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AGENDA
Audit and Risk Sub-committee Meeting |
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I hereby give notice that a Meeting of the Audit and Risk Subcommittee will be held on: |
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Date: |
Thursday, 24 September 2020 |
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Time: |
2.00pm |
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Location: |
Council Chamber Ground Floor, 175 Rimu Road Paraparaumu |
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Mark de Haast Group Manager Corporate Services |
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Audit and Risk Sub-committee Meeting Agenda |
24 September 2020 |
Kapiti Coast District Council
Notice is hereby given that a meeting of the Audit and Risk Subcommittee will be held in the Council Chamber, Ground Floor, 175 Rimu Road, Paraparaumu, on Thursday 24 September 2020, 2.00pm.
Audit and Risk Subcommittee Members
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Mr Bryan Jackson |
Chair |
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Cr Angela Buswell |
Deputy |
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Mayor K Gurunathan |
Member |
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Deputy Mayor Janet Holborow |
Member |
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Cr Gwynn Compton |
Member |
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Mr Gary Simpson |
Independent |
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Audit and Risk Sub-committee Meeting Agenda |
24 September 2020 |
4 Declarations of Interest Relating to Items on the Agenda
5 Public Speaking Time for Items Relating to the Agenda
8.1 Audit Report to Management for the year ended 30 June 2020
8.2 Closing Report from Audit for the year ended 30 June 2020
8.3 Draft Annual Report for 2019/20
10 Confirmation of Public Excluded Minutes
1 Welcome
“As we deliberate on the issues before us, we trust that we will reflect positively on the communities we serve. Let us all seek to be effective and just, so that with courage, vision and energy, we provide positive leadership in a spirit of harmony and compassion.”
I a mātou e whiriwhiri ana i ngā take kei mua i ō mātou aroaro, e pono ana mātou ka kaha tonu ki te whakapau mahara huapai mō ngā hapori e mahi nei mātou. Me kaha hoki mātou katoa kia whaihua, kia tōtika tā mātou mahi, ā, mā te māia, te tiro whakamua me te hihiri ka taea te arahi i roto i te kotahitanga me te aroha.
4 Declarations of Interest Relating to Items on the Agenda
Notification from Elected Members of:
4.1 – any interests that may create a conflict with their role as an elected member relating to the items of business for this meeting, and
4.2 – any interests in items in which they have a direct or indirect pecuniary interest as provided for in the Local Authorities (Members’ Interests) Act 1968
5 Public Speaking Time for Items Relating to the Agenda
(a) Public Speaking Time Responses
(b) Leave of Absence
(c) Matters of an Urgent Nature (advice to be provided to the Chair prior to the commencement of the meeting)
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24 September 2020 |
8.1 Audit Report to Management for the year ended 30 June 2020
Author: Anelise Horn, Manager Financial Accounting
Authoriser: Mark de Haast, Group Manager Corporate Services
Purpose of Report
1 This report provides the Audit and Risk Sub-Committee with a summary of Ernst & Young’s Report on Control Findings for the year ended 30 June 2020.
Delegation
2 The Audit and Risk Sub-Committee has delegated authority to consider this report under the following delegation in the Governance Structure, Section B.3.
· Reviewing and maintaining the internal control framework
· Obtaining from external auditors any information relevant to the Council’s financial statements and assessing whether appropriate action has been taken by management in response to the above.
Background
3 In accordance with New Zealand Auditing Standards, Ernst & Young (Audit) performed a review of the design and operating effectiveness of the Council’s significant financial reporting processes as part of their audit for the year ended 30 June 2020.
4 As at 30 June 2019, the Council had eight open control findings, two of moderate risk and six of low risk. Progress updates on these were provided to the Audit and Risk Sub-Committee during the year at the 20 February 2020 and 13 August 2020 meetings.
5 Four of these findings were addressed and closed off by audit during 2019/20, with four requiring further attention.
6 Audit’s Report on Control Findings for the year ended 30 June 2020 is attached as Appendix 1 to this report. This report details all of the internal control matters that were considered appropriate for review by management.
