two of LTP focuses on developing the final LTP, as a key statutory document that enables the implementation of its strategic plans and identifies what people can expect over the next 10 years. The Governing Body will need to adopt the final LTP document by 30 June 2021.

12. The Audit and Risk Committee will have an oversight role throughout the LTP process as prescribed in its Terms of Reference. In phase two, the committee’s role will also be to attest that the final prepared document is a true and accurate reflection of the decisions made by the Governing Body and that it complies with all accounting standards and legislative requirements. The committee will then recommend the document to the Governing Body for adoption.

13. The following table provides a summary of controls and sign-offs for key areas of the LTP:

Area	Key controls and sign-offs
a) Programme management and governance	· An LTP Project Control Group monitors LTP alignment with council priorities, and ensures that significant risks are being actively managed. · Councillors are engaged throughout the LTP process so late surprises or risks to adoption are minimised.
b) Asset management plans (AMPS)	· Internal Audit department review to assess whether AMP processes are sufficiently robust and the information is materially complete and reliable. · Department manager and CCO sign off that the planned services and AMPs are consistent with available funding and strategies.
c) Infrastructure investment d)	· Mitigate risks of uncoordinated planning by areas working together in one workstream on an integrated programme of infrastructure provision. · Engagement with community and stakeholders on scenario trade-offs and decisions.
e) Levels of service and performance measures/ performance targets	· Validate existing measure set for relevancy, meaningful targets and robust reporting methodology. · Following approval of budgets, performance targets will be realigned and signed-off by activity managers to ensure that the planned services are consistent with available funding.
f) Key alignment and linkages	· Key steps will be taken to ensure that financial and non-financial information included in the LTP is consistent with council’s strategies, policies and assumptions. · Appropriate managers from council parent and CCOs will review and sign-off whether information included for each group of activities has been incorporated into the underlying information.
g) Assumptions	· Ensure assumptions are complete, reasonable and supportable. · Sign-off of budget submissions by business financial managers to confirm consistent application of assumptions.
h) Accounting standards	· Document review against accounting standard FRS-42 Prospective financial statements as well as New Zealand Society of Local Government Managers guidance. · Peer review of financials by Financial Control team.
i) Financial model and data	· Monitor built-in checks in model of treasury ratios, prudential benchmarks and the balanced budget requirement. · Review the financial model against significant commitments, policies and strategies e.g. City Rail Link commitments, Financial Strategy, Infrastructure Strategy.
j) Legal sign off/Document preparation	· Council has an experienced legal team who will conduct a review of the Consultation Document, supporting information, and the final LTP, and provide legal support and guidance during the process.
k) Prudent financial management	· Financial scenarios presented to elected members will illustrate the impact of different scenarios on rates and debt levels in the short and long term. · Final published documents will include assessment of council’s borrowing against its prescribed limits and of its operating budget through a prescribed Balanced Budget Benchmark.
l) Right debate with the community	· One of the key issues in the consultation document will be balancing recovering from the financial impact of COVID-19, affordability of rates and other charges against the need for additional infrastructure investment. · Communication and Engagement team will review and signoff that the consultation document and process adopted are fit for purpose.
m) Budget refresh for Final LTP	· Budget refresh process will incorporate alignment of budgets with AMP and performance targets and any new investment or changes in budget request will require a full justification. · Prior to submission of all budgets, there will be a review and signoff by boards of CCOs and council’s Executive Leadership Team.

14. A key focus for this committee will be providing oversight of key risks and assumptions. A list of identified risks and proposed mitigations is set out in Attachment A.

15. The Office of the Auditor General (OAG) has indicated that for this round of LTPs, audit reviews will be expected to focus on key risks and assumptions related to the impacts of COVID-19, climate change and asset condition on council services.

16. Staff will provide an update to this committee later in the process on key assumptions for this LTP. This will include an update on assumptions related to the key review areas indicated by the OAG.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the Emergency Budget 2020/2021 process update

b) endorse the risk management and assurance approach for Long-term Plan 2021-2031.

Horopaki

Context

Background

Update on the Emergency Budget 2020/2021 process

17. The COVID-19 situation presents significant risks to the financial position of the council group. The endorsed process and methodology for financial scenario modelling by this committee has been followed throughout the process for finalising the Emergency Budget 2020/2021.

18. On 26 May 2020, a brief update on the Emergency Budget process was provided as part of the Enterprise Risk COVID-19 Update to the committee. It was agreed that a further update on the Emergency Budget 2020/2021 process be provided on 24 August 2020.

