Agenda of Activities Performance Audit Committee

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Activities Performance Audit Committee

OPEN MINUTES

Minutes of a meeting of Activities Performance Audit Committee held in the Council Chambers, 15 Forth Street, Invercargill on Wednesday, 3 June 2015 at 10.28am.

present

Chairperson	Lyall Bailey
	Mayor Gary Tong
Councillors	Stuart Baird
	Brian Dillon
	Rodney Dobson
	John Douglas
	Paul Duffy
	Bruce Ford
	George Harpur
	Julie Keast
	Ebel Kremer
	Gavin Macpherson
	Neil Paterson

IN ATTENDANCE

Chief Executive Steve Ruru, Group Manager Environment and Community Bruce Halligan, Group Manager Services and Assets Ian Marshall, Group Manager Policy and Community Rex Capil, Chief Information Officer Damon Campbell, Chief Financial Officer Anne Robson, Communications and Governance Manager Louise Pagan, Committee Advisor Debbie Webster and Strategic Transport Manager Joe Bourque

1 Apologies

Apologies were received from Crs Douglas and Ford.

Moved Cr Paterson, seconded Cr Baird and resolved:

That the Activities Performance Audit Committee accept the apologies.

2 Leave of absence

There were no requests for leave of absence.

3 Conflict of Interest

There were no conflicts of interest noted and declared.

4 Public Forum

There was no Public Forum.

5 Extraordinary/Urgent Items

There were no Extraordinary/Urgent items.

6 Confirmation of Minutes

Resolution

Moved Cr Macpherson, seconded Cr Keast and resolved:

That the Meeting minutes of the Activities Performance Audit Committee, 22 April 2015 be confirmed.

(Cr Dobson joined the meeting at 10.34am)

Reports for Resolution

The following item was brought forward in the agenda.

8.2	Health and Safety Record No: R/15/4/7081
	1 Human Resources Manager Janet Ellis was in attendance for this item. She provided an update to the Activities Performance Audit Committee on health and safety activity within Southland District Council (SDC). Mrs Ellis noted the new Health and Safety legislation - the Health and Safety at Work Act currently before parliament was to be reported back on by the new Select Committee on 29 May 2015, this has been delayed until July. Mrs Ellis commented she wants to wait to see what was in the new legislation before making further changes to Councils health and safety processes. She would keep Councillors updated on the new legislation as it comes to pass. Mrs Ellis noted a Memorandum of Understanding had been drafted and was being circulated the Chief Executives Officers of Councils through the Chief Executives Forum.
	Mrs Ellis noted the SDC had passed its ACC Audit, held in May this year, retaining tertiary status. Having tertiary status provided a considerable discount to Council on ACC levies. Mr Halligan noted and affirmed the work done by Mrs Ellis and the HR team around attaining the tertiary level again. He commented the saving made to the SDC on ACC levies was considerable and having the tertiary level communicates to the community that we are serious about health and safety. He also noted the work done on items 15 - 17 of the report on the Contractor Management Project shows a greater commitment to health and safety across the district. Mayor Tong endorsed Mr Halligan’s comments.
	Resolution Moved Cr Duffy, seconded Cr Kremer and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Health and Safety” dated 18 May 2015.

The meeting resumed to the original order in the agenda.

7.1

Financial Report to 31 March 2015

Record No: R/15/4/7341

Management Accountant Susan McNamara was in attendance for this report. She advised that the report outlined the financial results to 31 March 2015 with 75% of the financial year complete. She noted that overall for the year to date, income is 1% ($499K) under budget and expenditure is 5% ($1.94M) under budget. Ms McNamara highlighted some of the key variances in her report and commented that capital expenditure is 6% ($902K) under budget.

There was discussion on the Stewart Island Visitor Levy which was noted as a ‘money in, money out’ process and discussion on the roading underspend where it was queried if it would be carried through to the following year? Mr Marshall responded that the NZTA funding will not be carried over however the local funding would be. He also commented the lower bitumen cost have contributed to the underspend in the current financial year.

Resolution

Moved Cr Dillon, seconded Cr Baird and resolved:

That the Activities Performance Audit Committee:

a) Receives the report titled “Financial Report to 31 March 2015” dated 18 May 2015.

7.2

Report to Activities Performance Audit Committee on outcome of 2015 International Accreditation New Zealand (IANZ) Reaccreditation Audit of Southland District Council Building Control Section

Record No: R/15/5/8389

Group Manager Environment and Community Bruce Halligan and Manager Building Control Kevin O’Connor were in attendance for this item. Mr Halligan noted and affirmed the work of Mr O’Connor and the Building Control team in achieving for the Southland District Council reaccreditation for a further two years with no corrective actions required, with March 2017 being the next assessment audit. He also mentioned International Accreditation New Zealand (IANZ) has made a series of recommendations that were not corrective actions required (CARS) but recommendations useful for the continuous improvement process which Mr O’Connor and his team will address.

