1          INTRODUCTION

 

This document sets out the policies, practices and objectives of the University’s treasury management activities, as approved by the Finance and Property Committee.

 

The University adopts the key recommendations of CIPFA's Treasury Management in the Public Services: Code of Practice.

 

1     The University defines its treasury management activities as follows:

 

The management of the institution's cash flows, its banking, money market and capital market transactions, the effective control of the risk associated with those activities; and the pursuit of optimum performance consistent with those risks.

 

2     The University regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured.  Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications.

 

3     The University acknowledges that effective treasury management will support the achievement of its business objectives.  It is therefore committed to the principles of achieving best value in treasury management, and to employing suitable performance measurement techniques, within the context of effective risk management.

 

 

2          RISK MANAGEMENT

 

The Director of Finance will design, implement and monitor all arrangements for the identification, management and control of treasury management risk, will report at least annually on the adequacy/suitability thereof, and will report to the Finance and Property Committee, as a matter of urgency, the circumstances of any actual or likely difficulty in achieving the institution's objectives in this respect. The arrangements which seek to ensure effective management of key treasury risks are set out below.

 

2.1         Liquidity risk management

 

The risk that cash will not be available when it is needed, that ineffective management of liquidity creates additional unbudgeted cost, and that the institution's business objectives will be thereby compromised.

 

The University will ensure it has adequate though not excessive cash resources, borrowing arrangements, overdraft or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business objectives.

 

 

 

 

2.2         Interest rate risk management

 

The risk that fluctuations in the levels of interest rates create an unexpected or unbudgeted burden on the institution's finances, against which the institution has failed to protect itself adequately.

 

The University will manage its exposure to fluctuations in interest rates with a view to containing its interest costs, or securing its interest revenues while maintaining the security of the invested funds.  It will achieve this by the prudent use of its approved financing and investment instruments, methods and techniques, primarily to create stability and certainty of costs and revenues but at the same time retaining a sufficient degree of flexibility to take advantage of unexpected, potentially advantageous changes in the level or structure of interest rates.

 

2.3         Exchange rate risk management

 

The risk that fluctuations in foreign exchange rates create an unexpected or unbudgeted burden on the institution's finances, against which the institution has failed to protect itself adequately.

 

The University will retain funds in currencies only to the extent that payments are due to be made in these currencies.  Currency receipts surplus to this will be transferred into sterling at the best rate achievable, but always retaining a sufficient degree of flexibility to take advantage of unexpected, potentially advantageous changes in the level of exchange rates.

 

2.4         Inflation risk management

 

The risk that prevailing levels of inflation cause an unexpected or unbudgeted burden on the institution's finances, against which the institution has failed to protect itself adequately.

 

The University will manage its exposure to varying levels of inflation, insofar as they can be identified as impacting directly on its treasury management activities, as an integral part of its strategy.

 

2.5         Credit and counterparty risk management

 

The risk of failure by a third party to meet its contractual obligations to the institution under an investment, borrowing, capital, project or partnership financing, particularly as a result of the third party's diminished creditworthiness, and the resulting detrimental effect on the institution's capital or revenue resources.

 

The University regards a prime objective of its treasury management activities to be the security of the principal sums it invests.  Accordingly, it will ensure that its counterparty list is constructed with security in mind, but with a reasonable spread to make the most of market conditions.  The list will be reviewed on an ongoing basis and at least annually.

 

2.6         Refinancing risk management

 

The risk that maturing borrowings, capital, project or partnership financings cannot be refinanced on terms that reflect the provisions made by the institution for those refinancings, both capital and revenue, and/or that the terms are inconsistent with prevailing market conditions at the time.

 

The University will ensure that its borrowing, private financing and partnership arrangements are negotiated, structured and documented, and the maturity profile of the monies so raised are managed, with a view to obtaining offer terms for renewal or refinancing, if required, which are competitive and as favourable to the institution as can reasonably be achieved in the light of the market conditions prevailing at the time.  It will actively manage its relationships with its counterparties in these transactions in such a manner as to secure this objective, and will avoid over reliance on any one source of funding if this might jeopardise achievement of the above.

 

2.7      Legal and regulatory risk management

 

The risk that the institution itself, or a third party with which it is dealing in its treasury management activities, fails to act in accordance with its legal powers or regulatory requirements, and that the institution suffers losses accordingly.

