Hauora Tairāwhiti

Agenda

FINANCE, AUDIT & IT COMMITTEE Meeting Date Tuesday, 23 July 2019 1:00 PM

Location Hauora Tairāwhiti Boardroom

Page

APOLOGIES

1.1. Gavin Murphy

INTERESTS

2.1. Committee Members’ Schedule of Interests for Review Including Management Attendees

5

2.2. Conflicts in Relation to Agenda Items

PREVIOUS MEETING

3.1. Previous Minutes for Approval: 18/06/2019 8

3.2. Matters Arising

ACTION ITEMS

4.1. Actions from previous meeting 11

CORRESPONDENCE

5.1. Ltr – Controller and Auditor General – Main Matters Arising from the 2017/18 Audits of District Health Boards

12

COMMITTEE WORK PROGRAMME

6.1. For Review 18

FINANCE

7.1. Board Members Expenses April – June 2019 19

AUDIT

8.1. Nil

INFORMATION TECHNOLOGY

9.1. Nil

Hauora Tairāwhiti

SUBSIDIARY ENTITY/RISK MANAGEMENT

10.1 Nil

DECISION ITEMS

11.1. Nil

GENERAL BUSINESS

12.1. Nil

RESOLUTION TO EXCLUDE THE GENERAL PUBLIC

RESOLVED THAT: In accordance with the provisions of Schedule 3, of the New Zealand Public Health and Disability (NZPH&D) Act 2000, that the public be excluded from the next part of the proceedings of this meeting. The reason for passing this resolution and the grounds on which the resolution is based, together with the particular interest or interests protected by the Official Information Act 1982 which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public areas are as follows: 13 As shown on resolution to exclude the public in Minutes. 14-19 Negotiations or Commercial Activities – the disclosure of

that information would not be in the public interest because of the greater need to enable Hauora Tairāwhiti to carry on, without prejudice or disadvantage, negotiations or activities.

[Official Information Act 1982 S.9 (2) (j) & (i)] Ground(s) under Clause 32 for Passing this Resolution: That the public conduct of the whole or the relevant part of the proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist, under Section 6, 7 or 9 (except Section 9(2)(g)(i) ) of the Official Information Act 1982. [NZPH&D Act 2000 Schedule 3, S.32(a) ]

Hauora Tairāwhiti

PREVIOUS IN COMMITTEE MEETING

13.1. Minutes of Previous In Committee Session: 18/06/2019 22

13.2. Action Items 25

CORRESPONDENCE

14.1. Ltr - Hon Dr David Clark re Health Finance, Procurement and Information Management System (FPIM): Cabinet Decision

26

14.1a FPIM Business Case 28

14.2. Ltr - Director General of Health and Deputy Director-General - Health Finance, Procurement and Information Management System (FPIM): Next Step

38

14.3. Email – Maureen Tong Principal Advisor, Ministry of Health - One-Off Costs in Full Year 2018/19 Financials

42

FINANCE

15.1. Summary Finance Report 44

AUDIT

16.1. Audit Action Status Report 51

16.2. Midland Regional Internal Audit Status Report 54

INFORMATION ITEM

17.1. National Asset Management Plan Programme Update 5 - June 2019 56

17.2. PowerPoint presentation- DHB Capital Charge n/a

17.3. Holiday Act Provision Discussion - Verbal n/a

SUBSIDIARY ENTITY/RISK MANAGEMENT

18.1. Review HY2 Tenders Report – No new Tenders to Report n/a

18.2. Gisborne Laundry Services (GLS) Financial Report Q4 2018/19 60

18.3. TLab Q4 Financial Report 2018/19 65

18.4. HealthShare Limited Financial Report Q4 2018/19 69

DECISION ITEMS

19.1. Nil

RESOLUTION TO READMIT THE PUBLIC

Hauora Tairāwhiti

TO ADOPT: 1. That the public be readmitted to the meeting. 2. Recommendations be released unless further investigations are

required prior to final resolution. 3. The Executive be delegated authority after the meeting to

determine which items should be made publically available for the purposes of publicity or implementation.

