TREASURY MANAGEMENT PRACTICES Part 2: Schedules July 2002
TREASURY MANAGEMENT PRACTICES
Part 2: Schedules
July 2002
Basingstoke and Deane Borough Council
Treasury Management Practice Schedules 2002/03 2
TREASURY MANAGEMENT PRACTICES - SCHEDULES
This section contains the schedules which set out the details of how the Treasury Management Practices (TMPs) are put into effect by this organisation.
TMP 1 Treasury risk management
TMP 2 Best value and performance measurement
TMP 3 Decision–making and analysis
TMP 4 Approved instruments, methods and techniques
TMP 5 Organisation, clarity and segregation of responsibilities, and dealing
arrangements
TMP 6 Reporting requirements and management information arrangements
TMP 7 Budgeting, accounting and audit arrangements
TMP 8 Cash and cash flow management
TMP 9 Money laundering
TMP 10 Staff training and qualifications
TMP 11 Use of external service providers
TMP 12 Corporate governance
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TMP1 TREASURY RISK MANAGEMENT
1.1 LIQUIDITY
1.1.1 The amount of short-term cash investments will be managed at a level which
minimises any requirement for short term borrowing without tying up an
excessive level of funds which could otherwise be invested at higher interest
rates.
1.1.2 In the event of the Council having to borrow for short term cash flow reasons
this will be carried out through the money markets or from the Council’s bank if
more economic. In the unlikely event of any problem securing funds through
the money market, the Council has an overdraft limit with its bank of
£3,000,000 and can recall money from external fund managers within
approximately one week.
1.2 INTEREST RATE
1.2.1. The minimum rate of interest at which new investments are to be made will be
agreed by the Treasury Management Policy Team, taking account of external
adviser’s interest rate forecasts, at monthly treasury management meetings
and may be reviewed at any time depending on money market developments.
1.2.2. In order to control the Council’s exposure to interest fluctuations a minimum of
50% of investments will be at interest rates which are fixed for a minimum of
one year. The exact maturity of investments over 1 year will be managed to
ensure a relatively consistent amount of investments mature each year for the
next 5 years, with not more than £40 million (including equities) invested for
more than five years - this being approximately 40% of the forecast long term
investment funds of the Council.
1.3. INFLATION
1.3.1. In order to control the Council’s exposure to inflation a minimum of 30% of
investments will be at interest rates which are variable or fixed for less than
one year.
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1.4. CREDIT AND COUNTERPARTY POLICIES
1.4.1. The Director of Corporate Resources will use IBCA credit ratings for assessing
and monitoring the credit risk of investment counterparties. The minimum level
of credit rating for an approved counterparty will be as shown in Appendix 1.
This minimum level of acceptable rating will be reviewed annually by the
Treasury Management Policy Team.
1.4.2. In addition, for deposits fixed for up to one year, the Council will use building societies
which do not have credit ratings but which have assets over £1,000,000,000. The
maximum deposit invested with each such building society will be £2 million.
1.4.3. The Director of Corporate Resources will construct a lending list comprising
time, type, sector and specific counterparty limits. The lending list as at 1 April
2002 is attached as Appendix 2.
1.4.4. Credit ratings for individual counterparties can change at any time. The
Director of Corporate Resources will add or delete counterparties as
appropriate to / from the approved counterparty list when there is a change in
the credit ratings of individual counterparties or in banking structures e.g. on
mergers or takeovers. Details of changes in ratings will be provided by the
Council’s treasury management advisors.
1.4.5. The maximum period for fixed interest deposits will be 1,3 or 5 years
depending on the strength of credit rating as shown in Appendix 2.
1.4.6. The maximum period for investment in Euro-bonds will be 10 years subject to
the stock being issued by a UK institution with a minimum rating of AA-
(Standard and Poors and Fitch) or AA3 (Moody’s), or A1 subject to the specific
authorisation of the Director of Corporate Resources. The maximum euro-bond
investment will be £5 million per institution.
1.4.7.Subject to the above, the maximum value invested with any financial institution
or company group will be £5 million excluding short term deposit accounts
which will be limited to £5million per institution.
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1.4.8.The maximum invested by the in-house treasury management team in the
building society sector will be £20 million.
1.4.9.External managers will be required to invest within the Council’s lending list
and restrict the maximum invested with each name to £5 million, subject to a
maximum 25% of the fund being invested with UK building societies.