Mr O’Connor noted that during the audit process IANZ affirmed and commented on the collaborative work between Southland District Council, Invercargill City Council, Gore and Clutha District Councils, around combined systems and processes.

Cr Bailey resonated Mr Halligan’s positive comments for Mr O’Connor and the Building Team.

Resolution

Moved Cr Harpur, seconded Cr Keast and resolved:

That the Activities Performance Audit Committee:

a) Receives the report titled “Report to Activities Performance Audit Committee on outcome of 2015 International Accreditation New Zealand (IANZ) Reaccreditation Audit of Southland District Council Building Control Section” dated 19 May 2015.

7.3	Request for Council to Maintain Irthing Road, Five Rivers Record No: R/15/4/7505
	1 Group Manager Services and Assets Ian Marshall and Road Engineer James McCallum was in attendance for this item. Mr Marshall noted there was a request from residents to the Southland District Council to consider taking on the maintenance of a previously unmaintained section of roadway. Mr McCallum commented that 2 Irthing Road, located near Five Rivers, was partly maintained by Council. The maintained section was between State Highway 97 (Mossburn Five Rivers Road) and the intersection of Irthing and Mulholland Roads. 3 The Strategic Transport Department had received a request from an adjacent land owner to start maintaining the metalled roadway that extends beyond the intersection of Irthing and Mulholland Roads. The existing road was largely formed within the road reserve margins. 4 Mr McCallum noted that based on Council’s current Extent of Network Policy, maintenance of the roadway was justified. Cr Bailey queried the use of the land, Mr McCallum responded it was farmland with no dwelling on the property however it was well utilised farm property. Cr Duffy asked if there were other sections of road that provide for mostly private access that the SDC looks after? Mr Marshall responded that there was not an active programme of work to do that however it could be considered by the roading team to undertake that work.

	Resolution Moved Cr Dillon, seconded Cr Dobson and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Request for Council to Maintain Irthing Road, Five Rivers” dated 26 May 2015. b) Determines that this matter or decision be recognised as not significant in terms of Section 76 of the Local Government Act 2002. c) Determines that it has complied with the decision-making provisions of the Local Government Act 2002 to the extent necessary in relation to this decision; and in accordance with Section 79 of the Act determines that it does not require further information, further assessment of options or further analysis of costs and benefits or advantages and disadvantages prior to making a decision on this matter. d) Approves the Strategic Transport Department recommendation to maintain Irthing Road, beyond the intersection of Mulholland Road in accordance with the Extent of Network conditions of the Roading Policy.

7.4

Signs Maintenance Service

Record No: R/15/4/7342

Group Manager Services and Assets Ian Marshall and Roading Asset Management Engineer Hartley Hare were in attendance for this item. Mr Marshall introduced the report noting the signs maintenance contract would expire 30 June 2015. Mr Hare stated that during an investigation process the option of incorporating the signs maintenance services into the respective Road Alliance Contracts was considered and explored. The option allows for a trial period on the proposed service delivery method, with no long term commitment from Council. The proposed period was from 1 July 2015 until 30 June 2016. Mr Hare commented that it would reduce activities such as additional travel for Council staff having to go out to the site to address issues, the contractor would do it and deal with the issue at the time. He noted that the option provides lower procurement costs as not tendering process was required.

Cr Bailey commented it was logical to have the alliance contractors to do the work as they are out in the field daily. He did ask if financially it would benefit the Council? Mr Hare responded that he did expect an increase in cost however that was expected under the current contract. That is why a trial period was proposed.

Resolution

Moved Cr Keast, seconded Cr Baird and resolved:

That the Activities Performance Audit Committee:

a) Receives the report titled “Signs Maintenance Service” dated 22 May 2015.

b) Determines that this matter or decision be recognised as not significant in terms of Section 76 of the Local Government Act 2002.

c) Determines that it has complied with the decision-making provisions of the Local Government Act 2002 to the extent necessary in relation to this decision; and in accordance with Section 79 of the Act determines that it does not require further information, further assessment of options or further analysis of costs and benefits or advantages and disadvantages prior to making a decision on this matter.

d) Approve delegated authority be granted to the Group Manager Services and Assets to negotiate and incorporate the road signs maintenance activity within the respective road maintenance contracts.

