Notice is hereby given that a Meeting of the Finance and Audit Committee will be held on:

 

Date:                            

Time:

Meeting Room:

Venue:

 

Thursday, 16 November 2017

1.30pm

Council Chambers
15 Forth Street
Invercargill

 

Finance and Audit Committee Agenda

OPEN

 

 

 

MEMBERSHIP

 

Chairperson

Ebel Kremer

 

 

Mayor Gary Tong

 

Councillors

John Douglas

 

 

Paul Duffy

 

External Member

Bruce Robertson

 

 

IN ATTENDANCE

 

Chief Financial Officer

Anne Robson

 

Committee Advisor

Fiona Dunlop

 

 

 

Contact Telephone: 0800 732 732

Postal Address: PO Box 903, Invercargill 9840

Email: emailsdc@southlanddc.govt.nz

Website: www.southlanddc.govt.nz

 

Full agendas are available on Council’s Website

www.southlanddc.govt.nz

 

 

 


Terms of Reference – Finance and Audit Committee

 

The Finance and Audit Committee is responsible for:

·                 Ensuring that Council has appropriate financial, risk management and internal control systems in place that provide:

-      An overview of the financial performance of the organisation.

-      Effective management of potential opportunities and adverse effects.

-      Reasonable assurance as to the integrity and reliability of Council’s financial and non-financial reporting. 

·                 Exercising active oversight of information technology systems. 

·                 Exercising active oversight of “Council’s health and safety policies, processes, compliance, results and frameworks”

·                 Relationships with External, Internal Auditors, Banking Institutions and Insurance brokers.

 

The Finance and Audit Committee will monitor and assess the following:

·                 The financial and non-financial performance of Council against budgeted and forecasted outcomes

·                 Consideration of forecasted changes to financial outcomes

·                 Council’s compliance with legislative requirements

·                 Council’s risk management framework

·                 Council’s Control framework

·                 Council’s compliance with its treasury responsibilities.

 

The Finance and Audit Committee shall have the following delegated powers and be accountable to Council for the exercising of these powers and will operate within:

·                 policies, plans, standards or guidelines that have been established and approved by Council;

·                 the overall priorities of Council;

·                 the needs of the local communities; and

·                 the approved budgets for the activity.

 

The Finance and Audit Committee will have responsibility and delegated authority in the following areas:

 

Financial and Performance Monitoring

(a)                 Monitoring financial performance to budgets;

(b)                Monitoring service level performance to key performance indicators.

 

Internal Control Framework

(a)                 Reviewing whether Council’s approach to maintaining an effective internal control framework is sound and effective;

(b)                Reviewing whether Council has taken steps to embed a culture that is committed to probity and ethical behaviour;

(c)                 Reviewing whether there are appropriate systems, processes and controls in place to prevent, detect and effectively investigate fraud.

 

Internal Reporting

(a)                 To consider the processes for ensuring the completeness and quality of financial and operational information being provided to the Council;

(b)                To seek advice periodically from internal and external auditors regarding the completeness and quality of financial and operational information that is provided to the Council.

 


 

External Reporting and Accountability

(a)                 Agreeing the appropriateness of the Council’s existing accounting policies and principles and any proposed change;

(b)                Enquiring of internal and external auditors for any information that affects the quality and clarity of the Council’s financial statements and statements of service performance, and assess whether appropriate action has been taken by management in response to the above;

(c)                 Satisfying itself that the financial statements and statements of service performance are supported by appropriate management signoff on the statements and on the adequacy of the systems of internal control (ie, letters of representation), and recommend signing of the financial statements by the Chief Executive/Mayor and adoption of the Annual Report, Annual Plans, Long Term Plans;

 

Risk Management

(a)                 Reviewing whether Council has in place a current, comprehensive and effective risk management framework and associated procedures for effective identification and management of the Council’s significant risks;

(b)                  Considering whether appropriate action is being taken to mitigate Council’s significant risks.

 

Health and Safety

(a)                 Review, monitor and make recommendations to Council on the organisations health and safety risk management framework and policies to ensure that the organisation has clearly set out its commitments to manage health and safety matters effectively.

(b)                Review and make recommendations for Council approval on strategies for achieving health and safety objectives.

(c)                 Review and recommend for Council approval targets for health and safety performance and assess performance against those targets.

(d)                Monitor the organisation’s compliance with health and safety policies and relevant applicable law.

(e)                Ensure that the systems used to identify and manage health and safety risks are fit-for-purpose, being effectively implemented, regularly reviewed and continuously improved.  This includes ensuring that the Council is properly and regularly informed and updated on matters relating to health and safety risks.

(f)                  Seek assurance that the organisation is effectively structured to manage health and safety risks, including having competent workers, adequate communication procedures and proper documentation.

(g)                Review health and safety related incidents and consider appropriate actions to minimise the risk of recurrence.

(h)                Make recommendation to the Council regarding the appropriateness of resources available for operating the health and safety management systems and programmes.

(i)                  Any other duties and responsibilities which have been assigned to it from time to time by the Council.

 

Internal Audit

 

(a)                 Approve appointment of the internal auditor, internal audit engagement letter and letter of understanding. 

(b)                Reviewing and approving the internal audit coverage and annual work plans, ensuring these plans are based on the Council’s risk profile;

(c)                 Reviewing the adequacy of management’s implementation of internal audit recommendations;

 

(d)                Reviewing the internal audit charter to ensure appropriate organisational structures, authority, access, independence, resourcing and reporting arrangements are in place.

 

External Audit

(a)                 Confirming the terms of the engagement, including the nature and scope of the audit, timetable and fees, with the external auditor at the start of each audit;

(b)                Receiving the external audit report(s) and review action(s) to be taken by management on significant issues and audit recommendations raised within;

(c)                 Enquiring of management and the independent auditor about significant business, political, financial and control risks or exposure to such risks.

 

Compliance with Legislation, Standards and Best Practice Guidelines

(a)                 Reviewing the effectiveness of the system for monitoring the Council’s compliance with laws (including governance legislation, regulations and associated government policies), with Council’s own standards, and Best Practice Guidelines as applicable.

(b)                Conducting and monitoring special investigations, in accordance with Council Policy, and reporting the findings to Council. 

(c)                 Monitoring the performance of Council organisations, in accordance with the Local Government Act. 

 

Business Case Review

(a)        Review of the business case of work, services, supplies, where the value of these or the project exceeds $2million or the value over the term of the contract exceeds $2million.

 

Insurance

(a)                 Consider Council’s insurance requirements, considering its risk profile

(b)                Approving the annual insurance renewal requirements

 

Treasury

(a)           Oversee the treasury function of Council ensuring compliance with the relevant Council policies and plans

(b)           Ensuring compliance with the requirements of Council’s trust deeds are met

(c)           Recommending to Council treasury policies.

 

 

The Finance and Audit Committee is responsible for considering and making recommendations to Council regarding:

(a)            Policies relating to risk management, rating, loans, funding and purchasing.

(b)           Accounting treatments, changes in generally accepted accounting practice, and new accounting and reporting requirements.

(c)            The approval of financial and non-financial performance statements including adoption of the Annual Report, Annual Plans and Long Term Plans.

 

The Finance and Audit Committee is responsible for considering and making recommendations to the Services and Assets Committee on business cases.

 


Finance and Audit Committee

16 November 2017

 

TABLE OF CONTENTS

ITEM                                                                                                                                                                                  PAGE

Procedural

1             Apologies                                                                                                                                                                7

2             Leave of absence                                                                                                                                                7

3             Conflict of Interest                                                                                                                                             7

4             Public Forum                                                                                                                                                         7

5             Extraordinary/Urgent Items                                                                                                                        7

6             Confirmation of Minutes                                                                                                                               7

Reports for Recommendation

7.1         Management Report from Audit New Zealand for the year ended 30 June 2017     21

7.2         NZ Transport Agency Investment Audit Report for the period 2013/14 to 2016/17 45

7.3         Development of the Business Case in Support of Kepler Options                                     57

7.4         Supporting Documentation to the 2018-2028 Long Term Plan                                        219

Reports

8.1         Financial Report for the month ended 30 September 2017                                                 297   

 


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 Finance and Audit Committee, 06 September 2017


sdclogo

 

 

Finance and Audit Committee

 

OPEN MINUTES

 

 

 

Minutes of a meeting of Finance and Audit Committee held in the Council Chambers, 15 Forth Street, Invercargill on Wednesday, 6 September 2017 at 8.37am.

