Agenda of Activities Performance Audit Committee

Activities Performance Audit Committee

09 March 2016

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TABLE OF CONTENTS

ITEM PAGE

Procedural

1 Apologies 5

2 Leave of absence 5

3 Conflict of Interest 5

4 Public Forum 5

5 Extraordinary/Urgent Items 5

6 Confirmation of Minutes 5

Reports

7.1 Submission on Proposed changes to Vehicle Dimensions and Mass Rule 13

7.2 Contract Extension - Southland Streetlight Maintenance Contract 09/42 33

7.3 Foveaux Alliance Contract Number 06/26 Extension to July 2017 37

7.4 Annual Report 2015/2016 Timetable 41

7.5 Financial Report for the period ended 30 November 2015 47

7.6 Financial Report for the period ended 31 December 2015 81

7.7 Internal Audit 115

7.8 Follow-up on Strong Recommendations and Recommendations from 2015 IANZ Reaccreditation Audit of Southland District Council 135

7.9 Southland Museum and Art Gallery Quarterly Report Against Statement of Intent 145

1 Apologies

At the close of the agenda no apologies had been received.

2 Leave of absence

At the close of the agenda no requests for leave of absence had been received.

3 Conflict of Interest

Committee Members are reminded of the need to be vigilant to stand aside from decision-making when a conflict arises between their role as a member and any private or other external interest they might have.

4 Public Forum

Notification to speak is required by 5pm at least two days before the meeting. Further information is available on www.southlanddc.govt.nz or phoning 0800 732 732.

5 Extraordinary/Urgent Items

To consider, and if thought fit, to pass a resolution to permit the committee to consider any further items which do not appear on the Agenda of this meeting and/or the meeting to be held with the public excluded.

Such resolution is required to be made pursuant to Section 46A(7) of the Local Government Official Information and Meetings Act 1987, and the Chairperson must advise:

(i) The reason why the item was not on the Agenda, and

(ii) The reason why the discussion of this item cannot be delayed until a subsequent meeting.

Section 46A(7A) of the Local Government Official Information and Meetings Act 1987 (as amended) states:

“Where an item is not on the agenda for a meeting,-

(a) That item may be discussed at that meeting if-

(i) That item is a minor matter relating to the general business of the local authority; and

(ii) the presiding member explains at the beginning of the meeting, at a time when it is open to the public, that the item will be discussed at the meeting; but

(b) no resolution, decision or recommendation may be made in respect of that item except to refer that item to a subsequent meeting of the local authority for further discussion.”

6 Confirmation of Minutes

6.1 Meeting minutes of Activities Performance Audit Committee, 27 January 2016

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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, 27 January 2016 at 10.35am.

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	arrived @10.40am
	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, Manager Human Resources, Janet Ellis, Manager Communications and Governance, Louise Pagan, Web Officer, Governance and Communication, Sarah Bedford, Committee Advisor, Alyson Hamilton, Press.

1 Apologies

Moved Cr Ford, seconded Cr Paterson and resolved:

That the apology for lateness lodged by Cr Kremer be accepted.

2 Leave of absence

There were no requests for leave of absence received.

3 Conflict of Interest

There were no conflicts of interest declared.

4 Public Forum

There were no members of the public seeking speaking rights in the Public Forum section of the meeting.

5 Extraordinary/Urgent Items

There were no Extraordinary/Urgent items.

6 Confirmation of Minutes

Resolution

Moved Cr McPherson, seconded Cr Douglas and resolved:

That the minutes of the Activities Performance Audit Committee meeting held on 9 December 2015 be confirmed as a true and correct record.

7 Reports

7.1	Service Delivery Review - Community Development Activity Record No: R/16/1/57
	Report by Rex Capil, Group Manager, Policy and Community, regarding a Service Delivery Review (SDR) in regards to Community Development Activity, was tabled. Group Manager, Policy and Community, Rex Capil was in attendance for this item. Mr Capil presented to the Committee a power point presentation in regards to the SDR explaining the Economic and Community Development. 1 Mr Capil advised the purpose of this report is to provide the Committee with background information on the process and rationale for the (SDR) of the community development activity to be undertaken in terms of Section 17A of the Local Government Act 2002. 2 Mr Capil informed for the purpose of this SDR the community development activity of Council incorporates regional economic development, enterprise and business development, events and conferences, tourism and destination marketing and local community development. 3 Mr Capil explained this community development activity is defined and detailed in the Southland District Council 10 Year Plan 2015-2025 and is delivered on behalf of Council by Venture Southland - a joint committee of Southland District Council, Invercargill City Council and Gore District Council. 4 The meeting was informed the report discusses the requirements of the Local Government Act 2002 under Section 17A to carry out a delivery of service review. 5 Mr Capil explained the terms of reference discusses the current situation and future challenges and opportunities for Council when considering its involvement in the community development activity. In addition Mr Capil advised the terms of reference provides details of the specific deliverables required as a result of undertaking the delivery of service review - in terms of a comparative analysis of the current service delivery model and consideration of future service delivery options for Council’s community development activity. Mr Capil informed that whilst reviews required to be completed by June 2017 implementation may require further time with regional leadership roles to be clarified. Mr Capil advised that going forward it is intended to initiate discussions with Invercargill City Council, Gore District Council and Environment Southland to invite discussion on this SDR process and to meet with Venture Southland to confirm the process and involvement required.

	Resolution Moved Cr Kremer, seconded Cr Duffy and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Service Delivery Review - Community Development Activity” dated 18 January 2016. 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 draft Service Delivery Review Terms of Reference for Community Development Activity to be undertaken in terms of Section 17A of the Local Government Act 2002. e) Endorses the approach to invite Invercargill City Council, Gore District Council and Environment Southland to partner in this Service Delivery Review process. f) Endorses the approach to require Venture Southland (as the joint committee of Southland District Council, Invercargill City Council and Gore District Council currently delivering the community development activity) to participate in the Service Delivery Review process. g) Requests Council support a formal approach be made to Invercargill City Council, Gore District Council and Environment Southland to undertake a joint Service Delivery Review process involving all four councils. h) Requests to Council that, subject to this joint approach being undertaken, it supports the terms of reference being amended accordingly to reflect this regional approach in order to ensure consideration of regional level issues and other local authorities’ specific local issues.

7.2	Formation of Governance Group for the Around the Mountains Cycle Trail project Record No: R/15/11/21263
	Group Manager, Services & Assets, Ian Marshall was in attendance for this item. 1 Mr Marshall reported the purpose of this report is to establish a governance group charged with overview of the completion of the Around the Mountains Cycle Trail project. 2 Mr Marshall advised this report to the Activities Performance Audit Committee (APAC) recommends the formation of a project subcommittee. Mr Marshall added what is proposed is a subcommittee to be called the Around the Mountains Cycle Trail Project Subcommittee. 3 Mr Marshall advised this subcommittee will perform the role of governance oversight on behalf of the APAC Committee for the Around the Mountains Cycle Trail Project. The Committee noted the project covers the work necessary to complete the cycle trail from Kingston to Walter Peak Station. 4 Mr Marshall explained the subcommittee will approve procurement plans, let contracts and provide overall direction of the project; ensure the project stays on-time and within approved budgets. 5 Mr Marshall confirmed the overall budget will be approved by the Southland District Council and that the subcommittee will act as a conduit for communication and consultation. 6 Mr Marshall advised it is proposed the subcommittee include the Chairman of the APAC committee, who will Chair the subcommittee, the Mayor and four District Council Councillors. Cr Baird commented at the need for this subcommittee stating that he felt there is currently a Around the Mountains Cycle Trail project team and wished it noted that he does not support the establishment of the subcommittee.

	Resolution Moved Mayor Tong, seconded Cr Douglas and resolved: That the Activities Performance Audit Committee: a) Receives the report titled “Formation of Governance Group for the Around the Mountains Cycle Trail project” dated 13 January 2016. b) Determines that this matter or decision be recognised 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) Adopt the Terms of Reference for the formation of an Around the Mountains Cycle Trail Project Subcommittee. e) Appoints the Chairman of the Activities Performance Audit Committee as a member and Chairman, of the Around the Mountains Cycle Trail Project Subcommittee. f) Appoints his Worship the Mayor as a member of the Around the Mountains Cycle Trail Project Subcommittee. g) Appoints Councillors Dobson, Duffy, Dillon and Kremer to be members of the Around the Mountains Cycle Trail Project Subcommittee.

Cr Baird requested that his vote against the motion be recorded in the minutes.

Public Excluded

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

Resolution

Moved Cr Ford, seconded Cr Dobson

That the public be excluded from the following part(s) of the proceedings of this meeting.

C8.1 Tenders and Costing for the Proposed Memorial Hall Upgrade at Winton

C8.2 Quarterly Risk Reports

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

Tenders and Costing for the Proposed Memorial Hall Upgrade at Winton

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.

