Cash Management & Investment Cash Management & Investment (CM&I) Policy Workshop(CM&I) Policy Workshop

Laingsburg and Prince Albert Laingsburg and Prince Albert MunicipalityMunicipality

DefinitionsDefinitions Definitions:Definitions: In this policy, unless the context indicates otherwise:In this policy, unless the context indicates otherwise: Eg.Eg. ““Act”Act”-means the Local Government Municipal Finance -means the Local Government Municipal Finance

Management Act 2003 (Act No. 56 of 2003)Management Act 2003 (Act No. 56 of 2003) ““Council”Council”-means the Laingsburg Municipal Council or Prince -means the Laingsburg Municipal Council or Prince

Albert Municipality in terms of section 18 of the Municipal Albert Municipality in terms of section 18 of the Municipal Structures Act.Structures Act.

““Gazette”Gazette”-means the Government Gazette-means the Government Gazette ““Investment”-Investment”-means……………….means………………. ““Investment manager”Investment manager”-means a natural person or legal -means a natural person or legal

entity that is a portfolio manager registered in terms of the entity that is a portfolio manager registered in terms of the Financial Markets Control Act, 1985 (Act 55 of 1989) and Financial Markets Control Act, 1985 (Act 55 of 1989) and Stock Exchange Control Act ,1985(Act No.1 of 1985), Stock Exchange Control Act ,1985(Act No.1 of 1985), contracted by the municipality to (i) advise it on investments, contracted by the municipality to (i) advise it on investments, (ii) manage investments on its behalf or (iii) advise it on (ii) manage investments on its behalf or (iii) advise it on investments and manage investments on its behalf. investments and manage investments on its behalf.

Introduction and backgroundIntroduction and background

Make reference to the Municipal Finance Make reference to the Municipal Finance Management Act,2003 (Act No. 56 of Management Act,2003 (Act No. 56 of 2003) Section 13 (1)and (2)2003) Section 13 (1)and (2)

Make reference to municipal investment Make reference to municipal investment regulations issued by National Treasury regulations issued by National Treasury dated 1st April 2005 (Gazette no. 27431). dated 1st April 2005 (Gazette no. 27431). This sets out a framework within which all This sets out a framework within which all municipalities shall conduct their cash municipalities shall conduct their cash management and investments.management and investments.

State that the policy is consistent with the State that the policy is consistent with the Act and the gazetted framework.Act and the gazetted framework.

ObjectivesObjectives

Ensure compliance with the relevant Ensure compliance with the relevant legal and statutory requirements legal and statutory requirements relating to CM & Irelating to CM & I

Ensure that liquidity needs of the Ensure that liquidity needs of the municipality are properly addressedmunicipality are properly addressed

Ensure timeous reporting of Ensure timeous reporting of investment portfolio as required by investment portfolio as required by the Act in accordance with GRAPthe Act in accordance with GRAP

EthicsEthics

Maintain strict code of ethicsMaintain strict code of ethics No speculationNo speculation Security of investment, liquidity needs and Security of investment, liquidity needs and

lastly income and return on investmentlastly income and return on investment No interference, internally as well as from No interference, internally as well as from

politicians and external influencepoliticians and external influence Confidentiality of counterparty rates offeredConfidentiality of counterparty rates offered Municipality’s cash and future cash position Municipality’s cash and future cash position

not to be disclosednot to be disclosed

Permitted InvestmentsPermitted Investments Deposits with banks registered i.t.o. the Banks Deposits with banks registered i.t.o. the Banks

Act, 1990 (Act no. 94 of 1990)Act, 1990 (Act no. 94 of 1990) Deposits with PICDeposits with PIC Deposits with CPDDeposits with CPD Securities issued by national GovernmentSecurities issued by national Government Listed corporate bonds with investment grade Listed corporate bonds with investment grade

rating-nationally or internationally recognised rating-nationally or internationally recognised credit rating agencycredit rating agency

BA or NCDBA or NCD Guaranteed endowment policies with intention to Guaranteed endowment policies with intention to

establish a sinking fundestablish a sinking fund Municipal bonds issued by a municipalityMunicipal bonds issued by a municipality

Prohibited InvestmentsProhibited Investments

In listed or unlisted shares or unit trustsIn listed or unlisted shares or unit trusts In stand alone derivative instrumentsIn stand alone derivative instruments Denominated in or linked to foreign Denominated in or linked to foreign

currenciescurrencies In market linked endowment policiesIn market linked endowment policies No borrowing for purpose of investmentNo borrowing for purpose of investment Investment to be held until maturity in Investment to be held until maturity in

capital or money market. No buying and capital or money market. No buying and selling of these instruments o speculate selling of these instruments o speculate with a view of making a profitwith a view of making a profit

Investee LimitsInvestee Limits

Calculation of limits (Maximum Calculation of limits (Maximum investment limits set for each investment limits set for each approved investee and shall not be approved investee and shall not be exceeded)exceeded)

Deposit taking institutions: 5%(Total Deposit taking institutions: 5%(Total equity)/ Total Assets*Total Depositsequity)/ Total Assets*Total Deposits

DI 900 Reserve Bank ReturnDI 900 Reserve Bank Return Limits to be revised annually or as Limits to be revised annually or as

required upon addition or deletion of required upon addition or deletion of investees.investees.

