Agenda of Assurance, Risk and Finance Committee Meeting

	Authorising Body	Mayor/Council
	Status	Standing Committee
COUNCIL COMMITTEE	Title	Assurance, Risk and Finance Committee Terms of Reference
	Approval Date	19 December 2019
	Responsible Officer	Chief Executive

Purpose

The purpose of the Assurance, Risk and Finance Committee (the Committee) is to assist and advise the Governing Body in discharging its responsibility and ownership of finance, risk and internal control.

The Committee will review the effectiveness of the following aspects:

· The robustness of financial management practices.

· The integrity and appropriateness of internal and external reports and accountability arrangements.

· The robustness of the risk management framework.

· The robustness of internal controls and the internal audit framework.

· Compliance with applicable laws, regulations, standards, and best practice guidelines.

· The establishment and maintenance of controls to safeguard the Council’s financial and non-financial assets.

· Data governance framework

To perform his or her role effectively, each Committee member must develop and maintain

his or her skills and knowledge, including an understanding of the Committee’s responsibilities, and of the Council’s business, operations, and risks.

Membership

The Council will determine the membership of the Assurance, Risk and Finance Committee including at least one independent appointment with suitable financial and risk management knowledge and experience.

The Assurance, Risk and Finance Committee will comprise of at least five elected members (one of which will be the chairperson), and one independent appointed member.

Mayor Carter

John Vujcich – Chairperson

Bruce Robertson – Deputy Chairperson and Independent Member of the Committee

Moko Tepania

Mate Radich

Rachel Smith

Kelly Stratford

Ann Court

Mike Edmonds

Adele Gardner

Reina Penney

Non-appointed Councillors may attend meetings with speaking rights, but not voting rights.

Quorum

The quorum at a meeting of the Assurance, Risk and Finance Committee is 4 members.

Frequency of Meetings

The Assurance, Risk and Finance Committee shall meet every 6 weeks, but may be cancelled if there is no business.

Power to Delegate

The Assurance, Risk and Finance Committee may not delegate any of its responsibilities, duties or powers.

Committees Responsibilities

The Committees responsibilities are described below:

Financial systems and performance of the Council

· Review the Council’s financial and non-financial performance against the Long-Term Plan and Annual Plan

· Review Council quarterly financial statements and draft Annual Report

Far North Holdings Limited (FNHL)

· Recommend to Council the approval of statement of intent and Annual Report (s67 LGA)

· Receive 6 monthly report on operations (s66 LGA)

· Receive quarterly financial statements

· Recommend appointment of directors of FNHL

Risk Management

· Review appropriateness of Council’s risk management framework and associated procedures for effective risk identification, evaluation, and treatment

· Receive and review risk management dashboard reports

· Provide input, annually, into the setting of the risk management programme of work

· Receive updates on current litigation and legal liabilities

Internal Audit and Controls

· Review whether management has in place a current and comprehensive internal audit framework

· Receive and review the internal audit dashboard reports

· Provide input, annually, into the setting of the internal audit programme of work

· Review whether there are appropriate processes and systems in place to identify and investigate fraudulent behaviour

The Committee will manage Council’s relationship with external auditor.

The Committee will approve applications to declare land abandoned and any other such matters under the Rating Act.

Rules and Procedures

Council’s Standing Orders and Code of Conduct apply to all the committee’s meetings.

Annual reporting

The Chair of the Committee will submit a written report to the Chief Executive on an annual basis. The review will summarise the activities of the Committee and how it has contributed to the Council’s governance and strategic objectives. The Chief Executive will place the report on the next available agenda of the governing body.

Assurance, Risk and Finance Committee Meeting Agenda

31 August 2022

4 Confirmation of Previous Minutes

4.1 Confirmation of Previous Minutes

File Number: A3793199

Author: Joshna Panday, Democracy Advisor

Authoriser: Aisha Huriwai, Team Leader Democracy Services

Purpose of the Report

The minutes are attached to allow the Committee to confirm that the minutes are a true and correct record of previous meetings.

Recommendation

That the Assurance, Risk and Finance Committee confirms the minutes of the Assurance, Risk and Finance Committee meeting held 23 June 2022 as a true and correct record.

1) Background

Local Government Act 2002 Schedule 7 Section 28 states that a local authority must keep minutes of its proceedings. The minutes of these proceedings duly entered and authenticated as prescribed by a local authority are prima facie evidence of those meetings.

2) Discussion and Options

The minutes of the meetings are attached.

Far North District Council Standing Orders Section 27.3 states that no discussion shall arise on the substance of the minutes in any succeeding meeting, except as to their correctness.

Reason for the recommendation

The reason for the recommendation is to confirm the minutes are a true and correct record of the previous meetings.

3) Financial Implications and Budgetary Provision

There are no financial implications or the need for budgetary provision as a result of this report.

Attachments

1. 2022-06-23 Assurance, Risk and Finance Committee Minutes [A3763713] - A3763713 ⇩

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.

Compliance requirement	Staff assessment
State the level of significance (high or low) of the issue or proposal as determined by the Council’s Significance and Engagement Policy	This is a matter of low significance.
State the relevant Council policies (external or internal), legislation, and/or community outcomes (as stated in the LTP) that relate to this decision.	This report complies with the Local Government Act 2002 Schedule 7 Section 28.
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.	It is the responsibility of each meeting to confirm their minutes therefore the views of another meeting are not relevant.
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.	There are no implications for Māori in confirming minutes from a previous meeting. Any implications on Māori arising from matters included in meeting minutes should be considered as part of the relevant report.
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 (for example, youth, the aged and those with disabilities).	This report is asking for minutes to be confirmed as true and correct record, any interests that affect other people should be considered as part of the individual reports.
State the financial implications and where budgetary provisions have been made to support this decision.	There are no financial implications or the need for budgetary provision arising from this report.
Chief Financial Officer review.	The Chief Financial Officer has not reviewed this report.

Assurance, Risk and Finance Committee Meeting Agenda

31 August 2022

5 Reports

5.1 Affordability Risk Decision Report

File Number: A3787804

Author: Tanya Reid, Principal Advisor - Organisational Performance and Transformation

Authoriser: Janice Smith, Acting General Manager - Corporate Services

Take Pūrongo / Purpose of the Report

1. To seek approval to accept the Affordability Risk Reference Group recommendation that our current risk position be categorised into four affordability risk themes.

WhakarĀpopoto matua / Executive Summary

2. Council has recognised affordability as one of our top organisational risks as it poses significant risk:

· Affordability is acknowledged as one of Far North’s key challenges

· Affordability is both complex and multi-faceted.

· The Far North district has high levels of people on low and fixed incomes

· FNDC has a strong reliance on property rates as a revenue generating mechanism

· Risk Management is one of the key pillars to manage affordability

· This report recommends separating the current affordability risk (ARF005) into four grouped under an affordability banner on the top organisational dashboard to maintain a whole of affordability risk view.