Quarterly Risk Reports

s7(2)(g) - The withholding of the information is necessary to maintain legal professional privilege.

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.

That the 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, Manager Human Resources, Janet Ellis, Manager Communications and Governance, Louise Pagan, Committee Advisor, Alyson Hamilton be permitted to remain at this meeting, after the public has been excluded, because of their knowledge of the items C8.1Tenders and Costing for the Proposed Memorial Hall Upgrade at Winton and C8.2 Quarterly Risk Reports This knowledge, which will be of assistance in relation to the matters to be discussed, is relevant to those matters because of their knowledge on the issues discussed and meeting procedure.

The public were excluded at 10.50am

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 returned to open meeting at 11.28am.

The meeting concluded at 11.28am. CONFIRMED AS A TRUE AND CORRECT RECORD AT A MEETING OF THE Activities Performance Audit Committee HELD ON 27 JANUARY 2016.

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

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

Activities Performance Audit Committee

9 March 2016

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Contract Extension - Southland Streetlight Maintenance Contract 09/42

Record No: R/16/2/1561

Author: Joe Bourque, Strategic Manager Transport

Approved by: Ian Marshall, GM - Services and Assets

☒ Decision ☐ Recommendation ☐ Information

Purpose

1 This report is to consider the recommendation to extend the Southland District Council’s Streetlight Maintenance Contact (09/42) with Council’s current contractor.

Executive Summary

2 The purpose of the Southland District Council’s Streetlighting Contract (09/42) is to cover all maintenance aspects of the street light and pole network across the Southland region.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Contract Extension - Southland Streetlight Maintenance Contract 09/42” dated 1 March 2016.

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 extension of the Southland Streetlight Maintenance Contract 09/42 contract to Otago Power Services effective from 29 February 2016 to 1 March 2017.

Content

Background

3 Otago Power Services was awarded the Southland District Council’s Streetlight Maintenance Contract (09/42) on 28 January 2010 with a commencement date of 1 March 2010.

4 The contract was for an initial period of three years (expiring 12.00 midnight, 28 February 2013). The contract made provision for a two-year rollover, which was adopted in
March 2013.

5 The two-year rollover expired at midnight 28 February 2015. A 12 month extension of this contract was negotiated with the contractor and approved by NZTA. This current extension will expire on 1 March 2016.

6 Throughout the six year period to date, communication between Council and Otago Power Services has been excellent. Where service delays were inevitable or on the rare occasion timeframes could not be met, Council was notified accompanied by a valid explanation.

7 Otago Power Services has adequately delivered on the requirements as set out in the contract and on this basis the Strategic Transport Department recommend the implementation of a further 12 month extension.

8 Council have been notified by Otago Power Services that they have been purchased by Powernet Ltd. Otago Power Services will be amalgamated into the Powernet business at the end of March 2016. It is expected this amalgamation will have no effect to the service being provided.

Issues

9 There are no significant issues to be considered.

Factors to Consider

Legal and Statutory Requirements

10 No unusual legal considerations are involved with this contract.

Community Views

11 Considering the nature and value of the contract works, no specific community views are deemed to be necessary at this stage of the proposal.

Costs and Funding

12 To extend the contract by an additional year, the original contract base rates will be adjusted in accordance with New Zealand Transport Agency’s Cost Adjustments Factors, Table 1, Part 1 - Maintenance.

13 The existing maintenance contract has an annual value of around $100,000 and covers the general maintenance requirements of all street lights and poles (including pedestrian lighting).

14 The proposed costs associated with the extension fits within the Traffic Services budget allocation within the overall roading programme. Co-funding from NZTA will cover 53% of the cost with the remaining 47% coming from rates.

15 The New Zealand Transport Agency have been sent a letter for their input on the proposed contract extension, indications are that they are in agreeance with the proposal.

Policy Implications

16 There are no substantive Policy or District Plan considerations relevant to this matter.

Analysis

Options Considered

17 Council has the following options to consider with streetlighting maintenance:

(a) Extend existing streetlighting maintenance contract.

(b) Do not extend existing streetlighting maintenance contract.

Analysis of Options

18 Option 1 - Extend existing streetlighting maintenance contract

Advantages

Disadvantages

· Allows time to confirm funding for a Light Emitting Diode (LED) replacement programme from NZTA. LED’s offer significant savings in consumption and maintenance costs compared to current lighting technology on the SDC network.

· Allows time to investigate the current LED market as to what products are suitable for the SDC network. This would allow time to monitor how larger Council streetlighting networks are adapting to the LED change and piggyback ideas onto the smaller SDC network.

· Allows the opportunity for SDC to combine an LED replacement programme into a future maintenance contract which may result in savings.

· There are no significant disadvantages to this proposed option.

19 Option 2 - Do not extend existing streetlighting maintenance contract

Advantages

Disadvantages

· There are no significant advantages to this proposed option based on a limited term contract.

· Leaves Council with no maintenance contractor for streetlighting after 1 March 2016.

· Does not provide any time to confirm funding from NZTA for an LED replacement programme.

· Does not allow time to investigate current LED market to determine best products for SDC network.

· Does not allow time for Council to evaluate how Council’s with larger lighting networks have undertaken replacement programmes.

Assessment of Significance

20 The recommendation is not considered significant as the contract forms part of the annual SDC roading programme.

Recommended Option

21 The Strategic Transport Department recommend that the current Southland Streetlighting Maintenance Contract (09/42) is to be extended a further 12 months, allowing sufficient time to incorporate funding and supply of LED technology into any future maintenance contract.

Next Steps

22 Formally notify the existing contractor (Otago Power Services) that extension has been accepted.

23 Strategic Transport Department will continue working towards future maintenance contract and LED replacement options ready for a new contract to commence in March 2017.

Attachments

There are no attachments for this report.

Activities Performance Audit Committee

9 March 2016

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Foveaux Alliance Contract Number 06/26 Extension to July 2017

Record No: R/16/1/1386

Author: Joe Bourque, Strategic Manager Transport

Approved by: Ian Marshall, GM - Services and Assets

☒ Decision ☐ Recommendation ☐ Information

Purpose

1 To request a one year extension of the current Foveaux Road Maintenance Alliance Contract (number 06/26).

Executive Summary

2 This report outlines the recommendation to offer Fulton Hogan a one year extension on the current Foveaux Alliance Contract and aligning the contract expire dates of all three Alliance Maintenance Contracts.

3 This will create the opportunity to potentially reduce the number of contracts from three to two and allow due consideration of potential contract boundaries.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Foveaux Alliance Contract Number 06/26 Extension to July 2017” dated 25 February 2016.

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 one year extension of contract number 06/26, known as the Foveaux Alliance contract with Fulton Hogan effective from 1 July 2016.

Content

Background

4 The Foveaux Alliance was one of the first contracts of its type in New Zealand. The agreement is due to expire on 30 June 2016.

5 The contract was extended to June 2016 to allow for the completion of the service level review as outlined in the Local Government Act (Section 17A).

The review was carried out by independent consultants Morrison Low and reported back to the Activities Performance Audit Committee in October 2015.

6 The performance overview concludes “Actual service deliver performance is of a high standard and providing a very good value for money’.

7 In addition to the above review Morrison Low was engaged to carry out a review on optimisation of roading contracts.

8 One of the conclusions of the review is to consider the potential to reduce the number of road maintenance contracts from three to two, to provide the maximum advantage to SDC in reducing and streamlining governance and management while maintaining the opportunity for a viable road maintenance market to continue to exist.

9 As part of this change the Strategic Transport Team will need to consider and optimise the boundary for any new contracts.

Issues

10 The nature and timing of the Service Level Review has resulted in an insufficient time frame to consider the recommendation and implement potential changes in a timely manner which would not unduly impact on the road service delivery.

11 Alignment of Contract expiry dates needs to be considered to allow changing the scope of the contracts and so facilitating a potential reduction in the number of roading contracts from three to two.

12 A short term contract could be tendered but the cost of a contract procurement process for this type of contract is in the order of $100,000

Factors to Consider

Legal and Statutory Requirements

13 No unusual legal considerations are involved.

14 As with all services procured, but larger value projects in particular, there is the risk of a legal challenge regarding the awarding or extension of contracts from other contractors.

15 This risk is considered low because of the factors already discussed above.

Community Views

16 No Specific community views have been sought at this point in time.

Costs and Funding

17 The programme of works forms part of the overall roading programme for 2016/2017 season and fits within the Annual Plan programme.

Policy Implications

18 Councils Strategic Transport has notified our intensions and received approval from our programme Investors NZTA and Council’s Alliance Contract Leadership Team.

19 Strategic Transport has also considered Council’s current procurement Strategy as well as its transport Strategy and considered this is the best interim solution.

