Treasury and Investment Management Policy

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					                            TRUST BOARD - SUMMARY REPORT
Date of Board meeting:                         October 2006
                                                    Draft Treasury Management Policy
                                                     (‘TMP’)
Name of Report(s):                                  (For reference only) Monitor’s guidance
                                                 ‘Best practice treasury management for NHS
                                                 foundation trusts’ (01 June 2005)
Author(s):                                     Steven Thomas (Audit Committee Secretary)
Approved by (name of Executive
                                               Gus Heafield (Director of Finance)
member):

Presented by:                                  Gus Heafield (Director of Finance)


Purpose of the report:
Treasury management is an area that assumes much greater importance when NHS Trusts become
Foundation Trusts. Thus, Monitor ‘strongly advises’ all NHSFTs to develop TMPs taking account of
Monitor’s guidance as set out in ‘Best practice in treasury management for NHS foundation trusts
(consultation document issued in June 2005 and attached for reference only).
The draft TMP (v3) attached takes account of: (a) Monitor’s guidance; (b) recent TMPs being
drafted by Guy’s and St Thomas’ Foundation NHS Trust and Oxleas NHS Trust (in support of their
Foundation Trust status); and (c) comments received from circulating in August and September 2006
two previous draft versions of the TMP to SLaM’s: finance team; Business Manager to the Chief
Executive; Audit Committee members; and internal and external auditors.
The development of the TMP is in line with the agreed Outline Plan for the update of governance
documentation (dated 09.Jun.06) previously circulated to Board members.
The TMP is structured to make update as straightforward as possible, for example by putting into the
appendices the main information likely to change over time.

Action required:
Please read the draft TMP attached. There is no need to refer to Monitor’s guidance unless you
particularly wish to.

Recommendations to the Board:
The Board is requested to approve the attached draft TMP, and to authorise the Director of Finance
and the Chair of the Audit Committee to approve any final amendments to the draft without the need
for further recourse to the Audit Committee or Board.
There are a few points in the draft TMP indicated by [square brackets] where final known amendments
are required. Otherwise, the only final amendments should be correction of typos, and any changes to
reflect Board comments.

Relationship with the Assurance Framework (Risks, Controls, and Assurance):
The TMP, and the objectives, processes and controls documented therein, are elements of SLaM’s
system of controls and assurances.

Summary of Financial and Legal Implications:
No specific significant implications identified.

Equality & Diversity and Public & Patient Involvement Implications:
No specific significant implications identified.




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[TO BE PUT INTO SLaM APPROVED HOUSE STYLE FOR POLICIES/PROCEDURES]

TREASURY MANAGEMENT
POLICIES AND PROCEDURES
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CONTENTS
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SUMMARY

S1. Appendix B summarises key responsibilities within SLaM for the following parties, who
should have an understanding of the contents of this document in its entirety (other SLaM
personnel should read this summary and refer to the document if and as necessary to their
role):
a) Board of Directors;
b) Chair‟s Finance Group;
c) Director of Finance;
d) Treasury function; and
e) Finance department.

S2. The key points in this document are that SLaM:
a) maintains a risk-averse stance to investing cash surplus balances, and thus has decided
    that it can invest surplus funds solely with certain „permitted institutions‟ considered low
    risk by SLaM for a maximum investment period of three months;
b) has set upper limits on the sums that it can invest with these permitted institutions; and
c) has put in place key controls over the treasury and investment system that include:
         a. clear definition of policies, processes and controls in this document itself,
              including description of roles and duties of the parties involved;
         b. regular reporting and review of treasury activities;
         c. separation of duties between those who set policy and monitor compliance, those
              who deal, those who initiate payment and those who account for treasury
              activities; and
         d. inclusion of treasury management activities within the scope of review by internal
              audit and external audit.

S3. „Treasury management‟ is the process of managing: cash (including investment of surplus
cash); availability of short and long term funds; foreign currency and interest rate risk; and
relationships with banks and other financial institutions.

S4. This document sets out treasury management policies and procedures, focusing on
investment of surplus operating cash likely to be needed within twelve months to support
SLaM‟s ongoing operations.