 

present

 

Chairperson

Ebel Kremer

 

Councillors

John Douglas

 

 

Paul Duffy

 

External Member

Bruce Robertson

 

 

IN ATTENDANCE

Councillor Dillon (8.43am - 10.40am, 11.02am – 11.50am)

Councillor Keast (8.43am - 10.40am, 11.02am – 11.50am)

Councillor Perham (8.51am – 10.40am, 11.02am – 11.12am, 11.16am – 11.50am)

Chief Executive Officer – Steve Ruru

Chief Financial Officer – Anne Robson

Group Manager, Community and Futures – Rex Capil

Group Manager, Environmental Services – Bruce Halligan

Chief Information Officer – Damon Campbell

People and Capability Manager – Janet Ellis

Committee Advisor – Fiona Dunlop

 


1          Apologies

 

Apologies for absence have been received from Mayor Tong.

 

Moved Chairperson Kremer, seconded Cr Duffy and resolved:

That the Finance and Audit Committee accept the apology.

 

 

2          Leave of absence

 

There were no requests for leave of absence.

 

3          Conflict of Interest

 

There were no conflicts of interest declared.

 

4          Public Forum

 

There was no public forum.

 

5          Extraordinary/Urgent Items

 

There were no Extraordinary/Urgent items.

 

6          Confirmation of Minutes

 

Resolution

Moved Cr Douglas, seconded Chairperson Kremer  and resolved:

That the Finance and Audit Committee confirms the minutes of ordinary meeting held on 7 June 2017 and the extraordinary meeting held on 19 July 2017 as a true and correct record of those meetings.

 

 

Order of Business

 

The Chair advised that the agenda would be taken as follows:

 

Item 7.4   Draft Unaudited Annual Report 2016/2017

Item 8.5   Analysis of Actual Results to forecast for the year ended 30 June 2017

Item 8.6   Overall Programme of projects for 2017/18 including the projects proposed to be carried forward

Item 7.3   Draft Fraud policy

Item 7.1   Draft Remission and Postponement of Rates Policy

Item 7.2   Draft Investment and Liability Management Policy

Item 8.4   Digitisation Project Update

Item 8.2   Health and Safety

Item 8.3   2018-28 Long Term Plan Audit Fees

Item 8.1   Options for Council funding of the Around the Mountains Cycle Trail

Item C9.1 Risk Register September 2017 update

Item C9.2 Corporate Performance report for the year ending 30 June 2017

 

 

7.4

Draft Unaudited Annual Report 2016/2017

Record No:         R/17/8/20209

 

Nicole Taylor – Project Co-ordinator Corporate Planning and Jacobus Meyer were in attendance for this item.

 

 

Purpose

Miss Taylor advised that the purpose of the report was to enable the Finance and Audit Committee to consider recommending the Annual Report 2016/2017 for adoption by Council at the meeting on 27 September 2017.

The Meeting noted that the Council is required to develop and adopt an Annual Report within four months of the end of a financial year.  The Annual Report compares and comments on the performance of Council against the budget and operating targets set in year two of the Council’s 10 Year Plan 2015 – 2025 and what was programmed in the Annual Plan 2016/2017.

Miss Taylor also advised that a Summary of the Annual Report is also being prepared separately for review and audit later in September/early October.

The Meeting also noted that that Committee is asked to consider the report and make a recommendation as to whether Council should adopt the Annual Report on 27 September 2017 as presented with any changes.

(During discussion on the report Councillors Keast and Dillon joined the meeting at 8.43am and Councillor Perham joined the meeting at 8.51am.)

 

Resolution

Moved Cr Duffy, seconded Cr Douglas and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Draft Unaudited Annual Report 2016/2017” dated 30 August 2017.

b)         Determines that this matter or decision be recognised as 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)         Delegates authority to the chair of the Finance and Audit Committee to confirm changes to the Annual Report 2016/2017 resulting from either audit or officer review.

e)         Recommends to Council that it adopts the Annual Report 2016/2017 at its meeting on 27 September 2017, incorporating any changes resulting from “d” above; and

f)          Notes that the Summary Annual Report 2016/2017 is also being prepared and will be circulated to the Committee and Council for comment and released to the public in October.

 

 

8.5

Analysis of Actual results to Forecast for the year ended 30 June 2017

Record No:         R/17/8/19349

 

Robert Tweedie – Management Accountant was in attendance for this item.

Mr Tweedie advised that the report compares the actual results to the forecast approved for 2016/17. 

The Meeting noted that during the year Council considered and approved changes to the budget set as part of forecasting the year end position.  The comparison is made using the same reporting layout as the Annual Report.  This reflects the Groups of Activities of Council supported by the Funding Impact Statements included in Attachment A of the officers report.

 

 

Resolution

Moved Cr Douglas, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Analysis of Actual results to Forecast for the year ended 30 June 2017” dated 31 August 2017.

 

 

8.6

Overall Programme of Projects for 2017/18 including the Projects proposed to be Carried Forward from 2016/17.

Record No:         R/17/8/20049

 

Susan McNamara – Management Accountant was in attendance for this item.

Miss McNamara advised that the report was to inform the Committee of the overall programme of projects in the 2017/18 financial year.  It also included an overview of the projects for Council teams showing the proportion of projects for 2017/18 that have originally been budgeted for in earlier years. 

The Meeting noted that the Carry Forward expenditure noted in this report is subject to Council approving a report on its 6 September 2017 agenda.

 

 

Resolution

Moved Cr Douglas, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Overall Programme of Projects for 2017/18 including the Projects proposed to be Carried Forward from 2016/17.” dated 31 August 2017.

 

 

7.3

Draft Fraud Policy 2017

Record No:         R/17/8/18473

 

Sheree Marrah – Finance Manager and Rebecca McElrea – Policy and Planning Consultant were in attendance for this item.

 

 

1        Miss McElrea advised that the purpose of the report was to update the 2005 Fraud Policy which is overdue for a review. 

The Meeting noted that in undertaking the review, Council have incorporated a number of recommendations from the Shared Service Business Process review undertaken by Deloitte in 2016.

Miss McElrea also advised that as part of the review, a fraud response plan is also being developed to compliment the Fraud policy.

3        The Meeting also noted that in the next 6 months Council will be undertaking a fraud risk assessment process.  As part of this and the resulting gap analysis undertaken, further changes to this policy may occur within the coming 12 months.

 

 

Resolution

Moved Cr Douglas, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Draft Fraud Policy 2017” dated 31 August 2017.

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

c)         Endorses the draft Fraud Policy.

d)         Recommends to Council that the draft Fraud Policy be adopted.

 

 

7.1

Draft Remission and Postponement of Rates Policy

Record No:         R/17/5/9991

 

Robyn Rout – Policy Analyst was in attendance for this item.

 

 

1        Mrs Rout advised that the purpose of the report was to inform the Committee that no submissions were received on the draft Remission and Postponement of Rates Policy when it was put out for consultation.

 

The Meeting noted that that the Remission and Postponement of Rates Policy specifies the circumstances where the Council will consider remitting or postponing rates.

 

Mrs Rout further advised that the Policy aims to:

·            provide financial assistance and support to ratepayers where it is reasonable;

·            address possible rating anomalies; and

·            provide Council with the ability to act reasonably in administering its rating powers and policies.

3        The Meeting also noted that some minor changes were made to the Policy before it went out for consultation. The remission of rates for natural disasters and emergencies has been included, and the remission of rates in exceptional circumstances now has a clause including individual rating units which have been subject to fire. There has been clarification of the supporting documentation required and the applicable remission periods for each of the remission and postponement categories. The responsibilities and financial limits in the roles and responsibilities schedule have also been clarified.  

 

4        Mrs Rout also advised that this report recommends the Committee both endorses the draft Policy and recommends to Council that the Policy be adopted.

 

 

Resolution

Moved Cr Duffy, seconded Cr Douglas and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Draft Remission and Postponement of Rates Policy” dated 31 August 2017.

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 Remission and Postponement of Rates Policy.

e)         Recommends to Council that the draft Remission and Postponement of Rates Policy be adopted.

 

 

7.2

Draft Investment and Liability Management Policy

Record No:         R/17/8/18448

 

Sheree Marrah – Financial Accountant and Robyn Rout – Policy Analyst were in attendance for this item.

 

 

1        Mrs Marrah advised that the purpose of the report was to outline the Investment and Liability Management Policy and how Council will manage its investments, including what Council will invest in, and how investment risk will be assessed and managed.  The Policy also outlines how Council will manage borrowings.

3        The Meeting noted that the Committee endorsed a draft Policy in March 2017 and recommended that it be released for public consultation. The draft Policy incorporated some minor changes to the current policy, including clarity around the intent of Council in the setting of interest on internal loans, and changes to roles and responsibilities. 

