Agenda of Audit and Risk Committee Meeting

Audit and Risk Committee Meeting Minutes 10 April 2018

MINUTES

Audit and Risk Committee Meeting

10 April 2018

MINUTES OF Mackenzie District Council
Audit and Risk Committee Meeting
HELD AT THE Council Chambers, Fairlie
ON Tuesday, 10 April 2018 AT 9.30am

PRESENT: Cr James Leslie (Chairman), Cr Russell Armstrong, Cr Stuart Barwood, Cr Chris Clarke, Cr Paul Hannagan, Cr Anne Munro, Cr Graham Smith (Mayor), Bruce Mincham (independent member).

IN ATTENDANCE: Suzette van Aswegen (Chief Executive), Paul Morris (Group Manager Finance), Toni Morrison (Group Manager Projects and Administration), John Mackey (Audit NZ), Arlene Goss (Committee Administrator) Karina Morrow (Group Manager Planning), Grant Hyde (Building Control Manager).

1 Opening

The Mayor welcomed everyone and introduced John Mackey from Audit NZ. He then handed over to the chairman, Cr Leslie, who opened the meeting.

2 Apologies

There were no apologies.

3 Declarations Of Interest

There were no declarations of interest.

4 Visitors

John Mackey from Audit New Zealand was welcomed to the meeting.

5 Reports

5.1 Minutes of Audit and Risk Committee Meeting - 25 January 2018

Committee Resolution AUD/2018/22

Moved: Cr Leslie James Leslie

Seconded: Cr Paul Hannagan

1. That the minutes of the Audit and Risk Committee Meeting held on Thursday 25 January 2018 be received and adopted as a true and accurate record of the meeting.

Carried

5.2 Audit Management Report - audit of the Council's Consultation Document for the Long Term Plan 2018-28

Toni Morrison said the final management report will come to the next committee meeting for consideration.

Paul Morris said the audit went smoothly in terms of budget numbers. There was a divergence of opinion on what should be included in the consultation document as a key issue. Council wanted to consult on tourism infrastructure costs and John Mackey was supportive, but the office of the auditor general said no. Some of the recommendations in the report can be implemented immediately. May need to talk further about others.

Discussion was held on the challenge from the Auditor General’s office coming at the end of the process when there is no time to change the consultation document.

John Mackey said the way the legislation is worded Council needs to have a positive proposal to do something for tourism to be a key issue. Council did not have anything in its budget to co-fund projects with central government. He then explained the process followed by the Auditor General’s office.

Councillors asked questions regarding staff resourcing of the finance department and whether this can be improved. This remains a risk to the organisation.

The Mayor asked about vested assets being incorrectly accounted for in both the annual report and Long Term Plan. Paul Morris explained the reason for this.

There was a lack of supporting information for some forecasts, and inconsistencies. John Mackey said the preparation of the LTP is a long-term exercise and the amount of effort is not proportionate to the size of the council. There is room for improvement in communication between the Asset people and Finance people. But he noted the increased workload of preparing a LTP and auditors have to take into account how much time people have got and what they can reasonably expect.

John Mackey then spoke on the audit of the Consultation Document. He gave the background of the new legislation, including the creation of the Infrastructure Strategy and Financial Strategy.

He said Council did a better job than last time but the bar was higher. The infrastructure strategy could be better strategy-wise and could be improved. There were a number of disruptions to the audit process. The fee for the LTP was a five percent increase from last time, but if the auditor was required to do additional work they would seek recovery of costs. He doesn’t know the final figures.

Mr Mackey said the process was halfway between excellent and abysmal, but the result was a sound document to engage with the community.

He asked about the role of the Audit Committee and said they needed to be clear with what they wanted to achieve. The members of the committee needed to have different views and challenge others at the governance level.

Discussion was held on whether having the same members on every committee allowed for diversity of opinion. Bruce Mincham spoke about his role and his need to be informed of council business.

The Auditor General provides to each auditor a list of what they want them to focus on. These issues are the same this year as last year. Looking at rates, and valuation of assets. No new issues are coming through. Paul Morris said Council would soon be asked to approve unbudgeted expenditure to re-value Council’s land and buildings.

