Tagged: Audit

Audit committee meeting (24 March)

The audit and risk committee meeting was held on 24 March 2016. Apologies were received from Sangster and Mr Graham Naylor. All other councillors were present.

The agenda included: (1) Audit management report for the annual report 2014-15, (2) Internal audit update, (3) NZTA investment audit, and (4) 2015-16 audit arrangements letter. In committee (in confidence) items included: (1) Review of leasing procedures, (2) Reputational risk register, and (3) internal audit – payroll control review.

Audit management report

At the conclusion of each audit the Audit Director issues an management report which is primarily focused on key findings and recommendations on significant matters arising from the audit, including procedural change suggestions.

This was another good audit report for council. There were no significant matters raised in the Audit NZ management report. As in previous years Council received an unmodified audit opinion for the Annual Report 2014-15.

Internal audit update

The subcommittee received the internal audit update report. Highlights included:

  • Security Issues. There appeared to have been a break-in to the Richmond office tender box. Security would be increased.
  • Revaluations. Infrastructure assets (roads and bridges, wastewater, solid waste, water supply, stormwater, coastal assets and river protection assets) were revalued as at 31 March 2015. They are next scheduled to be revalued in March 2018. Assets not valued, and recorded at cost, include land under roads and library collections. A valuer has been commissioned to value the port assets for the 2015-16 Annual Report. Land and buildings are scheduled to be revalued as at 30 June 2016.
  • Public benefit entity standard. With the change to Public Benefit Entity (PBE) accounting standards staff will review whether the annual report financial statements and disclosure notes to the accounts can be decreased in volume and complexity to ensure they are more understandable for the readers. Staff are currently reviewing the notes and layout of the annual report to further enhance the disclosures and fulfill requirements under the accounting standards.
  • Accounts receivable. Staff have commenced a full review of the Accounts Receivable function, with a focus on debt management, risk mitigation, policy, and procedural compliance. The current debt management system was quite cumbersome and there were some longstanding debt legacy issues. The review would cover reporting of debt and ‘best practice’ on managing accounts receivable.
  • Redundancy payments. There has been one redundancy during this financial year. This was due to a restructure of the Records Management department.

NZTA Investment Audit

The subcommittee received the NZTA investment audit report. The audit report noted that the council exhibited sound management practices to support the delivery of its land transport programme.

The NZ Transport Agency (NZTA) provides a substantial subsidy to Tasman District Council towards its roading programme. Every 3 years the NZTA carries out an investment audit to provide assurance that the land transport programme is being well managed and delivering value for money. The total of the subsidy in the period reviewed was $19.5 million.

Audit arrangements letter

The subcommittee received the audit arrangements letter report and approved the audit arrangements, with amendments to the timetable and corrections to the references to ‘city council’.

Councillors raised concerns about the references to ‘city council’ within the audit arrangement letter, and Mr Kearney (the auditor) said this would be corrected for the copy due to be signed. The Subcommittee anticipated reviewing the draft Annual Report at its 8 September 2016 meeting.

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/subcommittee-meetings/audit-subcommittee-meetings/?path=/EDMS/Public/Meetings/AuditSubcommittee/2016/2016-03-24.

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Full council meeting (24 September)

The full council meeting was held on 24 September 2015 (immediately after the conclusion of the engineering meeting). All councillors were present.

The agenda comprised two items: (1) the annual report, and (2) the navigation safety bylaw.

At the conclusion of this meeting 2 workshops were held. The first on the reinstatement of Richmond’s central business district after storm water initiatives have been completed. The second reviewing grass cutting and tree removal across the district.

Annual report

The 2015 annual report (together with a number of amendments tabled at the meeting) was received and adopted by council. I briefly touched on the main highlights in my earlier audit subcommittee post (see www.greeningtasman.wordpress.com/2015/09/21/audit-subcommittee-meeting-16-september/).

The annual report provides an annual snapshot of the financial (ann non-financial) performance of council for the period 1 July 2014 to 30 June 2015. This is the normal financial period for government organisations (including council).