PUBLIC RELEASE OF IN COMMITTEE ITEMS

Next Meeting: Tuesday, 20 August 2019 1:00 PM

Member Interest Declared RoleDavid Scott Three Rivers Medical Centre Wife an employee

Treescape Farm Partnership Partner in Business

Treescape Consultancy Business Consultant

Te Kuri a Tuatae Marae Trustee

East Coast Rural Support Trust Rural Support Co-ordinator

Gisborne District Council Civil Defence Shift Volunteer/Media Liaison Officer

Gisborne Herald Casual non-paid columnist

Middle Mount Company Ltd Director

CONNEXT Charitable Trust Trustee

Geoff Milner Ngati Hine Health Trust Chief Executive

Terenga Paraoa Lmited Director

Manaia PHO Limited Director

Tairāwhiti Laundry Services Limited Director

Gavin Murphy Tlab Limited Director

Eastland Community Trust Chief Executive

Personal friend of the Minister of Health

Activate Tairāwhiti Limited Director

Eastland Development Fund Limited Director

WET Gisborne Limited Director

Kathy Sheldrake Motu Trails Charitable Trust Chair

Rehette Stoltz Gisborne District Council Deputy Mayor

Sport Gisborne Tairāwhiti Trustee

Tairāwhiti Positive Aging Trust Trustee

E Tu Elgin Community Group Member

Husband employed by Hauora Tairāwhiti Deon Stoltz (Senior Medical Officer)

Deon Stoltz Medical Services Director

Art in Public Places Trustee

Manaaki Tairāwhiti Governance Group member

Sunshine Service Managment Team member

Gisborne Walking & Cycling Trust Trustee

Tairawhiti Laundry Services Limited Director

Te Ha 1769 Sestercentennial Trust. Trustee

Healthy Families East Cape Strategic

Leadership Group

Member

Brian Wilson B & P Wilson Family Trust Trustee

Gisborne District Council Councillor

YMCA President

Gisborne Surf Lifesaving Charitable Trust Trustee

TLab Director

John Hockey Chamber of Commerce Board member

Ngati Porou Holding Company Ltd General Manager, Business Development

FAIT Members' Interest Register5

Jim Green (Chief

Executive)

Health Partnerships Limited (CE Sponsor –

Food Services Programme)

Appointed by National CEs. First responsibility is to Hauora

Tairāwhiti but there may be an occasion when this conflicts

with the national programme.

Chief Executive Representative, Midland

Alliance Leadership Team (Midland Health

Network Trust)

Potential conflict exists in relation to decisions made by the

Midland ALT which conflict with the interests of Hauora

Tairāwhiti.

Interim Chair/Director, HealthShare Limited First responsibility is to Hauora Tairāwhiti but there may be

an occasion where this conflicts with the needs of HSL.

Wife employed by Tūranga Health as Tamariki

Ora Nurse and Team Coordinator for Tamariki

Ora

Potential conflict exists over decisions related to funding of

services provided by Tūranga Health affecting the

employment status of his wife.

Son is employed as a Medical Registrar at

Waikato DHB.

Potential conflict regarding decisions on terms and

conditions of employment for Medical Registrars. Daughter in-law is currently working in a

community Pharmacy in the Waikato.

Potential conflict regarding my involvement with the

national Community Pharmacy Agreement which could

impact on her employment.

Manaaki Tairāwhiti member Decisions at Manaaki Tairāwhiti may conflict with those in

my role as CE of Hauora Tairāwhiti. The management is that

decisions around funding are required to come back to

Hauora Tairāwhiti.National Oracle Solution Executive Steering

Committee as CE representative

A possible conflict of interest arises for me in this role as

opposed to my role as CE of Hauora Tairāwhiti.

Management of the possible conflict can be effected by the

fact that I have a responsibility to Hauora Tairāwhiti and the

Midland Region ahead of the commitment to the NOS

programme.

Pay Equity Workstream Co-Lead, Employment

Relations Strategy Group (ERSG),

Appointed by National CEs. First responsibility is to Hauora

Tairāwhiti but there may be an occasion when this conflicts

with the work programme.

National CE Lead, Holidays Act Appointed by National CEs. First responsibility is to Hauora

Tairāwhiti but there may be an occasion when this conflicts

with the work programme.

Midland Regional DHBs CE Lead, Child Health

Action Group

Appointed by Midland DHBs. First responsibility is to

Hauora Tairāwhiti but there may be an occasion when this

conflicts with the work programme of Midland.

Midland Regional DHBs CE Lead, Māori Health Appointed by Midland DHBs. First responsibility is to

Hauora Tairāwhiti but there may be an occasion when this

conflicts with the work programme of Midland.

