Treasury Management
The council holds funds which it is able to invest on a daily
basis. For example, it collects council tax, business rates and
council house rents which are banked until needed to pay for
salaries and running costs. Some of these monies are later paid
over to Cumbria County Council, Cumbria Police and central
government. Similarly it has reserves which it has set aside for
use in the future.
The council lends money to other organisations (counterparties)
in strict accordance with its Treasury Management Strategy which
was approved by Council in March 2009. It provides the framework
and safeguards within which treasury management activities operate.
In particular, the Strategy sets out the types of lending that the
council will undertake, the organisations that it will lend to and
the limits (amounts or time periods) that it will apply to
individual investments.
The underlying principle is that security of investments is more
important than the returns earned on those funds. The council does
not have the power to invest in equities (shares in companies) so
is not exposed to possible losses in such investments.
Core investments are placed with an external fund manager who
has the expertise to invest in cash instruments and government
stock. As well as earning interest, these investments have a value
which can go up or down. Typical counterparties for cash
instruments are UK and European banks.
The council’s cash flow is managed by finance staff on a day to
day basis. This occasionally involves borrowing but more usually
lending on the money market. Investments are made for short periods
(up to a month) with public authorities, banks and building
societies, although monies will be placed for longer if not
required in the short term. Lastly, the council has deposit
accounts in its own name with three banks.
In all instances, investments are spread across a range of
financial institutions that have the highest credit ratings set by
an external professional rating agency. Notification of changes to
ratings are received on a daily basis and the council employs a
treasury consultant to advise on all aspects of investments.
Individual in-house investments are limited to £3m in clearing
banks and the largest building societies.
More information is available from the documents below:
Treasury Management Policy Statement and Framework Appendix
C
Treasury Management Strategy Statement - Appendix D