Council has again received an unmodified audit opinion and has maintained its AA- credit rating. In my opinion, both are good indicators of good management and governance. Many of the issues identified in the previous audit report have been addressed, and the auditor specifically made mention of the improved management of the audit process.

What is an unmodified audit opinion you might ask?

Generally, auditors are charged with the task of verifying the effectiveness of a business’s internal controls and must report any incidences they find that suggest mis-management, waste, or fraud. After the audit, the auditor must express a formal opinion on the records they have reviewed in their report, which may be either a modified or unmodified audit opinion.

When the financial statements “give a true and fair view” and the organisation under audit has complied with all the statutory and prescribed requirements, the auditor will issue an un-modified audit opinion. A modified audit opinion is issued when there are identified issues. For example, there is a possibility of a material mis-statement (or actual material mis-statement) in the financial records, or there is a material deviation from the financial reporting standards. Material mis-statements are differences or omissions of amounts and disclosures that are considered likely to influence a reader’s understanding of the financial statements.

Overall, the annual report shows that the council is in a very healthy position and the long term outlook looks good.

Financial highlights include:

  • debt was $145 million ($27 million less than the forecasted $172 million).
  • total income was $121.7 million, comprising general and targeted rates income of $65.1 million and other income (charges, fees, development contributions, revaluations, dividends) of $56.6 million.
  • expenditure was $100.3 million.
  • operational surplus was $21.4 million ($12.3 million above a forecasted surplus of $9.1 million), or $5.8 million (when capital and non-cash items are removed).
  • assets were worth $1.43 billion (this was an adjustment from the figures in the draft report presented to the audit subcommittee).

General rates income grew $310,000. However, net rates growth was around $146,000 when remissions (of $170,000) are taken into account.

The operating surplus of $5.8 million (cash) might initially be seen as council over-rating. However, the surplus can in part be attributed to council’s drive towards reducing operational costs during the year. Remembering that rates are set in the preceding year based on planned spending budgets. Other factors include: increased income from development contributions (as higher levels of development activity occurred), lower interest rate costs (as a result of improved treasury management), and increased income from commercial activity (port and forestry dividends).

The test for council going forward will be how it invests this surplus. I would hope that it is used to reduce debt (and interest repayments), bring forward investment in addressing Richmond’s residential storm water concerns (to reduce the risk for Richmond residents), and provide an increased buffer in the emergency fund should their be another natural disaster (while we address the storm water concerns of Richmond’s central business district).

Navigation safety bylaw

As discussed in an earlier post (see www.greeningtasman.wordpress.com/2015/09/20/full-council-meeting-10-september/) the navigation safety bylaw was expected to come into effect on 14 September 2015, after public notification on 11 September 2015. However, public notification did not occur.

Because adoption of a public bylaw requires public notification the notified dates require modification. Accordingly, council resolved that the navigation safety bylaw would not come into effect from 28 September 2015. Staff confirmed that this was sufficient time for public notification, as the public notice had already been drafted and was now waiting to be released.

Mistakes happen, but its the putting right that counts!

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/full-council-meetings/?path=/EDMS/Public/Meetings/FullCouncil/2015/2015-09-24.

 

Audit subcommittee meeting (16 September)

The audit sub-committee meeting was held on 16 September 2015. All subcommittee members (Crs Higgins, King, Sangster, Inglis, and myself) were present, including the newly appointed independent advisory member, Graham Naylor.

The agenda included two items: (1) internal audit programme update, and (2) draft annual report. As might be expected with two agenda items the meeting was relatively brief.

At the conclusion of the meeting we took the opportunity to speak with the auditor, without the presence of staff. We had done this with the 2014 annual audit report and it had proved a good exercise. Generally, the audit process had substantially improved on the previous year. This was put down to better staff preparation and planning. Although, I suspect it had to also do with increasing the resourcing for the finance team.

Internal audit programme

This item was an update (information only) report. Crowe Horwath have been engaged to provide internal audit services. This includes undertaking a review of councils processes and procedures for leasing and licensing arrangements. The review will also examine contract terms and conditions, pricing, billing, and collection). A list of relevant issues that will be examined are outlined on page 21 of the agenda.