Analysis

Options Considered

20 New Contract

21 Extend contract by an additional one year

Analysis of Options

Option 1 – New Contract

Advantages

Disadvantages

· Provides more long term certainty to the contractors on forward workloads.

· Allows the contractor to make capital investment such as plant.

· Removes the options to consider and implement changes recommended from Morrison Low review.

· NZTA Network Outcome Contract starting on 1 June 2016 potentially places a risk of reduced competitive tendering from the market.

Option 2 – Extend Contract

Advantages

Disadvantages

· Allows for due consideration of reducing contract numbers and optimising the network.

· Allows for alignment of contract expire dates.

· Does not allow the contractor to commit to long term investments such as renewing expensive equipment/plant.

Assessment of Significance

22 Extending the contract is not considered significant or a major drawback. If anything it allows Council to buy time and construct a better, improved model whilst waiting to view how Highway Network Outcome Contract impacts our the local market.

Recommended Option

23 Endorse the recommendation of a one year extension of the Foveaux Alliance Contract

Next Steps

24 Provide written confirmation to Fulton Hogan that the contract has been extended by an additional one year.

Attachments

There are no attachments for this report.

Activities Performance Audit Committee

9 March 2016

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Annual Report 2015/2016 Timetable

Record No: R/16/2/2532

Author: Shannon Oliver, Planning and Reporting Analyst

Approved by: Rex Capil, Group Manager, Community and Futures

☐ Decision ☐ Recommendation ☒ Information

Purpose

1 The purpose of the report is to provide the key dates for Annual Report 2015/2016 timetable for information.

Executive Summary

2 The Annual Report is the key planning document for Council. The Annual Report reports on Council’s performance against the 2015-2025 Long Term Plan. The timetable has been prepared so that adoption of the Annual Report occurs on 28 September 2016. The project team will consist of staff from the Finance, Strategy and Policy and Communications teams.

Content

Background

3 The Annual Report is a means for Council to account and report to the community on its performance of the preceding financial year - in this case from 1 July 2015 to 30 June 2016. It reports on outcomes, performance measures (both financial and non-financial) and provides information on the result achieved against budgeted results.

The purposes of an Annual Report are:

(a) To compare the actual activities and the actual performance of the local authority in the year with the intended activities and the intended level of performance as set out in respect of the year in the Long Term Plan and the Annual Plan; and

(b) To promote the local authority's accountability to the community for the decisions made throughout the year by the local authority.

4 As with previous years both an Annual Report and a Summary Document are produced. Similarly, as previously done, the Summary Document will be distributed to all Council’s offices and made available on request. Both the Summary Document and full Annual Report will be made available on the Council’s website. The report availability will be advertised on the Saturday edition of The Southland Times on Saturday, 8 October 2016 (the delay is to allow for the printers to produce the printed versions).

5 The Project Manager will be the Corporate Planning and Performance Advisor (once appointed).

6 The Annual Report is audited by Audit New Zealand which provides the reader with a level of assurance of the consistency and accuracy of the information reported.

7 The Audit team are currently proposing the following audit dates:

• Interim visit from 11 April 2016 for one week.

• Final visit, two weeks in August/September 2016. The proposed options are 29 August to 9 September, or 5 September to 16 September 2016.

• Verbal audit clearance is expected by Monday, 19 September 2016.

· They will also be present at the Adoption meeting 28 September 2016.

8 Audit New Zealand expect to confirm the audit dates in March with the Finance Team and the audit arrangements letter will be included in the APAC agenda for approval on 27 April 2016.

9 It was agreed at the Executive Leadership Team meeting on 22 February 2016 that an Executive Leadership Team Subcommittee would be formed for the purposes of reviewing the document.

10 The key dates for Council are:

· The draft Annual Report (not including audit changes) will go to a Council workshop on Wednesday, 7 September 2016 to receive feedback on the document.

· The Annual Report will be adopted by Council on Wednesday, 28 September 2016.

Factors to Consider

Legal and Statutory Requirements

11 Section 98 of the Local Government Act 2002 states that:

(1) A local authority must prepare and adopt in respect of each financial year an Annual Report containing in respect of that year the information required by Part 3 of Schedule 10.

(2) The purposes of an Annual Report are—

(a) to compare the actual activities and the actual performance of the local authority in the year with the intended activities and the intended level of performance as set out in respect of the year in the Long Term Plan and the Annual Plan; and

(b) to promote the local authority's accountability to the community for the decisions made throughout the year by the local authority.

(3) Each Annual Report must be completed and adopted, by resolution, within four months after the end of the financial year to which it relates.

(4) A local authority must, within one month after the adoption of its Annual Report, make publicly available—

(a) its Annual Report; and

(b) a summary of the information contained in its Annual Report.

(5) The summary must represent, fairly and consistently, the information regarding the major matters dealt with in the Annual Report.

(6) A local authority must, within one month after the adoption of its Annual Report, send copies of that report and of the summary prepared under subsection (4)(b) to—

(a) the Secretary; and

(b) the Auditor-General; and

(c) the Parliamentary Library.

12 Information that must be included can be found in Schedule 10 Part 3 of the Act, and includes:

· Groups of activities

· Capital expenditure for groups of activities

· Statement of service provision,

· Funding impact statement for groups of activities,

· Internal borrowing,

· Council-controlled organisations,

· Financial statements,

· Rating base information,

· Reserve funds,

· Remuneration issues,

· Employee staffing levels and remuneration,

· Severance payments,

· Statement of compliance,

· The activities that the local authority has undertaken in the year to establish and maintain processes to provide opportunities for Māori to contribute to the
decision-making processes of the local authority.

13 The Annual Report and Summary Document reports on Council’s performance against the Annual Plan (which is based on the first year of the Council’s Long Term Plan 2015-2025) under the Act.

14 As each Annual Report must be completed and adopted, by resolution, within four months after the end of the financial year to which it relates, this makes 31 October 2016 the last day available to meet this timeframe.

Community Views

15 As the Annual Report is a report on activities undertaken during the year, no consultation is required as the consultation has already occurred as part of the Long Term Plan process.

Costs and Funding

16 There is a fee provided to Audit New Zealand to audit the Annual Report.

Policy Implications

17 There are no policy implications.

Assessment of Significance

18 Whilst the Annual Report is an important accountability document for Council, this report merely sets out the associated timetable key dates and is therefore of low significance.

Next Steps

19 The Project Team will provide a draft document to Council at a workshop on 7 September 2016.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Annual Report 2015/2016 Timetable” dated 25 February 2016.

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

Attachments

a Draft Annual Report Timetable 2015 2016

Activities Performance Audit Committee

9 March 2016

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Financial Report for the period ended 30 November 2015

Record No: R/16/1/1086

Author: Susan McNamara, Management Accountant

Approved by: Anne Robson, Chief Financial Officer

☐ Decision ☐ Recommendation ☒ Information

Background

1. This report outlines the financial results to 30 November 2015. At 30 November 2015, 42% of the financial year is complete.

2. Within the report, no issues have been identified that raise any concerns for Council relating to the end of year financial position.

Overview

3. The financial commentary centres on the summary sheet in Appendix A which draws the totals from each of the key groups together. Commentary provided focuses on the year to date (YTD) results. The budget numbers included in the monthly and year to date section are based on the full year projection budget included in the final section of the reports. The full year projection budget is a combination of the budget included in the Long Term Plan for 2015/2016 and the carry forward and forecast amounts previously approved by Council.

4. More detailed variance explanations for each group can be found in the attached Appendix B. The budget numbers included in the monthly and year to date section are based on the full year budget provided in the third column. The full year budget in these reports is a combination of the budget included in the Long Term Plan for 2015/2016 and the carry forward amounts previously approved by Council.

5. As part of the monthly review, finance staff look over the phasing/timing of the budgets and they are revised in conjunction with budget managers where appropriate. Where specific phasing of the budgets has not occurred, one twelfth of budgeted cost is the default to establish the monthly budget.

6. The financial tables this month include the forecasting data discussed at the Council’s December meeting. In summary,

- The monthly and annual budget columns are the combination of the Long Term Plan (LTP) budget plus the carry forwards approved by Council in August 2015 plus/less changes as a result of forecasting.

- The FY Budget is the LTP budget for the year.

- The FY Projection is the forecasted year end result.

7. Staff will continue to refine the format of this report, with additional features being added to enhance the financial information given. Any feedback or suggestions on further amendments that could be made to this report are welcome.