4        Mrs Marrah advised that although no feedback was received, Officers have subsequently noted that the current Investment and Liability policy was out of alignment with the 2015-2025 Long Term Plan.  The Long Term Plan allowed for Council to borrow up to 100% of total revenue, the current Investment and Liability policy allowed for 150% of total revenue.  Given Councils discussion at the time of approving the LTP, the attached draft Investment and Liability Policy has been changed from 150% to 100% of total revenue.

5        The Meeting also noted that as no feedback was received on the draft Policy, officers are now requesting that the Committee endorses the draft Policy as amended and recommends to Council that the Policy be adopted..

 

Resolution

Moved External Member Robertson, seconded Cr Douglas and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Draft Investment and Liability Management Policy” dated 31 August 2017.

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 Investment and Liability Management Policy with changes to sections 3.56 and 3.57 as follows indicated in red:

3.56   Council aims to minimise the risk of default and variability of interest rates.  It does this by:

·            Ensuring that investments are made with entities that have at least a strong capacity (Long Term A- or Short Term A-1) rating from Standard and Poor’s or equivalent rating in Fitch or Moodys.

·            Limiting total exposure to prescribed amounts.

·            Monitoring compliance against set limits.

 

3.57   Based on Standard and Poor’s rating, investments are to be spread as follows:

TABLE 1 - How the Southland District Council will Spread its Investments

Authorised Asset Classes

Overall Portfolio Limit as a Percentage of the Total Portfolio

Approved Financial Market Investment Instruments (must be denominated in NZ dollars)

Credit Rating Criteria - Standard and Poor’s (or Moody’s or Fitch equivalents)

Limit for each issuer subject to overall portfolio limit for issuer class

$

New Zealand Government

100%

·        Government Stock

Not Applicable

Unlimited

·        Treasury Bills

Not Applicable

Unlimited

Rated Local Authorities

70%

·        Commercial Paper

S&P short term rating of A-1 or better

3.0M

·        Bonds/Medium Term Notes (MTN)/Floating Rate Notes (FRN)

S&P long term rating of A- or better

S&P long term rating of A+ or better

S&P long term rating of AA or better

2.0M

 

3.0M

 

5.0M

Unrated Local Authorities

50%

·        Commercial Paper

Not Applicable

2.0M

·        Bonds/MTNs/FRNs

Not Applicable

2.0M

New Zealand Registered Banks

100%

·        Call/Term Deposits/Bank Bills/Commercial Paper

S&P short term rating of A-1 or better

10.0M

·        Bonds/MTNs/FRNs

S&P long term rating of A- or better

S&P long term rating of A+ or better

3.0M

 

5.0M

State Owned Enterprises

50%

·        Commercial Paper

S&P short term rating of A-1 or better

3.0M

 

·        Bonds/MTNs/FRNs

S&P long term rating of BBB+ or better

S&P long term rating of A+ or better

1.0M

 

3.0M

Corporates 

50%

·        Commercial Paper

S&P short term rating of A-1 or better

2.0M

·        Bonds/MTNs/FRNs

S&P long term rating of A- or better

S&P long term rating of A+ or better

S&P long term rating of AA or better

1.0M

 

2.0M

 

3.0M

Financials

30%

·        Commercial Paper

S & P short term rating of A-1 or better

2.0M

·        Bonds/MTNs/FRNs

S&P long term rating of A- or better

S&P long term rating of A+ or better

S&P Long term rating of AA or better

1.0M

 

2.0M

 

3.0M

Building Societies

20%

·     Call and Term Deposits

To be individually approved by Council

3.0M

 

e)         Recommends to Council that the draft Investment and Liability Management Policy be adopted.

 

 

8.4

Digitisation Project Update

Record No:         R/17/8/19204

 

Gillian Cavanagh – Team Leader, Knowledge Management and Damon Campbell – Chief Information Officer was in attendance for this item.

 

Mr Campbell advised that the purpose of the report was to update the Committee on the progress to date on the digitisation project.

 

 

Resolution

Moved Cr Douglas, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Digitisation Project Update” dated 24 August 2017.

 

 

8.2

Health and Safety

Record No:         R/17/8/19028

 

Janet Ellis – People and Capability Manager was in attendance for this item.

 

 

Mrs Ellis advised that the purpose of the report was to provide an update on Health and Safety activity within the Southland District Council.

 

 

Resolution

Moved External Member Robertson, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “Health and Safety” dated 31 August 2017.

 

 

8.3

2018-28 Long Term Plan Audit Fees

Record No:         R/17/8/19170

 

Anne Robson – Chief Executive Officer was in attendance for this item.

 

Miss Robson advised that the purpose of the report was to advise Council of the fees that Audit New Zealand can set for the audit of the 2018-2028 Long Term Plan.

 

 

Resolution

Moved Cr Douglas, seconded Cr Duffy and resolved:

That the Finance and Audit Committee:

a)         Receives the report titled “2018-28 Long Term Plan Audit Fees” dated 31 August 2017.

 

b)         Notes the content of the letter and attachments from the Office of the Auditor General.

 

 

8.1

Options for Council funding of the Around the Mountains Cycle trail

Record No:         R/17/5/9187

 

Anne Robson – Chief Financial Officer was in attendance for this item.

 

Miss Robson advised that the purpose of the report was to obtain a view from the Committee to recommend to Council for a decision on how to fund the balance of costs to date for the Around the Mountains Cycle Trail to be consulted on as part of the 2018-2028 Long Term Plan.

 

The meeting adjourned for morning tea at 10.40am and reconvened at 11.02am.)

 

(During discussion on the item, Councillor Perham left the meeting at 11.12am and returned at 11.16am.)

 

 

Resolution

Moved Cr Duffy, seconded Chairperson Kremer recommendations a to d, e with changes as indicated (with strikethrough and underline) and new f and g and resolved.

That the Finance and Audit Committee:

a)         Receives the report titled “Options for Council funding of the Around the Mountains Cycle trail” dated 29 August 2017.

b)         Determines that this matter or decision be recognised as 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)         Recommends to Council that the decision on how to fund the net cost to date of $4.6 million incurred to develop the Around the Mountains Cycle Trail be made as part of the 2018-2028 Long Term Plan.

e)         Recommends to Council that options to be consulted on for funding include:

i)        The preferred option, based on current Council policy, is funding by way of Loan over 30 years, with loan repayments collected by way of the Roading rate Uniform Annual General Charge.

ii)       Funded by the Strategic Asset Reserve, with no repayments of the reserve.

iii)      Funded 50% by way of a loan over 30 years, with repayments collected by way of the roading rate Uniform Annual General Charge and 50% funded by the Strategic Assets Reserve, with no repayments of the reserve.

f)        Recommends to Council that the decision on how to fund the $4.6million of the Around the Mountains Cycle Trail costs be included as a separate issue in the 2018/2028 Long Term Plan consultation document as prescribed in terms of Section 93C of the Local Government Act 2002.

g)       Recommends to Council that it amends the Revenue and Financing Policy to include funding of the loan repayments for the Around the Mountains Cycle Trail from the Uniform Annual General Charge.

 

 

Public Excluded

 

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

Moved Chairperson Kremer, seconded Cr Duffy and resolved:

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

C9.1 Risk Register - September 2017 update

C9.2 Corporate Performance Report for year ending 30 June 2017

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

Risk Register - September 2017 update

s7(2)(e) - The withholding of the information is necessary to avoid prejudice to measures that prevent or mitigate material loss to members of the public.

s7(2)(i) - The withholding of the information is necessary to enable the local authority to carry on, without prejudice or disadvantage, negotiations (including commercial and industrial negotiations).

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.

Corporate Performance Report for year ending 30 June 2017

s7(2)(c)(i) - The withholding of the information is necessary to protect information which is subject to an obligation of confidence or which any person has been or could be compelled to provide under the authority of any enactment, where the making available of the information would be likely to prejudice the supply of similar information or information from the same source and it is in the public interest that such information should continue to be supplied.

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 Officer, Group Manager, Environmental Services, Group Manager, Community and Futures, Chief Financial Officer, Chief Information Officer, People and Capability Manager, Committee Advisor and Planning and Performance Analyst be permitted to remain at this meeting, after the public has been excluded, because of their knowledge of the items C9.1 Risk Register - September 2017 update and C9.2 Corporate Performance Report for year ending 30 June 2017. 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 11.29am.

 

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

 

 

The meeting concluded at 11.50am.             CONFIRMED AS A TRUE AND CORRECT RECORD AT A MEETING OF THE Finance and Audit Committee HELD ON WEDNESDAY 6 SEPTEMBER 2017.

