Agenda of Audit and Risk Committee - Tuesday, 17 May 2022

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.

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

2. enterprise risk management (ERM) across the Auckland Council group

3. internal and external audit and assurance

4. health, safety and wellbeing

5. business continuity and resilience

6. integrity and investigations

7. monitoring of compliance with laws and regulations

8. significant projects, programmes of work and procurement focussing on the appropriate management of risk

9. 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

1. 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).

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

3. 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.

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

Assurance

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

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

3. 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.

4. 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)

5. 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

1. Review and approve annually, and monitor the implementation of, the Assurance Strategy, including the fraud and integrity aspects, including a detailed work programme.

2. 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.

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

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

5. 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:

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

2. compliance with applicable legal requirements relevant to statutory reporting

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

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

5. any decisions involving significant judgement, estimation or uncertainty

6. the extent to which financial statements are affected by any unusual transactions and the way they are disclosed

7. the disclosure of contingent liabilities and contingent assets

8. the clarity of disclosures generally

9. the basis for the adoption of the going concern assumption

10. significant adjustments resulting from the audit.

External Audit

1. Discuss with the external auditor before the audit commences:

1. the nature, scope and fees of the external audit

2. areas of audit focus

3. error and materiality levels.

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

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

4. 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 General Manager Risk and 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.

Code of conduct

For information relating to Auckland Council’s elected members code of conduct, please refer to this link on the Auckland Council website - https://www.aucklandcouncil.govt.nz/about-auckland-council/how-auckland-council-works/elected-members-remuneration-declarations-interest/Pages/elected-members-code-conduct.aspx

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

1. 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.

2. 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.

3. 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.

4. In any case of doubt, the ruling of the chairperson is final.

Members of the meeting

1. 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).

2. However, standing orders require that a councillor who has a pecuniary conflict of interest leave the room.

3. 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

1. Members of the Independent Māori Statutory Board who are appointed members of the committee remain.

2. Independent Māori Statutory Board members and staff remain if this is necessary in order for them to perform their role.

Staff

3. All staff supporting the meeting (administrative, senior management) remain.

4. Other staff who need to because of their role may remain.

Local Board members

5. 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

1. 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 ⇩	Forward work programme	13

Audit and Risk Committee

17 May 2022

Komiti Tātari me te Mātai Raru Tūpono / Audit and Risk Committee
Forward Work Programme 2021-2022

This committee assists and advises the Governing Body in discharging its responsibility and ownership of governance, risk management and internal control across Auckland Council group.

Responsibilities include reviewing the effectiveness of enterprise risk management, internal and external audit assurance, health safety and wellbeing, business continuity and resilience, integrity and investigations. The Committee monitors compliance, risk management in significant projects and programmes of work and procurements and has oversight of risk management and assurance of CCOs, the preparation of the LTP, Annual Report and other statutory financial reports.
Full terms of reference can be found here.

Area of work and lead	Expected reporting 2022 (dates TBC)
Area of work and lead	22 Feb	17 May	23 Aug	12 Sep	TBA
Forward work programme GM Risk and Assurance	Work programme Link to decision	Work programme	Work programme	Work programme Committee’s Annual performance report	Work programme
Assurance GM Risk and Assurance		Assurance Services Strategy and activities update (fraud and integrity, elected members, internal audits and reviews, speak up) Audit Programme reporting – updated plan and audits completed		Assurance Services Strategy and activities update (fraud and integrity, elected members, internal audits and reviews, speak up) Audit Programme reporting – updated plan and audits completed
Independent Maori Statutory Board - Treaty Audit GM Risk and Assurance	Treaty Audit Monitoring update Link to decision		Treaty Audit Monitoring update		Preparations for Independent Māori Statutory Board upcoming 2022 Te Tiriti o Waitangi Audit
Enterprise Risk Risk Team	Enterprise Risk Update Link to decision		Enterprise Risk Update		Enterprise Risk Update
CCO Risk management Risk Team	CCO quarterly risk report Attendance by Auckland Transport Link to decision - confidential	CCO quarterly risk report Attendance by Eke Panuku	CCO quarterly risk report Attendance by Auckland Unlimited	CCO annual reports on risk (matters raised through annual audit process and summary of any significant findings raised by auditors) Attendance by Auckland Transport, Auckland Unlimited, Eke Panuku and Watercare	CCO quarterly risk report Attendance by Watercare
Ports of Auckland Limited (POAL) Risk management Risk Team			POAL quarterly risk report Attendance by POAL	POAL annual reports on risk (matters raised through annual audit process and summary of any significant findings raised by auditors) Attendance by POAL
Auckland Council partner/ shareholder risk management Director Infrastructure and Environmental Services & CCO/ External Partnerships Dept			City Rail Link	City Rail Link
Health, Safety and Wellbeing Head of Health, Safety and Wellbeing	Health, safety and wellbeing update Link to decision	Health, safety and wellbeing update	Health, safety and wellbeing update		Health, safety and wellbeing update
Legal Risk General Counsel		Legal Risk report			Legal Risk report
Insurance Manager Insurance - Risk and Insurance Dept	Update on insurance activities Link to decision	Indicative Insurance Renewal Report	Update to Committee post placement of Insurance Programme
Interim Report Group Financial Controller	31 December 2021 Interim Report NZX Announcement clearance Link to decision - confidential	Audit New Zealand Review engagement management report 31 December 2021			Review arrangements 31 December 2022 31 December 2022 Interim Financial Statements & NZX Announcement Update Proforma interim financial statements and accounting policies 31 December 2022
Annual Report Group Financial Controller	30 June 2022 Arrangements (extended audit plan) Link to decision	NZX Announcement 30 June 2022 / Annual Report 30 June 2022 update for committee Proforma Annual Report 30 June 2022 (financial statements and accounting policies)	NZX Announcement 2022/ Annual Report 30 June 2022 update for committee Audit New Zealand Interim audit management report 30 June 2022	30 June 2022 Annual Report	Audit New Zealand Audit Engagement and Audit Proposal letters for 2023, 2024 and 2025 30 June 2023 Arrangements (extended audit plan) Audit New Zealand final audit management report 30 June 2022 Proforma interim financial statements and accounting policies 31 December 2022
Annual Green Bond Report		Process for Annual Green Bond Report 30 June 2022.		Annual Green Bonds Report 30 June 2022.
Long Term Plan 2021/2031 Annual Plan GM Financial Strategy and Planning		Audit New Zealand final 2021 LTP amendment management report			2023/24 Annual Plan (draft)
External Audit Office of Auditor-General (OAG)	Briefing paper provided Link to decision - confidential	Briefing paper provided	Briefing paper provided	Briefing paper provided	Briefing paper provide

Workshops

The Audit and Risk Committee holds workshops on matters where a background briefing/ more informal discussion and opportunity for questions from the committee is necessary to perform its role and responsibilities. Workshops are not used to make decisions - that is for formal committee or Governing Body Meetings. Workshop material will be appended to a summary of information items in the next committee meeting, unless it has been clearly marked as confidential.

