No.	Title	Page
a ⇨	Forward Work Programme 2022 - 2023

Audit and Risk Committee

12 December 2022

Health, Safety, and Wellbeing Report

File No.: CP2022/16393

Te take mō te pūrongo

Purpose of the report

1. To provide an update on initiatives underway to improve health, safety, and wellbeing, and the current state of selected key performance indicators covering the period from December 2021 to October 2022.

Whakarāpopototanga matua

Executive summary

2. This is a standard report provided to the Audit and Risk Committee to enable members to understand and make recommendations relating to the management of health, safety, and wellbeing risk at Auckland Council. Further details on Auckland Councils approach to health, safety, and wellbeing, along with further details about initiatives being taken to manage the risks associated with health, safety, and wellbeing will be provided to the committee at an upcoming workshop.

3. There are several projects and initiatives underway across the council to improve the health, safety, and wellbeing of kaimahi (staff), and to deliver on the recommendations of the hauora (wellbeing) review. These are broadly on track and progressing well.

4. Key performance indicators are provided in Attachment A, covering the period from December 2021 through to October 2022. This report provides further analysis on these key indicators for the committee’s information.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) tuhi ā-taipitopito / note the information in this reporting 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 forwards this report to local boards for their information.

Horopaki

Context

5. This report provides commentary and a range of health, safety, and wellbeing performance indicators to enable the committee to provide objective advice and allow Auckland Council’s officers (as defined within the Health and Safety at Work Act 2015) to exercise due diligence obligations.

6. Recommendations on the adequacy and functioning of the council’s health, safety, and wellbeing risk management system and associated programmes are subsequently shared with the Governing Body. Health, safety, and wellbeing key performance indicators are in Attachment A.

Tātaritanga me ngā tohutohu

Analysis and advice

Project Hīra

7. Project Hīra is the work programme underway to improve Auckland Council’s management of health, safety, and wellbeing through the replacement of Risk Manager (an online health and safety reporting and management tool). This programme includes the procurement and platform configuration, alongside change management, process improvement, people leader training, and an awareness campaign.

8. In September 2022, the first modules within the new system (Donesafe) were released – including incident reporting and management, forms and checklists, and action management. This was successfully launched across council and has resulted in a 42% increase in incident reporting in October 2022 compared with the average of the previous 6 months.

9. The next module ‘risk management’ will be launched in early December 2022 with a focus on establishing a master health and safety risk library detailing the common risks across council, with minimum risk control and management standards detailed against each risk. Further work is being undertaken to prepare the second part of this module which will establish risk registers across teams and locations, linked to the relevant master risk.

10. Future modules to be configured and released through 2023 include injury management, contractor health and safety management, and hazardous substance management.

Hauora (wellbeing) review

11. In 2021 a review was undertaken within Auckland Council to consider how effectively the wellbeing of kaimahi was being addressed. This review detailed 31 recommendations relating to elements such as violence and aggression, governance of hauora, workforce planning, and training. Actions completed to date include the establishment of a Challenger Group, integration of hauora into work being undertaken on culture, improved exit surveys, specific violence and aggression risk mitigation, an improved code of conduct for elected members, and improvements to internal Speak Up channels and processes.

12. 14 of the 31 recommendations from the Hauora Review have now been completed, with actions for another 12 recommendations currently underway. Some recommendations are reliant on work being undertaken or completed in previous actions, which requires a sequential approach to the work being undertaken. For example, recommendations relating to guidance on hauora leadership being provided as part of an induction require the recommendation relating to the leadership programme to be completed first.

13. The current focus for hauora is to ensure that there are arrangements in place for the pastoral care of kaimahi in higher-risk work areas such as animal management, improving the accessibility and ease-of-use of health, safety, and wellbeing policy resources, and continuation of the actions to reduce the impact of violence and aggression on kaimahi.

Critical risk management

14. A project to improve the management of critical risks is currently underway across council. The first risk to be reviewed as part of this project was mobile plant, which includes council-owned and operated equipment including excavators, forklifts, tractors, and other self-propelled machinery.

15. A critical risk standard for mobile plant has been drafted in consultation with frontline staff and people leaders, alongside subject matter experts and health, safety, and wellbeing staff. Once reviewed and approved, a gap analysis against critical controls will be undertaken and any improvement opportunities will result in departmental improvement plans being developed.

16. Further critical risk workshops were undertaken in November 2022, including driving, and working around traffic.

Contractor management

17. Staff are currently developing plans to improve the health, safety, and wellbeing management of contractors engaged by Auckland Council after a full review of current processes within Auckland Council and council-controlled organisations was undertaken in mid-2022.

18. Initial activity has been completed to reduce the cost and administration associated with prequalification requirements, with Auckland Council now utilising the Tōtika prequalification scheme developed by Construction Health and Safety New Zealand (CHASNZ). This allows contractors to choose a prequalification scheme that meets their business needs and reduces the need to hold multiple prequalification certifications for different clients. While making this cheaper and easier for contractors, this also reduces the cost associated with prequalification for Auckland Council.

Violence and aggression

19. Following the No Excuse for Abuse campaign which raised awareness of violence and aggression against staff within the community, a programme of work has been completed to understand and mitigate the drivers of violence or aggressive behaviours experienced by kaimahi across Auckland Council. A series of workshops were held with kaimahi and people leaders from across several high-risk operations, focussing on the design of tasks or situations which contribute to the escalation of aggressive behaviours.

20. The teams involved have developed improvement plans based on the outputs and learnings from these workshops, and actions are being undertaken to reduce the drivers of violence and aggression. These actions are focused on ensuring that kaimahi have the necessary tools and training to effectively deescalate or manage violent or aggressive behaviours.

ACC Accredited Employer Programme Audit

21. The annual ACC Accredited Employer Programme (AEP) audit took place in October 2022, with the audit focussing on the Manukau Civic Centre. Having achieved Secondary level accreditation in December 2021, the auditor is recommending that Auckland Council be accredited at tertiary level for the next 12 months, indicating a high level of conformance to the audit standards. This is subject to review and approval by ACC, which is expected by the end of 2022. If sustained, this will reduce the ongoing audit requirements with these happening every second year, rather than annually.