8. Results at a glance, compared to budget year to date.

INCOME YTD			OPERATING EXPENDITURE YTD
Actual	Budget		Actual	Budget
$25.4M	$27.6M		$20.6M	$21.3M
Variance	$2.2M	8%	Variance	$0.7M	3%

NET SURPLUS YTD			CAPITAL EXPENDITURE YTD
Actual	Budget		Actual	Budget
$4.8M	$6.3M		$4.2M	$6.9M
Variance	$1.5M	24%	Variance	$2.7M	40%

Income

9. Overall for the YTD, income is 8% ($2.2M) under budget ($25.4M actual v $27.6M budget).

10. Services and Assets income is under budget by $817K due to a number of items.

11. The largest being forestry revenue which is currently $569K under budget. Harvesting is expected to begin in early February and it is forecast that total harvesting income will be $588K less for the year than had been budgeted in the Long Term Plan. This is due to an estimated harvest of 6,000 tonnes less than was budgeted and the actual sale price being $6 a tonne less than budgeted at $43 tonne.

12. The income in District Water is under budget by ($53K). Within this business unit invoicing for water meter charges are $11K lower for the first quarter than previous years. Generally this is due to reduced water volumes taken as a result of changes in commercial business practice of a couple of consumers.

Additionally, in 2014/2015 we accrued the last quarter of water meter charges into the accounts. This has resulted in our income being one quarter less to date ($22k). From the January 2016 accounts we will be including an accrual estimate to balance this.

13. Work scheme revenue is $66K under budget as a result of less work being completed overall due to being one supervisor less. This is partially offset by a vacant staff position ($35K) and reduced material purchases of $6K. Also the Work Scheme Supervisor is currently liaising with Probation Services to secure a contribution for this financial year. This contribution is expected to be approximately $32K per annum. Even if this is received, it is still anticipated that the business unit will be in deficit at year end, by approximately $15k due to having one crew less. However staff anticipate that this deficit can be made up next year once the supervisor position is filled.

Operating Expenditure

14. Overall for the YTD, operating expenditure is 3% ($0.7M) under budget ($20.6M actual vs $21.3M budget).

15. The Chief Executive group is currently over budget by $127K. Within the Around the Mountains Cycle trail $108K is the result of moving costs relating to the appeal process into a separate code for easy identification. At year end this will be moved back to capital expenditure. The Chief Executive business unit is $27K over budget due to the timing of costs relating to the organisation review however it is expected at year end that costs overall will be within budget.

16. Environment and Community expenditure is $334K under budget. This is mainly in the regulatory areas of building regulation ($64k), resource consent processing ($47k) and resource planning ($132k).

Current market conditions has resulted in less building and resource consent activity resulting in lower than budgeted income and expenditure in these areas. It is anticipated that this trend will continue to year end, however overall the business units will still be in surplus. The District Plan mediation processes have been delayed at the direction of the Environment Court due to the status of Environment Southland’s Regional Policy Statement. Until the Regional Policy Statement is progressed the amount of expenditure on the District Plan during this year is uncertain.

Capital Expenditure

17. Overall for the YTD, capital expenditure is 40% ($2.7M) under budget ($4.2M actual vs $6.9M budget).

18. Information management capital expenditure is under budget $463K due to minimal capital work being undertaken to date. Included in the budget are costs associated with the core systems review and digitisation project. Work has been planned for the digitisation project in the second half of this financial year. There has been $25K spent on the digitisation compared to a forecasted YTD budget of $104K. It is expected to be close to budget at year end. At this stage no significant expenditure has been identified for the core systems review and it is expected that the majority of the budget of $1M will be deferred.

19. Services and assets capital expenditure is under budget year to date, $552K due to minimal capital work being undertaken to date beyond the purchase of Hansen software. The Curio Bay sewerage project is still in discussion ($970k), quotes are being received on the costs to construct and initial contact has been made with DOC and the trust towards a contribution to operating costs. At this stage it is planned to report back to Council towards the end of April 2016. Public convenience upgrades in Winton (Ivy Russell Park) and Dipton are out for tender, Colac Bay toilets are in design phase, the Waikaia toilets are being built in conjunction with the Waikaia museum rebuild and the Athol toilet is completed.

$375k has also been included in the LTP for an increase in the forestry valuation at year end. This has been phased to appear in June.

Roading and Transport

20. The seasonality of the capital works programme directly affects the level of income received from NZTA.

21. Operational expenditure is in line with the long term plan budget and the NZTA approved budget for 2015/16 even though weather events over winter put a strain on the budgets.

22. The Roading and Transport team have forecast that capital expenditure will be under budget at the end of the year. This variance is partly due to the Southern Scenic Route extension and Mararoa Bridge projects being deferred to the 2016/2017 financial year ($2.48M). This is offset by additional rehabilitation projects, changes in scope and market prices ($321K).

Balance Sheet

23. Council’s financial position as at 30 November 2015 is detailed below and is only for the activities of Council. The balance sheet as at 30 June 2015 represents the audited balance sheet for activities of Council and includes SIESA and Venture Southland.

24. At 30 November 2015, Council had $6.0M invested in four term deposits ranging from three to six month maturities. Interest rates on these deposits vary from 3.3% to 3.54% per annum. The next term deposit will mature in mid-December.

The details at 30 November 2015 are:

1 Amount	2 Where Invested	3 Interest Rate	4 Term of Investment	5 Date of Expiry
6 $2,000,000	7 ASB	8 3.3%	9 91 days	10 13 Dec 2015
11 $1,000,000	12 BNZ	13 3.54%	14 153 days	15 18 Jan 2016
16 $2,000,000	17 Westpac	18 3.41%	19 119 days	20 12 Feb 2016
21 $1,000,000	22 BNZ	23 3.5%	24 183 days	25 20 Apr 2016

25. Funds on call are the result of rates received at the end of November and held to ensure there is enough cash available to meet commitments as they fall due. In early December additional funds were put into term deposit.

26 Balance at 30 November	27 Where Invested	28 Interest Rate
29 $6,602,088	30 BNZ	31 1.90%
32 $3,000,000	33 Westpac	34 2.25%

26. External borrowings are still not required, with internal funds being used to meet obligations for the year to date. The borrowings shown in current liabilities is the outstanding amount of assets funded by finance leases for computer equipment.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Financial Report for the period ended 30 November 2015” dated 25 February 2016.

Attachments

a Summary Financial Report View

b Detailed Commentary View

Activities Performance Audit Committee

09 March 2016

STRATEGIC TRANSPORT

Overall Financial Performance

Transport remains focused on delivering value for money. The current focus of the business unit is the ‘lead in work’ required for its capital works programme.

Overall maintenance budgets are in line with actual expenditure year to date. Due to related weather events over the winter period, this has put a strain on the resilience budgets. This will likely be offset in operating expenditure and will be monitored closely over the financial year.

It is also noted that unsealed roads costs are over budget. This is primarily due to grading and other ad-hoc work. This line item will likely align in the new calendar year but will be monitored closely.

There is a maintained focus of responding to the needs of the network while working within Annual Plan and NZTA budgets.

Council’s Transport capital expenditure is under budget primarily due to timing. Council is currently in the planning stage for this year’s programme. Of note, there has been a significant drop in the bitumen index over the last few months.

It is forecasted along with project being deferred until the next financial years (namely the Southern Scenic Route extension and Mararoa Bridges projects) that capital expenditure will significantly be under budget at year end. Reseal work has commenced.

A lot of construction work namely rehabilitations will commence in the new calendar year. Some more Minor Improvement work will also be advanced also in the new calendar year. Our safe systems Engineer is currently collecting appropriate data which will be used to evaluate appropriate and prioritise safety investment in the new calendar year.

*Key*
	Largely on Track
	Monitoring
	Action Required

Maintenance and Operations (excluding Special Purpose Roads):

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*42%*	*43%*	*43%*	*42%*

Renewals and Minor Improvements:

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*42%*	*29%*	*27%*	*24%*

Other Budgeted Projects:

Unbudgeted Projects:

Activities Performance Audit Committee

9 March 2016

sdclogo

Financial Report for the period ended 31 December 2015

Record No: R/16/2/2595

Author: Ben du Mez, Graduate Accountant

Approved by: Anne Robson, Chief Financial Officer

☐ Decision ☐ Recommendation ☒ Information

Background

1. This report outlines the financial results to 31 December 2015. At 31 December 2015, half of the financial year is complete.

2. Within the report, no issues have been identified that raise any concerns for Council relating to the end of year financial position.

Overview

6. The financial tables include the forecasting data discussed at the Council’s December meeting. In summary,

- The monthly and annual budget columns are the combination of the Long Term Plan (LTP) budget plus the carry forwards approved by Council in August 2015 plus/less changes as a result of forecasting.

- The FY Budget is the LTP budget for the year.

- The FY Projection is the forecasted year end result.

