UBUHLEBEZWE LOCAL MUNICIPALITY
REVIEWED INVESTMENT POLICY
Ubuhlebezwe Local Municipality
Investment Policy
INDEX
1.
Definitions
2.
General introduction and objective
3.
Cash flow estimates
4.
Investment Ethics
5.
Investment Principles
6.
General Investment practice
7.
Investment procedures and reporting
8.
Other external Investment
9.
Legal Requirements
10.
Responsibility
11.
General Provisions
12.
Policy Adoption
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Ubuhlebezwe Local Municipality
1.
Investment Policy
DEFINITIONS
In this policy, unless the context indicates otherwise, a word or expression, to which a
meaning has been assigned in the Municipal Finance Management Act (MFMA) No. 56
of 2003, has the same meaning.
‘‘Accounting officer’’ means the Municipal Manager of a municipality for the purposes
of this policy in relation to a municipality, and includes a person acting as the accounting
officer;
‘‘Auditor-General’’ means the person appointed as Auditor-General in terms of section
193 of the Constitution, and includes a person as acting as Auditor-General, designated
by the Auditor-General to exercise a power or perform a duty of the Auditor-General;
‘‘Chief financial officer’’ means a person designated in terms of section 80(2) (a) of the
MFMA;
‘‘Creditor’’ in relation to a municipality, means a person to whom money is owing by the
municipality;
‘‘Financial year’’ means a year ending on 30 June;
“Investee” means an institution with which an Investment is placed or its agent;
‘‘Investment’’ in relation to funds of a municipality, means- the placing on deposit of
funds of a municipality with a financial institution;
a)
the acquisition of assets with funds of a municipality not immediately required, with
the primary aim of preserving those funds;
“Long-term investments”
means any cash or liquid securities owned by a
Municipality which have a maturity date, and/or callable date reasonably expected to be
exercised, that is greater than one year;
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Ubuhlebezwe Local Municipality
Investment Policy
‘‘Municipal council’’ means the council of Ubuhlebezwe Local Municipality;
‘‘Municipal entity’’
has the meaning assigned to it in section 1 of the Municipal
Systems Act 2000;
‘‘Municipality’’ means Ubuhlebezwe Local Municipality;
‘‘Municipal Manager” means a person appointed as the Accounting Officer of the
municipality;
‘‘Municipal Systems Act’’ means the Local Government: Municipal Systems Act, 2000
(Act No. 32 of 2000);
‘‘Primary bank account’’ means the main bank account referred to in section 8(1) of
the MFMA;
“Short-term investments” means any cash or liquid securities owned by the
municipality which is having a maturity date and/or callable date reasonably
to be exercised, that is equal to or less than one year.
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Ubuhlebezwe Local Municipality
Investment Policy
2.
GENERAL INTRODUCTION AND OBJECTIVE
2.1
The objective of the Investment Policy is to gain the highest possible return on
the Investments made, without unnecessary risk, during periods when excess
funds are not being used. To establish this, it is essential to have an effective
cash flow management program.
2.2
The Council therefore has a responsibility to invest these public revenues
knowledgeably and judiciously, and must be able to account fully to the
community in regard to such investments.
2.3
The effectiveness of the Investment Policy is dependent on the accuracy of the
Municipality’s cash management programme, which must identify the amounts
surplus to the Municipality’s needs, as well as the time when and period for which
such revenues are surplus. To ensure investments that will provide reasonable
returns for the Municipality:
a)
The Municipality shall take all reasonable and prudent steps, consistent with
its Investment Policy and according to the standard of care as prescribed in
its Investment Policy, to diversify its investment portfolio across institutions,
types of Investments and Investment maturities.
b)
The Investment portfolio shall remain sufficiently liquid to meet all reasonably
anticipated operating requirements.
c)
The investment portfolio shall be designed with the objective of attaining a
maximum rate of return subject to the investment risk constraints and
liquidity requirements of the Municipality.
