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Audit, Risk, and Finance Committee Meeting Agenda
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29 November 2018
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MINUTES OF Far North District Council
Audit, Risk, and
Finance Committee Meeting
HELD AT THE Council
Chamber, Memorial Avenue, Kaikohe
ON Thursday, 27
September 2018 AT 10:00 am
PRESENT: Cr
John Vujcich, Mayor John Carter (HWTM), Cr Tania McInnes (Deputy Mayor), Cr Ann
Court, Cr Felicity Foy, Cr Colin (Toss) Kitchen, Cr Kelly Stratford,
Independent Member Bruce Robertson, Chairperson Adele Gardner, Chairperson Mike
Edmonds, Chairperson Terry Greening
STAFF
PRESENT: Shaun Clarke - Chief Executive Officer, Samantha Edmonds - General
Manager Corporate Services, Dean Myburgh - General Manager
District Services, Andy Finch - General
Manager Infrastructure and Asset Management,
Janice Smith - Chief Financial Officer, Jaime Dyhrberg - Executive
Officer, George Swanepoel - In House
Counsel, Matt Bell - Manager Risk and Improvement, Leanna Ransom
- Internal Auditor, Paul Carr - Manager
Infrastructure Project Delivery, Adele Thomson, Executive Assistant to
the Mayor, Melissa Wood - Meetings Administrator
2 Deputation
Cheryl Smith, representative from Kaikohe Rugby Football and
Sports Club - in regard to Public Exclusion Supplementary Agenda item 2.1 Blues
Preseason Game.
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1 APOLOGIES AND DECLARATIONS OF INTEREST
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Committee Resolution 2018/1
Moved: Cr John Vujcich
Seconded: Cr
Colin (Toss) Kitchen
That the apology received from Cr Macauley be accepted
and leave of absence granted.
Carried
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Cr Colin
(Toss) Kitchen declared an interest in relation to Public Exclusion
Supplementary Agenda item 2.1.
Cr Ann Court
declared an interest in relation to Supplementary Agenda item 1.1 and Public
Exclusion Supplementary Agenda item 2.1.
SUPPLEMENTARY
AGENDA
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1.1 To
support and adopt a Local Bill to enable Top Energy to own and manage its
expanded plant and connect it to its network
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Committee Resolution 2018/2
Moved: Cr
John Vujcich
Seconded: Cr
Tania McInnes
That the Far North District
Council on behalf of Top Energy puts forward a Local Bill to Parliament, that
will seek to amend the Electricity Industry Act 2010.
The Bill shall propose the following amended wording to
clause 3(b) of Schedule 2 of the Electricity Industry Act 2010 :
An
interest in a business that generates electricity from a geothermal energy
source if –
(i) Although
expanded, the geothermal plant which draws energy from that resource source
was originally commissioned between 1 January 1998 and 1 January 2009, and is
currently owned by the person that commissioned it; and
(ii) The
output from the expanded geothermal plant is less than 100MW (determined
according to nameplate); or
Carried
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4 Public
Excluded
RESOLUTION TO
EXCLUDE THE PUBLIC
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Committee Resolution 2018/3
Moved: Cr John Vujcich
Seconded: Mayor
John Carter
a) That the public be
excluded from the following parts of the proceedings of this meeting.
b) That Earl White,
representative from Bancorp, be permitted to remain at this meeting for items
4.1 and 4.2 after the public has been excluded, in order to present
information regarding the subject matter of the reports
c) The general subject
matter 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 of the Local Government Official
Information and Meetings Act 1987 for the passing of this resolution are as
follows: (as per the agenda paper and supplementary agenda paper)
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General subject of each matter to be considered
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Reason for passing this resolution in relation to
each matter
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Ground(s) under section 48 for the passing of this
resolution
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4.1 - Bank facility renewal
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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
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.2 - Pre funding of approved debt
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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
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.3 - Confirmation of Previous Minutes
(Public Excluded)
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s7(2)(h) - the withholding of the information is
necessary to enable Council to carry out, without prejudice or
disadvantage, commercial activities
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.4 - Draft Annual Report Financials
2017-18
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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
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.5 - Far North Holdings Ltd Annual
Report for June 2018
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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
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.6 - Internal Audit Update -
September
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s7(2)(b)(ii) - the withholding of the information
is necessary to protect information where the making available of the
information would be likely unreasonably to prejudice the commercial
position of the person who supplied or who is the subject of the
information
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.7 - Organisational Risk Framework
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s7(2)(h) - the withholding of the information is
necessary to enable Council to carry out, without prejudice or
disadvantage, commercial activities
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.8 - FNDC Current Legal Action
Potential Liability Claim
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s7(2)(g) - the withholding of the information is
necessary to maintain legal professional privilege
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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4.9 - Blues Preseason Game
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s7(2)(b)(ii) - the withholding of the information
is necessary to protect information where the making available of the
information would be likely unreasonably to prejudice the commercial position
of the person who supplied or who is the subject of the information
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s48(1)(a)(i) - the public conduct of 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 would exist
under section 6 or section 7
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Carried
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CONFIRMATION OF DECISIONS AND
INFORMATION IN OPEN MEETING
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Committee Resolution 2018/4
Moved: Cr John Vujcich
Seconded: Cr
Kelly Stratford
That
the Audit, Risk, and Finance Committee
a)
confirms that the following decisions contained in the part of the meeting
held with the
public excluded are to be restated in public meeting
Supplementary Public Excluded Agenda item: 1.1 Blues Preseason Game
That
the Audit, Risk, and Finance Committee approve the Chief Executive Officer entering
into an agreement with the Northland Rugby Union to underwrite eighty percent
of a potential loss to a maximum of $59,568 from hosting a preseason rugby game
between the Blues and the Chiefs franchises on 2
February 2019.
