HomeMy WebLinkAboutAgenda Report - September 19, 1990 (41)COUNCIL COMMUNICATION
T0: THE CITY COUNCIL COUNCIL MEETING DATE: SEPTEMBER 19, 1990
FROM: THE CITY MANAGER'S OFFICE
.RECOMMENDED ACTION: That the City Council approve the attached Resolution
adopting an annual investment policy and internal control guidelines,
BACKGPD= INFORMATION: The California State Legislature enacted AB1073 in
1984 requiring local agencies to adopt an annual investment policy.
This policy is presented to the City Council after the books are closed to enable
staff to obtain certain benchmark rates of return for the fi s c a 1 year 1989-90.
Page 3 of the attached Investment Policy indicates these comp gable benchmark
rates.
H. Holm
Finance Director/Treasurer
HE: ss
Attachments
EXHIBIT A
Nils Y?ul��>t• Itit) J�Ob4131�M �• 4
Purpose
This state -,ant is interded to provide guidelines for the
investment of the city's temporary idle cash under the prudent Man Rule. (1)
Objective
The City's cash mnagement system is designed to accurately
rronitor and forecast expenditures and revenues, thus enabling the City to
invest funds to the fullest extent possible. The City strives to obtain
the highest yield obtainable as long as investments meet the criteria far
safety and liquidity.
Policy
The City maintains a pooled cash concept for investment
purposes. Interest earnings are allocated according to average daily cash
in each Fund.
Inves tsren is m y be made in the following instruments as allowed
under current legislation of the State of California (Goverrmnt code
Sec -tion 53600 et seq) .
.Securities of the U. S. Government, State of California
or Local Agencies
.Local Agency Investment Fund (State Pool)
. Certificates of Deposit (time deposits)
. Negotiable Certificates of Dep,,sits
.Bankers Acceptances
. Camercial Paper
. Money Market Funds
. Repurcloze Agreements (collateralized. by U.S. Treasury
securities)
. Passbook Savings Account
. Other that are, or mai became, legal investments through
the State of California Government Code and with prior
approval of the City Council
(1) Civil Code Section 2261, Pt seq. states in part , "...in investing for
the benefit of another, a tnistee shall exercise the judgment and care,
under the circunstances then prevailing, which mere of prudence, discretion
and intelligence exercise in the management of their own affairs."
=W
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Criteria for Selecting Investments (in order of priority)
L Safety
Safety and risk associated with an investment refers to the
potential loss of principal, interest or a combination of these arrounts.
The first level of risk control is found in state law which restricts the
particular type of investment permissible for municipalities. The second
level of risk control is reduction of default risk by investing in
instruments that appear, upon examination, to be the most credit worthy.
The third level of risk control is reduction of market risk by investing
in instrtm-ents that have maturities coinciding with dates of disbursement,
thereby eliminating risk of loss from a forced sale.
The City of Lodi only invests in those instruments that are considered
very safe.
2. Liquidity
Liquidity refers to the ability to easily "cash in" at any time
w it h a minimal risk of losing sane portion of principal or interest.
Maturities of time certificates issued by banks and savings & loan
ccmpanies are selected in anticipation of disbursement needs. Portions of
or the total amount invested with the Local Agency Investment Fund can be
withdrawn in a 24-hour period.
3. Yield
Yield is the potential dollar earnings an investment can provide
and is also described a's the rate of return. The City attempts to obtain
the highest yield possible when selecting an investment provided the
criteria for safety and liquidity are mat.
Policy Constraints
The City operates its investment program with many state and
self imposed constraints. It does not speculate, purchase stocks or
corporate bonds. It does not deal in reverse repurchase agreements unless
specifically authorized by Council. The portfolio is carefully monitored
to assure prudent management.
safekeeping
All securities that may be purchased, including collateral frau
repurchase agreements from brokers, broker/dealers or banks, are
transferred to the City's designated bank. The City's designated bank
sends to the City a mnthly statement of what is being safekept which
shall be reconciled mnthly with the City's records.
