finance, audit and risk committee meeting held at 2pm … · confirmation of minutes 14/03/2016...
TRANSCRIPT
FINANCE, AUDIT AND RISK COMMITTEE MEETING HELD AT 2PM ON THURSDAY 21 APRIL 2016 AT COUNCIL OFFICES, 34 ESPLANADE,
KAIKOURA.
AGENDA
1. Apologies 2. Matters of Importance to be raised as Urgent Business 3. Reports:
Finance Report page 1
Financial Statements page 5 4. Quarterly Reports
Investment Quarterly Report page 15
Liability Management Report page 20
Special Funds & Reserves page 23
Development Contributions page 24
Depreciation vs Capital Expenditure page 25
Housing for the Elderly page 29
Airport Quarterly Report page 31
5. Health & Safety at Work Act (2015) page 33 6. Office of the Valuer General Audit Report page 38 7. Confirmation of Minutes 14/03/2016 page 48
8. Urgent Business 9. Finance, Audit & Risk Public Excluded Session
Moved, seconded that the public be excluded from the following parts of the proceedings of this meeting, namely
a. Audit New Zealand Draft Audit Arrangements Letter
b. Debt Recovery Report
c. Confirmation of Minutes 14/03/2016
The general subject matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under Section 48(1) and 7(2)(i) of the Local Government Information and Meetings Act 1987 for the passing of this resolution are as follows:
General subject of each to be considered
Reason for passing this resolution in relation to each matter
Grounds of the Act under which this resolution is made
Audit Management Report
The exclusion of the public from the whole or the relevant part of the proceedings of the meeting is necessary to protect the privacy of natural persons; to enable the Local Authority to maintain the effective conduct of public affairs through the free and frank expression of opinions by or between members or officers or employees of any local authority.
Section 48(1)(a) and 7(2)(a), 7(2)(f)(i).
Debit Recovery Report The exclusion of the public from the whole or the relevant part of the proceedings of the meeting is necessary to enable the Local Authority to protect information where the making available of that information would likely unreasonably to prejudice the commercial position of the person who supplied the information or who is the subject of the information.
Section 48(1)(a) and 7(2)(b)(ii)
Finance Report
Statement of Financial Position Almost all of the movement on this statement has happened within Current Assets. Our cash
position has improved with the receipt of the 3rd rates instalment on the 20th of March; which has
also reduced trade receivables. Prepayments have been allocated through expense accounts, and
assets held for sale have decreased with the sale of the 20 Beach Road house.
Statement of Comprehensive Revenue & Expense Our operating deficit of $1,863,632 includes our payments to the CDHB of $2,030,445. The actual
operating deficit is $615,569 better than the budgeted deficit to end of March of $2.5million.
Revenue continues to track slightly better than budget, and expenditure is overall less than budget.
Main reasons for this are the Marlborough Regional Forestry distribution revenues have been well
over budget, and payments to the CDHB were much less than the $2.5M budgeted. Once the Civic
Centre project is completed and the final impairment losses and other operational write-offs relating
to the roof replacement are final, these will have a significant negative impact on our operating
deficit at balance date (30 June).
Statement of Activity Performance The format of this page has changed at the request of the Finance, Audit & Risk Committee. It now
shows the net operating result of each group of activities, and by taking depreciation out of the
equation, it attempts to show the net cash result of these activities.
The non-shaded section of this page then shows the non-activity related revenue and expense, to
reconcile to the total operating deficit on the previous page.
Revenue Variances:
Revenue is up on budget by $117k overall. The main variances (over $40k) are:
Activity Variance Permanent/ Temporary
Main Reason
Water services Up $40,322 Permanent Water meter billing for council services (e.g. swimming pool) not previously billed
Community facilities
Down $79,887 Permanent Lease revenue for the Civic Centre and existing council office not received
Commercial activity
Up $173,453 Permanent MRF capital distributions are still coming in, and we are charging penalty interest on an overdue tenant.
Safety & wellbeing Down $64,991 Permanent Grant revenue for family violence and strengthening families coordination – now provided through Te Tai O Marokura.
District development
Up $81,500 Temporary Commercial rate needs to be allocated to other cost centres (harbour, traffic control)
Expenditure Variances:
Expenditure is under budget by $499k overall, with the main variances (over $40k) as below.
Activity Variance Permanent/ Temporary
Main Reason
Roading Over
$147,218 Permanent
Depreciation, and the new roading asset management contract
Sewerage Under
$41,640 Temporary Timing of maintenance and operating costs
Community facilities
Under $55,313
Temporary
Timing of maintenance and operating costs, savings in loan interest, and savings in property ownership operating costs for the civic centre (depreciation, electricity, cleaning, security, etc)
Leadership & governance
Over $73,831 Permanent Consultancy report for the civic centre project, and CEO recruitment expenses
Regulation & control
Under $78,685
Permanent General savings in stat planning and building (e.g. salaries, consultancy, legal advice, etc)
Safety & wellbeing Under
$84,013 Permanent
Personnel (no community development officer), and family violence & strengthening families programmes.
Kaikoura Hospital Under
$488,325 Permanent
Savings in total paid to CDHB thanks to fundraising by the Charitable Trust
Statement of Cash Flows Cash has decreased by $1.5million for the year to date – but this is a recovery of over $1million since
last month, thanks to the 3rd rates instalment which fell due in March. Cash from operating activities
is negative mainly because of the donations we paid to the CDHB. We have sold 20 Beach Road and
the Clarence forest – but the civic centre project is the main reason for the decrease in total cash, as
we use up our property and forestry reserves. We have increased our term debt by over $1.1M to
pay the donations to the CDHB.
Capital Expenditure Roading work included culvert renewals on Waipapa Road, Red Swamp Road, and Churchill Street,
as well as road protection work on the Esplanade. The footpath renewal work has been issued to
the contractor and will commence next month.
The South Bay water pipe replacement is well underway, and we replaced streetlights as part of that
work. The original budget in the Long Term Plan is only $80,000, but Council has since approved this
South Bay water project up to $300,000. A waste shed has been built at Innovative Waste thanks to
a grant.
The Civic Centre costs are over $6.2 million, noting that this includes costs (to be confirmed) incurred
in the 2015/2016 year that will be recovered with the insurance claim for the roof product failure.
Those insurance losses incurred in the previous financial year have already been deducted from the
total capital expenditure shown.
The table below shows the losses plus actual costs for the project itself to date. Impairment losses is
the value of the actual roof components being written off, and the expense costs include the extra
labour hours, scaffold and crane hire involved in replacing the roof.
Civic Centre project costs 2014/2015 2015/2016 Total to date
Construction/project costs 4,460,005 1,773,616 6,233,621
Impairment losses (roof components removed) 341,007 TBC 341,007
Expense costs relating to roof replacement (scaffolding, crane hire, extra building hours, etc)
166,472 TBC 166,472
4,967,484 1,773,616 6,741,100
Revenue vs. Expenditure This graph highlights the way Ozone accounts for rates (by instalment rather than at the start of the
year). Income spikes in February because of the third instalment invoicing out.
Working Capital & Liquidity The graph remains out of the report until it can be reworked. In the meantime working capital
(current assets vs. current liabilities) is positive thanks to the receipt of the third rates instalment
during March. Liquidity is currently 2.47:1, which means there is $2.47 cash or cash equivalents for
every $1.00 of payables due in the next twelve months. With the insurance settlement for the Civic
Centre still pending, short-term loans will be required to cover the Civic Centre project, and these
have been included in the Draft Annual Plan for the coming financial year.
