GWENT POLICE AUTHORITY AUDIT AND RESOURCES COMMITTEE

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					                      GWENT POLICE AUTHORITY
                   AUDIT AND RESOURCES COMMITTEE

Date:                11th September 2008                              Item No: 7b

Heading:             Treasury Management Activity 2007-08

Report Author:       Treasurer

___________________________________________________________________

SUMMARY

This report, dealing with Treasury Management Activity of the Authority in the
financial year ended 31st March 2008, is one of two reports required annually
under the CIPFA Code of Practice on Treasury Management.
___________________________________________________________________

RECOMMENDATION

That the Committee approves the Annual Treasury Management Activity report
for the year ended 31 March 2008.


BACKGROUND

1.1     Treasury Management is the management of cash flows, banking, money
        market and capital market transactions and the management of the associated
        risks, in the pursuit of the optimum performance or return consistent with those
        risks.

1.2     The Authority formally adopted the CIPFA Code of Practice on Treasury
        Management on 28 May 2004, which sets out best practice in dealing with and
        reporting on treasury management. In adopting the Code the Authority
        determined that it should receive reports on its treasury management policies,
        practices and activities, including an annual strategy and plan in advance of
        the year and an annual report after the end of the financial year, but in any
        case by the end of September. The Treasury Management Strategy for
        2007/08 was approved by the Authority on 30 March 2007. This report covers
        treasury management activities in the financial year 2007/08.




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PROPOSAL FOR CONSIDERATION BY COMMITTEE/CURRENT POSITION

2.    The Treasury Management Strategy for 2007/08

2.1   Objectives

      The major treasury management objectives for 2007/08 were:-

      (a)   Borrowing

            i)     To minimise the revenue costs of debt.

            ii)    To manage the Authority’s debt maturity profile i.e. to leave no
                   one future year with a high level of repayments that could cause
                   problems in re-borrowing

            iii)   To effect funding in any one year at the cheapest cost
                   commensurate with future risk.

            iv)    To forecast    average    future   interest   rates   and   borrow
                   accordingly.

            v)     To monitor and review the level of variable interest rate loans in
                   order to take greater advantage of interest rate movements.


      (b)   Investment

            i)     To achieve maximum returns commensurate with acceptable
                   risk

            ii)    To maintain capital security

3.    Interest Rates During 2007/08

3.1   When the Treasury Management Strategy for 2007/08 was approved on 30th
      March 2007, the Bank of England Base Rate stood at 5.25% and our treasury
      management advisors were predicting an average rate in 2007-08 of 5.4%,
      falling back in 2008-09 to 5.0%. What happened, was a rise in the Base Rate
      to 5.50% on 10th May 2007 followed by a further rise to 5.75% on 5th July 2007
      and reductions of 0.25% on 6th December 2007 and 7th February 2008,
      bringing the rate back to 5.25%. The Base Rate remained at this level until
      10th April 2008 when it was reduced to its current level of 5%. The average
      base rate for the year 2007-08, was therefore 5.5%, which is only slightly
      higher than our advisors had predicted. During the year problems in the sub-
      prime mortgage market in the US influenced inter-bank lending in the UK. This
      was one of the causes of the cooling of the housing market and this together
      with increases in the world price of oil, food and commodities had an impact
      on interest rates.


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4.    Year End Portfolio

4.1   The Authority’s debt and investment position at the beginning and the end of
      the year was as follows:

                                         31 March 2007       31 March 2008
                                     Principal Ave. Rate Principal Ave. Rate
                                       £’000        %      £’000        %
      Borrowing
      Long Term Fixed Rate
         PWLB                            4,260          5.8       4,260         5.8
         Newport City Council            2,099          7.0       1,980         7.0
      Total Debt                         6,359                    6,240

      Investments
         Short Term Fixed Rate          33,300          5.4      28,300         5.9
         Short Term Variable Rate        2,000          5.2       1,026         5.2
      Total Investments                 35,300                   29,326