19. In response to the resolution, this report provides an update on the Emergency Budget process, particularly around steps involved in finalising the budget.

Long-term Plan 2021-2031 (LTP) assurance process

20. The Auckland Council LTP is a key statutory document for Auckland Council, enabling the implementation of its strategic plans and identifying what people can expect over the next 10 years.

21. Auckland Council will be providing an opportunity for all stakeholders including tangata whenua and the community at large to submit on the LTP consultation document.

22. The development of the LTP is a collaborative effort with key accountabilities for delivery lying with the Financial Strategy and Planning team. However, by its very nature and content, it requires collective engagement from the entire council group, including local boards and CCOs.

23. Phase one of LTP focuses on developing the LTP consultation document and supporting information, to be adopted by the Governing Body in February 2021. This will be made available throughout the region for public consultation in mid-February 2021.

24. Phase two of LTP focuses on developing the final LTP as a key document which enables the implementation of its strategic plans and identifies what people can expect over the next 10 years. The final LTP document will need to be adopted by the Governing Body by 30 June 2021.

Tātaritanga me ngā tohutohu

Analysis and advice

Update on the Emergency Budget 2020/2021 process

25. The COVID-19 situation presents significant risks to the financial position of the council group. As the financial implications for the Emergency Budget 2020/2021 were highly uncertain, the work to prepare a budget has needed to be assumption driven and follow a systematic approach to scenario modelling.

26. To support the role of this committee in maintaining independent monitoring and oversight of the financial risk management for the council group, staff provided a report on 14 April 2020 on the process, methodology and underlying assumptions underpinning the financial scenario modelling to assess the financial impacts of COVID-19.

27. Since that update, the endorsed process and methodology has continued. A draft Emergency Budget for public consultation was prepared based on a “most likely scenario” approach to budgeting, disclosing the impacts of uncertainty. As well as reflecting financial impacts of COVID-19, updated group budgets included a wide range of mitigating measures.

28. Between 14 April and 26 May 2020, staff briefed the Chair of the Audit and Risk Committee on financial management risks and refinements to the assumptions and financial position, supporting the committee’s oversight role through the process.

29. On 28 May 2020, consultation materials on a draft Emergency Budget were adopted by the Governing Body. Along with the options and implications of different rates increases, these documents explained the central budget issue of a significant revenue shortfall for 2020/2021 and set out in detail a range of proposed mitigating actions. This included temporarily elevated debt levels, capital expenditure deferrals, temporary reductions in operating service levels and asset recycling.

30. Public consultation on the proposed draft Emergency Budget with options for either 3.5 per cent or 2.5 per cent average general rates increases opened on 29 May 2020 and closed on 19 June 2020. A series of workshops on key budget issues and savings options were held between 30 June and 8 July 2020, where more information and answers to Finance and Performance Committee were provided to support final decisions.

31. On 14 July 2020 a workshop was held between local board chairs and the Finance and Performance Committee. These discussions provided an opportunity for local board views to be considered ahead of Finance and Performance Committee making recommendations to the Governing Body.

32. As budget discussions on key items were workshopped and feedback was received from council departments, CCOs and Local boards, finance staff have reviewed and updated group budget projections for 2020/2021 based on the latest information.

33. Overall, this budget review identified additional short-term budget capacity, mainly due to a more favourable revenue outlook due to revised assumptions about social distancing requirements and a slightly improved economic outlook, before any adjustments for Watercare drought response and potential mitigations were incorporated.

34. The additional budget requests for Watercare’s drought response, potential mitigations committed by Watercare, and options for mitigating the residual budget gap resulting from the drought response were set out in the Budget decision-making 2020/2021 report to the Finance and Performance committee on 16 July 2020.

35. On that day, Finance and Performance Committee recommended to the Governing Body the decisions required to finalise the Emergency Budget 2020/2021. The Governing Body subsequently agreed to these decisions. Resultant changes were reflected in final group budgets.

36. Local board business meetings were held between 21 and 24 July 2020, where all 21 local boards adopted their local board agreements for 2020/2021. On 30 July the Governing Body adopted the Emergency Budget 2020/2021, including the 21 local board agreements.

37. Throughout this process, finance staff have made sure the endorsed process and methodology was applied consistently across the group, ensuring that the council follows robust processes to be in a position to make sound decisions based on robust information and analysis.

