Agenda of Audit Committee

Audit Committee: Agenda

14 December 2020 Page 5

SHIRE OF ESPERANCE

AGENDA

Audit Committee Meeting
TO BE HELD IN Council Meeting Room ON 14 December 2020

COMMENCING AT 4pm

1. OFFICIAL OPENING

2. ATTENDANCE

Members

Cr I Mickel Shire of Esperance

Cr J O’Donnell Shire of Esperance

Cr S McMullen Shire of Esperance Presiding Member

Cr J Obourne Shire of Esperance

Shire Officers

Mr S Burge Chief Executive Officer

Mrs B O’Callaghan Manager Financial Services

Mr S McKenzie Acting Director External Services

Mr M Van Der Merwe Butler Settineri

Members of the Public & Press

3. APOLOGIES & NOTIFICATION OF GRANTED LEAVE OF ABSENCE

Mr K Mills Community Representative

4. PUBLIC QUESTION TIME

5. Deputations, Presentations, Inspections, Petitions

Nil

6. DECLARATION OF MEMBERS INTERESTS

6.1 Declarations of Financial Interests – Local Government Act Section 5.60a

6.2 Declarations of Proximity Interests – Local Government Act Section 5.60b

6.3 Declarations of Impartiality Interests – Admin Regulations Section 34c

7. CONFIRMATION OF MINUTES

That the Minutes of the Audit Committee Meeting of the 9 September 2020 be confirmed as a true and correct record.

8. New Business of an Urgent Nature

Nil

Audit Committee: Agenda

14 December 2020 Page 7

9. Matters Requiring a Determination of Committee

Item: 9.1

Airport Safety Management System - Second Airport Vehicle

Author/s	Scott McKenzie	Acting Director External Services
Authorisor/s	Shane Burge	Chief Executive Officer

File Ref: D20/36042

Applicant

Internal

Location/Address

Not Applicable

Executive Summary

To allow Council to consider the risk of having one vehicle available for the Airport Operations team.

Recommendation in Brief

That the Audit Committee recommend to Council that Council endorse the short term loan of LV609 to the Airport Operations team and consider a Capital Budget Bid for 2021/22 for a secondary airport vehicle.

Background

Prior to 2019, the Esperance Airport was staffed with only one Shire officer physically located on site. Until that point, the Airport Coordinator (to whom that officer reports) had been permanently based within the Shire Administration Building in town given the necessary close working relationship required between admin staff and airport operations. Following the resignation of the former Airport Coordinator (Ali Cull) in 2019, the decision was made to move the Airport Coordinator position permanently to the Esperance Airport in order to improve operational oversight, provide supervision and assistance to the sole Shire staff member on site and to foster improved working relationships with Regional Express staff and other airport tenants.

The additional Shire staff member being based on site soon highlighted the risk of having only one available vehicle as the relocation of the Airport Coordinator position meant that the only ‘airport ute’ was now increasingly away from site to attend the Shire offices in town and purchase supplies etc. - issues that had previously been served by access to the Shire admin vehicle fleet. This in turn created the very real risk of the airport ute being absent from the airport during an accident or incident. At airports, identified risks are assessed under a formal Safety Management System (SMS), and per Attachment A, this particular risk was assessed early in 2020, with the solution put in place recommending the acquisition of a secondary vehicle as part of the next budgeting process.

Early in November 2020, a safety incident (refer Attachment A) occurred where the airport ute was absent from the site leaving the remaining on-site officer without a vehicle during a significant storm event that saw flash flooding throughout Esperance, including the Esperance Airport. To ensure aircraft safety, CASA require an aerodrome serviceability inspection to be conducted as soon as practicable “…after a severe wind event, a severe storm or a period of heavy rainfall”, and in this particular case the process - which included closing gravel runway 03/21 due to flooding - was impacted through the absence of the airport ute, increasing the risk to aviation.

This incident and the associated risk (refer Attachment A) was then considered at the next Directors Meeting, where it was decided to immediately address the issue by reallocating an existing pool vehicle to the airport as an interim measure until a secondary permanent airport vehicle could be procured under a budget allocation in 2021/22.

Officer’s Comment

Under the Shire’s Occupational Safety and Health Policy, CASA’s Manual of Standards (MOS Part 139) and indeed the Esperance Airport Safety Management System (SMS), the Shire of Esperance has an implicit responsibility to ensure that staff are adequately resourced to perform their roles in the safest manner possible. In this case, the provision of a secondary and interchangeable vehicle has been assessed as being the best solution to ensure the ongoing safe operations of the Esperance Airport.