 

 

 

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

 

 

 

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

 

 


Finance and Audit Committee

16 November 2017

 

Management Report from Audit New Zealand for the year ended 30 June 2017

Record No:             R/17/11/26370

Author:                      Sheree Marrah, Finance Manager

Approved by:         Anne Robson, Chief Financial Officer

 

  Decision                                        Recommendation                                  Information

 

 

 

Summary of Report

1        As part of the audit process, Audit New Zealand provides Council with a report at the conclusion of the interim and final stages of its Annual Report audit, outlining the work that was performed and any recommended areas for improvement.

2        The management letter from Audit New Zealand (Audit NZ) addressing the interim stage of the Annual Report audit for the year ended 30 June 2017 was included in the Finance and Audit Committee 7 June 2017 agenda.

3        Attached is the management letter received from Audit NZ in relation to the final audit (Attachment A) for the year ended 30 June 2017. 

4        Audit New Zealand did not identify any significant or material issues during Council’s audit for the year ended 30 June 2017, and thus on 27 September 2017, Audit New Zealand issued an unmodified audit opinion on Council’s Annual Report for the year ended 30 June 2017. 

5        This meant that Audit New Zealand found the Annual Report had no “material” misstatements and it met its statutory purpose.  However, during the process Audit NZ did identify some areas for improvement.

6       The table below outlines the recommendations made by Audit NZ in this management report, in the form of an action list.  Staff will work through the recommendations identified by Audit NZ. 

7       Additionally, staff have included matters carried forward from prior management letters as separate action lists, many of which have been completed as at the date of this report.  Staff have indicated the due dates in the table.  Most reflect April 2018, which is the date of the interim audit for the 30 June 2018 annual report.

 

8        Matters from Final Management Report

9        Responsibility

10      Status

11       Due Date

12      Non-financial performance reporting

13      Review and make the necessary changes to ensure appropriate processes and controls, including quality assurance, are in place for the ongoing reporting required.

14      Nicole Taylor

15      Not started

16      April 2018

17      Interest Register

18      Review and update the interest register regularly, specifically when there is a change in Councillor or Key Management Personnel.

19      Clare Sullivan

20      Not Started

21      February 2018

22     

23      Milford Community Trust (MCT) consolidation

24      Consider implications and early adoption of PBE IPSAS 34 and 35 in relation to consolidation of MCT.

25      Sheree Marrah

26      Not started

27      April 2018

28      Joint ventures

29      Review and confirm Council’s position in relation to accounting for the various joint ventures in which Council has an interest.

30      Sheree Marrah

31      Not started

32      April 2018

33      Other Audit NZ assurance engagements

34      Implement the following recommendations from the recent Audit NZ assurance engagements:

35      - Implement conflict of interest management processes as early in the tender process as possible.

- Include all procurement key decision-makers in the conflict management processes, not just the Tender Evaluation Team members.

- Ensure documentation of the conflict management processes is completed and retained.

- Consider whether any incumbent supplier relationship should be disclosed as a potential conflict of interest, to highlight awareness of the possibility of bias in decision-making.

36     

37      Ian Marshall

38      Not started

39      April 2018

40      NZTA audit

41      Implement the following recommendations from the recent NZTA audits:

42      – Update the procurement strategy to reflect the NZTA in-house professional service policy requirements.

43      - Get the updated procurement strategy endorsed by NZTA.

44      – Include the late tenders’ policy in all contract tender documents.

45      Ian Marshall

46      Not started

47      April 2018

 


 

48      Matters from Previous Management Reports (Appendix 3)

49      Responsibility

50      Status

51      Due Date

Super user accounts

The list of users with access to the domain administrator group should be reviewed and limited only to those system and user accounts that require this access to perform their function. In addition, the built in administrator account password should be changed and usage of the account limited. Good practice is for the password to be changed when IT staff leave or every six months.

52      Damon Campbell

53      In progress

54      June 2018

Formal IS Agreement

Develop a formal agreement with Invercargill City Council should the Council retain the IS services provided by the Invercargill City Council.

 

55      Damon Campbell

56      Not started

57      June 2018

58      Non-financial performance reporting

59      Review and make the necessary changes to ensure appropriate processes and controls, including quality assurance, are in place for the ongoing reporting required.

60      Strategy and Policy Manager

61      Not started

62      April 2018

 

 

 

63      Matters from Previous Management Reports (carried forward by SDC but not noted by Audit NZ)

64      Responsibility

65      Status

66      Due Date

Policies

Ensure all policies are up to date and periodically reviewed.

Strategy and Policy Manager

In progress

Ongoing

Contract management

Develop a formal approach to contract management.

Develop a contract management policy.

Ian Marshall

In progress

December 2017

 

Legislative compliance

Develop a formal system for legislative compliance.

Strategy and Policy Manager

In progress

June 2018

Policy development and review

·      implement the recommendations from the Deloitte Shared Business Process Review;

·      continue to implement a formal programme of review for policies; and

·      ensure staff are able to locate key polices, and are aware of their contents.

Strategy and Policy Manager

Complete

N/A

Property, plant and equipment reconciliation

Complete a monthly reconciliation between the fixed asset register and general ledger. The reconciliation should be reviewed by an independent person on a one-up basis.

Sheree Marrah

Complete

N/A

Purchase order system

Complete an independent review of purchase orders raised and authorised by the same person.

Review core data changes made by administration users.

Sheree Marrah

Complete

N/A

Creditor masterfile changes

All masterfile changes should be independently reviewed and signed off.

Sheree Marrah

Complete

N/A

Policy development and review

·      implement the recommendations from the Deloitte Shared Business Process Review;

·      continue to implement a formal programme of review for policies; and

·      ensure staff are able to locate key polices, and are aware of their contents.

Strategy and Policy Manager

Partially complete

June 2018

 

 

Recommendation

That the Finance and Audit Committee:

a)            Receives the report titled “Management Report from Audit New Zealand for the year ended 30 June 2017” dated 9 November 2017.

 

Attachments

a             Final Audit NZ Management Report for year ended 30 June 2017    

 


Finance and Audit Committee

16 November 2017

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


Finance and Audit Committee

16 November 2017

 

NZ Transport Agency Investment Audit Report for the period 2013/14 to 2016/17

Record No:             R/17/11/26372

Author:                      Dylan Rabbidge, Commercial Lead Roading

Approved by:         Ian Marshall, Group Manager Services and Assets

 

  Decision                                        Recommendation                                  Information

 

 

 

Summary of Report

1        As part of NZTA requirements an investment audit is undertaken every three years to provide assurance that the NZTA’s investment in SDC’s land transport programme is being well managed and delivering value for money. Due to the tendering of SDC’s Maintenance Contracts, Professional Services and Southern Scenic Route, NZTA delayed the audit to four years for this audit cycle.  NZTA provides Council with a report at the conclusion of the audit, outlining the work that was performed and any recommended areas for improvement.

2        The NZTA audit covers five key areas:

·              Previous audit issues

·              Financial Management

·              Procurement

·              Contract Management

·              Professional Services.

3        Attached is the NZ Transport Agency Investment Audit Report received from NZTA in relation to the final audit (Appendix A) for the financial periods of 2013/14 to 2016/17. 

4        NZTA identified several areas for improvement this was in Procurement and Professional Services.

(a)          Under Procurement it was recommended that SDC includes its late tender’s policy in all contract tender documents in future.

              ACTIONED: SDC has advised its Professional Services contractors of this requirement and this is now included in all of SDC’s contracts moving forward. 

(b)          It was identified that SDC need to adjust its existing process around in-house professional services to reflect NZTA’s policy and that SDC update its procurement strategy to reflect the changes which is required to be endorsed by NZTA.

              ACTIONED: Roading has adjusted how its internal professional services are procured, these changes come into effect from 01 July 2018.  The procurement strategy has been updated and reviewed by Ron Wheeler (NZTA Investment Auditor).  This was submitted to NZTA on 13 October and we are awaiting approval.  

5        Overall NZTA found that there were only the two areas identified above that “Some Improvement Needed” while the other three areas are deemed “Effective”.  Appendix B (page 9) in the NZTA report outlines the NZTA rating system.

 

Recommendation

That the Finance and Audit Committee:

a)            Receives the report titled “NZ Transport Agency Investment Audit Report for the period 2013/14 to 2016/17” dated 4 November 2017.

 

Attachments

a             New Zealand Transport Agency Investment Audit Report 2017    

 


Finance and Audit Committee

16 November 2017

 


 


 


 


 


 


 


 


 


Finance and Audit Committee

16 November 2017

 

Development of the Business Case in Support of Kepler Options

Record No:             R/17/11/26772

Author:                      Ian Evans, Strategic Manager Water and Waste

Approved by:         Ian Marshall, Group Manager Services and Assets

 

  Decision                                        Recommendation                                  Information

 

 

 

Purpose

1        To provide an update to the Finance and Audit Committee on the development of the Te Anau Wastewater Business Case.