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Ubuhlebezwe Local Municipality
Investment Policy
3.
CASH FLOW ESTIMATES
3.1
Before money can be invested, the Senior Finance Officer must determine
whether there will be surplus funds available during the term of the investment,
He/she must fix the term of the investment.
3.2
In order to be able to make investments for any fixed term, it is essential that
cash flow estimates be drawn up.
3.3
When drawing up cash flow estimates, it is essential that the Senior Finance
Officer take note of the following:
a)
Be aware of the expected cash flow and when it is likely to take place, as
well as the timing with regard to cash outflow, as far as both the operating
and the capital budgets are concerned.
b)
By utilising the available information and expertise, the CFO or his/her
Delegate must assess the timing with regard to when, for how long and the
amount to be invested.
c)
Daily cash flow estimates must provide for daily call investments and
investment withdrawals, whereas long-term investments must be based on
projections further into the future.
3.4
From time to time the Council will have surplus funds available which are not
needed immediately and which could be invested. Depending on circumstances
some funds could be invested for a long term whilst others would only be shortterm investments. Surplus funds in the current account may also be invested for
short periods.
a)
Long term investments should be made with an institution of minimum BBB
rating (where BBB refers to lower risk institutions)
b)
Short term investments should be made with an institution of minimum B
rating (where B refer to higher risk institution)
c)
Not more than 35% of available funds should be placed with a single
institution.
d)
The amount should not exceed 10% of the relevant institution’s
shareholder’s funds (capital and reserves).
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Ubuhlebezwe Local Municipality
4.
Investment Policy
INVESTMENT ETHICS
The following ethics and principles must apply when dealing with financial
institutions and other interested parties:
4.1
The Municipal Manager and CFO will be responsible for the investment of funds,
and the CFO has to steer clear of outside interference, regardless of whether
such interference comes from individual Councillors, agents or any other
institution.
4.2
Under no circumstances may the CFO be forced or bribed into making an
investment. No member of staff may accept any gift unless that gift can be
deemed so small that it would not have an influence on his/her work or was not
intended to do so, and can merely be seen as goodwill. A certificate in respect of
the gift should be furnished to the Council. The gift should not be in lieu of a
commission.
4.3
The CFO must act according to their discretion and must report any serious
cases of payment in kind or gifts, to the Council. Excessive gifts and
hospitality should however be avoided.
4.4
Interest rates offered should never be divulged to another institution.
5.
INVESTMENT PRINCIPLES
5.1
Limiting Exposure
Where large sums of money are available for Investment the CFO shall ensure
that they are invested with more than one institution, wherever practicable, in
order to limit the risk exposure of the Municipality. The CFO shall further ensure
that, as far as it is practically and legally possible, the Municipality’s investments
are so distributed that more than one investment category is covered.
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Ubuhlebezwe Local Municipality
5.2
Investment Policy
Risk and Return
Although the objective of the CFO in making investments on behalf of the
Municipality shall always be to obtain the best interest rate on offer, this
consideration must be tempered by the degree of risk involved in regard to both
the financial institution and the investment instrument concerned. No Investment
shall be made with an institution where the degree of risk is perceived to be
higher than the average risk associated with investment institutions. Deposits
shall be made only with registered deposit-taking institutions.
5.3
Payment of Commission
Every financial institution with which the Municipality makes an investment must
issue a certificate to the CFO in regard to such investment, stating that such
financial institution has not paid and will not pay any commission and has not and
will not grant any other benefit to any party for obtaining such investment.
