• Section 1 - Context
• Section 2 - Section 2 – Authority
• Section 3 - Scope
• Section 4 - Responsibilities
• Compliance
• Review
• Section 5 - Procedure
• Liquidity Risk
• Funding and Refinancing Risk
• Interest Rate Risk
• Foreign Exchange Risk
• Counterparty Credit Risk
• Operational Risk
• Commodity Risk
• Section 6 - Schedules

Section 1 - Context

(1) This procedure provides a framework for managing the RMIT Group’s treasury activities by identifying and mitigating key risks. Its purpose is to minimise debt costs, maximise returns on surplus funds, and ensure all treasury operations related to commercial activities are conducted professionally, prudently, and cost-effectively, aligned with the Group Risk Appetite Statement and strategic objectives.

(2) This procedure details how the treasury function within RMIT Group will manage the following risks:

1. liquidity risk
2. funding and refinancing risk
3. interest rate risk
4. foreign exchange risk
5. counterparty credit risk
6. operational risk
7. commodity risk.

Section 2 - Section 2 – Authority

(3) Authority for this document is established by the Financial Management Policy.

Section 3 - Scope

(4) This procedure applies to the RMIT Group. Any deviation due to local legislation or exceptions must receive CFO approval.

Section 4 - Responsibilities

(5) Council:

1. Delegates authority for financial risk management activities and specific financial arrangements.

(6) Audit and Risk Management Committee (ARMC):

1. Approves financial instruments for risk management.
2. Reviews financial risk management issues annually and reports outcomes to Council.
3. Reviews funding/investing activities and procedural compliance.

(7) Chief Financial Officer (CFO):

1. Implements approved financial arrangements.
2. Approves borrowing and investments per Delegations of Authority.
3. Recommends new financial arrangements and risk strategies.
4. May delegate treasury activities to Director, Central Finance Operations.
5. Approves authorised counterparties and limit adjustments.
6. Monitors compliance and reports breaches to ARMC.

(8) Central Finance Operations:

1. Implements this procedure.
2. Assists CFO with capital and financial management objectives.
3. Prepares financial reports and maintains accurate records.
4. Reports breaches to CFO.

(9) Finance Director, Vietnam:

1. Implements this procedure per Delegations of Authority and local regulations.
2. Prepares reports for CFO and Members Council.
3. Maintains accurate records and reports breaches to CFO.

Compliance

(10) Compliance is mandatory. Breaches must be reported immediately to CFO, who will oversee remediation and report to ARMC. A breach register must be maintained and shared with ARMC Chair.

(11) This procedure is supplemented/supported by:

1. Council approved Risk Appetite Statement
2. Risk Management Policy
3. Delegations of Authority Policy
4. Annual risk and compliance reporting to Council via ARMC.

(12) Risk Management Policy and Delegations of Authority Policy override this procedure in case of conflict.

Review

(13) Procedure to be reviewed every three years or upon significant business changes impacting financial risk management.

Section 5 - Procedure

Liquidity Risk

(14) Liquidity risk is the risk that RMIT Group does not have sufficient cash and borrowing facilities to meet its financial obligations in a timely manner whether those commitments and planned or unplanned.

(15) Cash is managed as follows:

1. RMIT University and RMIT Online – by Central Finance Operations
2. RMIT Training – by the RMIT Training Finance team. Available funds are kept to a minimum and Central Finance Operations will provide additional liquidity as and when necessary.
3. RMIT Vietnam – locally by the RMIT Vietnam Finance team
4. RMIT Europe - by the RMIT Europe Finance team. Available funds are kept to a minimum and Central Finance Operations will provide additional liquidity as and when necessary.

(16) The objective in managing cash and liquidity risk is to ensure that RMIT Group has access to appropriate cash resources to meet all the financial obligations when they fall due. The risk will be mitigated by the following actions:

1. ensuring that RMIT Group has access to appropriate cash resources to fund future expenditure and investments as and when they arise
2. ensuring compliance with borrowing facilities’ covenants and undertakings (where applicable)
3. ensuring effective, efficient and orderly use of credit facilities.

Parameters for Liquidity Risk

(17) The following parameters are approved for managing liquidity risk applies to RMIT Group:

(18) The CFO may authorise a higher liquidity buffer, which must be done in writing.