38. Finance staff have also worked closely with our legal advisors on matters of legal compliance, including compliance with the Local Government Act 2002 and debt market disclosure requirements.

Long-term Plan 2021-2031 (LTP) assurance process

Phase one: consultation document

Programme management and governance

39. A detailed draft roadmap has been developed that sets out the intended path of the entire LTP process. This roadmap should be finalised by the end of August 2020 following further engagement with the Mayoral Office. This draft roadmap has been provided to Audit New Zealand to assist with their resource planning.

40. They key dates from this draft roadmap are as follows:

Milestone	Definition	Date
Finance & Performance Committee workshops	Workshop key issues for the LTP 2021-2031	26 Aug-11 Nov 2020
Finance & Performance Committee /Governing Body meeting	Agree consultation items	9 Dec 2020
Audit & Risk Committee meeting	Ensure process is sound and advise there are no outstanding Audit issues in relation to the Consultation Document & Supporting Information	9 Feb 2021
Finance & Performance Committee / Governing Body meeting	Adopt Consultation Document & Supporting Information and agree to the consultation and engagement approach	10 Feb 2021
Public consultation	Details to be confirmed as part of the engagement plan	15 Feb – 15 Mar 2021
Finance & Performance Committee / Governing Body meeting	Decision making for final budget	25 May 2021
Audit & Risk Committee meeting	Ensure process is sound and advise there are no outstanding Audit issues in relation to the final LTP 2021-2031	14 June 2021 (TBC)
Governing Body meeting	Adoption of the LTP 2021-2031	22 June 2021

41. The Audit and Risk Committee will have oversight of key aspects of LTP governance, assurance, risk management and internal control. Attachment B of this report details the committee’s role and responsibility with respect to discharging its duties to provide oversight over the preparation of the LTP. This memo refers to the 2018-2028 LTP however remains valid for the 2021-2031 LTP.

42. Clear roles and responsibilities have been allocated to various work-streams who report to the LTP Project Control Group. Membership of this group consisting of senior and executive managers from the Finance, Planning and Governance divisions, along with a representative from the mayoral office.

43. The Project Control Group includes members with the necessary delegated authority to make key decisions that will impact the process and accountability of:

· monitoring the strategic direction of the project and ensure ongoing alignment with council priorities

· understanding and supporting the project objectives, process and deliverables

· checking that all significant project risks have been identified and are being actively managed.

44. Elected members are part of the process at the outset, in the form of committee meetings and workshops with the Finance and Performance Committee, Governing Body and the local boards.

45. The workstream leads and Project Control Group will meet regularly to track progress and respond to issues.

46. Representatives from Nga Matarae and the Independent Māori Statutory Board attend the regular workstream leads’ meetings.

47. Risks and issues will be recorded in the internal LTP risk and issues register and mitigating actions will be coordinated through LTP governance and programme management. Highly significant risks will also be recorded and followed up via the Enterprise Top Risk Register and risk mitigation process.

48. Any substantial risks or issues will be escalated to the Executive Leadership Team by the Project Control Group.

49. We are working closely with Audit New Zealand to ensure that the scope of assurance reflects the work that they will be performing when they audit the LTP. By doing this work in advance of the external audit, we will be in a position to identify any issues early and address them prior to the external audit visits during the LTP preparation.

Asset management plans

50. An internal audit is underway to review, assess and report on whether:

· council’s asset management planning framework and processes are sufficiently robust

· the information contained in council’s AMPs is materially complete and reliable.

51. The review will assess whether the plans will provide a reasonable basis for the Infrastructure Strategy, Financial Strategy, financial forecasts and service performance framework that will be contained in the LTP.

52. The audit focuses on the Auckland Council group’s AMP processes across the significant Infrastructural AMPs such as Roading, Public Transport, Water, Wastewater, Stormwater, Parks, Property and Community Facilities.

53. External peer review is being carried out across AMP’s with the significant spends – Water (Watercare Services Limited), Transport (Auckland Transport) and Stormwater.

54. Review and testing of individual AMPs focuses on:

· analytical review to understand and verify the reasonableness of operational and capital expenditure

· identification, assessment and disclosure of risk

· assumptions for completeness, reasonableness, and consistency of application

· integration of service levels

· integration of demand and asset lifecycle management

· updating of AMPs to reflect operational and capital expenditure incurred

· the outcomes of quality assurance performed over AMPs, including the actions taken to respond to Quality Assurance findings

· impact of the Emergency Budget 2020/2021 decisions on maintenance and renewals.