5.4
Call deposit and fixed deposit:
a)
Before making any call or fixed deposits, The CFO, shall obtain quotations
from at least three financial institutions. Given the volatility of the money
market,
The
CFO,
shall,
whenever
necessary,
request
quotations
telephonically, and shall record in an appropriate register the name of the
institution, the name of the person contacted, and the relevant terms and
rates offered by such institution, as well as any other information which may
be relevant.
b)
Once the best Investment terms have been identified, written confirmation of
the telephonic quotation must be immediately obtained (by facsimile, email
or any other expedient means).
c)
Any monies paid over to the investing institution in terms of the agreed
Investment shall be paid over only to such institution itself and not to any
agent or third party.
d)
Once the investment has been made, The CFO shall ensure that the
Municipality receives a properly documented receipt or certificate for such
Investment, issued by the institution concerned in the name of the
Municipality.
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5.5
Investment Policy
Restriction on tenure of investments
No investment with a tenure exceeding twelve months shall be made without the
prior approval of the Executive Mayor or the Executive Committee, as the case
may be.
6.
GENERAL INVESTMENT PRACTICE
6.1
General
After determining whether there is cash available for Investment and fixing the
maximum term of Investment, the CFO must consider the way in which the
Investment is to be made. As rates can vary according to money market
perceptions with regard to the terms of Investment, quotations must be
requested telephonically, within term limitations, and these must be set out on a
schedule.
6.2
Confirmation Certificate
The Auditor General requires the financial institution, where the Investment is
made, to issue a confirmation certificate for each Investment made. This
certificate must state the type of Investment, account number, term of
Investment, rate payable, amount and date invested and maturity date.
6.3
Reports
The Executive Committee and Council must be given a monthly and quarterly
report on all investments.
6.4
Cash in the bank
Where money is kept in current accounts, it would be possible to bargain for
more beneficial rates with regards to deposits, for instance call deposits. Fixed
term deposits can increase these rates.
The most important factor is that the cash in the current account must be kept to
an absolute minimum.
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Ubuhlebezwe Local Municipality
6.5
Investment Policy
Creditworthiness
When investments are placed with smaller registered institutions, the Senior
Finance Officer has to see to it that the Municipality is not exposed to too much
risk. He/she has to ensure that the creditworthiness and performance of the
institution are to his/her satisfaction, before investing money in the institution.
The Senior Finance Officer is entitled to information from which the
creditworthiness of financial institutions can be determined. This must be
obtained and analysed annually.
6.6
GRAP/GAMAP
Much progress has been made in recent years in defining and introducing
General
Recognised
Accounting
Practice
(GRAP)
standards
for
local
government. This will enable the content and the presentation of financial
statement information to be consistent and so enable informed decision-making
on risks and returns. It is therefore of utmost importance that the Municipal
Manager (MM) and the CFO apply this practices in the compilation of the
budgets and financial statements of the Municipality as well as the financial
systems in use. Also National Treasury Guidelines should be adhered to.
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Ubuhlebezwe Local Municipality
Investment Policy
7.
INVESTMENT PROCEDURES AND REPORTING
7.1
The Council shall invest not more than 20% of the total amount of investment as
per the investment register.
7.2
After determining whether there is cash available for investment and fixing the
maximum term of investment, the Municipal Manager must consider the way in
which the investment is to be made.
7.3
Short-term Investment
a)
The term of investment shall not be more than 3 months.
b)
Quotations must be obtained from a minimum of three financial institutions,
for the term of which the funds will be invested.
c)
Should one of the institutions offer a better rate for a term, other than the
term originally quoted for, the other institutions which were approached, must
also be asked to quote a rate for the other term.
d)
Quotations can be obtained telephonically, as rates generally change on a
regular basis and time is a determining factor when investments are made
e)
7.4
No attempts must be made to make institutions compete with each other.
Long-term investment
a)
Written quotations must be obtained for investments made for periods longer
than twelve months.
b)
The prior approval of the Executive Mayor or the Executive Committee must
be obtained for all investments made for periods longer than twelve months
after considering the cash requirement for the next three years.
7.5
Re-investment
a)
Upon maturity of the investment the Council:
i. Shall withdraw the whole amount invested.
ii. Shall make quotations from various financial institutions approved by
Council
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Ubuhlebezwe Local Municipality
Investment Policy
iii. Shall re-invest 100% interest plus the original amount that had been
invested, unless if Council wishes to utilize the original money or the
interest.