Issues and Options
Issues
Summary Report on Control Findings
7 Control risk matters and/or issues are classified as either high, moderate or low. Control risk definitions are as follows:
· High Risk – matters and/or issues are considered to be fundamental to the mitigation of material risk, maintenance of internal control or good corporate governance. Action should be taken either immediately or within three months.
· Moderate Risk – matters and/or issues are considered to be of major importance to maintenance of internal control, good corporate governance or best practice for processes. Action should normally be taken within six months.
· Low Risk – A weakness which does not seriously detract from the internal control framework. If required, action should be taken within 6 to 12 months.
8 In addition to the four recommendations carried forward from 2018/19, Audit has identified six new control findings within the course of the audit of the annual report for the year ended 30 June 2020.
9 The ten control findings as at 30 June 2020, range from moderate to low risk rankings and are as follow:
Carried forward from 2018/19
1. Service performance reporting(SPR) - Accuracy of response and resolution times (moderate);
2. SPR - Monitoring of roading requests for services (moderate);
3. Approval of expenditure (low); and
4. Corporate policies due for review (low)
New from 2019/20
5. Payroll review controls (moderate);
6. Incorrect calculation of annual leave entitlement for an employee (low);
7. Incorrect capitalisation of expenditure (low);
8. SPR - Inaccurate data used to calculate certain service request measures (low);
9. Review of manual journal entries (low); and
10. Incorrect pay to an Elected Member (low)
10 The Council’s responses and action plan to address these new findings are contained in Appendix 1 to this report.
Considerations
Policy considerations
11 There are no policy implications arising from this report.
Legal considerations
12 There are no legal considerations arising from this report.
Financial considerations
13 Financial considerations have been covered as part of this report.
Tāngata whenua considerations
Significance and Engagement
Significance policy
14 This matter has a low level of significance under the Council Policy.
Publicity
15 There are no publicity considerations arising from this report.
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16 That the Audit & Risk Sub-Committee receives and notes this report, including Appendix 1 to this report. 17 That the Audit & Risk Sub-Committee notes the ten open control risks recommendations including Council’s response and action plans to address these risks. 18 That the Audit & Risk Sub-Committee notes that regular progress updates will be provided.
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1. Report
on Control Findings ⇩ 
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24 September 2020 |
8.2 Closing Report from Audit for the year ended 30 June 2020
Author: Anelise Horn, Manager Financial Accounting
Authoriser: Mark de Haast, Group Manager Corporate Services
Purpose of Report
1 This report provides the Audit and Risk Sub-Committee with Ernst & Young’s Closing Audit Report for the year ended 30 June 2020.
Delegation
2 The Audit and Risk Sub-Committee has delegated authority to consider this report under the following delegation in the Governance Structure, Section B.3.
· Reviewing and maintaining the internal control framework
· Obtaining from external auditors any information relevant to the Council’s financial statements and assessing whether appropriate action has been taken by management in response to the above.
Background
3 The Council’s Auditors, Ernst & Young (Audit) tabled their audit plan for the year ended 30 June 2020 at the Audit and Risk Sub-Committee meeting on 20 February 2020.
4 Audit has now substantially completed their audit of the Council’s draft Annual Report for the year ended 30 June 2020.
Closing Report Summary
5 Audit raised no concerns that should be brought to the attention of the Sub-Committee. There are no unadjusted financial or non-financial audit differences relating to the draft 2019/20 Annual Report.
6 Audit has confirmed that they will issue an unqualified or “clean” audit opinion on the Council’s draft 2019/20 Annual Report, subject to the adequate resolution of the following outstanding items:
· A complete review of the final version of the 2019/20 Annual report.
· Receipt and review of the Council’s draft Summary Annual Report.
· Finalisation of the review of the Council’s Debenture Trust Deed reporting certificate.
· Receipt of the Council’s signed management representation letter on adoption of the 2019/20 Annual Report by the Council on 1 October 2020.
· Receipt of a signed full Annual Report 2019/20 and a Summary Annual Report 2019/20.
· Completion of the subsequent events procedures to the date of signing the audit report.
7 Their Closing Report is attached as Appendix 1 to this report. This provides an overview of Ernst & Young’s audit process, their audit findings, adjustments required and outstanding matters.
