Review of Local Government Natural Disaster Insurance Issues

LGA AUDIT COMMITTEE

CHARTER

AND

TERMS OF REFERENCE

Reviewed May 2017

Endorsed by the LGA Board16 May 2017

Local Government Association of South Australia
LGA Audit Committee – Charter and Terms of Reference

LGA Audit Committee – Charter

INTRODUCTION

1.ESTABLISHMENT

1.1Pursuant to clause 107 of the Local Government Association of South Australia Constitution (the Constitution) and by resolution at a duly convened meeting held on 17 September 2015, its Board, has established an Audit Committee to operate as an independent and objective advisory Committee to theBoard.

1.2Clause 85 of the Constitution provides that the role of the Board includes ensuring:

1.2.1The activities of the Local Government Association (LGA) are conducted efficiently and effectively and that the services and assets of the LGA are properly managed and maintained; and

1.2.2the LGA performs its business plan and achieves or betters the financial outcomes projected in its budget

1.3The 17 September 2015 LGA Board resolution states that the LGA Audit Committee should include coverage of the LGA and its related entities including the LGA Mutual Liability Scheme; the LGA Workers Compensation Scheme; LGA Procurement; LGA Research & Development Scheme.

1.4Having regard to items 1.2 and 1.3 above, and in accordance with sub clause 107.5 of the Constitution, the LGA Board vests in the Committee responsibility to investigate and keep under consideration the matters outlined in this Charter and Terms of Reference.

2.OBJECTIVES

2.1The primary objective of the Audit Committee is to protect and create value for the Board and its stakeholders. It will provide advice and recommendations to the LGA Board (the Board), contributing to a systematic and disciplined approach to evaluating and improving the effectiveness of financial management, risk management, internal controls and governance processes.

2.2As part of the LGA’s governance commitment to its Members, the Board has constituted the Audit Committee to facilitate:

2.2.1Oversight of relevant activities to facilitate achieving the LGA’s objectives in an effective, efficient and orderly manner including the delivery of commercial and non-commercial services to Members.

2.2.2Advisory services and oversight as required relating to the activities of the LGA’s related entities in the context of their ongoing contribution and return on investment to Members.

2.2.3Enhancing the credibility and objectivity of internal and external financial auditing and reporting.

2.2.4Effective management of risk and the protection of the LGA’s assets.

2.2.5Compliance with laws and regulations as well as use of best practice guidelines.

2.2.6The effectiveness of systems of internal control.

2.2.7The provision of an effective means of communication between the external auditor, other service providers as applicable, management and the Board.

3.MEMBERSHIP

3.1The Committee will comprise a minimum of four members:

3.1.1One Board Member (who is not the President)

3.1.2A minimum of three independent members.

Board Member Representative

3.2Ideally, the Board Member on this Committee will have experience in either business, legal, audit or financial management / reporting knowledge and experience.

3.3Appointment of the Board Member to this Committee will be made by the Board on a rotational basis, as resolved from time to time. The Board may resolve to re-appoint the Board Member on this Committee for consecutive terms. The Board may appoint a proxy for the Board Member representative to attend meetings of the Committee in the event that the Board Member representative is unavailable.

3.4The Board may, from time to time, determine to pay the Board Member representative reasonable remuneration and/or their reasonable travelling and other expenses properly incurred in attending Committee meetings.

3.5If required, training and development will be sourced and provided to the Board Member representative on matters/subjects within the Audit Committee’s Charter and Terms of Reference.

Independent Members

3.6Ideally, independent members will collectively bring the following knowledge, skills and experience:

3.6.1knowledge / experience in business, financial management, insurance, procurement, legal, audit

3.6.2an understanding of local government, and / or member based organisations

3.6.3common sense, integrity, independent judgement, dedication, commitment

3.6.4significant industry experience in the finance, insurance sectors

3.6.5significant board and / or audit committee experience

3.7At least one external expert member will have expertise and knowledge in financial management/reporting

3.8Independent members will not be elected members or employees of LGA Member Councils, or employees of related local government organisations

3.9Appointment of independent members will generally be made by the Board for a three-year term. To ensure succession planning for the Committee, the terms of appointment should be arranged on a rotational basis and there is continuity of membership despite changes to the Board’s elected representatives. The Board may resolve to re-appoint an independent member for consecutive terms.

3.10To establish a rotational appointment cycle, the following terms will apply for the Committee’s inaugural independent members:

1 x member for 1 year

1 x member for 2 years

1 x member for 3 years

3.11If the Board proposes to remove an independent member from the Committee prior to the conclusion of their appointed term, it must give written notice to the independent member of its intention to do so and provide that independent member with the opportunity to be heard at a Board meeting, if that independent member so requests.

3.12Remuneration will be paid to each independent member of the Committee to be set by Board from time to time. At a minimum, the remuneration paid to independent members will be reviewed within 12 months from the date of local government (periodic) elections.

