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MAIDSTONE BOROUGH COUNCIL

COUNCIL

12 DECEMBER 2012

REPORT OF THE MEETING OF THE AUDIT COMMITTEE HELD ON

26 NOVEMBER 2012

TREASURY MANAGEMENT STRATEGY 2012/13 – MID-YEAR PERFORMANCE

In accordance with CIPFA’s Code of Practice on Treasury Management 2011, the Audit Committee has considered the report of the Head of Finance and Customer Services setting out details of the activities of the Treasury Management function as at the midpoint of the 2012/13 financial year.  The Code suggests that Members should be informed of Treasury Management activities at least twice a year.

The report also addressed proposed amendments to the Treasury Management Strategy 2012/13 and the Prudential Indicators arising from the Cabinet’s consideration of a report on investment opportunities, including the possible use of prudential borrowing to finance capital expenditure.  A copy of the Record of Decision of the Cabinet is attached as Appendix A to this report.

The Treasury Management Strategy includes an assumption that borrowing will not be required in 2012/13 to support the Capital Programme.  In the light of the decision of the Cabinet, borrowing is now a possibility.  The actual mechanism for funding the Capital Programme, even with the inclusion of an additional £6m of investment expenditure, may not require formal borrowing, but this is dependent upon a number of factors.  Should prudential borrowing prove to be the most cost effective method of financing the Capital Programme then it will be necessary to have the permission to borrow clearly set out in the Strategy.  The amendment required is therefore to include the assumed borrowing of £6m in the Strategy for 2012/13.

In terms of the Prudential Indicators, it is a statutory duty for the Council to determine and keep under review the Affordable Borrowing Limits.  These are listed within Appendix B to this report.

The Indicators shown in the Appendix include the amendments necessary to borrow up to £6m in relation to the Capital Programme and an additional £4m short term for cash flow purposes, making a maximum at any one time of £10m.  The currently approved Strategy for 2012/13 includes £4m for each value making a maximum of £8m.

Borrowing forms part of the two external debt indicators.  These Indicators are identified in the Appendix as the “Operational Limit” and the “Authorised Limit”.  The Operational Limit shows only the borrowing that is long term to finance the Capital Programme.  The value of this borrowing becomes £6m under the Cabinet proposal.  If cash flow management requires short term borrowing to cover out going cash flows, the Authorised Limit is enforced to ensure a maximum of £4m of additional borrowing can occur short term.  The amendment required is therefore to increase the Operational Limit and the Authorised Limit by the additional £2m required.

The Committee noted the position with regard to the activities of the Treasury Management function as at 30 September 2012 and accepted the proposed amendments to the Treasury Management Strategy for 2012/13, but is seeking assurances that the property investment governance arrangements are sound and that controls are in place to minimise the risks to the Council associated with this new area of activity.

RECOMMENDED:  That the Treasury Management Strategy for 2012/13 be amended to include confirmation that up to £6m can be borrowed to support the Capital Programme and that the revised Prudential Indicators as set out in Appendix B to this report be approved.