Incident numbers and mechanisms

22. The number of incidents in October 2022 (after the introduction of Donesafe in late September) has increased to 527 incidents. The average incident number in 2022 had been approximately 370 incidents per month, which indicates a significant increase in reporting. These incidents are also being reported earlier, with 80 per cent of incidents now reported within 24 hours of occurrence.

23. The primary risk mechanism remains to be violence and aggression, consistent with previous reports.

24. With a change in health and safety reporting systems, Auckland Council is now focusing attention on the completion of corrective actions, rather than the closure of incidents. Future reports will contain a key performance indicator showing this change in measure.

Tauākī whakaaweawe āhuarangi

Climate impact statement

25. Te Tāruke-ā-Tāwhiri: Auckland’s Climate Plan acknowledges that if we do not take care of the environment, we are not taking care of our own health and wellbeing. While there are no climate impacts specifically arising from this performance report, the services the council provides, and related health, safety, and wellbeing risk controls will have varying climate impacts that need to be considered on a case-by-case basis.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

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

27. Health, safety, and wellbeing functions across the council group collaborate on shared issues and meet regularly to discuss alignment and opportunities to work together on common improvement opportunities.

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

Local impacts and local board views

28. 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.

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

Tauākī whakaaweawe Māori

Māori impact statement

30. While this performance report does not have specific impacts on Māori, staff acknowledge the importance of taking a holistic, kaupapa Māori approach to health and wellbeing.

31. In particular, the hauora programme arising from the hauora (wellbeing) review is utilising a kaupapa Māori approach, that reflects kaupapa Māori values and interventions. The council’s wellbeing programme, Te Papa Hauora, is based on ‘Te Whare Tapa Whā’ a holistic Māori health model. This model acknowledges the different elements needed to sustain hauora, including wairua (spiritual), hinengaro (mental and emotional), tinana (physical), whānau (family and social), and whenua (land and roots).

Ngā ritenga ā-pūtea

Financial implications

32. 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

33. 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

34. Following the 12December 2022 Audit and Risk Committee meeting, it is recommended that this report be referred to the Governing Body for its information. It is also recommended that the Governing Body forwards this report to local boards for their information.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Health, Safety, and Wellbeing Performance Dashboard

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

12 December 2022

Three Waters Reform Update

File No.: CP2022/16495

Te take mō te pūrongo

Purpose of the report

1. To update the committee on Auckland Council’s Three Waters Transition Programme, including key risks and how they are being managed.

Whakarāpopototanga matua

Executive summary

2. This is the first full audit and risk report for the Three Waters transition programme. A short paragraph on Three Waters was included in the Enterprise Risk update in August 2022.

3. The Government’s Three Waters reform programme aims to improve the safety, affordability and reliability of the three waters (drinking water, wastewater and stormwater) services. The legislation to establish the new water services entities has been delayed, with the first Bill expected to become law before Christmas. The other two Bills are expected to be introduced into the House in December this year. The Government’s Three Waters transition programme is in the discovery phase, with Auckland Council responding to requests for information from the Government’s Three Waters National Transition Unit. To mitigate resourcing impacts in responding to these requests, council has sought funding from Government’s support packages.

4. The key risk for council is the transition phase. Risk monitoring and oversight is led by the Three Waters Governance Group, comprised of executive leadership from Auckland Council, Watercare and Auckland Transport. The Governance Group’s role is to provide assurance that the programme has processes in place to appropriately monitor progress and to identify and mitigate risk.

5. If, and when, the Water Services Entities Bill is passed and the Water Services Entities (WSE) are formed (expected in early January 2023), council’s transition activities will focus more fully to future state design for council and agreeing which assets, functions and staff will transition to the WSE in July 2024.

6. In early 2022, as part of establishment of the Three Waters Transition Office (3WTO) PwC was engaged to frame up the programme, associated plans and processes. Among these is a risk mitigation plan. PWC also led an initial risk assessment and risk mitigation plan with input from council representatives impacted by the Reform.

7. The Governance Group has approved this risk management plan in principle, until such time as the future state design and associated transition requirements are confirmed.

8. Watercare is managing its own risks as part of the transition phase and will report separately to the Audit and Risk Committee as part of its standard risk reporting. Staff continue to work closely with Watercare, however, to ensure that the approaches to risk management across the group are aligned and coordinated.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) whiwhi / receive the update on risk management activity related to the Three Waters Transition Programme.

Horopaki

Context

9. The Government’s Three Waters Reform programme aims to improve the safety, affordability and reliability of the three waters (drinking water, wastewater and stormwater) services.

10. The reform programme is complex. The following diagram provides an overview of the Three Waters reform process. Two aspects of the reform have been completed – a change to regulations through the Water Services Act 2021 and the subsequent creation of a new water quality regulator (Taumata Arowai). The next phase of the reform proposes changes to the delivery of water services, creating four new regional organisations to manage the three water services, instead of 67 individual councils.

Diagram

Description automatically generated

11. Bill 1, the Water Services Entities Bill, is currently before the house and is expected to be passed into law by the end of the year. The Bill establishes the four Water Services Entities, setting out the WSE functions, objectives and operating principles. It covers the ownership, governance, accountability arrangements relating to the Entities, and provides for ongoing public ownership, safeguards against future privatisation, and transitional arrangements. The WSE will go live in July 2024.

12. The Department of Internal Affairs (DIA) is given oversight powers during the establishment period. These enable the Department to review and where applicable confirm local government decisions if these will prejudice or constrain the water services reform, or have a negative impact on assets or liabilities that will be transferred to the new entities.

13. The second Bill is expected to be introduced in December 2022. This Bill will establish the detailed powers, functions and duties of the Entities necessary for the WSEs to deliver water services to communities in place of territorial authorities. It also encompasses transfer of assets and liabilities. The council has not yet seen this Bill, and it is currently behind schedule. Without visibility, it is not possible for council to commence detailed transition planning.

14. The Government has also proposed a new economic regulatory regime and consumer protections to safeguard consumer interests and drive efficient investment and performance.

15. While supportive of water reform, Auckland Council does not support the complex governance and accountability arrangements as set out in Bill 1. The council has also raised strategic and practical concerns about the transfer of stormwater functions to the new WSEs.