8. Results at a glance, compared to budget year to date. Budget year to date phased forecast budget.

INCOME YTD			OPERATING EXPENDITURE YTD
Actual	Budget		Actual	Budget
$30.5M	$33.1M		$25.2M	$25.7M
Variance	$2.6M	8%	Variance	$0.5M	2%

NET SURPLUS YTD			CAPITAL EXPENDITURE YTD
Actual	Budget		Actual	Budget
$5.3M	$7.4M		$4.6M	$10.1M
Variance	$2.1M	28%	Variance	$5.5M	54%

Income

9. Overall for the YTD, income is 8% ($2.6M) under budget ($30.5M actual v $33.1M budget).

10. Services and Assets income is under budget by $924K due to a number of items.

11. The largest being forestry revenue which is currently $711K under budget. Harvesting was expected to begin in early February, however due to the discussion over a new contract with the logging company it is probable logging will now commence in March. Overall total harvesting is expected to be $588k less than what was budgeted in the Long Term Plan due to a reduction in estimated tonnage and the price per tonne. Prices recently have increased so it is possible as part of the re-forecasting to the end of February that the expected total revenue will alter, but it is not expected to be significant.

12. As a result of less expenditure being incurred to date in the Area Engineers and Engineering Consultants business units internal revenue required to balance this business units is also less than budgeted ($70k).

13. Work scheme revenue is $876K under budget as a result of less work being completed overall due to being one supervisor less. This is partially offset by a vacant staff position and reduced material purchases. Also the Work Scheme Supervisor is currently liaising with Probation Services to secure a contribution for this financial year. This contribution is expected to be approximately $32K per annum. Even if this is received, it is still anticipated that the business unit will be in deficit at year end, by approximately $15k due to having one crew less. However staff anticipate that this deficit can be made up next year once the supervisor position is filled.

Operating Expenditure

14. Overall for the YTD, operating expenditure is 2% ($0.5M) under budget ($25.2M actual vs $25.7M budget).

15. The Chief Executive group is currently over budget by $227K. Within the Around the Mountains Cycle trail $247K is the result of moving costs relating to the appeal process into a separate code for easy identification. At year end this will be moved back to capital expenditure. The Chief Executive business unit is $71K over budget due to the timing of costs relating to the organisation review and the cost of the unbudgeted local government survey undertaken by PWC. It is expected at year end that costs overall will be over budget but will be covered by cost savings in other business units.

16. Environment and Community expenditure is $372K under budget. This is mainly in the regulatory areas of building regulation ($83k), resource consent processing ($25k) and resource planning ($150k).

17. Council & Councillors is $424k over budget. This is a timing issue and is due to the quarterly accrual for Venture ($442) displaying in December with the phased budget for this amount appearing in January. Payment of the quarterly instalments is made in advance of the qtr.

Capital Expenditure

18. Overall for the YTD, capital expenditure is 54% ($5.5M) under budget ($4.6M actual vs $10.1M budget).

19. Information management capital expenditure is under budget $580K due to minimal capital work being undertaken to date. Included in the budget are costs associated with the core systems review and digitisation project. Work has been planned for the digitisation project in the second half of this financial year. There has been $44K spent to date on both projects with a forecasted year end budget of $1.25m. The digitisation project is expected to be close to the forecasted expenditure of $250k at year end. It is planned to reforecast the core systems review project to $250k from the current $1m as part of the end of february reforecasting process. The balance of these funds will be moved carried forward into the 16/17 year with Council’s approval.

20. Services and assets capital expenditure is under budget year to date, $660K due to minimal capital work being undertaken to date beyond the purchase of Hansen software.

The Curio Bay sewerage project is still in discussion ($970k), quotes are being received on the costs to construct and initial contact has been made with DOC and the trust towards a contribution to operating costs. At this stage it is planned to report back to Council towards the end of April 2016. Public convenience upgrades in Winton (Ivy Russell Park) and Dipton are out for tender, Colac Bay toilets are in design phase, the Waikaia toilets are being built in conjunction with the Waikaia museum rebuild and the Athol toilet is completed. $375k has also been included in the LTP for an increase in the forestry valuation at year end. The forestry revaluation is phased to occur in June.

Roading and Transport

21. The seasonality of the capital works programme directly affects the level of income received from NZTA along with any changes to the programmed works.

22. Operational expenditure is in line with the long term plan budget and the NZTA approved budget for 2015/16 even though weather events over winter put a strain on the budgets.

23. The Roading and Transport team have forecast that capital expenditure will be under budget at the end of the year. This variance is due to the Southern Scenic Route extension and the Mararoa Bridge projects being deferred to the 2016/2017 financial year ($2.48m). This is offset by additional rehabilitation projects, changes in scope and market prices $321k.

Balance Sheet

24. Council’s financial position as at 31 December 2015 is detailed below and is only for the activities of Council. The balance sheet as at 30 June 2015 represents the audited balance sheet for activities of Council and includes SIESA and Venture Southland.

25. At 31 December 2015, Council had $9.0M invested in four term deposits ranging from three to six month maturities. The next term deposit will mature in mid-January.

The details at 31 December 2015 are:

Amount	Where Invested	Interest Rate	Term of Investment	Date of Expiry
$1,000,000	ASB	3.25%	93 days	15 Apr 2016
$1,000,000	BNZ	3.54%	153 days	18 Jan 2016
$2,000,000	Westpac	3.41%	119 days	12 Feb 2016
$1,000,000	BNZ	3.5%	183 days	20 Apr 2016
$4,000,000	ANZ	3.35%	49 days	20 Jan 2016

26. Funds on call are the result of rates received at the end of December and held to ensure there is enough cash available to meet commitments as they fall due.

Balance at 31 December	Where Invested	Interest Rate
$359,215	BNZ	2.00%
$2,000,000	Westpac	2.00%

27. External borrowings have still not been required, with internal funds being used to meet obligations for the year to date. The borrowings shown in current liabilities is the outstanding amount of assets funded by finance leases for computer equipment.

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Financial Report for the period ended 31 December 2015” dated 25 February 2016.

Attachments

a Summary Financial Report View

b Detailed Commentary View

Activities Performance Audit Committee

09 March 2016

STRATEGIC TRANSPORT

Overall Financial Performance

Transport has a continued focus on delivering value for money.

Overheads are tracking over budget, primarily due to legal costs being higher than budget. Legal costs generally occur on an ad-hoc basis and budgets have been prepared based on historic expenditure.

Overall it is expected that Maintenance and Operations expenditure will closely align to full year budgets.

Capital expenditure is likely to be significantly under budget. This is due to deferring the Southern Scenic Route seal extension project and Mararoa Bridge project. Other renewal projects will come under budget primarily due to the lower than budgeted tender rates for reseals and the bitumen index. This is partially offset with a rehabilitation programme for rehabilitations than budgeted.

*Key*
	Largely on Track
	Monitoring
	Action Required

Maintenance and Operations

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*50%*	*51%*	*50%*	*49%*

It is anticipated that the year-end forecast will be closely aligned to annual plan budgets. It is noted that unsealed road costs are tracking above budgets due to cyclic grading this will be monitored. It is also noted that weather related budgets (environmental maintenance) have been fully utilised this financial year and will be monitored closely and budgets managed form a holistic approach.

Renewals and Minor Improvements:

Financial Tracking vs Plans
YTD	Forecast	Annual Plan	NZTA Approved
*50%*	*32%*	*30%*	*26%*

2015/2016 Renewal and Minor improvement forecast is lower than budgeted this is primarily driven by the reseal contract price and the bitumen index. This is offset partially with an increased rehabilitation programme.

There will be increased expenditure in renewal projects in the next few months as rehabilitations and reseals advance.

Transport is currently using a prioritising tool to evaluate sites for guard rails and will see some expenditure on sites over the remainder of the financial year.

Unbudgeted Projects

Activities Performance Audit Committee

9 March 2016

sdclogo

Internal Audit

Record No: R/16/2/1790

Author: Sheree Marrah, Finance Manager

Approved by: Anne Robson, Chief Financial Officer

☒ Decision ☐ Recommendation ☐ Information

Purpose

1 The purpose of this report is to outline to Council the benefits of implementing an internal audit function within Southland District Council and the options available for delivering this service, including participation in a shared internal audit pilot programme being offered by Deloitte.

Executive Summary

2 Internal audit is good practice and is designed to add value and improve an organisation’s operations. The process of internal involves a systematic disciplined approach to evaluate the effectiveness of risk management, internal controls and processes.. An internal audit also adds value to the organisation by providing recommendations on where improvements can be made.

3 Council have been approached by Deloitte to participate in a shared internal audit pilot programme to be rolled out across a number of local authorities across the South Island, which staff are recommending that Council participate in.

4 The potential use of Deloitte is only one part of a proposed internal audit programme. Council staff are working to compile a draft internal audit plan for consideration by APAC at a future meeting. This plan will address Council’s specific areas of internal audit focus for the future and the planned approach for undertaking the internal audit function for each area of focus (ie whether we will use internal, external or a combination of resources).

Recommendation

That the Activities Performance Audit Committee:

a) Receives the report titled “Internal Audit” dated 26 February 2016.