Reports for Recommendation

8.1	Southland District Council 2015/2016 Resurfacing Contract - Contract 15/21 Record No: R/15/5/8622
	Group Manager Services and Assets Ian Marshall and Roading Asset Management Engineer Hartley Hare were in attendance for this item. Mr Hare noted the report seeks endorsement from the Activities Performance Audit Committee for the proposed tendering methodology planned for the 2015/2016 Southland District Council’s Resurfacing Programme. Which included seeking delegated approval for the Chief Executive to let the tender. 2 The report covered the procurement methodology proposed for Contract 15/21 - SDC 2015/2016 Resurfacing. It was proposed that the full 2015/2016 resurfacing programme that SDC was responsible for of approximately 950,000m²be let under authority delegated to the Chief Executive as a single District-wide one year contract. There was discussion on how there are several contracts with one contractor holding them all. It made sense to consider one single contract encompassing all the work. It was commented there are two main contractors in the south who tend to bid for the work however with a large single contract it may attract contractors from further up the South Island.

	Resolution Moved Cr Dobson, seconded Cr Harpur and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Southland District Council 2015/2016 Resurfacing Contract - Contract 15/21” dated 26 May 2015. b) Determines that this matter or decision be recognised as not significant in terms of Section 76 of the Local Government Act 2002. c) Determines that it has complied with the decision-making provisions of the Local Government Act 2002 to the extent necessary in relation to this decision; and in accordance with Section 79 of the Act determines that it does not require further information, further assessment of options or further analysis of costs and benefits or advantages and disadvantages prior to making a decision on this matter. d) Endorses the procurement methodology proposed for Contract 15/21 for the 2015/2016 Southland District Council Resurfacing Programme, and in particular: i. The work be let as a single contract. ii. The contract cover only the 2015/2016 programme. iii. The Chief Executive be delegated authority to let the contract subject to being satisfied that it provides suitable value for money.

8.3	Management Report from Audit New Zealand for the 2015-25 Consultation Document Record No: R/15/3/5908
	Chief Financial Officer Anne Robson was in attendance for this item. She noted that as part of the audit process, Audit New Zealand provides Council with a report at the end of each stage of its audit outlining the work that was performed and any recommended areas for improvement. 2 In the Management Report, Audit NZ noted that Council clearly communicated in its consultation document the key issues on which to consult with the community. They noted that Councils overall financial position was sound with low debt being a notable feature. The challenge for Council they indicate will be to balance income levels while having a strong focus on affordability for ratepayers. 4 Audit New Zealand issued an unmodified opinion on Councils Long Term Plan Consultation document (LTP CD), on 18 March 2015. That meant Council’s LTP CD “met its statutory purpose and provided an effective basis for public participation in Council’s decisions about the proposed content of the 2015 – 2025 LTP”. In doing so Audit NZ found the LTP CD had no “material” misstatements. 5 Audit NZ will also issue an opinion and management report on the final LTP, which was to be adopted by Council on 24 June 2015.

	Resolution Moved Cr Macpherson, seconded Cr Dillon and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Management Report from Audit New Zealand for the 2015-25 Consultation Document” dated 18 May 2015.

8.4

Council's Insurance Policies

Record No: R/15/5/8570

Chief Financial Officer Anne Robson was in attendance for this item. Ms Robson noted the report was to update Council on its current insurance programme it had to manage its risks, with a view to undertaking a comprehensive review of its insurance policies and risks in the coming year.

Mr Ruru noted that the Christchurch situation had provided many lessons on the cost of reinstatement of infrastructure being considerably higher than replacement value. He asked Ms Robson to review the approach on the traditional 60/40 funding split in the event of national disaster. He commented it may be possible Central Government 60% share may reduce going forward.

Resolution

Moved Cr Keast, seconded Cr Kremer and resolved:

That the Activities Performance Audit Committee:

a) Receives the report titled “Council's Insurance Policies” dated 22 May 2015.

8.5

Venture Southland - Relationship Management and Approach

Record No: R/15/4/7163

1 Group Manager Policy and Community Rex Capil was in attendance for this item. He noted the report was to brief the Committee on changes made to improve management of the Venture Southland relationship and work programme.

2 He commented the Southland District Council had two distinct roles with Venture Southland - as an owner and as a purchaser of services. It was important these two roles are acknowledged and understood. Mr Capil noted the letter of expectation 2015/2016 - Implementation of Key Areas for Consideration as an Owner and the letter of expectation 2015/2016 - Implementation of Key Areas for Consideration as a Purchaser of Services, as being important documents in defining and developing the SDC and Venture Southland relationship.

Following discussion on the timing of reporting from Venture Southland Community Development team it was agreed to keep the current bi-monthly reporting to the Policy Review Committee.

Resolution

Moved Cr Duffy, seconded Cr Kremer and resolved:

That the Activities Performance Audit Committee:

a) Receives the report titled “Venture Southland - Relationship Management and Approach” dated 22 May 2015.

b) Determines that this matter or decision be recognised as not significant in terms of Section 76 of the Local Government Act 2002.

d) Supports Option 1 to progress the Southland District Council-Venture Southland partnership approach.

