Adopted by Council on 2 July 2018

Policy Purpose

The purpose of this policy is to provide a framework to ensure Council optimises its return on investment of surplus funds, while limiting unnecessary exposure to risk.

Policy Objectives

The objectives of Council’s investment policy is to ensure that:  

• Investment decisions are based on the security of funds by limiting unnecessary exposure to risk
• Return on surplus funds is maximised through prudent investment while limiting unnecessary exposure to risk.
• Sufficient funds are available to meet daily operational cash requirements.
• Council funds are invested in accordance with legislative requirements.
• Effective internal controls exist to minimise the risk of unauthorised appropriation of Council funds; and
• All investment transactions are appropriately authorised and documented.  

Scope

This policy applies to all Latrobe City Council staff involved with the investment of funds and is to be read in conjunction with the S7 Instrument of Sub-Delegations, other related documents and procedures.

Principles of Management

The investment of Council’s surplus funds and cash management will comply with the following conditions: 

Currency

All investments are to be denominated in Australian dollars.

Cash management

The general bank account balance of Council is to be kept at a sufficient level to meet Council’s daily cash flow requirements.   Funds available for investment will be determined following a review of expected future cash flows taking into consideration the timing of future investment maturities.    

Quotations on investments

A minimum of three quotations must be sought from approved financial institutions before investing or reinvesting funds.

Investment framework

Council’s direct Investments are to comply with the following key criteria:

• Authorised Investments: funds to be invested in accordance with section 143 of the Local Government Act 1989.
• Portfolio Credit Framework:  limits the overall credit exposure of the portfolio;  
• Institution Framework:  limits exposure to individual institutions, and;  
• Term to Maturity Framework:  limits based upon term to maturity. 

Percentage limits adopted within each of these frameworks are based upon Council’s total core portfolio balance.   

Authorised investments

All funds must be invested with an Australian Prudential Regulatory Authority (APRA) Authorised Deposit Taking Institution (ADI) and comply with section 143 of the Local Government Act 1989.

Council endorses the following investment types:

• Bank accepted / endorsed bank bills
• Bank negotiable certificates of deposit
• Bank interest bearing deposits
• Authorised deposit taking institutions
• Government securities of the Commonwealth
• Securities guaranteed by the Victorian Government

Authorised Deposit-taking Institutions (ADIs) are corporations which are authorised under the Banking Act 1959. ADIs include banks, building societies and credit unions. All ADIs are subject to the same Prudential Standards but the use of the names 'bank', 'building society' and 'credit union' is subject to corporations meeting certain criteria.

A list of APRA authorised Deposit Taking Institutions is available at www.apra.gov.au

Portfolio credit framework

The maximum percentage of total funds that can be invested in each rating category at any one time is as follows. The percentages represent the maximum percentage of the total funds invested by each rating classification. (e.g. A maximum of 80% of total investments can be in A1 rated institutions.)

Institution framework

Financial Institutions will be restricted by their credit rating so that single entity exposure is limited, as detailed in the table below. The percentages represent the maximum investment in an individual institution as a percentage of the total fund invested by each rating classification. (e.g. An institution with an A1+ rating can hold a maximum of 60% of the total investments)

Term to maturity framework

The investment portfolio is to be invested within the following terms to maturity constraints. The percentages represent the maximum percentage of the total funds invested for each maturity term by each rating classification. (e.g. A total of 20% of the total investments may be long term, as long as they are invested in A1+ rating institutions.)

When assessing the term of investments, especially with regard to long term investments, Council’s short term and medium term forecast cash requirements should also be considered to ensure that Council has sufficient funds to meet day to day cash requirements and also has cash reserves available to help cover unforeseen events.

Managed funds

Latrobe City Council will not invest in Managed Funds

Change in credit rating

In the event of the Standard and Poor’s credit rating of one of Council’s investments being downgraded such that it no longer falls within the investment policy guidelines, it will be divested at maturity, or immediately, whichever is deemed most appropriate.

Shares

Trading in shares is not an approved investment option.

Investment approval

A written recommendation and all other relevant information will be provided to the CEO, or delegated authorising officer, when approval for investing or re-investing of funds is being sought.

Register of investments

A register of investments will be maintained, together with an investment file containing all letters of advice from financial institutions.

Accountability and Responsibility  

Accountability and responsibility for this policy is outlined below.

Council

• Responsibility to ensure this Policy is consistent with Latrobe City Council Strategic Direction and other Latrobe City Council Policy
• Responsibility for the decision to approve this Policy by Council Resolution

Chief Executive Officer

• Overall responsibility for compliance with this policy
• Overall responsibility for enforcing accountability
• Overall responsibility for providing resources
• Overall responsibility for performance monitoring

General Manager Corporate Services

• Responsibility for compliance with this policy
• Responsibility for enforcing accountability
• Responsibility for providing resources
• Responsibility for performance monitoring

Manager Finance

• Develop frameworks and procedures in compliance with this policy
• Enforce responsibilities to achieve compliance with frameworks and procedures
• Provide appropriate resources for the execution of the frameworks and procedures

Employees, Contractors and Volunteers

• Participate where required in the development of frameworks and procedures in compliance with this policy.
• Comply with frameworks and procedures developed to achieve compliance with this policy.

Evaluation and Review

This policy will be reviewed on request of Council, in the event of significant change in the Executive team, significant changes to legislation applicable to the subject matter of the policy or, in any other case, during each Council term (generally four years).

Local Government Act 1989

Section 136 - Principles of sound financial management

1. A Council must implement the principles of sound financial management.
2. The principles of sound financial management are that a Council must

a) manage financial risks faced by the Council prudently, having regard to economic circumstances; b) pursue spending and rating policies that are consistent with a reasonable degree of stability in the level of the rates burden; c) ensure that decisions are made and actions are taken having regard to their financial effects on future generations; d) ensure full, accurate and timely disclosure of financial information relating to the Council:

      3.    The risks referred to in subsection (2)(a) include risks relating to—

a) the level of Council debt; b) the commercial or entrepreneurial activities of the Council; c) the management and maintenance of assets; d) the management of current and future liabilities; e) changes in the structure of the rates and charges base.

Section 143 - Investments

A Council may invest any money:

a) in Government securities of the Commonwealth; b) in securities guaranteed by the Government of Victoria; c) with an authorised deposit-taking institution3; d) with any financial institution guaranteed by the Government of Victoria; e) on deposit with an eligible money market dealer within the meaning of the Corporations Act; f) in any other manner approved by the Minister after consultation with the Treasurer either generally or specifically, to be an authorised manner of investment for the purpose of this sub section.”

*Authorised deposit-taking institution or ADIs include banks, building societies and credit unions.