55. A provisional AMP review report is due to be released by October, to be finalised on the delivery of AMPs that are still under development, or undergoing peer review.

Infrastructure Investment

56. The infrastructure investment work focuses on council’s capital build over the next three, 10 and 30 years. Infrastructure providers across the council family are working together to provide an integrated programme view of infrastructure for the next 30 years. Together with the work on the AMPs, this information will inform the development of the 30-year Infrastructure Strategy.

57. Staff are mitigating risks of uncoordinated planning by working together on an integrated programme of infrastructure provision. The work includes taking a spatial view of planned infrastructure investment to ensure alignment with the council’s strategic growth priority areas.

58. There will be engagement with community and stakeholders on scenario trade-offs and decisions.

59. Any funding risks or issues are being managed in conjunction with Finance staff to ensure alignment with relevant financial, audit and legal requirements.

Assumptions

60. Controls and sign-off on completeness and appropriateness of assumptions will consist of the following:

· ensure assumptions are complete, reasonable and supportable

· review assumptions against Local Government Act 2002 and New Zealand Society of Local Government Managers guidance to identify mandatory and recommended assumptions

· identify council specific assumptions based on a documented risk assessment, e.g. central government funding for transport

· support assumptions by way of reference to external supporting documentation where practical

· sign-off of assumptions, including assessment of risk and potential impacts, by the LTP financial workstream.

61. To ensure consistent application of assumptions, the following controls and sign-offs are intended:

· send clear written communication/ guidance to all business areas

· design and pre-populate templates with assumptions where practical, e.g. budget submission templates

· sign-off of budget submissions by business financial managers to confirm consistent application of assumptions

· perform and document an analytical review of budget submissions and supporting information to confirm consistency with assumptions.

62. The Office of the Auditor General (OAG) has indicated that for this round of LTPs, audit reviews will be expected to focus on key risks and assumptions related to the impacts of COVID-19, climate change and asset condition on council services.

63. Staff will provide an update to this committee later in the process on key assumptions for this LTP. This will include an update on assumptions related to the key review areas indicated by the OAG.

Financial model and data

64. Data integrity review will consist of the following:

· confirm access controls exist to prevent unauthorised changes to data and models

· reconcile base data for modelling to existing 2020/2021 budgets

· reconcile the financial model results to budget submissions/ templates

· clearly identify the impact of consultation options and reconcile back to base data

· monitor built-in data checks in the financial model.

65. To ensure consistency with other strategies and policies, the following reviews will be carried out:

· monitor built-in checks in model of treasury ratios, prudential benchmarks and the balanced budget assumption

· review the financial model against significant commitments, policies and strategies such as City Rail Link commitments, Financial Strategy, and Infrastructure Strategy.

66. The financial model will also go through an overall review, reconciliation and sign-off process:

· document analytical review of year-on-year movements by activity

· reconcile the result of different financial statements in the model, e.g. funding impact statement, statement of comprehensive income, statement of cash flows and movements in balance sheet

· acceptance of budgets by operational and senior management by way of sign-off.

Consultation document preparation

67. We will work with various stakeholders to produce a user friendly LTP consultation document that informs and engages the public about the LTP.

68. Council has an experienced legal team who will conduct a legal review of the consultation document, supporting information, and the final LTP, and provide legal support and guidance during the process.

Prudent financial management

69. Auckland Council’s approach to prudence is laid out in the Financial Strategy and supported by the Treasury Management Policy, and the Revenue and Financing Policy. In phase two, the final LTP will include an updated Financial Strategy and Revenue and Financing Policy. The plan development process may also include an update to our Treasury Management Policy.

70. The key factors in the council’s approach to ensuring long-term financial prudence and sustainability are the parameters around prudent borrowing and funding of depreciation. All financial scenarios presented to elected members will clearly illustrate the impact of the scenario on these factors.

71. Due to the COVID-19 financial impact coupled with climate related risks (including the current drought situation), these factors will be a key focus when considering the prudent and affordable levels of capital and operating expenditure for this LTP.

72. Final published documents will include, in accordance with regulations, assessment of the group’s planned financial performance in relation to various benchmarks to enable the assessment of whether the group is prudently managing its revenues, expenses, assets, liabilities, and general financial dealings.