S5. These investments need to be safe and liquid, so that the investments can be realised
quickly. This document describes SLaM‟s policies, procedures and controls to ensure
adequate safety (that is, manageable risk profile) and liquidity (that is, accessibility of funds
on short notice) of such investments, while generating a competitive return.

S6. The main way in which this document takes effect is by systematically linking SLaM‟s high
level objectives with the key treasury policies and objectives (noted above), which in turn are
linked to relevant risks which (again in turn) are linked with mitigating control procedures – all
of which this document describes.




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1. SCOPE AND OBJECTIVES

Scope
1.1 „Treasury management‟ is the process of managing: cash (including investment of surplus
cash); availability of short and long term funds; foreign currency and interest rate risk; and
relationships with banks and other financial institutions.

1.2 This document sets out treasury management policies and procedures, focusing on
investment of surplus operating cash likely to be needed within twelve months to support
SLaM‟s ongoing operations. This document does not cover treasury management
arrangements for charitable funds. SLaM will produce policies and procedures covering such
arrangements and the other aspects of treasury management (or expand this document) if
and as the Board of Directors considers this necessary.

Objectives
1.3 SLaM‟s overall strategic objective is that: “The Trust will comply with its statutory,
regulatory and performance management obligations, including the Standards for Better
Health and National Targets”. As regards finance and treasury management, SLaM‟s main
ongoing obligations under its financial strategy relate to profitability and also liquidity/solvency
(which refers to the ability to pay liabilities as these fall due).

1.4 In support of these high level objectives, the key objectives of the treasury management
function are to:
a) ensure a competitive return on surplus cash balances within SLaM‟s agreed risk profile
    (taking account of the cost of administering this function); and
b) ensure that competitively priced funds appropriate to SLaM‟s needs are available when
    required and throughout the required period.


2. RISK AND CONTROL

High level controls
2.1 To ensure that SLaM undertakes treasury activities in a controlled and properly reported
manner, SLaM has put in place a number of overall high level controls including:
a) the documentation of treasury management policies and processes within this document
    itself;
b) clearly defined roles and responsibilities in treasury management activities for the Board
    of Directors, the Chair‟s Finance Group, the Director of Finance, the Treasury function
    and the Finance Department (section 4 generally and Appendix A refer);
c) regular reporting of treasury activities (clauses 4.6 onward refer);
d) separation of duties between those who deal, those who initiate payment and those who
    account for treasury activities (section 4 in general refers);
e) strict limits on the types of investments used and the circumstances in which they can be
    used (clause 4.3 and Appendix C refer); and
f) inclusion of treasury management activities within the scope of review by internal audit
    and external audit.

2.2 Set out in Table 1 below is a more detailed analysis of:
a) key risks identified by SLaM that could prevent SLaM from meeting its treasury
    management key objectives; and
b) key controls set up by SLaM to mitigate those risks.




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TABLE 1
Ref.       Key risk: description                                Key controls mitigating key risk
Rating
Key objective (a). Ensure a competitive return on surplus cash balances within SLaM’s agreed risk
profile (taking account of the cost of administering this function).
R1         SLaM fails accurately to identify a surplus cash     Use cashflow projection and related monitoring
High       balance (as regards amount and/or duration)          systems
R2         SLaM fails to obtain a competitive return on a       Use an authorised list of deposit takers and
           surplus cash balance                                 accounts which is regularly reviewed/tested
                                                                Operate investment authorisation controls
R3         SLaM places or retains a surplus cash balance in     Use an authorised list of deposit takers and
High       an account attracting too high a risk (for instance, accounts which is regularly reviewed/tested
           loss of funds)                                       Use investment authorisation controls
                                                                Implement separation of duties
                                                                Review confirmations from counterparties
R4         Treasury function costs or costs of placing or       Review treasury function operations
           switching a surplus cash balance are excessive       Use an authorised list of deposit takers and
                                                                accounts which is regularly reviewed/tested
                                                                Use treasury management policy and
                                                                procedures (in particular investment
                                                                authorisation controls)
                                                                Monitor compliance with counterparty terms
Key objective (b). Ensure that competitively priced funds appropriate to SLaM’s needs are
available when required, and throughout the required period.
R5        SLaM fails to identify the need for funds accurately     Use cashflow projection and related monitoring
High      and/or in time                                           systems
R6        Banks (or other fund providers) are unwilling to         Monitor funding levels
High      provide the necessary funding facilities                 Monitor compliance with counterparty terms
R7        SLaM obtains funds at an uncompetitive rate or on        Use an authorised list of banks and fund
          overly restrictive terms                                 providers which is regularly reviewed/tested
                                                                   Use funding authorisation controls
R8         Bankers (or other fund providers) withdraw funding      Monitor funding levels
High       facilities (or are forced to do so through liquidation) Monitor compliance with counterparty terms
                                                                   Use an authorised list of permitted banks and
                                                                   fund providers that is regularly reviewed/tested
The ‘rating’ shown above is intended solely as a guide to the relative importance of the risks shown

