Local authorities are used to preparing a treasury management strategy every year, detailing their plans to invest cash surpluses and borrow to cover cash shortfalls. But this year their workload has tripled with the need to also prepare a non-treasury investment strategy and a capital strategy.
In previous years the investment strategy was a section of the treasury management strategy covering the careful management of cash surpluses that arise naturally through the timing of receipts and payments. But completely revised government guidance now requires the investment strategy to focus on the management of commercial property, shareholdings and loans made for public service reasons instead. The change of focus reflects the fact that treasury risk management at most local authorities has improved substantially since the days of speculating with interest rate swaps and lending to BCCI or Icelandic banks. I like to think that the increasing number of local authorities seeking treasury advice from Arlingclose has been one of drivers behind this.
Writing the new style investment strategy will not be an easy task when all the information required is be held by different people in the organisation. The department that lends to local small businesses is often in a different building to the one that buys commercial property. And with the government guidance making reference to accounting standards IFRS 9 and IAS 40, input will be required from the financial accounting team too. Authorities are also expected to set limits on various categories of investment too, a familiar requirement for treasury investments but a new challenge for property and loans.
The third report, the capital strategy, should then be a summary of the other two strategy reports, plus the capital programme and any other major liabilities. This should be a high-level document, written in language accessible to the majority of councillors that are not financial specialists, with plenty of links to other documents where further information can be found. It will probably therefore be easier to write this strategy after the others.
Arlingclose’s treasury advice service includes assistance with writing all three strategies. We start with a template to ensure compliance with all the mandatory requirements, such as setting limits and indicators, before moving into a discussion into all the areas where local judgement is required, like what level the limit should be. Our programme of regional workshops, each limited in delegate numbers to encourage discussion, followed by individual strategy meetings at clients’ offices are key to ensuring each authority has a suitably tailored approach. Finally, a critical read through draft reports before they get submitted to committee ensures that strategies are internally consistent and make sense to someone other than the author.
With the changed requirements for the 2019/20, many local authorities are keen to receive quality advice on writing strategy reports. It is therefore encouraging to see many authorities that buy the bulk of their treasury advice from other firms choosing Arlingclose to assist them with their strategy preparation this year.