Mr Naylor suggested this amount of detail was not necessary to present to the audit subcommittee. I disagree. I thought it was very useful for governance (especially for inexperienced members) to know what was being addressed in the review (and what was not). Knowing this provided me confidence that the review would be specifically examining some issues that had arisen in the past. For example (question 3.13), does the lease agreement include council approval clauses for subletting arrangements? The overall budget for this activity will be around $10,000. In addition, Crowe Horwath will provide some staff training.

Annual report

The draft annual report for the financial year ended 30 June 2015 was presented to the subcommittee for comment, before its presentation to council. This is the financial report that outlines the performance of council for the 2014-15 year and is reviewed by the auditor general (which is a legislative requirement).

Feedback from the auditor has been very positive and the council has received another unmodified audit report. In my opinion, both the financials and the audit process have seen a marked improvement on the previous year.

For an explanation of what is an “unmodified audit report” as well as a summary of last years audit report, see my earlier post at www.greeningtasman.wordpress.com/2015/03/28/audit-sub-committee-meeting-19-march/.

Generally, there were few comments from the subcommittee – with most being minor typographical changes. A confidential discussion (without staff being present) was held with the auditor after the meeting closed. The discussion was good and the confirmed that the financial team are doing a good job with the audit visit being smoother than earlier years. No doubt this is a reflection of better resourcing of the finance team (both inn terms of people and technology).

In summary, non-financial performance for the 2014-15 year was good. Overall, 82% of non financial measured targets were achieved and 12% not achieved. Council also ended the 2014-15 financial stronger than previous years.

Debt levels were lower than budgeted for year end. Rather than the projected $172 million, debt came in at $145 million. Total rates income (general rates and targeted rates) was $65.4 million. Other income (development contributions, subsidies and grants, fees and charges, other revenue) totaled $57.4 million. General rates increased $310,000 as a direct result of growth (ie, more ratepayers). Assets under council control totaled $1.26 billion. The accounting position records a $21.1 million surplus, compared to a budgeted surplus of $9.1 million. Effectively, an improved performance (positive variance) of $12 million above budget (the forecasted outcome).

In my opinion, council need to use any surplus to further reduce existing debt levels (and thus further reduce interest repayments), address the communities desire to further reduce storm water risks that have still not been addressed in residential Richmond, and provide for future potential natural disasters.

The annual report will now be presented to full council for approval.

Agenda and minutes

The agenda and minutes are located at www.tasman.govt.nz/council/council-meetings/subcommittee-meetings/audit-subcommittee-meetings/?path=/EDMS/Public/Meetings/AuditSubcommittee/2015/2015-09-16.

 

 

Audit sub-committee meeting (19 March)

The audit sub-committee meeting was held on 19 March 2005. All councillors (Crs Higgins, Inglis, Sangster, and myself) were present with apologies from Cr King.

The meeting agenda included the following items: (1) 2013-14 annual plan audit report, (2) mayoral relief fund audit report, (3) motor vehicle audit report, (4) authorisation and delegation audit report, and (5) internal audit programme.

Annual plan 2013

In my opinion, the 2013-14 annual plan received a good audit report. In fact the council received an un-modified audit opinion.

By way of background, auditors are charged with the task of verifying the effectiveness of a business’s internal controls and must report any incidences they find that suggest mis-management, waste, or fraud. After the audit, the auditor must express a formal opinion on the records they have reviewed in their report, which may be either a modified or unmodified audit opinion.

When the financial statements “give a true and fair view” and the organisation under audit has complied with all the statutory and prescribed requirements, the auditor will issue an un-modified audit opinion. A modified audit opinion is issued when there are identified issues. For example, there is a possibility of a material mis-statement (or actual material mis-statement) in the financial records, or there is a material deviation from the financial reporting standards. Material mis-statements are differences or omissions of amounts and disclosures that are considered likely to influence a reader’s understanding of the financial statements.