Kolbe, Anne (Acting

CMO temporary)

Kolbe Medical Services Ltd Director and Joint Owner

Communio, NZ Senior Consultant & Contractor

Whanganui DHB Member, Risk & Audit Committee

Health Research Council of NZ Husband chairs the clinical trials advisory committee

Auckland University Holds an adjunct appointment (Associate Professor level)

Husband is an employee (Professor of Medicine, FMHS)

Australian Medical Council Husband is a member of the Medical School Advisory

Committee, and leads the Medical Specialties Advisory

Committee Accreditation TeamRoyal Australasian College of Physicians Husband is a member of the College’s governance working

party, and chairs the revalidation working party

EXCITE International Board Member, and Chair of Advisory Council

Management Attendees

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Medicare Benefits Schedule Review Taskforce

(Australia)

Senior Advisor/Government taskforce to review the

Medicare Benefits

ScheduleInstitute of Environmental Science & Research

(ESR)

Daughter an employee – forensic scientist

Tairawhiti DHB Consultant (strategic services)

Siggins Miller, Australia Senior Advisor & Associate

Craig Green (Chief

Financial Officer)

Chamber of Commerce (Mentor) Possible conflict if mentored party is providing services to

Hauora Tairāwhiti.Mother employee of Compass Medirest Food

Services

A conflict of interest exists in relation to negotiations with

Compass Medirest Food services Tairāwhiti conflict where it

affects or could affect staffing.

National CFO representative, Employee

Relations Strategic Group (ERSG)

Appointed by National CFOs. First responsibility is to

Hauora Tairāwhiti but there may be an occasion when this

conflicts with the work programme.

Chair, CFO Review Group (CRG) First responsibility is to Hauora Tairāwhiti but there may be

an occasion when this conflicts with MECA costing reviews.

Midland CFO representative, eSPACE

Programme Board member

Nominated by SRO, appointed by Midland CFOs. First

responsibility is to Hauora Tairāwhiti but there may be an

occasion where this conflicts with the needs of eSPACE.

Member, Health Asset Management

Improvement Group (HAMI)

First responsibility is to Hauora Tairāwhiti but there may be

an occasion when this conflicts with the work programme.

Max Ponomarev (Acting,

GM Information

Services)

Nil

Nicola Ehau (Planning,

Funding & Population

Health)

Husband an employee of the Health Quality &

Safety Commission

Low likelihood of conflict.

Manaaki Tairāwhiti Decisions at Manaaki Tairāwhiti may interest with those in

my role as GM Planning & Funding in Hauora Tairāwhiti.

The management is that decisions around funding require

to come back to Hauora Tairāwhiti.

Amelia Brown-Smith Member, National DHB Quality & Risk

Manager

Low Likelihood of conflict

Health Quality & Safety Commission, sister is

consumer representative

Low Likelihood of conflict

Turanga Health, sister is an employee Possible potential conflict exists in relation to contractual

decisions with Turanga HealthWell Child Hauora Tarawhiti, sister an

employee

Low Likelihood of conflict

Mental Health Services Hauora Tairāwhiti,

first cousin is an employee

Low Likelihood of conflict

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Hauora Tairāwhiti Click here to enter text.

Minutes

FINANCE, AUDIT & INFORMATION TECHNOLOGY COMMITTEE

Date of meeting Tuesday, 18 June 2019 at 01:00 PM

Present Geoff Milner (Chair) David Scott Kathy Sheldrake Rehette Stoltz John Hockey Gavin Murphy

Attendees Jim Green (Chief Executive) Iain Diamond (Business Support Analysis, Planning and Funding) Ian Cowley (HealthShare Regional DHB Internal Auditor) Jana Connoway (HealthShare Regional DHB Internal Auditor) Rachel Phillips (Minute Secretary)

Apologies Craig Green, Amelia Brown-Smith, Brian Wilson

ITEM 2: INTERESTS

2.1 Changes to Register Changes to be noted.

2.2 Conflicts Related to any Item on the Agenda Nil

ITEM 3: MINUTES OF PREVIOUS MEETING

3.1 Previous Minutes for Approval Approved

The public minutes of the Finance, Audit & Information Technology (FAIT) Committee meeting held 21 May 2019 were confirmed as a true and accurate record.

3.2 Matters Arising Nil

ITEM 4: ACTION ITEMS

4.1 Actions from Previous Meeting Noted

ITEM 5: CORRESPONDENCE

Nil

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Hauora Tairāwhiti Click here to enter text.