Option 1

Advantages

Disadvantages

· Supports SDC and VS to deliver the Letter of Expectation priority projects in 2015/2016.

· Provides clarity and confirmation of measurable deliverables.

· Assists in SDC and VS delivering projects of relevance as demanded.

· Promotes a collaborate approach to SDC-VS relationship management.

· May increase pressure on existing resource allocation for VS.

· May create tension between SDC and VS as to what are priority projects required.

Public Excluded

Exclusion of the Public: Local Government Official Information and Meetings Act 1987

Resolution Moved Cr Dobson, seconded Cr Dillon and resolved: That the Activities Performance Audit Committee exclude the public from the following part(s) of the proceedings of this meeting: C9.1 Public Excluded Minutes of the Activities Performance Audit Committee Meeting dated 22 April 2015 C9.2 Milford Development Authority Update C9.3 Professional Services Contract 12/03 Extension 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 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(1) for the passing of this resolution
Public Excluded Minutes of the Activities Performance Audit Committee Meeting dated 22 April 2015	s7(2)(a) - The withholding of the information is necessary to protect the privacy of natural persons, including that of a deceased person. s7(2)(b)(ii) - The withholding of the information is necessary to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information. s7(2)(f)(ii) - The withholding of the information is necessary to maintain the effective conduct of public affairs through the protection of such members, officers, employees and persons from improper pressure or harassment. s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities. s7(2)(i) - The withholding of the information is necessary to enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations). s7(2)(j) - The withholding of the information is necessary to prevent the disclosure or use of official information for improper gain or improper advantage.	That the public conduct of the whole or 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 exists.
Milford Development Authority Update	s7(2)(b)(ii) - The withholding of the information is necessary to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information. s7(2)(h) - The withholding of the information is necessary to enable the local authority to carry out, without prejudice or disadvantage, commercial activities.	That the public conduct of the whole or 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 exists.
Professional Services Contract 12/03 Extension	s7(2)(b)(ii) - The withholding of the information is necessary to protect information where the making available of the information would be likely unreasonably to prejudice the commercial position of the person who supplied or who is the subject of the information.	That the public conduct of the whole or 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 exists.

Permit the Chief Executive, Group Manager Environment and Community, Group Manager Services and Assets, Group Manager, Policy and Community, Chief Information Officer, Human Resources Manager, Chief Financial Officer, Communications & Governance Manager and Committee Advisor to remain at this meeting, after the public has been excluded, because of their knowledge of C9.1 Public Excluded Minutes of the Activities Performance Audit Committee Meeting dated 22 April 2015, C9.2 Milford Development Authority Update and C9.3 Professional Services Contract 12/03 Extension and also permit Joe Bourque – Strategic Transport Manager to remain for item C9.3 Professional Services Contract 12/03 Extension. This knowledge, which will be of assistance in relation to the matters to be discussed, is relevant to that matter because of their specialist knowledge.

The public were excluded at 11.45am.

Resolutions in relation to the confidential items are recorded in the confidential section of these minutes and are not publicly available unless released here.

The meeting concluded at 12.14pm.

CONFIRMED AS A TRUE AND CORRECT RECORD AT A MEETING OF THE Activities Performance Audit Committee HELD ON WEDNESDAY 3 JUNE 2015.

DATE:...................................................................

CHAIRPERSON:...................................................

Activities Performance Audit Committee

24 June 2015

Background

This report outlines the financial results to 30 April 2015.

Percentage of year gone: 83%.

OVERVIEW

Management Accountant April Finance Overview

As in prior years, all budget managers have been instructed to have a strong focus on their budget and expenditure items.

The financial commentary centres on the summary sheet which draws the totals from each of the key sections together. Although you are able to obtain more detailed key variance explanations from senior managers in these sections, these will be summarised below, concentrating on the YTD results.

Income

Overall for the YTD, income is $272K under budget.

Key variances are as follows:

The Council and Councillors’ activity is 1% ($25K) over budget for the year-to-date.

Other activities income is 11% ($172K) over budget for the year-to-date. This is predominantly due to the timing of income received from interest on investments.

Within the Chief Executive section, income received is $497K (16%) under budget due to:

• Chief Executive - 9% ($39K) over budget due to an unbudgeted vehicle sale and the quarterly application of rates penalties.

• Stewart Island Visitors Levy - Income is 16% ($21K) under budget. With the cruise ship period completed, income is expected to be well under budget at year end.

• Around the Mountains Cycle Trail – 33% ($551K) under budget due to final invoicing to the Ministry being completed last financial year. This is expected to be $840K under budget at year end.