4.1 Bank Facility Renewal
That the Audit, Risk, and Finance Committee
a) approve the CFO to proceed with the Banking Facility Proposal put forward
by
the ASB bank
for a two year period to November 2020.
b) authorise the CEO to sign any necessary documentation
b)
confirms that the remaining decisions contained in the part of the meeting
held with the public excluded are not to be restated in
public meeting
c)
confirms the information contained in the part of the meeting held with the
public excluded be restated in public meeting
Supplementary
Public Excluded Agenda item 1.1 Blues Preseason Game
- Report
only - excluding attachments 1 and 2
d) confirms the remaining information contained in the
part of the meeting held with the public
excluded not be restated in public meeting
Carried
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3 Corporate
Services Group
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3.1 Confirmation
of Previous Minutes
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Committee Resolution 2018/5
Moved: Cr John Vujcich
Seconded: Cr
Tania McInnes
That the Audit, Risk, and Finance Committee confirm
that the minutes of the meeting of the Committee held 26 June 2018 are a true
and correct record.
Carried
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3.2 Capital
Carry Forwards June 2018
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Committee Resolution 2018/6
Moved: Cr John Vujcich
Seconded: Cr Ann
Court
That the Audit, Risk and Finance Committee approve capital budgets identified in the report
“Capital Carry Forwards June 2018” totalling $8,861,644 be
carried forward to the 2018-19 financial year.
Carried
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3.3 Council
Financial Report August 2018
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Committee Resolution 2018/7
Moved: Cr Ann Court
Seconded: Cr
Felicity Foy
That the Audit, Risk, and Finance Committee receive the
report entitled “Council Financial Report August 2018”
Carried
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5 Meeting
Close
The Meeting closed at 12:21 PM.
The minutes of this meeting were confirmed at the Audit, Risk, and Finance Committee Meeting to be held
on 29 November 2018.
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CHAIRPERSON
3.2 Insurance
renewal considerations
File
Number: A2253999
Author: Janice
Smith, Chief Financial Officer
Authoriser: Samantha
Edmonds, General Manager - Corporate Services
Purpose of the Report
This report outlines the issues surrounding the ongoing difficulty
relating to the renewal of public liability and public indemnity insurance as
well as potential insurance cover that is available for Council’s
underground assets.
Executive Summary
· Information has been provided by Aon Insurance, Council’s insurance
broker, relating to the renewal of the public indemnity and professional
indemnity insurance. The additional cost of this cover is approximately
$115,000 and this sum is in addition to the funds provided on the LTP.
· Riskpool, Council’s previous public liability and professional
indemnity insurer, has advised of additional calls for their fund years for
2007 and 2010 of approximately $104,000 in each year. This is also additional
to the funds provided in the LTP.
· The Committee is asked to consider whether insurance cover for
underground assets is required based on the feedback from an assessment
completed by Tokin Taylor identifying potential loss information coupled with
recent feedback from a meeting with MCDEM/DIA relating to future Government
support in relation to significant events. This cover could be obtained for
approximately $65,000 per annum and would be additional to the budget provided
in the LTP.
· LTP provision for insurance 2018/19 is $818,723, the additional
$115,000 and $104,000 and $65,000 indicate a shortfall of $284,000 in Year 1
and Year 4 and $219,000 in all other years of the plan.
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Recommendation
That the Audit, Risk, and Finance Committee:
a) the
additional funding required in future years to provide for public liability and
professional indemnity insurance quoted by Aon Insurance of $115,000
b) approve
the additional funding required in 2019/20 and 2022/23 for the Riskpool
additional calls of approximately $104,000 in each year
c) consider
the requirement for insurance cover for underground assets based on the
possible loss information provided and if necessary, approve an additional
$65,000 in the budget from 2019/20 onwards
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1) Background
The annual renewal date for Council’s insurance
policies is 1 November. Council is part of a shared procurement arrangement
with Whangarei District Council, Kaipara District Council and Northland
Regional Council. Each Council is responsible for its own assets and insurance
provision, however the cumulative value of all Council’s is put to the
market to obtain a more attractive position in relation to premiums.