Right debate with the community

73. Section 93(2) of the Local Government Act 2002 requires the council to consult with Aucklanders through a special consultative procedure (SCP) in order to adopt the LTP. Using the SCP places enhanced obligations on the council, specifying what must be done in order to consult with Aucklanders for this purpose.

74. We plan to drive an elevated conversation with Aucklanders, based on the big issues to help them engage in, understand and shape the LTP. We will ensure the LTP consultation document, supporting material and final document is publicly available easily.

75. One of the key issues in the consultation document will be balancing recovering from the financial impact of COVID-19, affordability of rates and other charges against the need for additional infrastructure investment. This will focus on the effects of our Financial Strategy on debt, rates and services delivered.

76. The Communication and Engagement team are involved in ensuring that the consultation document and process adopted are effective in meeting their intended purpose.

Phase two: final Long-term Plan 2021-2031

Levels of service and performance measures/performance targets

77. In order to ensure a set of relevant, meaningful measures and targets, along with a robust underpinning methodology, a review will be conducted between representatives from the appropriate departments to validate the information.

78. A performance framework and guidance material has been developed that articulates the linkages between community outcomes, LTP measures and AMP performance information.

79. LTP targets will be updated and signed-off to reflect any changes to levels of service due to proposed funding envelopes. Following the Finance and Performance Committee approval of the final envelopes, the targets will be realigned to ensure that the planned services are consistent with available funding.

Key alignment and linkages

80. Key steps will be taken to ensure that information included in the LTP is consistent, such as:

· review and sign-off by activity managers that key plans and policies are adequately applied

· review of consistency of assumptions with key plans and policies in the development of the underlying information

· review and sign-off whether information on capital expenditure included in the funding impact statements is consistent with underlying asset information

· review to ensure linkages between community outcomes, LTP measures and AMP performance information.

81. Appropriate managers from parent council and CCOs will review and sign-off whether information for each group of activity has been incorporated into the underlying information.

Accounting Standards

82. The following key steps will be taken to ensure prospective financial information complies with General Accounting Accepted Practices:

· document review against accounting standard FRS-42 Prospective financial statements as well as New Zealand Society of Local Government Managers guidance

· confirm with Financial Control department that the accounting policies are consistent with those in the last audited annual report and those expected to be used for subsequent reporting

· Peer review of financials by Financial Control department.

Final budget decision-making

83. Following consultation and engagement, a series of Finance and Performance Committee workshops will be held through May 2021 to discuss budget issues, implications and trade-offs.

84. The mayor, in his role leading the planning process, will present a proposal to the Finance and Performance Committee in mid May 2021.

85. The Finance and Performance Committee will debate the proposal and make recommendations to the Governing Body. Final decisions on the LTP will then be made by the Governing Body (both meetings are currently scheduled for 25 May 2021).

Document preparation

86. Council staff will incorporate the decisions made by the Governing Body into the LTP document in line with the appropriate legislation. This document will include an updated Financial Strategy, Infrastructure Strategy, Revenue and Financing Policy, and Funding Impact Statement.

Audit and Risk Committee review

87. The draft final LTP will be presented to the Audit and Risk Committee in June 2021.

88. The committee will review the document to ensure that:

· it is a true and accurate reflection of the decisions made by the Governing Body

· the prospective financial statements, and level of service statements accurately reflect the impacts of the decisions

· the prospective financial statements are compliant with the relevance accounting standards

· the document complies with all legislative requirements.

89. The committee will recommend the document to the Governing Body for adoption.

Long-term Plan 2021-2031 Adoption

90. The Governing Body must adopt the final LTP by 30 June 2021 (this is currently scheduled for 22 June 2021). This allows for the rates to be set for 2021/2022.

Tauākī whakaaweawe āhuarangi

Climate impact statement

91. Climate impact is a key topic that will be addressed as part of the LTP process, however not a factor to consider in this report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

92. The information on financial implications of COVID-19 was pulled together from right across the council group, advice and updates from council departments and CCOs were considered and workshopped as part of the Emergency Budget process.

93. As for the upcoming LTP, the council group will be communicated with throughout the process to ensure required work is carried and ready for political consideration as planned. Content and signoffs will be obtained from all parts of the council group.

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

Local impacts and local board views

94. Local boards were extensively involved throughout all stages of the Emergency Budget process.

95. Local Board Plans are a key input to the LTP and are well progressed. Local Board Plans are scheduled to be adopted by the end of October 2020. These plans identify priorities and preferences for local communities which provide direction for the next three years. The plans should align with local board agreements.