The following topics have been identified as proposed workshops necessary to discharge the Committee’s duties. Workshops will be scheduled over the three-year programme based on strategic priorities, risk and time available. Additional topics may be added if circumstances change or require a topic to be the subject of a workshop.

The workshop schedule is currently under review due to the “Top Risk” refresh.

Audit and Risk Committee

17 May 2022

Health, Safety and Wellbeing Report

File No.: CP2022/05320

Te take mō te pūrongo

Purpose of the report

1. To provide the committee with the information needed to understand the progress of initiatives underway to improve health, safety and wellbeing, as well as the current state of selected key performance indicators covering the period February 2022 to March 2022.

Whakarāpopototanga matua

Executive summary

2. There are a number of projects and initiatives currently underway across council to improve the health, safety and wellbeing of workers and to deliver on the recommendations of the hauora (wellbeing) review. These are broadly on track and progressing well.

3. The COVID-19 Omicron outbreak continues to demand significant resources to support the health, safety, and wellbeing of our people.

4. Key performance indicators are provided in Attachment A, covering the period from December 2021 through to March 2022. This report provides further information relating to the analysis of these key indicators, and so should be read in conjunction with this attachment.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the information in this report and associated health, safety, and wellbeing indicators

b) refer this report to the Governing Body along with any commentary the committee deems appropriate; and recommend that the Governing Body forward this report to local boards for their information.

Horopaki

Context

5. This report provides commentary and a range of indicators on the performance of health, safety, and wellbeing to enable the committee to provide objective advice and recommendations to the Governing Body on the adequacy and functioning of the council’s health, safety and wellbeing risk management system and associated programmes. Health, safety, and wellbeing key performance indicators are in Attachment A.

Tātaritanga me ngā tohutohu

Analysis and advice

COVID-19

6. As the Omicron outbreak eases across New Zealand, and case numbers reduce, there is less impact on Auckland Council’s delivery of services and activities. A return to the orange setting of the COVID Protection Framework also sees more council staff returning to corporate environments, with controls in place to manage the residual levels of risk that exist due to ongoing community transmission.

7. Council has removed requirements for COVID-19 vaccination for staff and other workers, including elected members, volunteers and some contractors after a full review of the associated risk assessment. This was determined due to the change in dominant variant from Delta to Omicron and considering the effectiveness of the vaccine in preventing transmission of COVID-19 for this variant. Where government mandates are still in place, or are introduced, these will be fully complied with. Auckland Council continues to encourage full vaccination of all staff.

8. Council continues to monitor developments relating to Omicron and other emerging variants and maintains business continuity plans to ensure resilience of services in case of new outbreaks.

Project Hīra

9. Project Hīra is a programme of work that is underway to improve the management of health, safety and wellbeing through the replacement of Risk Manager (our current health and safety reporting system). This programme includes the procurement and platform configuration elements of the project, alongside change management, process improvement, people leader training and an awareness campaign. This is intended to ensure that any changes are cooperatively designed, value-adding, and sustainable.

10. The project has progressed from procurement to configuration, with the vendor now engaged with the project team to build the platform and support the development of key functionality. Workshops are underway to co-design and build new workflows for the management of incidents. These workshops include a wide range of stakeholders from across council to ensure that the system meets the needs of general staff, people leaders, and staff who have health, safety and wellbeing responsibilities.

Haoura Review Recommendation: No Excuse for Abuse

11. The initial launch of the No Excuse for Abuse campaign was undertaken immediately prior to the COVID-19 outbreak in August 2021, and all external engagement was paused until restrictions eased to the extent that permitted utilising the channels planned. Once restrictions allowed, the campaign was then launched externally, commencing in mid-October 2021, with billboards, placement of ads on bus shelters and billboards, and social media posts by the chief executive all in place and achieving high levels of engagement.

12. A second phase of this campaign has now commenced, with the focus on providing front-line staff with the support to respond to aggressive behaviours and violence at work. As part of this, a Programme Lead for Violence and Aggression has been appointed to work alongside staff and people leaders to understand the issues and build appropriate responses to deal with both physical and digital threats to the safety and wellbeing of our staff, people leaders, and elected members.

Hauora Review Recommendation: Speak Up

13. An external channel for ‘Speak Up’ has been implemented to strengthen trust and confidence in the processes that we use for raising confidential and sensitive issues and complaints. This will provide an additional option for staff or contractors to speak up about matters that are inconsistent with “Our Charter”.

14. A governance group and project team have been created to provide oversight of the Speak Up process, and to ensure that the external channel is successfully implemented. The project team are developing a reporting framework to provide high-level trends and insights, while maintaining confidentiality and anonymity to ensure that there is trust and confidence in the process.

15. A ‘soft’ launch is underway and will be live by the time this report comes to this committee’s May 2022 agenda. This will be followed by wider communications once the new process is satisfactorily implemented.

Contractor Management

16. A planned programme of work has commenced to review, refresh, and improve the contractor safety management practices that are used by Auckland Council when engaging the services of contractors to undertake work.

17. This work will initially focus on understanding the current practices in place across council, including council controlled organisations, to identify opportunities for improvement across the entire contractor management lifecycle. This includes the prequalification, selection, onboarding, and monitoring of contractors along with the methods that are utilised by council to manage overlapping duties that are held between the various parties.

Critical Risk Management

18. A project has now commenced to enable more effective management of critical risks across council. These risks are defined by their potential for fatal or life-altering injury or illness and require a specific and highly robust approach to fully understand the mechanism of injury and the methods of control that need to be applied.

19. Initial work has been undertaken to create a ‘heat map’ showing the level of exposure that each department within council has to the various critical risks identified. This will allow council to ensure that there is appropriate prioritisation applied to the assessment and control of these risks.

Incident Numbers and Mechanisms

20. The number of health and safety incidents reported in March 2022 was 368, down from 419 in January 2022 and 468 in February 2022.

21. The primary risk mechanism for these incidents remains workplace violence and aggression with 107 incidents in this category in March 2022. As previously reported, many of these are low level incidents, and associated with mask or vaccine requirement compliance.

Risk Manager Incident Closure

22. Closure rates for Risk Manager incidents increased to 78 per cent in March 2022, which is just below the 80 per cent target. This is partly due to an increased focus on closing incidents, and the work of the health, safety, and wellbeing coordinators working closely with people leaders who have the responsibility to review and close incidents.