Executive Summary

2       At its meeting on 17 May 2017 Council asked officers to proceed with development of a business case for the upgrading of the Te Anau Wastewater Scheme. It also asked that officers develop selection criteria and a process via which possible alternative disposal sites might be identified.

3       This report provides an update on the progress being made with development of the business case. The Business Case currently considers scoring of options that can be undertaken under the current consent, or with a variation to that consent on the Kepler site. It may be appropriate to review these depending on the any Council decision around alternative site selection which will be considered in December 2017.

4       It is anticipated that a draft of the finalised business case can be brought to elected members by November 2017 with a decision to be made on whether to grant formal approval by December 2017. The Business Case has incorporated comments from Alan Bickers who sits on the Te Anau Wastewater Discharge Project Committee. The attached draft version now includes a procurement plan and timeline as well as financial analysis and detailed risk register.

 

Recommendation

That the Finance and Audit Committee:

a)            Receives the report titled “Development of the Business Case in Support of Kepler Options” dated 10 November 2017.

b)           Determines that this matter or decision be recognised as 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)         Notes the process that has been followed to develop a Business Case for the
Te Anau
Wastewater Project.

e)         Recommends to Council the adoption of the Business Case Development of the Business Case in Support of Kepler Options.

Background

5       At its meeting on 17 May 2017 Council asked officers to proceed with development of a business case for upgrading of the Te Anau Wastewater Scheme using the consented Kepler option.

6       It also asked that officers develop selection criteria and a process via which possible alternative disposal sites might be identified. This report provides an upgrade on the progress being made with development of the Kepler business case and seeks comment on the work undertaken to date. The Business Case currently considers scoring of options that can be undertaken under the current consent, or with by a variation to that consent.  Overall, four options have been evaluated with the highest ranking option being the consented proposal.

7       The Wastewater Project Committee have previously been advised of the following high level timetable for the development of the business case. The dates in this table represent targeted dates and there is likely to be movement in them as work is progressed and particularly as drafts of the business case are reviewed:

Task

Due By

Completed by

Provide TAWC a copy of the business case project problem definition, investment objectives, and constraints.

31/8/17

Complete

Advertise alternative site criteria.

1/9/17

Complete

Report to Council on business case project problem definition, investment objectives, and constraints.

27/9/17

Complete

Provide to Council the initial business case draft on the Kepler options - as these are the ones that are currently known.

30/9/17

Complete

TAWC meeting to discuss the initial business case draft and get comments.

17/10/17

Complete

Close off date for expressing interest in providing an alternative site.

11/10/17

Complete

Consideration of the alternative sites identified.

25/10/17

Ongoing

Meeting with TAWC to discuss alternative sites and process from here.

9/11/17

Complete

Report to Council on the outcome of the alternative site process.

15/11/17

Services and Assets Committee 15/11/2017

Finance and Audit Committee 16/11/2017

Business case report to Council  

13/12/17

 

8       The detailed business case is being developed following the models used by both Treasury and NZTA in support of development of significant infrastructure investment decisions, albeit somewhat modified to reflect the scale of investment and the relatively advanced nature of the project.

9       Typically the business case is a multi-stage process based on the following assessments:

·                      Strategic assessment - what is the need?

·                      Economic assessment - generally to demonstrate value for money against any viable alternatives.

·                      Commercial assessment - can it be delivered and what are the options in terms of procurement/delivery models?

·                      Financial assessment - is it affordable and what are the funding sources (loans, contributions etc) referenced through the LTP?

·                      Management assessment - can it be successfully delivered including any further consenting requirements?

10     For the purposes of the current document the above five elements are being combined into one single document with some amendments to headings and terminology. The Economic Assessment, for example, is called an Options Assessment.

11     The Commercial, Financial and Management assessments will be replaced with the Procurement Approach, Financing and Funding Arrangements and Timeframe sections in the final version of the business case. The document is a live draft and has been updated incorporating comments from a representative of the Te Anau Wastewater Discharge Project Committee. 

12     Any business case should clearly identify the problem or issue that is being addressed, the reasons why investment is necessary and the assumptions around what realistic options are available to address the issue/problem. 

13     The current business case has used the Treasury model which has been amended to a more ‘user friendly’ wording following advice/guidance from Committee Member Bickers who has reviewed the case on behalf of Committee Members.

Issues

14      At its meeting on 27 September 2017, Council confirmed the Problem Statement (Need), Investment Objectives and Constraints being used to guide development of the Te Anau Wastewater Business Case. Based on comments received from Council, individual Committee Members and member Bickers the Business Case has been further developed and is presented as Attachment A.

15      It is important to reiterate that the only options considered  are based around further treatment and disposal to the Kepler Block given that this is the site that Council currently has consent for, but noting that this may change subject to identification of a more suitable alternative site through the registration of interest process.

16      The four options considered at Kepler are outlined within the Business Case document and can be broadly summarised as:

·                        Option 1 Consented Option – pipeline to Kepler with irrigation via centre pivot with provision of land treatment via nutrient uptake through pasture and bacteria die off from both UV radiation from natural sunlight and also as treated wastewater passes through the soil. Additionally odour risk would be controlled by a trickling filter.

·                        Option 2A - this is essentially similar to option 1 with addition of a membrane filter at the oxidation ponds to treat flows up to 2000m3. This would provide additional treatment for the majority of occasions.

·                        Option 2B - This is essentially the same as option 1 but with a membrane filter sized to treat flows to the consented peak of 4500m3.

·                        Option 3 - This is similar to option 2B with membrane treatment up to peak flow of 4500 m3 but with further land based treatment through sub surface drip irrigation rather than centre pivot irrigation.

17      The Business Case further outlines the criteria by which the alternatives were scored relative to each other, with a favoured option being identified. Options were scored independently by each member of an evaluation panel with final agreement of scores agreed through a final ‘arbitration’ process. All information on the scoring evaluation and scoring process is included in the Business Case.

18      Following scoring of all options the consented proposal (Option 1) scored as the highest ranked option, with Option 2A scoring only slightly less albeit incurring additional capex of $2.9 million. Option 1 will remain Council’s preferred option subject to identification of suitable alternative available land. Should such land become available Council must decide whether any option for further treatment and disposal should be developed to the point where it can be scored using the same constraints and criteria outlined in the Business Case and noting key constraints.

19      Following on from the Committee meeting on 17 October 2017 officers have continued to develop the business case, which is now largely complete albeit still in draft form pending feedback and endorsement from both the Services and Assets and Finance and Audit Committees. 

Factors to Consider

Legal and Statutory Requirements

20      It is noted that all decisions of the Council are subject to the decision-making provisions detailed in Part 6 of the Local Government Act 2002. In broad terms, these provisions require that the Council assess the advantages and disadvantages of each reasonably practicable option.

21      The extent of consideration given should have regard to the level of significance of the proposed decision.

22      Under section 14 of the Local Government Act 2002 Council is required to undertake commercial transactions in accordance with sound business practice. A decision on a significant capital investment, such as that involved with the upgrading of the Te Anau Wastewater scheme would fall within this definition.

Community Views

23      There are a number of different groups or sections of the community whose views need to be considered as Council proceeds through the process of making a decision on which option to pursue. These include:

·              The residents and communities of Te Anau and Manapouri. FSO is an organisation that purports to represent the views of a number within these communities.

·              The district wastewater user community who will be collectively required to fund the final solution through a targeted rate.

·              All district ratepayers who ultimately carry a level of responsibility and risk for all Council activities.

·              Tangata whenua. Note that under section 77(1)(c) of the Local Government Act 2002 there is a requirement for the Council to take into account the relationship of Maori with their ancestral land and waters if the decision being made is considered to be significant. It is clear that a decision about how to dispose of wastewater for Te Anau would be such a decision given that the Lake is a natural state waterbody and statutory acknowledgement area.

·              Stakeholder groups and organisations with an interest in the Te Anau Catchment.
These include Fish and Game NZ, Guardians of the Lakes and Department of Conservation.

24      In making the decision to proceed with the development of a business case for the Kepler option Council has taken the views of these stakeholders into account. These include recognition of the fact that there are a number of people within the Te Anau and Manapouri communities who are concerned about the current Kepler consented option.

25      It is relevant that Council continue to consider the full range of views that exist as it considers the appropriateness of the criteria proposed through this report.


 

Risk Analysis

The Business Case considers the Key risks to Council through the endorsement of the business case and also includes a full detailed risk register with proposed mitigation measures.