ITEM 6: COMMITTEE WORK PROGRAMME

Noted

ITEM 7: FINANCE

Nil

ITEM 8: AUDIT

Nil

ITEM 9: INFORMATION TECHNOLOGY

9.1 Bi Monthly Information Services Report Jim Green gave feedback in regards to Midland Clinical Portal and BPAC points. Accepts The Report

ITEM 10: SUBSIDIARY ENTITIES/RISK MANAGEMENT

10.1 Organisational Risk Report Mortality Rate and Chronic Fatigue and burnout, new items on the risk report was discussed. Risk 253, relationship with Oranga Tamariki was also discussed. Adopts The Repot

10.2 Legislative Risk Report

Accepts The Report

ITEM 11: DECISION ITEMS

Nil

ITEM 12: GENERAL BUSINESS – late items

Nil

RESOLUTION TO EXCLUDE THE PUBLIC

Resolved that: In accordance with the provisions of Schedule 3 of the New Zealand Public Health and Disability Act 2000, it was agreed that the public now be excluded from the following part of the proceedings of this meeting. The reason for passing this resolution and the grounds on which the resolution is based, together with the particular interest or interests protected by the Official Information Act 1982 which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public areas are as follows:

Item/s Reason(s) under Clause 33 for passing this resolution in relation to each item:

Ground(s) under Clause 32 for passing this resolution

13.1-2 As shown on resolution to exclude the public in Minutes.

That the public conduct of the whole or the relevant part of the

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Hauora Tairāwhiti Click here to enter text.

14.1-19.1 Commercial Activities/Negotiations The disclosure of that information would not be in the public interest because of the greater need to enable Hauora Tairāwhiti to carry on negotiations without prejudice or disadvantage. [Official Information Act 1982 S.9 (2) (i) and (j)]

proceedings of the meeting would be likely to result in the disclosure of information for which good reason for withholding would exist, under section 6, 7 or 9 (except section 9(2) (g) (i)) of the Official Information Act 1982. [New Zealand Public Health and Disability Act 2000 Schedule 3, S.32(a)]

The Chief Executive, the Chief Financial Officer, the Auditors and the Minute Secretary were invited to remain for facilitation of FAIT Committee discussion and recording. The meeting continued with the public excluded.

ITEM 18: PUBLIC RELEASE OF IN COMMITTEE ITEMS

There were no In Committee decisions released from the public excluded session.

Meeting Closed: 2.26pm

Next Meeting: 23 July 2019 1.00pm – Corporate Boardroom

__________________________________ ___________________ Chair Date

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Recommendation: That the Committee ACCEPTS the report.

Action Items FINANCE, AUDIT & IT COMMITTEE

Agenda Item # 4.1 Item Description Who Deadline Carried over Board to revisit and refresh risk management processes

– frequency of review; differentiate between operational and strategic risks; reporting to FAIT vs Board.

• To discuss in relation to the action point below.

CE December.

Organisational Risk Report

The Quality Manager be in attendance to present the next Quarterly Report and Risk Framework, including how the Risk data can be presented to indicate progress trends (noting the Board Action related to revisiting/refreshing risk management processes).

• Ongoing

Amelia When applicable.

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Level 2, 100 Molesworth Street, Thorndon 6011

PO Box 3928, Wellington 6140, New Zealand

Email: john.ryan@oag.govt.nz

Telephone: +64 4 917 1500

Website: www.oag.govt.nz www.audit.govt.nz

John Ryan

28 June 2019

Tēnā koe

MAIN MATTERS ARISING FROM THE 2017/18 AUDITS OF DISTRICT HEALTH BOARDS

District health boards (DHBs) play a vital role in New Zealand’s social and economic wellbeing. Every DHB is one of, if not the, largest employer in its district. Therefore, there are high expectations for DHBs to perform well. These expectations are getting more difficult to meet as the population increases and gets older and the range of available treatments expands. Ensuring that DHBs have the capability and infrastructure to meet these expectations is a significant challenge.

New Zealand’s health system delivers an extraordinary amount for the investment collectively made into it. As a country, we have made progress on several health outcomes, outperforming many OECD countries that invest far more.

However, the worsening financial position of DHBs is a concern. In just a few years, we have seen one or two DHBs experiencing financial difficulties to almost all of them budgeting for deficits (and many struggling to achieve those budgets).

In 2017/18, DHBs collectively paid the Crown over $323.6 million in capital charge – more than the sector deficit of $257.3 million. Some of this was funded by the Crown because it arose as a result of revaluations increasing the value of assets. But increases in capital charge for new capital, such as for new hospital buildings, are not funded. DHBs clearly feel the impact of the sudden increase in capital charge in these circumstances. As we have noted previously, it is not clear what the capital charge is actually achieving in the health sector. I look forward to the findings of the Ministry of Health’s review of the health capital funding

system.