Tauākī whakaaweawe āhuarangi

Climate impact statement

23. There are no specific climate impacts to note in this report

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

24. This report is based on Auckland Council organisation activities only, and does not provide a group-wide view

25. Health, Safety and Wellbeing teams across the council group do collaborate on common health, safety, and wellbeing issues, such as ensuring visibility of approaches on COVID-19 policy development.

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

Local impacts and local board views

26. Like governing body members, local board members are ‘officers’ under the Health and Safety at Work Act 2015 and must exercise a duty of due diligence in a way that reflects the nature and responsibility of their role.

27. It is recommended that this report is referred to Governing Body and (as with previous health, safety, and wellbeing reports) that Governing Body forward the report to local boards for their information.

Tauākī whakaaweawe Māori

Māori impact statement

28. The information in this report has a similar impact on Māori staff as to all staff.

Ngā ritenga ā-pūtea

Financial implications

29. The work in this report is being managed within current budgets and there are no additional financial implications to report.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

30. The risk of non-compliance with health and safety is recorded in the council’s top risk register. This risk register entry details the controls and mitigations in place.

Ngā koringa ā-muri

Next steps

31. No actions have been identified for this report.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Health, safety, and wellbeing performance report - March 2022	21

Ngā kaihaina

Signatories

Author

Paul Robertson – General Manager Health Safety and Wellbeing

Authorisers

Richard Jarrett - Director Group Services

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

Ports of Auckland Audit and Risk Activity Update May 2022

File No.: CP2022/05142

Te take mō te pūrongo

Purpose of the report

1. To update the Audit and Risk Committee on audit and risk activity for Ports of Auckland Limited.

Whakarāpopototanga matua

Executive summary

2. Ports of Auckland Limited (POAL) last provided risk reporting to the Audit and Risk Committee to the September 2021 meeting.

3. A resolution was passed at the December 2021 meeting, for the inclusion of regular risk reporting from POAL to the Audit and Risk Committee. (AUD/2021/71) for appropriate oversight and monitoring of risk management activities.

4. This report outlines the proposed POAL reporting schedule and the focus of the reporting from POAL to the Audit and Risk Committee in the future.

5. All reports will be in the confidential section of the agenda, in line with current risk reporting from council-controlled organisations and the Local Government Official Information and Meetings Act (1987).

6. POAL have continued to provide reports and updates on health and safety matters to the Governing Body and the Council Controlled Organisations Oversight Committee.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the update on audit and risk activities for Ports of Auckland

b) approve the risk reporting schedule for Ports of Auckland to the Audit and Risk Committee

c) refer the Ports of Auckland Audit and Risk Update May 2022 to the Council Controlled Organisations Oversight Committee for information.

Horopaki

Context

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

8. The terms of reference of the committee also state that it will review the effectiveness of governance, risk management, and internal control across the Auckland Council group.

9. The committee’s scope also includes risk oversight of the council’s council-controlled organisations (CCOs), and the CCOs report quarterly to this committee on risk management activities within each CCO (AUD/2017/027).

10. Although POAL is not a CCO, it has been identified that regular risk reporting from them to the Audit and Risk Committee is a requirement.

11. At the December 2021 Audit and Risk Committee meeting a resolution was passed that POAL are also required to provide regular risk reporting to the committee, for it to discharge its role (AUD/2021/71).

Tātaritanga me ngā tohutohu

Analysis and advice

Risk Reporting from Ports of Auckland Limited

12. POAL) last provided risk reporting to the September 2021 meeting of the Audit and Risk Committee, where they provided an update on any items raised through the annual audit process.

13. In line with resolution AUD/2021/71, POAL will next provide risk reporting to the Audit and Risk Committee at its August meeting, and then to the September meeting of this committee. The report to the August committee will focus on risk reporting, while the September report will focus on any matters raised through the annual audit process.

14. The August report will be the same template that the substantive council-controlled organisations (CCOs) currently use for their quarterly risk reports. The September report will also follow the current template that the CCOs use for their annual audit process reports.

15. Senior staff from POAL will be present at each meeting to speak to their reports and to answer questions of the committee.

16. All reports from POAL will be in the confidential section of the agenda. This is in line with current reporting from the CCOs to the Audit and Risk Committee, under section 7(2)(c)(i) and section 48(1)(a) of the Local Government Official Information and Meetings Act 1987.

17. Following the September 2022 meeting of the committee, the proposed reporting schedule for POAL consists of two annual reports to Audit and Risk Committee.

18. POAL will report to the first committee meeting of each year, currently planned for February, and then subsequently to each September meeting of the committee. It is expected that February reporting will focus only on risk, whereas September reporting will provide both risk reporting, and reporting following the annual audit process

19. It is expected that POAL will provide reporting in the CCO template to the February and September meetings but will in September also provide reporting based on the annual audit process template.

Update on other reporting from Ports of Auckland Limited

20. The table below provides a timeline of reporting so far from POAL:

Date and committee	Who	Notes
21 April 2021 Governing Body (GB)	CHASNZ	Governing Body received the final report of the independent review of health and safety at Ports of Auckland Limited (POAL) by Construction Health and Safety New Zealand (CHASNZ). It was requested that POAL provide updates on the progress with implementing the recommendations to Governing Body meetings in July and October 2021.
July 2021 GB	POAL	POAL provided update report
October 2021 GB	POAL	POAL provided update report
October 2021 GB	CHASNZ	CHASNZ provided a positive review of progress with implementation but noted that some areas needed improvement. POAL acknowledged this.
October 2021 to May 2022 CCO Oversight Committee	POAL	POAL has provided two quarterly updates. The updates have noted steady progress but that Covid-19 lockdowns caused some delay in progressing some recommendations that require face to face meetings. The new completion date for all recommendations is June 2022. As per their Quarter 2 report, POAL note that 100 per cent of the recommendations were underway and 47 percent were complete.

21. POAL are due to provide a further update to the CCO Oversight Committee in May alongside their Quarter 3 results.

22. At the various committee meetings that POAL has attended it has been noted that there has been a significant improvement in the relationship between the council and POAL. POAL have willingly attended every meeting that the council has requested, and the mayor and Auckland Council chief executive have had regular contact with the POAL board and chief executive. Staff also note that POAL staff are responsive and cooperative.

Tauākī whakaaweawe āhuarangi

Climate impact statement guidance

23. This is an update report to the Audit and Risk Committee on the risk and audit activities of Ports of Auckland Limited, as such there are no climate impacts arising from it.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

24. Ports of Auckland Limited’s risk reporting will form part of overall group risk reporting. This will improve risk maturity across the group and help to inform council group impacts and views.