Within the Environmental and Community Group, year-to-date income is 3% ($190K) over budget, this is principally due to increased revenue in Dog and Animal Control from infringement notices ($65K) and increased numbers of dog registrations ($19K), as well as increased resource consent fees as a result of invoicing of two significant notified consents.

Within the Financial Services Group, income is 20% ($365K) under budget. As this activity is internally funded this is a result of reduced expenditure.

Within the Information Management Group, year-to-date income is 2% ($46K) over budget, predominantly due to recovery of internal photocopying charges ($17K) and internal computer hire ($36K).

Within the Policy and Community Group, year-to-date income is 2% ($26K) under budget. As this activity is internally funded this is a result of reduced expenditure.

Within the Roading and Transport section, income is $77K over budget. NZTA income is currently 3% ($360K) under budget and is offset by internal income being $508K over budget. Roading are still forecasting NZTA income to be 1% ($221K) under budget at the end of year.

Overall Services and Assets income (excluding roading) is tracking 1% ($107K) above
year-to-date budget. This is due to:

• Overall forestry income received is 6% ($108K%) over budget. This is expected to be the position at year end.

• District reserves is 13% ($15K) under budget as reserve transfers in relation to Curio Bay have yet to be actioned.

• Engineering consultants is $49K (7%) under budget. As this activity is internally funded this is a result of reduced expenditure.

Expenditure

Overall for the year-to-date, expenditure is 7% ($2.8M) under budget.

The key variances are as follows:

The Council and Councillors’ activity is 14% ($482K) under budget due to the timing of the payment to Venture Southland. This will realign before the end of year.

Other activities expenditure is 47% ($604K) under budget as the calculation of interest on reserves is calculated as a year-end entry.

The Chief Executive activity is 8% ($108K) over budget due to internal consenting costs relating to the Around the Mountains Cycle Trail. This is partially offset by costs relating to Shared Services forum which has had minimal costs for the year.

The Environment and Community Group is 7% ($396K) under budget. This is predominantly due to expenditure on the District Plan being lower than anticipated at this stage of the year. The expenditure on the District Plan in currently $307K under budget and is expected to be slightly under $400K under budget at the end of the year. It is anticipated that additional costs will be incurred in the Environment Court appeal/mediation process in the 2015/16 financial year.

Within Financial Services, expenditure is 21% ($385K) under budget, primarily due to the timing of audit services ($120K) and staff vacancies ($197K). Although some costs will be incurred before the end of the year, Financial Services is expected to be $200K under budget at the end of the year.

Within the Information Management Group, overall expenditure is 1% ($19K) over budget.

Within the Policy and Community Group, expenditure is 4% ($51K) under budget due to no expenditure to date for community outcomes $30K and lower than expected staff costs due to maternity leave.

Roading expenditure is currently 8% ($683K) over budget. It is forecasted that operations and maintenance costs will be $1.1M over budget at year end. This will be partially offset by underspends in capital expenditure ($540K) and underspends in the previous two years. The forecasted overspend can be also be contributed to unbudgeted emergency works projects Stewart Island Slips and the Ohai Clifden Slip.

The Services and Assets Group is 10% ($1.62M) under budget. Key variances are as follows:

• District sewerage is 24% $975K under budget. Year to date $3.07M actual versus $4.04M budget has been completed.

Currently five District funded projects totalling $739K have been deferred or deleted. Investigation has shown $11K is not required, $6K has been rescheduled to a new year and $722K is waiting on additional testing or other work to be completed.

• District water is 18% ($466K) under budget as there has been minimal capital expenditure year-to-date ($335K actual v $872K budget).

Currently, nine District funded projects totalling $685K have been deferred. Investigation has shown $181K is not required at this stage, $156K has been rescheduled to a new year and $348K is waiting additional testing or other work to be completed.

• Engineering Consultants business unit is $49K (7%) under budget due to reduced expenditure in consultants and internal services.

• Forestry is 6% ($47K) under budget predominantly due to the timing of pruning and replanting activity within the various forests.

• Waste management is 2% ($61K) over budget due to increased waste transfer, recycling and internal waste charges at Stewart Island and Te Anau transfer stations.

• Water services is $163K (14%) under budget predominately due to less project consultant costs being required than budgeted.

Capital Expenditure

Overall for the year-to-date, capital expenditure is 1% ($219K) under budget.
The key variances are as follows:

• Capital expenditure in the Chief Executive activity is over budget by 64% ($1.1M)
due to the progress on stage 2 of the Around the Mountains Cycle Trail.

• Environment and Community is over budget by 53% ($83K) for the
year-to-date primarily due to an additional vehicle purchase for Animal Control and the timing of the replacement of a vehicle for Environmental Health.