16. Within DIA, the process to transition three waters service delivery from councils to the new entities is being led by the Three Waters National Transition Unit (NTU). This includes the transition of council staff who perform water services related roles and activities from council to the WSE, as well as working with the new WSE chief executive to determine asset transfers and responsibility for delivery of related functions.

17. The NTU’s transition programme is in the discovery and establishment planning phase. Auckland Council has responded to NTU requests for information. To mitigate resourcing impacts in responding to these requests, council has sought funding from Government’s support packages.

Tātaritanga me ngā tohutohu

Analysis and advice

18. Three key risks have been identified for Auckland Council:

A. Risk of water reform not proceeding and Watercare and council having to fund the expected increased costs associated with the new water quality regulator.

B. Three waters transition risk - during the establishment period (estimated December 2022 – 1 July 2024).

C. Risk that the current Three Waters Reform is rescinded, due to a change in government next year. The National Party has signalled that given the opportunity they would rescind the legislation. However, all parties recognise that the status quo is not a viable option long-term, so any new government is likely to keep some elements of the reform.

19. Staff have assessed the risks of these as:

A screenshot of a cell phone

Description automatically generated

20. Risks A and C are outside of council’s control. Both risks could be mitigated somewhat by not committing significant resources to preparing for a potential transition. However, this needs to be balanced against the likelihood that reform will take place, or that elements of it will survive a change of government in some form, and that council needs to be prepared to manage transition risks. At this stage, Council has committed what it considers to be an appropriate level of resource and governance to the process, so that risks either way can be accommodated. This is described below as part of managing risk B.

21. The highest risk for council at this stage is the risk associated with transition during the establishment phase (B). If the legislation is passed, the council will need to facilitate the transfer of its associated assets, staff and contracts to the new water entity on 1 July 2024 and manage any impacts these changes will have on the rest of the council during the transition process. To support this activity, the council has set up a Three Waters Transition Office (3WTO) and set up a governance process for overseeing the transition.

Council’s risk management process

22. In early 2022, as part of establishment of the Three Waters Transition Office (3WTO) PwC was engaged to frame up the programme, associated plans and processes. This included establishing a system of governance and monitoring.

23. Risk monitoring and oversight is led by the Three Waters Governance Group, comprised of executive leadership from Auckland Council, Watercare and Auckland Transport. The Governance Group’s role is to provide assurance that the programme has processes in place to appropriately monitor progress and to identify and mitigate risk. Risk management responsibilities are led by 3WTO. The group meets monthly, and more frequently as required.

24. PwC also led an initial risk assessment and risk mitigation plan with input from council representatives impacted by the Reform. This focused on identifying the parts of the business at risk, and the risks of transition, and formed the basis for a risk register.

25. Once the legislation has passed, the 3WTO Lead will shift to an active risk management approach, working with the NTU on ensuring that risks (and issues) are identified, expressed, and managed effectively. These will be managed and updated regularly and reported on as part of the Governance reporting.

26. The key risks at this stage are identified in the following table.

Identified Transition Risks

Risk category	Key controls
Timeframes and Planning	Working with the NTU on establishing detailed workplan pre transition and establishment phase
Inability to meet Establishment Timelines	Working with NTU on detailed workplan development including resourcing requirements Engage external resources as required to meet deadlines, using DIA funding
Change Management	Draft Change Management Plan developed. Develop and disseminate clear messaging and communications on change activities underway, and provide regular updates to Governance Group, impacted business functions and people.
Retention of People and Capabilities	Work with NTU staff workstream on staff transition arrangements Develop and execute a formal change plan Develop and execute a Communications and Engagement Plan
Impact on Business as Usual	Ensuring that activity requests are mandated by Senior Executives and 3W Governance Group Keeping NTU informed on impacts on resourcing and managing timeframes and expectations.
Political and Reputational	Engagement with key stakeholders to ensure levels of support and confidence are maintained. Ensure the Communications Plan and Change Plan have identified required activity to support this engagement Ensure there is clear ownership of elected member engagement and communication throughout the transition. Engage with key mana whenua throughout the transition (internally and externally) to ensure levels of support and confidence are maintained Ensure there is clear ownership of mana whenua engagement and communication throughout the transition Engage with Northern Waters and LTT / NTU to understand engagement underway / planned

Tauākī whakaaweawe āhuarangi

Climate impact statement

27. This report is about the risks associated with the Government’s Three Waters Reform. The Government is responsible for the consideration of climate change impacts within their reform objectives.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

28. The Three Waters Reform will have a significant impact on Auckland Council, Auckland Transport and Watercare.

29. Watercare is running its own transition office and working closely with council’s 3WTO.

30. Auckland Transport is part of the Council Group Governance Group. The impacts and risks for Auckland Transport will become clearer when Bill 2 is introduced into the House.

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

Local impacts and local board views

31. Local board reviews were not requested for this report.

Tauākī whakaaweawe Māori

Māori impact statement

32. The Three Waters Reforms give statutory effect to Te Mana o Te Wai and the Treaty of Waitangi. As part of the governance structure iwi will have a co-governance role. Iwi engagement is a separate workstream in the NTU’s programme. Council’s Ngā Mātārae unit is part of council’s Three Waters Governance Group.

Ngā ritenga ā-pūtea

Financial implications

33. Implementing the Government’s reform programme will have resourcing, cost and balance sheet implications for council. The Government has introduced a number of funding packages to assist councils in undertaking this work and to ensure no council is worse off. Council is currently using Government funds and will access further funding as it becomes available.

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

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

35. This report is about the management of Auckland Council’s risks in advancing Three Waters Reform.

Ngā koringa ā-muri

Next steps

36. The following activities will be undertaken in the next period:

· Update risk assessment once the bill(s) are passed

· Assign owners to risk controls

37. Continue monitoring and providing updates to the council group’s 3W Governance Group on risks

Ngā tāpirihanga

Attachments

There are no attachments for this report.

Ngā kaihaina

Signatories

Author

Claire Gomas - Principal Advisor

Authorisers

Megan Tyler - Chief of Strategy

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

12 December 2022

Risk management approach for annual budget 2023-2024

File No.: CP2022/16579

Te take mō te pūrongo

Purpose of the report

1. To provide an update on the process and next steps for the Annual Budget 2023/2024 including the management of key financial risks to the organisation due to ongoing unfavourable economic conditions.