3. KEY POLICIES

Investment policy
3.1 SLaM maintains a risk-averse stance to investing cash surplus balances. SLaM thus
forbids speculative trading/investment and invests surplus funds only in investments that meet
the following criteria. Refer to Appendix D for further details of these „safe harbour‟
investments, which are investments that:
a) meet the permitted rating requirement issued by a recognised rating agency;
b) are held at a permitted institution;
c) have a defined maximum maturity date (other than for UK Government bonds);
d) are denominated in sterling, with any payments or repayments for the investment payable
     in sterling;
e) pay interest at a fixed, floating, or discount rate; and
f) are within the preferred concentration limit.

Funding policy
3.2 SLaM maintains a risk-averse stance to funding and thus:
a) requires approval from the Board of Directors before SLaM obtains any funding facilities
    proposed;
b) forbids entrance into trading positions or purely speculative trading;
c) recognises in principle the ongoing need for committed funds in place to cover existing
    business cash flows and to provide reasonable headroom for seasonal cash flow
    fluctuations, capital expenditure programmes and acquisition financing; and
d) forbids pre-finance in anticipation of potential projects.




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4. KEY PROCESSES AND CONTROLS: INVESTMENT

Identify cash surplus balances
4.1 The Treasury Manager identifies cash surplus balances by monitoring the following:
a) cash reports prepared daily showing surplus cash available for investment on that day;
b) short term in month cashflow reports prepared by the Finance Department; and
c) longer term month by month cashflow reports for the year ahead prepared by the Finance
    department.

4.2 The Finance department prepares the longer term cashflows using a system that, with
appropriate precision: predicts longer term receipts and payments in accordance with SLaM‟s
plans; captures short term receipt and payment data without significant delay; and keeps the
forecast constantly updated.

Invest cash surplus balances and maintain/check appropriate records
4.3 The Treasury Manager formulates the most appropriate way to invest with permitted
institutions adopted by SLaM (Appendix D Table 2 refers) the cash surplus balances so
identified. The Treasury Manager must obtain due authorisation of the proposed investment
(or proposal to rollover an investment) in accordance with the limits noted in Appendix C,
before the cashier effects the investment transaction (payment or rollover confirmation) using
the appropriate documentation. The cashier should also receive such relevant authorisation
of the investment transaction (payment or rollover confirmation) as is required by the relevant
bank mandate or other authorised signatory schedule. If the cash surplus exceeds the
investment limits for permitted institutions currently adopted by SLaM and the members of the
Chair‟s Finance Group agree, the Treasury Manager may invest the excess with another „safe
harbour‟ institution permitted by SLaM‟s investment policy (Appendix 2 Table 1 refers).

4.4 The Treasury function maintains records of all such investment transactions.

4.5 SLaM‟s standing instruction to counterparties is for counterparties to send transaction
confirmations directly to the Finance department, not to the Treasury function. The Finance
department independently checks and matches the counterparty confirmations against the
daily movement reports and copy transaction forms received from the Treasury function (4.7
refers). The Finance department also holds for safe-keeping SLaM‟s bank mandates and
other authorised signatory schedules.

Report treasury activities
4.6 SLaM prepares and circulates treasury reports as follows, so that relevant SLaM parties
have the information necessary for their roles, and so that treasury activities remain
transparent.