Management of Liquidity Risk

(19) Central Finance Operations' role in managing liquidity risks is to monitor detailed cash flow forecasts to manage short-term liquidity within specified parameters (as specified above). These forecasts cover a variety of durations with differing levels of detail – short term forecasts which are prepared on a rolling twelve-week basis at a detailed level through to a five year view at a lower level of detail.

(20) Central Finance Operations, via existing planning processes including budget, forecast and the long-term financial plan, will consider numerous events that may affect cash flow of the group and/or put pressure on liquidity.

(21) For 12-month cashflow forecasting purposes, particularly where signs of uncertainty exist, Central Finance Operations may run various scenarios to consider material events that may impact the profitability of the University and its consequential impact on its balance sheet and cashflow expectations.

(22) Central Finance Operations will work on minimising the number of bank accounts and where possible cash will be managed centrally. Bank accounts will only be opened or closed by Central Finance Operations in line with necessary approvals as specified in the Delegations of Authority.

(23) The Finance team in RMIT Vietnam manage liquidity risk locally in a manner consistent with that employed by the Central Finance Operations team as specified in this procedure.

(24) All other controlled entities manage liquidity risk by ensuring that regular cashflow forecasting is completed and through ongoing discussions with Central Finance Operations regarding upcoming liquidity requirements.

Reporting of Liquidity Risk

(25) Weekly cashflow projections will be provided to the Director – Central Finance Operations including a minimum of twelve weeks forecast, and will be reported to the CFO on an exception basis. These communications will include an update on the status of drawn and undrawn loan facilities and any other pertinent information of recent performance and forecasts.

(26) Liquidity risk is reported by Central Finance Operations to the CFO and Council through regular financial reporting. Each report will detail:

1. balance Sheet position (actual versus last year)
2. cashflow (operating profit to total cashflow reconciliation – actual versus last year); and
3. loan facilities drawn and available headroom (undrawn facilities – actual, year to go budget and next year).

Funding and Refinancing Risk

(27) Funding risk is where there is either insufficient capacity in its committed bank credit facilities, or an inability to arrange new facilities. Refinancing risk is the inability to arrange bank facilities to meet the maturing debts.

(28) The objective of managing funding and refinancing risk are:

1. ensure that RMIT Group has arranged its debt funding in a way that appropriately diversifies the concentration of providers and counterparties/investors, and diversifies the maturities of debt facilities in terms of their due date for expiry
2. ensure the remaining availability period is sufficient to allow time prior to the expiry of the facility or the maturity of the existing debt instrument to renegotiate or replace it.

Parameters for Funding and Refinancing Risk

(29) The following approved parameters apply:

1. RMIT Group aims to source its funds from a range of lenders
2. RMIT will maintain a strategic rolling 5 year forecast of its balance sheet and cashflows and monitor its forecast requirements in light of the borrowing facilities available. The group will aim to secure such additional funding as is necessary at least 6-12 months ahead of any forecast deficit arising.
3. RMIT will generally utilise committed revolving debt facilities to meet the day-to-day needs of the business. Fully drawn facilities may be used for longer-term strategic projects or acquisitions.

Management of Funding and Refinancing Risk

(30) Borrowings will only be arranged with organisations that are judged to have sufficient financial strength to ensure that the funds committed under the facilities will be available as and when they are required by RMIT Group in accordance with the terms of the loan agreement. Debt facilities must only be arranged by Central Finance Operations.

(31) When external funding is required for new institutional projects, the CFO will review and approve:

1. the level of security for the project
2. the value of assets already held as security on existing capital projects
3. statutory restrictions and the institution's own powers and rules (e.g. minister debt limits)
4. restrictions on the Group’s use of its property assets required by covenants, particularly US Private Placement (USPP) funding.

Reporting of Funding and Refinancing Risk

(32) In measuring, managing and reporting these risks, Central Finance Operations will report RMIT Group’s actual, 12 months projected position and 5 years estimated capital commitment to the CFO and Council at least annually.

Interest Rate Risk

(33) Interest rate risk is the risk borne by RMIT Group on its interest-bearing liabilities less the offset from interest- bearing assets (primarily working cash and investment balances), due to variability of interest rates.

