Agenda of Audit and Risk Committee

Agenda – Audit and Risk Committee Meeting 13 November 2018 Page 0 of 1

5. Report of Officers

5.1 AUDIT REGULATION 17 IMPROVEMENT PLAN BIENNIAL PROGRESS REPORT

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: COA01

AUTHOR: Director Corporate Services

CONTRIBUTOR/S: Nil

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

DATE OF REPORT: 31 October 2018

SUMMARY: The Audit and Risk Committee (ARC) is presented with a report for review on the progress of the Audit Regulation 17 Risk Profile Register (Risk Register), which was adopted by Council at the Ordinary Meeting of Council held 31 May 2018. The Risk Register replaced the previous Audit Reg 17 Improvement Plan and incorporates a list of items identified by auditors and management as requiring action to improve the appropriateness and effectiveness of the Shire of Broome’s systems and processes in regard to risk management, internal control and legislative compliance.

The ARC is required to review the attached updated Risk Register prepared by the Audit Regulation 17 Technical Advisory Group, then report to Council on the result of the Audit and Risk Committee’s review.

BACKGROUND

Previous Considerations

SMC 27 June 2014 Item 9.4.6

OMC 28 August 2014 Item 10.2

OMC 27 November 2014 Item 10.3

OMC 2 June 2015 Item 10.1

OMC 26 May 2016 Item 10.3

OMC 23 February 2017 Item 10.3

OMC 25 May 2017 Item 10.1

OMC 22 February 2018 Item 10.4

OMC 31 May 2018 Item 10.1

COMMENT

The Local Government Audit Regulations 1996 (the Regulations) include reviewing the appropriateness and effectiveness of a local government's risk management systems and procedures. Specifically, Audit Regulation 17 (Audit Reg. 17) requires the Chief Executive Officer (CEO) to conduct a review and report the results to the ARC on the effectiveness of risk management, internal control and legislative compliance. The Department of Local Government and Communities Audit in Local Government Guideline No. 9 advises that the review can be undertaken either on an internal or external audit basis.

Initially the Shire of Broome appointed an external auditor to conduct a third-party review of organisational practices in accordance with updated legislation contained within Audit Reg. 17. The Audit Reg. 17 Review Audit produced a comprehensive Improvement Plan separated into the three main compliance areas; Risk Management (RM), Legislative Compliance (LC) and Internal Controls (IC).

In the time since the original review, the Risk TAG has worked with Local Government Insurance Services risk management team to develop an alternate approach utilising a Risk Register. Any remaining actions from the Improvement Plan have been transitioned to the Risk Register to facilitate an improved, centralised reporting mechanism for staff, the ARC and Council.

Remaining actions contained within the Improvement Plan have since been incorporated into the Shire’s Risk Register to facilitate a centralised reporting mechanism for staff, the ARC and Council.

The Risk Profile Register is separated into the following areas for the purpose of identifying, monitoring and reporting on progress of actions to address organisational risks including internal controls and legislative compliance.

Profile / Section	Risk Context
Asset Sustainability Practices	Failure or reduction in service of infrastructure assets, plant, equipment or machinery
Business and Community Disruption	Failure to adequately prepare and respond to events that cause disruption to the local community and/or normal business activities. This could be a natural disaster, weather event, or an act carried out by an external party
Compliance Requirements	Failure to correctly identify, interpret, assess, respond and communicate laws and regulations as a result of inadequate compliance framework
Document Management Processes	Failure to adequately capture, store, archive, retrieve, provide or dispose of documentation
Employment Practices	Failure to effectively manage and lead human resources
Engagement Practices	Failure to maintain effective working relationships with the Community, Stakeholders, Key Private Sector Companies, Government Agencies and/or Elected Members
Environment Management	Inadequate prevention, identification, enforcement and management of environmental issues
Errors, Omissions and Delays	Error, omissions or delays in operational activities as a result of unintentional errors or failure to follow due process including incomplete, inadequate or inaccuracies in advisory activities to customers or internal staff
External Theft and Fraud (inc Cyber Crime)	Loss of funds, assets, data or unauthorised access (whether attempted or successful) by external parties, through any means (including electronic)
Management of Facilities/Venues/Events	Failure to effectively manage the day to day operations of facilities, venues and/or events.
IT or Communication Systems and Infrastructure	Disruption, financial loss or damage to reputation from a failure of information technology systems
Misconduct	Intentional activities intended to circumvent the Code of Conduct or activities in excess of authority, which circumvent endorsed policies, procedures or delegated authority
Project/Change Management	Inadequate analysis, design, delivery and/or status reporting of change initiatives, resulting in additional expenses, time delays or scope changes
Safety and Security Practices	Non-compliance with the Occupational Safety and Health Act associated regulations and standards.
Supplier/Contract Management	Inadequate management of external suppliers, contractors, IT vendors or consultants engaged for core operations.