Whakarāpopototanga matua

Executive summary

2. On 10 November 2022 staff updated the Governing Body on the most recent financial projections for the Auckland Council Group (the “group”) and the process relating to the Annual Budget 2023/2024 – this meeting marked the beginning of the Annual Budget 2023/2024 process.

3. The report on the public agenda included details on the legislative requirements associated with the preparation and adoption of an annual budget as well as a high-level summary of both the economic trends that continue to impact the group's financial position and options/levers available to mitigate this.

4. Information in the report included new financial projections that showed recent changes in economic conditions, including sharp increases to inflation and interest rates, had significantly impacted the group's operating position.

5. Based on new Reserve Bank of New Zealand’s (RBNZs) forecasts in October, staff advised the Governing Body that a total ongoing operating budget gap for the 2023/2024 financial year had increased to $270 million from an earlier forecast of $90 million-$150 million, primarily due to the rapid increases in inflation and interest rates.

6. Further detail and analysis on the pressures and advice on options to close the gap were provided by staff to the Governing Body in a workshop on the same day and the material relating to that discussion is now publicly available (link here).

7. Subsequently, on 23 November 2022, the RBNZ announced new interest and inflation forecasts. This resulted in a further $25 million estimated widening in operating budget pressures for 2023/2024, meaning the group is now forecasting a $295 million unmitigated budget gap for 2023/2024. This update was verbally provided to Governing Body by the Group Chief Financial Officer at a meeting on 24 November 2022.

8. While no further RBNZ announcements are expected between now and February 2023, finance staff will continue to work with the council’s Chief Economist to closely monitor economic conditions as part of developing the budget, with a focus on reviewing key assumptions and assessing key financial risks as new information becomes available. Updates will be provided as necessary to the Governing Body and the Audit and Risk Committee, which has a role in monitoring the groups associated financial risks.

9. The mayor has a statutory role to lead the development of the annual budget. Since the beginning of the new political term, staff have provided briefings and advice to the mayor in relation to the operating budget pressures, options to mitigate the pressures and a credible and sustainable plan to address the ongoing financial risks.

10. After considering staff advice on the options/levers to mitigate the ongoing operational budget pressures, the mayor released a draft Mayoral Proposal that set out a plan to address the gap. This was discussed at a Governing Body workshop on 7 December 2022.

11. Final decisions on the Mayoral Proposal and items for consultation will be considered by the Governing Body at a meeting on 15 December 2022.

12. Staff will prepare consultation material to give effect to those decisions, including information on any proposed amendment to the Long-term Plan 2021-2031 (LTP) to meet the associated audit requirements as set out in the Local Government Act 2002.

13. Audit New Zealand have provided a draft engagement letter in case an audit is required because of decisions made on 15 December 2022 which is attached to this report. If required, a final engagement letter will be provided (including the audit fee), and this will be signed off by the mayor.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) tuhi ā-taipaitopito / note that the impacts of rising inflation and interest rates have resulted in operating budget pressures that present ongoing financial risks for the council group

b) tuhi ā-taipaitopito / note that given the environment of economic uncertainty there remains a need for careful and ongoing monitoring and management of key financial risks

c) whakaae / agree to advise the Governing Body that an appropriate approach is being taken to manage the key financial risks associated with the Annual Budget 2023/2024, provided that the Governing Body agrees a budget proposal and items for consultation that address the financial pressures in a sustainable, credible and financially prudent manner

d) tuhi ā-taipaitopito / note that if an audit review is required in relation to a proposal to amend the Long-term Plan 2021-2031 an update on that audit review will be provided to the Audit and Risk Committee prior to the Governing Body adopting the consultation material.

Horopaki

Context

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

· monitoring and oversight of key high-level risks to the group

· 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.

15. As part of the Annual Budget 2022/2023 staff provided updates to the Audit and Risk Committee on the management of ongoing financial risks associated with that process. The committee also received updates on the key financial risks as part of the regular Enterprise Risk Management Activity Updates.

16. The financial risks outlined in this report directly impact on the preparation and adoption of the group’s Annual Budget 2023/2024 and could potentially impact political decision-making given the magnitude of the gap and the impacts associated with some mitigation options.

17. There is also a risk to the budget process timeline if an audit review is required for any proposal that requires an amendment to the LTP. Contingency timelines and budget have been factored into the overall Project Execution Plan for the Annual Budget 2023/2024 to allow for the necessary audit steps if required.

18. Audit New Zealand have provided a draft engagement letter in case an audit is required because of decisions made on 15 December 2022 which is attached to this report. If required, a final engagement letter will be provided (including the audit fee) and this will be signed off by the mayor.

Tātaritanga me ngā tohutohu

Analysis and advice

19. Since the COVID-19 pandemic began, budget decisions have focused on reprioritising expenditure and finding cost reductions and efficiencies, while considering options to manage the substantial long-term financial challenge of constrained funding meeting higher costs of delivering services and capital investments.

20. The situation has been exacerbated both by ongoing COVID-19 revenue impacts and rapid changes to economic factors such as rapid inflation and interest rate rises. These factors are making it increasingly challenging for the group to balance its operating budget.

21. The Annual Budget 2022/2023 adopted in June 2022 signaled high levels of economic uncertainty and projected an unmitigated operating budget gap of between $90 and $150 million per annum depending on inflation and interest rate outcomes.

22. The group has several levers, or options, to manage the budget gap. However, recent rapid movements in inflation and interest rates mean that the scale of this challenge requires tough choices and trade-offs to be made about the mix of levers to be used. These choices need to be credible, provide long-term financial sustainability as well as solving for the short-term financial challenge.

23. Any further staff advice will continue to focus on the need for a credible and sustainable plan for the Annual Budget 2023/2024 and beyond that supports the group’s long-term financial position.

Annual Budget 2023/2024 process to date

24. An NZX disclosure statement was released on 7 November 2022 giving an update on the estimated operating gap being larger than projected through the Annual Budget 2022/2023 at around $270 million due to the rapid rise in inflation and interest rates. It noted the broad range of budget levers available to the group and outlined how the group would make decisions on these levers via its annual budget process.

