Investment of Cash Balances Policy - Sutherland Shire€¦ · Investment of Cash Balances Policy Sutherland Shire Council Document review and approval. Revision history Version Author

Investment of Cash Balances Policy

Sutherland Shire Council

Document review and approval

Revision historyVersion Author Date Revision

1 Manager Finance 8 October, 2008 Policy has now been completely re-written to conform to the Minister's new Investment Order as a result of the Cole Report recommendations. The Minister signed the amended Order on 31 July 2008 and it was gazetted on Friday, 15 August 2008.

2 Manager Finance 14 October, 2009 Annual review in accordance with LG Act. No changes proposed

3 Manager Finance 13 October, 2010 Annual review in accordance with LG Act. Amended to reflect requirements of the new Investment Policy Guidelines released by the Division of Local Government in May 2010. (See FIN071-12 for details)

4 Manager Finance 12 October, 2011 Annual review in accordance with LG Act. Amended to reflect requirements of the new Minister's Investment Order dated 12 January 2011. (See FIN071-12 for details)

5 Manager Finance 2 November, 2012 Annual review in accordance with LG Act. No changes proposed

6 Manager Finance 4 October, 2013 Annual review in accordance with LG Act. No changes proposed

7 Manager Finance 16 November, 2015 This policy has been reviewed specifically for this Council and is in accordance with the most updated Investment Policy Guidelines released by the Office of Local Government in May 2010 and the latest Minister's Investment Order dated 12 January 2011.

This document has been approved byName Minute No Date approved

1 Finance Committee – FIN040-09 223 20 October, 2008

2 Finance Committee – FIN055-10 277 2 November, 2009

3 Finance Committee – FIN051-11 263 1 November, 2010

4 Finance Committee – FIN071-12 348 31 October, 2011

5 Finance Committee – FIN061-13 378 19 November, 2012

6 Budget & Strategic Issues Committee – BDS001-14 288 14 October, 2013

7 Finance & Strategy Committee – FAS011-16 308 16 November, 2015

POLICY FORINVESTMENT OF CASH BALANCES

1. PURPOSE

The purpose of this policy is to establish the investment guidelines that Sutherland Shire Council adopts in investing its surplus funds. The objectives are:-

(a) To invest Council’s funds at the most favourable rate of interest available to it at the time whilst having due consideration of risk and security for that investment type and ensuring that its liquidity requirements are being met

(b) Preservation of capital is the principal objective of the investment portfolio. Investments are to be placed in a manner that seeks to ensure security and safeguarding the investment portfolio. This includes managing credit and interest rate risk within identified thresholds and parameters.

(c) Investments should be allocated to ensure there is sufficient liquidity to meet all reasonably anticipated cash flow requirements, as and when they fall due, without incurring the risk of significant costs due to the unanticipated sale of an investment.

(d) To establish a framework for monitoring the investments and comparing performance to appropriate benchmarks.

2. AUTHORITY FOR INVESTMENT / RELEVANT LOCAL GOVERNMENT LEGISLATION / REGULATION

All investments are to be in compliance with:-

Local Government Act 1993;

Local Government (General) Regulation 2005;

Ministerial Investment Order, dated 12 January 2011;

The Trustee Act 1925 Section 14 and the Trustee Amendment (Discretionary Investments) Act 1997 – Sections 14A(2), 14C(1) & (2);

Local Government Code of Accounting Practice and Financial Reporting;

The Division of Local Government Circulars; and

Australian Accounting Standards.

3. DELEGATION OF AUTHORITY

The Authority for implementation of this Investment Policy is delegated to the General Manager in accordance with the Local Government Act 1993.

The General Manager further delegates the day-to-day management of Council’s Investment to the Director – Corporate Services and Manager – Finance to invest surplus funds.

4. VARIATION TO POLICY

The General Manager, Director – Corporate Services or Manager – Finance are authorised to approve variations to this policy if the investment is to Council’s advantage and/or due to revised legislation.

All changes to this policy are to be reported to Council within 28 days.

5. PRUDENT PERSON STANDARD

The investment will be managed with the care, diligence and skill that a prudent person would exercise. As trustees of public monies, officers are to manage Council’s investment portfolios to safeguard the portfolio in accordance with the spirit of this Investment Policy, and not for speculative purposes.

6. ETHICS AND CONFLICTS OF INTEREST

Officers shall refrain from personal activities that would conflict with the proper execution and management of Council’s investment portfolio. This policy requires officers to disclose any conflict of interest to the General Manager. Independent advisors are also required to declare that they have no actual or perceived conflicts of interest.

7. AUTHORISED INVESTMENTS

All investments must be denominated in Australian Dollars. Authorised Investments are limited to those allowed by the most current Ministerial Investment order that has been issued by the NSW Minister for Local Government and is attached to the end of this Policy.

Existing investments that comply with the Minister’s Order and are eligible for grandfathering do not cease to be authorised; however, while the suspension notified in the transitional arrangements of the Minister’s Order is in force, no new investments can be made into these categories of Authorised Investments.