· This supports a whole of Council view while allowing for an intentional strategic focus on treatments with clear outcomes and accountability.

tŪtohunga / Recommendation

That the Assurance, Risk and Finance Committee:

a) Remove ARF005 Affordability risk from the top organisational dashboard

b) Adopt four affordability risks onto the top organisational risk dashboard. The four risks are:

i) ARF020 Ratepayer ability to pay

ii) ARF021 Provision of Services

iii) ARF022 Integrated planning

iv) ARF023 Form and function of Local Government

c) Establishes regular risk progress reports, for each risk, to the Assurance, Risk and Finance Committee.

d) Rescores risks and reports, at least annually, an affordability risk management overview to the Assurance, Risk and Finance Committee on the management and progress to treat the affordability risks.

1) TĀhuhu kŌrero / Background

3. Affordability is acknowledged as one of Far North’s key challenges. With a small rating base, diverse socio-economic factors and large distributed infrastructure base and service requirement, this will get worse over time without intervention.

4. FNDC has a strong reliance on property rates as a revenue generating mechanism, and this may create some affordability issues particularly for households with low or fixed incomes or high property values. As a district with high levels of low and fixed incomes there are issues regarding affordability. Changes to local government (including climate change, three waters, and local government reform) and to the community we serve (demographics, climate change) will have implications on affordability. Affordability in the context of rates has two aspects:

· The cost relative to income (and wealth to the extent that wealth can be converted into income)

· The ability of ratepayers to earn greater income in the future from the spending of the rates, e.g. investment in infrastructure that will allow an individual to earn higher incomes in the future.

5. Sustainability can be defined as the ability to meet present needs without compromising the needs of future generations. Sustainability represents an extended definition of affordability in the sense that sustainability introduces a longer timeframe in which the issues of fairness and risk must be considered.

6. Affordability is a complex and multi-faceted risk requiring a whole of Council view.

Council’s current affordability risk statement

7. In November 2018 the Assurance, Risk and Finance Committee drafted and scored their top organisational risks. These were adopted by Council in May 2019. Since adoption onto the top organisational risk dashboard this risk, described as ARF005 Affordability risk has been subject to a number of deep dives and risk progress reports.

The current risk statement, and risk scoring, is articulated in table 1 below:

Table 1: ARF005 Affordability risk statement and risk scoring.

Risk Score

Risk description

Impacts

Treatments

Inherent risk score=45

Residual score = 26

Delivery of Services Risk (Affordability)

• Economic development

• Economic delivery (affordability)

• Alignment of financial & regional strategies

• Current and future cost picture

• Financial and remediation costs (large assets / services)

• Future cost forecasting including climate change modelling

• Rating implications

• Affordability pressures

• Political & reputational pressure

• Cost Blueprinting – big picture

• Revenue Review

• Cost and revenue forecasting (in addition to LTP budgeting)

• Review financial processes and models (e.g. depreciation)

• Existing & additional revenue streams investigated

• Scale back discretionary projects / focus on priorities

2) matapaki me NgĀ KŌwhiringa / Discussion and Options

The Far North District has a number of attributes which affect affordability. Firstly, who we are:

• We are a growing district of 72,600 with a high level of deprivation (the illustration below, from StatsNZ, details our socioeconomic deprivation profile by mesh area) and a high number of over 65’s.

• We are a district lacking public transport - distance, affordability and connectivity are all barriers.

• With 50.5% Māori descent we have a very different ethnic composition compared to the national population:

• We are the 13th largest Council by area

• We do not have a large central hub

• We are one of seven Councils (Mackenzie, Clutha, Central Otago, Hurunui and Westland) with no townships with greater than 6,500 population.

Map

Description automatically generated

Using the 2018 census data Council commissioned Business and Economic Research Limited (BERL) to conduct data analysis of rates affordability across the Far North District and prepare a report outlining rates affordability issues.

Concerns about the impact of rates increases on low-income households led to the establishment of The Local Government Rates Inquiry (the Inquiry) in 2007. The resulting report, known as the Shand Report after the Chair David Shand, concluded that rates affordability was the ability to pay rates without serious economic difficulty. The inquiry noted that in 2004, the average rates paid by households represented 2.51 percent for all groups and although there are likely to be pockets of affordability in all types of household, they did not consider rates affordability was a problem for the average household. As an approximate benchmark, affordability concerns will arise where rates exceed five percent of gross household income.

The report also suggested that particular household types will demonstrate rates affordability issues:

• Households in the lowest 40 percent of incomes

• One parent households with children

• One person households

• Households whose principal source of income is New Zealand Superannuation.

These households predominantly have low or fixed incomes. Consequently, BERL used the affordability benchmarks of:

• Rates as a percentage of gross household income, where affordability issues are likely to arise when rates exceed five percent.

BERL found that within the Far North District there were a significant number of households with rates affordability issues in the Far North District. These were:

• Single superannuitant with no other income

• Married superannuitants with no other income

• Single adult with two children in receipt of Sole Parent Support households.

These households had rates in excess of five percent of gross household income across lower, median and high quartile total rates levels. A fuller view of household rates affordability by household type / income level is provided in table 2 below.

Table 2: total rates as a percentage of gross income by household type. Far North District

Nationally and internationally economies are feeling the effects of the COVID pandemic, war and climate change. Table three is a bow tie type analysis identifying current external environment influences which are impacting affordability within the Far North.

Assurance, Risk and Finance Committee Meeting Agenda

31 August 2022

8. A root cause strategic analysis separated the affordability risk into four clear themes. These themes were workshopped by the Affordability Risk Reference group to provide strawman risk statements then further workshopped with the Assurance, Risk and Finance Committee. These statements are captured in table four. Risk and Finance Committee agreed and scored the inherent risk for the four strategically themed affordability risk statements.

Table 4: Affordability Risk statements
a) Ratepayer ability to pay b) We are a district of high deprivation, geographically dispersed small communities with no major hub and no public transport. We are an economically challenged district with limited employment opportunities and a significant number of households with low or fixed incomes. c) Berl’s rule of thumb: rates as a % of gross household income, where affordability issues are likely to arise when rates exceed 5% d) Rates = cost of essential and social infrastructure and services usually provided by Territorial Authorities.	That Territorial Authorities income requirement, to fund essential and social infrastructure and services, will be outpaced by our ratepayer’s ability to pay	If ratepayers' default on their rates payment Council will not have the cashflow to continue operations without borrowing or taking some other actions such as reprioritising service delivery and reviewing the user pays components of current fees and charges.
e) Provision of Services f) We are a district of multiple small scale service schemes (with small number of ratepayers covering the costs of these schemes) with aged infrastructure. We are also experiencing the effects of higher engineering and quality standards, other entities committing Council to ongoing maintenance of new assets and increasing costs to manage / adapt to the effects of climate change.	There is a chance that we cannot continue the expected provision of service to our communities into the future at an affordable level.	Not being able to deliver or provide new assets / amenities / facilities at an acceptable level of service which sustain and promote community wellbeing and resilience. We may also not be legally compliant (statutory services) or be able to continue offering the range of services currently being provided.
g) Integrated planning h) As a Council, district, region, and inter-agency, we are not connected or resourced to plan for the future in a coherent and integrated manner.	This leads to short term and/or adhoc decisions on development and protection of the district (and region), missed opportunities and communities that feel vulnerable and undeveloped.	This leaves us unable to put the right strategies/plans in place and operate from a holistic perspective, i.e. building places rather than individual assets. We are not prioritising the best use of limited resources achieving sub-optimal outcomes
i) Form and function of Local Government j) The form and function of local Government is changing (and will continue to be subjected to reforms and changes), but this Council still only has rates and user pays charges as its core revenue source. There is a lack of certainty around Central Govt’s willingness to provide funding as part of current and future devolved responsibilities at local govt. level. Additionally, our processes (10 year long term plan) do not align with the government cycle e.g. Waka Kotahi	There is a chance that we do not have the long-term operational funding and resources to support the mandate; and that Council does not have the instruments to implement policy changes.	We end up in a position where we are forced to take action using existing resources, impeding the delivery of our current workload. And we do not meet the expectations set by central government causing damage to Council reputation Example climate change.