25. The disclosure statement also highlighted the group’s strong commitment to maintaining a prudent and sustainable approach to long-term financial management, noting that our credit ratings of AA/Aa2 from S&P Global and Moody’s respectively, both on stable outlook, had been affirmed.

26. On 10 November 2022, staff provided the Governing Body with an update on the operating budget pressures that were estimated to total $270 million. In a workshop directly after this meeting, further detail was provided on the various components of the group pressures and options to mitigate those pressures. This included staff advice that a credible and sustainable plan would need to be agreed to which considered impacts beyond 2023/2024.

27. As part of that advice, staff advised that deciding on the mix of levers to mitigate budget pressures should be guided by the following criteria:

i) giving confidence in the group’s financial management to investors, credit rating agencies and other external stakeholders

ii) helping create enduring solutions for ongoing budget pressures and moving the council towards long-term financial sustainability

iii) not imposing too high a burden on ratepayers or creating unacceptable shocks for them in the short or long term

iv) being able to be implemented within the required timeframe.

28. Confidential workshops were then held on 16 November 2022 to discuss options and scenarios for Tātaki Auckland Unlimited, Eke Panuku, Auckland Transport and Auckland Council in relation to options for reducing operational expenditure. Advice on options and scenarios relating to rates and the partial or full sell-down of council’s shareholdings in Auckland International Airport Limited (AIAL) was also provided at this time.

29. At the Governing Body meeting on 24 November 2022, the Group Chief Financial Officer verbally advised that because of the most recent RBNZ announcement of a revision of inflation and interest forecasts, there was a further estimated $25 million of operating budget pressure for 2023/2024 taking the total estimated operating budget gap to $295 million.

The Mayoral Proposal and next steps

30. The development of the Mayoral Proposal has been supported by ongoing staff advice on the options/levers to mitigate budget pressures and the need for any mix of these options to be guided by the criteria mentioned above to ensure credibility and long-term financial sustainability.

31. The draft Mayoral Proposal along with technical staff advice was discussed by the Governing Body at a workshop on 7 December 2022.

32. Final decision-making on the Mayoral Proposal and items for consultation will be considered at a Governing Body meeting on 15 December 2022.

33. Local boards considered the draft Mayoral Proposal and supporting advice at their business meetings from 6-9 December 2022 and their feedback will be included in a report to the Governing Body meeting on 15 December 2022.

34. Once decisions are made, staff will prepare consultation material to give effect to those decisions, including information on any proposed amendment to the LTP. An audit review is required for any such amendments to meet the requirements set out in the Local Government Act 2002.

35. If an audit is required, staff will report back to the Audit and Risk Committee in early 2023 on the audit review prior to the Governing Body adopting the consultation material.

36. Staff will continue to work with the council’s Chief Economist to monitor and assess the impact of any further changes in economic conditions and will provide ongoing financial analysis and advice throughout the remainder of the annual budget process.

37. Final decisions on the budget will be made following public consultation and the final annual budget will be adopted by 30 June 2023 prior to setting rates for the 2023/2024 financial year.

Key associated financial risks

38. The key financial risks associated with this process are as follows:

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 percentage point rise in 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 of (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 as part of this process and for each following year via the annual or LTP process.
Waka Kotahi funding uncertainty Auckland Transport might receive less operating funding support than 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 are likely to increase due to the impact of the lockdowns that have occurred, and rising input costs associated with ongoing labour and supply chain disruptions and general inflation-related increases. Increases to capital costs will also likely have flow on implications for future operating costs and thereby put further pressure on the group’s operating position over the medium term.	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.
Delay in political decision-making Given the size of the operating gap, the systemic nature of the issue, and the complexity associated with the timing and scope of this annual budget there could be a delay in decision-making at any point in the process.	Provide timely, considered and consistent advice for decision makers, including process information and consequences.
Implementation of operating savings Given the size of the operating savings targets, and the timing associated with the annual budget, there is a risk that some savings opportunities agreed through this budget may not be able to be fully implemented by the time the 2023/2024 financial year commences on 1 July 2023.	For changes to operating budgets not requiring public consultation, staff across the council group will begin exploring and implementing opportunities immediately. Where public consultation is required, staff will commence planning for implementation to ensure action can be taken promptly if Council decides to proceed with proposals following consultation.
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 need to keep progressing this strategic outcome will be considered as part of prioritising expenditure for the 2023/2024 year. Further investment in climate action will be considered as part of the LTP 2024-2034 process and via discussions with central government.

Tauākī whakaaweawe āhuarangi

Climate impact statement

39. Some considerations to reduce operating budgets could result in less funding for activities that support and contribute to climate action. This will be carefully considered as part of budget prioritisation and any material associated risks or impacts will be detailed in consultation material to support consultation with Aucklanders.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

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

41. All council departments, council-controlled organisations (CCOs) and other entities funded by the council could be impacted by decisions made for the Annual Budget 2023/2024. Auckland Council’s executive leadership team and the chief executives of the CCOs were briefed on the budget in early November 2022 and will continue to be regularly updated as the development of the budget progresses.

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

Local impacts and local board views

42. Local boards have a legislative role to provide input on regional plans.

43. Local boards have been briefed on the information provided to the Governing Body. These briefings along with providing the local boards with the draft Mayoral Proposal aimed to help inform local board input on the items for consultation and these views will be set out in a report for consideration by the Governing Body on 15 December 2022.

44. Local boards will continue to be provided with key information related to the annual budget, including any necessary advice on individual local consultation matters that will take place alongside regional consultation in March 2023. This includes consulting on any related impacts to the community (or actions to mitigate these impacts) if a reduction in local board funding is proposed.

Tauākī whakaaweawe Māori

Māori impact statement

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

46. Planned engagement with Māori will be included as part of the annual budget communications and engagement plan that will be presented to the Governing Body early 2023.

Ngā ritenga ā-pūtea

Financial implications

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

48. Should any decisions require an audit process, Audit New Zealand will provide an engagement letter including any associated audit fee and this will be signed off by the Mayor.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

49. The financial risks of the current economic climate 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

50. 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 and will also receive updates on associated audit review if required.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Draft Engagement Letter for audit of amendment to the Council's 2021-2031 LTP

Ngā kaihaina

Signatories

Authors

Tamsyn Matchett - Programme Manager

Ross Tucker - General Manager, Financial Strategy and Planning

Authorisers

John Bishop - Group Treasurer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

12 December 2022

Endorsement of the draft Office of the Auditor-General Interim Review Engagement Letter for the 6 months ended 31 December 2022

File No.: CP2022/16338

Te take mō te pūrongo

Purpose of the report

1. To review and endorse the draft Office of the Auditor-General Interim Review Engagement Letter for the six months ending 31 December 2022 (Attachment A).