96. The role of local boards in the public consultation process for the LTP is an integral part of our approach. Locally held ‘Have Your Say’ events will be deployed across the region to collect feedback on regional and local issues to inform the LTP.

97. Local boards have the discretion within the consultation period to hold various ‘Have Your Say’ events that may or may not include a traditional hearing style event. Governing Body usually delegates authority to councillors, local board chairs and local board members, and senior staff approved by the Group Chief Financial Officer to hear from the public and receive feedback on the proposal. Staff will be recommending a similar delegation is made for consultation on the draft LTP.

Tauākī whakaaweawe Māori

Māori impact statement

98. Engagement for the LTP will take place with mana whenua and mataawaka during the consultation phase. Detail on the engagement will be covered in the communication and engagement approach which will be presented to the Finance and Performance Committee in February 2021 for formal agreement.

99. In addition, each financial year the Tūpuna Maunga Authority o Tāmaki Mākaurau and the council must agree an annual operational plan, to provide a framework for the council to carry out its functions.

100. A feedback event will be held focusing on Tūpuna Maunga Authority draft operational plan attended by Tūpuna Maunga Authority members, including councillors on the Tūpuna Maunga Authority board.

Ngā ritenga ā-pūtea

Financial implications

101. The operational budget for the LTP is $1.2 million, plus Audit New Zealand’s cost (amount still to be confirmed).

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

102. Key risks and mitigations can be found in Attachment A to this report.

Ngā koringa ā-muri

Next steps

103. The LTP audit and quality assurance workstream coordinates and reviews risks with Audit New Zealand, the legal team, the various work-stream leaders and the organisation wide risk management team as appropriate.

104. The overarching objective of the audit and quality assurance workstream is to support the delivery of the LTP by reviewing and assessing that:

· LTP processes are sufficiently robust

· the information contained in LTP is materially complete and reliable

· any risks associated with the LTP process are minimised and

· it meets requirements of the LGA, and the Local Government (Auckland Council) Act 2009.

105. The quality assurance workstream is currently conducting an internal pre-assessment to identify any issues early and address them prior to Audit New Zealand’s formal assessment. Key information on controls, sign-offs, workshop material and supporting content will be provided to Audit New Zealand at the time of various workshops or meetings, to ensure that there are no surprises or late issues.

106. Staff will report back to this committee at a later stage of the LTP process on the key assumptions that will underpin this LTP.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Key Risks	103
b ⇩	ARC's role regarding the LTP	105

Ngā kaihaina

Signatories

Author

Kylie Thompson - Programme Manager

Authorisers

Ross Tucker - General Manager, Financial Strategy and Planning

Kevin Ramsay - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

24 August 2020

Audit engagement letter for the Long-term Plan 2021-2031

File No.: CP2020/11617

Te take mō te pūrongo

Purpose of the report

1. To review and endorse the draft audit engagement letter for the Long-term Plan 2021-2031 (Attachment A).

Whakarāpopototanga matua

Executive summary

2. In the last week, Audit New Zealand have provided a draft letter of engagement for the Long-term Plan (LTP) 2021-2031 for the council’s review and comment. This letter sets out the terms of the audit engagement and outlines the objectives of the LTP audit.

3. Management has reviewed and provided feedback on the draft letter and Audit New Zealand has made all requested amendments.

4. These documents are required to be approved by the Audit and Risk Committee before the Office of the Auditor General issues the final letter for signing by the Mayor and the council’s Chief Executive.

5. The Deputy Auditor-General Greg Schollum, Assistant Auditor-General – Local Government Andrea Reeves and Audit New Zealand Audit Director Athol Graham will be in attendance to answer any questions the committee may have in relation to this letter.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) review and endorse the draft audit engagement letter for the Long-term Plan 2021-2031

b) request the Office of the Auditor General issue the final audit engagement letter for the Long-term Plan 2021-2031

c) recommend the Mayor and Chief Executive sign the final audit engagement letter for the Long-term Plan 2021-2031.

Horopaki

Context

6. The draft audit engagement letter relates to the Long-term Plan for the 10-year period commencing 1 July 2021 and outlines:

· the terms of the audit engagement and the respective responsibilities of the governing body (council), Audit New Zealand and the Office of the Auditor General

· the audit scope and objectives

· the approach taken to complete the audit

· the areas of audit emphasis

· the audit logistics

· the professional fees.