1.5. LEGAL AND REGULATORY FRAMEWORK
1.5.1. Treasury management activities will be carried out in accordance with rules
governing the investment of local authorities funds as set out in the Local
Authorities (Capital Finance) (Approved Investments) Regulations 1990 and the
Local Authorities (Capital Finance) Regulations 1997, as amended.
1.5.2. In addition activities will be conducted in accordance with the Council’s
approved Treasury Management Strategy, Treasury Management Policy
Statement and Council Constitution. This includes the adoption of CIPFA’s Code
of Practice for Treasury Management in the Public Services.
1.5.3.Evidence of officers delegated powers to make investment decisions is
contained within the Council Constitution and will be provided to counter-
parties on request.
1.5.4.Before any investments are made with external fund managers (including unit
trusts) certification will be obtained from the counter-party of their legal
authorisation and power to contract with the Council. All the banks included on
the Council’s lending list are authorised under the Banking Act 1987 to accept
deposits in the UK and all building societies are regulated by the Building
Societies Act 1986.
1.6. FRAUD, ERROR AND CORRUPTION, AND CONTINGENCY MANAGEMENT
1.6.1. In order to minimize the possibility of fraud, error or corruption, procedures for
carrying out and monitoring treasury management activities involve rigorous
requirements for audit, checking, control and reporting. These requirements
are detailed in the relevant schedules eg TMP5 Organisation, Clarity and
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Segregation of Duties and Dealing Arrangements.
1.6.2. In the event of any fraud or corruption this will immediately be reported to the
Director of Corporate Resources and Head of Internal Audit, who will then
determine the appropriate course of action. Similarly, any errors which result in
the breach of procedures set down in these practice notes will be reported to
the Director of Corporate Resources.
1.6.3.Procedures to be implemented in the event of a disaster are contained in
Council’s Emergency Recovery Plan – see Appendix 3. In order to ensure that
this can be implemented details of key treasury management phone numbers
and a list of the Council’s outstanding investments are stored off-site.
1.6.4.The Council’s fidelity guarantee insurance provides cover of up to £5 million for
losses caused by fraud within the Corporate Resources Department and
£250,000 for fraud in other departments.
1.7. MARKET VALUE OF INVESTMENTS
1.7.1. The market value of the Council’s investments is regularly monitored and is
reported quarterly to the Treasury Management Team. However, those
investments which are managed internally and are subject to fluctuations in
their market value ie corporate bonds and equities, are long term investments
and it is anticipated that they will be held until maturity in the case of bonds or
for a minimum of five years in the case of equities.
1.7.2. Procedures for controlling exposure to changes in capital values in respect of
cash and gilt funds managed externally are determined by the external
managers within the performance targets and duration limits they are set by
the Council. These targets and limits ensure that exposure to market value
fluctuations is limited, to the extent that negative returns are unlikely over a
one year period, without entirely removing the managers discretion to take
advantage of investment opportunities.
1.7.3.The market value of the Council’s equity investments, which are managed by
unit trust managers, can be very volatile. However, historically equities have
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produced substantially better returns than money market investments in the
long term (over 5 years). The Council’s exposure to fluctuations in market value
is controlled by restricting the amount invested in equities to £10 million (less
than 10% of investment funds) and investing equity funds in two different,
relatively low risk, unit trusts ie those which diversify investment across
predominantly large UK based companies.
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2. TMP 2 BEST VALUE AND PERFORMANCE MANAGEMENT
M ETHODS TO BE EMPLOYED FOR MEASURING AND EVALUATING THE
PERFORMANCE OF THE ORGANISATION’S TREASURY MANAGEMENT
ACTIVITIES
2.1.1 The performance of the Council’s investments is monitored on a continual basis
through the use of a Reuters News Agency screen located in Financial Services.
Formal performance updates incorporating latest valuations from fund
managers are reported quarterly to the Treasury Management Team and these
figures are incorporated into the quarterly revenue monitoring reports
submitted to Management Team, the Leader/Deputy Leader and the Finance
and Accounts Review Panel (FARP). In addition, the Treasury Management
Outturn Report, which is submitted to full Council, includes extensive
performance comparisons.
2.1.2 The performance of the Council’s investments are compared against each other
(eg internally managed with externally managed) and against their benchmarks
eg the 7 day rate, the 0-5 year gilt index and the FTSE 100/All-Share Indices.
For the Outturn Report, the performance of the Council’s investments is also
compared with the returns achieved by other fund managers not currently used
by the Council. Quarterly updates on how other fund mangers are performing is
also provided to the Treasury Management Group by the Council’s Treasury
Management advisors.