Whakarāpopototanga matua

Executive summary

2. Audit New Zealand has provided the Office of the Auditor-General’s draft interim review engagement letter for the six months ending 31 December 2022 (the draft letter).

3. The draft letter outlines the scope of responsibilities, group entities subject to review, areas of review focus and administration matters such as proposed fee, logistics and timetables.

4. The review fee has been agreed at $135,736 plus disbursements which reflects a 7.5 per cent increase on the prior year.

5. The draft letter is substantially the same as in prior years with the addition of construction costs and impairment assessments to the areas of review focus. This was partly covered by the “Impact of COVID-19” section in the prior year and “Accounting for impairment and capitalisation of work in progress”.

6. Other areas of review focus from the prior year include:

· valuation of property, plant, and equipment

· valuation and disclosure of derivatives

· valuation of the weathertightness and associated building defect claims provision

· City Rail Link Limited

· Three Waters Reform

· central government funding

· management override of controls

· rates

· legislative compliance.

7. The prior year matter relating to configuration and customisation costs of Software-as-a service (SaaS) has been removed.

8. The Audit and Risk Committee has responsibility for reviewing and endorsing the draft letter before Audit New Zealand issues the final letter for approval by the mayor and chief executive.

9. The group financial controller will present any amendments to this draft letter at the committee meeting.

10. Audit New Zealand Audit Director Karen MacKenzie will be in attendance to answer any questions the committee may have in relation to the draft letter.

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) arotake / review and ohia / endorse Audit New Zealand’s draft interim review engagement letter, including the proposed review engagement fee

b) tono / request Audit New Zealand issue the final interim review audit engagement letter

c) tono / request the mayor and chief executive sign the final interim review audit engagement letter.

Horopaki

Context

11. Management has reviewed the draft letter and provided feedback to Audit New Zealand, which has been incorporated.

12. A review engagement provides readers with a moderate level of assurance that nothing has come to the auditor’s attention that causes the auditor to believe that the interim financial statements do not fairly reflect the Auckland Council Group’s financial position, performance and cash flows for the period. This moderate level of assurance (known as negative assurance) is a lower level of assurance than that of an audit and is our usual process for interim reporting.

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

14. The draft letter outlines the scope of responsibilities, group entities subject to review, areas of review focus and administration matters such as logistics, proposed fee and timetable. It is substantially the same as in prior years.

Tātaritanga me ngā tohutohu

Analysis and advice

Review engagement letter

15. The draft review engagement letter outlines the:

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

· scope of the Governing Body and management’s responsibilities

· areas of the review focus

· engagement logistics and timelines.

16. This draft letter includes areas of focus which are similar to the prior year with the removal of business combination/early adoption of accounting standards, and the configuration and customisation costs of Software-as-a service (SaaS). The areas of focus are:

· City Rail Link Limited (CRLL) - the council’s investment in CRLL and COVID-19 claims from Link Alliance must be appropriately accounted for and disclosed

· construction costs and impairment assessments – work in progress should be capitalised when the asset becomes operational and an impairment assessment is required of assets including significant work in progress balances

· valuation of property, plant and equipment - fair value assessment of fixed assets– consideration of significant changes in fair value which might require an independent valuation to be carried out

· valuation of the weathertightness and associated building defect claims provision – the provision needs to be reviewed and updated

· valuation and disclosure of derivatives – derivatives should be correctly valued and significant movements in fair value should be appropriately explained in the financial statements

· Three Waters Reform – there should be sufficient disclosure about the potential impacts of the reform on the group in the financial statements

· valuation of investment properties – investment properties should be properly classified and valued in the financial statements

· central government funding – any new agreements should be fairly reflected in the financial statements

· management override of controls – Audit New Zealand will maintain an awareness for the risk of management override of controls as they perform review procedures

· rates – annual rates should be appropriately discounted to reflect present value

· legislative compliance – Audit New Zealand will follow up on the completion of a review of the interim report by Legal Services.

Ngā ritenga ā-pūtea

Financial implications

17. In the past, the review engagement fee has been set at 10 per cent of the annual audit fee. As Audit New Zealand has not yet finalised the 2023-2025 audit proposal and fee letter, management has agreed to a fee of $135,736 plus disbursements which reflects a 7.5 per cent increase on the prior year.

18. We expect the 2023-2025 audit proposal and fee letter to be presented to the committee at the February 2023 meeting.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

19. There is a risk of a potential further increase in the auditor’s fees after the agreement is made (last year an additional charge of $6,000 was requested). This could occur if there is a significant increase in the review scope which would require extra audit effort, or if Audit New Zealand engages experts (e.g. valuers).

20. 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

21. Following the endorsement of the draft letter by the committee, Audit New Zealand will issue the letter in its final form for the mayor and chief executive to sign. Auckland Council staff will also confirm and finalise the council and Audit New Zealand’s delivery timelines, to ensure a timely and efficient review process.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Draft review engagement letter for the six months to 31 December 2022

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop – Acting Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

12 December 2022

Preparation of the interim report and NZX release for the six months ending 31 December 2022

File No.: CP2022/16374

Te take mō te pūrongo

Purpose of the report

1. To provide the Audit and Risk Committee with an update on the status of financial processes for the preparation of the interim report and the NZX release for the six months ending 31 December 2022.

Whakarāpopototanga matua

Executive summary

2. As an issuer of debt on the NZX, listing rules require the Auckland Council Group to release financial information within 60 days after the six months ending 31 December 2022.

3. To promote good governance and meet investor expectations, management prepares an interim report and has negative assurance provided over it by Audit New Zealand on behalf of the Auditor-General.

4. On 21 February 2023, the Audit and Risk Committee will be asked to recommend that the delegated member of the Governing Body approve, and recommend to the mayor and chief executive that they approve, the following documents for release to the NZX on 28 February 2023:

· NZX announcement

· associated media release

· interim report for the six months ending 31 December 2022.

