Late Reports Agenda of Council Briefing

Council Briefing Agenda 14 August 2018

7 Corporate Services

7.3 LATE REPORT: Investment Report as at 31 July 2018

TRIM Ref: D18/115396

Author: Sheryl Teoh, A/Coordinator Financial Services

Authoriser: Kerryn Batten, Director Corporate Services

Attachments: 1. Investment Report ⇩

Recommendation:

That Council NOTES the Investment Report for the month ended 31 July 2018 as detailed in Attachment 1.

Purpose of Report:

To advise Council of the level of investment funds and operating funds available, the distribution of surplus funds in investments and the interest earned to date.

Background:

Surplus funds are invested in bank term deposits for various terms, to maximise investment returns in compliance with good governance, legislative requirements and Council’s Investment Policy No 1.2.4. Details are attached in Attachment 1.

The City’s investment portfolio is diversified across several financial Institutions in accordance with the Investment Policy.

There are still a number of year end transactions and adjustments that need to be completed before the year end accounts will be finalised and audited. Whilst the overall balance of investments and interest earned is not likely to change, the allocations between Municipal, Trust and Reserve funds may need to be adjusted.

Details:

Total funds held for the period ended 31 July 2018 including on call in the City’s operating account were $26,826,861; compared to $23,433,728 for the period ending 31 July 2017.

Total term deposit investments for the period ended 31 July 2018 were $23,990,516 compared to $24,687,341 for the prior month end, and $21,212,649 for the period ending 31 July 2017.

Funds under management comparison table:

Month	2017/18		2018/19
Ended	Total funds held	Total investments	Total funds held	Total investments
July	$23,433,728	$21,212,649	$26,826,861	$23,990,516
August	$30,161,860	$27,714,651
September	$40,305,364	$37,944,911
October	$41,087,462	$38,947,823
November	$41,716,473	$39,482,047
December	$38,768,084	$37,065,389
January	$39,498,741	$36,147,499
February	$39,217,278	$36,665,928
March	$36,377,700	$34,622,001
April	$33,647,074	$31,177,278
May	$30,338,407	$28,712,736
June	$28,409,157	$24,687,341

Total accrued interest earned on Investments as at 31 July 2018:

	Adopted Budget	YTD Budget	YTD Actual	% of YTD Budget
Municipal	$420,000	$32,939	$19,631	59.60%
Reserve	$246,060	$45,108	$23,429	51.94%
Sub-total	$666,060	$78,047	$43,060	55.17%
Leederville Gardens Inc Surplus Trust*	$0	$0	$12,078	N/A

*Interest estimates for Leederville Gardens Inc Surplus Trust were not included in the 2018/19 Budget as actual interest earned is held in trust and restricted.

Consultation/Advertising:

Nil.

Legal/Policy:

The power to invest is governed by the Local Government Act 1995.

6.14. Power to invest

(1) Money held in the municipal fund or the trust fund of a local government that is not, for the time being, required by the local government for any other purpose may be invested as trust funds may be invested under the Trustees Act 1962 Part III.

(2A) A local government is to comply with the regulations when investing money referred to in subsection (1).

(2) Regulations in relation to investments by local governments may —

(a) make provision in respect of the investment of money referred to in subsection (1); and

[(b) deleted]

(c) prescribe circumstances in which a local government is required to invest money held by it; and

(d) provide for the application of investment earnings; and

(e) generally provide for the management of those investments.

Further controls are established through the following provisions in the Local Government (Financial Management) Regulations 1996:

19. Investments, control procedures for

(1) A local government is to establish and document internal control procedures to be followed by employees to ensure control over investments.

(2) The control procedures are to enable the identification of —

(a) the nature and location of all investments; and

(b) the transactions related to each investment.

19C. Investment of money, restrictions on (Act s. 6.14(2)(a))

(1) In this regulation —

authorised institution means —

(a) an authorised deposit‑taking institution as defined in the Banking Act 1959 (Commonwealth) section 5; or

(b) the Western Australian Treasury Corporation established by the Western Australian Treasury Corporation Act 1986;

foreign currency means a currency except the currency of Australia.

(2) When investing money under section 6.14(1), a local government may not do any of the following —

(a) deposit with an institution except an authorised institution;

(b) deposit for a fixed term of more than 3 years;

(c) invest in bonds that are not guaranteed by the Commonwealth Government, or a State or Territory government;

(d) invest in bonds with a term to maturity of more than 3 years;

(e) invest in a foreign currency.

To further guide the prudent and responsible investment of the City’s funds, Council has adopted the City’s Investment Policy No. 1.2.4, which delegates the authority to invest surplus funds to the Chief Executive Officer or his delegate.

Administration has established guidelines for the management of the City’s investments, including the following ratings table:

Short Term Rating (Standard & Poor’s) or Equivalent	Direct Investments Maximum % with any one institution		Managed Funds Maximum % with any one institution		Maximum % of Total Portfolio
Short Term Rating (Standard & Poor’s) or Equivalent	Policy	Actual	Policy	Actual	Policy	Actual
A1+	30%	25.8%	30%	Nil	90%	62.3%
A1	25%	1.9%	30%	Nil	80%	1.9%
A2	20%	17.2%	n/a	Nil	60%	35.8%

*As per subtotals on Attachment 1

Risk Management Implications:

Moderate: Funds are invested with various financial institutions with high long term and short term ratings (Standard & Poor’s or equivalent), after obtaining three quotations for each investment. Investment funds are spread across various institutions and invested as term deposits of between one and twelve months, to reduce risk.

Strategic Implications:

In keeping with the City’s Strategic Plan 2013-2023:

“4.1 Provide good strategic decision-making, governance, leadership and professional management:

4.1.2 Manage the organisation in a responsible, efficient and accountable manner;

(a) Continue to adopt best practice to ensure the financial resources and assets of the City are responsibly managed and the quality of services, performance procedures and processes is improved and enhanced.”

SUSTAINABILITY IMPLICATIONS:

Nil.

Financial/Budget Implications:

The financial implications of this report are as noted in the details and comments section of the report. Overall Administration concludes that appropriate and responsible measures are in place to protect the City’s financial assets and to ensure the accountability of management.

Comments:

Funds for investment have decreased from the previous period due to excess of payments to creditors and for other expenditures, over cash receipts, which is the expected seasonal cash flow.

The City has obtained a weighted average interest rate of 2.46% for current investments including the operating account; and 2.67% excluding the operating account. The Reserve Bank 90 days Accepted Bill rate for July 2018 is 2.02%.

As at 31 July 2018, the City’s total investment earnings excluding the Leederville Gardens Inc. Surplus Trust income lower than the year to date budget estimate by $34,987 (44.83%). This negative variance is expected to be temporary.

The City’s Investment Policy states that preference “is to be given to investments with institutions that have been assessed to have no current record of funding fossil fuels, providing that doing so will secure a rate of return that is at least equal to alternatives offered by other institutions”. The City uses Marketforce.com to assist in assessing whether a bank promotes non-investment in fossil fuel related entities. 37.66% of the City’s investments were held in institutions considered non-fossil fuel lending by Marketforce.com as at 31 July 2018.

The investment report (Attachment 1) consists of:

· Investment Performance & Policy Compliance Charts;

· Investment Portfolio;

· Investment Interest Earnings; and

· Current Investment Holding.