However, the audit did identify several areas of non-compliance (although these were not material). For example, use of the word “GST exclusive” in the annual report, when it should have read “GST inclusive” (the figures were correct), insufficient explanation of the services level differences in the four differentiated rural zones, maps not being attached to resolution minutes when the resolution referred to attached maps, and the financial impact statement not including objectives of differentiated rates, or examples showing the impact of rating proposals. All things that have been addressed in the long term plan (LTP).

Mayoral relief fund

The audit report identified no significant matters. However, the audit report did draw to the council’s attention a future change in the applicable accounting standard – being the new “public benefit entities” (PBE) standard.

Given the trust does not hold a great deal of funds, and given the cost of auditing the fund is likely to increase substantially, consideration should be given to widening the purpose of the trust (and its ability to hold more funds), or winding it up.

A wider charitable purpose would allow the public to continue to provide charitable donations and receive tax credits. Donations directly to council do not have a tax benefit for the donor, as the council cannot be registered as a charity.

Staff propose to report back on a recommendation going forward.

Motor vehicle audit

A review of vehicle fleet use confirmed vehicles were being used for proper purposes and not for private benefits that might result in fringe benefit tax (FBT). All vehicle sales were conducted through Turner’s auctions or the council’s Trade Me account, and fully transparent. All vehicle purchases were conducted through authorised “All of Government” suppliers.

The scope of the audit of vehicle sales and purchases went back to October 2013. In my opinion, the sample size was good. A further audit on earlier periods will be carried out and reported back to the next audit sub-committee.

Delegation

Staff have delegated authority to incur expenses. Generally, the higher the management level, the larger the delegated authority. Below general management level, delegated financial limits are based on job designation and function. All delegations are recorded in a delegations register.

The audit reviewed a random sample of electronic purchase orders in the last 2 payment runs. No issues with exceeding delegated authority were found. No other issues were found. The external audit of the annual report also did not identify any delegation issues.

However, in my opinion, the sample size was to small, and I suggested that a larger sample (over a different period) should be undertaken. Staff advised that the next review would be widened.

Internal audit programme

The audit sub-committee requested three internal audits on motor vehicles, delegated authority, and leases, that were reported back to this meeting. The audit sub-committee also endorsed commissioning an external contractor to provide audit planning services, with audit work plans being carried out by the finance team, and peer-reviewed by an external auditor before reporting to the audit sub-committee. Any costs will come from the existing audit budget. This approach should make some cost savings from not having to engage full audit services.

Agenda and minutes

The agenda and minutes are located at http://www.tasman.govt.nz/council/council-meetings/subcommittee-meetings/audit-subcommittee-meetings/?path=/EDMS/Public/Meetings/AuditSubcommittee/2015/2015-03-19.

Corporate services committee (5 June)

 

The corporate services committee meeting was held on 5 June 2014. Apologies were received from Mayor Kempthorne, Crs Dowler, Canton, and Inglis.

The meeting agenda received several reports including: (1) the corporate mangers report, (2) financial and treasure report, and (3) the shareholders report on Port Nelson. Within these reports a number of topics were discussed which I will highlight below. These include: (1) rating review compliance, (2) audit fees, (3) the corporate teams financial performance, (4) health and safety legislation (and its impact on the volunteers), and (5) the financial position of council.

A confidential session was held to discuss the minutes of the joint shareholders committee (involving TDC and NCC who are the joint shareholders of various entities such as Port Nelson, the Airport, and NTT).

Rating review

As some will be aware, the government recently passed a regulation to validate the imposition of rates in parts of Tasman, due to a failure to follow the correct rating process (see http://www.legislation.govt.nz/act/local/2014/0001/latest/DLM4980307.html?search=qs_act%40bill%40regulation%40deemedreg_rating+validation+tasman_resel_25_h&p=1&sr=1). In order that this event does not happen again, council staff are reviewing council processes and will be taking legal advice on some matters to ensure rates are compliant with statutory requirements. Any changes will be incorporated into the Funding Impact Statement for the 2014-15 Annual Plan.

Areas being examined include: the richmond and motueka business rate, lump sum targeted rates, the definition of “separately used and inhabited part”, partitioning, the rating of dams, and disclosure of some targeted rates.