Budget Performance (Revenue YTD and Expenditure YTD) These are a graphic representation of the Statement of Activity Performance, so you can see at a
glance how activities are performing against budget and in comparison with each other.
Revenue & Expenditure Types Rates (targeted plus general rates) make up 67% of total revenue so far this year, and user fees and
charges have dropped to around 16%. Operating expenses make up 42% of total expenses.
Recommendation: It is recommended that the Finance Report be received.
Prepared by Sheryl Poulsen, Finance Manager
Authorised by Angela Oosthuizen, Chief Executive Officer
GLOSSARY OF TERMS: Items on the Statement of Financial Position
Cash & cash equivalents Bank accounts and term deposits that mature within
90 days.
Trade & other receivables Debtors and rates accounts (the amount that our
ratepayers and customers owe us).
Prepayments & inventory Bills we have paid in advance (such as insurance), plus
stock items.
Other financial assets Term deposits that mature after 90 days.
Non-current assets held for
sale
Investment property that the council intends to sell
within 12 months
Intangible assets Carbon credits and computer software (Ozone)
Forestry assets The standing value of trees grown specifically for
logging
Investment property Any property that is owned with the intention of
generating a return (e.g. Pyne’s building and north
wharf buildings).
Property, plant & equipment All other assets – roads, wharves, water and sewer
infrastructure, land, buildings, vehicles, furniture, art
works, library books, etc
Trade & other payables Bills we haven’t paid yet, and other amounts we must
pay within 12 months (refundable bonds, GST, ECan’s
share of rates revenue, etc).
Employee liabilities Annual leave owing to employees
Borrowings – current Loans that must be repaid within 12 months.
Other liabilities – current Development contributions held for the civic centre.
Provisions Landfill aftercare provision – an estimate of the cost
that will be incurred to secure and cap the site once
the landfill is closed.
Borrowings – non current The balance of loans that don’t need to be repaid
within 12 months.
Other term debt Environment Canterbury’s share of Marlborough
Regional Forestry debts, held on behalf.
Public equity A type of equity which records accumulated surpluses
and deficits, and other movements in equity not
recorded below.
Asset revaluation reserve A type of equity which records movements in property,
plant and equipment values.
Special funds & reserves A type of equity which records funds set aside for
specific purposes (such as grants, targeted rates,
development contribution funds, etc)
KEY INDICATORS AS AT 31 MARCH 2016
FINANCIAL STATEMENT MEASURES
OPERATING RESULT OPERATING COSTS
operating surplus/(deficit) costs to deliver existing levels of service
TOTAL EXTERNAL DEBT INTEREST ON DEBT
total borrowings from bank cost to service debt
CAPITAL EXPENDITURE DEVELOPMENT CONTRIBUTIONS
cost of new &/or replacement of assets received for district growth
LONG TERM PLAN MEASURES
DEBT AFFORDABILITY BENCHMARK EBID
financing expenses as a % of rates earnings before interest and depreciation
BALANCED BUDGET BENCHMARK LONG TERM DEBT TO EQUITY
revenue equal or greater than expenses debt as a % of equity
77% 4.36%
29% unfavourable v/s last year actual of 106% 0.43% unfavourable v/s last year actual of 3.93%
23% unfavourable v/s council benchmark of 100% 0.71% unfavourable v/s full year budget of 3.65%
6.9% $0.01m
0.4% favourable v/s last year actual of 7.4% $2,020k unfavourable v/s last year actual of $2.03m
13.1% favourable v/s council approved limit of 20.0% $701k favourable v/s year-to-date budget of -$0.69m
$2.54m $0.0k
$0.6m unfavourable v/s last year actual of $2.0m $79k unfavourable v/s last year actual of $79k
$2.5m favourable v/s year-to-date budget of $5.1m $56.7k unfavourable v/s year to date budget of $57k
$7.37m $288k
$217k unfavourable v/s last year actual of $7.1m $03k favourable v/s last year actual of $291k
$424k favourable v/s full year budget of $7.8m $84k favourable v/s year-to-date budget of $371k
-$1.86m $8.10m
$2,201k unfavourable v/s last year actual of $337k $2,385k unfavourable v/s last year actual of $5.71m
$616k favourable v/s year-to-date budget of -$2,479k $499k favourable v/s year-to-date budget of $8.59m
STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016
BUDGET
to year end
$
ACTUAL
31/03/2016
$
ACTUAL
31/03/2015
$
ASSETS
Current assets
Cash & cash equivalents 2,909,790 1,859,480 3,739,658
Trade & other receivables 1,077,377 1,004,663 2,385,865
Prepayments & inventory 98,200 - 60,515
Non-current assets held for sale - 460,125 1,858,000
Total current assets 4,085,367 3,324,268 8,044,038
Non-current assets
Intangible assets - 210,799 1,934
Forestry assets 2,583,334 2,160,709 2,704,543
Investment property 2,408,000 1,319,875 1,380,000
Property, plant & equipment 167,063,468 160,832,141 159,455,696
Total non-current assets 172,054,802 164,523,524 163,542,173
TOTAL ASSETS 176,140,169 167,847,792 171,586,211
LIABILITIES
Current liabilities
Trade & other payables 1,400,004 946,686 813,738
Employee liabilities 100,000 181,203 158,743
Borrowings – current 1,985,309 1,192,830 1,768,760
Other liabilities – current - 646,952 -
Total current liabilities 3,485,313 2,967,671 2,741,241
Non-current liabilities
Provisions - 390,509 41,657
Borrowings – non current 8,191,882 6,173,613 5,380,880
Other term debt 564,606 330,036 964,607
Total non-current liabilities 8,756,488 6,894,158 6,387,144
EQUITY
Public equity 80,415,371 87,228,141 90,084,533
Asset revaluation reserve 81,427,688 69,333,563 69,317,174
Special funds & reserves 2,055,309 1,424,259 3,056,119
Total equity 163,898,368 157,985,963 162,457,826
TOTAL LIABILITIES & EQUITY 176,140,169 167,847,792 171,586,211
STATEMENT OF COMPREHENSIVE REVENUE & EXPENSE FOR THE PERIOD ENDED 31 MARCH 2016
BUDGET
31/03/2016
$
ACTUAL
31/03/2016
$
ACTUAL
31/03/2015
$
REVENUE
Rates revenue 4,134,210 4,156,084 3,943,998
Water meter charges 81,000 122,285 98,168
User fees & charges 1,040,728 1,015,258 1,114,245
Grants & subsidies 549,984 518,472 446,709
Development contributions 56,655 - 79,306
Interest revenue 42,228 36,197 54,989
Other revenue1 210,354 383,393 309,745
Total revenue 6,115,159 6,231,689 6,047,160
EXPENSES
Personnel 1,326,942 1,271,550 1,371,080
Depreciation 1,417,518 1,586,504 1,402,857
Financing expenses 371,154 287,566 290,595
Other expenses 5,478,746 4,949,702 2,645,525
Total expenses 8,594,360 8,095,322 5,710,057
Operating surplus/(deficit) (2,479,201) (1,863,632) 337,103
OTHER COMPREHENSIVE
REVENUE
Gains/(losses) on revaluation - - -
Vested assets - - -
Ecan share of MRF profit/loss - - -
Total other comprehensive
revenue
- - -
TOTAL COMPREHENSIVE
REVENUE
(2,479,201) (1,863,632) 337,103
1 Other Revenue includes Marlborough Regional Forestry joint venture revenue, penalties on overdue leases, and petrol tax.
