Cash Management & Investment (CM&I) Policy Workshop

1. Cash Management & Investment (CM&I) Policy Workshop Laingsburg and Prince Albert Municipality

2. Definitions • Definitions: • In this policy, unless the context indicates otherwise: • Eg. • “Act”-means the Local Government Municipal Finance Management Act 2003 (Act No. 56 of 2003) • “Council”-means the Laingsburg Municipal Council or Prince Albert Municipality in terms of section 18 of the Municipal Structures Act. • “Gazette”-means the Government Gazette • “Investment”-means………………. • “Investment manager”-means a natural person or legal entity that is a portfolio manager registered in terms of the Financial Markets Control Act, 1985 (Act 55 of 1989) and Stock Exchange Control Act ,1985(Act No.1 of 1985), contracted by the municipality to (i) advise it on investments, (ii) manage investments on its behalf or (iii) advise it on investments and manage investments on its behalf.

3. Introduction and background • Make reference to the Municipal Finance Management Act,2003 (Act No. 56 of 2003) Section 13 (1)and (2) • Make reference to municipal investment regulations issued by National Treasury dated 1st April 2005 (Gazette no. 27431). This sets out a framework within which all municipalities shall conduct their cash management and investments. • State that the policy is consistent with the Act and the gazetted framework.

4. Objectives • Ensure compliance with the relevant legal and statutory requirements relating to CM & I • Ensure that liquidity needs of the municipality are properly addressed • Ensure timeous reporting of investment portfolio as required by the Act in accordance with GRAP

5. Ethics • Maintain strict code of ethics • No speculation • Security of investment, liquidity needs and lastly income and return on investment • No interference, internally as well as from politicians and external influence • Confidentiality of counterparty rates offered • Municipality’s cash and future cash position not to be disclosed

6. Permitted Investments • Deposits with banks registered i.t.o. the Banks Act, 1990 (Act no. 94 of 1990) • Deposits with PIC • Deposits with CPD • Securities issued by national Government • Listed corporate bonds with investment grade rating-nationally or internationally recognised credit rating agency • BA or NCD • Guaranteed endowment policies with intention to establish a sinking fund • Municipal bonds issued by a municipality

7. Prohibited Investments • In listed or unlisted shares or unit trusts • In stand alone derivative instruments • Denominated in or linked to foreign currencies • In market linked endowment policies • No borrowing for purpose of investment • Investment to be held until maturity in capital or money market. No buying and selling of these instruments o speculate with a view of making a profit

8. Investee Limits • Calculation of limits (Maximum investment limits set for each approved investee and shall not be exceeded) • Deposit taking institutions: 5%(Total equity)/ Total Assets*Total Deposits • DI 900 Reserve Bank Return • Limits to be revised annually or as required upon addition or deletion of investees.

9. Credit Ratings-Internal Control • A1 or better –short term • A or better-long term-nationally or internationally credit rating agency • Competitive selection process • Delegations refer to section 79 Accounting Officer delegates to CFO i.t.o. Section 65(2)(h) to manage the municipality’s working capital • Sub-delegation- Director Treasury • Obtaining quotations and concluding deals-Written mandates issued to investees which contain details of dealers and authorised signatories • Approved investees- Manager Treasury-Director Treasury • EFT’s-Strict segregation of duties. Authorisation by Manager Treasury or other authorised signatory • Control over Investment portfolio- Maintain proper records. Interest calculation-Timeous receipting with capital which matures

10. Cash Management • Cash collection • Payments to suppliers • Management of Inventory • Bank current account balance • Cash Forecasting-To determine timing and size of cash surpluses and deficits that effects investment decisions • Forecasts of cash receipts and payments • Cash flow reporting-daily, monthly-Cash backing of statutory funds and reserve balances • Quarterly- revised cash flow projections for next 12 months • Annually-Preparation of annual cash flow budget for new financial year

11. Investment Reporting • Regular reporting mechanisms to assess the performance of the investment portfolio and compliance with legislation • Reports: Internal and Political Leadership (Executive Mayor and Finance Portfolio Committee). External parties: Auditor General, National Treasury and Provincial Treasury

12. Use of Investment Managers • Very important issue and Municipality should utilise them to advise and/or manage specific investments on its behalf • In accordance with SCM Policy • In accordance with CM & I policy and NT investment regulations • Commission should be declared • Non-compliance with CM & I Policy & NT Reg. renders Fund Managers liable for loss or penalty suffered by the municipality

13. Accounting for Investments • In line with accounting policy of the municipality • Investments accounted for as held to maturity (HTM) • Initially recognised at cost-subsequently measured at • balance sheet date, at amortised cost, using effective interest rate method, less any write-down for impairment or uncollectibility

14. Annual Review • The policy on investments should be reviewed annually or earlier or so required by legislation • Any changes to the CM & I Policy must be adopted by Council and be consistent with the Act and any NT regulations

15. Effective Date • State the effective date of the Policy and Council Resolution.