4.7 Daily report. The Treasury Manager prepares a daily report of all movements to and from
all accounts and investments, showing the maturity dates and values of all investments.
Finance department receives and reviews this report

4.8 Weekly Report. Each week the Finance department prepares a report showing: balances
at each facility; investments and maturity dates; interest rates achieved; total receipts and
payments in the week and overall balances; cash requirements for the next four weeks
(analysed into weeks); and compliance with counterparty terms and conditions. The Deputy
Director of Finance receives and reviews this report.

4.9 Monthly Report. Each month the Finance department prepares a report showing: actual
cash flow for the previous 12 months (analysed into months); forecasts of cash receipts and
payments for the next 12 months (analysed into months); details of invested cash and
maturity dates; details of interest earned and rates achieved compared with current account
rates and the London Interbank Bid Rate; and compliance with counterparty terms and
conditions. The Director of Finance receives and reviews this report, and prepares a
summary for review by the Chair‟s Finance Group and the Board of Directors, which consider
whether the following are satisfactory:
a) the return on investments;
b) the adequacy of working capital;
c) the effectiveness of the treasury management system; and
d) overall working relationships with deposit and investment takers.

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Monitor permitted institutions and accounts
4.10 SLaM‟s Treasury function:
a) reviews quarterly the list of permitted institutions and accounts adopted by SLaM
    (Appendix D Table 2 refers), and compares investment details and rates with those of the
    various accounts available from other „safe harbour‟ deposit takers (Appendix D Table 1
    refers); and
b) (in the light of that review) proposes to the Chair‟s Finance Group, for that Group‟s
    approval, any changes considered necessary to the list of permitted institutions and
    accounts adopted by SLaM (Appendix D Table 2 refers).

Monitor compliance with counterparty terms
4.11 The weekly and monthly Treasury reports include a review of SLaM‟s actual and
projected performance against any terms or conditions attached to investment arrangements
(and, if relevant, funding arrangements). This allows SLaM to identify potential problems at
an early stage and propose appropriate corrective action. Typically investment terms specify
restrictions as to amounts and duration of investments and withdrawal of funds. It may not be
possible to break these restrictions, or to do so without penalty.

Perform annual reviews
4.12 The Chair‟s Finance Group:
a) sets benchmarks for assessing the Treasury function‟s performance, and annually
    reviews performance against those benchmarks; and
b) reviews a market testing exercise performed annually by the Finance department
    covering the permitted institutions adopted by SLaM.


5. KEY PROCESSES AND CONTROLS: FUNDING FACILITIES

[Short section to be written once SLaM Finance department has determined the likely
need/arrangements for funding of working capital. This would be subject to Board approval.]




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APPENDIX A: TERMS AND ABBREVIATIONS

TABLE 1
Term or          Meaning for the purposes of this document
abbreviation
SLaM             South London and Maudsley NHS Foundation Trust
Treasury         This is not a separate department with full time staff within SLaM, but is a function
function         carried out by a team drawn from the cashier function.
Treasury         The Treasury manager is the senior member of the Treasury function.
Manager




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APPENDIX B: KEY RESPONSIBILITIES

Board of Directors
a) Approves external funding arrangements subject to the funding policy
b) Approves overall treasury policy
c) Delegates to the Chair‟s Finance Group approval of SLaM‟s treasury management
   detailed policies, processes and controls

Chair’s Finance Group
a) Approves SLaM‟s detailed treasury management policies, processes and controls
b) Approves relevant benchmarks for measuring performance
c) Reviews and monitors investment and borrowing policy and performance against the
   relevant benchmarks
d) Ensures proper safeguards are in place for security of the Trust‟s funds by: approving a
   list of permitted institutions; approving investment limits for each permitted institution;
   approving permitted investment types; and ensuring approved bank mandates are in
   place for all accounts which are updated regularly for changes in signatories and authority
   levels
e) Monitors compliance with treasury policies and procedures in particular as regards limits,
   approved counterparties and types of investments
f) Delegates responsibility for treasury operations to the Director of Finance
g) Specifies and reviews detailed treasury reporting requirements

Director of Finance
a) Holds regular meetings with the Treasury function to discuss issues and consider any
    points that should be brought to the attention of the Chair‟s Finance Group.
b) Has overall responsibility for proper operation of accounting systems including cashflow
    projections
c) Reviews treasury reports and prepares treasury reports for the Board of Directors

