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Higher Education Funding Councils for England, Scotland and Wales and Department for Education, Northern Ireland

Treasury Management Study in the Higher Education Sector: Management Review Guide

May 1996

Reference M 13/96

Contents

• 1. Introduction
  • 1.1 Background
  • 1.2 Preparation of the Guide
  • 1.3 Purpose of the Guide
  • 1.4 Use of the Guide
  • 1.5 Acknowledgements
  • 1.6 Further information
• 2. Key Elements of Treasury Management
  • 2.1 Overall arrangements for treasury management
  • 2.2 Cash flow management
  • 2.3 Banking arrangements
  • 2.4 Investment of short term funds
  • 2.5 Endowments and long term investments
  • 2.6 Capital financing
• 3. Treasury Management Review Programme
  • 3.1 Overall arrangements for treasury management
  • 3.2 Cash flow management
  • 3.3 Banking arrangements
  • 3.4 Investment of short term funds
  • 3.5 Endowments and long term investments
  • 3.6 Capital financing
• Annex A Treasury management procedure notes: investment of surplus funds
• Annex B Cash flow management: examples of good practice
• Annex C Details of bank charges at pilot sites
• Annex D Sample monitoring reports
• Annex E Monitoring the performance of long term investments

1. Introduction

1.1 Background

This Management Review Guide is one of the products of the treasury management national Value for Money (VFM) study, the other being the National Report. The study has been undertaken as part of the UK Higher Education VFM Initiative. The study was carried out jointly by the Higher Education Funding Councils of Scotland, England and Wales, and the Department of Education Northern Ireland.

The initiative is overseen by a Steering Group chaired by Professor Tom Husband, Vice-Chancellor of the University of Salford. The full membership of the Steering Group is set out in Annex A of the National Report.

1.2 Preparation of the Guide

This Guide is based on the methodology developed whilst conducting the reviews at 15 higher education institutions (HEIs) between March and September 1995. It considers the strategy, procedures and activities necessary to manage the treasury management function effectively in a HEI. To allow comparisons between institutions, the guide includes data from the pilot sites on areas such as bank charges and rates of return on short term cash investments. The Guide also takes account of good practice found at the pilot sites and examples are included where appropriate.

In addition, work that has already been carried out in both the public and private sectors has also been considered in the Guide's preparation. In particular, we consider the CIPFA's 'Treasury Management in Higher Education: A Guide' (published in 1995) to be of considerable use, and reference is made to it throughout this Guide.

1.3 Purpose of the Guide

The Guide is intended to be a practical working document. Its purpose is to enable executive management at institutions to undertake a systematic and comprehensive review of their treasury management arrangements so as to achieve the following:

• minimisation of the risk of loss by defining transaction limits and monitoring activities through a formal policy and strategy;
• maximisation of the short term cash balance through effective management of debtors, creditors and payroll;
• maximisation of the return on short term surplus cash whilst preserving the capital value of the institution's reserves;
• optimisation of the level of bank services and charges;
• effective management of long term investments;
• proper consideration and evaluation of all financing options;
  and
• proper evaluation and documentation of all treasury management decisions to ensure that they are intra vires and provide value for money.

1.4 Use of the Guide

It is envisaged that the Guide will be used as the basis for a detailed independent review of the treasury management function within each institution. It is for institutions' management to determine who is best suited to undertake this review. This may be internal or external auditors or specialist consultants. In most cases, however, it is expected that the review will be undertaken by institutions' internal auditors. In this light, treasury management should be included in the internal auditors' five year strategic plans for endorsement by respective Audit Committees. This Guide should be used in conjunction with the National Report.

1.5 Acknowledgements

The Joint Funding Councils, Department of Education Northern Ireland and the Value for Money Steering Group gratefully acknowledge the following individuals and organisations who contributed to the delivery of this project:

Pilot Site Institutions:

College of St Mark and St John
Falmouth College of Art
Glasgow School of Art
Napier University
Nottingham Trent University
St George's Medical School, London
The Queen's University, Belfast
University of Wales, Bangor
University of Durham
University of Edinburgh
University of Hull
University of Humberside
University of Leeds
University of Teesside
University of Wolverhampton

Management Review Guide Test Site

University of Kent

Chartered Institute of Public Finance and Accountancy (CIPFA)

British Universities Finance Directors' Group (BUFDG)

Bank of Scotland

Technical Panel

Mr Ian Starkie (Chairman)
Ms Janice Vale, University of Cambridge
Mr David Blanchard, KPMG

1.6 Further information

Further information regarding this study and other studies in the VFM initiative are available from project staff of the Higher Education Funding Councils:

Liam McCabe

Deputy Director of Finance and SHEFC Central Services (Project Manager)

James Stewart

Senior Manager, SHEFC (Project Co-ordinator)

John Rushforth

Head of Audit, HEFCE

Robert Rogers

Head of Audit, HEFCW