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

Local impacts and local board views

25. This report relates to audit and risk activities within Ports of Auckland Limited, which does not include any reporting at the local board level. Accordingly, the views of the local boards have not been sought.

Tauākī whakaaweawe Māori

Māori impact statement

26. This report only provides the committee with an update on audit and risk matters relating to Ports of Auckland Limited. This report does not involve any impacts for Māori more than any other part of the community.

Ngā ritenga ā-pūtea

Financial implications

27. This report only provides the committee with an update on audit and risk matters relating to Ports of Auckland Limited, there are no funding decisions or financial implications resulting from this report.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

28. There is a risk that there may be insufficient monitoring and oversight of current and emerging risks at Ports of Auckland Limited. Frequent reporting to the Audit and Risk Committee, and attendance of senior staff at the committee, will aim to ensure there is adequate management and oversight of these risks.

29. Current and emerging risks, mitigations and actions will be reported by POAL to the committee through the proposed reporting schedule.

Ngā koringa ā-muri

Next steps

30. Ports of Auckland Limited will provide risk reporting to the August 2022 Audit and Risk Committee meeting and will speak to their report and answer questions from the committee.

31. Ports of Auckland Limited will provide an annual summary of risk matters raised through the annual audit process to the September 2022 Audit and Risk Committee. Senior staff from POAL will be present to speak to their report and answer questions from the committee at the September meeting.

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Author

Matthew Kerly - Risk Advisor

Authorisers

Ann Brown - General Manager Risk and Assurance (Acting)

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

Assurance Process for the 2022 Green Bond Annual Report

File No.: CP2022/04793

Te take mō te pūrongo

Purpose of the report

1. To provide the Audit and Risk Committee with details of Auckland Council’s assurance process for the 2022 Green Bond Annual Report.

Whakarāpopototanga matua

Executive summary

2. The council established a Green Bond Framework in early 2018 and first issued green bonds in June 2018. The Green Bond Framework was replaced with the Sustainable Finance Framework in September 2020 and was subsequently updated in September 2021 (Attachment A).

3. Under the Sustainable Finance Framework, the council is required to report annually on the use of proceeds from green bond issuance, summarise the environmental outcomes delivered by the assets/projects and seek assurance from an independent assurer.

4. The council published its first Green Bond Annual Report in June 2019 with assurance undertaken by EY.

5. The council has again appointed EY to provide independent assurance for the 2022 Green Bond Annual Report (2022 report).

6. This committee report provides the committee with insights into the assurance process to be followed in the preparation and finalisation of the 2022 report.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note that EY has been appointed independent assurer for Auckland Council’s 2022 Green Bond Annual Report

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

c) note that the draft 2022 Green Bond Annual Report will be presented to the Audit and Risk Committee for approval in September 2022, before it is published.

Horopaki

Context

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

8. The Sustainable Finance Framework (framework) sets out how the council proposes to issue and manage its green bond programme.

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

10. Examples of projects and assets that can be funded via green bonds are:

· low carbon transport assets (i.e., electric trains, public walking and cycling infrastructure)

· sustainable water and wastewater management

· waste management

· low carbon and efficient buildings.

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

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

13. Since the establishment of the framework and the issue of its first green bond in 2018, the council has now issued five green bonds, the most recent being the EUR 500 m green bond issued in October 2021. The value of green bonds issued to date is the equivalent of NZD1.96 billion.

14. The proceeds from the green bonds have been used to refinance borrowings deemed to be attributed to:

· electric trains

· City Rail Link

· public cycleway assets

· green buildings

· public transport

· wastewater assets.

15. The 2021 Green Bond Annual Report was published in September 2021. This report can be found on the council’s website at https://www.aucklandcouncil.govt.nz/about-auckland-council/investor-centre/information-for-investors/annualreport/green-bond-annual-report-2021.pdf.

Tātaritanga me ngā tohutohu

Analysis and advice

16. Last year the council increased the green bond eligible asset pool to over $2.7 billion. It now includes assets that qualify under Green Bond Principles and the Climate Bonds Initiative such as water and wastewater assets, office buildings and public transport assets (e.g., City Rail Link).

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

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

19. EY’s assurance approach will be divided into three stages; the draft timeline is as follows:

Milestone/Service	Indicative Completion Dates
Document request submitted to data owners	15 June 2022
Obtain requested data from data owners	29 July 2022
Stage 1: Planning, Risk Identification & Assessment, and Strategy	8 August 2022
Stage 2: Execution	15 August 2022
Stage 3: Issue Assurance Report	26 August 2022

20. EY will provide the council with a limited assurance report. The EY report will include the scope and procedures, limitations of their work, and conclusion based on the outcomes of the engagement.

21. The council will also seek assurance from Toitū Envirocare to review the impact assessment information disclosed in the 2022 report.

22. The 2022 report is expected to follow a similar form to that used in the 2021 report, with advice from EY on best practice principles and feedback from other market participants (i.e., banks, investors, etc.) on how to make further improvements to the report.

23. The 2022 report will include EY’s Limited Assurance Report, and council’s Treasury department and the Chief Sustainability office will work with asset owners across the organisation to obtain the relevant information and measures to complete the 2022 report.

24. The draft 2022 report will be presented to the Audit and Risk Committee for approval in September 2022, before it is published.

Tauākī whakaaweawe āhuarangi

Climate impact statement

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

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

26. No additional impact at a group level.

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

Local impacts and local board views

27. Green bonds are managed at a group level and have no additional impact on local boards, as such local board views have not been sought.

Tauākī whakaaweawe Māori

Māori impact statement

28. Green bonds are a type of borrowings and investment which enables the council to carry out its activities, including those focused on Māori outcomes.

Ngā ritenga ā-pūtea

Financial implications

29. The assurance costs and cost of publishing the Annual Report will be approximately $20,000. These costs will be met within the overall interest cost budget.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

30. The EY assurance report is confirmation that council is complying with its obligation under the Sustainable Finance Framework and bond issuance documentation.

Ngā koringa ā-muri

Next steps

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Sustainable Finance Framework 2021	33

Ngā kaihaina

Signatories

Author

Andrew John - Treasury Funding Manager

Authorisers

John Bishop - Group Treasurer

Peter Gudsell - Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

Risk management approach for the Annual Budget 2022/2023

File No.: CP2022/05055

Te take mō te pūrongo

Purpose of the report

1. To provide an update on the steps involved in finalising the Annual Budget 2022/2023 and outline the approach to managing the key financial risks that have arisen in relation to this budget process.