Considerations
Policy considerations
8 There are no policy implications arising directly from this report.
Legal considerations
9 There are no legal issues arising directly from this report.
Financial considerations
10 There are financial considerations in addition to those already discussed in this report.
Tāngata whenua considerations
11 There are no tāngata whenua considerations arising from this report.
Significance and Engagement
Significance policy
12 This matter has a low level of significance under the Council’s Significance and Engagement Policy.
Publicity
13 There are no publicity considerations.
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14 That the Audit and Risk Sub-Committee receives and notes this report, including Appendix 1 to this report. 15 That the Audit and Risk Sub-Committee notes that there are no unadjusted financial or non-financial differences, as identified by Audit in the draft 2019/20 Annual Report.
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1. KCDC
Closing Report ⇩ 
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24 September 2020 |
8.3 Draft Annual Report for 2019/20
Author: Chris Pearce, Manager, Corporate Planning & Reporting
Authoriser: Mark de Haast, Group Manager Corporate Services
Purpose of Report
1 This report seeks the Audit and Risk Sub-Committee’s consideration of the audited draft Annual Report 2019/20 and recommendation that it be adopted by the Council on 1 October 2020.
Delegation
2 The Audit and Risk Sub-Committee has delegated authority to consider this report.
Background
3 The Council is required under the Local Government Act 2002 (the Act) to produce an audited Annual Report each year – a draft version of the Annual Report 2019/20 is attached as Appendix 1 to this report. This report shows the Council’s performance for the year in both a service and financial context, against measures set out in the Long Term Plan 2018-38 (LTP).
4 At a meeting held on 20 August 2020, the Strategy and Operations Committee reviewed the fourth quarter Activity Report and the unaudited Financial Report for the year ended 30 June 2020.
5 Since then, the Council’s auditors, Ernst & Young, have completed their audit of the financial statements, service performance information and the Debenture Trust Deed of the Council for the year ended 30 June 2020. At the time of writing this report, Ernst & Young are expected to provide a draft unqualified “clean” audit opinion on the 2019/20 Annual Report prior to the meeting of the Audit and Risk Sub-Committee on 24 September 2020. This opinion will be formally issued following the adoption of the Annual Report 2019/20 by the Council, which is scheduled to occur at the Council meeting on 1 October 2020.
6 The draft Annual Report contains the following sections:
· Highlights of 2019/20 (pages 9-33) - includes an introduction from the Mayor and Chief Executive, a message from Tāngata Whenua, and a description of the Council’s activities with regards to major projects, our COVID-19 response, sustainability initiatives, key financial results, engagement, reviews, audits and awards, and progress towards our outcomes.
· Our activities and services (pages 34-94) - comments on significant developments over the year and key performance indicator results for each of the Council’s 13 activities.
· Our finances (pages 95-152) - presents all the key financial information, the accompanying explanatory notes, the disclosure statement and the auditor’s report.
· Our governance (pages 153-163) - includes information about the governance structure, meeting attendance, elected members and the organisation structure.
OVERVIEW
Service performance results
7 The following table summarises the Council’s performance against its 94 key performance indicators (KPIs). Overall the Council achieved 76% of its KPIs in 2019/20. This is compared with previous results of 83% in 2018/19, 81% in 2017/18. There were 16 KPIs not achieved, compared to 14 in 2018/19.
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Key Performance Indicator result |
2019/20 count |
Percentage |
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Achieved |
71 |
76% |
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Not achieved |
16 |
17% |
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Not able to be measured |
7 |
7% |
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Total KPIs |
94 |
100% |
8 The KPIs not achieved include seven in the Infrastructure cluster, six in Community Services, and two in Governance and Tāngata Whenua. Explanations of each KPI not achieved are provided in the performance measure tables in the activity chapters of the draft Annual Report 2019/20 (pages 34 to 94).
Financial results
Changes to audited financial statements
9 The Council’s financial statements, annual report disclosure statement (prudence benchmarks) and cost of activity statements are presented in the Our finances section of the draft Annual Report 2019/20.