8. PROHIBITED INVESTMENTS

In accordance with the Ministerial Investment Order, this investment policy prohibits any investment carried out for speculative purposes including, but is not limited to:

Derivative based instruments;

Principal only investments or securities that provide potentially nil or negative cash flow; and

Stand alone securities issued that have underlying futures, options, forwards contracts and swaps of any kind.

This policy also prohibits the use of leveraging (borrowing to invest) of an investment.

9. RISK MANAGEMENT GUIDELINES

Investments obtained are to be considered in light of the following key criteria:

Preservation of Capital – the requirement for preventing losses in an investment portfolio’s total value (considering the time value of money);

Diversification – setting limits to the amounts invested with a particular financial institution or government authority to reduce credit risk;

Credit risk – the risk that an institution (counterparty) that council has invested in fails to pay the interest and or repay the principal of an investment;

Market Risk - the risk that the fair value or future cash flows of an investment will fluctuate due to changes in market prices;

Liquidity Risk - the risk an investor is unable to redeem the investment at a fair price within a timely period; and

Maturity Risk - the risk relating to the length of term to maturity of the investment. The larger the term, the greater the length of exposure and risk to market volatilities.

10. PROCEDURAL AND CONSIDERATION GUIDELINES

(A) Quotations On Investments

Not less than three (3) quotations shall be obtained from authorised institutions when an authorised investment is proposed.

(B) Term To Maturity

The term to maturity of any Council’s short-term investments may range from “At Call” to twelve (12) months. Longer term investments shall not have a maturity date greater than 5 years.

(C) Diversification/Credit Risk Guidelines

The amount invested with any one financial institution should not exceed the following percentages of average annual funds invested with that institution.

Long Term Rating(Standard & Poors)

Short Term Rating(Standard & Poors)

Maximum Percentageof Total Investments

AAA to AA-A+ to A-

BBB+ to BBB-*Not rated

A1+A1A2

*Not rated

45%40%20%40%

*Not rated – this rating is necessary to allow investments in APRA regulated approved deposit taking institutions such as a Credit Union or Building Society. This provision will only apply to those APRA regulated entities. Most entities in this category of deposit taking institutions are not rated. The Minister’s Investment Order (Appendix B) under section (c) allows for these investments.

It should be noted from the table above that any potential investment that meets the minimum of either the Long Term or Short Term rating is considered an appropriate investment.

(D) Authority To Terminate Investments Early

If any of Council’s investments are under market or liquidity stress and conditions warrant early termination then this should be actioned as soon as practicable by the delegated council officers nominated in section 3 “Delegation of Authority” in this policy. Early termination should consider any penalties imposed relevant to the risk of retaining the investment.

Consideration should be given to opportunities where grandfathered investments may be sold at a short term loss to be re-invested in another authorised investment to achieve higher overall returns at the original maturity date.

(E) Performance Benchmarks

Investment Performance BenchmarkCash / Direct Investments/ Floating Rate Notes

UBSWA 90 day Bank Bill Index

For comparative purposes, in monthly performance reporting the Council portfolio will be benchmarked specifically against this benchmark.

(F) Reporting

(a) A monthly report will be provided to Council, detailing the investment portfolio in terms of performance and counterparty percentage exposure of total portfolio.

The report will detail investment income earned versus budget year to date and outline maturity dates, face value and market values where applicable.

(b) For audit purposes, certificates must be obtained from the banks/fund managers confirming the amounts of investment held on Council’s behalf at 30 June each year.

(G) Procedures

(a) Investment confirmations must be received and verified within a week of placing an investment (identified discrepancies must be rectified immediately).

(b) Consideration during placement of funds must be given to cash needs in the foreseeable future, often resulting in the placement of funds to coincide with known large commitments, eg. contractor's payments, payroll, loan repayments.

(c) Investments are to be transacted by phone (or in person) and original placements paid for with a cheque from Council's bank account which is endorsed by two authorised signatories, or by electronic funds transfer activated by two authorised signatories.

(d) Redemptions are to be deposited as "cleared" funds to Council's bank account on the day of the maturity, unless funds are reinvested and arrangements for this clearly stated to the institution holding the maturity. Transfers from bank to bank are not permissible, maturities must either be reinvested with the same institution or returned to Council's bank account for subsequent investment by Council as required.

(e) Through supervision by the Manager - Finance, the Financial Accountant holds responsibility for the placement of funds on investment and through the Assistant Accountant – Investments/Bank Reconciliations, he/she ensures the daily task of reviewing the need to invest or redeem funds is made.

(f) The Manager – Finance will authorise all investments on a daily basis, by signature on the relevant form.

11. INVESTMENT REGISTER AND DOCUMENTATION

Documentary evidence must be held for each investment and details thereof maintained in an Investment Register. The documentary evidence must provide Council legal title to the investment.

12. INVESTMENT ADVISOR

The Council’s investment advisor must be approved by Council and licensed by the Australian Securities and Investment Commission. The advisor must be an independent person who has no actual or potential conflict of interest in relation to investment products being recommended and is free to choose the most appropriate product within the terms and conditions of the investment policy.

The independent advisor is required to provide written confirmation that they do not have any actual or potential conflicts of interest in relation to the investments they are recommending or reviewing, including that they are not receiving any commissions or other benefits in relation to the investments being recommended or reviewed.