Overall the most significant risk is associated with the impact of further delays to the project to continue further investigation of alternative sites. The current consent to discharge to the Upukerora expires by December 2020 and Council must have any new consent arrangements in place and scheme constructed by that date to be able to continue operating. Currently the procurement plan section of the Business Case indicates that the preferred option can be delivered at Kepler ahead of this date. Delaying the project further to allow further investigation work increases the risk that this date would not be met.

Under the terms of Reference for the Finance and Audit Committee there is a responsibility to review, refine and comment on the overall risk register included within the Business Case.

Costs and Funding

26      At this stage the draft 2018-28 Long Term Plan (LTP) includes a budget of approximately $14.7 million. This is the cost estimate included in the business case for the preferred option, with inflation added for year two. The updated business case identifies additional capital expenditure required from the amount included in the 2015-25 LTP to complete the work. This has arisen largely as a result of review of contract rates and additional scope around pipeline design.

27      Also included in draft 2018-28 LTP are changes to the operational expenditure included based on the business case.  These costs have changed from the 2015-25 LTP.  The most significant operational cost change is that the cut and carry operational will break even rather than produce a surplus that can be used to offset any other costs.

28      All operational expenditure is funded directly from rates in the year that it is incurred.  Capital expenditure is to be funded from available development contributions and depreciation reserves, with the remainder funded by loans over 30 years.  The loans are serviced directly from the district wastewater rate.

29      The impact of the preferred option on the district wastewater rate (along with all other work programmed) in the draft 2018-28 LTP is:

Year

2018 /19

2019
/20

2020
/21

2021
/22

2022
/23

2023
/24

2024
/25

2025
/26

2026
/27

2027
/28

Percentage increase

2.15%

2.56%

9.51%

0.86%

5.50%

5.59%

6.50%

2.44%

2.01%

2.32%

Rate (excl GST)

$397

$408

$446

$450

$475

$502

$534

$547

$558

$571

30     The GST exclusive rate for district wastewater in 2017/18 is $389 and increases to $571 in 2027/28.  Residential ratepayers are impacted by GST inclusive rate of $448 in 2017/18 increasing to $657 in 2027/28.

31      The appropriateness of this cost estimate, and the current LTP budget assumptions, will need to be considered further once the financial costs and risks associated with development of the Kepler option, and any others that Council may want to consider further, have been reviewed as part of the current business case process and decisions are made about whether Council has a desire to investigate an alternative disposal site.

32      It is likely that investigation of any alternative would need to be undertaken concurrently with the development of the Kepler option if the December 2020 deadline is not able to be moved.  Currently the draft 2018-28 LTP has $500 thousand allowed for investigation into alternative sites, funded from reserves.  Any funds not required for investigation of the alternative sites will be used to reduce the loan required to fund the capital expenditure.  This will reduce the loan repayments required to be funded from rates in future years.

Policy Implication

33      It is noted that procurement of the preferred option will be undertaken in line with Councils current Procurement Policy.

34      The funding mechanisms proposed are in line with the current Revenue and Financing Policy.

35      Council’s external debt levels as a result of this project will be line with Council’s Investment and Liability Management Policy.  The policy requires that net external debt not to exceed 100% of total revenue.

Project Committee Feedback

36      Member Bickers has undertaken a critical review of the Business Case on behalf of the Te Anau Discharge Project Committee and has offered a number of comments that have been incorporated into the attached document.

37      Finance and Audit Committee Members now have the opportunity to provide comment and recommend any potential amendments to the Business Case. 

Alternative Site Options

38     Following 17 May 2017, Council decision a set of criteria and process for identification of possible alternative disposal sites were developed and subsequently approved by the Project Committee.

39     Council has advertised for expressions of interest for alternative sites that people may wish to sell to Council. A number of criteria have been developed based on the type and area of land Council would require if it was to look at land availability for any new wastewater discharge. The criteria were initially advertised on 1 September 2017 with any expressions of interest required to be with Council by 11 October 2017. A separate report outlines the process and provides information on how any such alternatives will be evaluated.


 

40     If potentially suitable site(s) are identified there will be a need for Council to make a decision on whether to proceed with a detailed investigation programme for that site knowing the timescales involved with the investigation and consenting phases of the process. This work would likely need to proceed in parallel with work on the consented Kepler option.

41     The Services and Assets Committee are reminded of a resolution of Council from it meeting of 16 November 2016 where it ‘Agrees that it is unacceptable for the Council to not have a consented discharge for the Te Anau Wastewater Scheme’.

Analysis

Options Considered

42     The options considered are to endorse the Business Case as presented, endorse the Business Case with amendments or not endorse the Business Case. 

Analysis of Options

Option 1 – Endorse the Business Case as presented

Advantages

Disadvantages

·        Will allow progress to be made with development detailed design

·        Provides greater degree of certainty that critical timelines can be met

·        Enables the Committee to bring to Council’s attention any relevant matters that Council should consider in making a decision on the business case.

·        None identified.

Option 2 - Endorse the Business Case with amendments

Advantages

Disadvantages

·        None identified.

·       Business case as drafted may not fully reflect all relevant matters.

·       May add degree of risk that critical timelines will not be met if any amendments result in delays to the current timeline outlined through the Business case.

Option 3 - Do not Endorse the Business Case

Advantages

Disadvantages

·        None identified.

·       Business case as presented may not fully reflect all relevant matters.

·       Adds risk that critical timelines around expiry of the current consent will not be met.

Assessment of Significance

43      The decisions that Council is making on how to proceed with the development of a new long term solution for the disposal of Te Anau Wastewater is significant. It involves a significant level of capital investment on an important piece of Council infrastructure.

Recommended Option

44       It is recommended that the Finance and Audit Committee endorse the Business Case either as presented or subject to amendment with approval to present the final version to Council for approval at its meeting on 13 December 2017.

Next Steps

45      Work will continue to finalise the Business Case with a view to presenting to Council for approval on 13 December 2017.

 

 

Attachments

a             Te Anau Business Case - Kepler Option    

 


Finance and Audit Committee

16 November 2017

 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


 


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Finance and Audit Committee

16 November 2017

 

Supporting Documentation to the 2018-2028 Long Term Plan

Record No:             R/17/10/26223

Author:                      Anne Robson, Chief Financial Officer

Approved by:         Steve Ruru, Chief Executive

 

  Decision                                        Recommendation                                  Information

 

 

 

Purpose

1        To consider and recommend to Council the endorsement of the draft Financial Strategy, the forecasting assumptions and accounting policies as part of the information pack to be audited by Audit NZ.  These documents will form part of the 2018-2028 Long Term Plan Consultation Document being adopted in February 2018 for consultation.

Executive Summary

2        The development of the 2018-2028 Long Term Plan (LTP) is based around the scene set by the financial and infrastructure strategies. Both are required as part of the supporting documentation of the 2018-2028 LTP Consultation Document.  The strategies become part of the final LTP when it is adopted in June 2018.

3        The 2018-2028 Financial Strategy (Attachment A) has been built up from the Financial Strategy adopted as part of the 2015-2025 LTP and from the principles discussed at the Council workshop on 27 April 2017. In addition, discussions from other LTP workshops regarding the Infrastructure Strategy and Activity Management Plans over the past seven months have also fed into the thinking behind the Financial Strategy.  It is still subject to review and refinement as the Investment Strategy, Activity Management plans and LTP are completed over the coming months and as such the committee’s comments on its content is welcomed. 

4        The Infrastructure Strategy is currently being finalised and will be presented to Council at its meeting on 23 November 2017 for consideration and endorsement.

5        The forecasting assumptions (Attachment B) set out the key assumptions which have been made by the Council in its planning for the 10 year period and the risks associated with these.

6        The accounting policies (Attachment C) set the basis on which the accounts are prepared and the financial information compiled.

 

Recommendation

That the Finance and Audit Committee:

a)            Receives the report titled “Supporting Documentation to the 2018-2028 Long Term Plan” dated 10 November 2017.

 

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)           Recommends that Council endorse the draft Financial Strategy, with any amendments from this meeting for use in the audit, noting that the final documents will be presented for adoption in February prior to consultation.

 

e)            Recommends that Council adopt the forecasting assumptions and accounting policies with any amendments from this meeting, to support the preparation of Councils 2018-2028 Long Term Plan.

 

Background

7        All councils are required by legislation to adopt a Long Term Plan (LTP) and review it every three years.  The LTP sets out Council’s activities, plans, budgets and policies and must be adopted before the beginning of the first year it relates to, having used a special consultative procedure to consult with the community.

8        Instead of a draft LTP, local authorities are required to develop a Consultation Document for the purpose of consulting with the community as well as making publicly available the information that provides the basis for the preparation of the LTP. The documents discussed today form part of and inform the 2018-2028 LTP Consultation Document.