4.2   The following table shows an analysis of the above loans by maturity:

               Period to Maturity                31 March 2007       31 March 2008
                                                         £’000               £’000

      up to 2 years                                        322                  365
      3 to 5 years                                         485                  485
      6 to 10 years                                        808                  807
      Over 10 years                                      4,744                4,583
      Total                                              6,359                6,240


5.    Minimum Revenue Provision

5.1   Regulations require the Police Authority to set aside a minimum revenue
      provision for the redemption of external debt. The requirement to make this
      provision has existed since 1990 and continues within the new framework
      under the Prudential Code. The Gwent Police Authority Revenue Account for
      2007/08 was charged with £0.296m to cover the Minimum Revenue Provision.




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6.    Performance Measurement

6.1   The following table compares average interest rates paid/received by the
      Authority in 2007-08 with the previous year.

                                                      2006-07            2007-08
                                                         %                  %
       Average interest rate paid on borrowing          6.4                6.9

       Average     interest     received       on        5.0                 6.0
       investments

      It can be seen from the table in paragraph 4.1 that long term borrowing stood
      at £6.24m as at 31 March 2008, made up of PWLB loans totalling £4.26m and
      a loan from Newport City Council of £1.98m. The PWLB loans are all
      repayable on maturity, whereas an element of principal is repaid annually to
      Newport City Council. In 2007-08 interest accrued but not paid in the year
      was included in the accounts for the first time to comply with the latest
      guidance. Because this had not been done previously interest charged in
      2007-08 covered more than a year with a consequential increase in the
      average rate shown in the above table. In 2008-09 the average rate will fall by
      a similar amount. The average interest received on our investments in 2007/8
      of 6.0% compares with an average of 5.6% for the established benchmark of 7
      day London Inter Bank Bid Rate (LIBID).

6.2   Interest paid on external debt during the year amounted to £438,000, an
      increase of £30,000 over the previous year. Interest on balances invested in
      the short-term market amounted to £2,454m, which was £300,000 more than
      in the previous year.


STAFFING/PERSONNEL IMPLICATIONS

7.    There are no additional resource requirements stemming from this report.

FINANCIAL IMPLICATIONS

8.    There are no new financial implications associated with this report.

CONSULTATION

9.    This report was produced with the co-operation and assistance of the Force’s
      Director of Finance and Administration and his staff.




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PROJECT ASSESSMENT FOR EQUALITY AND DIVERSITY MATTERS

10.   The content of this report has been considered against a general duty to
      promote equality as stipulated under the Police Authority’s Race Equality
      Scheme, and has been assessed not to discriminate against any particular
      group.

RISK ASSESSMENT

11.   Treasury management can never be risk free. In borrowing the risk is that the
      Authority incurs a higher interest charge than was necessary and in lending
      there is the risk of default on repayment and the risk that a better rate of
      interest could have been achieved from an alternative borrower with
      acceptable credit status. Adherence to the CIPFA Code of Practice on
      Treasury Management is best practice in terms of balancing risk and return.

STAYING AHEAD (2011 REVIEW)

12.   We have considered the implications of the 2011 project in the production of
      this report and there are no issues we want to raise in this report at this
      particular time.

CONCLUSION

13.   This report provides details of Treasury Management activity during the last
      financial year, showing performance comparisons with other police authorities.

CONTACT OFFICER

14.   Neil Phillips.

BACKGROUND PAPERS

15.   (I)     The CIPFA Code of Practice on Treasury Management.

      (ii)    The Prudential Code for Capital Finance in Local Authorities.

      (iii)   Gwent Police     Authority   Treasury   Management      Practices   and
              Schedules.

      (iv)    Gwent Police Authority Annual Treasury Management Strategy
              Statement 2007/08

      (v)     Gwent Police Authority Statement of Accounts 2007/8




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