Agenda of Audit Committee - Wednesday, 28 April 2021

Audit Committee 6 28 April 2021

6.1 2020 FINANCIAL MANAGEMENT SYSTEM REVIEW

STRATEGIC GOAL	6. LEADERSHIP Visionary, collaborative, accountable
STRATEGIC OBJECTIVE	6.1 Governance systems, process and practices are responsible, ethical and transparent.
SUBJECT INDEX	FINM007
BUSINESS UNIT	Finance and Corporate Services
REPORTING OFFICER	Finance Coordinator - Jeffrey Corker
AUTHORISING OFFICER	Director Finance and Corporate Services - Tony Nottle
NATURE OF DECISION	Executive: Substantial direction setting, including adopting budgets, strategies, plans and policies (excluding local planning policies); funding, donations and sponsorships; reviewing committee recommendations
VOTING REQUIREMENT	Simple Majority
ATTACHMENTS	Attachment a 2020 Financial Management System Review ⇩

OFFICER RECOMMENDATION

That the Council receives the 2020 Financial Management Systems Review and acknowledge the results as presented in Attachment A in accordance with Regulation 5(2)(c) of the Local Government (Financial Management) Regulations 1996.

EXECUTIVE SUMMARY

In accordance with Regulation 5(2)(c) of the Local Government (Financial Management) Regulations 1996 (the Regulations), a local government is to undertake reviews of the appropriateness and effectiveness of the financial management systems and procedures of the local government regularly (and not less than once in every 3 financial years) and report the results of those reviews to the local government.

This report provides the findings of the Financial Management System Review (FMSR) as completed by AMD Chartered Accountants (AMD) (the Auditor) in February 2021.

BACKGROUND

As per the Regulations, City officers engaged AMD to undertake an independent review of the City’s financial management systems. AMD had previously undertaken the FMSR on the City's behalf in 2016, with the next review scheduled to be undertaken in the second half of 2019. As a result of COVID-19 and other extenuating circumstances, and as agreed with the Office of the Auditor General (OAG), the 2019 FSMR was delayed and undertaken in February 2021. This report presents the findings of that FSMR.

OFFICER COMMENT

The FMSR was comprehensive, with seven key focus areas being considered. A summary of those, and the appropriate scope and approach undertaken, is as follows:

I. Collection of Monies

Site visits were completed for 9 outstations and the City’s central Customer Service.

The following procedures were completed (as applicable) at each site:

· Documented internal controls, procedures and reconciliations in relation to all sources of income;

· Tested collection, receipting, invoicing and posting procedures over cash receipts on a sample basis;

· Counted petty cash and float on hand ensuring materially correct;

· Reviewed the fees and charges schedule to ensure adequate internal controls in place over receipting; and

· Reviewed credit control procedures in respect to sundry debtors and rate debtors.

II. Custody and security of money

Site visits were completed for 9 outstations and the City’s central Customer Service at the Administration Building. These visits reviewed the security of cash and banking procedures to ensure the appropriate controls and procedures are in place.

III. Maintenance and security of the financial records

Reviewed information technology (IT) systems to assess physical security, access security, data backups, contingency plans, compliance and systems development; and also reviewed registers maintained (including key register, tender register, gifts and travel registers etc.) and the minutes of Council meetings.

IV. Accounting for Municipal or trust transactions

The scope and approach was as follows:

· Reviewed all monthly reconciliations including bank, sundry debtors, sundry creditors, fixed assets, rates debtors and rateable value reconciliations ensuring they are correctly reconciled and reviewed;

· Reviewed and tested in detail most recent municipal and trust bank reconciliations prepared;

· Reviewed processes in respect to BAS, FBT Return and other statutory returns preparation;

· Reviewed use of reserve funds and determined whether changes in reserve purposes have been budgeted or public notice was provided;

· Reviewed trust ledger balances; and

· Reviewed policies and procedures in respect to insurance, recording claims and insuring newly acquired assets.

V. Authorisation for incurring liabilities and making payments

The scope and approach was as follows:

· Reviewed controls and procedures over the authorisation of purchase orders and making of payments;

· Tested sample of payments to ensure compliance with stated procedures;

· Reviewed credit card processes and procedures, testing transactions on a sample basis;

· Reviewed petty cash processes and procedures, testing transactions on a sample basis;

· Completed sample testing of asset additions and asset disposals;

· Reviewed asset capitalisation and depreciation policy and ensure compliance with stated policies; and

· Reviewed new loans received ensuring budgeted for or public notice provided.