Regarding the responsibility of preventing fraud, Mr Mackey explained the process. He asked the audit and risk committee members if they were aware of any suspected or actual fraud. The members said no. Mr Mackey said as elected members management should be keeping them appraised of any suspicions or actual fraud. Each council should have a fraud protection strategy.

Have you reviewed the fraud strategy to see if it remains appropriate? The chairman said yes he had read it.

Mr Mackey asked; “Are you comfortable with the control environment and that financial statements are unlikely to be materially mis-stated to commit fraud?” The Mayor said yes he was comfortable. The chairman said it came down to the skills of the members of the audit committee.

Mr Mackey said some councils had confidence in senior management and others brought in outsiders for independent assurance. The committee needed to make a choice on where they fell in the level of comfort and whether independent advice was required.

Bruce Mincham asked a question regarding sign-off of assurances by managers. Some councils required senior managers to sign-off on financial statements before the governing body would sign it. This was considered to be good practice.

Mr Mackey warned about the risks of related party transactions. “Conflicts of interest aren’t wrong in themselves, it’s how you manage them”. He said the relationships needed to be transparent and managed in a clear way. He said it’s easier in a smaller community to keep track of these, but they needed to disclose related parties in financial statements. He highlighted the need to keep up with changing circumstances. Anybody negotiating contracts on behalf of council should be declaring conflicts of interests.

Mr Mackey will be sending the Audit Plan to the council in the next month or so.

Committee Resolution AUD/2018/23

Moved: Cr Graham Smith

Seconded: Cr Paul Hannagan

That the Committee receives the attached report from Audit NZ.

Carried

The meeting adjourned for morning tea at 10.30am and reconvened at 11.30am.

5.3 Health and Safety Report

Toni Morrison said Council was currently recruiting a part-time health and safety officer. The health and safety team had met twice since the last report and the focus had been risk to staff from vehicle trips. The results of the investigation into the tragic accident before Christmas had resulted in recommendations.

There had been 16 reports of near misses in staff vehicle travel. The reporting period was too short to detect trends. The nature of the ones reported were other vehicles crossing into the lane of the staff member, or pulling out of intersections into the path of the staff member. Council was looking at options to provide driver training to staff who are frequently on the road. The committee considered it worth investigating the use of cameras in cars to determine the cause of near misses.

5.4 IANZ accreditation assesment for Mackenzie District Council Building Consent Authority

Grant Hyde, Building Control Manager, spoke to his report. He described the audit process and who would be visiting to carry this out. He has looked into the audits of other councils and learned from their mistakes.

Bruce Mincham asked if any of the 13 recommendations were likely to compromise the quality of work or accreditation. Karina Morrow answered that her understanding was there was nothing significant in the list and her intention was that all of those points will be addressed before the audit. Discussion was held on staff levels in the building team and the proportion between in-house staff and contractors.

5.5 Local Government: Results of the 2016/17 Audits

The chief executive spoke to this report. She said a full review was being undertaken in-house. There were insights in the report regarding other councils that were useful.

The Mayor said he was disappointed that Mackenzie was late with its audit.

6 Public Excluded

RESOLUTION TO EXCLUDE THE PUBLIC

Committee Resolution AUD/2018/24

Moved: Cr Graham Smith

Seconded: Cr Anne Munro

That the public be excluded from the following parts of the proceedings of this meeting.

The general subject matter 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 of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

General subject of each matter to be considered	Reason for passing this resolution in relation to each matter	Ground(s) under section 48 for the passing of this resolution
6.1 - Minutes of Public Excluded Audit and Risk Committee Meeting - 25 January 2018	s7(2)(a) - the withholding of the information is necessary to protect the privacy of natural persons, including that of deceased natural persons	s48(1)(a)(i) - the public conduct of the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist under section 6 or section 7

Carried

Committee Resolution AUD/2018/25

Moved: Cr Anne Munro

Seconded: Cr Leslie James Leslie

That Council moves out of Closed Council into Open Council.

Carried

The Meeting closed at 11.55am.

The minutes of this meeting were confirmed at the Audit and Risk Committee Meeting held on 3 July 2018.

...................................................