 

The University will ensure that all of its treasury management activities comply with its statutory powers and regulatory requirements.

 

2.8      Fraud, error and corruption, and contingency management

 

The risk that an institution fails to identify the circumstances in which it may be exposed to the risk of loss through fraud, error, corruption or other eventualities in its treasury management dealings, and fails to employ suitable systems and procedures and maintain effective contingency management arrangements to these ends.

 

The University will ensure that it is has identified these circumstances and has taken the appropriate action, including the provision of appropriate and adequate insurance cover.

 

2.9         Market risk management

 

The risk that, through adverse market fluctuations in the value of the principal sums an institution invests, its stated treasury management policies and objects are compromised, against which effects it has failed to protect itself.

 

The University will seek to ensure that its stated treasury management policies and objectives will not be compromised by adverse market fluctuations in the value of the principal sums it invests, and will accordingly seek to protect itself from the effects of such fluctuations.

 

2.10    Covenant breach risk

 

The risk that the institution fails to meet terms set by lenders which leads to default of loans and the resulting withdrawal of credit facilities.

 

The University will monitor and report on loan covenant compliance on a regular basis appropriate to the risk.  The University will seek to minimise the security requirements of new debt and maximise the opportunity of the existing debt portfolio.

 

 

3          BEST VALUE AND PERFORMANCE MEASUREMENT

 

The University is committed to the pursuit of best value in its treasury management activities and to regular performance measurement in support of that aim.  The treasury management function will be the subject of regular examination of alternative methods of service delivery and of the scope for other potential improvements. 

 

 

4          DECISION MAKING AND ANALYSIS

 

The University will maintain full records of its treasury management decisions, and of the processes and practices applied in reaching those decisions, both for the purposes of learning from the past and for demonstrating that reasonable steps were taken to ensure that all issues relevant to those decisions were taken into account at the time.  The issues to be addressed and processes and practices to be pursued in reaching decisions are detailed in the Schedule to this document.

 

 

5          APPROVED INSTRUMENTS, METHODS AND TECHNIQUES

 

The University will undertake its treasury management activities by employing only those instruments, methods and techniques as recommended by the CIPFA Code of Practice, and within the limits approved by the Finance and Property Committee.

 

 

6          ORGANISATION AND SEGREGATION OF RESPONSIBILITIES

 

The University considers it essential for the purposes of the effective control and monitoring of its treasury management activities, the reduction of the risk of fraud or error and for the pursuit of optimum performance that these activities are structured and managed in a fully integrated manner, and that there is at all times clarity of responsibilities.  The principle on which this will be based is a clear distinction between those charged with setting treasury management policies and those charged with implementing and controlling these policies, particularly with regard to the execution and transmission of funds, the recording and administering of treasury management decisions, and the audit and review of the treasury management function.

 

The Director of Finance will ensure that there are clear written statements of the responsibilities for each post engaged in treasury management and the arrangements for absence cover.  These are set out in the Schedule to this document.  The Director of Finance will also ensure there is proper documentation for all deals and transactions, and that procedures exist for the effective transmission of funds. 

 

 

7          REPORTING REQUIREMENTS AND MANAGEMENT INFORMATION

 

The University will ensure that regular reports are prepared and considered on the implementation of its treasury management policies; on the effects of decisions taken and transactions executed in pursuit of those policies; on the implications of changes, particularly budgetary, resulting from regulatory, economic, market or other factors affecting its treasury management activities; and on the performance of the treasury management function.

 

The Finance and Property Committee will as a minimum receive an annual report, covering:

 

·           the strategy and plan to be pursued in the coming year;

·           the performance of the treasury management function during the year, including the reasons for and the effects of any changes to the strategy set at the beginning of the year;

·           the performance of any external service providers.

 

Further details are set out in the Schedule to this document.

 

 

8          BUDGETING, ACCOUNTING AND AUDIT ARRANGEMENTS

 

The Director of Finance will prepare and the Finance and Property Committee will review and if necessary from time to time will amend, an annual budget to include income and costs associated with treasury management activities.  The Director of Finance will exercise effective controls over this budget, and will report upon and recommend any changes required.