9        The LTP is subject to audit.  The documents proposed today will form part of the buddle of documents that the auditors will review to ensure that Council has fairly represented the matters and impacts disclosed in the Consultation Document for effective public participation in the Council’s decision making process. 

10      A number of workshops and meetings have been held over the past 18 months in preparation for the LTP.  As part of this, the content of Council’s Financial Strategy and Infrastructure Strategy has been discussed with the attached Financial Strategy a reflection of those discussions.  The Financial Strategy sets out the key challenges facing the District and the approach Council will take in addressing these issues. It also sets limits in regards to rate increases and borrowing.

11      Underlying the LTP is a number of significant forecasting assumptions and accounting policies.  These policies and assumptions create the building blocks on which the LTP is formed.  The assumptions include a range of information that has been used to prepare the forecasts for the LTP, such as projected population levels, climate change forecasts and inflationary increases on costs.

12      In arriving at the assumptions proposed, Council staff have considered the methodology of prior LTP assumptions, guidance from SOLGM and the office of the auditor general along with discussions held with Council.

13      In arriving at the accounting policies proposed, Council staff have reviewed the policies used by Council in preparation of the Annual Report 2016/2017 and checked for any changes needed including any additional policies needed around the preparation of forecasted information.

 

Issues

Financial Strategy (Attachment A)

14      The Financial Strategy is a summary of the financial implications and constraints of Council’s policy and service delivery decisions, and sets the direction for the way in which these will be managed. The Financial Strategy attached outlines the financial goals of council, context and strategic issues faced by Council and its approach to these.

15      The key financial goals for Council over the coming 10 years are to:

·    review and maximise non-rating income opportunities including those which might be available through commercial opportunities, fees and charges and income on assets held

·    review the way Council rates to gain efficiencies where possible (as part of looking at the sustainability and affordability of rates)

·    ensure the costs associated with using services are shared fairly across the users of today and in the future

·    use debt appropriately

·    comply with all legislative and statutory requirements

·    ensure ratepayers money is invested and spent wisely and sustainably

·    allow capacity within the budgets to respond to unexpected events as appropriate.

16      The key contextual and strategic issue relate to how Council can remain viable, sustainable and affordable when:

·    the costs of our services are higher because we are a widely spread, thinly populated district that does not get the benefits of scale because we have so many towns with the same needs but which have to be supplied independently

·    our resident population is only projected to increase by 3,000 over 10 years but that the makeup of the population will age significantly

·    increasing statutory and regulatory obligations add to the overall costs of delivery

·    our customers want more and most often varying levels of services but for the same cost.


 

17      The key strategies are to:

·    set some limits:

-     rates limited to Local Government Cost Index (LGCI) plus 2%

-     limiting the total amount of rates collected to 70% of total income, up from the current 66.67%

-     external debt limited to 100% of income.

·    continue to fund water and wastewater on a district wide basis and use the updated 2015 road rating model

·    continue to move towards fully funding depreciation so that we can ensure that Council has the ability to maintain service delivery capacity in the long term

·    make an allowance for the insurance of Councils underground assets, pending further investigation, to reduce the level of risk we are carrying in relation to an adverse event damaging these assets

·    enable external borrowing to occur when appropriate

·    hold reserves where there is a strategic or legislative requirement

·    undertake a number of other pieces of work over the plan period, including:

-     more research around affordability and what this means in Southland district and for the decisions of Council

-     considering the financial sustainability of Council to ensure that the decisions now are not limiting the choices of future generations

-     assessing the knowledge we have on our assets in conjunction with asset managers and understanding the impact that this information has on the amount of annual depreciation that each generation is paying towards the replacement of these assets

-     reviewing the property assets held by Council and ensuring that they are being held for a strategic benefit and that the return on these are acceptable for the purpose they are being retained

-     reviewing the way Council rates to ensure that it is appropriate and efficient.

18      The Financial Strategy is still subject to review and refinement as the LTP is completed.  The Infrastructure Strategy is currently being finalised. When this is complete, the two documents will be reviewed to ensure that they are in alignment.  Although the final Financial Strategy is not adopted until June 2018, the draft Financial Strategy as proposed by Council is adopted as part of the supporting documentation for the LTP Consultation Document.

Assumptions (Attachment B)

19      The assumptions have largely been based on those prepared for the 2015-2025 LTP and updated where necessary.  The assumptions are principally non-financial and financial in nature.

20      Where the assumptions are financial, the approach has been to keep the methodology as consistent as possible with the previous LTP to ensure a level of consistency.  While the majority of the financial assumptions are unchanged, staff are suggesting a change to the way interest rates have been calculated.  Currently, the bank housing loan rates are used to calculate the interest rate on internal loans.  If this methodology is used for the 2018-2028 LTP interest charged on internal loans would be 5.59%.   This is significantly higher than the interest rates the Council could borrow at.  The new methodology is based on the rate Council is able to borrow at with a margin of 1%.  Using this methodology the interest rate charged on internal loans is 4.65%.

21      Where a financial assumption has a high level of uncertainty, information will be included in the table to quantify the financial impact of this once the LTP financial information has been finalised for the Consultation Document.

22      With population and land-use assumptions, these continue to be based on information from Infometrics Ltd which was prepared for the 2015-20-25 LTP. A summary of the key projections are included at the end of Attachment B. Infometrics Ltd used 2013 census data as a baseline and projected this forward from 2013 to 2043 based on low, medium and high growth scenarios.  For the 2018 plans, staff are suggesting that these projections be retained given that the expectations of the future remain largely in-line with the approach taken for the 2015 LTP.  While the forecasts do not cover the full 30 year period through to 2048, no major shifts/changes in general trends from the 2043 projections are expected that would require a fundamentally different approach to planning from Council.  The projection data will be fully reviewed as part a larger project around community futures that the Council is carrying out over the next three years.

23      The projections and assumptions around the change in rating units will be added once the supporting financial information and funding impact statement have been finalised for the Consultation Document. These projections are expected to be in line with similar changes in landuse and dwellings detailed in the table.

24      Accounting Policies (Attachment C)

25      The accounting policies are based on those used by Council in preparation of the Annual Report 2016/2017.  They have been updated and reflect the additional policies needed for the preparation of forecasted information.

26      During the audit of the annual report Audit New Zealand suggested that the method of accounting for joint ventures in the financial statements could be changed to equity accounting.  For the LTP the accounting policy has been changed so joint ventures are accounted for by the equity method rather than a proportionate consolidation of the financial statements. There are no other changes to the policies from the Annual Report. 

Factors to Consider

Legal and Statutory Requirements

27      Section 93G of the Local Government Act states that

Before adopting a Consultation Document, the local authority must prepare and adopt the information that:

(a)  is relied on by the content of the consultation document adopted under Section 93A; and

(b)  is necessary to enable the Auditor-General to give the required reports

(c)   provides the basis for the preparation of the Long Term Plan.

 

28      Part One of Schedule 10 outlines the information to be included in LTP’s.  Section nine states that part of the information to be included in the LTP is Councils Financial Strategy and significant forecasting assumptions.

29      Section 101A outlines that:

(1)  A local authority must, as part of its long-term plan, prepare and adopt a financial strategy for all of the consecutive financial years covered by the long-term plan.

(2)  The purpose of the financial strategy is to—

a.   facilitate prudent financial management by the local authority by providing a guide for the local authority to consider proposals for funding and expenditure against; and

b.   provide a context for consultation on the local authority’s proposals for funding and expenditure by making transparent the overall effects of those proposals on the local authority’s services, rates, debt, and investments.

(3)  The financial strategy must—

(a)  include a statement of the factors that are expected to have a significant impact on the local authority during the consecutive financial years covered by the strategy, including—

(i)   the expected changes in population and the use of land in the district or region, and the capital and operating costs of providing for those changes; and

(ii)  the expected capital expenditure on network infrastructure, flood protection, and flood control works that is required to maintain existing levels of service currently provided by the local authority; and

(iii) other significant factors affecting the local authority’s ability to maintain existing levels of service and to meet additional demands for services; and

(b)  include a statement of the local authority’s—

(i)   quantified limits on rates, rate increases, and borrowing; and

(ii)  assessment of its ability to provide and maintain existing levels of service and to meet additional demands for services within those limits; and

(c)   specify the local authority’s policy on the giving of securities for its borrowing; and

(d)  specify the local authority’s objectives for holding and managing financial investments and equity securities and its quantified targets for returns on those investments and equity securities.