In addition to this, it is relevant to note that the Airport Coordinator’s present additional workload as a ‘case manager’ or ‘development concierge’ in an effort to improve customer service on a trial basis as part of the development approval process will take the Airport Coordinator and vehicle away from the airport site more frequently.

Option

That the Audit Committee recommend to Council that Council amend the 2020/21 Budget as below to allow for the purchase of a second Airport vehicle;

Description		Budget Figure	Amended Figure	Variation
Purchase of Vehicles	7510-705-6665	$0	$42,250	$42,250
Transfer from Aerodrome Reserve	7510-955-910	($271,457)	($229,207)	($42,250)
Net result				$0

Consultation

Executive Management Team

Financial Implications

The risk of not having a second vehicle has been alleviated in the short term by the Asset Management area delaying the sale of a 4WD ute and providing this vehicle to the airport. The intention is to lodge a Capital Bid for the 2021/22 Budget to allow the sale of LV609 and provide a secondary vehicle to the airport.

Asset Management Implications

Nil

Statutory Implications

Nil

Policy Implications

Nil

Strategic Implications

Strategic Community Plan 2017 - 2027

Built Environment

Transport networks that meet the needs of our community and provide safe movement for all users

Deliver a diverse, efficient and safe transport system

Corporate Business Plan 2020/21 – 2023/24

B2.6 Manage the Esperance Airport

Environmental Considerations

Nil

Attachments

a ⇩.

Risk Assessment - Lack of Second Vehicle

Officer’s Recommendation

Voting Requirement Simple Majority

Audit Committee: Agenda

14 December 2020 Page 14

Item: 9.2

Audit Report 2019/20

Author/s	Beth O'Callaghan	Acting Director Corporate Resources
Authorisor/s	Shane Burge	Chief Executive Officer

File Ref: D20/36195

Applicant

Corporate Resources

Location/Address

Internal

Executive Summary

To present to the Audit Committee the 2019/20 Annual Financial Report and Audit Report prepared by the Council’s auditor, Mr Marius Van Der Merwe from Butler Settineri.

Recommendation in Brief

That the Audit Committee

1. Receive the 2019/20 Annual Financial Report including the Audit Report as attached as Attachment A.

2. Recommends the Annual Financial Report and Audit Report for the 2019/20 financial year to Council for adoption.

Background

Council is required to prepare a financial report and present it to the Council’s auditor by 30 September each year. This has been completed and the Annual Financial Report and Audit Report are presented as Attachment A.

The Local Government Act (1995) requires that the audit report and any management letter be examined by the local government to determine if any matters raised in the report(s) require action to be taken. After considering the audit report the local government is to prepare a report on any actions to be taken in response to the audit report and is to forward a copy of that report to the Minister for Local Government.

Officer’s Comment

The Council has received an unqualified or “clean” audit report from Mr Van Der Merwe. The auditor’s opinion state that:

“In our opinion, the financial report of the Shire of Esperance is in accordance with the underlying records of the Shire, including:

a) giving a true and fair view of the Shire’s financial position as at 30 June 2020 and of its performance for the year ended on that date; and

b) complying with to the extent that they are not consistent with the Act, Australian Accounting Standards (including Australia Accounting Interpretations), the Local Government Act 1995 (as amended) and the Local Government (Financial Management) Regulations 1996 (as amended).”

It is now a legislative requirement for a separate report to be presented to the Audit Committee and Council when significant matters are raised in the Audit Report. See below section of the Act.

Section7.12A(4) of the Local Government Act (1995) states:

A local government must-

(a) prepare a report addressing any matters identified as significant by the auditor in the audit report, and stating what action the local government has taken or intends to take with respect to each of those matters; and

(b) give a copy of the report to the Minister within 3 months after the audit report is received by the local government

Within 14 days after a local government gives a report to the Minister under subsection (4)(b), the CEO must publish a copy of the report on the local government’s official website.

There were no significant matters raised in the Audit Report and a management letter was not issued.

Therefore a report to the Minister will not be required.

Revaluation of land and buildings occurred during 2019/20 resulting in a net increase of $6.3m.

The four golf courses within the Shire of Esperance recorded on the asset register as “land vested in and under the control of Council” have been removed as per the change (deletion) of Financial Management Regulation 16.

The 2019/20 surplus closing position has reduced to what was presented to Council at Budget adoption by $211,201. This is the prepayment of rates at 30 June which is now required (by new regulations) to be recorded as a current liability until rates are striked for the new year. This reduction in the carried forward opening position of the 2020/21 budget will be addressed as part of the budget review proceedings due to commence in January.