2.1.3 In addition, meetings are held every 6 months with the Council’s external fund
managers and the Council’s independent external adviser, at which their past
performance and future strategy are reviewed.
2.2 POLICY FOR TESTING BEST VALUE IN TREASURY MANAGEMENT
2.2.1 The Council appoints an external consultant to advise on treasury management
in order to obtain expert independent advice on a range of treasury
management issues eg interest rate forecasts, investment instruments,
investment strategy, credit ratings, performance monitoring, appointment of
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fund managers etc. The contract is reviewed and re-tendered every 3 years to
ensure competitive pricing.
2.2.2 Banking services are also re-tendered or renegotiated every 3 years to ensure that the level of prices
reflect efficiency savings achieved by the supplier and current pricing trends.
2.2.3 The Council sometimes uses money broking services in order to make deposits or to borrow.
Charges for all services are established prior to using them and the use of brokers takes account of
both prices and quality of services. The use of brokers is reported quarterly to the Treasury
Managment Policy Team.
2.2.4 The Council’s policy is to appoint full-time, professional, external investment fund managers. In
implementing this policy the Council will comply with the Local Organisations (Contracting Out of
Investment Functions) Order 1996 [SI 1996 No 1883}.
2.2.5 The performance of the Council’s cash/gilt fund managers is reviewed on a rolling three year
timescale and this performance information is included in the Treasury Management Outturn report.
The responsibility for appointing cash/gilt fund managers is delegated to the Director of Corporate
Resources. If it is determined that a change in cash/gilt fund manager is required this will be
implemented on a tender basis followed by interviews with prospective managers, with the
assistance of the Council’s treasury management adviser.
2.2.6 The delegation of investment management to external managers will entail the following :
Agreement of a formal contractual agreement and documentation;
Agreement on terms for early termination of the contract;
Setting of a benchmark and a performance target;
Setting of investment counterparty constraints;
Monthly and quarterly reporting of performance;
6 monthly meetings with investment managers;
2.2.7 The performance of the Council’s borrowing activities is monitored by calculating the average
interest rate on external borrowing, quarterly for the Treasury Management Group and annually for
the Treasury Management Outturn Report. The average borrowing rate is compared against the
average 7 day rate over the same period.
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2.2.8 The performance of the Council’s unit trust managers (equities) is reviewed on a rolling three year
timescale and this performance information is included in the Treasury Management Outturn report.
The responsibility for investing in equities via unit trusts is delegated to the Director of Corporate
Resources. If it is determined that a change in unit trust is required this will be implemented
following a comparison of the performance, management and policies of different unit trusts by the
Director of Corporate Resources.
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TMP 3 DECISION-MAKING AND ANALYSIS
3.1 FUNDING, BORROWING, LENDING, AND NEW
INSTRUMENTS/TECHNIQUES
3.1.1 In carrying out Treasury Management responsibilities the Director of Corporate
Resources will chair a Treasury Management Policy Team. This team of senior
officers (including the Director, Head of Financial Services, Chief Accountant
and Group Accountant (Corporate Finance)) will meet monthly to discuss and
agree the implementation of the treasury management strategy, monitor
performance and make decisions on operational treasury management issues.
3.1.2 Full records will be maintained of the Treasury Management Policy Team’s
decisions, and of the processes and practices applied in reaching those
decisions, both for the purposes of learning from the past, and for
demonstrating that reasonable steps were taken to ensure that all issues
relevant to those decisions were taken into account at the time.
3.1.3 Detailed records are also maintained of all borrowings and investments made
by the Council. These records are reconciled monthly to the financial
information system.
3.1.4 In respect of every decision made the Council will:
(i) above all be clear about the nature and extent of the risks to which the
organisation may become exposed
(ii) be certain about the legality of the decision reached and the nature of the
transaction, and that all authorities to proceed have been obtained
(iii) be content that the documentation is adequate both to deliver the Council’s
objectives and protect the Council’s interests, and to deliver good
housekeeping
(iv) ensure that third parties are judged satisfactory in the context of the
Council’s creditworthiness policies, and that limits have not been exceeded
(v) be content that the terms of any transactions have been fully checked
against the market, and have been found to be competitive.
3.1.5 In respect of investment decisions, the Council will:
(i) consider the optimum period, in the light of cash flow availability and
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prevailing market conditions
(ii) consider the alternative investment products and techniques available,
especially the implications of using any which may expose the Council to
changes in the value of its capital.