5. This report assists the committee in their assessment of the adequacy of the interim report processes and the controls in place to prepare it. The interim report includes:

· key audit matters for the review engagement as at 31 December 2022

· review engagement milestones

· quality assurance and compliance sign-off processes

· management representation letters and management confirmations

· the Audit and Risk Committee’s oversight of the management of fraud.

6. To encourage transparency in our committee reporting, we have endeavoured to discuss as much information as possible about the half year reporting and audit review requirements in this report. However, there is some information which cannot be released to the public due to disclosure requirements of the NZX. Instead, updates on key areas of judgement, estimates and assumptions, and on issues and risks will be presented to the committee in the confidential report at this meeting “Confidential: Interim report and NZX release for the six months ending 31 December 2022”.

7. Additionally, six other documents will be provided in the confidential item relating to the preparation of the reporting for the six months ending 31 December 2022:

· draft NZX announcement (based on prior year)

· draft memo to the group treasurer and group chief financial officer (based on prior year)

· draft memo to the mayor and chief executive (based on prior year)

· draft letter of representation for the group interim report (based on prior year)

· draft fraud questionnaire

· pro forma interim report for the six months ending 31 December 2022 (for endorsement).

Ngā tūtohunga

Recommendation/s

That the Audit and Risk Committee:

a) tuhi ā-taipitopito / note the information contained in this financial process status update for the Auckland Council Group NZX announcement and interim report for the six months ending 31 December 2022

b) tuhi ā-taipitopito / note that an update on the confidential matters and confidential draft documents related to the interim report and NZX release will be discussed later in this meeting in confidence.

Horopaki

Context

8. As an issuer of debt on the NZX, listing rules require the Auckland Council Group to release financial information within 60 days after the six months ending 31 December 2022.

9. The release to the NZX (‘NZX release’) includes the following documents:

· results announcement

· media release

· interim report for the six months ending 31 December 2022.

10. To promote good governance and meet investor expectations, management prepares an interim report and has negative assurance provided over it by Audit New Zealand on behalf of the Auditor-General.

11. The purpose of the interim report is to provide an update on material information reported in the Auckland Council Group Annual Report 2021/2022 (annual report), and for this reason committee members may wish to read the pro forma in conjunction with volume three of the annual report.

12. Management has prepared a pro forma interim report (included in the confidential report “Confidential: Interim report and NZX release for the six months ending 31 December 2022”. It sets out the format and policies of the interim report, and contains the financial statements, accounting policies and notes to the financial statements. Many sections are incomplete as they can only be updated when the information is available or confirmed after 31 December 2022.

13. On 21 February 2023 the Audit and Risk Committee will review the NZX release and the processes and controls used in preparing the documents.

14. Audit New Zealand will attend that Audit and Risk Committee meeting to enable the committee to discuss Audit New Zealand’s review, in order to assess whether a robust financial review has occurred.

15. At the meeting, management will ask the Audit and Risk Committee to make the following recommendations in fulfilment of its terms of reference:

· recommend that the delegated Governing Body member approve the half year NZX release for the six months ended 31 December 2022.

· recommend that the delegated Governing Body member authorise the mayor and the chief executive to approve and release the half year NZX release on 28 February 2023.

16. Prior to making their recommendation, a delegated Governing Body member will review and enquire into the financial and operational performance of the group. The Governing Body will make this delegation at their 15 December 2022 meeting.

Tātaritanga me ngā tohutohu

Analysis and advice

17. Audit New Zealand’s key review matters for the review engagement as at 31 December 2022 are:

· internal control matters:

o management override of controls

o legislative compliance

· accounting matters:

o valuation of property, plant and equipment

o construction costs and impairment assessments

o valuation of investment properties

o valuation and disclosure of derivatives

o valuation of the provision for weathertightness and associated building defect claims

o rates

o City Rail Link Limited

o Three Waters Reform

o central government funding.

Key milestones

18. The key milestones for the NZX release and interim report are:

Quality assurance and compliance approvals

19. Quality assurance reviews will be performed on the consolidated results and commentary of the NZX release documents. The reviews will focus on accuracy, completeness and reasonableness of disclosures, legislative compliance and adherence to council communications standards. A summary of the reviews are as follows:

Reviewer	Consolidated results and commentary	Interim report	NZX release	Media release
Group chief financial officer*		ü	ü	ü
Group treasurer*	ü	ü	ü	ü
GM financial strategy and planning		ü	ü	ü
GM financial and business performance*		ü	ü	ü
Group financial controller*	ü	ü	ü	ü
Manager group accounting and reporting*	ü	ü	ü	ü
Senior group reporting technical accountant*	ü	ü	ü	ü
Financial accounting manager*	ü	ü	ü	ü
Head of group financial planning*		ü	ü	ü
Senior specialist corporate communications			ü	ü
Senior solicitor and Mayne Wetherell		ü	ü	ü

20. All the quality assurance reviewers performing technical reviews (denoted with *) are Chartered Accountant (CA) or equivalent and have the appropriate technical accounting skills and knowledge.

Management representation letters and management confirmations

21. 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.

22. To support the mayor and the chief executive’s representations, the group chief financial officer, group treasurer and the group financial controller will sign a back-to-back representation letter.

23. A draft copy of the representations, based on the prior year, is included in the confidential report at this meeting titled “Confidential: Interim report and NZX release for the six months ending 31 December 2022”.

Draft representation on fraud and fraud questionnaire

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

25. 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.

26. A copy of the draft fraud questionnaire is included in the confidential report at this meeting titled “Confidential: Interim report and NZX release for the six months ending 31 December 2022”.

Other matters

27. The group financial controller will communicate any significant risks or material judgements that arise between committee meetings to the chair of the committee, along with any unresolved significant disagreements between Auckland Council management and Audit New Zealand.

Tauākī whakaaweawe āhuarangi

Climate impact statement

28. This report relates to a financial reporting process only and as such has no climate implications. Auckland Council Group’s climate impact 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.

29. However, it is acknowledged that the activities undertaken by the group and reported on within interim report have the potential to be impacted by climate change and can also reinforce or weaken our climate action response.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

30. Feedback will be sought from the substantive council-controlled organisations, 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 31 December 2022 interim 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

31. This report relates to the financial reporting of the Auckland Council Group, which does not include reporting at a local board level. No decision is sought that would impact local boards and accordingly the views of the local boards have not been sought.