CHAIRPERSON

Audit and Risk Committee Meeting Agenda 3 July 2018

5.2 Reappointment of Independent Member of Committee

File Reference: PAD

Author: Suzette van Aswegen, Chief Executive Officer

Authoriser: Graham Smith, Cr

Attachments: Nil

Purpose of Report

To seek that the Committee appoint Mr Mincham for a further 12 months to be the independent member of the Audit & Risk Committee.

Staff Recommendations

1. That the report be received.

2. That the Committee appoint Mr Bruce Mincham for a further 12 months to 31 July 2019, as the independent member of the Audit and Risk Committee.

Background

The Audit and Risk Committee’s terms of reference provide as follows:

Membership: The Audit and Risk Committee will be a standing committee of all Councillors and the Mayor. The Committee may appoint an additional person to the Committee where it considers that person has skills, attributes, or knowledge that will assist the work of the Committee.

At its meeting of 22 August 2017 the Committee selected Mr Mincham as its independent member, for the period ending July 2018. Mr Mincham has attended several Committee meetings and workshops in this role.

Policy Status

N/a.

Significance of Decision

The decision is not considered significant under the terms of the Significance and Engagement Policy.

Options

Option 1: to reappoint Mr Mincham to the Committee;

Option 2: to instruct staff to seek other candidates for consideration;

Option 3: to decide not to appoint an additional member at this time.

Mr Mincham has gained an understanding of and insights in to Council’s operations and activities from his previous 12 months in the role, and has brought relevant experience and expertise to the Committee. The continuation of Mr Mincham’s appointment for a further 12 month period is recommended.

Considerations

Legal

The Local Government Act provides for members to be appointed to Committees.

Financial

There is no ongoing provision in the 2018/19 year for fees for an independent member, as the position was for a 12 month term finishing in 2017/18 and it was not clear at the time of budgets being drafted what the future of the role would be. If the reappointment is made then an unbudgeted expenditure recommendation will go to Council for approval, for the 2018/19 year.

Other

N/a.

Conclusion

The purpose of this paper is to seek that the Committee appoint Mr Mincham for a further 12 months to be the independent member of the Audit & Risk Committee.

Suzette van Aswegen

Chief Executive Officer

Audit and Risk Committee Meeting Agenda 3 July 2018

5.3 Health and Safety Report

File Reference: STA

Author: Toni Morrison, Group Manager Projects and Administration

Authoriser: Suzette van Aswegen, Chief Executive Officer

Attachments: Nil

Staff Recommendations

That the information be noted.

Background

This report provides an update to the Committee on Council health and safety matters.

Council policy documents and procedures

Work had been progressing on a general review of Council’s health and safety systems, with priorities being assigned to particular areas that require further work. Much of this work, and the planned implementation of the Council’s Safehold H&S software package, remains on hold. We have been unsuccessful in making an appointment following a recent recruitment process for a part time Health & Safety Coordinator. We will continue to try and fill that role so that this can be taken forward.

Council is being assisted on a part time basis in the interim by Jan Spriggs, Council’s Building Control Officer in Twizel. Jan has a H&S background and we are fortunate to have access to her skills. Jan has recently been working on drafting a Safe Driving Policy and procedures, and has assisted with advice and organisation of staff training.

The staff Health and Safety team have not held any meetings in the period since the last report to the Committee.

Health and safety is a standing item on the Management team meeting agenda. These meetings occur weekly.

Staff Incident Reporting

In January we initiated a programme to encourage staff to report near misses. Recording of these provides the Council with accurate information on the risks our staff most commonly face, and enables the organisation to consider mitigation and management of these risks without experiencing actual injury to staff.

Three reports of near misses have been received in the period. One involved a switch which adjusts the headlights in one of the Council pool cars being knocked, with the staff member driving being unaware of the switch and driving with limited visibility at night. All staff have since been told how to operate this.

One involved a near miss with another driver following the other driver undertaking a dangerous passing manoeuvre. The remaining near miss was a slip on the stairs in the Fairlie office building which could have resulted in a fall.

No staff accidents have been reported in the period.

Contractor Reporting

There have been two incidents involving contractors since the last Audit and Risk Committee meeting in April. Both of these were near misses and neither resulted in injury. A light truck slipped off the road on Glen Lyon Road avoiding tourist driver, and a mower caught fire.