Table 4: Affordability Risk statements

Cause

(Because of…)

Risk

(there is a chance that…)

Effect

(leading to…)

a) Ratepayer ability to pay

b) We are a district of high deprivation, geographically dispersed small communities with no major hub and no public transport. We are an economically challenged district with limited employment opportunities and a significant number of households with low or fixed incomes.

c) Berl’s rule of thumb: *rates as a % of gross household income, where affordability issues are likely to arise when rates exceed 5%

d) *Rates = cost of essential and social infrastructure and services usually provided by Territorial Authorities.

That Territorial Authorities income requirement, to fund essential and social infrastructure and services, will be outpaced by our ratepayer’s ability to pay

If ratepayers' default on their rates payment Council will not have the cashflow to continue operations without borrowing or taking some other actions such as reprioritising service delivery and reviewing the user pays components of current fees and charges.

e) Provision of Services

f) We are a district of multiple small scale service schemes (with small number of ratepayers covering the costs of these schemes) with aged infrastructure. We are also experiencing the effects of higher engineering and quality standards, other entities committing Council to ongoing maintenance of new assets and increasing costs to manage / adapt to the effects of climate change.

There is a chance that we cannot continue the expected provision of service to our communities into the future at an affordable level.

Not being able to deliver or provide new assets / amenities / facilities at an acceptable level of service which sustain and promote community wellbeing and resilience.

We may also not be legally compliant (statutory services) or be able to continue offering the range of services currently being provided.

g) Integrated planning

h) As a Council, district, region, and inter-agency, we are not connected or resourced to plan for the future in a coherent and integrated manner.

This leads to short term and/or adhoc decisions on development and protection of the district (and region), missed opportunities and communities that feel vulnerable and undeveloped.

This leaves us unable to put the right strategies/plans in place and operate from a holistic perspective, i.e. building places rather than individual assets.

We are not prioritising the best use of limited resources achieving sub-optimal outcomes

i) Form and function of Local Government

j) The form and function of local Government is changing (and will continue to be subjected to reforms and changes), but this Council still only has rates and user pays charges as its core revenue source. There is a lack of certainty around Central Govt’s willingness to provide funding as part of current and future devolved responsibilities at local govt. level. Additionally, our processes (10 year long term plan) do not align with the government cycle e.g. Waka Kotahi

There is a chance that we do not have the long-term operational funding and resources to support the mandate; and that Council does not have the instruments to implement policy changes.

We end up in a position where we are forced to take action using existing resources, impeding the delivery of our current workload.

And we do not meet the expectations set by central government causing damage to Council reputation

Example climate change.

Scoring of affordability risks

9. The Assurance, Risk and Finance Committee scored the inherent risk. The risks were scored by identifying both the risk impact for five organisational areas (see table five) and the likelihood of the risk occurring (see table six). For each organisational area, the risk impact is given a score of “High to Intolerable”, “Medium” or “Low to None” and the likelihood is rated as either “Will happen”, “Probable” or “Unlikely”. The impact and likelihood matrix is used to determine the values for each affordability risk (see table seven). The likelihood of all four risks materialising is assessed as “will happen”.

Table 5: Description of risk impact for each organisation area

k) Organisation area	l) Description
m) Financial	n) Impact on Budget, Department or Team; and /or Impact on annual Council budget
o) Customer	p) Financial impact to customer due to loss of a provision of essential service, or essential piece of infrastructure
q) Reputational	r) The impact on FNDC’s reputation
s) Compliance/Legal	t) The legal impact on FNDC’s legal adherence / regulatory compliance
u) Health and Safety	v) The impact to people(s) health & safety arising from FNDC operations or a situation where FNDC are liable

Table 6: Description of likelihood

w) Likelihood	x) Description
y) Will happen	z) The risk is likely to occur. aa) There is frequent exposure to the risk. bb) There are external influences that make managing this risk ineffective.
cc) Probable	dd) The risk will possibly occur e.g. once in every 2 year event ee) There is an exposure to the risk. ff) There are external influences that make managing this risk difficult.
gg) Unlikely	hh) The risk is unlikely to occur e.g. once in every 10 year event ii) There is a low exposure to the risk.

Table 7: Impact and likelihood matrix

		Likelihood (probability)
		Unlikely	Probable	Will Happen
Impact	High to Intolerable	5	7	9
	Medium	3	5	7
	Low to None	1	3	5

jj) An inherent risk score has been estimated for each affordability risk. This was derived by summing the risk value for each organisational area (see table eight).

Table 8: Inherent risk score for each affordability risk (inc. organisational area score and overall score)

kk) Risk	ll) Organisational area	mm) Impact	nn) Likelihood	oo) Inherent risk score
pp) Ratepayer ability to pay qq)	rr) Financial	ss) High to Intolerable	tt) Will Happen	9
	uu) Customer	vv) High to Intolerable	ww) Will Happen	9
	xx) Reputational	yy) High to Intolerable	zz) Will Happen	9
	aaa) Compliance/Legal	bbb) High to Intolerable	ccc) Will Happen	9
	ddd) Health and Safety	eee) High to Intolerable	fff) Will Happen	9
	ggg) Overall score			45
hhh) Provision of Services iii)	jjj) Financial	kkk) High to Intolerable	lll) Will Happen	9
	mmm) Customer	nnn) High to Intolerable	ooo) Will Happen	9
	ppp) Reputational	qqq) High to Intolerable	rrr) Will Happen	9
	sss) Compliance/Legal	ttt) High to Intolerable	uuu) Will Happen	9
	vvv) Health and Safety	www) High to Intolerable	xxx) Will Happen	9
	yyy) Overall score			45
zzz) Integrated planning aaaa)	bbbb) Financial	cccc) High to Intolerable	dddd) Will Happen	9
	eeee) Customer	ffff) High to Intolerable	gggg) Will Happen	9
	hhhh) Reputational	iiii) Medium	jjjj) Will Happen	7
	kkkk) Compliance/Legal	llll) High to Intolerable	mmmm) Will Happen	9
	nnnn) Health and Safety	oooo) High to Intolerable	pppp) Will Happen	9
	qqqq) Overall score			43
rrrr) Form and function of Local Government ssss)	tttt) Financial	uuuu) High to Intolerable	vvvv) Will Happen	9
	wwww) Customer	xxxx) High to Intolerable	yyyy) Will Happen	9
	zzzz) Reputational	aaaaa) High to Intolerable	bbbbb) Will Happen	9
	ccccc) Compliance/Legal	ddddd) High to Intolerable	eeeee) Probable	7
	fffff) Health and Safety	ggggg) High to Intolerable	hhhhh) Will Happen	9
	iiiii) Overall score			43

Responsibilities

jjjjj) All four affordability risks remain classified as both organisational and strategic risks with the GM-SPP responsible for risk governance. All affordability risks will be subject to regular risk progress reports. The risks have been recorded on the Organisational Risk Register to enable management at a Group level.