8.
OTHER EXTERNAL INVESTMENT
8.1
From time to time it may be in the best interests of the Municipality to make
longer-term investments in secure stock issued by the National Government,
Eskom or any other reputable institution, or by another reputable municipality. In
such cases the CFO, must be guided by the best rates of interest pertaining to
the specific type of investment, which the Municipality requires, and to the best
and most secure instrument available at the time.
8.2
No investment with a tenure exceeding twelve months shall be made without the
prior approval of the Executive Mayor or Executive Committee, as the case may
be, and without guidance having been sought from the Municipality’s bankers or
other credible investment advisers on the security and financial implications of
the investment concerned.
9.
LEGAL REQUIREMENTS
9.1
The way in which surplus funds and other municipal funds can be invested, is
controlled in terms of legislation:
9.2
a)
MFMA s13
b)
Local Authorities Ordinance Section 125 of 1974
The Minister may with the concurrence of the Minister of Finance by notice in the
Gazette determine instruments or investments other than those referred to below
in which Municipality may invest (Local Government Transition Act No. 209 of
1993, section 9, paragraph (b)):
a)
Deposits with banks registered in terms of the Banks Act, 1990 (Act No. 94
of 1990).
b)
Securities issued by the National Government.
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Ubuhlebezwe Local Municipality
c)
Investment Policy
Investments with the Public Investment Commissioners as contemplated by
the Public Deposits Act, 1984 (Act No.46 of 1984).
d)
A Municipality’s own stock or similar type of debt.
e)
Internal funds of a Municipality which have been established in terms of a
law to pool money available to the Municipality and to employ such money
for the granting of loans or advances to departments within a Municipality, to
finance capital expenditure.
f)
Bankers, acceptance certificates or negotiable certificates of deposits of
banks:
i. Long term securities offered by insurance companies in order to meet
the redemption fund requirements of Municipalities.
ii. Any other instruments or investments in which a Municipality was
under a law permitted to invest before the commencement of the Local
Government Transition Act, 1996: Provided that such instruments shall
not extend beyond the date of maturity or redemption thereof.
10.
RESPONSIBILITY
10.1
Municipal Manager, CFO and Senior Finance Officer must be responsible of the
Investment Policy.
10.2
However the day to day handling of investments is the CFO or his/hers
Delegate’s responsibility.
10.3
The Council needs to determine by resolution the limits for the investment
of its funds. These should pertain to maximum amounts/percentages and
periods of investment.
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Ubuhlebezwe Local Municipality
Investment Policy
11.
GENERAL PROVISIONS
11.1
Commencement
This Policy will come into effect on the date of adoption by Council.
11.2
interpretation of this policy:
i) All words contained in this policy shall have the ordinary meaning attached
thereto, unless the definition or context indicates otherwise.
ii) The dispute on interpretation of this policy shall be declared in writing by any
party concerned.
iii) The Office of the Municipal Manager shall give a final interpretation of this
policy in case of written dispute.
11.3
Permanent/temporary waiver or suspension of this policy:
i) This policy may be partly or wholly waived or suspended by the Municipal
Council on temporary or permanent basis.
ii) The Municipal Manager may under circumstances of emergency temporarily
waive this policy subject to reporting of such waiver or suspension to Council.
11.4
Compliance and enforcement:
i) Violation of or non-compliance with this policy will give a just cause of
disciplinary steps to be taken.
ii) It will be the responsibility of Council to enforce compliance with this policy.
11.5
Amendment and /or abolition of this policy:
This policy maybe amended or repealed by Council s it may deem necessary.
12.
POLICY ADOPTION
This
policy
has
been
considered
and
approved
by
the
Council
UBUHLEBEZWE LOCAL MUNICIPALITY on this day………….of.….. 2011.
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