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4 TMP 4 APPROVED INSTRUMENTS, METHODS AND TECHNIQUES
4.1TREASURY MANAGEMENT PROCEDURE NOTES
4.1.1 Detailed procedures to be followed when carrying out any borrowing or
investment activities are set out in Appendix 4. These include settlement
transmission procedures, controls, authorisation and documentation
requirements.
4.2APPROVED ACTIVITIES OF THE TREASURY MANAGEMENT OPERATION
borrowing;
lending;
consideration, approval and use of new financial instruments and treasury
management techniques;
managing the underlying risk associated with the Council’s capital financing
and surplus funds activities;
managing cash flow;
banking activities;
leasing;
the use of external fund managers;
4.3 APPROVED INSTRUMENTS FOR INVESTMENTS
4.3.1 In accordance with the Council’s treasury management strategy the instruments that will be used for
investments are:
(i) Investments approved under The Local Government (Capital Finance) (Approved Investments)
Regulations 1990 and subsequent amendments ie:
Gilts;
Treasury Bills;
Deposits with banks, building societies or local authorities (and certain other bodies) for up to 5
years;
Certificates of deposits with banks or building societies for up to 5 years;
Euro-Sterling issues by certain Supra-national bodies listed on the London and Dublin Stock
Exchanges;
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Sterling Money Market Funds in the UK or EU with a AAA rating.
(ii) Investments approved in the Council’s Treasury Management Strategy by virtue of the Council’s
debt free status (of up to a combined £40 million ) in:
Euro sterling corporate bonds with a maturity date of up to 10 years from the purchase date
Local authority bonds with a maturity date of up to 25 years from the purchase date
Equity based unit trusts (maximum investment £10 million).
4.4 APPROVED METHODS AND SOURCES OF RAISING CAPITAL FINANCE
4.4.1 In accordance with the approved Treasury Management Strategy, capital expenditure will be
financed from revenue contributions via the Revenue Reserve for Capital Purposes and other
reserves, capital receipts and contributions from other organisations. Operating or finance
leases will be used where financially or operationally advantageous. In order to maintain the
Council’s debt free status no borrowing will be agreed for more than 364 days.
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TMP 5 ORGANISATION, CLARITY AND SEGREGATION OF
RESPONSIBILITIES, AND DEALING ARRANGEMENTS
5.1 In accordance with the Council Constitution, full Council is responsible for
approving the annual treasury management strategy. The Leader and Deputy
Leader are then responsible for approving policies for the allocation and control of
the Council’s financial resources, including treasury management in accordance
with the approved annual strategy. The Director of Corporate Resources is
responsible for undertaking the allocation and control of the Council’s financial
resources in accordance with approved policies.
5.2 Responsibilities of Staff Relating to Treasury
Management
5.2.1 Director of Corporate Resources
Chair the Treasury Management Policy Team
Ensure that Treasury Management activities comply with the CIPFA Code of
Practice for Treasury Management
Recommend Treasury Management Practices to the Leader and Deputy Leader for
approval
Submit budgets for treasury management activities
Agree actions for the implementation of the Council’s Treasury Management
Strategy
Report to full Council on the Treasury Management Strategy for the next financial
year and the Treasury Management Outturn for the past financial year.
Receive and review quarterly treasury management performance reports
Promote best value reviews of treasury management
Ensure the adequacy of internal audit and liaise with external audit
Review and appoint fund managers and treasury management consultants.
Approve the Council’s lending list and any changes to it.
5.2.2 Head of Financial Services
Review performance of the Treasury Management function at least quarterly.
Ensure staff involved in treasury management receive appropriate training.
Ensure that the treasury management function is adequately resourced to meet
current requirements.
Advise Director of Corporate Resources on treasury management matters.
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Absence cover for the Director of Corporate Resources.
5.2.3 Chief Accountant
Ensure the Treasury Management Strategy Report and the Treasury Management
Outturn Report are prepared annually and complied with.
Ensure that Treasury Management Practices exist and are reviewed annually.
Ensure there is adequate internal checking and control.
Advise Director of Corporate Resources on treasury management matters.
Absence cover for the Head of Financial Services and Group Accountant (Corporate
Finance)
5.2.4 Group Accountant (Corporate Finance)
Manage the treasury management function
Prepare the annual Treasury Management Strategy Report and the annual
Treasury Management Outturn Report.