Consultation

Nil

Financial Implications

As per the 2020/21 Budget.

Asset Management Implications

Nil

Statutory Implications

The statutory implications associated with this item are Local Government Act (1995) Section 7.12A which details duties with respect to audits.

Policy Implications

Nil

Strategic Implications

Strategic Community Plan 2017 - 2027

Leadership

A financially sustainable and supportive organisation achieving operational excellence

Provide responsible resource and planning management for now and the future.

Environmental Considerations

Nil

Attachments

a⇩.

Annual Financial Report 2019/20

Officer’s Recommendation

That the Audit Committee

1. receive the 2019/20 Annual Financial Report including the Audit Report as attached as Attachment A.

2. recommends the Annual Financial Report and Audit Report for the 2019/20 financial year to Council for adoption.

Voting Requirement Simple Majority

Audit Committee: Agenda

14 December 2020 Page 83

Item: 9.3

CEO Review of Systems and Procedures

Author/s	Sarah Walsh	Coordinator Governance & Corporate Support
Authorisor/s	Beth O'Callaghan	Acting Director Corporate Resources

File Ref: D20/36210

Applicant

Internal

Location/Address

Shire of Esperance

Executive Summary

For the Audit Committee to consider the report from the CEO on the appropriateness and effectiveness of the Shire of Esperance systems and procedures in relation to risk management, internal control and legislative requirements.

Recommendation in Brief

That the Audit Committee accept the report from the CEO on the appropriateness and effectiveness of the Shire of Esperance systems and procedures in relation to risk management, internal control and legislative requirements and recommend the review to Council for endorsement.

Background

In accordance with Regulation 17 of the Local Government (Audit) Regulations 1996, the CEO is required to review the appropriateness and effectiveness of the Shire of Esperance’s systems and procedures in relation to risk management, internal control and legislative requirements not less than once every three years.

The review process was developed along with Local Government Insurance Service (LGIS) during 2014 in regards to risk, internal control and legislative compliance. The Department of Local Government has developed guidelines to assist Local Governments in determining the issues that should be considered in any review process -

Risk Management

Internal control and risk management systems and programs are a key expression of a local government’s attitude to effective controls. Good audit committee practices in monitoring internal control and risk management programs typically include:

· Reviewing whether the local government has an effective risk management system and that material operating risks to the local government are appropriately considered;

· Reviewing whether the local government has a current and effective business continuity plan (including disaster recovery) which is tested from time to time;

· Assessing the internal processes for determining and managing material operating risks in accordance with the local government’s identified tolerance for risk, particularly in the following areas;

– Potential non-compliance with legislation, regulations, standards and local government’s policies;

– Important accounting judgements or estimates that prove to be wrong;

– Litigation and claims;

– Misconduct, fraud and theft;

– Significant business risks, recognising responsibility for general or specific risk areas. For example, environmental, occupational health and safety risk, and how they are managed by the local government;

· Obtaining regular risk reports, which identify key risks, the status and the effectiveness of the risk management systems, to ensure that identified risks are monitored and new risks are identified, mitigated and reported;

· Assessing the adequacy of local government processes to manage insurable risks and ensure the adequacy of insurance cover, and if applicable, the level of self-insurance;

· Reviewing the effectiveness of the local government’s internal control system with management and the internal and external auditors;

· Assessing whether management has controls in place for unusual types of transactions and/or any potential transactions that might carry more than an acceptable degree of risk;

· Assessing the local government’s procurement framework with a focus on the probity and transparency of policies and procedures/processes and whether these are being applied;

· Should the need arise, meeting periodically with key management, internal and external auditors, and compliance staff, to understand and discuss any changes in the local government’s control environment;

· Ascertaining whether fraud and misconduct risks have been identified, analysed, evaluated and have an appropriate treatment plan which has been implemented, communicated, monitored and there is regular reporting and ongoing management of fraud and misconduct risks.

Internal Control

Internal control is a key component of a sound governance framework, in addition to leadership, long-term planning, compliance, resource allocation, accountability and transparency. Strategies to maintain sound internal controls are based on risk analysis of the internal operations of a local government.

An effective and transparent internal control environment is built on the following key areas:

· integrity and ethics;

· policies and delegated authority;

· levels of responsibilities and authorities;

· audit practices;

· information system access and security;

· management operating style; and

· human resource management and practices.

Internal control systems involve policies and procedures that safeguard assets, ensure accurate and reliable financial reporting, promote compliance with legislation and achieve effective and efficient operations and may vary depending on the size and nature of the local government.