STATEMENT OF ACTIVITY PERFORMANCE (NET RESULT BY ACTIVITY EXCLUDING DEPRECIATION)
FOR THE PERIOD ENDED 31 MARCH 2016
REVENUE
$
EXPENSE
$
Add back
Depreciation
NET RESULT
$
ACTIVITY REVENUE & EXPENSE
Roading 1,073,949 (1,302,305) 704,839 476,483
Water services 678,029 (819,030) 346,469 205,468
Sewerage 433,055 (535,350) 253,541 151,246
Stormwater 93,411 (87,732) 44,195 49,874
Refuse & recycling 121,717 (319,446) 11,606 (186,123)
Community facilities 710,615 (1,248,636) 194,094 (343,927)
Commercial activities 509,551 (70,542) 307 439,316
Leadership & governance 21,002 (565,867) 13,506 (531,359)
Regulation & control 282,130 (433,023) 14 (150,879)
Safety & wellbeing 150,089 (243,457) 17,933 (75,435)
District development 379,924 (363,246) - 16,678
Hospital 103,072 (2,058,550) - (1,955,478)
4,556,544 (8,047,184) 1,586,504 (1,904,136)
NON-ACTIVITY REVENUE & EXPENSE
Less depreciation (1,586,504)
Plus general rates, UAGC, and rates penalties, less rates remissions 1,638,948
Plus interest received 36,197
Plus/(less) gains/losses on sale of assets (31,440)
Less losses on impairment of assets -
Less bad debts written off from previous years (10,920)
Less bad debt collection fees (5,777)
1,627,008
Total Operating Surplus/(Deficit) per the Statement of
Comprehensive Revenue and Expense on previous page (1,863,632)
STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED 31 MARCH 2016
BUDGET
to year end
$
ACTUAL
31/03/2016
$
ACTUAL
31/03/2015
$
OPERATING ACTIVITIES
Receipts from rates 5,512,259 4,079,115 4,140,644
Interest received 56,298 36,197 54,989
Receipts from other revenue 3,169,769 2,080,809 1,860,243
Payments to employees & suppliers (8,559,436) (6,608,394) (4,837,209)
Interest paid (541,208) (287,566) (290,595)
Net Cash from Operating Activities (362,318) (699,839) 928,072
INVESTING ACTIVITIES
Sale of investment property - 294,875 1,102
Sale of forestry - 330,000 -
Purchase of property, plant &
equipment
(2,150,515) (2,476,284) (1,961,644)
Purchase of forestry assets - - -
Purchase of intangible assets - (77,229) -
Payment into term deposits - - -
Net Cash from Investing Activities (2,150,515) (1,928,638) (1,960,542)
FINANCING ACTIVITIES
Proceeds from borrowing 4,786,905 2,360,000 2,317,000
Repayment of borrowings (2,403,095) (1,189,617) (1,677,360)
Net Cash from Finance Activities 2,383,810 1,170,383 639,640
NET INCREASE/(DECREASE) IN
CASH & CASH EQUIVALENTS
(129,023) (1,458,094) (392,830)
CASH AT BEGINNING OF THE YEAR 3,038,812 3,317,574 4,132,488
CASH AT END OF THE PERIOD 2,909,790 1,859,480 3,739,658
CAPITAL EXPENDITURE FOR THE PERIOD ENDED 31 MARCH 2016
Project Budget Actual Percent Status
ROADING
Bridge replacement 90,000 - Deferred 2016/17
Reseals 100,000 - Deferred 2016/17
Unsealed road renewals 60,000 68,532 114% More to come
Drainage renewals 50,000 98,564 197% More to come
Pavement rehabilitation 100,000 9,510 10% Deferred 2016/17
Traffic service renewals 9,356 -
Minor work improvements 50,000 46,694 93% Completed
Environmental renewals - 59,922 xxx Esplanade
Footpath renewals 500,000 8,692 2% Issued to contractor
Streetlights 27,644 42,270 153% More to come
987,000 334,184 34%
WATER SUPPLIES
Kaikoura (South Bay)
renewals
80,000 163,584 204% Under way
Kincaid renewals 15,000 - Yet to commence
Oaro water treatment 4,179 - Yet to commence
Ocean Ridge treatment - 1,884 xxx Necessary
99,179 165,468 167%
SEWERAGE
New generator & telemetry - 45,666 xxx Complete
Renewals 40,000 - Budget utilised
40,000 45,666 114%
STORMWATER
Renewals 25,000 4,431 18% Defer?
25,000 4,431 18%
REFUSE & RECYCLING
Landfill cell capping &
aftercare
7,500 -
Waste shed (grant funded) - 6,000 xxx
7,500 6,000 80%
COMMUNITY PROPERTIES
Memorial hall upgrade 11,500 1,212 11%
Library books, CDs & DVDs 36,626 10,833 30%
Coastal management
strategy
20,000 0 See Roading
New public toilets* 30,000 0 On hold
Pensioner flats - 56,496 xxx More to come
South Bay marina upgrade 170,000 5,468 3% Requires consent
Swimming pool 200,000 14,859 7% More to come
Cemetery - 5,386 xxx
Civic Centre* # 4,900,000 6,233,621 127% See separate
report
5,368,126 6,327,875 118%
Project Budget Actual Percent Status
COMMERCIAL ACTIVITIES
20 Beach Rd - - Property sold
Forest pruning & thinning 4,464 -
4,464 - -
LEADERSHIP &
GOVERNANCE
Office furniture &
equipment
10,000 11,973 120% Complete
Computer equipment 20,000 3,720 19% More to come
Datacom Ozone project* - 199,865 xxx Complete
New plant & equipment - 4,788 xxx
Vehicle replacement 20,000 32,165 160%
50,000 252,511 505%
TOTAL 6,581,269 7,136,133 109%
* The Civic Centre, new public toilet, and Datacom Ozone projects have carried over from the 2014/2015 financial year, and are the accumulative value to date.
# The Civic Centre impairment and insurance-related losses that we incurred prior to 30 June 2015 have been deducted from the total capital project cost. Those types of expenses incurred since 1 July 2015 will change – they form part of the insurance claim, and will be recoverable as part of the claim settlement. Only once the claim is settled, then those losses can be deducted from the total capital cost of the project, and expensed through the statement of comprehensive revenue and expense.
The working capital graph remains out of this report until it can be reworked, due to difficulties in providing accurate prior year comparatives.
988
640
758
151
1,142
179
411
1,610
221
621
1,196
857
648
871
1,020
736
670
651
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun Thousands
Income v/s Expenditure - Mar 2016Inc $221,337 v/s Exp $651,128= Deficit $429,791
INCOME EXPENDITURE
1,074
678
433
93
122
711
510
21
282
150
361
103
1,082
638
425
97
107
791
336
29
298
215
262
103
Roading
Water Services
Sewerage
Stormwater
Refuse & Recycling
Community Facilities
Commercial Activities
Leadership
Regulation & Control
Safety & Wellbeing
Development
Hospital Activities
Thousands Income YTD by Activity
Actual Budget
1,302
819
535
88
319
1,249
105
562
433
243
305
2,059
1,155
781
577
112
295
1,315
80
489
512
327
331
2,547
Roading
Water Services
Sewerage
Stormwater
Refuse & Recycling
Community Facilities
Commercial Activities
Leadership
Regulation & Control
Safety & Wellbeing
Development
Hospital Activities
Thousands Expenditure YTD by Activity
Actual Budget
INVESTMENT QUARTERLY REPORT
FOR THE PERIOD TO 31 MARCH 2016
Objective
Ensure that the council’s investments;
Are managed prudently and effectively, thereby optimising value and return
Increase the size and value of its investment portfolio to enable increased levels of revenue to be returned to the community over time
Kaikoura District Council’s investment portfolio consists of short, medium and long term investments, and these must be optimised to provide sufficient funds for planned expenditure including the council’s ability to meets its payments as they fall due. Investments must therefore be chosen which -
are for the period of time that the funds are surplus
are able to be liquidated for the right price at the appropriate time
provide a spread of investments covering short, medium and long term Value and Mix of Investments
In order to optimise the council’s investment portfolio, and maintain an appropriate mix of short, medium and long-term investments, investments shall be kept at the following levels.