10 The audited financial statements include two changes to the Financial Report to 30 June 2020 presented to the Strategy and Operations Committee on 20 August 2020. These changes have affected the results as follows:
The details of these changes are summarised below:
11 In addition to the above adjustments, Audit identified an error in the Council’s draft valuation report for 3-water assets. The draft valuation report double counted an oxidation plant valued at $1.3 million. This was corrected by the external valuer and accounted for correctly in the financial statements.
Disclosure statement
12 The Annual Report Disclosure Statement for the year ending 30 June 2020 presents the Council’s financial performance in relation to eight prudence benchmarks set by the Department of Internal Affairs to enable assessment of whether the Council is prudently managing its revenue, expenses, assets, liabilities and general financial dealings.
13 The Council met five of these benchmarks for the year ended 30 June 2020.
14 The following benchmarks were not met:
· Balanced budget – the Council meets this benchmark if its revenue equals or is greater than its operating expenses. The Council is working towards balancing our budget through committing to a financial strategy that progressively funds depreciation with a target of fully funding depreciation by 2025/26. In addition to this during 2019/20, the Council had to account for an unbudgeted impairment loss of $2.2 million on the Otaihanga Landfill after-care asset, and forgo an estimated $367,000 of fees and charges due to the Council facilities closures under COVID-19 lock down restrictions.
· Essential services – the Council meets this benchmark if its capital expenditure on network services equals or is greater than depreciation on network services. Due to the timing of the renewals cycle for the three waters assets, the Council’s capital expenditure is below the level of depreciation as significant renewals are not expected until around 2045 onwards.
· Operations control – the Council meets the operations control benchmark if its actual net cash flow from operations equals or is greater than its planned net cash flow from operations. As part of the Council’s Covid-19 Phase 1 - Sustain Community support package, we provided suppliers with rapid invoice payments. Suppliers were paid within seven to ten working days, compared to the Council’s previous payment terms of the 20th of the month following the date on the invoice. Actual payments to employees and suppliers were $10.5 million more than planned.
Considerations
Policy considerations
15 There are no policy considerations in regard to the draft Annual Report 2019/20.
Legal considerations
16 The draft Annual Report has been prepared to meet the requirements of the Local Government Act 2002 (the Act). The final Annual Report must contain an auditor’s opinion on whether it meets the requirements of the Act.
17 The Act requires that the Council, within one month after the adoption of its Annual Report, must make publicly available both its Annual Report and a summary of the information contained in its Annual Report. The Annual Report Summary must also be audited to ensure that it represents, fairly and consistently, the information regarding the major matters dealt with in the full Annual Report.
18 The 2019/20 Annual Report and the 2019/20 Summary Annual Report will be made available to the public on the Council’s website and through service centres and libraries within one month of Council adopting the Annual Report.
Financial considerations
19 There are no financial or funding implications for the Sub-Committee to consider.
Tāngata whenua considerations
20 A message from tāngata whenua has been included in the draft Annual Report.
Strategic considerations
21 Through its reporting of financial and service performance, the Annual Report demonstrates how the Council is tracking against its strategic outcomes.
Significance and Engagement
Significance policy
22 This matter has a low level of significance under the Council’s Significance and Engagement Policy.
Publicity
23 A media release will be developed to support the public release of the Annual Report 2019/20 following its adoption by the Council on 1 October 2020.
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That the Audit and Risk Sub-Committee: 24 Notes and receives this report, including Appendix 1 to this report.
25 Recommends the draft Annual Report 2019/20 for consideration and adoption by Council on 1 October 2020.
26 Delegates authority to the Chief Executive and Chair of the Audit and Risk Sub-Committee to make minor editorial changes to the draft Annual Report 2019/20 required by Audit, prior to being submitted to the Council for consideration and adoption.
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24 September 2020 |
Author: Jayne Nock, Executive Secretary to Group Manager Corporate Services
Authoriser: Mark de Haast, Group Manager Corporate Services
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That the minutes of the Audit & Risk Subcommittee meeting on 13 August 2020 be accepted as a true and accurate record of the meeting. |
1. Draft
Minutes of the Audit and Risk Subcommittee meeting of 13 August 2020 ⇩ 