The Shire’s Technical Advisory Group (TAG) effect the framework components identified in the Risk Register. The TAG enables the Shire to fulfil its responsibilities in relation to identifying and reporting on risk management, internal control, and legislative compliance. The action items contained within the Risk Register are allocated to members within the TAG and prioritised in accordance with organisational need and capacity. The TAG meets monthly to review and update specific actions contained in the Risk register and report to the Executive Management Group (EMG), the ARC and Council.

The biannual report identifies actioned or completed items as detailed in the Risk Register. All actions are reported to the ARC in May and November each year, after endorsement by EMG.

The following risk outcomes have been completed in the period May 2018 – October 2018.

Risk Action	Status
Set aside funds annually for future road maintenance requirements (as per Asset Management Plan) [Annual]	Complete for 19/20 LTFP - AMP Renewal process incorporated into Long Term Financial Plan (LTFP) and Annual Budget cycle
LTFP upgraded to reflect Asset Management Plan [Annual]	Complete for 19/20 LTFP - occurs as part of the Corporate Business Plan / LTFP review and annual budget process.
Identify areas for Black Spot funding (high accident prone areas) [Annual]	Complete for 19/20 LTFP - 10 Year Capital Infrastructure Program includes Blackspot identification which is incorporated into LTFP and Annual Budget cycle
Purchasing Policy [August 2018]	Complete - Policy adopted at June OMC
Investigate feasibility of compliance software [July 2018]	Complete - Attain software implemented. Currently Primary and Annual Returns and Related Party Disclosures with further compliance activities targeted over the coming months.
Conduct an internal staff satisfaction survey [Annual]	Initial survey completed - quarterly surveys to be undertaken in future
Change key entry at Civic Centre and install further CCTV at BRAC [May 2018]	Complete - BRAC CCTV upgrade
Implement Whistle-blower policy (PID / Internal) [Nov 2019]	Complete - Information Statement updated and publicly available
Investigate ways to improve procurement process [Nov 2018]	Complete - Procurement review completed; process in place and reviewed on an ongoing basis.
Review IT Vision contract service delivery conditions [Nov 2018]	Complete

CONSULTATION

Nil

STATUTORY ENVIRONMENT

Local Government (Audit) Regulations 1996

16. Audit committee, functions of

An audit committee —

(a) is to provide guidance and assistance to the local government —

(i) as to the carrying out of its functions in relation to audits carried out under Part 7 of the Act; and

(ii) as to the development of a process to be used to select and appoint a person to be an auditor;

and

(b) may provide guidance and assistance to the local government as to —

(i) matters to be audited; and

(ii) the scope of audits; and

(iii) its functions under Part 6 of the Act; and

(iv) the carrying out of its functions relating to other audits and other matters related to financial management; and

(c) is to review a report given to it by the CEO under regulation 17(3) (the CEO’s report) and is to —

(i) report to the council the results of that review; and

(ii) give a copy of the CEO’s report to the council.

17. CEO to review certain systems and procedures

(1) The CEO is to review the appropriateness and effectiveness of a local government’s systems and procedures in relation to —

(a) risk management; and

(b) internal control; and

(c) legislative compliance.

(2) The review may relate to any or all of the matters referred to in subregulation (1)(a), (b) and (c), but each of those matters is to be the subject of a review at least once every 2 calendar years.

(3) The CEO is to report to the audit committee the results of that review.

POLICY IMPLICATIONS

2.1.1 Legislative Compliance

2.1.4 Risk Management

2.2.1 Internal Control

FINANCIAL IMPLICATIONS

The Shire has received membership funds from the Local Government Insurance Scheme (LGIS) which have been allocated to fund organisational risk initiatives.

The financial implications of actioning individual items contained in the Risk Register will be implemented using existing, internal resources. If any additional resources are required, they will be progressed via the quarterly Finance and Costing Review or presented to Council for consideration.