A minimum of $250,000 of its investment on short-term money market or fixed interest securities of not more than 30 days.
Other cash investments shall aim to achieve a return equivalent to the 90 day bill rates at the time the investment is made.
Investment in forestry assets, including Marlborough Regional Forestry joint venture, should not exceed 50% of the total investment portfolio where practicable.
The council’s investments shall include (but not be limited to) at least three of the following; a) Treasury Investments b) Property Investments c) Forestry Investments d) Equity Investments
Acquisition of New Investments
All proposed acquisition of new investments decisions are to be approved by the council, with the exception of treasury investments, which are managed on a day to day basis by the Chief Executive Officer and the Finance Manager.
Use of Revenue from Investments
Income generated from investment should be used initially to offset costs associated with owning and operating that investment. The use of surplus revenues will then be used according to:
a) the source and criteria attached to the initial investment sum, or the criteria attached to the fund from which the investment fund came, or
b) in accordance with any resolution of the council, or
c) for general operating revenue.
On maturity, investments held for a specific purpose will only be used for that purpose or reinvested for a further period. The capital portion of any investment will not be used to offset general operating expenditure unless the purpose for which the investment was initially set up no longer exists. The council may determine by resolution (on a case by case basis) to deviate from the above.
Proceeds from Sale of Assets
Council assets will be disposed of from time to time. Income received from the disposal of vehicles and operating plant will be credited to the council’s plant renewal account while income from the disposal of property will go into the council’s property account. The capital from these accounts will either be reinvested in a separate account for this special purpose, or used to purchase other assets required toward the realisation of the council’s strategic objectives. The funds could also be used to repay term debt but such a move would only be by resolution of the council.
Reporting Procedure
A report will be prepared quarterly on the council’s investment portfolio. Such a report will include:
a) the value and mix of the council’s investments
b) any changes to the mix and value from the previous report
c) terms and interest rates or treasury investment
d) net rental yields of property investments
e) earnings per share of equity investments
f) return on investment on each investment type
g) comparisons of actual returns versus budgeted returns
Assessment and Management of Risks associated with Investments
The Kaikoura District Council minimises its exposure to risk by;
a) maintaining a minimum cash on short term deposit of $250,000; and
b) encouraging diversification of the type of investments held;
c) limiting its treasury investments to those organisations identified in the council’s liability management policy
Day to Day Management Procedure
The day-to-day management of the council’s investment portfolio will be undertaken by the Chief Executive Officer. All treasury investments will be made by the Chief Executive Officer and recorded on deal reports. These reports will be held by the Finance Manager.
The authority to open new bank accounts shall be made by the council and at least two of the Chief Executive Officer, Executive Officer, Asset Manager and Finance Manager shall be required to sign cheques or electronic transfers associated with the investment.
Disclosure in Financial Statements
For the purposes of disclosing the council’s investment assets in its public documents, sinking funds and bank deposits are stated as Sinking Funds & Investments within non-current assets, and property and forestry investments are included within Fixed Assets.
REPORT ON COMPLIANCE WITH THE POLICY AND ANY CHANGES SINCE THE LAST REPORT
Value and Mix of Council’s Investments
This Quarter (Mar 2016) Last Year (Mar 2015)
Bank deposits 1,771,934 27% 3,637,585 38%
Leased property 2,581,925 40% 3,238,000 34%
Equity investments 10,000 0% - 0%
Forestry 102,771 2% 582,082 6%
MRF Joint Venture 2,057,938 32% 2,011,352 21%
6,524,568 100% 9,469,019 100%
Comparing this quarter to that of 31 March 2015, cash has reduced as we utilise special funds and reserves to build the Civic Centre. The Pyne’s building was sold in June 2015, the house at 20 Beach Road sold in March 2016, and the Clarence plantation was sold to the landowner in August 2015. Remaining movements are due to revaluation of investment properties and forestry assets at 30 June 2015 for the Annual Report.
Value & Mix of Investments
Bank deposits
Leased property
Equity investments
Forestry
MRF Joint Venture
The combined value of the Council’s own forestry operations and those of Marlborough Regional Forestry (MRF) is 34%, which is within the 50% cap set by the Council’s Investment Policy. Bank deposits have been reducing as we have used cash to repay debt, and so – despite property sales – leased properties currently make up the greatest proportion of our total portfolio.
Treasury Investments
Balance Rate Term Interest
On call account 904,370 1.25% On call 11,305
Special funds on call account 867,564 1.25% On call 10,845
Term deposits - - - -
1,771,934 1.25% 22,149
All cash balances are in on call accounts rather than term deposits, to meet commitments for the Civic Centre. This means we have exceeded the policy minimum requirement of $250,000 held on call. With the project ongoing it is unlikely for there to be surplus funds to set aside for longer than 90 days.
Forestry Investments
Capital distribution payments from the Marlborough Regional Forestry total $293,250, of which we owe Environment Canterbury $39,237. We sold the Clarence forest in August, and the South Bay Forest is not generating any revenue, but does incur expenses such as rates and insurance.
Net Rental Yields of Property Investments
The Wakatu Quay properties disclose the amount the lessee has actually paid, rather than the amount they have been invoiced.
The back section of the land at 25 Beach Rd is still in the process of subdivision to sell to the adjacent landowner. The remaining land and buildings on that property are for sale. The house at 20 Beach Road sold during March.
Asset value EBIT Interest Net Yield
Wakatu Quay 1,330,000 41,550 0 41,550 3.12%
25 Beach Road 450,000 (11,432) 0 (11,432) (2.54%)
Land behind 20 Beach Road 270,000 0 0 0 0.00%
Airport terminal & hangars 531,925 8,572 18,984 (10,411) (1.96%)
2,581,925 38,690 18,984 19,707 0.76%
Note EBIT refers to Earnings before Interest and Tax.
Equity investments
The Council prepaid $9,000 to Civic Assurance in 2012 to purchase 10,000 shares, and those shares have now been issued. The shares have a value of $10,000.
Return on Investments
Value Return Yield
Bank deposits 1,771,934 22,149 1.25%
Leased property 2,581,925 19,707 0.76%
Equity investments 10,000 - -
Forestry 102,771 (15,151) (14.74)%
Marlborough Forestry 2,057,938 271,189 13.18%
Equity investments are the value of the shares held in Civic Assurance.
The graph below highlights the performance of our investment portfolio against budget, with the stand-out performer being the Marlborough Regional Forestry joint venture. Leased property revenues have been recalculated to only show revenue actually received, and they include leases attached to the airport.
(50,000)
0
50,000
100,000
150,000
200,000
250,000
300,000
Bank deposits Leased property Forestry Marlborough Forestry
Actual to Budget Comparison
Actual Budget
LIABILITY MANAGEMENT POLICY COMPLIANCE REPORT
TO 31 MARCH 2016
Objective All council current and term liabilities are managed prudently and effectively.