An ongoing concern is the national hospital estate and its ongoing viability. Significant proportions of the estate have reached an age where buildings need to be replaced, and updated facilities are needed for a population that is increasing and getting older. It is encouraging to see more integrated planning taking place, such as the recently completed Northern Region Long Term Investment Plan and the proposed National Asset Management Plan that the Ministry of Health is preparing. I also note the funding in the 2019 Budget for the establishment of a health infrastructure unit within the Ministry of Health. These changes should help to address a long-standing gap in nation-wide planning for investment in health sector assets. This is a matter that we are also interested in. We are proposing work in 2019/20 that will look at the system for prioritising and investing in assets supporting health care delivery.

A key part of good governance in any complex organisation is having an effective finance, risk, and audit committee. This is especially important when times are tough. It is a good idea to regularly review the scope, composition, and processes of your committee to ensure that they continue to serve the changing needs of your DHB. There is information about effective audit committees in the good practice section of our website.1

Maintaining the separation between governance and management is critical. Problems emerge when this line gets blurred and governors become too involved in operational developments before they are presented to the Board for consideration and approval. Maintaining the separation between governance and management enables you to consider risks appropriately and exercise judgement objectively.

1 See www.oag.govt.nz/good-practice.

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The Appendix contains more details on our observations from the audits of all 20 DHBs and our recommendations for improvement. The main matters are:

Asset management: Although DHBs have made some improvements to their asset management in 2017/18, they need to better manage the assets that are critical to the delivery of health services. We expect to see a more strategic approach, which would include using clinical service planning to inform asset planning, more co-ordination at a regional and national level, and effective long-term investment planning.

Procurement and contract management: Procurement remains important for DHBs because of the significant amount of products and services they procure to support their own delivery of services, and their reliance on other providers to deliver health services in the community. Robust contract management is particularly vital in this context.

Fraud awareness and prevention: We received some reports of suspected fraud from DHBs in 2017/18. DHBs are most vulnerable when cash is handled or when there is insufficient segregation of duties. Effective controls are critical to reduce the risk of fraud taking place. It is also important that staff understand their role in preventing and reporting fraud.

Holidays Act 2003 compliance: We have commented, in the last three annual audits, on the difficulties DHBs have ensuring that they comply with the Holidays Act 2003. Although we understand that there are complex issues to address, DHBs need to urgently resolve this issue and ensure that they are able to pay staff their legal entitlements.

Statements of performance expectations: The Crown Entities Act 2004 sets out clear obligations for DHBs to provide Parliament and the public with information on what they plan to achieve in the coming year and what they plan to spend. In 2017/18, 18 DHBs did not meet this obligation within the required timeframe.

Asset valuations: Because of the number and value of the assets they hold, and the rapid change in land values in some areas, valuations can be challenging for DHBs. Another complicating factor is the effect of changes to the Building Act 2004 and requirements to carry out seismic assessments on buildings, which led to one DHB’s audit opinion being qualified in 2017/18. DHBs need to frequently

consider whether a revaluation is needed and ensure that all relevant information, such as seismic assessment, is available to valuers.

Information systems and technology: Because of the scale of DHBs’ financial transactions, it is essential that the information systems and technology supporting financial management are secure and well managed. We noted the need for several DHBs to continue improving security and disaster preparedness.

I encourage you to talk to your chief executive about the progress your DHB is making with the matters discussed in the Appendix. I also encourage you to discuss this letter with your appointed auditor and/or the health sector manager, Greg Goulding.

Nāku noa, nā

John Ryan Controller and Auditor-General

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Appendix: Observations from our 2017/18 audits of district

health boards

Asset management

We have previously commented on the need for district health boards (DHBs) to improve their asset management. Because DHBs rely on their assets to provide health services, managing them requires effective stewardship. Although we have seen some improvement in DHBs’ asset management recently,

there is still much work to be done.

In June 2016, we published the report District health boards’ response to asset management requirements

since 2009. Given how important DHBs’ assets are to delivering essential health services, we found that

DHBs’ asset management was as not as mature as we expected. DHBs appeared to focus more on short-term results and less on how they were going to ensure their ongoing capability to deliver results. We made several recommendations to help DHBs improve their asset management.