Whakarāpopototanga matua

Executive summary

2. Staff have previously reported to this committee that the ongoing COVID-19 situation and some associated emerging economic trends are creating increasing budgetary pressure in terms of financial performance and next year’s annual budget.

3. Uncertainty around these matters was clearly signaled in the long-term plan and was highlighted in the associated audit opinion.

4. Given the ongoing uncertainty, staff have continued to take a scenario-based approach to preparing budgets with a focus on reviewing key assumptions and assessing key financial risks.

5. The financial information in the Annual Budget 2022/2023 consultation document provided for some cost pressures that were known in November/December 2021 and signalled the risk that these pressures could intensify. A range of budget mitigations were set out to address the known cost pressures, and it was made clear that these measures might need to be used to a greater degree if the additional pressures eventuated.

6. A review of the latest financial information has confirmed that these intensified pressures have now eventuated, and the magnitude of the council’s operating budget challenge has increased. Updated information on the budget situation and potential mitigations has been presented to the Finance and Performance Committee and key public disclosures have been made via an NZX release (Attachment A).

7. Debt headroom has increased compared to projections in the long-term plan, but the council’s strong commitment to sustainable and prudent financial management means that there is no proposal to rely on borrowings to fund an ongoing operating imbalance or to further extend the council’s policy of fully funding depreciation by 2028.

8. A number of key ongoing financial risks have been identified that will not be able to be fully resolved with the adoption of the Annual Budget 2022/2023 and which will need careful ongoing monitoring and management. These key financial risks are:

· further increases to inflation and interest rates

· Waka Kotahi funding uncertainty

· cost increases for major capital projects

· further COVID-19 disruption

· need for further climate action.

9. Further analysis and advice on potential budget mitigation options will be presented to workshops of the Finance and Performance Committee in May 2022.

10. A final Mayoral Proposal on the annual budget will be prepared in late May 2022 for consideration by the Finance and Performance Committee and the Governing Body on 7 June 2022. The final Annual Budget 2022/2023 will then be adopted on 29 June 2022.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note that ongoing impacts of the COVID-19 pandemic, along with rising inflation and interest rates and labour market and supply chain constraints are presenting significant risks to the financial position of the Auckland Council group

b) note that the process to prepare and adopt the Annual Budget 2022/2023 is responding to these risks with a strong commitment to sustainable and prudent financial management

c) note that once the Annual Budget 2022/2023 is adopted there will be a need for careful ongoing monitoring and management of some key financial risks

d) agree to advise the Governing Body that an appropriate approach is being taken to manage the key financial risks associated with the Annual Budget 2022/2023, provided that the Governing Body is able to reach agreement on a budget that addresses the financial pressures in a sustainable and financially prudent manner.

Horopaki

Context

11. In the Enterprise Risk Management Activity Updates for December 2021 and February 2022 staff reported to this committee on the following heightened risk drivers:

· the impact of central government regulatory reforms

· increasing workforce challenges being experienced across Auckland Council

· the ongoing effects of the COVID-19 Omicron variant.

12. Staff reported that the financial implications of these heightened risk drivers, combined with factors such as inflation, wage inflation, growth pressures and the cost escalation of major capital expenditure projects (including the delays caused by COVID-19) were creating increasing budgetary pressure in terms of financial performance and next year’s annual budget.

13. The Audit and Risk Committee has several roles relevant to financial risks for the council group. These include:

· monitoring and oversight of key high-level risks to council

· considering the validity of management processes and thinking in relation to these risks and the associated controls

· advising the Governing Body on key matters of compliance including compliance with the Local Government Act 2002, debt market listing rules and Local Government Funding Agency debt covenants.

14. These financial risks directly impact on the preparation and adoption of the council’s Annual Budget 2022/2023. While this document is not itself subject to audit review, the Office of the Auditor General will be interested in this matter given its upcoming audit of the 2021/2022 Annual Report and its general role in providing monitoring and oversight of the New Zealand local government sector.

Tātaritanga me ngā tohutohu

Analysis and advice

Uncertainty disclosures in the Recovery Budget

15. In June 2021, Auckland Council adopted its Recovery Budget (long-term plan) 2021-2031 which clearly signalled high levels of financial uncertainty due to the COVID-19 pandemic and associated economic trends.

16. The Recovery Budget included an audit report with an unmodified audit opinion. This opinion included an Emphasis of Matter drawing the attention of readers to the disclosures relating to the high level of uncertainty around some assumptions on forecast funding.

17. The Audit and Risk Committee had a key oversight role in relation to the process for developing the Recovery Budget. On 22 June 2021, the committee agreed to advise the Governing Body that effective internal control and risk management processes had been followed during the preparation of the Recovery Budget.

Annual budget process to date

18. The process to develop the Annual Budget 2022/2023 has followed the same approach used for the Recovery Budget and the earlier Emergency Budget. This has included working with our Chief Economist to review and update key forecasting assumptions, taking a scenario-based approach to assessing the likely ongoing financial impacts of the COVID-19 pandemic on the council group and making transparent disclosures about the level of financial uncertainty.

19. The consultation document for the annual budget was adopted by the Governing Body in February 2022. This document outlined the implications that the ongoing uncertainty from the COVID-19 pandemic and other economic trends could have for the council’s finances for the 2022/2023 year and beyond. It discussed the larger and longer-lasting impacts on council revenue stream and the increased pressures on the council’s operating costs from rising inflation, interest rates and labour market and supply chain constraints.

20. The financial information in the consultation document provided for some cost pressures that were known in November/December and signalled the risk that these pressures could intensify prior to the budget being finalised in June 2022. A range of budget mitigations were set out to address the known cost pressures, and it was made clear that these measures might need to be used to a greater degree if the additional pressures eventuated.

21. Over February and March finance staff worked across the council group to update budgets and assess the impact of the latest economic trends on group budgets. The updated information was presented to the Finance and Performance Committee in a confidential workshop on 13 April 2022.

22. This updated information confirmed that the financial pressures had in fact intensified and that the group’s operating budget challenge had increased. The key information on the changed operating position, and the range of potential budget mitigations was made public via an NZX disclosure which also occurred on 13 April 2022. A copy of this release is included as Attachment A.

23. Throughout the process to develop the Annual Budget 2022/2023 finance staff have worked closely with our legal advisers on matters of compliance, including compliance with the Local Government Act 2002 and debt market disclosure requirements.

Debt and financial prudence

24. Staff have advised the Finance and Performance Committee that it is critically important to maintain a strong commitment to sustainable and prudent financial management. Therefore, while some short-term use of borrowings has been included in the set of potential budget mitigations, there is no proposal to use debt to fund ongoing operating imbalances or to further extend the councils policy of moving to fully fund depreciation from operating revenues by 2028.