This renewal cycle has seen similar issues arise in relation
to the public liability and professional indemnity cover available for
Council’s New Zealand wide.
In addition to this, Riskpool has advised Council that
additional funds will be required for years 2007 and 2010 and has communicated
that $104,000 is needed for the first call in 2019/20 with a further call to
come in 2022/23. The ‘call’ will be made to Councils participating
in Riskpool cover for those years.
In response to the recent events such as the earthquakes in
Christchurch and Kaikoura and the flooding in Edgecombe, central government has
been considering the relationship it has with local authorities to cover 60% of
emergency event related costs where the authority is in a position to make a
claim.
2) Discussion and Options
Public liability and professional indemnity insurance
The 2018/19 Professional Indemnity and
Public Liability renewal has proved challenging for a number of reasons and
resulted in significant increases in premium required to continue to provide
protection and sustainability for Council’s increased liability exposures.
The increase for Council for the next insurance year is 107.3% of current
premiums, or $115,000.
The 1 November renewal has required a
change of Insurer Panel. The previous panel of AIG- 60%/Zurich – 20%
/Berkshire Hathaway – 20% has been replaced as follows:
Berkshire Hathaway – 60% and Lead
Insurer with QBE – 40% co-insurer.
The deteriorating claims history over the
last 10 years in the local government space has meant that the lead insurer has
now changed 3 times during this period and has necessitated a premium
adjustment to build some sustainability into the local government liability
sector.
Claims have included building defects
arising out of weather tightness issues, weather events, (flooding), consenting
issues, imported building materials from China such as plumbing, wiring, steel
and concrete, to provide a sample.
Council has recently received a notice
from Riskpool advising of at least 2 calls that will be made on Councils for
approximately $14m of premium due to adverse claims in year 2007 and 2010. It
is of note that not one Riskpool fund year has been closed and there are
concerns that the levels of calls may in fact increase past this figure already
advised. JLT were the administrator and responsible for the setting of
Riskpool premium for the life of Riskpool. The level of calls gives further
weight to the underfunding of premiums for the local government sector. It is
important to note that there is no call option by insurers through any
liability policy arranged by Aon Insurance.
In terms of coverage differences between
the JLT product and the policy provided by Berkshire Hathaway through Aon
Insurance, the most important aspect is the interpretation around building
defects coverage. Under the JLT policy any building defect arising out of a
weather tightness issue is currently excluded. Whereas the Aon Insurance
arranged policy covers the building defects element. This is a very important
coverage consideration as a number of claims are being
notified around these circumstances and currently JLT is declining coverage on
this basis.
Unfortunately,
with Council consistently being “last man standing” in claim
scenarios, the risk profile of Councils is seen as high risk by markets.
CDEM/DIA emergency event cover
The current arrangement with central
government in relation to major emergency events is that if a Council can show
that it has taken steps to cover 40% of the potential loss, then central
government will cover the remaining 60%. This is usually on a proportional
basis and has proved costly in relation to the Christchurch and Kaikoura
earthquakes.
Discussions have been occurring over time
and the following information has come from a recent meeting attended by an Aon
Insurance representative:
· Department
of the Prime Minister and Cabinet (DPMC)/Ministry of Civil Defence and
Emergency Management (MCDEM) were fairly categorical that they expect Councils
to ”attempt“ to fully insure their potential losses resulting from
an event. They are not a partner in financing, they are the absolute last
resort if, due to circumstances beyond Councils control, the council is
financially overwhelmed by an event.
· In
the case of above ground assets, where comprehensive insurance is possible,
MCDEM will only step in (with 60/40) to cover the difference between any
settlement amount from the comprehensive insurance, and the actual cost of
reinstatement.
· In
the case of below-ground assets (pipeline), it was acknowledged that
comprehensive insurance is much harder to get. In this situation, the
expectation is that Councils will still attempt to insure as much as they can
(and need to be able to prove that they have attempted), but that, if there is
a shortfall, MCDEM will step in to cover the shortfall up to 60% of the total
cost of reinstatement. Council’s responsibility is to attempt to
insure the assets to a prudent level ignorant of any government contribution,
and, if it can be proved that this was not possible or infeasibly expensive,
then MCDEM will step in with their 60% funding.
