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Governance of the Treasury Function CIPFA Scottish Treasury Management Forum

Learn about the key principles and practices of corporate governance in treasury management. Understand risk management, financial reporting, and internal controls for optimal performance and compliance with standards.

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Governance of the Treasury Function CIPFA Scottish Treasury Management Forum

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  1. Governance of the Treasury FunctionCIPFA Scottish Treasury Management Forum Alan George, Regional Director 23rd February 2012

  2. Governance and Accountability Definition of Corporate Governance Key Principles of Corporate Governance: “The system by which organisations are directed and controlled” Cadbury Report 1992 Openness Integrity Accountability

  3. Corporate Governance To comply with key principles, Authorities need to consider Organisational structures and processes Financial reporting and internal controls Standards of behaviour Code of Conduct

  4. Delivering good governance in Local Government (CIPFA / SOLACE) Be satisfied that the authority’s assurance statements properly reflect the risk environment and any actions required to improve it Seek assurance that action is being taken on risk-related issues identified by auditors and inspectors Consider the effectiveness of the Authority’s risk management arrangements and the control environment

  5. Delivering good governance in Local Government (CIPFA / SOLACE) Consider the reports of external audit and inspections Receive the annual report of the Head of Internal Audit Review summary Internal Audit reports, and seek assurance that appropriate action has been taken Approve (but not direct) the Internal Audit Strategy and monitor performance

  6. Definition of Treasury Management The Management of the organisation’s... Investments Cash flows Banking Money market and capital market transactions Effective control of the RISKS associated with those activities Pursuit of optimum performance consistent with thoseRISKS

  7. Legislation Key Drivers CIPFA’sCodes of Practice Risk Appetite Capital Expenditure Plans Strategic Documents Treasury Management

  8. Strategic Considerations Capital Programme Balance Sheet Position Deliverability of Schemes Budget Pressures Slippage etc Security of Capital Capital Receipts Budget Profiling – Capital and Revenue Cash Flow Management

  9. Treasury Risk Management Credit and Counterparty risk Liquidity risk Exchange Rate risk Interest Rate risk Refinancing risk Legal & Regulatory risk Fraud, error, corruption and contingency management Market value of investments

  10. “the ongoing activity of adjusting the authority’s treasury exposure due to changing market and domestic circumstances in order to manage risk and achieve better value in relation to the authority’s objectives” Doing nothing does not avoid or minimise risk Risk can be failure to take advantage of opportunities TM Risk Management

  11. Year end Level of Reserves and Balances Cash Position Capital Financing Requirement (CFR) External Borrowing Internal Borrowing Balance Sheet

  12. Council Balance Sheet • Reserves & Balances = £145m • GF Balances = £15m • HRA Balances = £10m • Earmarked Reserves = £65m • Capital Grants etc = £40m • Provisions = £15m • Working capital surplus = £ 15m • Total reserves & balances = £160m • Investments = £ 95m • Internal Investments = £ 65m

  13. Key Balance Sheet issues • Capital Financing Requirement = £370m • External Borrowing = £305m • Under borrowed = £ 65m • Internal Investments = £ 65m • Capex over next 3 years = £215m • CFR Forecasts = £392m (11/12) = £398m (12/13) = £390m (13/14)

  14. Risk Management • Risk management is the identification and assessing of the risks to which an organisation may be exposed • Assigning ownership of risks to specific individuals to manage • The mitigation of those risks by implementing suitable control and management measures • The acceptance of the residual risks as being risks worth running • Periodic monitoring and reviewing of risks and risk management

  15. TM Code of Practice – summary • Responsibility for Risk Management lies with the organisation • Enhanced member involvement and understanding • Better Scrutiny • Training • Reporting requirements – Quarterly / Half Yearly • Reliance on Credit Ratings • Diversification • Monitoring of Indicators • Borrowing in advance – clear business case in place

  16. Why is a Code needed? • To reflect Audit Commission’s report and findings • CLG and Treasury Select Committee review • Credit Crunch and Impact on banking system • Risk appetite • Increase in risk exposure • To maintain high and consistent standards in looking after public funds for all Local Authorities, Police Authorities etc

  17. The Code’s four clauses: • Formal adoption of the “Four Clauses” • Clause 1 - Policies and Practices • Clause 2 - Reporting Requirements • Clause 3 - Delegation • Clause 4 - Scrutiny • Make the “Four Clauses” part of standing orders and financial regulations

  18. Clause 3: Delegation of responsibility for treasury management to: - • Cabinet / Committee / Council for implementing and monitoring the TMPS & TMPs • The responsible officer (S95) – for the execution & administration of TM decisions in accordance with the TMPS and TMPs

  19. Clause 4: Scrutiny The following body or group of individuals is nominated to be responsible for ensuring effective scrutiny of the TM strategy and polices: • Scrutiny Panel • Governance Committee • Audit & Governance Committee

  20. Debt and investment portfolios:– Interest rate forecast Prudential and Treasury Management Indicators Explanation of gross v. net debt Policy on borrowing in advance of need Policy on use of external service providers Any extraordinary issues Treasury Management Strategy Statement

  21. The Financial Control Environment Chief Finance Officer – s.95 - ensuring adequate accounting records and expenditure is within affordable limits Sound systems and procedures Financial Regulations, Financial Plans and Strategies Medium Term Financial Plan (MTFP) and Annual Budgets Sound decision making framework Audit Committee Internal and External Audit

  22. The Audit Committee (Corporate Governance Committee) is a critical component in the overall corporate governance process It should be independent from the executive and scrutiny functions It should provide assurance to elected members and members of the public that systems on internal control are effective It should provide assurance about the organisation’s arrangements for managing risks CIPFA guidance for Local Authorities:

  23. Treasury Management Practices • TMP 1 Treasury risk management • TMP 2 Performance measurement • TMP 3 Decision - making and analysis • TMP 4 Approved instruments, methods and techniques • TMP 5 Organisation, clarity and segregation of responsibilities & dealing arrangements • TMP 6 Reporting requirements and management information arrangements • TMP 7 Budgeting, accounting and audit arrangements • TMP 8 Cash and cash flow management • TMP 9 Money laundering • TMP 10 Training and qualifications • TMP 11 Use of external service providers • TMP 12 Corporate governance

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