 

The University will account for its treasury management activities in accordance with appropriate accounting practices and standards, and with statutory and regulatory requirements in force for the time being. 

 

The University will ensure that its auditors and any other bodies charged with regulatory review have access to all information and papers supporting the activities of the treasury management function as are necessary for the proper fulfilment of their roles, and that such information and papers demonstrate compliance with external and internal policies and approved practices.

 

 

9          CASH AND CASH FLOW MANAGEMENT

 

Unless statutory or regulatory requirements demand otherwise, all monies in the hands of the University and its subsidiaries will be under the control of the Director of Finance, and will be aggregated for cash flow and investment management purposes.  Cash flow projections will be prepared on a regular and timely basis and will be presented to the Finance and Property Committee for monitoring and review.

 

 

10        MONEY LAUNDERING

 

The University is alert to the possibility that it may become the subject of an attempt to involve it in a transaction involving the laundering of money.  Accordingly, it will maintain procedures for verifying and recording the identity of counterparties and reporting suspicions, and will ensure that staff involved in this are properly trained and fully aware of the University’s Fraud Prevention Policy. 

 

 

11        STAFF TRAINING AND QUALIFICATIONS

 

The University recognises the importance of ensuring that all staff involved in the treasury management function are fully equipped to undertake the duties and responsibilities allocated to them.  It will, therefore, seek to appoint individuals who are both capable and experienced and will provide training for staff to enable them to acquire and maintain an appropriate level of expertise, knowledge and skills.  The Director of Finance will recommend and implement the necessary arrangements.

 

 

12        USE OF EXTERNAL SERVICE PROVIDERS

 

The University recognises the potential value of employing external providers of treasury management services, in order to acquire access to specialist skills and resources.  When it employs such service providers, it will ensure it does so for reasons which will have been submitted to a full evaluation of the costs and benefits.  It will also ensure that the terms of their appointment and the methods by which their value will be assessed are properly agreed and documented, and subjected to regular review.  It will further ensure, where feasible and necessary, that a spread of service providers is used to avoid over reliance on one or a small number of companies.  Where services are subject to formal tender or re-tender arrangements, the University’s Procurement Policy will always be observed.  The monitoring of such arrangements is set out in the Schedule to this document.

 

 

13        CORPORATE GOVERNANCE

 

The University is committed to the pursuit of proper corporate governance throughout its businesses and services, and to establishing the principles and practices by which this can be achieved.  Accordingly, the treasury management function and its activities will be undertaken with openness and transparency, honesty, integrity and accountability.

 

 

14        BANKING ARRANGEMENTS

 

The University recognises the importance of ensuring effective control over its bank accounts.  In line with the Financial Regulations, all funds due to the University are deposited in accounts with the University’s main bank unless otherwise approved by the Director of Finance.  Banking arrangements will be subject to periodic review.  No other accounts or funds associated with or maintained for the purposes of the University will be open or closed except with the authorisation of the Finance and Property Committee.

 

 

 

UNIVERSITY OF WESTMINSTER

 

SCHEDULES TO THE TREASURY MANAGEMENT POLICY

 

 

SCHEDULE A:         RISK MANAGEMENT

 

1          LIQUIDITY

 

The University's policy is to maintain as a minimum, cash balances equivalent to one month's operating and payroll costs.

 

The Director of Finance is authorised to arrange short-term overdraft facilities with the University's bankers up to a maximum facility of £1 million.

 

 

2             EXCHANGE RATE EXPOSURE POLICY

 

The University's policy is to avoid exposure to exchange rate fluctuations.

 

Currency receipts should be transferred into sterling within one month of receipt, except where currency payments are due to be made.  In this situation, sufficient currency should be retained on deposit to cover the payments. 

 

The Director of Finance is authorised to buy and sell currencies with any of the organisations listed below.

 

 

 

3          CREDIT AND COUNTERPARTY LISTS

 

The Director of Finance is responsible for monitoring the credit standing of approved counterparties.  Where he/she has reason to believe that a counterparty's credit standing is or may become impaired he should apply lower limits than set out in this schedule or cease to use them.  Any change to the counterparty list should be advised to the Finance and Property Committee.