• Information Management capital expenditure is under budget by 49% ($122K) due to minimal costs to date being incurred in the Records Improvement Plan.

• Roading capital expenditure is under budget by 3% ($420K) due to timing on planned road and pavement renewals. The capital budget at year end is forecast to be $540K below budget.

• Services and Assets are under budget by 74% ($872K) with minimal capital expenditure to date on projects planned in public conveniences, district reserves and forestry.

Funding Adjustments

Funding adjustments are significantly under budget as typically ‘balancing’ of business units is not undertaken until the end of the financial year.

Journals are being processed for reserve transfers, predominantly in relation to vehicle movements, and loan draw-downs (ie for project funding), throughout the year at the request of budget managers.

Key Financial Indicators

Indicator	Target*	Actual	Variance	Compliance
External Funding: Non rateable income/Total income	> 39%	37%	-2%	x
Working Capital: Current Assets/Current Liabilities	>1.09	2.24	1.15	a
Debt Ratio:** Total Liabilities/Total Assets	<0.73%	0.77%	0.04%	x
Debt To Equity Ratio: Total Debt/Total Equity	<0.01%	0.00%	0.01	a

* All target indicators have been calculated using the 2014/15 Annual Plan figures.

** Excludes internal loans.

Financial Ratios Calculations:

Non Rateable Income

Total Income

External Funding:

This ratio indicates the percentage of revenue received outside of rates. The higher the proportion of revenue that the Council has from these sources the less reliance it has on rates income to fund its costs.

Current Assets

Current Liabilities

Working Capital:

This ratio indicates the amount by which short-term assets exceed short term obligations. The higher the ratio the more comfortable the Council can fund its short term liabilities.

Total Liabilities

Total Assets

Debt Ratio:

This ratio indicates the capacity of which the Council can borrow funds. This ratio is generally used by lending institutions to assess entities financial leverage. Generally the lower the ratio the more capacity to borrow.

Total Debt

Total Equity

Debt to Equity Ratio:

It indicates what proportion of equity and debt the Council is using to finance its assets.

Activities Performance Audit Committee

24 June 2015

Description: sdclogo

Audit Arrangements Letter for the Year Ended 30 June 2015

Record No: R/15/5/8609

Author: Sheree Marrah, Finance Manager

Approved by: Anne Robson, Chief Financial Officer

☒ Decision ☐ Recommendation ☐ Information

Purpose

1 The purpose of this report is to provide an overall summary of the audit arrangements letter for the annual report for the year ended 30 June 2015 recently received from Audit New Zealand and seek approval for the Mayor to sign this letter on Council’s behalf.

Executive Summary

2 Audit New Zealand requires Council to confirm the arrangements it makes for the audit of the 2014/2015 annual report of Council. As part of this confirmation, Audit New Zealand has provided Council with an audit arrangements letter for the year ended 30 June 2015.

3 This letter is required to be signed by the Mayor and returned to Audit New Zealand to confirm Council’s acceptance of the proposed arrangements.

4 This report provides a summary of the letter for the Committee’s information. A copy of this letter is attached to this report for your information.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Audit Arrangements Letter for the Year Ended 30 June 2015” dated 24 June 2015.

b) Determines that this matter or decision be recognised as not significant in terms of Section 76 of the Local Government Act 2002.

d) Authorises the Mayor to sign the audit arrangements letter for the year ended 30 June 2015 on Council’s behalf.

Content

Background

5 The purpose of this report is to provide an overall summary of the audit arrangements letter for the year ended 30 June 2015 recently received from Audit New Zealand.

6 The letter outlines the arrangements specific to the 2014/2015 year audit. These are separated into four key areas as follows:

• Business risks/issues and Council’s audit response

• Areas of interest for all District Councils

• First financial statements prepared using the new Public Benefit Entity (PBE) accounting standards; and

• Logistics (ie audit team, timing and fees).

Business Risks/Issues and Council’s Audit Response

7 The key risks/issues identified for Council by the auditor, and therefore areas of audit focus for the current year are:

• Roading maintenance and renewal forecasting

• Risk management arrangements

• Contract management; and

• Rates.

Areas of interest for all District Councils

· Performance measure rules

· Legislative compliance

8 Specific details of these risks/issues are included in the letter (Attachment A).

First Financial Statements prepared using the new PBE Accounting Standards

9 Council is required to prepare the 30 June 2015 financial statements using the new public benefit entity (PBE) accounting standards. More specific information in relation to the requirements of the PBE standards are outlined in the APAC report dated 24 June 2015 entitled “Changes to accounting standards for Public Benefit entities”.