During our 2016/17 audits, we saw little evidence that DHBs had addressed these recommendations. However, during our 2017/18 audits, we saw more DHBs improving their asset management practices. Some DHBs have made progress by putting in place foundations for good asset management, for example, preparing clinical services plans that enable strategic asset management decisions.

Long-term investment plans are another important enabler of strategic asset management. In 2017/18, the four Northern Region DHBs completed their integrated Northern Region Long Term Investment Plan.

Some DHBs have gained a better understanding of the condition of their assets, which is important to effectively manage their assets. However, DHBs’ maintenance of assets is still predominately reactive rather than proactively planning for the maintenance requirements of the assets. We also noted that some DHBs have asset management plans that are now due to be refreshed.

We look forward to the completion of the National Asset Management Plan by the Ministry of Health, which we understand will include systems for managing information about DHBs’ critical assets and enable

informed decisions about what investments are needed and where. This is a welcome development, as the health sector has needed a more joined-up and evidence-based approach to asset management for some time.

Questions to consider

Does your DHB know how well its assets meet its current and expected service delivery needs?

Does your DHB have reliable information about its assets and their condition that supports long-term service delivery?

Does your DHB use information from asset management planning to inform financial forecasts and strategic planning?

Procurement and contract management

Effective procurement is important for DHBs. We have estimated that up to 60% of DHB expenditure is on procurement. Much of this is for health services purchased by DHBs from other providers.

The procurement environment continues to be uncertain for DHBs. In recent years, national procurement roles have been previously carried out by Health Benefits Limited and healthAlliance FPSC Limited. The national procurement role is currently carried out by NZ Health Partnerships Limited. These organisations have each provided different types and levels of procurement support to DHBs, with corresponding changes required in DHBs’ own procurement capability. Some DHBs also have regional shared-services arrangements for procurement.

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Regardless of the national or regional arrangements in place, it is important that DHBs understand their own procurement capability needs, and that procurement carried out by, or on behalf of, each DHB follows good practice. Procurement decisions and processes remain the responsibility of the DHB.

Contract management remains a challenge for DHBs. Many of the services contracted by DHBs might have limited numbers of potential providers or only one viable provider. In these circumstances, more reliance is placed on trust, but this does not reduce the need for effective contract management.

Some DHBs have updated their contract management policies but lack dedicated systems for managing those contracts. In some cases, this has been because some DHBs are waiting for national systems that were expected to offer this functionality. Other DHBs have determined that the investment required to implement contract management systems is not presently justified. DHBs need to consider all investment decisions carefully. It is not our place to form a view on those decisions. We note, however, that DHBs are large organisations and need tools that are appropriate to their scale and complexity.

Questions to consider

Does your DHB have an up-to-date procurement strategy? The strategy should cover both providers and funder arms and include the DHB’s medium-term procurement and contracting needs.

Does your DHB have a comprehensive and up-to-date procurement policy(s), guidance, procedures, and templates that cover all its activities and all forms of procurement activity (including contracts with health care providers and non-governmental organisations)?

How does your DHB get assurance that contracted health care services are providing value for money? Have you tested the market recently?

Is your DHB’s management of contracts robust enough to ensure ongoing quality service delivery?

Does your DHB have the right number of staff with appropriate skills, knowledge, and expertise in the right structure to deliver effective procurement and contract management?

Are you confident that procurement is well co-ordinated between planning, funding, and other parts of the DHB?

Does the Board get the right level of regular reporting on procurement, contract spending, and other issues so it can carry out its oversight and governance role effectively?

Fraud awareness and prevention

New Zealand’s enviable reputation for a high integrity public service is vulnerable to the actions of a few

individuals who can erode trust in the entire system. In 2017/18, we did not see a significant increase in incidences of fraud but, as with previous years, there were some cases where individuals misappropriated DHB funds. In most, the DHB discovered the fraud through its internal controls or a tip off. We were informed of each incident appropriately. However, DHBs need to continue to be active in preventing fraud and vigilant in detecting it. All DHBs should have an up-to-date fraud policy, carry out a thorough and appropriate investigation when fraud is suspected, and notify law enforcement when fraud is identified.

Based on recent trends, situations where DHBs are most vulnerable are when staff are handling cash or there is insufficient segregation of duties for revenue and expenditure. We have also seen throughout the public sector an increase in cyber fraud, such as “whaling” or “phishing” scams. Ensuring that sufficient and

appropriate controls are in place will help mitigate the risk of fraud occurring. Staff with delegated authority for expenditure need to exercise robust reviews before approving payments. It is crucial that staff at all levels in the organisation, especially those who process revenue and expenditure, understand their responsibility to report bad behaviour where they see it and know how they can do this.