STRATEGIC IMPLICATIONS

Our People Goal – Foster a community environment that is accessible, affordable, inclusive, healthy and safe:

Effective communication

Affordable services and initiatives to satisfy community need

Accessible and safe community spaces

A healthy and safe environment

Our Prosperity Goal – Create the means to enable local jobs creation and lifestyle affordability for the current and future population:

Affordable and equitable services and infrastructure

Our Organisation Goal – Continually enhance the Shire’s organisational capacity to service the needs of a growing community:

An organisational culture that strives for service excellence

Sustainable and integrated strategic and operational plans

Responsible resource allocation

Effective community engagement

Improved systems, processes and compliance

VOTING REQUIREMENTS

Simple Majority

REPORT RECOMMENDATION:

That the Audit and Risk Committee recommends that Council:

1. Receives the updated Risk Profile Register and notes the progress of actions as contained within the report;

2. Adopts the reviewed actions, timelines and responsible officers as detailed in the attached Risk Profile Register.

Attachments

1.	Risk Profile Register

Agenda – Audit and Risk Committee Meeting 13 November 2018 Page 0 of 1

5.2 1ST QUARTER FINANCE AND COSTING REVIEW 2018-19

LOCATION/ADDRESS: Nil

APPLICANT: Nil

FILE: FRE02

AUTHOR: Coordinator Financial Services

CONTRIBUTOR/S: Manager Financial Services

RESPONSIBLE OFFICER: Director Corporate Services

DISCLOSURE OF INTEREST: Nil

DATE OF REPORT: 6 November 2018

SUMMARY: The Audit and Risk Committee (ARC) is requested to consider results of the 1st Quarter Finance and Costing Review (FACR) of the Shire’s budget for the period ended 30 September 2018, including forecast estimates and budget recommendations to 30 June 2019.

BACKGROUND

Previous Considerations

OMC 28 June 2018 Item 12.2

Quarter 1 Finance and Costing Review

The Shire of Broome has carried out its 1st Quarter FACR for the 2018/19 financial year. The Q1 review of the 2018/19 Annual Budget is based on actuals and commitments for the first three months of the year from 1 July 2018 to 30 September 2018, and forecasts for the remainder of the financial year.

This process aims to highlight over and under expenditure of funds for the benefit of Executive and Responsible Officers to ensure good fiscal management of their projects and programs.

Once this process is completed, a report is compiled identifying budgets requiring amendments to be adopted by Council. Additionally, a summary of the financial impact of all proposed budget amendments to the Shire of Broome’s adopted end-of-year forecast is provided.

It should be noted that the 2018/19 Annual Budget was adopted at the Ordinary Meeting of Council on 28 June 2018 as a balanced budget. There have been further amendments adopted by Council as part of the recently adopted Annual Financial Statements for the use of additional carried forward surplus. The result of all amendments prior to the first quarter FACR had a nil impact upon the Shire of Broome’s forecast end of year position.

COMMENT

The 1st Quarter FACR commenced on 18 October 2018. The results from this process indicate a deficit forecast financial position to 30 June 2019 of $187,272 should Council approve the proposed budget amendments. $29,233 of this deficit relates to organisational expenses.

Among the high-dollar value expenditure put forward are as follows:

· Additional legal fees & Dampier Peninsula NT Appeals - $75,000

· Singapore Flights – $58,000

· FAGS reduction in Aboriginal Access Road grants - $44,000

· Extra plant growing for capital projects - $32,000

· BRAC road base for asbestos mitigation - $26,000

The net deficit forecasted included the $100,000 towards seed funding payable to the revised Broome Future Alliance Ltd as per the adopted minutes of the OMC on 28 June 2018.

The above figure represents a budget forecast should all expenditure and income occur as expected. It does not represent the actual end-of-year position which can only be determined as part of the normal annual financial processes at the end of the financial year.

A comprehensive list of accounts (refer to Attachment 1) has been included for perusal by the committee and summarised by Directorate.

A summary of the results follows:

	BUDGET IMPACT
	2018/19 Adopted Budget (Income) / Expense	FACR Q1 Overall (Income) / Expense (Org Savings not subtracted)	FACR Q1 Org. Expense/(Savings) (by Department)	FACR Q1 Impact (Income) / Expense (Org Savings subtracted)	YTD Adopted Budget Amendments (Income) / Expense	YTD Impact (Organisational Savings Subtracted)
Executive - Total	0	33,436	31,647	1,789		1,789
Corporate Services - Total	0	(91,297)	(89,606)	(1,691)		(1,691)
Development and Community- Total	0	149,798	129,657	20,141		20,141
Infrastructure Services - Total	0	(4,665)	(42,465)	37,800		37,800
Impact of Council approved budget amendments	0	0	0	0	100,000	100,000
Net impact of Organisation Savings/Expenditure	0	0	0	0		0
	0,000*	87,272	29,233	58,039	100,000†	158,039

CONSULTATION

All amendments have been proposed after consultation with Executive and Responsible Officers at the Shire.