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

d) Acknowledges the benefit of an internal audit function for Council.

e) Requests Council staff to prepare a draft internal audit plan for consideration at a future meeting.

f) Agrees to participate in the Deloitte shared internal audit pilot programme, and authorises the Chief Executive to sign the engagement letter dated
18 December 2015 on Council’s behalf.

g) Approves unbudgeted expenditure of up to $12,000 + disbursements (GST exclusive) on the shared internal audit pilot programme, to be funded from underspends in the financial services budget.

Content

Background

5 Internal audit is not a new concept and all organisations can benefit from an independent and objective review of its processes to improve the efficiency and effectiveness of operations, the reliability of reporting as well as legislative compliance.

6 Deloitte, the investigators of the Dunedin City Council’s Citifleet fraud, ran a training workshop attended by two Finance staff members in July 2015. Subsequent to this workshop, discussions have been held with the wider Finance team and Finance Managers from other local authorities within the region on the benefits of internal audit and what options are available for the provision of such services. A paper considering the potential of a joint approach was discussed at the December 2015 Shared Services Forum meeting and chief executive level.

What is internal audit?

7 The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.

Why internal audit?

8 External audit already has a focus on financial risks, financial statements and internal controls.

These audits provide a basic level of assurance regarding internal controls; however, an internal audit function can determine its own work programme, have a more detailed focus and testing regime and provides a greater level of ongoing assurance beyond financial matters.

9 Internal audit should help in improving the effectiveness of risk management, control and governance processes. Internal audit should be designed to add value and improve an organisation’s operations.

10 Internal auditors can serve as an early warning system, by identifying issues earlier than an external audit. The internal audit function is also concerned with inefficiencies and can identify redundancy in existing processes. An effective programme drives a higher level of accountability and awareness in an organisation throughout the whole financial year.

11 By reporting to management that important risks have been evaluated and highlighting where improvements are necessary, internal audit helps management and boards to demonstrate that they are managing the organisation effectively on behalf of their stakeholders.

12 Reviewing processes, procedures and systems would strengthen the disciplines and controls that exist within Council.

How could it be delivered?

13 There are three options for resourcing an internal audit function:

• Internal - resources are provided internally, through existing or new resource

• Co-sourcing - a combination of resources from within the organisation and from external specialists.

• Outsourcing - resources are provided entirely by external specialists.

14 Resources used in the above context include people, processes, methodologies, technologies and tools required to carry out an internal audit.

15 As part of the wider internal audit plan, all options would be considered and potentially used at some time.

16 It is envisaged that APAC will be responsible for the oversight of the internal audit function, with management responsible for the internal controls.

17 Although this report focuses on Council’s involvement in the proposed shared internal audit pilot programme offered by Deloitte, Council staff are working to compile a draft internal audit plan for consideration by APAC at a future meeting. This plan will address Council’s specific areas of internal audit focus for the future and the planned approach for undertaking the internal audit function for each area of focus.

Potential areas of focus

18 Potential areas of focus for an internal audit function could include, but not be limited to:

• Regulatory compliance	• Sensitive expenditure
• Third-party/Vendor relationships	• Conflicts of interest
· Strategic alignment	• Fraud policy and detection
• Risk assessment	• Fixed assets
• Data analytics	• Management and Council reporting
• Cyber security	• Accounts payable
· Corporate governance	• Payroll
• Crisis management planning	• Rates process and compliance
· Contract initiation and management	• Cash handling controls

Deloitte shared internal audit proposal

19 Council has been approached by Deloitte who are trialling a shared service internal audit programme for local authorities across the South Island. The purpose of the pilot project is to assess whether an internal audit shared service offering for local authorities could work in practice for both local authorities and for Deloitte as the service provider. A copy of the engagement letter for the pilot programme is attached for your information. The pilot programme will be focussing on the following areas:

• Fraud policy,

• Conflicts of interest,

• Sensitive expenditure.

20 The scope of work is fixed, and was determined by Deloitte in conjunction with a number of Councils and the Office of the Auditor General. At the conclusion of the pilot programme, all councils involved will be provided with a shared report, which will include detailed findings in relation to the Council’s own activities as well as recommendations for improvement. These recommendations may be based on successful policies, processes etc from other Councils. No opinion will be expressed by the auditors in relation to the internal audit work performed.

21 The advantages for Council in participating in this pilot programme are outlined below under option 1.

22 If the pilot is successful, Deloitte plan to roll out a regular programme of internal audit activities to fit with emerging and existing local government risk areas. We understand that Council will be involved in determining the schedule of work to be included in the internal audit programme. If Council are willing to participate, a formal commitment will be required to be made to the internal audit shared service offering by way of an engagement letter, committing to a period of three years (indicative only).

Issues

Factors to Consider

Legal and Statutory Requirements

23 There are no legal or statutory requirements for Council to have an internal audit function but it is considered best practice and will add value to our internal processes and external audit.

Community Views

24 As this is an internal operational matter, community views are not required, however the community as a whole want an efficient and effective Council.

Costs and Funding

25 The costs associated with an internal audit depend on the resourcing approach taken and the level of internal audit work undertaken.

26 The pilot programme being offered by Deloitte is anticipated to cost Council $10,000 - $12,000 (GST exclusive) plus disbursements.

27 Future costs of further internal audit processes are unknown at this stage, but it is expected that an annual programme of works will be approximately $30,000-$40,000 per annum, assuming three ‘modules’ of work will be undertaken each year by an external expert.

28 Any internal audit work undertaken in the current financial year would be funded from under-spends in the financial services budget.

Policy Implications

29 Engaging an external consultant to undertake an internal audit programme will be subject to the terms of Council’s procurement policy. Participation in the Deloitte pilot project will be subject to section 9(3)c of the policy, being:

9(3)(c) A minimum of three written quotes shall be required for any purchase between $5,000 and $20,000, except with the written approval of the Group Manager. Approval may be given on an ongoing basis, where appropriate.

Given Deloitte’s level of knowledge and experience in local government, and the shared service approach, the Chief Financial Officer is comfortable to approve participation in the pilot programme without obtaining two alternate quotes.

In considering whether to participate in any future Deloitte internal audit programme, consideration will need to be given to the anticipated annual cost, and if considered necessary, competitive tendering may be required (as per section 9(3)(a) below). Alternatively direct negotiation with a supplier could occur with the appropriate written approval by the Chief Financial Officer or the Chief Executive (as per section 9(3)(b) below).

9(3)(a) Competitive tendering will be the default method for any goods, works and services expected to have a value over $20,000.

9(3)(b) Decision to use direct negotiation shall be documented clearly and will require the following authorisation:

(i) Any goods, services or works expected to have a value over $200,000 is to be approved by APAC.

(ii) Any goods, services or works expected to have a value between $50,000 and $200,000 is to be approved in writing by the Chief Executive.

(iii) Any goods, services or works expected to have a value between $20,000 and $50,000 is to be approved in writing by the appropriate Group Manager.

Analysis

Options Considered

Analysis of Options

30 Option 1 - Participate in the proposed shared internal audit pilot offered by Deloitte*.

Advantages

Disadvantages

· Deloitte have extensive local government knowledge and experience.

· High level of expertise in internal audits.

· Report will include discussion on other local authority clients involved in the pilot.

· Established and proven risk assessment framework and methods.

· Programme of works aligned with emerging and existing risk areas within local government.

· Project supported by Office of the Auditor General.

· Approximately 20% labour cost saving.

· Approximately 40% saving on disbursements.

· Support an initiative which is endeavouring to strengthen local government control environment across the South Island.

· Risk mitigation.

· Opportunities for staff development.

· Unbudgeted cost of $10,000-$12,000 plus disbursements in 2015/2016.

· Scope of works is limited to that agreed by the participating local authorities.

· Minimum number of councils required to participate for the project to proceed.

· Fixed engagement terms across all participating Councils.

* This option only recommends Council’s involvement in Deloitte’s internal audit pilot project. Future engagement of Deloitte for internal audit services will be subject to further consideration at a later date.

31 Option 2 – Do not participate in the proposed shared internal audit pilot offered by Deloitte

Advantages

Disadvantages

· Cost saving.

· Opportunity to learn from other Council’s processes, procedures and systems will be missed.

Assessment of Significance

32 This matter is not considered significant.

Recommended Option

33 Option 1 - Participate in the proposed shared internal audit pilot offered by Deloitte.

Next Steps

34 Council staff will arrange for the Deloitte engagement letter to be signed by the
Chief Executive and returned to Deloitte. Staff will liaise with Deloitte to co-ordinate timing for the internal audit work to be undertaken.

