Financial Management Practice Manual 431

Policy and Procedures

BORROWING- Procedure

Scope

This Finance Procedure sets out the procedures for the approval, establishment, drawdown, repayment and reporting of monetary borrowings.

Definition

Borrowing is the act of accepting money under a contract which requires its return, normally with an associated interest charge. Borrowing arrangements may include advances by way of loan or overdraft from the State Government, a financial institution, any bank or any other person.

Establishment

Prior to 30 June each year, the CFO & Director, Financial and Business Services, determines the need for borrowing in the next financial year (i.e. year commencing 1 July). Should a need exist, the CFO & Director, Financial and Business Services makes application to the Finance Committee for approval to enter into negotiations for borrowing in respect of the next financial year.

Finance Committee:

  • reviews the justification for and requirement toborrow;

  • identifies a maximum borrowing limit; and

  • recommends the borrowing to Council.

Upon approval by Council, the CFO & Director, Financial and Business Services obtains the sanction of the Treasurer to enter into negotiations for borrowing.

After approval by the Treasurer of the University's maximum borrowing program for the financial year, the University must provide evidence to the State Office of Higher Education, as soon as practicable after 30 June, and prior to the drawing down of any funds allocated to the University, that:

  • projects for which the borrowings have been sought have been the subject of appropriate economic evaluation; and

  • the University has the financial capacity to service its total borrowings.

Established Facilities

Borrowing facilities have been established with the Queensland Treasury Corporation (QTC) in accordance with Finance Committee Directive 430 - Borrowing . These facilities include a Long Term Borrowing facility within the QTC Pool Participation and an Overdraft facility of $3.0million within the QTC Temporary Funding Facility.

Long Term Borrowing Facility

Under the long term facility, monies are borrowed for specific purposes, identifiable within the Financial Management Plan.

Borrowing Limits

The maximum Long Term Borrowing amount the University may borrow in any financial year is limited to the lesser of:

  • the maximum amount that has been approved by Council for that financial year; or

  • the maximum amount approved by the Treasurer under the Approved Borrowing Program.

For each financial year (i.e. year commencing 1 July and ending 30 June) the Treasurer sanctions the maximum long term borrowing any Statutory Body may negotiate during that period which becomes that body’s Approved Borrowing Program. Any shortfall between the amount sanctioned for a year and the amount borrowed by the body during that year is not able to be "rolled over" to the following year.

Advances/Drawdowns

Finance Committee has resolved that all drawings under the Long Term Borrowing Facility be subject to the prior agreement of:

  • the Chancellor;

  • the Vice-Chancellor;and

  • the Chairman of the Finance Committee.

Periodic Debt Service Payment

For the initial and subsequent draw downs QTC will calculate the Periodic Debt Service Payment, to be paid by the University.

The Periodic Debt Service Payment will be the quarterly contribution estimated by QTC to amortise all drawdowns and interest charges over the estimated term of the loan. The Periodic Debt Service Payments are subject to annual review.

Prepayments

The University may repay the whole or any part of the amount outstanding under the Long Term Borrowing facility at any time earlier than the expiration of the estimated term, subject to payment of any additional costs incurred by QTC and giving the required period of notice.

Fees and Charges

QTC charges an administration fee in accordance with its fee scale as set from time to time. The administration fee is charged quarterly on the daily balances during the quarter.

Any costs relating to the University's participation with QTC including legal and stamp duty costs, shall be borne by the University.

The Treasury Legislation Amendment Act enables the State to impose a dividend on the QTC's liability management operations and allows the QTC to recover that dividend from its borrowers. The Act also provides that the Treasurer may charge a fee for guarantees given in respect of financial arrangements undertaken with institutions other than the QTC. The effect is that unless borrowing is undertaken on a non-guaranteed, non-recourse basis to the State, there will be either a guarantee fee or a performance dividend payable by the University in respect of any borrowing.

Performance Dividends are charged, on Long Term Borrowing, annually in arrears with the University's debt pool account being debited in late July of the next financial year. The University may deposit funds to cover these dividends as an alternative to the dividend being capitalised as part of the debt pool.

Disclosure

The balance of the Long Term Borrowing facility shall be recorded in the books and records of the University at book value. Each quarter QTC reports to the University the book value and the market value of the debt of the Long Term Borrowing including any Periodic Debt Service adjustments. The difference between the book value and the market value of the debt represents the penalty/credit to the University if the University wished to payout the loan on that quarter end date.

The State Office of Higher Education periodically requires details of the total drawdowns in respect of the Long Term Borrowing Facility.

Overdraft Facility

This facility involves QTC making available to the University, until terminated by either party, short term funding up to the facility limit, on a revolving basis, on specific terms and conditions.

Facility Limit

The overdraft facility limit available to the University (currently $3.0m) is the lesser of:

  • the maximum amount that has been approved by Council; or

  • the maximum amount approved by the Treasurer.

The facility requires no further approval during the duration of its operation. Overdraft facilities do not form part of a Statutory Bodies' Approved Borrowing Program.

Drawdowns and Repayments

Finance Committee has resolved that each drawdown of the overdraft facility be authorised by:

  • the Deputy Vice-Chancellor;

  • the Pro Vice-Chancellor (Information & Corporate Services) ; and

  • the CFO & Director, Financial and Business Services.

and that the repayment of overdraft facility drawdowns be a first charge on temporary surplus funds.

As the facility is revolving in nature there is no limit on the frequency or number of drawdowns and repayments which the University may make during the facility term.

Termination of Facility

The University may terminate the facility on not less than one month's written notice expiring at the end of any calendar month.

QTC may terminate the facility on not less than six months written notice expiring at the end of any calendar month.

Fees and Charges

QTC charges a facility fee in accordance with its scale as set from time to time.

Any costs relating to the University's participation with QTC including legal and stamp duty costs, shall be borne by the University.

Disclosure

The balance of the Overdraft facility shall be recorded in the books and records of the University at book value.

The State Office of Higher Education periodically requires details of the total drawdowns in respect of the Overdraft Facility.

Related Glossary Terms

Borrowing

For enquiries in relation to this Finance Procedure please contact Jacqueline.Kelly@jcu.edu.au

Approval Details

Policy sponsor:

CFO and Director, Financial and Business Services

Approval authority:

Procedures – CFO and Director

Version no:

01 - 1

Date for next review:

12/2008

Modification History

Version no.

Approval date

Implementation date

Details

01 - 1

12/2001

12/2001

Susan Kinobe last updated this page on 2 May 2013.