The letter is substantially the same as in prior years, other than some changes to the areas of audit emphasis.

Tātaritanga me ngā tohutohu

Analysis and advice

7. The areas of audit emphasis for this LTP are:

· impact of COVID-19

· integration with Government policies, projects and joint funding arrangements

· financial strategy and infrastructure strategy

· assumptions

· quality of asset-related forecasting information

· climate change

· review of Council-Controlled Organisations (CCOs).

8. The three new (or materially changed) areas of audit emphasis for this LTP are discussed below.

Impact of COVID-19

9. The COVID-19 situation has created significant economic uncertainty that will have ongoing impacts for the council’s revenue and its ability to deliver intended levels of service across the LTP timeframe.

10. Council has already commenced work to understanding the immediate and future implications of COVID-19 for the purposes of its Emergency Budget 2020/2021. This should provide a good base of knowledge to help factor the impact of COVID-19 into the LTP.

11. Audit New Zealand will review Council’s approach to ensure the impact of COVID-19 has been reasonably factored into the underlying policies, strategies, and assumptions.

Climate Change

12. As part of the Consultation Document (CD) and LTP the council will need to consider how its response to climate change will impact on:

· the matters it intends to consult on and LTP content

· the underlying financial forecasts, such as the cost of mitigation actions

· the activities and service levels it will deliver

· asset lives as a result of adaption and divestment.

Review of Council-Controlled Organisations (CCOs)

13. An independent review panel has completed a review of the CCOs and the council may decide to progress some recommendations from this review as part of the LTP process.

Tauākī whakaaweawe āhuarangi

Climate impact statement

14. This is discussed within the body of this report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

15. The recommendations in this report do not require the consideration of council group impacts and views.

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

Local impacts and local board views

16. The recommendations in this report do not require the consideration of local board views.

Tauākī whakaaweawe Māori

Māori impact statement

17. The recommendations in this report do not require the consideration of impacts on Māori.

Ngā ritenga ā-pūtea

Financial implications

18. The draft audit engagement letter includes the proposed audit fee covering both the CD and the LTP of $738,000.00 (excluding GST and disbursements).

19. The corresponding fee for the 2018-2028 LTP audit was $685,000.00 (excluding GST and disbursements). The effective annual rate of increase in this fee is 2.5 per cent over the three years between LTPs.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

20. A risk related to this letter is a potential increase in audit fees. This could occur if there is a significant increase in the audit scope which would require extra audit effort.

21. To mitigate this risk, Audit New Zealand and Auckland Council staff meet fortnightly to discuss audit issues to ensure they are managed and resolved efficiently.

Ngā koringa ā-muri

Next steps

22. Following the approval of the draft document by the committee, the Office of the Auditor General will issue the letter in final form and the Mayor and Chief Executive will be asked to sign the finalised letter.

23. Auckland Council staff will also confirm and finalise the council and Audit New Zealand’s delivery timelines, to ensure a timely and efficient annual audit process.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Audit engagement letter LTP 2021-2031	113

Ngā kaihaina

Signatories

Author

Kylie Thompson - Programme Manager

Authorisers

Ross Tucker - General Manager, Financial Strategy and Planning

Kevin Ramsay - Acting Group Chief Financial Officer

Phil Wilson - Governance Director

Audit and Risk Committee

24 August 2020

Resource and Building Consents performance and improvement activities update

File No.: CP2020/11463

Te take mō te pūrongo

Purpose of the report

1. To advise the Audit and Risk Committee of progress towards confirming our building and resource consents statutory performance figures for the 2019/2020 Annual Report.

Whakarāpopototanga matua

Executive summary

2. The work undertaken to verify the reported statutory performance of resource and building consents issued within 20 working days is on target and is close to being completed.

3. The Regulatory Services directorate, with the support of Assurance Services have provided appropriate data sets to be verified by 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

4. Previous detailed reports have been provided to the committee at its meetings of 24 February 2020 and 26 May 2020 outlining the actions taken to improve the performance of time recording for the resource and building consent departments. These briefings have also articulated the approach being taken for verifying these key performance indicators in the 2019/2020 Annual Report.

5. The reports have reflected an on-going improvement in the organisation’s statutory performance. They have also updated the committee on the verification processes required to be undertaken by our Assurances Services in collaboration with Audit NZ over the intervening period.

