Agenda item

To note the Treasury Management Outturn Report 2020/21 and Annex 1 and provide any observations to the Executive at its meeting on 18 November 2021.

The Interim Head of Finance gave an overview of the treasury management function, explaining that treasury management covered the management of the Council’s cash and borrowing, as compared to budget management which focussed on controlling spending and income. The Council was required to have a balanced revenue budget whereby all expenditure was covered by income suggesting a neutral annual cash flow, therefore income would equal expenditure, however surpluses/shortfalls were held, either due to short term mismatches of spending and income flows, or as part of a deliberate strategy and this was explained. These cash sums were then reported at the end of the year on the balance sheet.

The Capital Financing Requirement (CFR) was a key element of treasury management and this set out how the capital programme would be funded over coming years. This was usually through a combination of grants, asset sales and borrowing. That borrowing had an impact on the revenue budget that includes funding for loan interest costs and sums set aside for principal repayment (known as the Minimum Revenue Provision or MRP). Management of the Council’s cash balances and borrowing were the two key elements of treasury management. The governance of Local Authority treasury management was outlined as were the treasury management reporting requirements.

An overview of the Treasury Investment Strategy and borrowing plans was given, as was the delegation of responsibility for Treasury Management. It was highlighted that the Audit Committee’s role was the scrutiny of Treasury Management Strategy and performance. The Committee would be consulted each year on development of the new Treasury Management Strategy. In anticipation of preparing the Treasury Management Strategy for 2022/23 in-depth training for the Committee would be arranged, with support from the Council’s treasury advisors, Link, in the new year.

The Treasury Management Outturn report provided an update on the performance of the Council’s treasury management activities for the last financial year and was part of the formal reporting requirements under the CIPFA Code of Practice on Treasury Management. It was stated that with one with one exception, the Council complied with legislative and regulatory requirements and operated within the limits specified in the Treasury Management Strategy. As previously reported to Overview and Scrutiny Committee and Executive throughout last year, the exception related to periods of time during the year when the Government paid over tens of millions of pounds in emergency funding to the Council at short notice as part of the national COVID-19 pandemic response. As a result, it had not been possible to spread the funds across a range of banks and financial institutions as was normally required, to ensure compliance with the limits for how much was invested with individual institutions as set out in the Treasury Management Strategy. However, this had now been resolved mainly through opening additional accounts with new institutions to spread the counterparty risk.

It was questioned as to the number of additional accounts that were opened and their lifespan. Further information regarding this would be provided in a written answer after the meeting.

The distribution of funds between in-house investments and investments with brokers was highlighted (Table 7 of the report). It was explained that some of these investments dated back over several years when rates of return were higher whereas more recent investments were invested at a point when rates of return were lower. Security and liquidity were the most important factors when investing. A written response was requested to provide a schedule of investment accounts held, to include the rates of return that the Council was receiving.

The level of inflation impacts on the Council’s budget planning. The main area of concern would be pay inflation pressures and impacts of inflation on material and labour providers that would impact building projects. Once current energy deals expired, new deals available could also be impacted by inflation.

In terms of the extraordinary circumstances relating to COVID-19, the Council had to manage an influx of Government funding and had acted as an agency for distribution of these funds. This situation demonstrated that the Council had strong mechanisms in place to deal with this challenge as it occurred.

In respect of the debt portfolio (Table 6 of the report), it was explained that the Council was allowed to borrow within its Capital Financing Requirement. The Council did not currently have any long-term loans but there were cashflow circumstances in which short-term loans were required. The local authorities from whom funds had been borrowed had a cash surplus and the Council was able to agree favourable terms with them.

The Committee questioned the figures which were stated as being ‘to be confirmed’ within Table 10 of the report (Investment Portfolio). It was stated that the timing for receipt of published accounts from third party companies was currently out of step due to COVID-19 publication delays and this had caused the gaps in information within this table. At the meeting of the Audit Committee being held in November, the Council should be in a better position to report the figures. When the accounts are published, the tables would be updated so that the complete figures were reported; this would include any reduction or increase in investment value.

It was confirmed that Greensand Holdings Limited and Horley Business Park LLP had issued management accounts however there were protocols on the timing for reporting them.

The Committee questioned who in the Council was aware when counterparty limits were breached (during the response to the pandemic). Starting with the first lockdown in late March 2020, when the Council started to receive an influx of Government funding, new controls were put in place to manage and report these funds. More frequent monitoring of the cashflow position was introduced, including the Interim Head of Finance receiving daily updates, giving daily approval to where the funds were placed, thereby ensuring clear accountability. This was later revised to weekly monitoring which was currently ongoing and would continue for the foreseeable future. Weekly updates were provided to the responsible Portfolio Holder and also to the Incident Management Team which included the Leader. Overall there were effective controls in place and there was transparency of reporting.

In respect of Tables 2 and 3, the Interim Head of Finance agreed to produce a written response detailing reconciliation.

With regard to the Council’s investments, there were limited places it could invest, and these tended to be either short-term or long-term investments and conversations were always on going with the Council’s treasury management advisors regarding investment options and opportunities.

The Interim Head of Finance agreed that the half-yearly report would be brought back to the Committee when the outstanding company information was available so that members would be able to re-scrutinize it.

RESOLVED that:

(i)            The Audit Committee notes the report;

(ii)          The comments made would be fed back to the Executive; and

(iii)         Written responses would be sent to Members.