35 Council staff will develop a draft internal audit plan for consideration at a future APAC meeting.

Attachments

a Southland District Council Business Process Review Document - Shared Service View

Activities Performance Audit Committee

09 March 2016

Follow up from IANZ re-assessment of Southland DC - March 2015
Notes: · Corrective Actions are to be cleared by the specified date from International Accreditation New Zealand (IANZ). · Strong recommendations are to be actioned before the next biennial IANZ re-assessment. · Recommendations are to be considered for actioning before the next biennial IANZ re-assessment. · Responses are to be communicated to staff in monthly meeting agenda after completion. · Responses are recorded in Section QA1 of the QAS Manual after completion.
Corrective Actions
Action required/recommended	Proposed response	Accepted yes/no	Date to be actioned	Date completed
No corrective actions identified by IANZ	N/A	N/A	N/A	N/A
Strong Recommendations
Action required/recommended	Proposed response	Accepted yes/no	Date to be actioned	Date completed
It is strongly recommended that the BCA always ensures that hard copy and electronic copies of public information are the same version.	The Building Consent Application Guide is to be reviewed and re-printed in hardcopy version.	yes	01/07/15	01/11/15
It is strongly recommended that the BCA consent processing checklists be revised to ensure they prompted review of producer statements and compliance schedule information.	Electronic processing check-sheets are to be reviewed to ensure that they prompt a review of producer statement and compliance schedule information.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA ensures they do not include inappropriate “advice notes” on consents.	Training on appropriate use of construction prompts is to be undertaken at a monthly meeting 8December 2015.	yes	01/07/15	08/12/15
It is strongly recommended that the BCAs CCC procedures (checklist) prompt the BCO to review Producer Statements and Third Party Certificates to establish full compliance with the Building Consent.	Electronic processing check-sheets are to be reviewed to ensure they prompt a review of producer statement and compliance schedule information.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA ensures they do not issue generic compliance schedules, or include any irrelevant standards on compliance schedules.	Compliance Schedule processes are to be reviewed to require as much system information as possible is provided upfront at consent processing stage so relevant standards are referenced. CAS1 to 7 section of check-sheet amended to include system information as part of fire design.	yes	01/07/15	11/11/15
It is strongly recommended that the BCA ensures that the monitoring of the application of training is targeted to review the application of training received.	A training plan - outcome form is to be established to record application of training.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA describes in their procedures the processes that they used to ensure contractors (such as engineers, the individual with specialist processing skills, and the individual that performed competency assessments, internal audits and training needs assessment) were technically competent, both when first engaged, and at regular (annual) review of competency.	QAS Manual Section CA7 (1 - 6) (9 - 11) and template contractor SLA’s (Section 3 and 9) amended relating to contractors is to be reviewed to ensure provision is made for regular review of technical competency.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA revise and implement procedures to require contractors to provide technically appropriate outcomes.	QAS Manual Section CA7 (1) (11) and template contractor SLA (Section 3) amended to include reference to technically appropriate outcomes.	yes	01/07/15	31/07/17
Strong Recommendations
Action required/recommended	Proposed response	Accepted yes/no	Date to be actioned	Date completed
It is strongly recommended that the BCA revise and implement procedures to require contractors to demonstrate compliance with an agreed level of quality assurance.	QAS Manual Section CA7 (9) and template contractor SLA (Section 9) amended to require contractors to demonstrate they are meeting agreed level of quality assurance.	yes	01/07/15	31/07/17
It is strongly recommended that the BCA revise its contractor procedures to require the BCA to review the appropriateness of technical outcomes provided by contractors.	QAS Manual Section CA7 (11) and template contractor SLA (Section 9) amended to require the BCA to review appropriateness of technical outcomes.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA revise procedures to require the BCA to review whether the contractor continued to comply with an agreed level of quality assurance.	QAS Manual Section CA7 (9) template contractor SLA (Section 9) amended to require the BCA to review contractors agreed level quality assurance is being met.	yes	01/07/15	31/07/15
It is strongly recommended that the BCA revise and implement procedures to require the BCA to mark as superseded out-of-date versions of standards and product specifications.	Archived hardcopy technical information folders are to be stamped as “Archived - historic reference only”.	yes	01/07/15	01/12/15
It is strongly recommended that the BCA revise procedures (property file checklist) to record where documents are located (ie hard copy or electronic file).	Form KM 3 Building Consent Coversheet has been amended to record whether documents are also recorded electronically.	yes	01/07/15	30/07/15
It is strongly recommended that the BCA describe somewhere (possibly in job description) the responsibilities of the Quality Manager and refer in the Quality Manual to where the responsibilities are described.	QAS Manual Section CA8 (5) amended to reference job description for defined QA responsibilities. Quality Managers (Section 2) and Manager BC (Primary Functions section) job descriptions amended to include QA functions.	yes	01/07/15	29/07/15
It is strongly recommended that the BCA specify (in the Quality Manual) the role of the quality assurance person and describe somewhere (possibly in job description) the responsibilities of the quality assurance person.	QAS Manual section CA8 (5) amended to include a Quality Control Coordinator role additional to the Technical and Quality Assurance Managers. Quality/Technical Managers table amended to include Quality Control Coordinator identification for BCA’s.	yes	01/07/15	25/0715
It is strongly recommended that the BCA specify in procedures where the BCA would record the names of those who were exempt from holding a qualification.	QAS Manual Section CA5 (5) amended to include record of exemption from obtaining a qualification. SDC CA5 variation section amended to include Qualification Record for recording exemptions.	yes	01/07/15	25/07/15

Recommendations
Action required/recommended	Proposed response	Accepted yes/no	Date to be actioned	Date completed
It is recommended that the BCA revise and implement procedures to ensure they require the BCA to periodically review all consents to see if there were any that had slipped through the alert system that was designed to prompt the 11 and 12 month letters.	BC Admin have setup a report to flag any granted consents that may slip passed the 12 month follow-up stage.	yes	01/06/15	01/06/15
It is recommended that the BCA revise and implement procedures to ensure that they require the BCA to periodically reviewed consents to see if there were any slipping through the alert system that was designed to prompt the 23 and 24 month letters.	BC Admin have setup a report to flag any granted consents that may slip passed the 24 month follow-up stage.	yes	01/06/15	01/06/15
It is recommended that the BCA Compliance Schedule Template be reviewed to facilitate the BCO’s when they are editing the Compliance Schedule.	The compliance schedule process is to be reviewed to require as much system information provided upfront at consent processing stage so relevant standards are referenced. The compliance schedule template is also to be reviewed.	yes	01/07/15	12/11/15
It is recommended that the BCA revise their “Document Authorisation Table (Dc2)” to record the limitations that individuals had in their competencies as well as having those limitations specified in the individuals competency assessments.	DC2 Document Authorisation table is to be amended to include competency limitations as specified by Qualico in individual BC Officers competency assessments.	yes	01/07/15	29/10/15
It is recommended that the BCA revise their procedures to ensure they describe the BCA’s current process whereby they monitored the timely completion of all quality system functions on an on-going basis.	QAS Manual revision process - record table shall be modified to strengthen the biennial review process. The revision process was modified to: “The QAS manual shall be subject to a biennial review. The review shall be recorded in the Reason for Revision table below, with any modifications recorded in the QAS1 Continuous Improvement Register”.	yes	01/07/15	31/08/15
It is recommended that the BCA ensure their contractor (performing competency assessments) states that an individual is under “distant supervision” only when they actually require supervision.	Instruction given to Qualico that competency assessments are only specify distance supervision where it is necessary for an individual competency rather than when it part of the BCA process.	yes	01/06/15	01/06/15
It is recommended that the BCA revise their training procedure that discusses supervision of site inspectors where the procedure inaccurately refers to processing in two places.	QAS Manual Section CA4 cl 7 amended to remove doubled up reference supervision of consent processing.	yes	01/07/15	15/08/15
It is recommended that in anticipation of the possibility that the BCA may require the services of other BCA’s, that SDC revise procedures to address establishing and reviewing technical competency when engaging the services of another BCA.	QAS Manual Section CA7 (5 - 6) amended to include the process for reviewing technical competency of BC Officers engaged from elsewhere.	yes	01/07/15	31/07/15
It is recommended that in anticipation of the possibility that the BCA may require the services of other BCA’s, that the BCA revise procedures to specify expectations in more detail for when making such agreements (work briefs) with other BCA’s.	We believe the existing Southern Cluster agreement for engaging the services of other BCA’s is adequate. See Carolyn Osborne’s comment below on only being a recommendation.	no	n/a	n/a
It is recommended that the BCA revise procedures to require the BCA to secure copies of relevant diplomas, degrees or certificates rather than just records.	QAS Manual Section CA3 for SDC variations is to be revised to require BCA Manager to review quarterly G drive individual training and consent processing records are being maintained. Calendar reminder setup for 1 January, 1 April, 1 July and 1 October annually.	yes	01/07/15	31/08/15
It is recommended that in anticipation of the possibility that the BCA may require the services of other BCA’s, that the BCA revise procedures to require other contracted BCA’s to supply records that demonstrate the BCO’s have appropriate qualifications.	We believe the existing QAS Manual provision giving the option of seeking verification of appropriate qualifications is adequate. See Carolyn Osborne’s comment below on only being a recommendation.	no	n/a	n/a
From: Carolyn Osborne [mailto:COsborne@ianz.govt.nz] Sent: Monday, 24 August 2015 10:44 a.m. To: Kevin O'Connor Subject: Engaging other BCA's to process consents Hi Kevin, The ground has shifted in the last 12 months. At one stage we were making the following as strong recommendations. At present they are just recommendations. It is recommended that the BCA consider the following points when/if engaging another BCA to process consents: Require up-to-date competency assessments (or other suitable documentation) at engagement and annually thereafter. Ensure that the BCA develops a work brief rather than just the higher level Memorandum of Understanding. Specify any/all appropriate requirements, possibly include a timeframe, fullness of records, and any other requirement that the BCA deems to be appropriate. Require records that demonstrate the contracted BCA’s BCO’s have appropriate qualifications. Ensure work is reviewed against requirements specified in the agreement including review of the appropriateness of technical output. Request a copy of the contracted BCA’s IANZ report.
It is recommended that the BCA may wish to consider sending moisture meters out for servicing and calibration only when they read outside the range specified on their dedicated moisture block.	QAS Manual Section AD3, SDC section amended so testing moisture meters is done in house and only sending those failing the test to be sent away for calibration.	yes	01/07/15	15/0715
It is recommended that the BCA review its application of the terminology “non-critical” in respect to measurements. The IANZ document “Specific Criteria for accreditation of Building Consent Authorities”, October 2012 specifies that “Measurements that are important to demonstrate compliance with the Building Code through acceptable solutions, alternative solutions, specifications etc.” are deemed “Critical”.	QAS Manual Section AD3 (3) (4) (5) (6) reviewed in terms of what is critical. Moisture meters and thermometers modified to be deemed critical.	yes	01/07/15	31/07/15
It is recommended that the BCA may wish to consider including in procedures the delegation of authorities from the Mayor and elected officials to the Building Consent Authority Manager.	Existing delegations under QAS Manual Section CA8 are deemed sufficient.	no	n/a	n/a
It is recommended that the BCA consider revising their procedures for continuous improvements to ensure more than one person reviews proposed continuous improvements from a quality assurance perspective.	Not deemed necessary. Technical Manager review of continuous improvement submissions deemed sufficient without Quality Manager oversight.	no	n/a	n/a
It is recommended that the BCA revise continuous improvement procedures to ensure proposed continuous improvements are entered onto the register at the point at the point at which it is decided to progress the improvement rather than after it has been resolved. The register then becomes a useful tool to monitor whether continuous improvements are being resolved in a timely fashion.	QAS Manual Section QA1 continuous improvement register is to be amended to include an initiated and completion date for actioned corrective and preventative items.	yes	01/07/15	25/08/15

