TREASURY MANAGEMENT ANNUAL REVIEW AND ACTUAL PRUDENTIAL INDICATORS

Transcription

1 AGENDA NO: 7 JOINT INDEPENDENT AUDIT COMMITTEE - 1 SEPTEMBER 2016 TREASURY MANAGEMENT ANNUAL REVIEW AND ACTUAL PRUDENTIAL INDICATORS REPORT BY THE TREASURER TO THE POLICE AND CRIME COMMISSIONER PURPOSE OF THE REPORT To provide members with an annual update on the Treasury Management function, including the required review of the 2015/16 Prudential Indicators. 1. BACKGROUND 1.1 The Police and Crime Commissioner (PCC) has adopted the CIPFA Code of Practice for Treasury Management in the Public Sector and operates his Treasury Management function in compliance with this Code. This requires that the prime objective of the Treasury Management function is the effective management of risk and that its borrowing activities are undertaken on a prudent, affordable and sustainable basis. 1.2 The Code requires as a minimum the regular reporting of Treasury Management activities to: forecast the likely activity for the forthcoming year (in the Annual Treasury Management Strategy Statement, which was agreed for by the PCC on 31 March 2016); a mid-year treasury update; and an annual review of the actual activity for the preceding year (this report). 1.3 Elements of the Treasury Management Strategy were changed in light of the Icelandic Banks crisis in Members have received periodic updates since October 2008 as more information has become available. 2. UPDATE ON ICELANDIC BANKS 2.1 The current position for Heritable is shown below: Heritable Bank 2.2 A claim was registered at an early stage with the administrators, Ernst & Young for 2,035,104 being the principal outstanding, and interest accrued to 7 October Ernst & Young, the administrators, have made fifteen separate repayments to date; the most recent of these being received on 26 August The total amount returned to date is 1,994,403 or 98.0% of the claim. The impairment made by the PCC was 1.8M in total. We anticipate that one further small repayment may be received to reach 100% of the claim. 3. DAY TO DAY CASH MANAGEMENT ACTIVITY 3.1 The Bank of England Base rate was 0.50% for the entire year, having been reduced to that level on 5 March 2009 by the Bank of England Monetary Policy Committee (MPC). The base rate was 1

2 reduced to that level as part of worldwide central bank intervention to help ease the difficulties in the credit markets and stimulate the economy. 3.2 During the year there were six individual loans totalling 17.0M. As at the 31 March 2016 there were four loans to banks outstanding totalling 11.0M, 2.0M which related to Icelandic banks and 9.0M relating to other Fixed Term deposits. There was also a balance in a NatWest Special Interest Bearing Account of 0.2M and 5.2M with Money Market Funds. The detailed portfolio of loans outstanding is shown at Appendix A. 3.3 The chart below compares 3 month LIBOR with long term borrowing rates. Fig 1: Interest Rate Comparisons 8 Key Interest Rates 31st March st March Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 5 Year 10 Year 25 Year 3 Month LIBOR 3.4 Interest earned from Treasury Management operations in the year was 110,305 which is higher than the estimate for the year of 92,000. The estimate was based on a forecast average balance of 18.4M and an average interest rate of 0.50%. 3.5 The average daily balance for the year was 19.3M (excluding loans to Icelandic Banks) therefore the average interest earned was 0.57%, ahead of the average 7 day rate was 0.36%. A summary of statistics showing figures for previous years is included in Appendix B. This return is below the average return earned by approximately 200 local Councils, PCC s and Fire Authorities within the CIPFA Treasury Management Club who averaged 0.77% for the year. The average size of funds invested by these bodies however is 110M and these higher balances are likely to offer opportunities for higher returns. 4. COMPLIANCE WITH POLICY AND EXERCISE OF DELEGATIONS 4.1 The Code of Practice as agreed by the PCC has been adhered to. The Code requires the Authority to be aware of who is responsible for which decisions, the limits on delegated responsibilities and reporting requirements. These are reproduced at Appendix C. 5. PRUDENTIAL INDICATORS 2015/ The PCC approved the Prudential Indicators for 2015/16 on 15 February It is a requirement of the Prudential Code that actual Prudential Indicators are reported after the end of the financial year. 2

3 5.2 Comparative figures showing actual Prudential Indicators are shown in Appendix D. It should be noted that only Indicators 4, 5, 8, 9, 10, and 11 are actually limits and the remainder are simply indicators. I can report that none of the limits set were breached during the year. 6. RISK/THREAT ASSESSMENT Financial/Resource/Value for Money Implications 6.1 No risk issues arise directly from this report of outcomes for 2015/16. However, the Treasury Management policy agreed each year carefully balances the acceptance and spread of borrower risk against the requirement to maximise returns. In addition, a potential budget risk exists if there is a shortfall against budget of interest earnings as a result of lower interest rates and balances. Legal implications 6.2 The PCC has adopted the CIPFA Code of Practice for Treasury Management in the Public Sector and operates its Treasury Management function in compliance with this Code. This requires that the prime objective of the Treasury Management function is the effective management of risk, and that its borrowing activities are undertaken on a prudent, affordable and sustainable basis. Implications for Policing Outcomes 6.3 Not applicable. Equality 6.4 Not applicable. 7. RECOMMENDATIONS 7.1 Members are RECOMMENDED to: i) Receive the Treasury Management Annual Report; and ii) Note the actual Prudential Indicators. RICHARD BATES Treasurer to the Police and Crime Commissioner If you have any queries on this report please contact Richard Bates, Treasurer on (01305) or r.m.bates@dorsetcc.gov.uk Appendices Appendix A Summary of Investments Appendix B Summary of Key Statistics Appendix C Delegation Appendix D Prudential Indicators Background Papers CIPFA Treasury Management Code of Practice 3