Prepare an annual budget for treasury management activities.
Ensure implementation of treasury management actions agreed by the Director of
Corporate Resources
Ensure the production of the Treasury Management Practice Notes (TMPs)
Ensure that treasury management practices are complied with.
Ensure the appropriate division of duties within the section.
Assess and recommend appointment of brokers and performance of brokers
employed.
Review TMPs at least annually.
Identify and recommend opportunities for improved treasury management
practices.
Arrange and prepare information for monthly treasury management meetings with
the Director of Corporate Resources, Head of Financial Services and Chief
Accountant.
Advise Director of Corporate Resources on treasury management matters.
Monitor and report on the activities of fund managers.
Ensure all staff involved in dealing are aware of the principles contained in the
Bank of England’s London Code of Conduct for corporate dealing in the money
markets.
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Absence cover for the Assistant Group Accountant.
5.2.5 Assistant Group Accountant (Corporate Finance)
Check daily cashflow and agree dealing in accordance with instructions of Group
Accountant
Ensure adherence to Council’s lending list.
Check monthly treasury management reconciliations and controls
5.2.6 Senior Accountancy Assistant (Treasury Management)
Preparation of daily and long term cashflow projections.
Dealing and recording of deals.
Completion of CHAPS forms.
Compliance with London of Conduct principles
Production of monthly reconciliations
Maintenance of treasury management controls and documentation
Agreement of treasury management receipts and pursuit of any late payments
Implementation of dealing processes detailed in TMPs
Calculation of treasury management returns for monthly/quarterly/annual reports.
5.2.7 Senior Accountancy Assistant (Corporate Finance)
Absence cover for Senior Accountancy Assistant (Treasury Management)
5.2.8 Internal Audit
The responsibilities of Internal Audit will be: -
Reviewing compliance with approved policy and procedures
Reviewing division of duties and operational practice
Assessing value for money from treasury activities
Undertaking systems audit of the treasury function.
5.3Dealing and Decision Making Limits
5.3.1 All staff authorised to deal on behalf of the Council must comply with the
lending list limits set by the Director of Corporate Resources and detailed in
TMP1.
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5.3.2 All treasury management activities should be carried out in accordance with the
annual strategy agreed by Council.
5.3.3 No dealing should take place without first consulting the Assistant Group
Accountant or the Group Accountant (or their absence cover).
5.3.4 Deals will be agreed by the dealing officer subject to the terms being in
accordance with the instructions agreed with the Assistant/Group Accountant.
5.4Policy on taping of conversations
5.4.1 In accordance with the recommendations of the Bank of England’s London Code
of Conduct the dealing officer will, having made the other party aware, record
dealing phone calls and save the recordings until written confirmation of the
deal is agreed.
5.5Direct dealing practices
5.5.1 As an alternative to the brokers used by the Council, deals may be agreed directly
with counterparties included on the Council’s lending list. The decision on whether to
deal directly or through brokers will be made by the dealing officer depending on
which option provides the best rate of interest to the Council. In order to determine
this it would normally be expected that both brokers and selected direct
counterparties would be approached either by phone or electronically (through
Reuters or the internet) in order to be able to compare interest rates.
5.6 Division of Duties
In order to reduce risk the following duties are divided between different staff:
Deal confirmations from counter-parties are initially received by the Group
Accountant rather than the dealing officer, so that more than one person is
aware of the activities that have been carried out.
Deal confirmations are required to be signed by an approved signatory
(outside the Treasury Management team) before being faxed to the
counter-party.
Payment of funds is the responsibility of the Financial Systems rather than
the Treasury Management Team.
As part of the procedures for making a CHAPS payment two different
members of staff from the financial systems team are required to input and
submit a payment and the form requesting the payment has to be signed by
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two members of the Treasury Management team plus an authorised
signatory.
Receipt of funds is monitored by the Financial Systems rather than the
Treasury Management Team.
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TMP 6 REPORTING REQUIREMENTS AND MANAGEMENT
INFORMATION ARRANGMENTS
6.1 Annual Treasury Management Strategy
6.1.1 The Treasury Management Strategy sets out the expected treasury activities for the forthcoming
financial year. This Strategy will be submitted to the Finance and Accounts Review Panel for
comment and then to Cabinet and full Council for approval before the commencement of each
financial year.
6.1.2 The formulation of the annual Treasury Management Strategy involves determining the appropriate
borrowing and investment decisions in the light of the anticipated movement in both fixed and
shorter -term variable interest rates.