25. Delays to the completion of capital projects have seen the council’s projected debt to revenue reduce compared to the projections in the Recovery Budget as shown in the chart below. This means that there is more available debt headroom relative to the council’s policy limit of 290 per cent which provides more capacity to respond to future shocks. However, this debt headroom cannot be used to respond to the ongoing operating position pressure without undermining this council’s commitment to sustainable and prudent financial management.

Key financial risks

26. In updating the Finance and Performance Committee on 13 April 2022, finance staff outlined some key financial risks that could potentially create further budget pressure for the council group. These key risks are:

Key risks	Proposed mitigation and controls
Further increases to inflation and interest rates increasing cost pressures Further rises in inflation and interest rates could put further pressure on the council’s operating position. An additional 1 per cent of inflation could add around $20 million of net operating pressure, depending on how it flows through to specific cost and revenue lines. Interest rate hedging provides a relatively high degree (but not complete) protection from rising interest rates in the short-term, and some protection over the medium to long-term.	Emerging trends will be closely monitored and managed with support from the council’s Chief Economist and the Treasury Management Steering Group. Budgetary adjustments will be considered each year via the annual or long-term plan process.
Waka Kotahi funding uncertainty Auckland Transport might receive less operating funding support that anticipated to cover the rising net cost of public transport services (from both higher running costs and reduced farebox revenue) due to Waka Kotahi funding constraints.	Discussions are underway with Waka Kotahi and central government officials to find potential solutions to these funding challenges.
Cost increases for major capital projects The cost to complete major capital projects such as the City Rail Link and the Eastern Busway are likely to increase due to the impact of the lockdowns that have occurred, and rising input costs associated with the ongoing labour and supply chain disruptions. Increases to capital costs will also likely have flow on implications for operating costs and thereby put further pressure on the group’s operating position.	The cost to complete major projects will be carefully reviewed and assessed, then funding implications and options will be considered when there is sufficient certainty around the magnitude of any material cost increases. These options may include changes to debt, asset, revenue and/or expenditure settings. To some extent, capital cost increases can be managed within the existing overall capital programme by deferring other projects. Sufficient debt headroom will be maintained to ensure debt financing can be considered as part of the mix of financial options.
Further COVID-19 disruption A resurgence of the Omicron variant or the emergence of a new variant may create further disruption to council revenue and activity.	Any significant changes to the COVID-19 situation will carefully be monitored and considered via the council group’s forecasting and budgeting processes. The full range of financial options to respond can be considered via future budget processes. Sufficient financial flexibility and adequate debt headroom will be maintained to mitigate the risk of a further revenue shock causing our ratio of debt to revenue to exceed our policy limit of 290 per cent.
Need for further climate action Further council investment may be urgently required to meet carbon emissions reduction goals and adapt to a rapidly changing climate.	The council will continue to work with central government on climate change response and will closely monitor any events or policy changes that might trigger the need for urgent action. Any significant financial implications will be considered via the council group’s forecasting and budgeting processes.

27. These key financial risks will not be fully resolved by the time the Annual Budget 2022/2023 is finalised and adopted in June 2022. This means that there will be a need for careful ongoing monitoring and management these risks.

Process to finalise the annual budget

28. Further analysis and advice on potential budget mitigation options will be presented to workshops of the Finance and Performance Committee in May.

29. A final Mayoral Proposal on the annual budget will be prepared in late May 2022 for consideration by the Finance and Performance Committee and the Governing Body on 7 June 2022. The final Annual Budget 2022/2023 will then be adopted on 29 June 2022.

Tauākī whakaaweawe āhuarangi

Climate impact statement

30. One of the key proposals for the Annual Budget is the introduction of a Climate Action Targeted Rate to enable more action to respond to climate change.

31. The pressure on the council’s operating position may mean that operating savings or capital deferrals are required, and this could impact on the pace of the council’s progress towards climate goals.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

32. This report considers the financial risks for the council group as a whole and has been informed by information collated from right across the council group.

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

Local impacts and local board views

33. There are no local impacts associated with the recommendations of this report.

34. Local boards have been briefed on the information provided to the Finance and Performance Committee. Local boards will continue to be provided with key information related to the annual budget and will have the opportunity to input their views prior to final decision making.

Tauākī whakaaweawe Māori

Māori impact statement

35. There are no impacts for Māori associated with the recommendations of this report.

Ngā ritenga ā-pūtea

Financial implications

36. There are no financial implications associated with the recommendations of this report.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

37. The financial risks of the COVID-19 situation for the council group are the subject of this report. The Audit and Risk Committee plays a key role in maintaining oversight and advising the Governing Body on the management of these financial risks and the associated compliance matters, including whether or not a robust process has been followed.

Ngā koringa ā-muri

Next steps

38. The next steps for the annual budget process are set out in the body of the report. The Audit and Risk Committee will receive further updates on the key financial risks as part of the regular Enterprise Risk Management Activity Updates.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	NZX Media Release - 13 April 2022	53

Ngā kaihaina

Signatories

Authors

Ross Tucker - General Manager, Financial Strategy and Planning

Michael Burns - Manager Financial Strategy

Authorisers

Peter Gudsell - Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

The Auditor-General's report to council on the review engagement for the six months ended 31 December 2021

File No.: CP2022/05277

Te take mō te pūrongo

Purpose of the report

1. To summarise the matters identified by Audit New Zealand, on behalf of the Deputy Auditor-General, during the review engagement for the six months ended 31 December 2021, and outline how Auckland Council is addressing these matters.

Whakarāpopototanga matua

Executive summary

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

3. On a semi-annual basis, the Deputy Auditor-General provides a report to council which outlines areas in which internal controls and disclosures can be improved. The report issued, following completion of the 31 December 2021 review engagement of the group’s interim report, is attached (Attachment A).

4. Three recommendations were raised, namely:

· ensuring better quantification of COVID-19 Alert Level 4 costs incurred by City Rail Link Limited (CRLL) during the first half of the 2021/2022 financial year

· the group review the value of operational and infrastructure asset classes and engage with valuers early to ensure revaluations are completed in sufficient time for the 2021/2022 annual report audit

· for assets vested by CRLL, council formally consider whether any additional adjustments might be appropriate under PBE IPSAS-36 Investments in Associates and Joint Ventures, paragraphs 31 and 32.

5. Management accepts these recommendations and has provided a response outlining actions being taken to address each issue.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the matters identified in the Deputy Auditor-General’s review engagement report to management, for the six months ended 31 December 2021, and management’s responses.