Activities Performance Audit Committee

09 March 2016

TO: FINANCE AND POLICY COMMITTEE

FROM: THE director of works and services

MEETING DATE: tuesday 16 february 2016

quarterly report – southland museum and art gallery

Report Prepared by: Paul Horner – Manager, Building Assets and Museum

Summary

Report about the operation of the Southland Museum and Art Gallery for the second quarter of 2015/2016.

Recommendations

That the report be received.

Implications

1.	Has this been provided for in the Long Term Plan/Annual Plan? Yes.
2.	Is a budget amendment required? No.
3.	Is this matter significant in terms of Council’s Policy on Significance? No.
4.	Implications in terms of other Council Strategic Documents or Council Policy? No.
5.	Have the views of affected or interested persons been obtained and is any further public consultation required? No.

Financial Implications

Ø Income variance is $24,764 to end of December. Income variance is reducing as shop and café income increase above average monthly income during the summer.

Ø Expenditure variance is $74,097 to end of December. The expenditure variance is largely caused by salary variance of $41,703.

Ø Capital variance is $11,066 for unbudgeted expenditure on a vehicle for staff use of $10,000 and an overhead projector for $1,066.

Level of Performance

Target Levels of Performance Required by the Statement of Intent are:

Service Level	Achievement, Second Quarter
Prepare for building refurbishment and extension to enable internal environmental conditions to meet national/international guidelines.	Redevelopment plan completed and approved by Trust Board. Presentations being provided to councils and funders
No irreparable loss or damage is caused to collections or objects on loan.	No loss detected
100% of objects acquired entered into Vernon database and verified	100% of new acquisitions entered.
100% records on Vernon database maintained	100% maintained
Project planned to review, update and verify records on database	This project is dependent on achieving a $600,000 p.a. increase of funding
Three semi-permanent exhibitions are delivered. A minimum of 12 short-term exhibitions, including 8 in the community access gallery, are presented annually.	Six semi-permanent exhibitions at present. Seven short term exhibitions opened by second quarter including four in the Community Access gallery.
Over 25 education programmes delivered to 4000 school students, including curriculum-linked and exhibition-related programmes.	20 programmes delivered to 2,459 pupils by second quarter
Iwi Liaison Komiti (representing the four Southland Runanga), meets four times a year.	Two by second quarter.
Annual visitor numbers exceed 200,000/annum	117,946 by second quarter (5% ahead of same quarter last year)

Operational Comments

The museum is operating well with high people-counter numbers at the front door. With 245,000 people counted in the year to June 2015 the museum is the most visited tourist attraction and community heritage organisation in Invercargill.

Exhibitions which have been held in the Community Access gallery so far this year have been:

Ø Polyfest 2015 (schools)

Ø Day Activity Centre clients of SDHB

Ø Inspired 2015

Ø Ballantynes, Beaches, Bush and Brushstrokes

The art exhibitions which have been held up to end of the second quarter were:

Ø Jeff Thomson, Corrugations

Ø Anderson Park Art Gallery exhibition, Southerly Aspect

Ø Southland Art Foundation exhibition by their Artist in Residence for 2015, Stephen Mulqueen, Blackbird.

The semi-permanent exhibitions at present are:

Ø Roaring 40’s

Ø History Gallery

Ø Maori Gallery

Ø Natural History Gallery

Ø Victoriana Gallery

Ø World War 1 Exhibition

Future Issues

Review of the catalogue information of the collection is the most important project to be carried out in the near future. This is the reason that SMAG is proposing an increase of the Regional Heritage Rate from $34.10 including GST this year to at least $50.00 next year to provide a further $600,000 of operational budget.

The Southland Museum and Art Gallery holds a unique and valuable collection however due to shortage of funding of the museum operation, this has not been and cannot be, catalogued and stored to the best of our ability. This is of immediate concern because:

Ø Future development of the museum buildings cannot be carried out until the catalogue data has been fully updated and items packed into movable containers. To carry out the necessary improvement of catalogue information is estimated to take 20 person-years of work i.e. four new staff working for five years.

Ø Exhibitions, using objects from the collection, which tell Southlanders and visitors about our heritage and culture cannot be designed / curated without up-to-date catalogue information from which to select objects for the exhibitions.

This has been the situation for years and will continue to be the situation until a way is found to increase operational funding. The museum has always needed new curators for natural history and anthropology. A natural history curator is vital as a replacement strategy for our Tuatara curator who is now nearing retirement. An anthropology curator who can work on a Southland wide basis is a need which was identified at least 10 years ago.

A break-down of the requested extra operational funding is as follows:

2 collection technicians @ approximately $50,000 p.a 100,000

2 curators @ approximately $70,000 p.a. 140,000

Staff costs for training, technology, equipment etc p.a. 60,000

Exhibition development, technology, materials etc p.a. 100,000

Collection catalogue and storage costs, materials etc p.a. 100,000

Catch-up for increased present operation costs p.a. 100,000

Total per annum $600,000

**********

Indicator	Target*	Actual	Variance	Compliance
External Funding: Non rateable income/Total income	> 39%	28%	-11%	x
Working Capital: Current Assets/Current Liabilities	>1.09	1.63	0.54	a
Debt Ratio:** Total Liabilities/Total Assets	<0.73%	0.74%	0.01%	x
Debt To Equity Ratio: Total Debt/Total Equity	<0.01%	0.00%	-0.01%	a

Indicator	Target*	Actual	Variance	Compliance
External Funding: Non rateable income/Total income	> 39%	28%	-11%	x
Working Capital: Current Assets/Current Liabilities	>1.09	2.04	0.95	a
Debt Ratio:** Total Liabilities/Total Assets	<0.73%	0.61%	-0.12%	a
Debt To Equity Ratio: Total Debt/Total Equity	<0.01%	0.00%	-0.01%	a

Chief Executive	Steve Ruru
Committee Advisor	Alyson Hamilton