· The
other notable point was that MCDEM have a set of “eligibility”
criteria for funding reinstatement of network infrastructure: They
presented what could be described as a set of “priorities” for
coverage, but these appeared pretty loose and seem to hinge on engineering
judgement:
o Priority
1, which guarantees funding, only applies if failure has occurred or
is imminent AND it is affecting network performance (whatever that means).
o Priority
2 is something that hasn’t completely failed, or isn’t imminent,
but is a “critical asset”. Here, funding is
“likely” but not guaranteed.
o Priority
3 has a set of criteria which seems focused on whether the damage would cause
unacceptably high operational costs, or the asset is
“interdependent” with other infrastructure, and only
“may” be funded. It seemed that this led to Christchurch covering
closer to 50% (not 40%) of the total reinstatement costs.
· It
seemed the point being made was that cracked or damaged pipes, that are still
allowing water to flow, may not be funded (depending on criticality/
operational costs / interdependencies).
Underground infrastructure insurance
Aon Insurance was approached to carry out a review of the
natural hazards (Flooding, Tsunami and Earthquake) that Council is exposed to.
The study was carried out by Aon Insurance in conjunction with Tonkin &
Taylor, a leading firm in the field (and acknowledged leaders globally for
liquefaction) for above ground as well as below ground assets
Natural Hazard Review
Based on the data supplied (being estimated values of its
below ground assets) the review concluded that the council is exposed to such
hazards with a number of return periods and estimated costs.
Insurers will generally take the median values based on a
one in 500 year earthquake and a one in 2,500 year Tsunami event. The review
considers that the Far North could face the following losses which could
directly affect its infrastructure (both median and worse case high).
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Hazard
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Median
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High
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Earthquake
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$1.1m
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$2.2m
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Tsunami
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$14.7m
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$26.5m
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Flood
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$5m
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$10.1m
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Insurance Market
Aon Insurance approached its current panel of insurers who
currently insure Northland Regional Council and Whangarei District Council. The
following terms were provided;
Based on underground asset values of $313m, a dedicated loss
limit of $30m (in 100% terms) and having a $500,000 deductible for each loss
the premium would be $65,000.
Insurers would cover loss or damage due to Earthquake,
Flood, Tsunami as well as Tornado, Windstorm, Natural Landslip, Volcanic
Eruption, Hydrothermal & Geothermal Activity and Subterranean Fire.
Insurers will also cover the following additional costs,
· Enablement costs
which provides cover for continuing services in the event of loss damage (for
example temporary re-routing of mains) until repairs can be made –
limited to $5m.
· Expediting
Expenses which provides for additional costs to accelerate repairs –
including reasonable air freight costs/over time working to minimise the
interruption of service – limited to $5m.
MCDEM
The insurance will be for 40% of the loss, with the balance
falling under MCDEM’s contribution. MCDEM will work to its own
interpretation of loss/damage which will be different to insurers, and as
advised above, MCDEM encourages councils to take their own insurance. This
means that MCDEM will be reluctant to pay any losses where it is possible for
the council to obtain insurance.
Reason
for the recommendation
To approve the additional funding of $284,000 required for
the ongoing public liability and professional indemnity, Riskpool calls in
2019/20 and future years and underground asset cover if deemed appropriate
3) Financial Implications and Budgetary
Provision
Additional provision of $284,000 is required to provide for
the ongoing impact of increased premiums for professional liability and
professional indemnity insurance and the provisional calls identified by
Riskpool. The current insurance provision within the LTP is $818,723 and will
not be sufficient to cover these additional insurance costs due to the change
in market conditions
Attachments
Nil
Compliance schedule:
Full consideration has been given to the provisions of the
Local Government Act 2002 S77 in relation to decision making, in particular:
1. A
Local authority must, in the course of the decision-making process,
a) Seek
to identify all reasonably practicable options for the achievement of the
objective of a decision; and
b) Assess
the options in terms of their advantages and disadvantages; and
c) If
any of the options identified under paragraph (a) involves a significant
decision in relation to land or a body of water, take into account the
relationship of Māori and their culture and traditions with their
ancestral land, water sites, waahi tapu, valued flora and fauna and other
taonga.
2. This
section is subject to Section 79 - Compliance with procedures in relation to
decisions.
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Compliance
requirement
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Staff
assessment
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State the level of significance
(high or low) of the issue or proposal as determined by the Council’s
Significance and Engagement Policy
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Low
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State the relevant Council
policies (external or internal), legislation, and/or community outcomes (as
stated in the LTP) that relate to this decision.
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None
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State whether this issue or
proposal has a District wide relevance and, if not, the ways in which the
appropriate Community Board’s views have been sought.
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N/A
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State the possible implications for Māori
and how Māori have been provided with an opportunity to contribute to
decision making if this decision is significant and relates to land and/or
any body of water.
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N/A
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Identify persons likely to be
affected by or have an interest in the matter, and how you have given consideration
to their views or preferences.
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N/A
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State the financial implications
and where budgetary provisions have been made to support this decision.
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Additional budget will be
required from 2019/20 as identified in the body of the report
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Chief Financial Officer review.
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The Chief Financial Officer
prepared this report
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