Table 9: Affordability risk summary.
Risk ID:	Risk title	Risk Level	Risk description	Inherent risk score	Residual risk score	Accountable Risk Governance	Responsible Risk Governance	Risk Progress Report schedule
ARF020	kkkkk) Ratepayer ability to pay	Organisational	Strategic	45		CEO	GMSPP	6 Monthly
ARF021	lllll) Provision of Services	Organisational	Strategic	45		CEO	GMSPP	6 Monthly
ARF022	mmmmm) Integrated planning	Organisational	Strategic	43		CEO	GMSPP	6 Monthly
ARF023	nnnnn) Form and function of Local Government	Organisational	Strategic	43		CEO	GMSPP	6 Monthly

Each of the affordability risks are high-intolerable and will happen. The risks will be clustered on the organisational risk dashboard under the heading “affordability”.

Connecting up the Council affordability risk treatment response:

The terms of reference for the Affordability Risk Reference Group were signed off in February 2022. The purpose of the Affordability Risk Reference Group is to support the provision of a “joined up connected” response. The objective of the Affordability Risk Reference group is to support the organisation through the provision of:

· Advice and guidance

· Explore opportunities within Council

· Inform specific elements of proposed work

· To champion the work impacting Affordability

· Build an organisational network

· To support risks three lines of defence through systems of control (help to monitor the risk and ensure right resources are allocated) and governance (effectively manage escalation of the risk and define strategies to manage).

Take Tūtohunga / Reason for the recommendation

The Affordability Risk Reference Group has recommended:

a) ARF005 Affordability risk is removed from the top organisational dashboard – this is because we propose to replace it with the recommendation in “b” below

b) To enable greater clarity and ability to align work programmes and approaches, it is recommended that the four affordability risks are adopted onto the top organisational risk dashboard. The four risks are identified as:

ooooo) ARF020 Ratepayer ability to pay

ppppp) ARF021 Provision of Services

qqqqq) ARF022 Integrated planning

rrrrr) ARF023 Form and function of Local Government

c) To ensure that the affordability risk is managed effectively it is recommended that each risk is subject to a regular risk progress report to the Assurance, Risk and Finance Committee

d) To enable FNDC to track risk and risk management measure it is recommended that at least annually there is a affordability risk progress report which provides an overview to the Assurance, Risk and Finance Committee on the management and progress to treat affordability risks

e) Recognising the dynamic nature of environment affecting affordability, it is recommended that these risks are regularly rescored due to the evolving environment including the government’s reform programmes and regulatory changes.

3) PĀnga PŪtea me ngĀ wĀhanga tahua / Financial Implications and Budgetary Provision

There is no budgetary provision required.

Āpitihanga / Attachments

Nil

Hōtaka Take Ōkawa / 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

2. This section is subject to Section 79 - Compliance with procedures in relation to decisions.

He Take Ōkawa / Compliance Requirement	Aromatawai Kaimahi / Staff Assessment
State the level of significance (high or low) of the issue or proposal as determined by the Council’s Significance and Engagement Policy	The recommendation in this report does not meet the thresholds as per the Council’s significance and engagement policy.
State the relevant Council policies (external or internal), legislation, and/or community outcomes (as stated in the LTP) that relate to this decision.	Risk Management Policy
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.	None
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. State the possible implications and how this report aligns with Te Tiriti o Waitangi / The Treaty of Waitangi.	While the recommendation in this report does not have any direct implications for Maori, given the disparity in income levels between communities, affordability will be particularly challenging.
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 (for example – youth, the aged and those with disabilities).	There are no affected or interested parties to the recommendation.
State the financial implications and where budgetary provisions have been made to support this decision.	There is no financial implication or request for budgetary provision.
Chief Financial Officer review.	The Chief Financial Officer has reviewed this report.

Assurance, Risk and Finance Committee Meeting Agenda

31 August 2022

6 Information Reports

6.1 Revenue recovery report 30 June 2022

File Number: A3787760

Author: Margriet Veenstra, Manager - Transaction Services

Authoriser: Janice Smith, Acting General Manager - Corporate Services

TAKE PŪRONGO / Purpose of the Report

The purpose of this report is to provide quarterly reporting to the Far North District Council Assurance, Risk, and Finance Committee.

WHAKARĀPOPOTO MATUA / Executive SummarY

This is the final report for the financial year 2021-22 and provides information on action taken to collect the current and arrears balances for rates, water and sundry debt so far this year, and to provide information on how collection is tracking against targets.

TŪTOHUNGA / Recommendation

That the Assurance, Risk and Finance Committee receive the report Revenue recovery report 30 June 2022.

tĀHUHU KŌRERO / Background

This document has been prepared to outline current and arrears balances for rates, water and Sundry debt as of 30 June 2022 and the actions taken by the debt management team for the collection of the General Title rates and water, and sundry debt.

This information is part of the standing items reported to the Committee on a regular basis.

MATAPAKI ME NGĀ KŌWHIRINGA / Discussion and Next Steps

Background

This information is part of the standing items reported to the Committee on a regular basis.

Discussion and Next Steps

The data provided is for General Title and Maori Freehold Land rates and water accounts with sundry debtors shown in a separate table. Since the 1^st of July 2021, the General Title rates total arrears balance has been reduced by 40% and water rates by 45%.

General Title rates and water debt

Key actions since the last report:

· Revenue recovery team were unable to proceed with final mortgage demand due to staff shortages. Where possible, contact was made with owners and payment plans offered to avoid mortgage demand in the new year.

· Instructions sent to legal services team to commence applications to the courts for financial assessment for properties where judgment was received but no payments have been made.

Next actions:

· Complete reporting for all properties with mortgages and commence pre-mortgage demand calling.

· Prepare and issue mortgage demand to the 5 major banks after the 1^st of August 2022 once pre-mortgage demand has been completed.

· Review properties without a mortgage and high arrears and commence demand process in collaboration with Council’s Legal Services team.

For the total number of General Title rates accounts marked as ‘Debt recovery action to commence’:

· These are properties where there is no mortgage, and we do not have a payment arrangement or direct debit set up on the account.

· 32% of properties only have last year’s rates in arrears and 13% have 2 years of arrears. Debt management will be contacting these owners by phone, email, or letter. Any water arrears will be picked up at the same time.

· 55% of these accounts have arrears of 3 or more rating years. Debt management will start the final demand process for these which can result in referral to Council’s legal services team to commence legal proceedings.

Maori Freehold Land rates and water debt

The debt for Maori Freehold land has reduced since the write-offs were completed in June as per the Local Government (Rating of Whenua Maori) Amendment Act 2021. The rates debt has reduced by 11.54% since the start of the year which was mainly due to write-off’s for non-rateable properties and statute barred write off.