Aspects of an effective control framework will include:

· delegation of authority;

· documented policies and procedures;

· trained and qualified employees;

· system controls;

· effective policy and process review;

· regular internal audits;

· documentation of risk identification and assessment; and

· regular liaison with auditor and legal advisors.

The following are examples of controls that are typically reviewed:

· separation of roles and functions, processing and authorisation;

· control of approval of documents, letters and financial records;

· comparison of internal data with other or external sources of information;

· limit of direct physical access to assets and records;

· control of computer applications and information system standards;

· limit access to make changes in data files and systems;

· regular maintenance and review of financial control accounts and trial balances;

· comparison and analysis of financial results with budgeted amounts;

· the arithmetical accuracy and content of records;

· report, review and approval of financial payments and reconciliations; and

· comparison of the result of physical cash and inventory counts with accounting records.

Legislative Compliance

The compliance programs of a local government are a strong indication of attitude towards meeting legislative requirements. Audit committee practices in regard to monitoring compliance programs typically include:

· Monitoring compliance with legislation and regulations;

· Reviewing the annual Compliance Audit Return and reporting to Council the results of that review;

· Staying informed about how management is monitoring the effectiveness of its compliance and making recommendations for change as necessary;

· Reviewing whether the local government has procedures for it to receive, retain and treat complaints, including confidential and anonymous employee complaints;

· Obtaining assurance that adverse trends are identified and review management’s plans to deal with these;

· Reviewing management disclosures in financial reports of the effect of significant compliance issues;

· Reviewing whether the internal and/or external auditors have regard to compliance and ethics risks in the development of their audit plan and in the conduct of audit projects, and report compliance and ethics issues to the audit committee;

· Considering the internal auditor’s role in assessing compliance and ethics risks in their plan;

· Monitoring the local government’s compliance frameworks dealing with relevant external legislation and regulatory requirements; and

· Complying with legislative and regulatory requirements imposed on audit committee members, including not misusing their position to gain an advantage for themselves or another or to cause detriment to the local government and disclosing conflicts of interest.

The last review was undertaken in November 2018 and the review recently undertaken by the CEO is now to be considered.

The Shire’s Risk Management Policy (Attachment A) provides guidance and direction in relation to risk management and determines the Shire’s risk appetite with regard to the measures of consequence and likelihood of each risk.

Officer’s Comment

Attachment B has the risk management report and the process that the Shire has worked through to determine the level of risk for each risk theme and to what level the risk is being managed. The executive summary provides a brief snapshot of each risk profile with appropriate colour coding to easily identify the risk rating along with the level of control. The executive summary also outlines those actions that are proposed to improve the level of control for the risk theme. The full analysis for each profile is then attached listing all the controls and the effectiveness of each control. Actions have been suggested to improve controls and therefore reduce the risk.

The treatment or action that is proposed will depend upon the cost or resources required to improve the control. It may be determined that some control measures are too resource intensive to implement compared to the level of increased control that will be obtained. Prioritisation and analysis of cost/benefit will be required in some instances due to resource or budget constraints.

The risk management analysis has been a useful exercise to evaluate the Shire’s business practices and determine how effectively they are operating. The process is used to communicate to staff who have responsibility for the areas around areas of improvement or efficiency. It is expected that this high level risk analysis will also provide guidance in future decision making and resource allocation where business practice needs improvement or the Shire is exposed to an unacceptable level of risk.

Consultation

Middle Management

Directors

Financial Implications

Although there are no direct financial implications arising from this report the actions that have been identified to increase controls or reduce risk may have financial or resource implications for the organisation. The cost of implementing the controls to reduce or manage risk will need to be weighed up against the risk appetite of the organisation to determine the most appropriate course of action.

Asset Management Implications

Nil

Statutory Implications

Local Government (Audit) Regulations 1996 – r.17 CEO to review certain systems and procedures

Policy Implications

EXE019: Risk Management

Strategic Implications

Strategic Community Plan 2017 - 2027

Community Leadership

A financially sustainable and supportive organisation achieving operational excellence

Provide responsible resource and planning management for now and the future

Corporate Business Plan 2020/2021 – 2023/2024

Manage Risk Management System

Environmental Considerations

Nil

Attachments

a⇩.	Risk Management Policy
b ⇩.	Risk Management Report

Officer’s Recommendation

That the Audit Committee;

1. Accept the CEO’s review of the appropriateness and effectiveness of the Shire of Esperance systems and procedures in relation to risk management, internal control and legislative compliance; and

2. Recommend the review to Council for endorsement.

Voting Requirement Simple Majority