VI. Maintenance of payroll, stock control and costing

The scope and approach was as follows:

· Completed site visit to the depot to review security over stocks held and allocation / costings of stocks used (including fuel and inventory stocks);

· Reviewed the allocation of public works overheads, plant operating costs and administration overheads completed;

· Reviewed payroll controls and procedures to ensure effective controls are in place, and complete tests on a sample basis to ensure these controls were operating effectively;

· Reviewed procedures and policies in place in respect of human resource management legislative and compliance requirements, recruitment, performance appraisal, disciplinary and termination procedures and leave entitlements;

· Reviewed listing of leave taken by employees ensuring authorised leave forms completed; and

· Reviewed annual leave balances and identify employees with more than eight weeks annual leave.

VII. Preparation of budgets, budget reviews, accounts and reports required by the Act or the Regulations

The scope and approach was as follows:

· Reviewed policy and procedure manual;

· Reviewed the procedures for preparation of the monthly financial statements, annual financial statements and annual Budget, including assessment of accounting policy, notes and applicable reporting requirements and efficiency of the process;

· Reviewed monthly financial statements ensuring presented to Council within two months and information contained within monthly financial statements in accordance with Regulation 34 of Local Government (Financial Management) Regulations 1996;

· Reviewed the mid-year budget review to ensure compliance with Regulation 33A of the Local Government (Financial Management) Regulations 1996 and assessment of budgetary expenditure controls in place;

· Ensured prior year audit report and management letter have been presented to the Audit Committee and Council; and

· Reviewed compliance with Part 6 of the Local Government Act 1995 and Local Government (Financial Management) Regulations 1996.

As a result of the above, the Auditor has made a number of recommendations to further improve the City’s overall financial management systems. These are listed within the attached report.

As part of the FMSR, the responsible officers provided comment on each of the recommendations. Of the fourteen recommendations, five have a moderate risk rating, with the remainder rated as low.

With respect to the moderate risk items, the following areas have been identified for improvement:

· Testing of IT backup systems

· Business Continuity Plan

· Control and Custody of Keys

· Review of User Profiles

· Post Tender Review Process

No recommendations were made in respect to Focus Area 7 of the report (Preparation of budgets, budget reviews, accounts and reports required by the Act or the Regulations). The FMSR indicated key underlying policies and processes in relation to the preparation of budgets, budget reviews, accounts and reports required by the Act or Regulations are appropriate, in line with the best practice and are operating effectively.

City officers will implement the amendments and improvements to ensure risks are controlled in accordance with the comments provided within the attached report.

Statutory Environment

Section 6.10 of the Local Government Act 1995 states that the Regulations may provide for the controls over the financial management of the local government.

Regulation 5 of the Local Government (Financial Management) Regulations 1996 outlines the areas a CEO is to establish efficient systems and procedures over.

Regulation 5(2)(c) requires that a review of those systems be undertaken regularly and reported to the Local Government.

Relevant Plans and Policies

Various Operational Practices (OP) and other documents are referred to within the FMSR. These include:

· The Business Continuity Plan

· Mobile Phone

· Risk management Framework

· Corporate data management and security

· Operation of Business Customer Account (Store) cards

· Petty Cash

· Performance Improvement and Discipline

· Code of Conduct

· Motor Vehicle Policy

Other documents are in the development stage, including the Information Security Management OP, Asset Policy and the Work from Home OP, which are documents established under the CEO’s authority.

Financial Implications

The financial impact of implementing changes to systems or processes contained within the recommendations will be considered in future budget deliberations.

Stakeholder Consultation

No external stakeholder consultation was required or undertaken in relation to this matter.

Risk Assessment

The FMSR contains an assessment of risk with each recommendation given an individual risk rating. Five findings were found to be of moderate risk, with the remaining nine rated as minor.

Options

Council may determine to recommend additional requirements upon officers in response to recommendation contained within the FMSR.

CONCLUSION

In accordance with Regulation 5(2)(c) of the Local Government (Financial Management) Regulations 1996, this report provides the findings of the Financial Management System Review as completed by AMD Chartered Accountants (AMD) in February 2021.

TIMELINE FOR IMPLEMENTATION OF OFFICER RECOMMENDATION

Responses to the specified individual recommendations of the FMSR will be undertaken in accordance with management comments contained within the document.

Audit Committee		22		28 April 2021
6.1	Attachment a		2020 Financial Management System Review