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DHBs might find the Fraud Control Improvement Kit useful, which was prepared by the New South Wales Audit Office.2 This can be used to evaluate processes for mitigating fraud and corruption.

Questions to consider

Is your DHB’s fraud policy up to date?

Has your DHB carried out a risk assessment of where it is most vulnerable to fraud? Have controls been implemented to mitigate risks?

Does your DHB have a programme of fraud awareness that might include regular reminders to staff about the fraud policy and their responsibilities?

Holidays Act 2003 compliance

In 2017/18, every DHBs’ audit report included a paragraph drawing attention to the Holidays Act 2003 (the Act) and the potential significant liabilities from non-compliance with the Act. It is now three years since we first reported on this matter for DHBs and it is not yet resolved. This creates uncertainty in DHBs’ financial

statements and is a real cost to employees, who might not have received the pay that they were entitled to.

We appreciate that the issues are complex but they can be resolved. The longer this situation continues, the greater the potential liability is for DHBs, adding to an already strained financial situation. We understand that work is being carried out at a national level to address the problem, but it is unlikely to progress fast enough for the problem to be resolved in 2018/19. We expect this to be a priority for the DHBs in 2019/20.

As well as determining how much might be owed for holiday pay not previously paid, we recommend that DHBs test the configuration of their systems and processes to ensure that the correct payment is made from the outset. This will prevent liability in the future.

Statements of performance expectations

In 2017/18, we noted that several DHBs had not completed their Statement of Performance Expectations (SPE) in time to meet the requirements of the Crown Entities Act 2004. For some DHBs, the SPE was still not finalised by the time the annual report was signed. For those DHBs’ annual reports, we added a

paragraph emphasising the matter in the audit report.

SPEs are important accountability tools. They help Parliament and the public understand what a DHB intends to achieve during the year and how much it intends to spend. Failing to meet the time frames means that people are deprived of information that they are entitled to.

Combining DHBs’ annual plans with SPEs might have contributed to this situation. We are aware that annual

plans can take some time to be agreed, and that there is no legislative deadline for doing so. Because of this, it would make sense for SPEs to be prepared and presented to Parliament separately from the annual plan, unless DHBs are confident that the annual plan will also be finalised in time to meet the SPE requirements.

Asset valuations

Asset valuations can be challenging for DHBs because of the number and value of their assets. DHBs need to revalue land and buildings regularly to ensure that the carrying value of the asset reflects fair value. Because hospitals are usually located in central areas with high population, land values can change significantly and quickly. This means that DHBs need to frequently consider whether a revaluation is needed instead of having a scheduled revaluation every three or five years.

2 The Fraud Control Improvement Kit is available on the New South Wales Audit Office’s website at www.audit.nsw.gov.au.

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Another factor that has become important after the 2016 amendments to the Building Act 2004 is seismic assessment of buildings. The results of these assessments have created valuation challenges for some DHBs. In 2017/18, this resulted in a qualified audit opinion for one DHB because it was unable to quantify the effect of an adverse seismic assessment on the value of the hospital. DHBs should ensure that seismic assessments are done before valuations, so the assessment results can be reflected in the valuations.

Information systems and technology

It is essential that the information systems and technology supporting financial management are secure and well managed. Continual reviews and vigilance are needed because of the large amount of DHB spending and because the environment changes quickly.

In 2017/18, we continued to find that many DHBs needed to improve security by strengthening passwords and ensuring that privileged and administrator access is restricted to those who need it. Ensuring that non-active accounts are deleted is another important step that should be more widely applied.

Several DHBs also need to prepare or update disaster recovery plans for their information systems. Given the extent to which DHBs rely on these systems, an up-to-date disaster recovery plan is essential.

Some DHBs rely on shared services providers for their information systems services. It is just as important for these DHBs to be satisfied that information and processes are secure, because responsibility remains with the DHB.

Questions to consider

What is your level of confidence that your DHB’s information systems will be able to support the delivery of services in a reasonable time frame after a disaster?

How secure are your DHB’s systems, and how do you ensure that you maintain information security at an

appropriate level?

What are you doing to ensure that your DHB’s information service providers have the protections and

controls in place to protect your information?