Current Liabilities
Current Liabilities are those liabilities that will be repaid in a short period, not exceeding 12 months,
and include accounts payable, cash advance facilities, and other short term liabilities. For the
purposes of this section of the policy, the current portion of term liabilities do not apply, these are to
be considered as term liabilities.
Accounts payable are to be paid in full by the due date wherever possible. Those current liabilities
that incur a late payment penalty are to be paid in full by the due date in all cases.
Term Liabilities
Term Liabilities are those liabilities which are for a term exceeding 12 months, and include council
borrowings, and liabilities associated with the Marlborough Regional Forestry joint venture.
Interest Rate Exposure The interest rate exposure table below is the council’s guideline for interest rate exposure. This
table does not incorporate the liabilities associated with the Marlborough Regional Forestry joint
venture.
Term of exposure Policy levels Actual Proportion Compliant?
0 - 1 year 20% - 27% 19% 1 - 2 years 20% - 27% 37%
2 - 3 years 20% - 27% 17%
3 - 4 years 20% - 27% 10%
4 years + 0% - 20% 17%
Our exposure profile has not achieved compliance because of the cluster of loans in the 1-2 year
term and not many loans falling due in the 3-4 year term. Notwithstanding this, the current loan
profile should achieve compliance by 30 June 2016.
Liquidity The liquidity ratio is the total current assets that can quickly be converted to cash (cash and debtors)
divided by the current liabilities that need to be paid. The council’s policy is to maintain a liquidity
ratio of a minimum of 1.1:1 at all times, (which means $1.10 is available for every $1.00 payable).
Policy levels Liquidity Rate Compliant?
1.1:1 2.49:1
Credit Exposure The mix of agencies and financial limits as set out below is to manage the council’s credit exposure.
Approved Counter Party Credit Limits Limits (percentage of total investment)
1. Government/Local Government Funding Agency
Unlimited
2. Banks with A+/A- or better long term rating. These include, but are not limited to BNZ, ASB, National Bank, ANZ, Westpac and Countrywide.
Up to 100% subject to not more than $1 million with one issue
3. Other entities with A+/A- or better long term rating. These include but are not limited to Local Government Stock/Bonds
Up to 50% but no more than $500,000 with any single issuer
All loans are taken with banks of A or better ratings (category 2), and have not been for over $1 million in any one issue.
Debt Repayment The council will not use internal loans to pay external debt. Should the council wish to use internal
loans, it shall be on a case-by-case basis, and by council resolution.
Policy Compliant?
Council does not use internal loans to pay external debt.
Reserve funds are set aside to repay the loan on maturity.
Borrowing Limits
Policy Levels Actual Levels Compliant?
Total term debt will not exceed
$12 million $7,366,443
Gross interest expense of all external term borrowing’s as a percentage of total revenues
will not exceed 10%
4.6%
Borrowings that can be fully self-funded by the activity or purpose the borrowings are required for,
and do not require rates input, shall be exempt from this limitation i.e. where the specific project is
cash flow positive and can sustain the borrowing repayment programme out of its cash flow.
Security The council has a cash advance and term borrowing facility secured by negative pledge.
Policy Compliant?
Council will not pledge assets as security, with the exception o f the pensioner housing suspensory loans
Loan Schedule Maturity
date 2014/2015 Movement 2015/2016
Cash Advance Floating 0 0 0
Civic Centre Floating Portion (2014) Floating 245,140 34,690 279,830
Stormwater # 4 2011 21/09/2015 200,000 -200,000 0
Sewer # 12 Part 2 Loan 2011 21/09/2015 159,000 -159,000 0
Library Building Loan 1997 1/12/2015 123,000 -123,000 0
Water Supply # 2 Loan 2000 1/12/2015 76,000 -76,000 0
South Bay Footpath Loan 2006 1/12/2015 36,000 -36,000 0
Refuse Upgrade Loan 1995 21/12/2015 14,000 -14,000 0
Airport Upgrade Loan 1995 21/12/2015 17,000 -17,000 0
Stormwater # 1 Loan 1995 21/12/2015 18,000 -18,000 0
Stormwater # 2 Loan 1996 21/12/2015 33,000 -33,000 0
Glen Alton Bridge Loan 1998 29/07/2016 101,000 101,000
East Coast Water Loan 2009 29/07/2016 26,000 26,000
Airport Terminal Loan 2009 29/07/2016 386,000 386,000
Sewer # 15 Loan (2014) 8/08/2016 400,000 400,000
Civic Centre # 4 Loan (2014) 21/12/2016 246,010 -9,970 236,040
Pensioner Flats Loan 2008 28/04/2017 193,000 193,000
District Plan # 3 Loan 2008 28/04/2017 33,000 33,000
Sewer # 14 Loan 2013 27/06/2017 300,000 300,000
Harbour # 2 Loan 2013 27/06/2017 370,000 370,000
Civic Centre # 3 Loan (2014) 20/10/2017 363,280 -14,730 348,550
Water Supply # 5 (2008) 20/12/2017 0 220,000 220,000
Airport Hangar Loan 2011 20/12/2017 150,000 -109,000 41,000
West End # 3 Pt 2 Loan 2008 20/12/2017 140,000 140,000
Memorial Hall Loan 2001 20/12/2017 48,000 -28,000 20,000
Sewer # 10 Loan 2001 20/12/2017 170,000 170,000
Leachate Control Loan 2000 20/12/2017 51,000 51,000
Sewer # 11 Loan 2010 20/12/2017 187,000 187,000
Sewer # 12 Loan 2011 20/12/2017 121,000 121,000
Footpath & Streetlight Loan 2004 31/07/2018 290,000 290,000
Civic Centre # 2 Loan (2014) 20/10/2018 363,440 -14,390 349,050
Footpath & Streetlight Loan 2004 20/06/2019 100,000 100,000
New Wharf Loan 2004 20/06/2019 480,000 480,000
Water Supply # 3 Pt 2 Loan 2002 20/06/2019 116,000 116,000
West End # 3 Pt 1 Loan 2008 20/06/2019 150,000 150,000
Civic Centre # 1 Loan (2014) 22/09/2019 490,190 -19,300 470,890
Hospital Loan # 1 (2015) 21/08/2020 0 552,083 552,083
Hospital Loan # 2 (2015) 25/08/2020 0 735,000 735,000
Hospital Loan # 3 (2015) 01/02/2018 0 500,000 500,000
6,196,060 1,170,383 7,366,443
Special Reserves & Special Funds as at 31 March 2016
Special Reserves Opening Inflow Outflow Closing
Balance Balance
Town Water Maintenance 106,497$ 416,410$ 375,117$ 147,790$
Town Water Capital (215,866)$ 328,637$ 239,584$ (126,813)$
Ocean Ridge Water (8,194)$ 19,624$ 15,597$ (4,167)$
East Coast Rural Water (25,779)$ 52,875$ 51,698$ (24,602)$
Kincaid Rural Water 46,025$ 73,345$ 38,071$ 81,299$
Fernleigh Rural Water 45,405$ 4,054$ 3,386$ 46,073$
Peketa Rural Water (12,508)$ 3,085$ (9,424)$ 1$
Roading 14,667$ 877,879$ 802,832$ 89,714$
Footpaths & Streetlights 73,346$ 196,070$ 160,706$ 108,710$
Recycling (6,079)$ 70,446$ 75,617$ (11,250)$
District Plan (150,204)$ 101,403$ 102,437$ (151,238)$
Stormwater Maintenance (37,709)$ 66,263$ 43,537$ (14,983)$
Stormwater Capital 222,902$ 27,149$ 255,431$ (5,380)$
Sewerage Maintenance (174,915)$ 343,008$ 274,017$ (105,924)$
Sewerage Capital 583,095$ 82,255$ 204,666$ 460,684$
Commercial Rate 5,730$ 23,613$ 48,707$ (19,364)$
Harbour (12,298)$ 194,685$ 119,332$ 63,055$
Registered Premises (21,073)$ 85,502$ 52,804$ 11,625$