4 APPENDIX A SUMMARY OF INVESTMENTS AS AT 31 MARCH 2016 Lender/ Borrower Amount '000 Rate % Start Date End Date Long Term Rating at Date of Loan Current Counterparty Rating Sovereign Loans Santander UK Plc 3, /07/ /07/2016 A A+ UK Goldman Sachs International Plc 3, /07/ /04/2016 A A UK Lloyds Banking Group Plc 3, /03/ /06/2016 A A UK Icelandic Banks Heritable Bank /06/ /12/2008 A BBB+ Iceland Call Accounts NatWest Bank /03/ /04/2016 BBB+ BBB+ UK Money Market Funds BNP Paribas MMF 3, /03/ /04/2016 AAA AAA UK Federated Prime Rate MMF 2, /03/ /04/2016 AAA AAA UK Total Cash 14,422 Weighted Average Yield 0.69% 4

5 APPENDIX B SUMMARY OF KEY STATISTICS 2012/ / / /16 Lending Number of transactions Value M March Balance M Borrowing Number of transactions Value M Investment Performance Average 7 day rate 0.52% 0.35% 0.35% 0.36% Average rate earned 0.83% 0.54% 0.56% 0.68% 5

6 APPENDIX C DELEGATION The Code requires the policy of delegation to show who is responsible for which decision, the limits on the delegation and reporting requirements. The Code also requires the responsibilities of the PCC, and its officers to be set out. In summary they are as follows:- PCC - approval of recommendations from the Joint Independent Audit Committee and the borrowing limits. The approval of the Treasury Management Strategy statement, the receipt of annual reports from the Treasurer to the PCC on Treasury Management activities and from time to time the review of the Treasury Management Strategy Statement. Joint Independent Audit Committee - the approval of the Treasury Policy statement, the receipt of annual reports from the Treasurer to the PCC on treasury management activities and from time to time the review of the Treasury Management Strategy Statement. The Treasurer to the PCC - approval of draft policy statement, appointment of moneybrokers, regular monitoring of activities and reporting on these activities to the Committee. Chief Constable - that the system is laid down and resourced, and that the Treasurer to the PCC makes the required regular reports to the PCC. Assistant Chief Officer - monitor implementation of policy. Treasury Management contractor - preparation of draft monitoring reports for the Treasurer to the PCC and the placement and approval of deals on a day to day basis in accordance with the approved policy. Monitoring Officer Chief Executive - ensuring compliance by the Treasurer to the PCC. Internal Audit - the policing of the arrangements. In addition to these delegations there is in place a comprehensive system of checks undertaken by the Treasury Management contractor in accordance with the terms of the contract specified by the PCC. 6

7 APPENDIX D Estimated and Actual Treasury Position and Prudential Indicators Figures are for the financial year unless otherwise titled in italics Actual Original Indicator 1 Capital Expenditure ( 000 s) 5,158 4,140 2 Capital Financing Requirement (CFR) at 31 March 3 External Debt at 31 March ( 000 s) Borrowing Other long term liabilities Total Debt 4 Authorised Limit ( 000 s) (against maximum position) 5 Operational Boundary ( 000 s) 6 Ratio of financing costs to net revenue stream 7 Incremental impact of capital investment decisions on the Band D council tax ( ) 8 Upper limits on fixed interest rates ( 000 s) (against maximum position)(net interest payable) 9 Upper limits on variable interest rates ( 000 s) (against maximum position)(net interest payable) 10 Maturity structure of fixed rate borrowing (against maximum position) 34,020 34, ,020 34, ,023 34,023 34,020 47,300 34,020 39, % -0.07% Under 12 months 0% 15% 12 months to 2 years 0% 15% 2 years to 5 years 0% 25% 5 years to 10 years 0% 35% 10 years and above 0% 35% Comments No borrowing, net interest receipts. No borrowing. No borrowing. In addition to the above the Authority is required as a Prudential Indicator to adopt the CIPFA Code of Practice and to ensure that over the medium term borrowing will only be for a capital purpose (i.e. net external borrowing is less than the CFR). The Authority has complied with these two indicators. 11 Maximum principal funds invested for more than 364 days ( 000 s) (against maximum position) 0 5,000 7