Tauākī whakaaweawe Māori

Māori impact statement

32. 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. No decision is sought in this paper that has a direct impact on Māori.

Ngā ritenga ā-pūtea

Financial implications

33. 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

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

35. Any risks and mitigations relating to the year-end reporting, key judgements and assumptions will be outlined in the confidential section of this meeting under the report “Confidential: Interim report and NZX release for the six months ending 31 December 2022”.

Ngā koringa ā-muri

Next steps

36. 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: Interim report and NZX release for the six months ending 31 December 2022”.

37. The Auckland Council Group NZX announcement, media release and interim report for the six months ending 31 December 2022 will be presented to the Audit and Risk Committee on 21 February 2023 for review and approval.

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 – Acting Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

12 December 2022

Final Office of the Auditor-General report to governors for the year ended 30 June 2022

File No.: CP2022/16716

Te take mō te pūrongo

Purpose of the report

1. To provide committee members with an overview of the internal control and financial/non-financial reporting matters identified by the Office of the Auditor-General during the final audit for the year ended 30 June 2022 and outline how Auckland Council is addressing the matters.

Whakarāpopototanga matua

Executive summary

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

3. Following the completion of the final audit, a report has been issued which outlines issues identified and makes recommendations for significant items that need to be addressed. This year, the report includes priority ratings for recommendations, being urgent, necessary and beneficial. The report is provided as Attachment A.

4. The service performance of non-notified resource consents continues to be highlighted as an area for improvement, specifically regarding processes, systems and controls to accurately record resource consent processing times.

5. There are two new recommendations: payroll processes and controls and greenhouse gas emissions reporting. They both have a rating of necessary.

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

Matter	Priority rating
Valuation of operational assets, restricted assets and infrastructure assets	Necessary
Valuation of investment properties	Necessary
Approvals for CE, Mayor and Deputy Mayor expenses are not “one-up” approved	Necessary
Climate change	Necessary
Review of Delegated Financial Authority Policy and SAP delegation	Necessary
Portfolio, programme and project management – Gateway reviews	Necessary
Benefits management	Necessary

7. Three of the 10 outstanding matters raised in previous reports have been resolved. These are detailed in Appendix 3 of Attachment A under the heading “Matters that have been addressed during the year”.

8. The council accepts the Office of the Auditor-General’s 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) tuhi a-taipitopito / note the matters identified by the Office of the Auditor-General in its report to governors for the year ended 30 June 2022, and Auckland Council’s responses to those matters.

Horopaki

Context

9. This report summarises the matters identified by the Office of the Auditor-General during the final audit for the year ended 30 June 2022 and outlines how the council is addressing the matters raised.

10. The Office of the Auditor-General issued their audit report on the Auckland Council Group Annual Report 2021/2022 on 30 September 2022. As part of the audit process, the auditors evaluate the council’s systems, processes and controls that have an impact on the annual report. Matters identified during the audit are reported to the council. The council responds to the matters raised and describes the actions that will be undertaken to resolve them.

Tātaritanga me ngā tohutohu

Analysis and advice

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

Matter	Priority rating	Management’s response
Payroll processes and controls · Adequate supporting documentation should be maintained for all payroll payments. · Review should be standardised.	Necessary	We concur and have started putting improved processes and controls in place.
Greenhouse gas emissions The greenhouse gas emissions baseline should be restated in 2023 and when changes are made to emissions sources and/or emissions factors. This change should be explained in the reporting.	Necessary	We concur. Auckland Council will update our baseline for 2022/2023 and disclose the reason.

Matter

Priority rating

Management’s response

Payroll processes and controls

· Adequate supporting documentation should be maintained for all payroll payments.

· Review should be standardised.

Necessary

We concur and have started putting improved processes and controls in place.

Greenhouse gas emissions

The greenhouse gas emissions baseline should be restated in 2023 and when changes are made to emissions sources and/or emissions factors. This change should be explained in the reporting.

Necessary

We concur. Auckland Council will update our baseline for 2022/2023 and disclose the reason.

12. Updates were provided on previous recommendations:

Matter	Priority rating	Management’s response
Valuation of operational assets, restricted assets and infrastructure assets	Necessary	We will ensure valuers address these recommendations.
Valuation of investment properties	Necessary	We will ensure that future contracts with valuers stipulate the requirement for more information to be contained in their reports.
Approvals for CE, Mayor and Deputy Mayor expenses are not “one-up” approved	Necessary	We will remind the mayor's office, elected members and ELT members of the approval requirements for expenses.
Climate change	Necessary	We continue to develop climate disclosures through our significant ongoing programme of climate disclosure work.
Review of Delegated Financial Authority Policy and SAP delegation	Necessary	Work is underway to review the CE Delegations Register. Detected breaches were followed up and confirmed as acceptable and authorised.
Portfolio, programme and project management – Gateway reviews	Necessary	Significant work is underway by the Enterprise Portfolio Management Office (EPMO) including the use of steering group meetings, project health checks, the use of a governance group and sponsor training.
Benefits management	Necessary	The EPMO have developed a benefits improvement roadmap to deliver the recommendations.

Tauākī whakaaweawe āhuarangi

Climate impact statement

13. There are no items covered by this agenda item that impact climate change although there is an audit recommendation regarding climate change financial disclosures and greenhouse gas emissions reporting in the 2021/2022 Annual Report.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

14. 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

15. 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

16. 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

17. 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

18. 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. In order to mitigate this risk, the financial control and risk teams have regular open discussions with Audit New Zealand to ensure that matters are being progressed to Audit New Zealand’s satisfaction.

Ngā koringa ā-muri

Next steps

19. Auckland Council will continue to work on resolving and clearing the outstanding issues.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Auditor-General report to Governers - 30 June 2022

Ngā kaihaina

Signatories

Authors

Tracy Gers - Group Accounting & Reporting Manager

Francis Caetano - Group Financial Controller

Authorisers

John Bishop – Acting Group Chief Financial Officer

Phil Wilson - Director, Governance & CCO Partnerships

Audit and Risk Committee

12 December 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 December 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