Town Centre (58,651)$ 110,538$ 44,149$ 7,738$
Stock Control 11,082$ 9,695$ 4,878$ 15,899$
Rural Fire Control (32,870)$ 64,190$ 59,474$ (28,154)$
Totals 352,603$ 3,150,726$ 2,962,616$ 540,713$
Special Funds Opening Inflow Outflow Closing
Balance Balance
Social Services Committee 4,135$ 2,742$ 3,083$ 3,794$
Tourism Strategy Fund 22,506$ 161,250$ 154,707$ 29,049$
Creative NZ 6,220$ 8,825$ 4,223$ 10,822$
George Low Trust 60,513$ -$ 5,735$ 54,778$
Airport 74,212$ 35,071$ 109,000$ 283$
John Gibb Fund -$ -$ -$ -$
Forestry Fund 1,482,380$ 835,317$ 2,109,758$ 207,939$
Biodiversity (SNA) Fund 28,774$ -$ -$ 28,774$
Reserve Development 80,004$ -$ 1,212$ 78,792$
Pensioner Flats 26,096$ 69,965$ 104,865$ (8,804)$
Property Fund 292,776$ 166,617$ 235,077$ 224,316$
Community Facility Fund (415,977)$ -$ (415,977)$ -$
Plant Renewal 51,169$ 8,155$ 32,165$ 27,159$
Waste Minimisation Levy 26,955$ 9,774$ 15,887$ 20,842$
Landfill Development Fund 81,156$ -$ -$ 81,156$
Landfill Site Aftercare 93,832$ -$ -$ 93,832$
Library Donations 25,668$ 1,262$ 10,833$ 16,097$
Violence Free Lesa B'Do (27,881)$ -$ 2,846$ (30,727)$
Youth Development Ptnshp 4,419$ 18,200$ 5,266$ 17,353$
Mayoral Fund 9,526$ -$ 1,200$ 8,326$
Library Grants -$ -$ -$ -$
Family Violence Men's Shed 732$ 50,000$ 35,884$ 14,848$
Strengthening Families 11,508$ -$ 6,591$ 4,917$
1,938,723$ 1,367,178$ 2,422,355$ 883,546$
TOTAL CASH BALANCE TO BE ON HAND 1,424,259$
Development Contributions Quarterly Report – 31 March 2016
There has been no development contributions revenue in the 2016 financial year, following the
changes to the policy and the introduction of thresholds. There has been a recent enquiry for an 18-
lot subdivision, created from two titles.
Contribution amounts The new Development Contributions Policy provides for new thresholds, which means contributions
will be required only if any of these thresholds are exceeded:
Ten (10) housing equivalent units (HEU); or
$1 million capital value of development; or
For non-residential development only, a gross floor area of 100m2
Development contributions are at the following amounts (excluding GST).
Per new urban lot Per new rural lot Per person (accommodation)
Roading 1,350.00 1,350.00 222.75
Kaikoura township water
2,175.00 - 358.88
Sewerage 2,369.00 - 390.89
Stormwater 900.00 - 150.15
Parks & Reserves 2.5% of land value 0.5% of land value or 1% of land value
The value of 20m2 of land per person
Estimated total each $9,804.00 $2,000.00 $1,122.66
These amounts are for indicative purposes only, and should not be relied upon as an assessment.
Depreciation vs. Capital Expenditure Report as at 31 March 2016
Ideally, assets should be renewed or replaced at roughly the same rate as depreciation so as not to
run down the condition of assets. The mandatory financial prudence benchmarks introduced in
2014 suggest that capital expenditure should be at least 100% of depreciation each year.
The aim of this report is to highlight the variance between depreciation and capital expenditure
(renewals and new assets). In reality, the timing of major capital projects means that there can be
significant projects in certain years – such as has occurred with water and sewerage – which are then
followed by several years of low (or no) expenditure because the assets are in excellent condition.
This effectively means that an assessment of depreciation vs. capital expenditure has little meaning
when shown on an annual basis, and should ideally be considered over the life of the asset.
In all graphs in this report, we show a solid 100% “target” line and a dotted “average” line.
Roads and Bridges
It has been difficult to achieve the benchmark for roads and bridges because flooding events have
prioritised work away from capital renewal and upgrades, to emergency repairs instead. Extensive
reseals and pavement rehabilitation work was last done in 2008.
Council would need to spend in excess of $740k each year on roads and bridges to achieve this
benchmark standard; this is almost double our current capex spend (averaged over the ten years).
We have only spent $283k so far this financial year, against depreciation of$610k. The main reason
for capital expense not matching depreciation is affordability – capital work such as pavement
renewals are included in our Long Term Plan but were deferred this year, and are proposed to be
deferred again in the Draft Annual Plan 2016/2017 due to the impact on rates.
52%
106%
53% 46%
30%
86%
13%
79%
42%46%
0%
20%
40%
60%
80%
100%
120%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cap
ital
exp
en
dit
ure
/de
pre
ciat
ion
(%
)
Water Supply (Kaikoura Urban)
There have been substantial renewals of pipe infrastructure in the township throughout 2006 to
2011, with much of the urban water supply systems completely up to date. This reduced the need
for renewal expenditure in subsequent years. This financial year the focus has been on renewing the
underground pipe network in South Bay, with $164k spent to date against depreciation of $166k.
Sewerage
Major upgrades and pipe renewal projects were completed in previous financial years, which means
sewerage assets are in excellent condition – with a reduced requirement for renewal works. Capex
averages 290% of depreciation over the ten years; well in excess of the 100% benchmark.
With capex averaging $536k over the last nine years, we have only spent $46k to date this financial
year, mainly on upgrading the telemetry system.
306%
378%
108%124%
280%
94%
54%
25% 22%
98%
0%
50%
100%
150%
200%
250%
300%
350%
400%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cap
ital
exp
en
dit
ure
/de
pre
ciat
ion
(%
)
699%
65%
363%
13%
309%
178%
575%
262%
16%
18%0%
100%
200%
300%
400%
500%
600%
700%
800%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cap
ital
exp
en
dit
ure
/de
pre
ciat
ion
(%
)
Stormwater
Only one year out of the ten has met the benchmark. Much of the work in 2011 was to increase
capacity at Sullivans Gully.
Properties
Properties are one area where our buildings are not attended to regularly, but tend to be
refurbished as large, infrequent, projects. Because there are several properties contained within the
graph on this page, the following graphs give a little more detail on the main properties involved.
76% 92%
6%31%
346%
0%23%
34%
69%
10%
0%
50%
100%
150%
200%
250%
300%
350%
400%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cap
ital
exp
en
dit
ure
/de
pre
ciat
ion
(%
)
73%
171%
93%
33% 17%
3% 10% 0%
49%
116%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cap
ital
exp
en
dit
ure
/de
pre
ciat
ion
(%
)
Swimming Pool
Memorial Hall
Pensioner flats
Council Office (Esplanade)
Public toilets
One of the pensioner flats was extensively refurbished internally, and wheelchair ramps are being
installed. Major repairs have been made to the swimming pool including locating and fixing a
significant leak.