Sundry debtors debt

The total sundry debtors aged debt balance has increased since the start of the year. However, two payments from the Ministry of Business, Innovation and Employment, totalling $2,070,000 were received after financial year end.

The 90 day+ resource consent debt has reduced by $77,774 since the last report, and the building consent debt has increased by $10,908. The revenue recovery team continue to work with both teams to reduce this. The 30-to-60-day debt has seen an increase and we are in the process of completing analysis to understand what is driving this increase.

PĀNGA PŪTEA ME NGĀ WĀHANGA TAHUA / Financial Implications and Budgetary Provision

Provision is made annually for doubtful debts in relation to the arrears owed to council. A higher provision for Maori Freehold land rates and water is made in comparison to General Title rates and water due to the difference in collection options available to Council.

Āpitihanga / Attachments

1. Revenue recovery Report attachment 30 June 2022 - A3865504 ⇩

Table 1: Top organisational risk dashboard

Risk ID:	Risk title	Date Risk adopted	Inherent risk score	Residual risk score	The risk trend is:	Months since risk trend last changed:	High level risk treatment progress:
Climate Change
ARF015	Climate Change Organisation Transition Risk	01/12/22	31		Stable	5	Climate Change active treatment plan in place with treatment pipeline.
ARF016	Climate Change Community Transition Risk	01/12/22	39		Stable	5	Climate Change active treatment plan in place with treatment pipeline.
ARF017	Climate Change Direct Risk to Council Physical and Natural Assets	01/12/22	37		Stable	6	Climate Change active treatment plan in place with treatment pipeline.
ARF018	Failure to understand and capture climate-related opportunities	01/12/22	29		Stable	0	Climate Change active treatment plan in place with treatment pipeline.
Enterprise Governance
ARF003	Health & Safety Vulnerabilities	30/05/19	46	34	Stable	0	The risk trend is stable because we have a strategy which identifies a course of action to reduce this risk.
ARF005	Affordability Risk	30/05/19	45	26	Increa- sing	20	Affordability Risk have been themed to develop four targeted risks. A decision report, to split into the themed risks, is on the August 2022 ARF agenda.
ARF010	Data Governance Risks	30/05/19	39	14	Increa- sing	8	Cyber security risk, is intensifying with growing digital dependency and increasing geopolitical disruptions.
ARF019	Resource Consent Risk	23/06/22	41	13	Increa- sing	2	Council continues to receive an increasing number of applications for resource consents while also needing to manage a significant backlog.
Infrastructure and Asset Management
ARF004	Asset Management Risks	30/05/19	45	18	Increasing	6	With the reset of Programme Darwin, a significant treatment for this risk, the Infrastructure and Asset Management Group want to revisit this stated risk to articulate the current risk.
ARF006	Project Priorities Deliveries Delays	30/05/19	45	14	Increasing	6	We are now needing to address significant issues as this risk has not been successfully mitigated.
ARF007	Compliance NRC Abatements	30/05/19	45	18	Increasing	8	Council is not meeting all resource consent conditions.
ARF012	Contract Management Risks	30/05/19	39	14	Increasing	0	Treatments such as the new contracts register, and contract management framework are progressing.
ARF013	Drinking Water Resilience	05/07/20	35		Stable	20	Updated Water Safety Plans completed.

Table 2: 2022 risk progress report schedule

	2022 Assurance, Risk and Finance Committee meeting date:	02/02	16/03	27/04	22/06	31/08
Climate Change risk progress reporting schedule
ARF015	Climate Change Organisation Transition Risk		ü		ü	ü
ARF016	Climate Change Community Transition Risk		ü		ü	ü
ARF017	Climate Change Direct Risk to Council Physical and Natural Assets	ü		ü		ü
ARF018	Failure to understand and capture climate-related opportunities				ü
Enterprise Governance risk progress reporting schedule
ARF003	Health & safety vulnerabilities	ü		ü		ü
ARF005	Affordability risk				ü
ARF010	Data governance risks				ü
ARF019	Resource consents					ü
Infrastructure and Asset Management risk progress reporting schedule
ARF004	Asset management risks	ü				ü
ARF006	Project priorities deliveries delays	ü		ü		ü
ARF007	Compliance nrc abatements				ü
ARF012	Contract management risks	ü		ü		ü
ARF013	Drinking water resilience		ü		ü	ü
	Externally funded shovel ready, economic stimulus employment opportunity projects		ü

Discussion and Next Steps

We are operating in a very dynamic context

National trends

· Employment remains above its maximum sustainable level

· Employers are experiencing a significant shortage of candidates across all industry sectors, and organisations

· Domestic spending remains supported by high employment levels, resilient household balance sheets in aggregate, continued fiscal support, and strong terms of trade

· Labour and resource scarcity are contributing to upward price pressures which are currently exacerbated by seasonal illness, a resurgence in COVID-19 cases, and a net outflow of labour abroad

· The level of global economic activity, combined with the ongoing supply disruptions largely driven by both COVID-19 persistence and the Russian invasion of Ukraine, continue to generate global inflation pressures

· The Monetary Policy Committee (13/07/2022) agreed to continue to lift the OCR to a level where it is confident consumer price inflation will settle within the target range. The Committee is comfortable that the projected path of the OCR outlined in the May Monetary Policy Statement remains broadly consistent with achieving its primary inflation and employment objectives - without causing unnecessary instability in output, interest rates and the exchange rate.

Global economy trends

Inflation has altered the economic mood, and potentially reset the path of global and national economies worldwide for years to come. In the past six months, inflation has far exceeded December 2021 expectations. In many countries, actual rates have doubled projections (illustration one). In response to inflation’s alarming rise, central banks worldwide are raising their core bank lending rates (illustration two). So far, however, rate raises in most countries have not matched the pace of inflation. Rising rates are expected to ease demand and lower prices for two critical components of headline inflation: housing and commodities such as energy and metals. As economic stimulus reflated the global economy that had been punctured by the COVID-19 pandemic, prices took off (illustration three). Then Russia’s invasion sent prices higher still. The biggest rise was in fertilizers. Spurred by shortages of natural gas, a key component in making fertilizer, and by rising demand from farmers, fertilizer prices have risen sharply.

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Emergent risk:

Increasing probability that one current risk may materialise:

Change management is a structured approach to implementing change in an organization, a systematic approach to dealing with changes to goals, processes and technologies. District Services have identified this as a regulatory/compliance risk (DS018) - Because of change management practice (or lack of); there is a chance that inconsistent processing and service level; leading to not meeting statutory requirements, creating legal liabilities and reputational damage. It is probable that we are now seeing this risk materialise. District facilities have also identified an operational/financial risk (DS023) focussed on the lack of an organisation-wide imbedded compliance information flow.

The issue:

Historically, FNDC has issued one or more resource consents with a specific consent condition which required the developer to design, supply and install a reticulated wastewater system on the basis that the area of the subdivision was designated as a ‘future area of benefit’ for sewer connections.

It has been alleged that, where FNDC has not provided the wastewater connection, FNDC is considered to be in breach of our obligations to facilitate connecting the development. These allegations have been accompanied by requests to re-imburse the cost of the required wastewater reticulated system inclusive of interest on that investment.

