Report of the Local Government Efficiency Review Group

11.1 Treasury Management
11. Other Operational Efficiencies
11.1.1 There are a number of dimensions to treasury management, including:
11.1.2 Liquidity management is vitally important for the normal flow of any business
activities and it is essential to establish the optimum level of short term and
long term assets. An incorrect margin may result in financial difficulties, with
councils unable to meet needs or being unable to take advantage of
investment opportunities as they arise. Maintaining a cash surplus enables
a council to carry on normal transactions and avoid treasury gaps. The
disadvantage in being too conservative is the opportunity cost, as the return
on the cash balance is lower than the return on productive investments.
11.1.3 Operational management in local authorities is largely concerned with
optimising the purchase-payment cycle and the income-cash cycle. The
prompt payments requirements set a defining boundary on the purchasepayment
cycle but unfortunately the same does not apply to the incomecash
cycle. Rates and rents account for a significant portion of local
authority income. Electronic payments are used where possible, although
door-to-door collection has proved to be the most effective in collecting
rents from tenants. Specific proposals have been made elsewhere in this
report regarding rent collection (see section 10.1). Given current economic
circumstances, some rate payers are experiencing difficulties in meeting
their obligations. In the light of this, most local authorities agree instalment
payments for such ratepayers in difficulty. Receipts from central
government have slowed considerably in the last couple of years and, as a
result, the income-cash cycle has been expanded considerably.
11.1.4 Banking management in the past has largely been concerned with the
procurement of banking facilities and was achieved by competitive tender.
All local authorities have a bank reconciliation section and accounts are
monitored online on a daily basis to ensure full value date is achieved. The
current situation in the banking system – with some banks withdrawing from
the market – may result in reduced competition, though this may be offset
by the increased relative desirability of local authority business.
11.1.5 Management of surpluses is largely subject to prudential considerations –
that is, the overriding concern should be the protection of capital. The local
authority model of investment seeks low risk investments. The underlying
principle of fiduciary responsibility to the ratepayers and taxpayers is
paramount and best value is sought within these parameters.
11.1.6 Exchange rate risk management is of little concern in local authority
treasury operations. Local authorities borrow and lend in euro, and they do
not have significant foreign exchange exposures.
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