These cases have been advised to Council staff who have followed up where necessary with review or monitoring.

Staff Training & Induction

Two new staff members have received health and safety induction in the period since the last report to the committee.

On 16 May ten staff received driver training. The training included snow & ice driving, correct use of vehicle technology, defensive driving techniques, emergency braking / crash avoidance, road code revision, and correct use of 4WD. This first round of training was provided to staff who are required to travel often as part of their roles and are therefore more exposed to this risk. Further driver training will be undertaken later in the year.

Conclusion

This report provides an update to the Committee on Council health and safety matters since the last report to the Committee meeting of 10 April 2018.

Suzette van Aswegen

Chief Executive Officer

Audit and Risk Committee Meeting Agenda 3 July 2018

Key messages

We have completed the audit of the District Council’s LTP, for the period 2018‑28, and issued an unmodified opinion on 19 June 2018.

Issues identified during the audit

The following table summarises our recommendations:

Recommendation
Inconsistency between Transportation Funding Impact Statement and the Revenue and Financing Policy In future, ensure there is consistency with the proposed financial forecasts before the revenue and financing policy is adopted.
Non-compliance for rates with the Local Government Act Include a sentence, in the rating funding impact statement, as to whether lump sum contributions will be invited for targeted rates. In future, ensure there is consistency with the proposed rates resolution before the revenue and financing policy is adopted.

Recommendation

Inconsistency between Transportation Funding Impact Statement and the Revenue and Financing Policy

In future, ensure there is consistency with the proposed financial forecasts before the revenue and financing policy is adopted.

Non-compliance for rates with the Local Government Act

Include a sentence, in the rating funding impact statement, as to whether lump sum contributions will be invited for targeted rates.

In future, ensure there is consistency with the proposed rates resolution before the revenue and financing policy is adopted.

Thank you

We would like to thank the Council, management and staff for their assistance during the audit.

John Mackey

Audit Director

21 June 2018

1 Our audit opinion

1.1 We issued an unmodified audit opinion

We issued an unmodified audit opinion on the District Council’s LTP on 19 June 2018.

This meant we were satisfied that the District Council’s LTP meets the statutory purpose.

We found the underlying information and assumptions, used to prepare the LTP, provided a reasonable and supportable basis for the preparation of the LTP.

1.1 Unadjusted misstatements

The LTP is free from material misstatements, including omissions. However, in the course of the audit, we found certain misstatements that are individually and collectively not material to the LTP.

We have discussed the misstatements that we found with management. All misstatements were amended prior to the District Council adopting the LTP.

2 Audit scope and objective

The scope of our audit engagement and our respective responsibilities are contained in our audit proposal and arrangements letter dated 27 November 2017.

3 Key findings from our audit of the LTP

Our CD LTP report to the Council, dated 22 March 2018, outlined our areas of audit emphasis and issues identified during the audit of the Consultation Document. We have identified the following issues during the course of our audit of the Long Term Plan.

3.1 Inconsistency between Transportation Funding Impact Statement and the Revenue and Financing Policy

Findings

From our review of the revenue and financing policy, we noted that the transportation funding impact statement was inconsistent with the revenue and financing policy adopted by Council. As the Council had already adopted the policy after public consultation the policy, it could not be updated, creating an inconsistency with the financial forecasts. Council adopted a Section 80 report in order to depart from the adopted revenue and financing policy.

Recommendation

In future, ensure there is consistency with the proposed financial forecasts before the revenue and financing policy is updated.

Management comment

Noted. This will be corrected for the next Long Term Plan.

3.2 Non-compliance for Rates with the Local Government Act

Findings

During our review of compliance of rates with the Local Government Act 2002 and the Local Government Rating Act 2002, we noted that there were instances of non-compliance. The Council has not included for targeted rates, if lump sum contributions will be invited, in the rating funding impact statement.

The general rate will be set differentially based on the location of the land. This had not been provided for in the Revenue and Financing Policy but was subsequently updated after receiving legal advice. It was determined that this did not require formal consultation in accordance with the Local Government Act 2002 nor a Section 80 report.

Recommendation

· Include a sentence in its rating funding impact statement as to whether lump sum contributions will be invited for targeted rates.