3.13Given the Audit Committee has been formally constituted by the Board by resolution at a duly convened meeting of the Board on 17 September 2015 under clause 107 of the LGA Constitution, independent members of the Committee will be covered by the LGA’s professional indemnity insurance. This coverage is provided by virtue of the Local Government Association’s membership of the Mutual Liability Scheme (LGAMLS) with provides indemnity for civil liability claims subject to the rules

3.14The fact and the extent of payment and to who payable will be disclosed in a note to the audited financial statements of that financial year.

4.BASIS FOR OPERATION

4.1The Audit Committee is a formally constituted Committee of the Board pursuant to clause 107 of the Constitution and is responsible to the Board. The Committee does not have any delegations or authority to implement actions in areas over which the Chief Executive Officer has responsibility. The Committee does not have any management functions and is therefore independent of management.

4.2The Committee’s role is to report to the Board and provide appropriate advice and recommendations on matters relevant to this Charter and Terms of Reference in order to facilitate decision-making by the Board in relation to the discharge of its responsibilities.

4.3The Local Government Association considers that the ability of the Audit Committee to operate in a manner that adds value and also maintains independent judgement is vital. As such, the Board has based this Charter and Terms of Reference on better practice (drawing on ASX Corporate Governance Principles and Recommendations and other expert sources such as Australian Standard AS 8000-2003 Good Governance Principles), tailored to meet the requirements of the LGA.

4.4An Audit Committee Terms of Reference will outline a detailed scope of the Committee’s review activities. It will be appended to this Charter and adopted by the Board accordingly.

4.5The Board or LGA Chief Executive Officer may refer any matter to the Committee within its Terms of Reference.

4.6The Chairperson of the Committee shall be appointed from the independent members of the Committee by the LGA Board. In the absence of the appointed Chairperson from a meeting, the meeting will appoint an acting Chairperson from the independent members present.

4.7A quorum shall be three members – 1 Board Member (or their proxy) and 2 independent members.

4.8The Committee, through the Chief Executive Officer, may seek information or obtain expert advice on matters of concern within the scope of its responsibilities.

4.9The Chief Executive Officer will attend all meetings on an ex-officio basis, except when the Committee chooses otherwise. Other Board Members or staff may be invited to attend at the discretion of the Committee to advise and provide information when required.

4.10The Committee will review its performance on an annual basis to ensure the continuous improvement of its performance.

4.11Representatives of the external auditor will be invited to attend meetings at the discretion of the Committee, but must attend meetings at which there will be consideration of the end of year financial report and results of the external audit.

4.12The Committee may meet at any time as requested without management present. In any event, the Committee will meet with the external auditor without management present at least once a year.

4.13The Chief Executive Officer will ensure appropriate support is provided to Committee.

Meetings

4.14Subject to any resolution of the Board pursuant to Clause 121 of the Constitution:

4.14.1The Committee shall meet at least quarterly

4.14.2The time and place for the conduct of meetings will be determined by the Committee

4.14.3The Committee will consider and determine its own meeting practice, processes and procedures within the parameters of the LGA Constitution

4.14.4An annual schedule of meetings will be developed and agreed to by the Committee members. In setting the annual schedule of meetings, consideration will be given to holding at least one joint workshop with the Board and the Committee during the year

4.14.5Additional meetings shall be convened at the discretion of the Chairperson, or at the written request of the Board or any member of the Committee or external auditor

Reporting

4.15A copy of all agenda and reports forwarded to the Audit Committee will also be available to all Board Members for information prior to the conduct of the Audit Committee meeting. Subject to confidentiality requirements, a copy of the agenda and reports will also be available on the LGA website for review by LGA members and other stakeholders.

4.16The minutes of each Audit Committee Meeting will be reviewed by the Chair within 48 hours of the meeting, following which they will be distributed to Audit Committee members for comment prior to being circulated to the Board and available on the LGA website.

4.17Where the Audit Committee makes a recommendation to the Board on a matter within the scope of its Terms of Reference, the matter will be listed as a separate agenda item for consideration by the Board at the next available Board meeting after having allowed for the review of the Audit Committee’s minutes by the Chair and Committee members and the preparation of a Board Report. The Board Member Representative on the Committee will inform the Board during the Board meeting of the recommendation and provide any relevant context.

4.18Where the Board makes a decision relevant to the Committee’s Terms of Reference, the Board Member Representative will report the decision to the Committee at the next Committee meeting and provide any relevant context.

4.19The Committee shall report annually to the Board summarising the activities of the Committee during the previous year.

Authority

4.20The Committee is authorised to seek any information it requires from any employee of the LGA (after advising the CEO) in order to perform its duties.

4.21The Committee is authorised, at the LGA’s expense, (after consultation with the CEO) to obtain outside legal or other professional advice on any matter within its terms of reference.

5.RESPONSIBILITIES / COMMITMENT

Board

5.1Establish an Audit Committee to protect and create value for the LGA Board and its stakeholders and to improve the LGA’s operations.

5.2Appoint 1 Board and 3 independent representatives as members of the Audit Committee.

5.3Determine appropriate levels of remuneration to be paid to the independent members on the Audit Committee.

5.4Adopt the Charter and Terms of Reference of the Audit Committee.

5.5Receive and review reports from the Audit Committee and monitor that effective controls have been implemented.