Treasury function
a) Defines SLaM‟s detailed treasury management approach for approval by the Chair‟s
   Finance Group
b) Reports treasury activities on a timely and accurate basis
c) Manages key relationships with deposit takers and fund providers
d) Manages operational treasury activities within the agreed policies and procedures

Finance Department
a) Maintains accurate and timely accounting records of all treasury transactions
b) Performs bank reconciliations
c) Matches counterparty confirmations with internal documentation
d) Prepares/reviews treasury reports




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APPENDIX C: INVESTMENT AUTHORISATIONS REQUIRED

        TABLE 1
            Investment value    Less than £1m       £1m to £5m           Over £5m
     Investment period
     Overnight                  Treasury manager    Associate Director   Director of Finance
                                                    of Finance
     2 days to 1 week           Treasury manager    Associate Director   Director of Finance
                                                    of Finance
     1 week to 4 weeks          Treasury manager    Associate Director   Director of Finance
                                                    of Finance

     4 weeks to 3 months        Treasury manager    Associate Director   Director of Finance
                                                    of Finance

     Longer than 3 months       Investment          Investment           Investment
                                forbidden           forbidden            forbidden




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APPENDIX D: PERMITTED INSTITUTIONS AND ACCOUNTS

The guidance that follows (about investments that do or do not qualify for „safe harbour‟
status) is based on guidance issued by Monitor, except where otherwise stated. The
guidance below about „safe harbour investments adopted by SLaM‟ shows the specific
investments that SLaM has adopted from the full range of investments that qualify for „safe
harbour‟ status.

TABLE 1: Criteria for investments to qualify for ‘safe harbour’ status
 Factor                 Criterion
 Permitted rating           The short-term rating should be at least:
 requirement and              A-1 on rating scale of Standard & Poor‟s; or
 recognised rating            P-1 on rating scale of Moody‟s Investors Service; or
 agency                       F1 on rating scale of Fitch Ratings Ltd
 Permitted institutions     Permitted institutions comprise:
                              institutions that have been granted permission, or any European
                               institution that has been granted a passport, by the Financial
                               Services Authority to do business with UK institutions; and
                              The UK Government, or an executive agency of the UK
                               Government that is legally and constitutionally part of any
                               department of the UK Government, including the UK Debt
                               Management Agency Deposit Facility.
 Maximum maturity           For UK Government bonds, there is no maximum maturity date but
 date                       the investments must be capable of being realised within three
                            months. For other investments, the maturity date should be before
                            or on the approximate date when the invested funds will be needed,
                            and in any event the maturity should not exceed 3 months (Monitor
                            adopts a cut off point of 1 year)
 Preferred                  No single treasury management investment should account for
 concentration limit        more than 20% of total investments or £5 million, whichever is
                            lower. This limit does not apply to the UK Debt Management
                            Agency Deposit Facility or where the security itself is a diversified
                            investment (for instance, a unit trust) [Monitor is to respond to a
                            query about how this works for few, small investments eg 2 deposit
                            accounts]

Investments not qualifying for ‘safe harbour’ status
Investments that do not qualify for „safe harbour‟ status include: general equities; derivative
products; speculative investments; investments linked to other trade instruments (for instance
credit-linked notes) or foreign exchange; index-linked investments; private equity or venture
capital investments; equity or commodity-related investments; leveraged investments;
contracts for differences; hedge funds; derivatives; futures; options; and swaps.

Safe harbour investments adopted by SLaM
SLaM has adopted for SLaM‟s use the following institutions and accounts meeting the „safe
harbour‟ criteria.

TABLE 2
Permitted institution/account as adopted           Key use/purpose
by SLaM
OPG current account. [key terms]                   Direct credit of receipts from NHS bodies and
                                                   specific payments re NHS transactions
OPG sterling investment account [key terms]        Short and longer term deposits
[Bank] current account [key terms]                 Receipt of all monies (other than direct credits
                                                   from NHS bodies) and the majority of day to day
                                                   payments
[Bank] sterling investment account [key terms]     Short and longer term deposits
[Bank] euro account [key terms]                    Receipt and payment of items denominated in
                                                   Euros, thereby reducing currency exposure
OPG means Office of the Paymaster General




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