Housing for the Elderly Quarterly Report 31 March 2016
The Council owns sixteen units at 95 Torquay Street, with rentals now ranging from $105 per week for a single unit, $140 double and $155 for the new units. Over the last four months, one flat has been substantially refurbished, and disability access ramps constructed. This has fully depleted the housing fund, and put it into overdraft. Any plans for further work on the flats will have to wait until the fund is restored, or find alternative funding sources.
HOUSING FOR THE ELDERLY FUND 2013/2014 2014/2015 2015/2016
Opening Balance (3,949.40) (3,934.33) 26,095.92
Funded by:
Rental income 79,991.92 90,385.00 69,965.00
Applied to:
Expenses 99,143.85 79,521.75 63,074.95
less depreciation (19,167.00) (19,167.00) (14,706)
Plus Loan Principal - - -
plus Upgrade - - 56,496.13
79,976.85 60,354.75 104,865.08
Closing Balance (3,934.33) 26,095.92 (8,804.16)
Levels of service
2014/2015 Actual
2015/2016 Target
2015/2016 Actual
Percentage of housing for the elderly tenants that come under criteria one (highest priority).
100% 100% 100%
Waiting List: Five people are on the waiting list. This is a significant drop from the fifteen people reported last quarter. Council staff contacted each person on the waiting list to check if they were still interested in a unit, in preparation for the latest tenancy allocation, and was able to clear most of those people from our waiting list.
Singles Couples
Criteria 1 1 -
Criteria 1 (g) 3 -
Criteria 2 1 -
Eligibility Policy for Housing for the Elderly Units
This policy has been set by the Kaikoura District Council and adopted 24 May 2006. Criteria One applicants are given first preference for housing. Criteria One
(a) The applicant must be 65 years of age or over. (b) Preference will be given to those applicants whose personal assets do not exceed
$30,000 for a single person or $40,000 for a married couple. (c) Council will accept applications from people who have personal assets of up to $90,000.
In considering the allocation of a vacant unit, however, preference will be given to those who meet the criteria as set out immediately above.
(d) The applicant must not have an interest in or own property. (e) Invalid beneficiaries over 60 years can be considered. A medical certificate must support
their application. (f) There must be a genuine housing need. (g) Kaikoura residents or immediate family of residents have higher priority. (h) All tenancies are subject to a residential tenancies agreement.
Criteria Two
(a) The applicant must be 60 years of age and over. (b) The applicant can have personal assets of up to $90,000. (c) The applicant must not have an interest in or own property. (d) All tenancies are subject to a residential tenancies agreement.
Criteria Three
(a) Applications from invalid beneficiaries 55 years of age or over will be considered. A medical certificate must support their application. Should applicants no longer qualify for an invalids benefit and no longer have a medical certificate to support their application then they no longer qualify for residency.
(b) The applicant can have personal assets of up to $90,000. (c) The applicant must not have an interest in or own property. (d) All tenancies are subject to a residential tenancies agreement.
Criteria Four
(i) The Allocation Committee may use its discretion if there are no applicants who meet Criteria 1, 2 or 3.
Note: Single tenants occupying two-roomed units will be asked to move if a single unit becomes available, when a twin-unit is required for a couple. This would be administered on a last in/first out basis. For your information:
Council flats and Council buildings operate under a “No Smoking” policy
Dogs are not permitted in Council flats
Pets by prior arrangement only
Airport Quarterly Report For the third quarter ended 31 March 2016
0
100
200
300
400
500
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Number of landings per month
Actual Last Year
The quarter from January to March has been particularly busy at the Airport and, as the following
graph shows, revenue from landing fees is up on budget.
0
5,000
10,000
15,000
20,000
25,000
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Landing fee revenue
Actual Budget
In the 2015/2016 financial year, the Airport requires $33,358 from general rates. While Airport
revenue such as landing fees and leases is enough to cover operating expenses, rates input is
required to provide sufficient revenue to also cover the loan repayment. There are two loans
currently drawn for the airport, being;
Airport terminal (2009) loan $386,000
Airport hangar (2011) loan $41,000
The airport upgrade loan (of $17,000) was fully repaid, and the airport hangar loan was reduced by
$109,000, over the last six months.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Total airport revenue
Actual Budget
Revenue has come well up on budget thanks to lease revenues and landing fees.
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
Total airport expenditure
Actual Budget
Operating expenditure is tracking very close to budget.
Health and Safety at Work Act 2015
Background
On Monday 4 April 2016, the new Health and Safety at Work Act 2015 (HSWA) came into effect as
well as the majority of the first phase of regulations to support HSWA. The Health and Safety at Work
Act replaces the Health and Safety in Employment Act 1992 (HSEA).
All workplaces in New Zealand need to comply with the new Health and Safety at Work Act. Existing health and safety systems will need updating across low risk and high risk industries, ranging from small businesses to large corporates.
An important change brought in by the new legislation is that Directors and Senior Managers have non-delegable duties and personal liability.
The Act is part of “Working Safer: A Blueprint for Health and Safety at Work” and represents New Zealand's most significant reform in workplace health and safety in over 20 years.
New Zealand’s rates of serious injury and fatality and occupational disease are too high, costing the country an estimated $3.5 billion or more annually, as well as taking a huge social toll.
Working Safer is aimed at reducing New Zealand’s workplace injury and death toll by 25 per cent by 2020. It will require leadership and action from business, workers and Government to achieve this goal.
The Act’s key emphasis is on everyone in the workplace being responsible for health and safety.
The Act works to focus effort on what matters, based on business risk, control and size:
What a business needs to do depends on its level of risk and what it can control
It shifts from hazard spotting to managing critical risks – actions that reduce workplace harm rather than trivial hazards
It introduces the “reasonably practicable” concept – focusing attention on what’s reasonable for a business to do
It changes the focus from the physical workplace to the conduct of work – what the business actually does and so what it can control
It supports more effective worker engagement and participation – promoting flexibility to suit business size and need.
Officers and the Duty of Due Diligence
HSWA makes health and safety everyone's responsibility, while at the same time recognising that officers in a business have more influence and control over the business than its workers.
Under HSWA, senior business leaders are responsible for ensuring that the business is meeting its
health and safety responsibilities. There is an onus on them to make sure the business understands
and manages its key risks.
Duty Holders
A core concept in the HSWA is that of “a person conducting a business or undertaking” (PCBU). The PCBU is the primary duty holder, whose duties replace those of employers, principals and persons in control and the like under the Act. The definition of PCBU is intentionally wide. The Act expressly provides that a PCBU will not include workers, volunteer associations or residential workers.
The HSWA also introduces the concept of “Officers”. This is essentially a catch all category imposing a duty on any person involved in making significant decisions.
Care must be taken to differentiate between a person who is involved in making a decision vs. a person who purely advises on a decision. An officer is a person who holds a very senior leadership position in the business, and has the ability to significantly influence the management of a business or undertaking. A business can have more than one officer.
Officers include:
directors,
partners in a partnership,
board members,
any person who holds a position comparable to a director in a body corporate or an unincorporated body, and
any person who exercises significant influence over the management of the business or undertaking (e.g. the Chief Executive).
Concepts and Test
The concept of “employee” is replaced by “worker” in the new Act. This is a broader concept, which includes contractors, subcontractors and others.