6. The Resource and Building Consent departments have completed the data cleansing that was agreed they needed to perform. This has allowed our Assurance Services team to undertake their verification process.

7. Samples of an appropriate data set size were subsequently requested by Audit NZ and these have all been supplied along with supporting documentation.

8. Auditing and verification of the samples have been undertaken by Audit NZ with no material variances identified.

9. 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.

Tātaritanga me ngā tohutohu

Analysis and advice

10. Following on from initial investigative work, the plan for verification of the full set of performance results was agreed with Audit NZ to be handled in the following manner:

(a) For Building Consents, a random sample was taken of consents processed over the period. The time calculation for each selected application was recalculated and then verified against the documentary evidence recorded and then compared with the system reported performance result in order to confirm it.

(b) For Resource Consents, a representational sample (619) of processed consents was reviewed. The time calculation for each selected application was recalculated and verified against recorded documentary evidence. The statutory performance result for this representational sample is to be used as the reported figure for the annual report.

11. Assurance Services verified the sample sets provided by the business units, and Audit NZ undertook their audit of those samples, finding no material variances.

12. 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. Subject to final confirmation by Audit NZ the reported performance results are:

Percentage processed with 20 Statutory Working Days	Fin Year 2019/2020	Fin Year 2018/2019
Building Consents	82.4%	60.0%
Resource Consents	71.2%	56.0%

13. Improvement activities have been progressing to enhance the accuracy and efficiency of the process for time recording and storage of supporting correspondence:

(a) Working together the ICT and the Resource Consents department have developed a Resource Management Application Tracker which provides a real-time overview of resource consent processing timeframes. This tool is in the process of being implemented.

(b) For Building Consents an enhancement to automatically require the appropriate storage of supporting correspondence at the time of entering RFI information has been specified. This system improvement will also restrict permissions to amend technical decision dates in the system to prevent opportunities for user error. These initiatives have been included in a suite of system improvements being advanced for implementation as part of the R-UX project.

(c) Reporting modifications have been implemented and are now monitored to detect and correct any technical decision date inconsistencies.

Tauākī whakaaweawe āhuarangi

Climate impact statement

14. 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

15. 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

16. Local board views were not required for this report

Tauākī whakaaweawe Māori

Māori impact statement

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

Ngā ritenga ā-pūtea

Financial implications

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

19. This report confirms steps 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 had on public trust and confidence.

Ngā koringa ā-muri

Next steps

20. Final confirmation and separate reporting by Audit NZ to the committee will complete the process for the 2019/2020 Annual Plan performance reporting.

21. The improvement plan items referred to in earlier A&R committee reports are progressing with a focus on 3 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

24 August 2020

Building and Resource Consents Assurance Plan Update

File No.: CP2020/11114

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

6. Audit NZ has completed its audit testing on the resource consents recalculation. With respect to their testing on building consents they have completed their audit testing for the period to May 2020, with testing for June 2020 to complete. As at the date of this report Audit NZ has not indicated any areas of concern that would impact on the issuing of an unmodified audit opinion.

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 has used a random sample as the basis for a recalculation being performed by the Resource Consents department to generate a representative result (this is the 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 619 resource consents, selected by Audit NZ has now been recalculated and internally reviewed by the consent's hub.

16. That sample has been subject to independent quality assurance by Assurance Services.

17. At the date of this report Audit NZ has completed its testing. We are awaiting final confirmation that there are no remaining unresolved issues.

Building Consents

18. At the date of this report the Building Consents department have verified 18,847 consents out of a total population of 19,462 consents for the 12 months ending 30 June 2020. These have been subject to quality assurance by Assurance Services on a sample basis.

19. The remaining 615 consents are being “recleansed” due to errors picked up from Building Consents quality assurance procedures, and Internal Audit testing. The errors detected have been ringfenced to a finite part of the population. They are not indicative of wider systemic errors.

20. Audit New Zealand have completed their sample testing for Building Consents issued from the period of July-May. A residual sample of 4 consents issued in June will be tested once the Building Consents team have completed the recleansing exercise.

Tauākī whakaaweawe āhuarangi

Climate impact statement

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

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

22. 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

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

Tauākī whakaaweawe Māori

Māori impact statement

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

Ngā ritenga ā-pūtea

Financial implications

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

26. 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.

27. 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

28. 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.

29. 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.

30. A further update will be provided to the Audit and Risk Committee in September 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

24 August 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 - August 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