6.1.3 The Treasury Management Strategy is concerned with the following elements:
the prospects for interest rates;
the limits placed by this organisation on treasury activities
the expected borrowing strategy;
the expected investment strategy (including the use of fund managers)
6.2 Borrowing Limits
6.2.1 As required by section 45 of the Local Government and Housing Act, 1989, the Council must
approve before the beginning of each financial year the following treasury limits:
the overall borrowing limit
the amount of the overall borrowing limit which may be outstanding by way of short
term borrowing
the maximum proportion of interest on borrowing which is subject to variable rate interest.
6.2.2 The Director of Corporate Resources is responsible for incorporating these limits into the Annual
Treasury Management Strategy, and for ensuring compliance with the limits. Should it prove
necessary to amend these limits, the Director of Corporate Resources will submit the changes to the
Cabinet (via the Leader and Deputy Leader) before submission to the full Council for approval.
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6.3 Annual Outturn Report on Treasury Management Activity
6.3.1 An annual report will be presented to the Finance and Accounts Review Panel and the Cabinet
before being submitted to full Council for approval, at the earliest practicable meeting after the end
of the financial year, but in any case by the end of September. This report will include the
following: -
a comprehensive picture for the financial year of all treasury policies, plans, activities and
results
transactions executed and their revenue (current) effects
report on risk implications of decisions taken and transactions executed
monitoring of compliance with approved policy, practices and statutory / regulatory
requirements
monitoring of compliance with powers delegated to officers
degree of compliance with the original strategy and explanation of deviations
explanation of future impact of decisions taken on the organisation
measurements of performance
report on compliance with CIPFA Code recommendations
6.4 Management Information Reports
6.4.1 Management information reports will be prepared every quarter by the Group Accountant
(Corporate Finance) and will be presented to the following officers: -
Director of Corporate Resources
Head of Financial Services
Chief Accountant
These reports will contain the following information:
Summary of year to date investment and borrowing performance analysed by quarter
Comparison of investment income to date with the original estimate and calculation of the
forecast outturn.
Analysis of fund managers’ activities and performance in year to date
Details of internally managed borrowing and lending activities in year to date
Latest valuations of corporate bonds and equity investments and year to date performance
analysis
Analysis of year to date broker performance
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Review of investment strategy for current year incorporating investment periods, lending
outstanding/agreed and target interest rates based on latest economic forecasts
Capital financing review
Any other treasury management issues arising in past month eg changes in regulations, credit
ratings, proposed legislation and consultation.
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TMP 7 BUDGETING, ACCOUNTING AND AUDIT
ARRANGEMENTS
7.1ACCOUNTING PRACTICES AND STANDARDS
7.1.1 In accordance with the Accounting Code Practice issued by CIPFA the Council
will bring together for budgeting and management control purposes all of the
costs associated with treasury management activities. These costs will be
included in the budget book under Corporate Management within the Leader
and Deputy Leader Portfolio.
7.1.2 The working papers supporting the budget for treasury management will clearly
identify the following:
- staff costs
- administrative costs eg IT, stationary
- bank charges
- fund managers fees
- external advisers fees
7.1.3 The budget for interest and other investment income will also be calculated for
inclusion in the Summary Revenue Account published in the budget book.
Working papers supporting this will identify the interest rate assumptions that
have been used and the cashflow forecast (incorporating capital and revenue
income and expenditure).
7.2LIST OF INFORMATION REQUIREMENTS OF EXTERNAL AUDITORS
7.2.1 External auditors will have access to all papers supporting and explaining the
operation and activities of the treasury management function. It is expected
that the auditor will enquire whether the CIPFA Code on Treasury Management
has been adopted and adhered to.
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TMP 8 CASH AND CASH FLOW MANAGEMENT
8.1ARRANGEMENTS FOR PREPARING/SUBMITTING CASH FLOW STATEMENTS
8.1.1 An up to date and detailed cashflow estimate will be maintained in order to
effectively manage cash balances and to calculate interest and investment
income. The cashflow estimate for the next financial year will be produced in
accordance with the estimates timetable (usually around October) and will then
be updated throughout the year. Details of the procedures for the preparation
of the cashflow projection are set out in Appendix 5. The regular review and
updating of the cashflow is included in the treasury management processes
detailed in TMP3.