The concept of “place of work” is replaced by “workplace” in the new Act. The previous concept led to a great deal of litigation and the new Act addresses some of the issues raised by simplifying and broadening the concept.
Under the new Act, PCBUs have an all-encompassing obligation to ensure that workers are safe at “any place where the worker goes, or is likely to be, while at work”.
The previous test for duty-holders under the HSEA, of “all practicable steps”’, is replaced in the HSWA with “so far as is reasonably practicable”. The test is framed differently, but encompasses many of the same elements as under the HSEA.
Excerpt from the Act
22 Meaning of reasonably practicable
In this Act, unless the context otherwise requires, reasonably practicable, in relation to a duty
of a PCBU set out in subpart 2 of Part 2, means that which is, or was, at a particular time,
reasonably able to be done in relation to ensuring health and safety, taking into account and
weighing up all relevant matters, including—
a) the likelihood of the hazard or the risk concerned occurring; and
b) the degree of harm that might result from the hazard or risk; and
c) what the person concerned knows, or ought reasonably to know, about—
(i) the hazard or risk; and
(ii) ways of eliminating or minimising the risk; and
d) the availability and suitability of ways to eliminate or minimise the risk; and
e) after assessing the extent of the risk and the available ways of eliminating or
minimising the risk, the cost associated with available ways of eliminating or
minimising the risk, including whether the cost is grossly disproportionate to the risk.
30 Management of risks
(1) A duty imposed on a person by or under this Act requires the person—
a) to eliminate risks to health and safety, so far as is reasonably practicable; and
b) if it is not reasonably practicable to eliminate risks to health and safety, to minimise
those risks so far as is reasonably practicable.
(2) A person must comply with subsection (1) to the extent to which the person has, or
would reasonably be expected to have, the ability to influence and control the matter
to which the risks relate.
The HSWA defines that what is “reasonably practicable” will depend on risk, cost and other
relevant circumstances. Importantly, the costs involved in eliminating or minimising (but not
isolating) the risk must be “grossly disproportionate” to the risk for such measures not to be
taken. This places an obligation on PCBUs to prioritise money for risk elimination and
minimisation.
The old HSEA only requires notification of health and safety incidents where there is an accident
or “serious harm”. HSWA defines the concepts of “notifiable injury or illness”, “notifiable
incident” and “notifiable event”:
A notifiable injury or illness is where a worker suffers an infection, occupational illness or
injury/illness requiring treatment (section 23). Importantly, work must be a significant
contributing factor to such an injury or illness but it is not exclusively defined under the
Act. As a result, it is unclear what level of injury or illness requires notification.
A notifiable incident is widely defined in that it is where a person is exposed to ‘serious
risk’.
A notifiable event is a notifiable injury or illness, a notifiable incident or death.
Part 2 – Health and Safety Duties
Part 2 covers duties of care, incident notifications, authorisations and penalties.
Duties
The core duty of a PCBU is that they protect the health and safety, so far as is reasonably practicable, of:
Workers engaged, or caused to be engaged, by the PCBU; and
Workers whose activities are influenced or directed by the PCBU.
PCBUs also have a duty to ensure, so far as is reasonably practicable, that the health and safety of others is not put at risk from work carried out. The Act makes it clear that PCBUs are responsible for workers whose activities are influenced by the PCBU. This has implication for Council and our Council Controlled Organisation, IWK. Where there is multiple PCBUs involved in work on the same project or the same location, each PCBU has to manage and monitor the health and safety performance of the parties beneath them in the chain of work. This demonstrates that more than one PCBU can have the same duty and creates a duty on PCBUs to consult other PCBUs. Failure to consult may expose the PCBU to a fine.
Workers and “other persons at workplaces” are also subject to duties under the new Act. The Act introduces a positive statutory obligation on workers to comply with their PCBUs instructions and co-operate with their PCBUs health and safety policies or procedures. Other persons at workplaces are presumed to provide for the health and safety of visitors and the Act states that such persons must take reasonable care for their own health and safety and comply with the PCBUs instructions.
The Act requires Officers to exercise a duty of due diligence to ensure the PCBU complies with its duties. Officers may be held primarily responsible for a breach of health and safety even if the PCBU is not going to be held responsible. This aims to ensure that those in governance positions will proactively manage health and safety and provides for some much needed accountability.
Due diligence requires, among other things, an understanding of the nature of operations, hazards and risks and ensuring that the PCBU implements processes for complying with their duties. Under the Act, Officers should also be able to verify, i.e. through paperwork, that they have complied with their duty of due diligence.
Offences and Penalties
The Act significantly increases the category of offences, with a three-tiered hierarchy being introduced, along with a range of other offending provisions. The Act then imposes across all three tiers a six-fold increase in fines from the Act. It should be noted that the Act prevents one from insuring against theses penalties and fines. A summary of the offences and penalties follows:
Recklessness
Corporate - $3 million fine;
Officer - $600,000 fine and/or five years imprisonment;
Individual - $300,000 fine and/or five years imprisonment.
Risk of death/serious injury/illness
Corporate - $1.5 million fine
Officer - $300,000 fine
Individual - $150,000 fine.
Breach of health and safety duty
Corporate - $500,000 fine
Officer - $100,000 fine
Individual - $50,000 fine.
Part 3 – Consultation, Representation and Participation
Part 3 contains worker participation, health and safety representatives and discriminatory, coercive and misleading conduct.
Worker participation practices
The Act places a heavy emphasis on providing information and consultation. It allows for increased worker participation in health and safety by requiring all PCBUs to have worker participation practices.
Health and safety representatives
The PCBU may facilitate elections to appoint health and safety representatives. The PCBU must consult these representatives on all health and safety matters, allow them paid time off for training, provide the time and resources necessary to perform their role and give them access to health and safety information. Trained representatives will be empowered to issue provisional improvement notices if they believe someone is breaching health and safety.
Health and safety committees
The Act requires that workers are to make up at least half of any workplace health and safety committee.
Unsafe work
Employees currently have the right to refuse work that is likely to cause serious harm to themselves. The Act extends this right to refuse work where it may expose themselves or another to a ‘serious health and safety risk’.
Implications and Impacts for Council Operations and Practices
Awareness of the duties and liabilities under the new roles
Elected members have been exempted from the definition of an Officer
Obligation on PCBUs to prioritise money for risk elimination and minimisation
Officers to verify via systems and audits and appropriate documentation that they have complied with their duty of due diligence.
The new definitions, including the wider definition of "workplace"
The new duties and liabilities of volunteers
The increased worker participation requirements
The increased role of health and safety representatives
The implications for Council-controlled organisations
The new consultation obligations of duty holders (including managing health and safety responsibilities with and between contractors)
The new and increased enforcement tools and penalties for offences
Conclusion
The Act is a much needed modernisation of health and safety law in New Zealand and inserts clarification of concepts that have proven problematic under the previous legislation.
The Act however, also provides more onerous duties and greater penalties, which are intended to motivate and ensure that PCBUs take health and safety seriously, specifically from the top down.
Given the impact of the new legislation Council and IWK will need to review
Review the Council’s Health and safety policy for compliance with legislation
Review Council’s hazard and hazard identification
Review resources and processes to eliminate or minimise risks related to health and safety
Review of health and safety procedures of all sub-contractors
Council has appropriate processes for receiving and considering information regarding incidents, hazards, and risks and for responding in a timely way to that information; and
Review all current Health and Safety processes and procedures to ensure compliance under the Act.
Review the Health and Safety policy and procedures of the Council Controlled Organisation
Prepared by: Angela Oosthuizen: Chief Executive Officer