Logistics (ie audit team, timing and fees)

10 The audit team will consist of the following Audit New Zealand staff:

• Ian Lothian Director

• Chris Kaan Audit Manager

• Jeffrey Broughton Audit Supervisor

11 The audit fee proposed for the 2014/2015 annual audit is $111,156 (GST exclusive) plus disbursements, an increase of 1.55% on the 2013/2014 fee. This fee is to be paid in three equal instalments consistent with the timing of the work to be performed by the audit team.

12 The audit of the 2014/2015 Annual Report is proposed to be carried out in the following stages:

April 2015	Interim audit visit to: • Understand control environment • Review and test systems.
June 2015	Draft Interim Management Report issued by Audit New Zealand
July 2015	Council staff to: • Perform year end close-off • Finalise 30 June numbers.
August 2015	Council staff to: • Balance all business units • Executive Leadership Team review business unit reports • Compile unaudited consolidated financial statements.
September 2015	• Council staff have prepared draft Annual Report • Executive Leadership Team review draft Annual Report and summary document • Audit New Zealand final visit to audit Annual Report and supporting work papers • Verbal audit clearance given by Audit New Zealand.
October 2015	• Council considers draft Annual Report for adoption • Council staff finalise any required adjustments • Council approve final Annual Report • Audit New Zealand issue final audit opinion.
November 2015	• Summary and final report advertised and circulated to public.

Issues

13 Council Staff have no issues with the content of the audit arrangements letter attached.

14 The purpose of an audit is to provide an objective independent examination of the financial statements, which increases the value and credibility of the financial statements produced by management, thus increase user confidence in the financial statement. As such, it is in Councils interest for Audit NZ to define the audit programme of work.

15 As part of drafting the audit arrangements letter, Audit NZ sought feedback on the draft letter from Council staff. The feedback wanted was is in regards to the clarity and understanding of the draft letter and if Council staff, for the purposes of transparency, believe that any additional business risks/issues should be included. In reviewing the draft, staff only sought clarification on a couple of points raised. Amendments made by Audit NZ staff have resulted in the attached draft report for Council’s discussion and approval.

Factors to Consider

Legal and Statutory Requirements

16 Section 98(1) of the Local Government Act 2002 requires the Council to prepare and adopt an Annual Report each financial year. Section 99(1) requires the Annual Report to include an auditor’s report.

17 In accordance with Section 14(1) of the Public Audit Act 2001, the Council’s Annual Report must be audited by the Office of the Auditor-General. Audit New Zealand is the authorised audit service provider on behalf of the Auditor-General.

Community Views

18 As the Annual Report is a report on activities undertaken during the year, no consultation is required.

Costs and Funding

19 See paragraph 24 above for the cost associated with the audit of the Annual Report. This amount has been budgeted for in the finance department’s budget.

Policy Implications

20 The 2014/2015 Annual Report is a report to the public on performance, against the 2014/2015 Annual Plan (third year of the Long Term Plan 2012-2022).

Analysis

Options Considered

Analysis of Options

Option 1 - Accept and sign the letter as provided

Advantages	Disadvantages
· Allows the Annual Report process to continue as proposed.	· None, unless Council requires clarification and this is not sought before signing.

Option 2 – Request clarification or inclusion of any issue that Council wants included in the audit arrangements letter from Audit NZ before signing the letter.

Advantages	Disadvantages
· Council is able to seek the clarification it requires or discuss the inclusion of any issue it would like incorporated into the audit.	· Could delay the Audit process if Council and Audit New Zealand cannot agree to these arrangements.

Assessment of Significance

21 The audit of the Annual Report is not considered significant in terms of Council’s significance policy.

Recommended Option

22 Accept and sign the audit arrangements letter as provided.

Next Steps

23 Council staff will work with Audit New Zealand to ensure that the necessary work is completed for the 2014/2015 Annual Report to enable it to be adopted at the meeting on 7 October 2015.

Attachments

a Audit Arrangements Letter from Audit New Zealand - Audit for the year ending 30 June 2015 View

Activities Performance Audit Committee

24 June 2015

Description: sdclogo

Changes to the Accounting Standards for Public Benefit Entities

Record No: R/15/6/9638

Author: Sheree Marrah, Finance Manager

Approved by: Anne Robson, Chief Financial Officer

☐ Decision ☐ Recommendation ☒ Information

1 The purpose of this report is to update Council on the changes to the accounting standards that form the basis of the financial statements included in the annual report for the year ended 30 June 2015. In the 2015 financial year Council transitions from using standards that are used by all reporting entities to those that are specifically designed for Public Benefit Entities.

2 This report outlines the process Audit New Zealand has identified that will enable a smooth transition between the standards and the areas of the standards Council staff have identified as impacting on our financial statements.