Credit Ratings-Internal ControlCredit Ratings-Internal Control A1 or better –short termA1 or better –short term A or better-long term-nationally or internationally credit A or better-long term-nationally or internationally credit

rating agencyrating agency Competitive selection processCompetitive selection process Delegations refer to section 79 Accounting Officer delegates Delegations refer to section 79 Accounting Officer delegates

to CFO i.t.o. Section 65(2)(h) to manage the municipality’s to CFO i.t.o. Section 65(2)(h) to manage the municipality’s working capitalworking capital

Sub-delegation- Director TreasurySub-delegation- Director Treasury Obtaining quotations and concluding deals-Written mandates Obtaining quotations and concluding deals-Written mandates

issued to investees which contain details of dealers and issued to investees which contain details of dealers and authorised signatoriesauthorised signatories

Approved investees- Manager Treasury-Director TreasuryApproved investees- Manager Treasury-Director Treasury EFT’s-Strict segregation of duties. Authorisation by Manager EFT’s-Strict segregation of duties. Authorisation by Manager

Treasury or other authorised signatoryTreasury or other authorised signatory Control over Investment portfolio- Maintain proper records. Control over Investment portfolio- Maintain proper records.

Interest calculation-Timeous receipting with capital which Interest calculation-Timeous receipting with capital which maturesmatures

Cash ManagementCash Management Cash collectionCash collection Payments to suppliersPayments to suppliers Management of InventoryManagement of Inventory Bank current account balanceBank current account balance Cash Forecasting-To determine timing and size of Cash Forecasting-To determine timing and size of

cash surpluses and deficits that effects investment cash surpluses and deficits that effects investment decisionsdecisions

Forecasts of cash receipts and paymentsForecasts of cash receipts and payments Cash flow reporting-daily, monthly-Cash backing of Cash flow reporting-daily, monthly-Cash backing of

statutory funds and reserve balancesstatutory funds and reserve balances Quarterly- revised cash flow projections for next 12 Quarterly- revised cash flow projections for next 12

monthsmonths Annually-Preparation of annual cash flow budget Annually-Preparation of annual cash flow budget

for new financial yearfor new financial year

Investment ReportingInvestment Reporting

Regular reporting mechanisms to Regular reporting mechanisms to assess the performance of the assess the performance of the investment portfolio and compliance investment portfolio and compliance with legislationwith legislation

Reports: Internal and Political Reports: Internal and Political Leadership (Executive Mayor and Leadership (Executive Mayor and Finance Portfolio Committee). External Finance Portfolio Committee). External parties: Auditor General, National parties: Auditor General, National Treasury and Provincial TreasuryTreasury and Provincial Treasury

Use of Investment ManagersUse of Investment Managers

Very important issue and Municipality Very important issue and Municipality should utilise them to advise and/or should utilise them to advise and/or manage specific investments on its behalfmanage specific investments on its behalf

In accordance with SCM PolicyIn accordance with SCM Policy In accordance with CM & I policy and NT In accordance with CM & I policy and NT

investment regulationsinvestment regulations Commission should be declaredCommission should be declared Non-compliance with CM & I Policy & NT Non-compliance with CM & I Policy & NT

Reg. renders Fund Managers liable for loss Reg. renders Fund Managers liable for loss or penalty suffered by the municipalityor penalty suffered by the municipality

Accounting for InvestmentsAccounting for Investments

In line with accounting policy of the In line with accounting policy of the municipalitymunicipality

Investments accounted for as held to Investments accounted for as held to maturity (HTM)maturity (HTM)

Initially recognised at cost-subsequently Initially recognised at cost-subsequently measured atmeasured at

balance sheet date, at amortised cost, balance sheet date, at amortised cost, using effective interest rate method, less using effective interest rate method, less any write-down for impairment or any write-down for impairment or uncollectibilityuncollectibility

Annual ReviewAnnual Review

The policy on investments should be The policy on investments should be reviewed annually or earlier or so reviewed annually or earlier or so required by legislationrequired by legislation

Any changes to the CM & I Policy Any changes to the CM & I Policy must be adopted by Council and be must be adopted by Council and be consistent with the Act and any NT consistent with the Act and any NT regulationsregulations

Effective DateEffective Date

State the effective date of the Policy State the effective date of the Policy and Council Resolution.and Council Resolution.