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P 9 MONEY LAUNDERING
9.1PROCEDURES FOR ESTABLISHING IDENTITY / AUTHENTICITY OF LENDERS
9.1.1 This organisation does not accept loans from individuals. All loans are obtained
from authorised institutions under the Banking Act 1987, building societies or
from other public sector bodies eg the Bank of England or other local
authorities.
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TMP 10 STAFF TRAINING AND QUALIFICATIONS
10.1 DETAILS OF APPROVED TRAINING COURSES
10.1.1The provision of Treasury Management training courses is currently included in
the contract with Council’s external advisors. A number of different courses are
run to accommodate the different training requirements of staff involved in day
to day activities and those involved at a strategic level.
10.1.2In addition to extensive on the job training and an accounting technician
qualification, all staff authorised to deal on behalf of the Council will attend an
appropriate course which explains the complexities of dealing procedures,
interest calculations, credit ratings, the regulatory framework, different types of
investment instruments etc.
10.1.3Staff involved in managing the treasury management function will have a
professional accountancy qualification and will attend specific treasury
management courses as required eg to provide updates on the implications of
new regulations/legislation/codes of practice or to obtain latest economic
forecasts for the economy and interest rates.
10.2 STATEMENT OF PROFESSIONAL PRACTICE
10.2.1Those staff that are CIPFA members are required by their Institute to act in
accordance with CIPFA’s Standard of Professional Practice on Treasury
Management and the Chief Financial Officer also has a responsibility to ensure
that the relevant staff are appropriately trained.
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TMP 11 USE OF EXTERNAL SERVICE PROVIDERS
11.1 DETAILS OF CONTRACTS WITH SERVICE PROVIDERS, INCLUDING
BANKERS, BROKERS, CONSULTANTS, ADVISERS
11.1.1Banking services are provided by HSBC. He contract commenced on 1/4/97,
was renewed on 1/4/01 and now runs until 31/3/04. The estimated cost of the
service is £90,000 p.a. which is paid in monthly installments. There is no
provision for early termination of the contract.
11.1.2Money-broking services are provided by Garban, Martin Brokers (UK) and
Prebon Yamane. The Council uses these firms of brokers when it is either
investing or borrowing cash on the money market. All these firms charge a
brokerage rate of .1% of the principal sum which is only payable when the
Council borrows rather than lends. The total amount paid to these brokers in
fees was less than £10 (ten pounds) in 2001/02 as the Council very rarely
borrows. However, the firms will receive significantly more brokerage from the
counterparties borrowing the Council’s funds when investments are made.
11.1.3 Broking services for the purchase or sale of marketable securities eg
corporate bonds are provided by Insinger Townsley. In accordance with normal
practice for such brokers, the fees (usually .1%) are deducted from the unit
price of the security, so that the price quoted to the Council is a net contract
price (ie after deducting fees). Only one broker is currently used for
marketable securities as the Council would not normally expect to make more
than 2 or 3 investments each year and the fees charged are comparable to
money brokers.
EXTERNAL FUND MANAGERS
11.2 The Council currently employs two external fund managers – Investec and
Morley.
11.3 INVESTEC
11.3.1 Investec manages a cash fund for the Council which is invested in a combination of
cash, gilts and certificates and aims to outperform the seven day deposit rate by 15%
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over a rolling 3 year period ie if the deposit rate is 5%, Investec’s target is to achieve
5.75%.
11.3.2Investec’s contract commenced on 21 March 1995 and is open ended although the
Council may terminate the agreement at any time by written notice to the Manager
and the Manager may terminate the agreement on 3 months’ written notice to the
Council or by immediate notice if so required by any competent regulatory authority.
11.3.3Investec’s fees are based on a percentage of the funds managed and equate to
£38,750 p.a. based on a £27 million managed fund (.14%). Payments are due quarterly
and the value of the fund at as at 31 March 2002 was £27.2 million.
11.3.4The investment counterparties used by Investec are restricted to those on the
Council’s lending list, subject to a maximum £5m to each name and a
maximum 25% of the fund invested in building societies.
11.3.5Quarterly performance reports rea recived from the Investec and meeting are
held twice yearly with the manager. These meetings are also attended by the
Council’s independent expert adviser.
11.3.6In managing the fund Investec are instructed not to exceed an average
duration of 4 years. In addition not more than 60% of the fund is to be invested
in fixed rate instruments with more than 364 days to maturity.
11.4 MORLEY FUND MANAGEMENT
11.4.1 Morley manages a gilt fund and was appointed on 1 August 2000. The contract is open
ended but the Council may terminate the agreement at any time by written notice to
the Manager and the Manager may terminate the agreement on 3 months’ written
notice to the Council or by immediate notice if so required by any competent
regulatory authority.