A consequence of this review might involve council considering a new rating remission policy for certain activities or assets. For example, it might be that assets, thought exempt from rates, may have to be rated by law. To maintain the same fiscal outcome, the council will then have to consider whether it wants to remit the rates for such an asset through a new remissions policy.

Audit fees

Annual audit fees are to increase by $3,800 from $115,206 (for the 2012-13 period) to $117,800 (for 2013-14 period). This comprises an inflation adjustment of $1,800 plus an additional $2,000 for the increasing scope of the audit, due to Local Government Act changes

Corporate team

The corporate team has undergone restructuring over the last year with the team being divided into three groups and the addition of some staff (which has been reported in earlier posts). In my opinion, the financial result of the restructure has had a positive impact on the financial management of council (and the team itself). For April 2014, the corporate services team reported a saving of $228,000 against forecasted budgets for this time of year from reduced operating expenditure.

Health and Safety

The Health and Safety Reform Bill is currently before select committee (see http://www.legislation.govt.nz/bill/government/2014/0192/latest/DLM5976660.html). Submissions on the Bill closed on 9 May 2014. The Bill makes a number of proposed changes to the current law, including extending the definition of workers to include volunteers. While the existing Act requires employers to take all practicable steps to ensure volunteer’s health and safety is met, an employer will not commit an offence if they fail to do so. The proposed changes will mean employers will commit and offence if they fail to do so. This change may have a significant impact on the use of volunteers. For example, volunteers will be required to undergo health and safety training that would have only been provided to employed staff. This will place additional costs on any organisation using volunteers. Local Government NZ has asked that the current law is retained and the proposed changes are not made. Watch this space for further developments.

Financial and treasury performance

As at 31 March 2014, the council’s working capital was $3.346 million (compared to the year end forecast position of $4.4 million). Capital expenditure for the year to date of $14.4 million is also under budget. However, the positive variance is just timing, with capital expenditure on the Richmond Water Treatment plant to start in May which should return the amount of capital expenditure to budgeted levels.

Total income for council is $5.056 million ahead of forecasted budget for this time of year. Expenditure is also showing a positive variance of $370,00 below forecasted budget for this time of year. The net position is an accounting surplus of $9.068 million against forecasted budget of $3.662 million for this time of year. Outstanding debts remains higher than last year as some larger invoices have been questioned. This will need to be monitored. The March 2014 statements can be found at page 28 of the agenda.

As at 30 April 2014, the council’s total debt was $148.82 million. This is close to what is expected to be our end of year debt position for the 2013-14 year. Paying a weighted average interest rate of 5.161%. In lay terms, we are paying around $8 million in interest per year. With each ratepayer holding around $4,000 in debt each. At this time, the council had $130.78 million (88% of total debt) of interest rate swaps in place. In lay terms, this locks in our interest payments for set periods. However, as swaps mature, interest rate pressures will probably see new swaps negotiated at higher interest rates. At present, 70% of council debt matures before 30 June 2015. This could provide a financial bow wave for council in the future and will need to be carefully managed. Helpful table illustrating the councils debt is found on page 34 of the agenda.

As stated above, councils year end debt position (that June 2014) is expected to be around $148 million (thats $2-3 million lower than projections made in January this year). Projected debt (see full council annual plan discussions) at the end of the 2014-15 year (thats June 2015) is expected to be around $171 million. Much of the increase in debt (about half of the $20 million) is due to earlier expenditure being recognised in the 2014-15 year, as long term capital projects come are completed. The other half is a reflection of council approving new debt funded capital expenditure programs in the forthcoming 2014-15 year. Anyone who says we do not have a debt problem (and can debt fund “nice to have” capital items, like recreation centres) are deluding themselves. Unfortunately, this will mean that council will have to be tougher this year on cutting operational expenditure to turn this increasing large debt ship around.

Interestingly, council became non-compliant with its debt maturity profile in July 2013, when two banking credit facilities fell within the 0-3 year maturity bracket. Refinancing existing bank debt (ie credit facilities) with longer maturity dates should bring the debt profile back into compliance. At present, the councils debt is financed from two sources: 70% from the LGFA fund, and 30% from private banking facilities. As part of council reducing finance costs, the council has reduced its available credit facilities by 30%. In lay terms, this is like reducing our available over-draft facilities. Yes, council pays for funds that it could draw on but has yet to do so. A reduction in available funds will mean that council will have to carefully manage borrowing and cash flows. And avoid taking on any un-budgeted debt.