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Work Programme AGENDA ITEM # 6.1

Month 2019 2020 January No Meeting No Meeting February Review the Committee’s Work Programme

for the year Review the Committee’s Work Programme for the year

Review summary financial proposals for the Annual Plan

Review summary financial proposals for the Annual Plan

Review Q2 Capital Expenditure Review Q2 Capital Expenditure Review Debtors Review Debtors Review HY1 Tenders Report Review HY1 Tenders Report Review indicative funding advice (if available) Review indicative funding advice (if available)

March Consideration of Capital Expenditure Programme parameters

Consideration of Capital Expenditure Programme parameters

Review Legislative Compliance Review Legislative Compliance Review Organisational Risks Review Organisational Risks Consideration of Audit Arrangements for the annual statutory audit

Consideration of Audit Arrangements for the annual statutory audit

Review indicative funding advice (if available) April Review Q3 Capital Expenditure Capital

Review Q3 Capital Expenditure

May June Review Organisational Risks Review Organisational Risks

Review Legislative Compliance Review Legislative Compliance Review Audit NZ Interim Management Letter on the year's audit

Review Audit NZ Interim Management Letter on the year's audit

Review the Internal Audit Plan for the forthcoming year

Review the Internal Audit Plan for the forthcoming year

July Consideration of Going Concern assumption for the preparation of the Annual Report.

Consideration of Going Concern assumption for the preparation of the Annual Report.

Review HY2 Tenders Report Review HY2 Tenders Report Review prior year Capital Expenditure. Review prior year Capital Expenditure.

August Review Debtors. Review Debtors. Disclosure of Chief Executive Expenses Disclosure of Chief Executive Expenses

Consideration of Going Concern assumption for the preparation of the Annual Report.

Review prior year Capital Expenditure.

September Review final draft Annual Report Financials

and Going Concern assumption. Review final draft Annual Report Financials and Going Concern assumption.

Review Organisational Risks. Review Organisational Risks. Review Legislative Compliance Review Legislative Compliance

October Review the Budget Parameter recommendations.

Review the Budget Parameter recommendations.

Review Q1 Capital Expenditure. Review Q1 Capital Expenditure. November December Review indicative funding advice (if available). Review indicative funding advice (if available).

Review Audit NZ Management Letter on the year's audit.

Review Audit NZ Management Letter on the year's audit.

Organisational Risk Report Organisational Risk Report Review Legislative Compliance Review Legislative Compliance

RECOMMENDATION THAT The Committee ACCEPTS the updated Work Programme.

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Board and Committee Members’ Fees and Expenses

INFORMATION ITEM # 7.1

Audit New Zealand have recommended that, to conform with generally accepted good governance practice for Crown Entities, Fees and Expenses paid to Board Members be circulated to the Audit Committee and subsequently noted by Board. This ensures that these disbursements are open to both internal and external scrutiny. Accordingly, the fees and expenses paid to Board and Committee Members in the period 1 April 2019 to 30 June 2019 are set out below:

Board Member Board Fees Committee Fees

Expenses Total

Scott (Chairperson) 7753.80 2750.00 1098.65 11602.45 Milner (Deputy Chair) 4707.72 765.20 0.00 5472.92 Akuhata-Brown 3766.14 1000.00 0.00 4766.14 Murphy 3766.14 1250.00 0.00 5016.14 Pihema 3766.14 1250.00 494.76 5510.90 Raihania 3766.14 2187.50 2380.50 8334.14 Sheldrake 3766.14 1687.00 0.00 5453.14 Stoltz 3766.14 1500.00 0.00 5266.14 Wharehinga 3766.14 1250.00 0.00 5016.14 Wilson 3766.14 600.00 0.00 4366.14 Younger 3766.14 1000.00 1037.40 5803.54

The major proportion of Expenses for Board and Committee Members is reimbursement for travel cost to attend the statutory meetings.

Community Rep. Committee Fees Expenses Total Clarke 500.00 66.88 566.88 Hockey 500.00 0.00 500.00 Johnson 500.00 0.00 500.00 McCarthy-Robinson 1750.00 1544.48 3294.48 Nepia-Clamp 250.00 0.00 250.00 Ngarangione 750.00 104.88 854.88 Ngata 500.00 156.30 656.30 Palmer 0.00 0.00 0.00 Para 500.00 0.00 500.00 Timutimu 750.00 0.00 750.00 Waihi 750.00 0.00 750.00 Williams 250.00 0.00 250.00 Recommendation That the FAIT committee ACCEPTS the information. C Green Chief Financial Officer 3 July 2019

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