11.4.2The managers fee is based on a percentage of the fund and equates to £33,000
p.a. based on a £22 million managed fund (.15%). Payments are due quarterly
and the value of funds held as at 31 March 2002 was £21.9 million.
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11.4.3The benchmark for the fund is the FTSE A 0-5 yr Gilt Index and the aim is to
outperform this index by an average 0.5% p.a. over a 3 year period.
11.4.4Investments are constrained to gilts plus counterparties on the Council’s
lending list and the duration of the fund shall not exceed +/- 1 year against the
benchmark.
11.4.5 Performance is reported quarterly with valauations provided monthly.
Performance is reviewed at twice yearly meetings with the investment
managers which are also attended by the Council’s external adviser.
11.5 UNIT TRUST INVESTMENTS
11.5.1In addition to external fund managers for cash/gilts the Council also invests
funds in two equity funds - Norwich Union UK Growth Fund and Newton
Income Fund.
11.6 NORWICH UNION UK GROWTH
11.6.1 The investment in this fund commenced on 28 September 2001 and runs until the
Council provides written notice of termination. The objective of the fund is long term
capital appreciation through investment principally in UK equities against a
benchmark of the FTSE All Share Index and the average performance of all managers
in the same sector.
11.6.2 The fee is 0.7% of the fund which equates to £35,000 p.a. based on a £5 million
fund. Dividends are reinvested half yearly and the value of the investment as at
31March 2002 was £4.9 million.
11.6.3 Investment by the fund is principally in UK equities and reports are
provided half yearly.
11.7 NEWTON INCOME FUND
11.7.1The investment in this fund commenced 31 January 2002 and runs until
terminated by the Council in writing. The benchmark for the fund for
performance monitoring will be the FTSE All Share Index and the average
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performance of all managers in the same sector. The fund’s objective is to achieve
capital growth and income from a portfolio of predominantly UK equities.
11.7.2The fee is 0.7% of the fund value which equates to £28,000 p.a. based on a £4
million managed fund.
11.7.3Dividends are distributed quarterly and the value of funds held as at 31March
2002 was £4.2 million.
11.7.4Investment by the fund is principally in UK equities with half yearly reporting of
performance.
11.8 EXTERNAL ADVISERS
11.8.1 The Council appoints an external consultant to advise on treasury
management in order to obtain expert independent advice on a range of
treasury management issues eg interest rate forecasts, investment
instruments, investment strategy, credit ratings, performance monitoring,
appointment of fund managers etc. The contract is reviewed and re-tendered
every 3 years to ensure competitive pricing.
11.8.2 The cuurent supplier of the service is Sector Treasury Services Ltd. The
contract commenced 1 February 2001 and runs for 3 years until 31 January 2004. The
cost of the service is £9,500 per annum with payments due on 1 August and 1
February each year.
11.8.3 The Council may terminate the agreement on the first and second anniversary of the
contract by providing one months’ written notice. There is no provision for Sector to
terminate the contract early.
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TMP 12 CORPORATE GOVERNANCE
12.1The Council is committed to openness and transparency in its treasury
management activities as demonstrated by the production of these TMPs and the
adoption of the Treasury Management Code of Practice.
12.2In addition the Council has established the Finance and Accounts Review Panel
the responsibilities of which include the review of the treasury management
strategy and outturn reports.
12.3Information about the Council’s treasury management activities is freely
accessible and the strategy and outturn reports are public documents
12.4The procedures set out in these TMPs for reporting and audit of treasury
management activities (both by internal and external audit) are designed to
ensure the integrity and accountability of the function and these will be rigorously
enforced.
12.5Furthermore the use of competition between fund managers and the regular
retendering and review of contracts should ensure fairness in the allocation of
treasury management resources.
12.6 PROCEDURES FOR CONSULTATION WITH STAKEHOLDERS
12.6.1The presentation of the Treasury Management Strategy and Outturn to full
Council ensures all members are aware of the Council’s treasury management
strategy and activities.
12.6.2The production of quarterly reports to theTreasury Management Team ensures
that all those senior officers with a responsibility for treasury management
activities have the information necessary to enable them to fulfil their
obligations. In addition the consideration and approval of these TMPs by the
Leader and Deputy Leader ensures they are able to influence the procedures in
place for the management of treasury management activities.
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