Investment Controls
The City has developed a System of Internal Investment Controls
and a Segregation of Responsibilities of Investment Functions (Eyhibit A)
in order to assure an adequate system of internal control over the
investment function.
A Finance Depart nt Investment Carrmittee has been developed to ensure
controls are in order and prudent investment prcxedures are followed.
Members of the Committee are as follows:
Finance Director/Treasurer
Assistant Finance Director
Revenue/Collections Technician and
Department Secretary
Investment Rerorts
Annually, the Treasurer will submit a Staterwnt of Investment
policy to the City Council for their approval. Monthly, the Treasurer
shall submit a report to the City Council and C it y Manager showing the
type of investment, institution, date of maturity, amount of deposit,
market value of all securities with a maturity of over twelve months, rate
of interest, specify in detail each investment made in repurchase
agreements and other such data as may be required by the City.
Investment A u d i t
Annually, there shall be an external audit of the City's
investment program to assure carpliance with investment policy and
controls.
Investment Performance Evaluation
Performance evaluation should include certain benchmark measures
of rate of return. Benchmarks used for 1989-90, with average market rate
of return and Lodi.'s ccrvarison, are as follows:
Benchmark Measures 1989-90 Average Yield
90 -day U.S. Treasury B i 11 s 7.980%
Federal Fund Rate 8.461%
Merrill Lynch Ready Asset 7.980%
(Money Market Fund)
Local Agency Investment Fund 8.786*
City of Lodi
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L S'1tU/TXTF.06S/INVEST.DIR
EXHIBIT B
1 Y�1•� •i ••• C t �1 I r
55F,7 N •: • .�y, ti '1�1' '1� • • / 1 .
The following internal control guidelines and segregation of
responsibilities of Treasurer functions have been compiled by the
California Municipal Treasurers Association, in cooperation with the
California Municipal Finance Officers Association and ee County
Treasurers Association.
OBJEICMVES OF INTEFML CONTROL
Internal control is the plan of organization and all the related
systems established by the management's objective of ensuring, as far as
practicable:
. the orderly and efficient conduct of its business, including
adherence to management policies
. the safeguarding of assets
. the prevention or detection of errors and fraud
. the accuracy and completeness of the accounting records
. the timely preparation of reliable financial information.
No internal control system, however elaborate, can by itself
guarantee the achievement of management's objectives. Internal control
can provide only reasonable assurance that the objectives are met, because
of its inherent limitations, including:
.management's usual requirement that a control be
cost-effective
. the direction of most controls at recurring, rather than
unusual, types of transactions
. human error due to misunderstanding, carelessness, fatigue or
distraction
. potential for collusion that circumvents controls dependent
upon segregation of functions
. potential for a person responsible for exercising control
abusing that responsibility; a rimer of management is
frequently in a position to override controls which
management has set up.
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ELV'I'S OF INTEENAL CONTROL
Elements cf a system. of internal
an organization can satisfy the objectives
elaT nts are:
4
control are the means by which
of internal control, The
1, Organization
specific responsibility for the performance of duties should
be assigned and lines of authority and reporting clearly identified and
understood.
2. Pe.rsot 1
Perms should have capabi.Iitles canmensurate w i t h their
responsibilities, Personnel selection and training policies together with
the quality and quantity of supervision are thus important.
3. Segregation of Functions
Segregation of ince—nT le functions rocas the risk that
a person is in a position both to perpetrate and conceal errors or fraud
in the normal course of duty, If two parts of a transaction are handled
by different people, collusion is neoessary to conceal errors or fraud,
In particular, the functions that should be considered when evaluating
segregation of functions are authorization, execution, recording, cushy
of assets and perfonn ng reconciliations,
4. Authorization
All tr.77 coons should be authorized by an appropriate
responsible individual. The responsibilities and limits of authorization
should be clearly delineated. The individual or group authorizing a
specific transaction or granting general authority for transactions should
be in a position ccmansurate with the nature and significance of the
transactions. Delegation of authority to authorize transactions should be
handled very carefully,
5. Controls Over an Accounting System
Controls over an accounting system include the procedures,
?�oth manual and EDP, carried out independently to ascertain that recorded
transactions are conplete, valid, authorized and properly recorded.