· In future, ensure there is consistency with the proposed rates resolution before the Revenue and Financing Policy is adopted.

Management comment

Noted.

4 Publication of the LTP on the District Council’s website

As the District Council intends to publish the LTP electronically, please allow time for us to examine the final electronic file version of the audit report before it is loaded on your web site.

We need to ensure consistency with the paper‑based documents that have been subject to audit. Changes may also be needed to parts of the audit opinion, for example page number references, and the inclusion of additional information to readers of the electronic report.

Appendix 1: Mandatory disclosures

Area	Key messages
Our responsibilities in conducting the audit.	We carried out this audit on behalf of the Controller and Auditor‑General. We are responsible for expressing an independent opinion on the 2018‑28 LTP and reporting that opinion to you. This responsibility arises from section 93C(4) of the Local Government Act 2002. The audit of the LTP does not relieve management or the Council of their responsibilities. Our audit proposal and audit arrangements letter dated 27 November 2017 contains a detailed explanation of the respective responsibilities of the auditor and the Council.
Auditing standards	We carry out our audit in accordance with the International Standard on Assurance Engagements (New Zealand) 3000 (revised): Assurance Engagements Other Than Audits or Reviews of Historical Financial Information, the International Standard on Assurance Engagements 3400: The Examination of Prospective Financial Information, and the Auditor‑General’s Auditing Standards.
Auditor independence	We confirm that, for the audit of the District Council’s LTP for the period 1 July 2018 to 30 June 2028, we have maintained our independence in accordance with the requirements of the Auditor‑General, which incorporate the independence requirements of the External Reporting Board. Other than our work in carrying out all legally required external audits, we have no relationship with or interests in the District Council or any of its subsidiaries.
Other relationships	We are not aware of any situations where a spouse or close relative of a staff member involved in the audit occupies a position with the District Council that is significant to the audit. We are not aware of any situations where a staff member of Audit New Zealand has accepted a position of employment with the District Council during or since the end of the financial year.
Unresolved disagreements	We have no unresolved disagreements with management about matters that individually or in aggregate could be significant to the LTP. Management has not sought to influence our views on matters relevant to our audit opinion.

Audit and Risk Committee Meeting Agenda 3 July 2018

5.5 Building Consent Authority Audit Results

File Reference: Reg

Author: Karina Morrow, Group Manager Regulations

Authoriser: Suzette van Aswegen, Chief Executive Officer

Attachments: 1. IANZ Audit Report ⇩

Staff Recommendations

That the information be noted.

Background

As outlined to the Committee at its meeting of 10 April 2018, Council’s Building Control Authority function was due to be audited in early June 2018.

This audit has now been completed and a written report outlining the results of the audit are attached.

In summary, the audit identified 16 outstanding general non-compliances (with 12 additional general non-compliances rectified during the audit process). No serious non-compliances were identified. The non-compliances relate to the following general areas:

· Providing consumer information (public information on website);

· Categorising of applications (which category a building consent application falls within);

· Processing, issuing and granting consents (record keeping and following processes);

· Compliance schedules (accurate record keeping);

· Allocation of applications (ensuring competent person is processing application);

· Competency assessments (assessment of each Building Control Officer’s (BCO) experience and qualifications);

· Training (ensuring BCO have on-going training needs identified);

· Use of contractors (reviewing contractors performance);

· Evidence of technical leadership (need to record Building Control Manager is technical lead based on competencies);

· Annual audits (internal auditing of processes inadequate in some cases);

· Conflicts of interest (all recorded but further detail required in some cases).

The Auditors comment that “the findings only represent a low risk” and “there were no serious non-compliances identified and your technical outcomes appeared to be appropriate”. Further, “this accreditation assessment found the BCA demonstrated an improvement in the recording of in-house decisions. Compliance Schedules and training records were also noted to be significantly improved.”

Council is now required to complete the Record of Non-Compliance table to detail proposed corrective actions and submit this to IANZ auditors for approval by 13 July 2018. All non-compliances are then required to be addressed and cleared (resolved) by 14 September 2018.

Conclusion

IAANZ Accreditation Audit has been completed with general non-compliances noted. These are to be resolved by 14 September 2018.

Suzette van Aswegen

Chief Executive Officer