 

30      Section 17 of Schedule 10 Part One states in regards to significant forecasting assumptions that a long-term plan must clearly identify:

(a)  all the significant forecasting assumptions and risks underlying the financial estimates:

(b)  without limiting the generality of paragraph (a), the following assumptions on which the financial estimates are based:

(i)   the assumptions of the local authority concerning the life cycle of significant assets; and

(ii)  the assumptions of the local authority concerning sources of funds for the future replacement of significant assets:


 

(c)   in any case where significant forecasting assumptions involve a high level of uncertainty,—

(i)   the fact of that uncertainty; and

(ii)  an estimate of the potential effects of that uncertainty on the financial estimates   provided.

Community Views

31      The supporting information (including the Financial Strategy and forecasting assumptions) will be publicly available on Council’s website during the LTP public consultation period.  As a result of submissions received, Council may decide to amend any of the supporting information documents when it adopts the LTP in June 2018.

Costs and Funding

32      There are no direct cost or funding considerations related to the development of the Financial Strategy, assumptions or accounting policies.

Policy Implications

33      The Financial Strategy sets the framework that needs to be achieved and other policies and plans should give consideration eg: Revenue and Financing Policy, AMPs and procurement policy etc.

Analysis

Options Considered

34      Analysis of Options

Option 1 – Recommend to Council to endorse the draft Financial Strategy, forecasting assumptions and accounting policies as presented, amended for any changes agreed at the meeting.

Advantages

Disadvantages

·        The documents can proceed to Council for endorsement and adoption and meet the auditing requirements.

·        The committee would not get any further information if it required it before endorsement.

Option 2 – Request staff to consider other options and incorporate these into the documents before recommending to Council to endorse the draft Financial Strategy, forecasting assumptions and accounting policies as presented, or parts thereof.

Advantages

Disadvantages

·        The committee would get the additional information it needed before endorsing.

·        The auditing process may be held up depending on the time needed to provide the necessary information.

 


 

Option 3 – Do not recommend to Council the endorsement of the draft Financial Strategy, forecasting assumptions and accounting policies as presented.

Advantages

Disadvantages

·        None identified

·        The Council would consider te

 

Assessment of Significance

35      In terms of Councils significance and engagement policy, these matters are not considered significant. The LTP is a significant decision as it is the primary way that Council is held accountable for public expenditure.

Recommended Option

36      Option One - Endorse the draft Financial Strategy, forecasting assumptions and accounting policies as presented, amended for any changes agreed at the meeting.

Next Steps

37      If recommended the draft Financial Strategy (incorporating any changes form the meeting), will be forwarded to Council for further comment and endorsement.  Staff will also review the strategy to ensure that it is consistent with the draft Infrastructure Strategy that is currently being finalised (this is expected to be considered by Council at its November meeting).

38      From here, the draft Financial Strategy (and draft Infrastructure Strategy) will be reviewed by Audit New Zealand as part of their audit of the LTP Consultation Document in late November 2017.

39      The draft strategy will then be formally adopted by Council in February 2018 as part of the supporting documentation for the LTP Consultation Document. The final Financial Strategy, incorporating any changes as a result of consultation, will be adopted in June 2018.

40      The forecasting assumptions and accounting policies will also be forwarded to Council for adoption.

 

Attachments

a             Draft 2018-2028 Financial Strategy

b             Significant Forecasting Assumptions for 2018 2028 Long Term Plan (LTP)

c             2018-2028 Long Term Plan Accounting Policies    

 


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Finance and Audit Committee

16 November 2017

 

 

Financial Report for the month ended 30 September 2017

Record No:             R/17/11/26846

Author:                      Robert Tweedie, Management Accountant

Approved by:         Anne Robson, Chief Financial Officer

 

  Decision                                        Recommendation                                  Information

 

  

 

Background

1.         This report outlines the financial results for the three months to the 30 September 2017 or 25% of the financial year.

2.         The Monthly and YTD Actual results are compared to the Full Year Budget (Projection) in the attached Summary Monthly Financial Report.  The projection values include any 2016/2017 carried forward items approved by Council in September 2017 and October forecast changes which have been loaded as a result of preparing the opening balances for the Long Term Plan. These have yet to be approved by Council on 13 December. Any changes will be made and replaced in the December Financial Report. The 2017/2018 Annual Plan budget is shown in the Reports as the Full Year Budget (Budget).

Overview

3.         The Summary Monthly Financial Report consolidates the business units within each of the key areas of the Executive Leadership Team (ELT) responsibility.  The following commentary focuses on the year to date (YTD) results excluding GST.

4.         The Detailed Monthly Financial Report includes more detailed explanations and commentary on variances by the Executive Leadership Team.  Commentary generally focuses on the year to date (YTD) results and, where specified, monthly results. 

5.         In the Council Summary and Detailed Reports, the values in the columns for:

·              The Monthly Budget is phased, where appropriate, and includes forecasting.

·              The YTD Budget is the Annual Plan, carry forwards and forecasting year to date. 

·              The Full Year Budget is the LTP budget for the year.

·              The Full Year Projection is the forecasted year end result

6.         Phasing of budgets occurs in the first 2 months of the financial year, at forecasting and when one-off costs have actually occurred. This should reduce the number of variance explanations due to timing.

7.         Where phasing of budgets has not occurred, one twelfth of annual budgeted cost is used to calculate the monthly budget.

8.         Council staff will continue to refine the format of this report to enhance the financial information reported.  We welcome any feedback or suggestions on further improvements that could be made to this report.


 

9.         The Council Summary Report (actuals vs phased and forecast budget) year to date are as follows:

Income

10.       Operating Income is $1.2 million (6%) under budget year to date ($18 million actual vs $19.2 million budget).

11.       Environmental Services is $100 thousand or 6% below budget. This is mainly due to the development activity in the Southland District being relatively subdued.

12.       Services and Assets is $538 thousand above budget due to continued forest harvesting at Dipton during July and August which was not budgeted.

 

13.       Transport and Roading income is $1.5 million below budget year to date.  This is due to the timing of the capital works programme and seasonality of programmed work which is behind the planned schedule and directly affects the level of income from NZTA.

 

 

 

 

 

 

Operating Expenditure

14.       Operating Expenditure is $0.4 million (2%) under budget for the year to date ($17.6 million actual vs $18 million budget).

 

15.       Transport (Roading) costs are currently under budget which relates to the timing of various works being weather dependant.

 

Capital Expenditure

16.       Capital Expenditure is $5 million (56%) under budget year to date ($3.9 million actual v $8.9 million budget).

                       

17. Customer support is over budget due to the purchase of library books.

 

 

18.       Capital expenditure for Services and Assets is significantly under budget and has not been phased. 

·    Limited construction has occurred in District Sewerage to the end of September.

·    Tenders on the Winton Water Main replacement was awarded by the Services and Assets subcommittee during September and Te Anau lateral replacements will commence at the end of October. 

·    Tender requests for the work on the treatment upgrade at Eastern Bush will be requested early in 2018, to ensure that the intended design meets any requirements from the Havelock North inquiry (expected in December).  The majority of construction that was originally expected to occur in 2017/18 will be deferred to 2018/19 and 2019/20. 

·    Winton desludging and Te Anau oxidation pond improvement projects will take place if the contractor is able to re-establish this year after machinery issues in 2016/17. In addition, deposits have been paid for the Winton and Te Anau waste water pond aerators, these have yet to arrive to undertake the capital works. 

19.       Overall roading capital expenditure is $2.82 million less than budgeted for the year to date due to seasonality of the programmed works. The roading team have $8 million already tendered with a major focus on planning and designing the capital works for 2017/2018 financial year.  The NZTA contract runs over a 3 year period ending June 2018. At this stage strategic roading is still on track to achieve budget. Work on the Southern Scenic Route has continued into the new financial year and is expected to be on target by year end. However, if this project is not complete at year end the funding can still be carried forward.

 

 

Balance Sheet

20.       Council’s financial position as at 30 September 2017 is detailed below and is for the activities of Council only.  The balance sheet as at 30 June 2016 represents the audited balance sheet for activities of Council only.

21.       Current Assets (Other Financial Assets) at 30 June 2017 includes an additional amount of

$8 million in term deposits was disclosed under Other Financial Assets. This is in line with reporting standards for deposits with a term of 90 days or more at year end.

22.       At 30 September 2017, Council had $17 million invested in seven term deposits ranging from three to six month maturities as follows:

23.       Funds on call are : 

24.       The principal movement in Property, Plant and Equipment is the year to date budgeted depreciation.

25.       The increase in Non-Current Assets (Intangible Assets) is the continued acquisition costs of Council’s digitisation software.

 

 

 

 

Recommendation

That the Finance and Audit Committee:

a)            Receives the report titled “Financial Report for the month ended 30 September 2017” dated 9 November 2017.

 

Attachments

a             Council s District Activities Summary Monthly Financial Report - 30 September 2017

b             Council s District Activities Detailed Monthly Financial Report - 30 September 2017    

 


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