At this stage it is unclear how many resource consents may have been issued with the above mentioned conditions and work is underway to understand the scale and extent of any associated risks.

It is also important to note that when testing the liability balance related to resource management deposits, in 2018, Audit NZ found that some of the deposits in the listing were received 18 years ago. A project has been underway to identify these bonds, and to then confirm resource consent conditions have been met, to enable bonds to be returned. There are 11 instances where remedial work needs to be completed. Six of these are roading issues and are with the NTA to confirm work required; two are waiting for assessment from engineers; two are with District Facilities Operations to remediate; and one remains to be actioned.

Table 3 captures previously identified emergent risks. One additional emergent risk, identified 21/06/2022 and verbally advised to the Assurance, Risk and Finance Committee at the June 2022 meeting, has been included in the table below as item number six.

Table 3: Table of identified emergent risk

Emergent risks	Presented to ARF:	Progress
1. The risk of externally funded shovel ready, economic stimulus employment opportunity projects due to the impact of the COVID-19 pandemic.	October 2020	The Assurance, Risk and Finance Committee received a report at the March 2022 meeting.
2. The risk of not fit for purpose business continuity arrangements.	October 2020	A progress up-date is provided under the group risk section.
3. Government’s Three Waters Reform programme.	December 2020	Subject to an information report August 2022 Assurance, Risk and Finance Committee agenda.
4. Potential impact of the Worksafe decision, in December 2020, to charge 13 parties over the Whakaari/White Island tragedy; and the government review of WorkSafe New Zealand’s performance of its regulatory functions in relation to activities on Whakaari White Island.	February 2021	Impact to be considered when further information is to hand.
5. Ngapuhi Mana Whakahono ā Rohe.	Feb 2022	Workshop with Elected Members 09/08/22
6. Risk #IAM066, identified 21/06/2022, of the implications to budgets of cost escalations to complete scheduled maintenance work.	June 2022	Subject of a decision report (item 6.4) to Council 11/08/2022 The additional funding approval sought is budgeted within the adopted 2021/2024 LTP and does not result in any unbudgeted expenditure.

Organisational risk progress reports:

Nine of the scheduled risk progress reports, including high level treatment plan progress, are provided with highlights and analysis of risk progress below. More detail is available in the attached risk progress reports.

The ARF004 Asset Management Risks progress report has not been tabled. This risk was established in 2018. At this time the main focus for addressing, what is really an issue, was the establishment of Programme Darwin to deliver technology and process change, alongside appropriate resources and skill that would dramatically increase the maturity of Council’s asset management functions.

The Infrastructure and Asset Management Group would like to revisit this stated risk to articulate what the current risk is in this space. Then the impacts and proposed treatments will better match that statement of risk. Improvements to our asset management practices are underway, these are both within the previous auspices of Programme Darwin, like the condition assessments across Three Waters and District Facilities asset portfolios, and also as improvements to processes and procedures such as preparing project briefs for delivery and establishing the comprehensive Asset Management Plan Council needs.

Additionally, Council has not quantified climate risks to its assets, nor are these risks addressed in asset management plans. Without quantifying the risks and the impact of risk treatment options, it will be nearly impossible to maintain effective oversight of the council’s assets.

Risk progress reports – highlights and analysis:

1. ARF003 Health & Safety Vulnerabilities risk progress report. The inherent risk rating trend has been assessed as stable as we have a strategy which identifies a course of action to reduce this risk.

2. ARF006 Project Priorities Deliveries Delays risk progress report. The inherent risk rating trend has been assessed as increasing as we are now needing to address significant issues as this risk has not been successfully mitigated.

3. ARF012 Contract Management Risks risk progress report. The inherent risk rating trend has been assessed as increasing due to the increasing cost of money, labour, chemicals, fuel, raw materials; ability to retain and attract new staff; and the ability to access supplies and import specialist plant & equipment.

4. ARF013 Drinking Water Resilience risk progress report. The inherent risk rating trend has been assessed as stable. The Draft Water Safety Plans contain a risk register and improvement plan for each scheme.

5. Consolidated Climate Change Risks (ARF015, ARF016 and ARF017) progress report. The inherent risk rating trend has been assessed as stable for these three Climate Change risks. There is an active structured Climate Change treatment plan in place:

· Treatments have been analysed then clustered into one of six distinct themes to help synthesize information and provide insights

· Treatments are provided in two tables, those in progress and a pipeline of potential / planned treatments

· The Climate Change Risk Reference Group continues to progress actions working with WSP to develop a science-based emissions reduction programme

6. ARF019 Resource Consents risk progress report. The inherent risk rating trend has been assessed as increasing as Council continues to receive an increasing number of applications for resource consents while also needing to manage a significant backlog. District Services provide a monthly resource consent status report to Elected Members.

Organisational Risk Up-date

Group risk registers have been retired with the establishment of a SharePoint register containing all identified organisational risks. An overview of total organisation risk by risk theme is provided in table four. The largest number of risks are in the operational/financial risk category and the majority of risks are assessed as medium impact. Further business intelligence will be provided once BI reporting has been implemented.

Protecting Council data

Two potential issues have occurred which could have resulted in data security breaches:

1. FNDC received a security alert of a potential cybersecurity breach involving 20 FNDC email addresses. This risk was immediately mitigated with affected staff contacted and instructed to change their passwords. The upside is that this event provides evidence that our cyber security controls are working.

2. Privacy Act, potential privacy breach: the K drive, available in citrix, is a shared network drive that all staff have access to. Private and personal information was identified in some of the records located in K drive. These records were promptly removed, and a cross functional team established to investigate and mitigate this risk. After a review by Legal, of the information and facts, it was determined that it was highly unlikely that a privacy breach had occurred. Treatments in place include:

a. ongoing management of K drive by the Information Management Team with the intention that K drive will likely be made redundant and in the meantime a process for its short-term use, management and destruction of information currently held in the K drive is underway

b. internal communication campaign (SharePoint article, People Leaders notification, individual follow up with staff)

c. All of staff Friendly Fishing training on the Privacy Act.

Table 4: Table of total organisation risk by risk theme

Key: description of risk category:

· Health Safety & Wellbeing - a work environment that is without risk to health and safety, so far as is reasonably practicable

· Legal - Application of the law (and its consequences) to FNDC actions

· Operational/Financial - Whole of business view of FNDC performance including service/services delivery, risk, finance, environmental,

· Optimising efficiency - Managing the present, lineal response to what exists today such as system, Continuous Improvement, process

· People and culture - Capability, mindsets, behaviour

· Regulatory and Compliance- Conforming to rules, external = law or regulation; internal = policies

· Reputational - The external estimation in which FNDC and brand is held

· Strategic - Adapting to change: Innovation / create the future / selectively forget the past.

Table five provides a few of total organisational risk by impact score (high, medium, low). 19% of organisational risk has been scored as high impact, 40% medium impact and 23% low impact. A number of risks are yet to be scored.

Table 5: Table of total organisation risk by impact score (high, medium, low).