 

The Director of Finance is authorised to deposit surplus funds of the institution with any of the organisations listed below, and in addition institutions which have both a Fitch short term rating of F1 and a Standard & Poor short term rating of A-1, to ensure achievement of the best returns available and diversification of cash holdings.

 

 

 

The approved counterparty list is as follows:

 

 

 

Definitions of Standard and Poor short-term issue credit ratingsA-1

A short-term obligation rated 'A-1' is rated in the highest category by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.

 

The limits set out above may be amended only with approval of the University's Finance and Property Committee.

 

 

4          REFINANCING

 

Where it is the intention of the institution to raise capital for new institutional projects, the Director of Finance will have regard to:

 

·      the level of security for the project.

·      the value of assets already held as security on existing capital projects.

·      requirements of the financial memorandum with the funding council.

·      statutory restrictions and the institution's own powers and rules.

·      restrictions on the institution's use of its property assets required by covenants.

·      the maximum level of assets that should be provided as security without risking the overall stability of the institution.

 

 

 

SCHEDULE B:        BEST VALUE AND PERFORMANCE MEASUREMENT

 

1          FREQUENCY AND PROCESS FOR TENDERING

 

The following services, where provided, will be subject to tender at least every three to five years.  The tender process will be that normally followed by the University, contained within its Financial Regulations and Procurement Policy.  The Finance and Property Committee is responsible for the appointment of the service provider on the recommendation of the Director of Finance.

 

·      Fund management services

·      Financial advisory services

·      Cash management, money broking services and general financial advice.

 

The Director of Finance will review regularly the quality and cost of banking services and if deemed necessary will seek Finance and Property Committee’s approval for a tender exercise in respect of these services.

 

 

2          PERFORMANCE MEASUREMENT

 

The benchmark for interest earned on self-managed funds will be:

                       

Euros                         base-rate

                        US $                           base-rate

                        £ - under £ ½M         base-rate less ½ %

                        £ - over £ ½M            average 7 day LIBID

 

Performance reports will show funds held, interest earned and comparison to bench-marks.

 

 

 

SCHEDULE C:  APPROVED INSTRUMENTS, METHODS AND TECHNIQUES

 

The over-riding principle guiding the investment of surplus funds is to achieve a satisfactory return while reducing the risk to a level acceptable to the University. 

 

Surplus cash balances may be invested as follows:

 

·      Deposits with approved banks.

·      Deposits with approved Building Societies.

 

            These investments are limited to the names on the approved counterparty list.

 

 

 

 

 

 

 

 

 

SCHEDULE D:  ORGANISATION AND SEGREGATION OF RESPONSIBLITIES

 

1             FINANCE AND PROPERTY COMMITTEE

 

·      Approval of and consideration of amendments to the organisation's treasury management policy and practices.

·      Budget consideration and approval.

·      Approving the selection of external service providers and agreeing terms of appointment.

 

 

            2          DIRECTOR OF FINANCE

 

·      Recommending the treasury management policy and practices for approval, reviewing the same regularly and monitoring compliance.

·      Submitting regular treasury management policy reports.

·      Submitting budgets and budget variations.

·      Receiving and reviewing management information reports.

·      Reviewing the performance of the treasury management function and promoting best value reviews.

·      Ensuring the adequacy of treasury management resources and skills, and the effective division of responsibilities within the treasury management function.

·      Recommending the appointment of external service providers.

 

 

3          DEPUTY DIRECTOR OF FINANCE

 

·      Execution of transactions.

·      Adherence to agreed policies and practices on a day-to-day basis.

·      Maintaining relationships with third parties and external service providers.

·      Supervising treasury management staff.

·      Monitoring performance on a day-to-day basis.

·      Submitting management information reports to the Director of Finance.

·      Identifying and recommending opportunities for improved practices.

 

 

 

SCHEDULE E:  REPORTING REQUIREMENTS.

 

The following matters should be included in reports to Finance and Property Committee.

 

·      Commentary on treasury operations for the year.

·      Cash flow compared with budget and commentary on variances.

·      Annual financial strategy for the next financial year.

·      Proposed amendments to the treasury management policy statement.

·      Matters in respect of which the treasury management policy statement has not been complied with.

·      Analysis of currently outstanding loans, deposits and investments by instrument, counterparty, maturity and interest rollover period.