5.6Periodically review the effectiveness of the Audit Committee.

Audit Committee:

5.7Undertake all responsibilities as identified in the Audit Committee Charter and Terms of Reference with respect to financial management, risk management, internal controls, financial reporting and other accountability and governance processes including advisory and oversight services of LGA related entities.

5.8Report to the Board outcomes from Audit Committee meetings.

5.9Make recommendations to the Board regarding any matter considered by the Committee.

Board Representatives

5.10Act as a conduit of information between the Board and the Committee, and the Committee and the Board.

5.11Raise matters (within the scope of the Audit Committee Terms of Reference) with the Audit Committee, on behalf of the Board.

5.12Provide a verbal report to the Board on the key matters and recommendations within the Committee meeting, when the minutes and / or Committee recommendation reports, are presented to the Board for adoption.

5.13Provide a report to the Committee on any Board decisions or discussions that are relevant to the Committee’s Terms of Reference.

Chief Executive Officer

5.14Ensure appropriate support is provided to the Audit Committee.

Adopted by the Board: 16 May 2017

Next Review:May 2018

Previous Version:January 2016; July 2016

Owner:Director Corporate Services

Applicable Authority:LGA Constitution

Other related References:ASX Corporate Governance Principles and Recommendations, Australian Standard AS 8000-2003 Good Governance Principles, Local Government Act 1999

LGA Audit Committee – Terms of Reference

OBJECTIVES

The primary objective of the Audit Committee is to protect and create value for the LGA Board and its stakeholders. It will provide advice and recommendations to the Board, contributing to a systematic and disciplined approach to evaluating and improving the effectiveness of financial management, risk management, internal controls and governance processes through the following activities:

1.EXTERNAL AUDIT

1.1Having regard to Clause 53 of the Constitution, review and recommend for endorsement by the Board the engagement of the LGA’s external auditor.

1.2Having regard to Parts 26 and 27 of the Constitution, liaise with the external auditor and review and advise on the adequacy of:

1.2.1The terms of engagement and the audit fees for the external auditors prior to the commencement of each audit.

1.2.2The continued independence and objectivity of the external auditors and their compliance with all relevant requirements.

1.2.3The external auditor’s proposed audit plan, approach and scope, including materiality levels.

1.3Recommend to the Board, if considered appropriate, that the external auditor, or some other person suitably qualified in the circumstances, examine and report on any matter related to financial management, or the efficiency and economy with which the LGA manages or uses its resources to achieve its objectives, that would not otherwise be addressed or included as part of the annual audit.

2.Financial Reporting and Prudential Requirements

2.1Review the LGA’s annual financial statements to ensure that they present fairly the state of affairs of the LGA, including focus on

2.1.1Accounting policies and practices and any changes to them

2.1.2The process used in making significant accounting estimates

2.1.3Significant adjustments to the financial report (if any) arising from the audit process

2.1.4Compliance with accounting standards and other reporting requirements

2.1.5Significant variances from prior years

2.1.6Management’s representations attesting to the accuracy of the end of year financial statements, and any matters raised therein

2.1.7The external auditors summary management report detailing the results and significant findings from the audit and management responses

2.2Recommend adoption of the annual financial statements to the Board. Review any significant changes that may arise subsequent to any such recommendation but before the financial report is signed.

2.3Review the LGA’s strategic management plans, annual business plan and budget and provide suggestions and recommendations to the Board about actions that might be taken to enhance financial governance.

2.4Review the recommendations of business cases developed by Management in association with significant activities or major projects. Such reviews should have regard to prudential management principles.

3.Internal Audit, Internal Controls, Risk Management Systems and Compliance

3.1Monitor and provide advice in regards to:

3.1.1Any internal audit project or special assignments that may be undertaken from time to time as requested by the Board or the CEO

3.1.2The LGA’s risk management policies and systems.

3.1.3Internal controls over revenue, expenditure, assets and liability processes.

3.1.4The adequacy of internal controls over significant risks, including both financial and non-financial management control systems.

3.1.5The efficiency, effectiveness and economy of significant LGA programs and activities.

3.1.6Compliance with regulations, policies, best practice guidelines, instructions and contractual arrangements.

4.Commercial Activities and Related Entities

4.1Monitor and provide advice regarding various commercial activities and related entities including, but not limited to:

4.1.1LGA Mutual Liability Scheme

4.1.2LGA Workers Compensation Scheme

4.1.3LGA Procurement

4.1.4LGA Research and Development Scheme

4.2The focus of such advice may include:

4.2.1Service design, market testing and transitioning to new arrangements if appropriate in both the insurance and procurement fields

4.2.2The ongoing adequacy of service models and governance arrangements in terms of achieving the sector’s desired outcomes and creating value for LGA Member Councils

5.OTHER

5.1Monitor ethical standards and conflicts of interest by determining whether the systems of control are adequate

5.2Address issues brought to the attention of the Committee, including responding to requests from the Board or the Chief Executive Officer for advice that are within the parameters of this Terms of Reference

5.3Make recommendations to the Board to amend these Terms of Reference if the Committee forms the opinion that such amendments are necessary to improve its performance.