3 In 2004 New Zealand adopted the New Zealand equivalent to International Financial Reporting Standards (NZ IFRS) and Council has been completing financial reporting using standards since the year ended 30 June 2007. NZ IFRS was a one size fits all approach to financial reporting and covered both Public Benefit Entities (PBEs) and For Profit Entities.

4 Since the adoption of NZ IFRS the one size fits all approach has not met the objective of providing transparent and useful information to the users of financial statement in all sectors. As a result there has now been a move internationally to a multi-standard approach to financial reporting.

5 The External Reporting Board approved a new financial reporting framework in March 2012. The new framework introduces different financial reporting requirements (ie a different set of rules) for Profit Entities and PBEs. Profit Entities are required to use IFRS. The public sector is required to transition to a new suite of accounting standards, called Public Benefit Entity (PBE) Accounting Standards. The PBE Accounting Standards are based on International Public Sector Accounting Standards (IPSAS).

6 The transition to the new PBE standards has taken affect from the financial year beginning 1 July 2014. This is the 30 June 2015 financial statements for Council.

7 The new framework for PBEs incorporates different tiers of reporting. The tier structure and criteria of each is shown in the table in Attachment A.

8 This is a significantly smaller transition than the transition to IFRS and will require less effort.

9 Audit New Zealand has indicated in a letter dated 3 October 2014 that it intends to absorb the additional costs of the transition audit as far as possible and that most entities are not likely to have added external costs. However, in a few circumstances where the scope of the existing audit increases, there may be additional fees. In the audit arrangement letter received for the year ended 30 June 2015 there has been no additional charge included.

10 Audit New Zealand has indicated in its audit arrangement letter that to ensure a smooth audit of the financial statements for 30 June 2015 the Council must:

· Determine its reporting tier

Council staff have determined that it will be reporting under Tier 1 of the new structure. This is based on the financial statements for the year ended 30 June 2014 where Council’s expenditure was $74.8 million.

· Assess and document the differences that may have a recognition, measurement, presentation, or disclosure effect on the District Council’s financial statements

Issues identified by staff are detailed in paragraph 11.

· Update the Statement of Accounting Policies to comply with the new standards

This will be completed as the financial statements for the year are completed.

· Prepare an opening Statement of Financial Position and restate comparatives (including disclosures) to comply with the new standards

Items identified are unlikely to have a material impact and restatement will not be required.

· Determine any required system changes to comply with the new standards.

11 Council staff have completed the first three steps and have identified for the following areas that will be impacted by the change to PBE Standards:

· The Statement of Comprehensive Income will be renamed Statement of Comprehensive Revenue and Expense

· Revenue must be classified as either exchange or non-exchange.

Exchange transactions are revenue transactions where consideration received is approximately the same value to the goods or services provided. Exchange transactions can be summarised as commercial activities driven by the forces of demand and supply.

Non-exchange transactions are when an entity receives value from another entity without giving approximately equal value in exchange eg rates, grants and donations

How the income is classified will determine when the income is recognised on the Statement of Comprehensive Revenue and Expense.

Exchange income is generally recognised when goods are delivered or over the period the services are provided. Non-exchange revenue is only recognised when goods are delivered or over the period services are provided, only when there is an explicit obligation to return income receipts when goods or services have not been delivered. Otherwise income is recognised upon receipt.

· Remuneration disclosures in relation to key management personnel

Key management personnel include members of the governing body and all others with responsibility for planning, directing and controlling the entity’s activities (eg Chief Executive and members of the senior management team).

Disclosures for each group of key management personnel include the total amount paid and total FTE.

Other related party transactions that are not on arm’s length/normal business terms and conditions must also be disclosed.

· Heritage assets need to be determined and either included in the Statement of Financial Position or disclosed in the Notes to the Financial Statements.

Heritage assets are assets held for their cultural, environmental or historical significance rather than for the purpose of generating future cashflows. Examples include historical buildings, monuments, conservations areas, nature reserves and works of art.

If these assets meet the criteria to be classified as property, plant and equipment they need to be recognised on the balance sheet at fair value.

Unrecognised heritage assets need to be disclosed in the notes to the financial statement providing details of the nature of the unrecognised asset and if available, the estimated fair value of the assets.

12 Council staff are currently working through steps four and five. This will be completed including incorporating the necessary changes into the 2014/15 Annual Report prior to audit in September 2015.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Changes to the Accounting Standards for Public Benefit Entities” dated 11 June 2015.

Attachments

a New Accounting Standards Framework View

Chief Executive	Steve Ruru
Committee Advisor	Fiona Dunlop

*Key*
	Largely on Track
	Monitoring
	Action Required

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*83%*	*83%*	*87%*	*82%*

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*83%*	*82%*	*80%*	*80%*