Horopaki

Context

6. This report summarises the matters identified by Audit New Zealand and the Deputy Auditor-General during their review engagement for the six months ended 31 December 2021 and outlines how management is addressing those matters.

7. Audit New Zealand and the Deputy Auditor-General, on behalf of the Auditor-General, conducted a review of the 31 December 2021 Auckland Council Group interim report. A review engagement provides a moderate level of negative assurance in which the auditor states that nothing has come to his attention that causes him to believe that the interim report does not fairly reflect the group’s financial position, performance and cash flows for the six-month period. This level of assurance is at a lower level than that of an audit.

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

Tātaritanga me ngā tohutohu

Analysis and advice

9. The report confirms that, despite some significant technical reporting challenges and COVID-19 restrictions, the review went well with the timely delivery of the information and effective communication with Audit New Zealand.

10. The report includes three uncorrected financial misstatements:

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

· Lockdown construction costs incurred by Watercare during COVID-19 Alert Level 4 for the two prior financial years. Watercare had capitalised costs related to extension of time claims issued as a result of the Alert Level 4 lockdown. When the group changed its accounting policy during the current year to expense these costs, $11 million of costs incurred by Watercare were not expensed. Management expects that this error will be resolved by 30 June 2022 as Watercare is undertaking a full revaluation of water and wastewater assets.

· Lockdown construction costs incurred by CRLL during COVID-19 Alert Level 4 for the two prior financial years. Similar to the point above, CRLL had capitalised $6 million of costs related to extension of time claims issued as a result of the Alert Level 4 lockdown, with $3 million attributable to the group. This error may not be resolved by 30 June 2022 as CRLL have not adopted the group’s policy in relation to these costs.

11. The following new matters were raised, with management’s responses:

Matter	Management’s response
Better quantification of COVID-19 Alert Level 4 costs incurred by CRLL during the first half of the 2021/2022 financial year The group should work with its contractors to develop a reliable estimate for inclusion in the 2021/2022 financial statements.	Management accepts the recommendation and has undertaken to engage with CRLL to ensure that any provision for costs that are not yet billed by 30 June 2022 will be based on firm estimates from contractors.
Fair value assessment of operational and infrastructure assets The group review the value of these asset classes and engage with valuers early to ensure revaluations are completed in sufficient time for the 2021/2022 annual report audit.	Auckland Council are undertaking a full revaluation of stormwater at 30 June 2022. Fair value assessments are being undertaken for other asset classes at 30 June 2022 to confirm they are recorded at fair value.
Accounting for City Rail Link Limited vested assets Council formally consider whether or not any additional adjustments might be appropriate under PBE IPSAS-36 *Investments in Associates and Joint Ventures,* paragraphs 31 and 32.	Auckland Council is currently formally considering and documenting whether or not any additional adjustments might be appropriate under PBE IPSAS-36 Investments in Associates and Joint Ventures, paragraphs 31 and 32. This will include consideration whether the recording of the transactions (vested asset revenue, and a loss due to a reduction in the council’s share of the CRLL joint venture) should be recorded gross or net.

Tauākī whakaaweawe āhuarangi

Climate impact statement

12. There are no items covered in this report that impact on climate change.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

13. The Auditor-General recommended that all entities in the group ensure that COVID-19 Alert Level 4 costs have been reasonably estimated by 30 June 2022. He further recommended that fair value assessments of operational and infrastructure assets are completed early to ensure, where revaluations are required, these are completed in sufficient time for the 2021/2022 annual report audit. These recommendations have been communicated to the finance teams of all group entities.

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

Local impacts and local board views

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

Tauākī whakaaweawe Māori

Māori impact statement

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

Ngā ritenga ā-pūtea

Financial implications

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

17. Auckland Council is actively addressing the issues raised. We have assessed that the matters will not impact on the audit opinion of the Auckland Council Group’s 2021/2022 annual report.

Ngā koringa ā-muri

Next steps

18. Auckland Council will continue to address the matters raised in the report to management.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇩	Review engagement management report 31 December 2021	59

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop - Group Treasurer

Peter Gudsell - Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

Auckland Council Group's 30 June 2022 year-end reporting and audit considerations

File No.: CP2022/05306

Te take mō te pūrongo

Purpose of the report

1. To provide the Audit and Risk Committee with:

· details of key aspects of the Auckland Council Group’s year end reporting and audit requirements

· information to enable the approval of new accounting policies and key judgements applied in the preparation of the annual report and summary annual report

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

Whakarāpopototanga matua

Executive summary

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

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

· at the 23 August 2022 Audit and Risk Committee meeting, the chair and deputy chair of the Finance and Performance Committee recommend the mayor and chief executive to sign and release the council group’s preliminary announcement to the NZX

· at the 12 September 2022 Audit and Risk Committee meeting, the annual reports for adoption by the Governing Body at its 29 September 2022 meeting.

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

· reporting requirements

· accounting policies adopted during the 2021/2022 financial year

· financial year-end process

· management representation letter process

· the committee’s oversight of the management of fraud.

5. To encourage transparency in our committee reporting we have endeavored to discuss as much information as possible about the year-end reporting and audit requirements in this report. However, there is some information which cannot be released to the public due to disclosure requirements of the NZX. Instead, it will be presented in the confidential item on today’s committee agenda titled “CONFIDENTIAL: Auckland Council Group’s 30 June 2022 year-end reporting and audit considerations”.

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

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

· key judgements and assumptions applied in the preparation of financial reporting including:

o information on the accounting policies adopted during the 2021/2022 financial year and their effect on the financial statements

o reporting requirements

· draft management representation letters as attachments

· Audit New Zealand’s key audit matters

· pro forma financial statements for the year ending 30 June 2022.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) note the year-end financial reporting process and other information in this report and use it to supplement the information in the confidential item “CONFIDENTIAL: Auckland Council Group’s 30 June 2022 year-end reporting and audit considerations”.

Horopaki

Context

Reporting requirements

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

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

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

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

11. The SIX requires the council to provide a URL (web address) to its annual report within four months of year-end.

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

13. Further information on reporting requirements will be discussed in the confidential item “CONFIDENTIAL: Auckland Council Group’s 30 June 2022 year-end reporting and audit considerations”.

Auditor responsibilities

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

15. Audit New Zealand will attend the Audit and Risk Committee meeting on 12 September 2022 to enable the committee to liaise with Audit New Zealand to ensure that a robust financial audit of the group has occurred.

Committee responsibilities

16. The Audit and Risk Committee reviews the quality of the year-end reporting, the processes used to prepare the documents, and the judgements and assumptions applied to transactions, balances and disclosures.