Work continues at group level to understand where there is a greater than 70% probability of the risk materialising within the next three years and to regularly assess the risk trend, particularly for the high impact risks.

Assurance, Risk and Finance Committee Meeting Agenda

31 August 2022

6.4 Three waters organisational risk report

File Number: A3838008

Author: Tanya Reid, Principal Advisor - Organisational Performance and Transformation

Authoriser: Janice Smith, Acting General Manager - Corporate Services

TAKE PŪRONGO / Purpose of the Report

To provide an information report on the impact of three waters reform on organisational risk management and potential emergent risks.

WHAKARĀPOPOTO MATUA / Executive SummarY

This information report, as requested by the Assurance, Risk and Finance Committee, investigates potential impact of the three waters reform on Council’s risk universe and organisational risks.

Three risk have been identified. These are:

A. Three waters transition risk

B. Risk if three waters reform is rescinded

C. Risk if three waters reform proceeds

Impact on current organisational risk is also considered.

TŪTOHUNGA / Recommendation

That the Assurance, Risk and Finance Committee receive the report Three waters organisational risk report.

tĀHUHU KŌRERO / Background

The top organisational risks are risks that may impact on Council achieving its vision, mission and community outcomes and are regularly reported to the Assurance, Risk and Finance Committee to ensure they are being appropriately managed.

Three Waters reform will result in a change of focus for Council from a traditional focus on infrastructure service delivery, and dependent on the outcome of the Future for Local Government Review, to a focus on the complex wellbeing challenges of the 21st century, including economic and social equity and climate change action.

Three Waters Reform

02/06/2022 the Government introduced, to Parliament, the Water Services Entities Bill to implement its decision to establish four public entities to take on the delivery of drinking water, wastewater and stormwater services across New Zealand from July 2024.

The Water Services Entities Bill completed its first reading 09/06/2022 and is now with Select Committee. The Select Committee finished receiving submissions on the Water Services Entities Bill on 22 July. The Committee will now listen to oral submissions from members of the public, local government and organisations.

The bill provides the legislative basis to establish four new publicly-owned water services entities, and sets out the ownership, governance, and accountability arrangements relating to these entities.

The Bill also provides for transitional arrangements relating to the establishment and governance of the new entities, including strategic direction, planning and reporting, employment, and the oversight powers of the Department of Internal Affairs during the establishment period. That period begins when the Bill is enacted and runs until 1 July 2024 at the latest, after which point the water services entities will take over delivery of three waters services.

It is noted that Subpart 4 provides the Department of Internal Affairs with oversight powers during the establishment period. These enable the Department to review – and, where applicable, confirm – local government decisions if these will significantly prejudice or constrain the water services reform, or have a significant negative impact on assets or liabilities that will be transferred to the entities.

Council is also experiencing a changing risk universe with a need to plan for disruption to cope with the uncertain and fast-changing environment which is characterized by less stability and predictability:

1. 2022 Local Government Elections

After the Saturday 8 October 2022 local government election the Far North District will have a new look Council due to retirement of the Mayor, the introduction of Single Transferable Voting and establishment of Ngā Tai o Tokerau, comprising of four councillors elected by voters on the Māori Electoral Roll.

2. 2023 Central Government Elections

Local government lacks constitutional certainty. Its functions, form, and funding can be changed by a parliamentary majority, as can its existence. Although established by parliament, local government policy is largely driven by the minister of the day. Local government lacks a mechanism to protect its interests and give balance with our system of central government.

The government will provide additional funding to support Councils with the costs and resourcing necessary to set up the new three waters system.

MATAPAKI ME NGĀ KŌWHIRINGA / Discussion and Next Steps

Risk analysis and discussion

1. Transition (establishment) Period

It is anticipated that if three water reforms progress to the establishment of four public entities, to take on the delivery of drinking water, wastewater and stormwater services across New Zealand, Council will face (if not already experiencing) a transition risk. It is noted that DIA will be issuing guidelines to Council so that Council’s do not undertake work where the work product will be superseded e.g. policy and bylaw reviews. The establishment period is forecasted to commence December 2022 and will conclude any time prior to 1 July 2024 with DIA anticipating a 2023 establishment date for Entity A.

Table 1: Risk A - Three waters transition risk
The need to deliver business as usual while transitioning to the new Entity A	We will experience difficulties with retention and recruitment of staff DIA can request staff which we will be unable to back fill There will be both reduced levels of services and Council performance We may not be best prepared / strategically positioned for a successful transition We may lack good asset data.	Pressure increases on remaining staff leading to further staff resignations and downward spiral including negative impact on wellness. We do not achieve the best outcomes for our community. Such as good growth outcomes for our district We do not provide the best information/data to ensure the best outcome for the Far North District when the new public entity for water, wastewater and stormwater is established

Table 1: Risk A - Three waters transition risk

Cause

(Because of…)

Risk

(there is a chance that…)

Effect

(leading to…)

The need to deliver business as usual while transitioning to the new Entity A

We will experience difficulties with retention and recruitment of staff

DIA can request staff which we will be unable to back fill

There will be both reduced levels of services and Council performance

We may not be best prepared / strategically positioned for a successful transition

We may lack good asset data.

Pressure increases on remaining staff leading to further staff resignations and downward spiral including negative impact on wellness.

We do not achieve the best outcomes for our community. Such as good growth outcomes for our district

We do not provide the best information/data to ensure the best outcome for the Far North District when the new public entity for water, wastewater and stormwater is established

There will also be an impact on the risk trend for the following three current top organisational risks:

1. ARF004 Asset Management Risks

2. ARF006 Project Priorities Deliveries Delays

3. ARF012 Contract Management Risks

Table 2 details, at a high level, the expected impact top organisation risk trend through the establishment period of three waters reform

Table 2: Changes to risk trend

Risk ID:	Risk title	Risk trend	Rationale for risk trend change:
ARF004	Asset Management Risks	Decrease	Key infrastructure assets will become the responsibility of Entity A.
ARF006	Project Priorities Deliveries Delays	Increase	Impact of transitions and timing of (Alliance and to Entity A) on availability of resources.

2. Impact on Council’s top organisational risk of three waters transitioning to “Entity A”

Council’s “risk-scape” will change reflecting the shift from the traditional focus on infrastructure service delivery of three waters. Seven of the top organisational risks, that may currently impact Council achieving its vision, mission and community outcomes, are affected by this change are:

1. ARF004 Asset Management Risks

2. ARF006 Project Priorities Deliveries Delays

3. ARF007 Compliance NRC Abatements

4. ARF012 Contract Management Risks

5. ARF013 Drinking Water Resilience

6. ARF015 Climate Change Organisation Transition Risk

7. ARF017 Climate Change Direct Risk to Council Physical and Natural Assets

Table 3 details, at a high level, the expected impact on the top organisation risks from the implementation of three waters reform. The inherent risk scores will need to be reassessed, with the expectation that the risk scores will decrease.