(34) The objective of managing interest rate risk is to minimise impact on RMIT Group’s profitability due to the fluctuations in interest rate. The risk will be managed by the following actions:

1. ensuring compliance with interest cover covenants under the Group’s borrowing facilities (if any);
2. manage the net interest rate exposure to ensure that the Group can meet its profit targets and protect the Group’s solvency; and
3. minimising the impact of adverse interest rate movements through the use of interest rate management tools in accordance with Schedule 2.

Parameters for Interest Rate Risk

(35) Interest rate risk will not be actively managed (excluding USPP). This is because apart from the USPP, RMIT Group does not have any core level of drawn debt. The credit facilities are drawn for short periods of time. Hence there is no long-term material interest rate exposure.

(36) The interest rate exposure to RMIT Group will continue to be monitored and reported to the board at least annually (primarily through the impact on the Income Statement) and otherwise as necessary upon changes to such exposure.

(37) Interest rate hedging can be undertaken if long term debt funding is obtained for specific transactions (e.g. building or to fund acquisitions) and for revolving facilities. This would require Audit and Risk Management Committee (ARMC) approval. These limits will subsequently be incorporated in the above parameter limits at the next procedure review if hedges still exist.

(38) USPP is hedged from USD fixed to AUD fixed interest rates over the tenor of the USPP.

Management of Interest Rate risk

(39) Interest rate risk is measured by the effect of interest rate movements on the total portfolio of:

1. at call deposits
2. term deposits
3. borrowings

(40) Interest rate risk may also arise from RMIT’s exposure to finance and operating leases, however this will only be monitored, and reported on, from a total Income Statement impact perspective.

(41) In managing interest rate risks, Central Finance Operations will:

1. utilise outputs and updates from the RMIT Group five-year business plan to identify future interest exposure
2. interest expenses/(income) volatility should be monitored annually or as circumstances necessitate. Central Finance Operations should advise the CFO if any hedging is needed from time to time. All interest hedges require CFO and ARMC approval
3. interest rate risk is to be managed with the use of Approved Instruments (per Schedule 2)

Reporting of Interest Rate Risk

(42) The Financial Performance Report will include details of all outstanding borrowings and, where circumstances necessitate, details of any forecast interest rate exposure/risk.

Foreign Exchange Risk

(43) Foreign Exchange (FX) risk is the risk that RMIT Group's financial position is impacted by adverse movements in exchange rates. The risk is that a potential gain or loss could result from a movement in the Australian dollar value of foreign currency payments or receipts.

(44) The objective of managing foreign exchange risk is to minimise variations in earnings, capital or cash flow arising from the impact of exchange rate movements. The risk will be managed by the following actions:

1. exposures in foreign currencies will be hedged using various approved hedging instruments as per Schedule 2
2. individual exposures (student enrolment fees and other charges accepted in foreign currency) will be managed to minimise financial impact on the Group.

Parameters for Foreign Exchange Risk   

(45) All contracts with RMIT University, RMIT Training and RMIT Online should be in Australian Dollars where possible to minimise the cost of transactions.

(46) All contracts with RMIT Vietnam should be in Vietnamese Dong or US Dollars where possible to minimise the cost of transactions. RMIT Vietnam will manage foreign currency exposures locally.

(47) All contracts with RMIT Europe should be in Euros where possible to minimize the cost of transactions. Exposures to other currencies will be managed in consultation with Central Finance Operations.

(48) Foreign currency exposures identified in excess of AUD10m (or local currency equivalent) must be reported to Central Finance Operations (as they are considered to be material) by all controlled entities who in turn will consider whether any action is required.

Management of Foreign Exchange Risk

(49) Material contracts in foreign currency should be identified during the budgeting and/or contracting due diligence process and reported to the Director - Central Finance Operations, including the amounts, details of the counterparties and dates for payments/receipts.

(50) Foreign currency exposures identified should be hedged according to the following table:

(51) For all identified contracts Central Finance Operations will negotiate hedging instruments. The hedging instruments authorised for risk management mitigation are in Schedule 2.

(52) The systems for accepting payments from international students should be designed to accommodate major currencies and to minimise inconvenience for foreign currency payments without increasing foreign currency risk and potentially compromising the Group’s financial position.

Reporting of Foreign Exchange Risk   

(53) Material foreign exchange exposures will be reported as necessary in the Financial Performance Report.