Richmond water treatment plant – update

Site works for Richmond Water Treatment Plant are progressing. Pipework installation in Lower Queen Street starts the second week of June 2014 and will cause some disruption for road users. Signs have been up for two weeks to inform people of likely delays and a media release was issued. Forty community members attended a meeting with Council staff on 26 May 2014 which was also attended by the Mayor and Councillor Mirfin. The issues of concern were around flooding, stormwater, and the increased speed of traffic on Lower Queen Street.

Agenda and minutes

The agenda and minutes for this meeting are located at http://www.tasman.govt.nz/council/council-meetings/standing-committees-meetings/corporate-services-committee-meetings/?path=/EDMS/Public/Meetings/CorporateServicesCommittee/2014/2014-06-05.

 

 

 

 

 

Traffic issues and audits

State highway liaison meeting (21 March)

The traffic liaison meeting was held on 21 March 2014 between the New Zealand Transport Agency (NZTA) and council. The meeting is chaired by the NZTA so an agenda and minutes are not recorded by council (at least I could not find a record anywhere on the council web site).

Of interest to me were two discussions. First, a truck effluent station, to be located on the old scrap metal yard near Three Brothers Corner (see http://www.stuff.co.nz/nelson-mail/news/9426081/Stock-effluent-dump-site-cominghttp://www.stuff.co.nz/nelson-mail/news/8094223/City-to-build-effluent-site-out-in-Hope). And the second, was concerns raised over the efficiency of the Queen St and Gladstone Road intersection.

Apparently the truck effluent station was something Nelson council required, but were unable to find a suitable location. Hira had been suggested but proved unsuitable. An alternative location was explored in Brightwater (next to the stock yards), but apparently the local school held concerns, so this was vetoed. Accordingly, it was considered that the three brothers corner area was the best location as trucks would be coming or going to either the Brightwater or Moutre\Motueka areas. Mock up designs were presented and assurances were given that the projected 10 stops per day would not in any way hinder existing or projected traffic use of the round about. NZTA would also be looking to improve lighting around the intersection and access way to the truck station.

In my opinion, the Gladstone Road traffic lights (on both the Queen St and Oxford St) are a nightmare – the phasing is just wrong. A round about would work so much more efficiently. On this point I also raised ratepayers bewilderment as to why they were prevented (at least officially) from turning up into Queent St from the deviation. I was advised by council staff and NZTA that the Gladstone Road and Queen St traffic management system was being reviewed to make improvements. All parties acknowledged it was not working that well.

I also raised a question over the Oxford St intersection. In my opinion, the Oxford St intersection should also be a round about so that cars can manage their own way out of the petrol station as well as in or out of Oxford St. However, I was advised that the road width could not sustain a round about, so that idea had to be ruled out.  Similarly I think a round about at the Queen St intersection would be much more efficient than the lights. The roundabout in stoke (on the highway bypass) works very well in keeping traffic flowing. The fact a lot of traffic bypasses Gladstone Road’s traffic lights in favour of Hill St or Wensley Road shows the lights are not working.

Audit subcommittee meeting (26 March)

The audit subcommittee meeting was held on 26 March 2014. Cr King and Cr Sangster submitted their apologies. All other councillors (Cr Higgins, C Inglis, and myself) were in attendance.

As the information from the Auditor was considered confidential this meeting was closed to the public. Accordingly I am unable to report much on what was discussed. However, I can say that I came away from the meeting with confidence in our overall performance and reporting. Noting that our debt levels continue to be a major area of concern.

a copy of the agenda and minutes of this meeting can be found at http://www.tasman.govt.nz/council/council-meetings/subcommittee-meetings/audit-subcommittee-meetings/?path=/EDMS/Public/Meetings/AuditSubcommittee/2014/2014-03-26.