What is Treasury Management?
The official definition is:
“The management of the organisation’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks”.
This can be simplified to managing the Council’s cash to ensure that;
- no cash is lost through poor investments
- investments are timed to prevent the need for short term borrowing
- borrowing is planned and taken at the best time
- informed decisions are taken to ensure the most efficient use of cash over the medium term
This can be split into 2 areas, although to achieve high efficiency, both must be considered together;
- Making the best use of money held by the Council
- Making the best decisions on borrowing money to pay for capital investment
When investing money, the Council has very clear guidance to prioritise security of the investment, then the need for liquidity (to have money available when it’s needed e.g. when a big bill is expected), and only once these have been satisfied should the return on the investment be considered.
How the Council intends to work within this guidance to manage its own circumstances is set out in the annual Treasury Management Strategy annually. This year’s Strategy and updated Policy can be found with the Cabinet report on Treasury Management.
Frequently asked questions
Did Richmond have any money invested in Icelandic banks?
No, we did not. The Council has always set a fairly high level for banks which we would invest with to reduce the risk of losing money.
How much borrowing does Richmond have?
As at 31 March 2012 the Council had £40.8m long term borrowing (not repayable for over a year) and £7.5m short term borrowing (repayable on demand or under 1 year), making £48.3m in total. The long term borrowing has been taken out to finance capital works, such as schools improvements. The short term borrowing is a mix of long term borrowing which is now due within a year, and cash held on behalf of linked organisations.
How much does Richmond have invested?
At 31 March 2012 the Council had £75.6m of investments. The amount invested will change every day, depending on what bills are being paid and what income is received.
Why doesn’t Richmond repay all its debt? It could afford to, it would save money and it would reduce the risk of investing it with the wrong bank.
It’s clear from comparing investments of £75.6m to LT debt of £40.8m that the Council could have repaid all its debt at that point. However, the Council may need to borrow more money in future to finance the Capital Programme. The level of cash balances give the option to delay borrowing externally and borrow internally by reducing these balances in the short term. Internal borrowing cannot replace external borrowing indefinitely. Debt restructuring will be considered based on the movement of borrowing rates during the year and in consultation with the Council’s Treasury Advisors.
How do you make sure you don’t invest in Icelandic type banks in the future?
We can’t be certain because we can’t see the future, but there are a number of ways the Council limits its risk of losing or having its investment tied up for a long time (the investments with Icelandic banks are likely to be repaid eventually, with possibly a small proportion unrecoverable). The Council’s first question before making an investment is whether it’s safe. The Council uses information on creditworthiness from the three main rating agencies, as well as market views on creditworthiness in the form of deals made on shares and financial products, as well as financial news to check that there is no reason to doubt an organisation would be able to honour any investment. The Council also sets limits on how much can be invested with any one bank or building society, and for how long, which also limits the risk of losing too much if any one bank fails or of something going wrong between making the investment and it coming back. Full details can be found in the Council’s Treasury Management Strategy.
How do I know the Council is being careful with investments?
There are several statutory requirements on the Council to ensure this is the case. The Council has a duty to manage all public funds properly, we have further duties to treat security of investments as the prime consideration when managing cash. All policy and strategy decisions are approved by Cabinet and Full Council. They are also scrutinised by Audit Committee. Performance against the strategy and budget is also reported to Cabinet and scrutinised by Co-Ordination, Finance and Performance Commission. All these meetings are public, and reports are published on the Richmond website.
Where can I get more information?
Recent information on Richmond’s Treasury Management has been reported to Cabinet as follows:
- September 2012 Treasury Management Annual Report 2011/12 (item 273 on the agenda) giving a summary of Treasury Management activity and performance for the prior year.
- February 2012 Treasury Management Policy & Strategy for 2012/13 (item 176 on the agenda) which sets the objectives and controls for Treasury Management for the coming year.
The following reports are scheduled for the next year:
- Cabinet September 2013 Annual Report 2012/13
- Cabinet February 2013 Treasury Management Policy & Strategy 2013/14
Treasury Management budget monitoring is included in the regular quarterly monitoring reports which are scheduled for:
- Cabinet July 2012 Quarter One
- Cabinet October 2012 Quarter Two
- Cabinet January 2013 Quarter Three
- Cabinet July 2013 Quarter Four
Other national information which may be of interest:
- The Audit Commission report “Risk and Return – English local authorities and the Icelandic banks” which reviewed the situation which led to investments being held in Icelandic banks and made recommendations to improve Council processes.
- House of Commons Select Committee on Local Authority Investments Evidence given to the Committee, The Committee’s Report on Local Authority Investments, and Responses by the Government, CIPFA, FSA and Audit Commission.