17. The Finance and Performance Committee review and enquire into the financial and operational performance of the group.

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

Tātaritanga me ngā tohutohu

Analysis and advice

19. The accounting policies applied in the pro forma financial statements are consistent with those used at 30 June 2021 except for:

· change in accounting policy for software-as-a-service arrangements in line with the International Financial Reporting Interpretations Committee, agenda decision issued in April 2021. This change was included in the Interim Report 31 December 2021 and was approved by the committee in advance.

· implementation of amendments to PBE IPSAS 2 Cash flow statements which require disclosures that enable users of financial statements evaluate cash and non-cash changes in liabilities arising from financial activities.

20. The adoption of these new standards has not resulted in any material changes to the financial statements.

Financial reporting year-end processes

21. The group’s annual report and summary annual report are produced for the year ending 30 June 2022. The annual report includes:

· volume one: overview and service performance

· volume two: local boards (comprising 21 local board reports)

· volume three: financial statements

· volume four: climate change risk.

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

Auckland Council Group’s financial statement consolidation

23. Auckland Council and CCO reporting packs, with auditor sign-off, will be provided to the Financial Control unit on 28 July 2022.

24. The group consolidation process will be completed by the Financial Control team, and the consolidation workbook and information are provided to Audit New Zealand.

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

NZX preliminary announcement

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

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

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

27. The internal clearance process is as follows:

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

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

· The group financial controller and group treasurer then meet with the group chief financial officer to sign off the NZX documents, as well as documents to be provided to the mayor and chief executive to support their sign-off. Drafts, based on the prior year, are included in the confidential report under paragraph 58 as confidential attachments B-D.

28. The process for the final approvals is as follows:

· On 23 August 2022, the Audit and Risk Committee will review and sign-off the NZX preliminary announcement and media release. Audit New Zealand will provide a verbal clearance at that meeting.

· The chair and deputy chair of the Finance and Performance Committee approve the NZX preliminary announcement and media release (under delegated authority by the Financial and Performance Committee meeting in December 2019) and recommend that the mayor and chief executive sign-off.

· The mayor and chief executive sign-off the NZX preliminary announcement and media release.

29. The NZX preliminary announcement and media release are made public within 60 days of year-end.

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

Diagram, schematic

Description automatically generated

Annual report and summary annual report preparation process

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

32. Volume 3 of the annual report is prepared by the Financial Control team.

33. Volume 4 of the annual report is prepared by the Financial Control team and the Chief Sustainability Office.

34. The annual report and summary annual report (annual reports) follow a sign-off process, as follows:

· The group financial controller, group treasurer and group chief financial officer review and sign off the annual reports.

· Mayne Wetherell and the council’s Legal Services team review the annual reports for compliance with legislation and the appropriateness of disclosure of legal matters such as legal contingencies and provide a confirmation of legal compliance.

· On 12 September 2022, an Audit and Risk Committee meeting is held for the committee to recommend the annual reports to the Governing Body for adoption.

· On 15 September 2022, the Finance and Performance Committee meeting is held to review the financial performance of the group and recommend the annual reports to the Governing Body.

· On 29 September 2022, the Governing Body approves the annual reports.

· On 30 September 2022, Audit New Zealand issues their Independent Auditors’ Report, and the annual reports, accompanied by a media release, are made public via the NZX and the Auckland Council website.

35. The following diagram outlines the process for the release of the annual report and summary annual report:

Diagram

Description automatically generated

Quality assurance and compliance approvals

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

Reviewer	Consolidated results and commentary	Media release	Preliminary NZX release	Annual report and summary report
Group chief financial officer*	ü	ü	ü	ü
Executive officer – CFO		ü	ü	ü
Executive officer - CEO		ü	ü	ü
Group treasurer*	ü	ü	ü	ü
General manager financial strategy and planning	ü	ü	ü	ü
Group financial controller*	ü	ü	ü	ü
Manager group performance reporting		ü	ü	ü
Manager group accounting and reporting*	ü	ü	ü	ü
Manager financial stakeholder relations		ü	ü	ü
Senior group reporting technical accountant*	ü	ü	ü	ü
Financial accounting manager*	ü			ü
Senior specialist corporate communications		ü
Legal services*			ü	ü
Mayne Wetherell*			ü	ü

37. All the technical quality assurance reviewers (denoted with *) performing reviews from a financial or legal perspective are qualified chartered accountants, lawyers or have equivalent qualifications and have the appropriate technical accounting skills and knowledge.

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

Management representation letters and management confirmations

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

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

CCO representation letters

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

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

· fairly reflects the financial position as at 30 June 2022, financial performance and cash flows for the year ended 30 June 2022.

42. Representation letters are obtained in short and long form:

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

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

Other matters

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

Draft representation on fraud and fraud questionnaire

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

45. The committee formally respond to these enquiries in writing. The representations made are supported by questionnaires completed by senior management and the Risk and Assurance department.

46. The questionnaire has not changed from prior years and will be presented in draft to the committee at the 23 August 2022 committee meeting.

Tauākī whakaaweawe āhuarangi

Climate impact statement

47. This report relates to a financial reporting process and disclosures only and as such has no climate implications. Auckland Council Group’s climate impact and climate change initiatives will be included in the annual report and summary annual report. No decision is sought in this paper that has an impact on greenhouse gas emissions and the council’s approach to reduce emissions.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

48. 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

49. 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. No decision is sought in this paper that would impact local boards; accordingly, the views of the local boards have not been sought.

Tauākī whakaaweawe Māori

Māori impact statement

50. This report relates to the approval of financial reporting of the Auckland Council Group, which does not affect the achievement or reporting of the council’s contributions to Māori outcomes. The group’s contributions to Māori outcomes will be reported in the 30 June 2022 Annual Report. No decision is sought in this paper that has a direct impact on Māori.

Ngā ritenga ā-pūtea

Financial implications

51. 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

52. No risks have been identified related to the information provided in this report.

53. Any risks and mitigations relating to the year-end reporting, key judgements and assumptions and audit requirements are discussed in the confidential item “CONFIDENTIAL: Auckland Council Group’s 30 June 2022 year-end reporting and audit considerations”

Ngā koringa ā-muri

Next steps

54. The committee will review the confidential key judgements, estimates and assumptions and attachments relating to this report in the confidential section of this meeting under the report “CONFIDENTIAL: Auckland Council Group’s 30 June 2022 year-end reporting and audit considerations”.

55. The following diagram summarises the steps towards finalisation of the annual reports:

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop - Group Treasurer

Peter Gudsell - Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

17 May 2022

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 CONFIDENTIAL: Council-controlled organisations' quarterly risk update - May 2022

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