STATUTORY ENVIRONMENT

Local Government (Financial Management) Regulation 1996

r33A. Review of Budget

(1) Between 1 January and 31 March in each financial year a local government is to carry out a review of its annual budget for that year.

(2A) The review of an annual budget for a financial year must —

(a) consider the local government’s financial performance in the period beginning on 1 July and ending no earlier than 31 December in that financial year; and

(b) consider the local government’s financial position as at the date of the review; and

(c) review the outcomes for the end of that financial year that are forecast in the budget.

(2) Within 30 days after a review of the annual budget of a local government is carried out it is to be submitted to the council.

(3) A council is to consider a review submitted to it and is to determine* whether or not to adopt the review, any parts of the review or any recommendations made in the review.

*Absolute majority required.

(4) Within 30 days after a council has made a determination, a copy of the review and determination is to be provided to the Department.

Local Government Act 1995

6.8. Expenditure from municipal fund not included in annual budget

1) A local government is not to incur expenditure from its municipal fund for an additional purpose except where the expenditure —

(a) is incurred in a financial year before the adoption of the annual budget by the local government;

(b) is authorised in advance by resolution*; or

(c) is authorised in advance by the mayor or president in an emergency.

(1a) In subsection (1) —

“additional purpose” means a purpose for which no expenditure estimate is included in the local government’s annual budget.

POLICY IMPLICATIONS

2.1.1 Materiality in Financial Reporting

It should be noted that according to the materiality threshold set in Policy 2.1.1 Materiality in Financial Reporting, should a deficit achieve 1% of Shire’s operating revenue ($422,176) the Shire must formulate an action plan to remedy the over expenditure.

FINANCIAL IMPLICATIONS

The net result of the 1^st Quarter FACR estimates is a budget deficit position of $187,272 to 30 June 2019. $29,233 of this deficit relates to organisational expenses.

RISK

The Finance and Costing Review (FACR) seeks to provide a best estimate of the end-of-year position for the Shire of Broome at 30 June 2019. Contained within the report are recommendations of amendments to budgets which have financial implications on the estimate of the end-of-year position.

The review does not, however, seek to make amendments below the materiality threshold unless strictly necessary. The materiality thresholds are set at $10,000 for operating budgets and $20,000 for capital budgets. Should a number of accounts exceed their budget within these thresholds, it poses a risk that the predicted final end-of-year position may be understated.

In order to mitigate this risk, the CEO enacted the FACRs to run quarterly and Executive examine each job and account to ensure compliance. In addition, the monthly report provides variance reporting highlighting any discrepancies against budget.

It should also be noted that should Council decide not to adopt the recommendations, it could lead to some initiatives being delayed or cancelled in order to offset the additional expenditure associated with running the Shire’s operations.

STRATEGIC IMPLICATIONS

Our People Goal – Foster a community environment that is accessible, affordable, inclusive, healthy and safe:

Effective communication

Affordable services and initiatives to satisfy community need

Our Prosperity Goal – Create the means to enable local jobs creation and lifestyle affordability for the current and future population:

Affordable and equitable services and infrastructure

Key economic development strategies for the Shire which are aligned to regional outcomes working through recognised planning and development groups/committees

Our Organisation Goal – Continually enhance the Shire’s organisational capacity to service the needs of a growing community:

An organisational culture that strives for service excellence

Sustainable and integrated strategic and operational plans

Responsible resource allocation

Improved systems, processes and compliance

VOTING REQUIREMENTS

Absolute Majority

REPORT RECOMMENDATION:

That the Audit and Risk Committee recommends that Council:

1. Receives the 1st Quarter Finance and Costing Review Report for the period ended 30 September 2018;

2. Adopts the operating and capital budget amendment recommendations for the year ended 30 June 2019 as attached; and

3. Notes a forecast end-of-year position to 30 June 2019 of a $187,272 deficit position.

(Absolute Majority Required)

Attachments

1.	2018-19 Q1 Finance and Costing Review