Counterparty Credit Risk

(54) Credit risk (or default risk) is the exposure to financial loss (realised or unrealised) from a counterparty failing to perform its contractual obligations to RMIT Group, with respect to deposits, revenue or derivatives. Central Finance Operations is responsible for managing counterparty credit risk in relation to financial control activities and reporting on credit support compliance in revenue contracts.

(55) The objective of managing counter party and credit risk is to ensure that:

1. counterparties to RMIT Group’s financial transactions are creditworthy
2. that the transactions are within approved limits
3. that RMIT Group’s credit risk exposure is monitored closely
4. that RMIT Group enters into contracts only with financially stable organisations.

Parameters for Counterparty Credit Risk

(56) Counterparty exposure is measured as the total value of the exposures to all obligations of any single legal or economic entity (e.g. a group of companies). The exposure for short term monetary investments will be the face value of the instruments, and the exposure for derivatives will be the market value of the instrument:

(57) A listing of approved derivative instruments is provided in Schedule 1.

Management of Counterparty Credit Risk

(58) The opening of new bank facilities and execution of derivatives must only be undertaken by Central Finance Operations and in accordance with the Delegations of Authority Policy and the Treasury Policy.

(59) Credit limits are to be allocated based on the following structure:

Reporting of Counterparty Credit Risk

(61) Compliance with the procedure, including a table with the list of counterparties, limits and exposures will be monitored by Central Finance Operations on an ongoing basis and any deviations reported to the CFO should they arise.

Operational Risk

(62) Treasury operational risk is the risk that a loss will occur as a result of a breakdown in human resources, processes or technology. It occurs as a result of inadequate operational policies or procedures, failure to comply with procedures, human error or management failure, fraudulent acts (both internal and external) and uncontrollable or unmanageable events.

(63) The objective of managing operational risk is to ensure appropriate levels of internal controls and segregation of duties are in place and that key treasury processes, tasks and corresponding controls are adequate and operate effectively. Identified operational risks may include:

1. fraud and theft
2. unauthorised trading
3. unauthorised use of derivative instruments
4. unreported breaches of delegated authority
5. failure to settle foreign exchange transactions or other treasury settlements when due
6. loss due to poor transaction documentation
7. inadequate treasury management processes
8. insufficient or inappropriately skilled and experienced resources and/or advisors.

Management of Operational Risk   

(64) The risk will be managed by the following actions:

1. managing the appropriate controls to minimise the potential for financial loss through human error, fraud or the inappropriate use of financial instruments
2. managing clearly defined responsibilities and authorities of staff involved with the Group’s financial transactions
3. financial policies and procedures must be maintained and kept up to date
4. segregation of duties should be maintained and reviewed regularly. Where impractical to segregate the tasks, a review of access and change logs must be performed on regular basis
5. interfaces into financial institutions are reviewed and approved by Information Technology Services
6. all Bank transactions are governed by the relevant contracts signed by the banks and RMIT Group’s authorised representatives as described above
7. all processes related to banking and electronic funds transfer must comply with the relevant Anti-Money Laundering legislation and Payment Card Industry Data Security Standards (PCI DSS)
8. for all electronic transactions a minimum of two authorisations is required and the list of signatures is reviewed annually and updated when a change of personnel occurs
9. once opened, all Investment Accounts should be linked to RMIT’s operating bank account with the current Transactional Banking Provider. This will ensure that the funds can only be deposited into nominated bank accounts independently of the person who is making an investment decision.
10. all financial instruments (investments, loans and derivatives) in the general ledger are to be reconciled to counterparty statements monthly.

Reporting of Operational Risk

(65) In measuring, managing and reporting this risk Central Finance Operations will confirm compliance with the requirements above to the CFO and ARMC annually.

Commodity Risk

(66) RMIT Group currently holds no material commodity risks. Should such risks exceed A$1 million annually, this procedure will be expanded accordingly. Any one-off commodity risk exceeding A$1 million must be referred to the CFO for hedging consideration.

Section 6 - Schedules

(67) This procedure includes the following schedules:

1. Schedule 1 - Authorised Instruments
2. Schedule 2 - Delegated Authorities
3. Schedule 3 - Bank Account Management.