Table 3: High level changes to top organisational risk dashboard

Risk ID:	Risk title	Rationale for change:
ARF015	Climate Change Organisation Transition Risk	With key infrastructure assets becoming the responsibility of Entity A the quantum of this risk will reduce. Currently classified as a strategic risk this risk will be reclassified as Regulatory and Compliance.
ARF017	Climate Change Direct Risk to Council Physical and Natural Assets	With key infrastructure assets will become the responsibility of Entity A the quantum of this risk will reduce. Currently classified as a strategic risk this risk will be reclassified as Operational / Financial.
ARF004	Asset Management Risks	Key infrastructure assets will become the responsibility of Entity A. Currently classified as a strategic risk this risk will be reclassified as Operational / Financial.
ARF006	Project Priorities Deliveries Delays	Reduction in overall value and number of capital projects associated with essential services (water / wastewater / stormwater). Requirement for externally funded projects to achieve funding milestones Currently classified as a strategic risk this risk will be reclassified as Operational / Financial.
ARF007	Compliance NRC Abatements	Our significant areas of risk/issue are with the water and wastewater assets. This will become the responsibility of Entity A. Currently classified as a strategic risk this risk will be reclassified as Regulatory and Compliance.
ARF012	Contract Management Risks	Reduction in overall value and number of contracts, especially those delivering essential services (water / Wastewater / stormwater). This risk will remain classified as Operational / Financial.
ARF013	Drinking Water Resilience	This risk will become the responsibility of Entity A.

3. Impact on Council’s top organisational risk if three waters remain the responsibility of Council

While it is anticipated that the three water reforms will progress to the establishment of Entity A it is noted that local government functions, form, and funding can be changed by a parliamentary majority. The National Party has signalled that given the opportunity after our next central government elections, they would rescind three waters reform.

If Council remains responsible for three waters it will bear the risk of meeting the new water standards, environmental requirements and achieving compliance. There are also implications and challenges for non-Council supplies to meet water quality requirements, with the risk that these supplies might default to Council in the future.

Table 4: Risk B - Risk if three waters reform is rescinded
Change in direction by central government revoking three waters reform.	There will be both reduced levels of services and Council performance We may not be best prepared / strategically positioned to deliver water, wastewater and stormwater We will experience difficulties with retention and recruitment staff.	We do not achieve the best outcomes for our community Increased rates to bring water, wastewater and stormwater up to the new regulatory standard exasperating affordability issues We do not have the required asset data to ensure delivery water, wastewater and stormwater to the regulatory standards or provide for growth within the district Water, wastewater and stormwater policies and by-laws are out of date Pressure increases on remaining staff leading to provide water, wastewater and stormwater services.

Table 4: Risk B - Risk if three waters reform is rescinded

Cause

(Because of…)

Risk

(there is a chance that…)

Effect

(leading to…)

Change in direction by central government revoking three waters reform.

There will be both reduced levels of services and Council performance

We may not be best prepared / strategically positioned to deliver water, wastewater and stormwater

We will experience difficulties with retention and recruitment staff.

We do not achieve the best outcomes for our community

Increased rates to bring water, wastewater and stormwater up to the new regulatory standard exasperating affordability issues

We do not have the required asset data to ensure delivery water, wastewater and stormwater to the regulatory standards or provide for growth within the district

Water, wastewater and stormwater policies and by-laws are out of date

Pressure increases on remaining staff leading to provide water, wastewater and stormwater services.

There will also be an impact on the risk trend for the following three current top organisational risks:

1. ARF004 Asset Management Risks

2. ARF007 Compliance NRC Abatements

Table 5 details, at a high level, the expected risk trend impact on the three top organisation risks if three waters reform is rescinded.

Table 5: Changes to risk trend

Risk ID:	Risk title	Risk trend	Rationale for risk trend change:
ARF004	Asset Management Risks	Increase	We do not have the required asset data to ensure delivery water, wastewater and stormwater to the regulatory standards or provide for growth within the district.
*ARF005	Affordability Risk	Increase	Increased rates to bring water, wastewater and stormwater up to the new regulatory standard.
ARF007	Compliance NRC Abatements	Increase	We do not meet resource consent conditions or new water standards.

*the Affordability risk is subject to a risk decision report.

4. Risk to Council of three waters moving to Entity A

Will Council be functional post three waters reform? The answer is yes, however we are required to wait for three waters legislation to be enacted and Entity A to be established to understand what the “rules” and functions will be.

Table 6: Risk C - Risk if three waters reform proceeds
Three waters assets will be transferred from Council’s balance sheet Operating revenue required to meet operating expenses of stranded allocations Land ownership: · Disagreements on primary use of land · Interface between future Entity A and Council assets (i.e.: Pump Stations on reserve)	Inappropriate funding to cover transition costs impacting on ratepayers and/or delivery of LTP We may be unable to match infrastructure to growth (to enable housing etc) Ward rates may be impacted There may be property transfer disputes Ability of Entity and Council to negotiate clear and concise Service level and relationship agreements We don’t know what we don’t know as this is an emerging “space” e.g. we don’t know what functions or staff will transfer.	Siloed planning with respect to growth within the district Stranded allocations/staff Affordability of rates combined with Entity charges Cost and uncertainty of managing property transfer disputes Customer dissatisfaction (reputation) with Council.

Table 6: Risk C - Risk if three waters reform proceeds

Cause

(Because of…)

Risk

(there is a chance that…)

Effect

(leading to…)

Three waters assets will be transferred from Council’s balance sheet

Operating revenue required to meet operating expenses of stranded allocations

Land ownership:

· Disagreements on primary use of land

· Interface between future Entity A and Council assets (i.e.: Pump Stations on reserve)

Inappropriate funding to cover transition costs impacting on ratepayers and/or delivery of LTP

We may be unable to match infrastructure to growth (to enable housing etc)

Ward rates may be impacted

There may be property transfer disputes

Ability of Entity and Council to negotiate clear and concise Service level and relationship agreements

We don’t know what we don’t know as this is an emerging “space” e.g. we don’t know what functions or staff will transfer.

Siloed planning with respect to growth within the district

Stranded allocations/staff

Affordability of rates combined with Entity charges

Cost and uncertainty of managing property transfer disputes

Customer dissatisfaction (reputation) with Council.

Treatments

Council is working proactively on treatments to reduce the impact and probability of risks A and C.

FNDC are currently working on the mitigation of some of our resourcing risks. We are holding regular communication sessions including having 3 Representatives from the DIA visit and speak to SLT, IAM and all staff virtually with updates on the transition.

Alongside this we are reviewing what retention strategies we can put in place to ensure we have competent and capable people within our 3 Waters function.

Council staff are working with the team which is developing Entity A.

5. Scoring the three waters risks

Staff have scored the three risks by identifying both the risk impact for five organisational areas and the likelihood of the risk occurring. For each organisational area, the risk impact is given a score of “High to Intolerable”, “Medium” or “Low to None” and the likelihood is rated as either “Will happen”, “Probable” or “Unlikely”. The impact and likelihood matrix is used to determine the values for each climate change risk. Appendix A provides the record for the scoring.

The overall score for Risk A (three waters transition risk) and C (risk if three waters progress), is medium with risk B, risk if three waters reform is rescinded, is high-intolerable. The risks would be organisational and in the Operational/Financial category. Currently the probability of the risks materialising has been assessed for risk A and C as “will happen”, and for risk B as “probable”. This is shown in the heat map below (table seven).

Table 7: Risk heat map