6. Safeguarding of Assets and Records
Controls should be in place to prevent and detect loss,
theft or deterioration of assets. In addition, safeguards are necessary
to prevent the loss or destruction of records and documentation. These
controls would involve custodial controls which are designed to prevent or
detect unauthorized access to or use of assets and records and
accountability controls which care accounting records to assets to
determine whether recorded assets exist and are properly recorded in
accordance with generally accepted accounting principals (G.A.A.P.).
7. Management
These are the controls exercised by management including
day-to-day supervision, overall supervisory controls? rn agment review of
significant transactions, management review of accounts and carnparison
thereof to budgets, management review of the adequacy of internal control
and the internal audit function.
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4
SEGRErATION OF RESPONSIBILITIES OF TM TREASURER FUNCTICNS
CITY OF IDIII
Function 14--cmnsibi lity
1. Authorization of investment
transactions:
. Formal investment policy
should be
- prepared by.......................Treasurer
- submitted to ......................City Council
. Investment transactions
should be approved by...............Treasurer
2. Execution of investment Assistant Finance Director AND
transactions: ......................... Revenue/Collections Technician
3. Timely recording of
investment transactions:
. Recording of kmstment
transactions in the
Treasurer's records ... 6.............Financ:e Department Secretary
.
Recording of investment
transactions in the
accounting records..................Senior Account Clerk
4. Verification of investment,
i.e., match broker
confinnption to Treasurer's
reeor-W-S...............................Treasurer
I _.
Function Responsibility
5. Safeguarding of Assets and
Records:
. Reconciliation of
Treasurer's records to
the Accounting records..............Finance Department Secretary
. Reconciliation of
Treasurer's records to
bank statements and
safekeeping records.. ...............Revenue/Collections Technician
. Recording interest
received. ........................... Revenue/Collections Technician
. Review cd:: (a) financial institution's
financial condition .................Treasurer
(b) safety, liquidity and
potential yields of investment
instruments.........................Treasurer
and (c) reputation and financial
condition of investment
Brokers/Dealers .....................Treasurer
. Periodic reviews of
collateral should be
performed.........................:Treasurer
6. Management's periodic review
of the investment portfolio
as prepared by the Treasurer
- key areas which should be
reviewed are investment
types, purchase price,
market values, maturity
dates and investment yields
as well as conformance to
stated investment policy..............Independent Auditors
7. To achieve the objectives of internal control, the Treasurer may
delegate or transfer any of the above responsibilities except those
of City Council.
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I S7W/TXTF.06S/INVEST.UIR
RESOLUTION NO. 90-146
A RESOLUTION ADOPTING AN ANNUAL STATEMENT OF INVESTMENT
POLICY AND INTERNAL CONTROL GUIDELINES
WHEREAS, legislation enacted by the Legislature of the State of
California requires the adoption by cities of an annual investment policy; and
WHEREAS, the City Council. of the City of Lodi wishes to implement a
program of internal controls by which the City's investment program shall be
administered;
NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of
Lodi hereby adopts an investment policy and internal control guidelines as set
forth herein.
Dated: September 19, 1990
I hereby certify that Resolution No. 90-146 was passed and adopted
by the City Council of the City of Lodi in a regular meeting held September 19,
1990 by the following vote:
Ayes: Council Members Hinchman, Olson, Pinkerton, Reid and
Snider (Mayor)
Noes: Council Members- None
Absent: Council Members - None
knnifep,M. Perrin
Deputy City Clerk
for Alice M. Reimche
City Clerk
90-146
RES90146/TXTA.O2J