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HomeMy WebLinkAboutAgenda Report - October 18, 1989 (75)C O U N C I L COMMUNICATIOM TO: THE CITY COUNCIL FRAM: THE CITY MANAGER'S OFFICE COUNCIL, MEETING DATE: OM"OBER 18, 1989 � i r a. �a •• �n r•�•� a .� r r� ri PS04MMED AM- ON,: That tl-pe City Council approve the attached Resolution adopting an annual Investment policy and internal control guidelines. BACKGROUND INFORMATION: Tlic 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 t h e fiscal year 1988-89. Page 3 of the attached investment policy indicates these comparable benchmark rates. H. Holm Finance Director/Treasurer RHH/ss Attachments INVPOLC'/TXTF.06S RFSOLZTIION NO. 89-146 A RE90LUII0N ADOPTING AN ANNUAL STAHNENT OF Nvffii FNr POLICY AND P4IEZNAL CONTROL GUIDELM VVIERM legislation enacted by the Legislature of the State of California requires the adoption by cities of an annual investment policy; and W EWA$, the City Counci? 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 as set forth in Exhibit A and incorporated herein by reference; FURTHER, RESOLVED, that the City Council of the City of Lodi hereby adopts Internal Control Guidelines, attached hereto as Exhibit B and incorporated herein by reference. Dated: October 18, 1989 I hereby certify that Resolution No. 89-146 was passed and adopted by the City Council of the City of Lodi in a regular meeting held October 18, 1989 by the following vote: Ayes : Council Members - Noes : Counci 1 Members - Absent: Council Members - Alice M. Reimche City Clerk 89-146 RES89146/TXTA.OIV EXHIBIT A CITY OF LODI STATENENf OF 1NA7ESTM= POLICY Purpose This statement is intended to provide guidelines for the investment of the Clty'S terporary idle cash under the Prudent Man Rule. (1) Objective The City's cash management syskin is designed to accurately monitor 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 for safety and liquidity. micy ?s City maintains a pooled cash concept for investment purposes. Interest earnings are allocated according to average daily cash in each Fund. Investments may be made in the following instruments as allowed under current legislation of the State of California (Goveriment Code Section 53600 et seq.) . . Securities of the U. S. Government, State of California or Local Agencies . Local Agency Investment Find (State Pool) . Certificates of Deposit (time deposits) . Negotiable Certificates of Deposits Bankers Acceptances . C ramp-reiai Paper . Matey Market Funds . Repurchase Agreements (collateralized by U.S. Treasury securities) . Passbook Savings Account . Other that are, or my beecme, legal investments through the State of California Government Code and with prior approval of the City Council (1)Civil Code Section 2261, et seq. states in part , "...in investing for the benefit of another, a trustee shall exercise the judgment and care, under the circumstances then prevailing, which men of prudence, discretion and intelligence exercise in the management of their own affairs." - 1 - Criteria for Selecting Investments (in order of priority) 1. Safety Safety and risk associated with an investment refers to the potential loss of principEii, interest or a ccmbination of these amounts. 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 instra*rents that appear, upon examination, to be the most credit uv -thy. The third level of risk control is reduction of market. risk by investing in instruments 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 with a minimal risk of losing scare portion of principal or interest. Maturities of time certificates issued by banks and savings & loan companies are selected in anticipation of disbursement needs. Portions of ox the total amount invested with the Iocal 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 as the rate of return. "he City attempts to obtain the highest yield possible when selecting an investment provided the criteria for safety and liquidity are met.. Policy Constraints The City operates its investment program with 70ny 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 from repurchase agreements from brokers, broker/dealers or banks, are transferred to the City's designated bank. "he City's designate? bank sends to the City a monthly statement of what is being safekept which shall be reconciled monthly with the City's records. - 2 - Investment Controls The City has developed a System of Internal Investment Controls and a Segregation of Responsibilities of Investment Functions (Exhibit Aj in order to assure an adequate system cf internal control over the investment function. A Finance Department Investment Committee has been developed to ensure controls are in order and prudent investmerit procedures are followed. Members of the Committee are as follows: Finance Director/Treasurer Assistant Finance Director Revenue/Collections Technician and Department Secretary Investment Reports Annually, the Treasurer will submit a Statment of Investment policy to the City Council for their approval. Monthly, the Treasurer shall submit a report t o the City Council and C i t y Manager showing the type of investment, institution, date of maturity, amount of deposit, mar-ket value of a 11 securities with a maturity of over twelve mnths , rate of interest, specify in detail each investment made in repurchase agreements and other such data as may be required by the City. Investment Audit Annually, there shall be an external audit of the City's investment program to assure ompliance with investment policy and controls. Investment Performance Evaluation Performance evaluation should include certain benchmark measures of rate of return. Benchmarks used for 1937-88, with average market rate of return and Lodi' s comparison, are as follows: Benchmark Measures 1988-89 Average Yield 90 -day U.S. Treasury Bills 8.24% Federal Fund Rate 8.15% Merrill Lynch Ready Asset 8.29% (Money Market Fund) Local Agency Investment Fund 8.65% City of Lodi - 3 - INWESTST/= . 06S 8.66% EXHIBIT B IN'l 2 U CONTROL G jIDELMES SEGREGATION OF TREASURER RESPONSIBILITIES The following internal control guidelines and segregation of responsibilities of Treasurer functions have been ccmpiled by the California Imunicipal T�._su_r s Association, in cooperation with the California Municipal Finance Officers Association and the County Treasurers Association. OBJECTIVES OF INTERNAL OCUMI, Internal control is the plan of orqanization and all the related systems established by the inanagenrent'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 ampleteness of the accounting records . the timely preparation of reliable financial information. =TATIONS OF INTERNAL 00NTRDL No internal control system, however elaborate, can by itself guarantee; the achievement of management's objectives. Intemai control can provide only reasonable assurance that the objectives are met, because of its inherent limitations, including: . irap- gement's usual requirement that a control be cost-effective . the direction of most controls at recurring, rather than unusual, types of transactions . hm-rm 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 member of management is frequently in a position to override controls which management has set up. - 1 - ELEMENTS OF INTERNAL CONTROL Elements of a system of internal control are the means by which an organization can satisfy the objectives of internal control. The elements are: 1. Organization Specific responsibility for the performance of duties should be assigned and lines of authority and reporting clearly identified and understood. 2. Personnel Personnel should have capabilities cccurensurate with their responsibilities. Personnel selection and training policies together with the quality and quantity of supervision are thus inport.ant. 3. Segregation of Functions Segregation of incat$.�,cible functions reduces 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 necessary to conceal errors or fraud. In particular, the functions that should be considered when evaluating segregation of functions are authorization, execution, recording, custody of assets and performing reconciliations. 4. Authorization A 11 transactions 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 transacticn or granting general authority for transactions should be in a position conTensvrate 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, both manual and IDP, carried out independently to ascertain that recorded transactions are ecxrplete, 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 ox detect unauthorized access to or use of assets and records and accountability controls which carpare 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 -today supervision, overall supervisory controls, management review of significant transactions, management review of accounts and caorparison thereof to budgets, management review of the adequacy of internal control and the internal audit. function. - 2 - M --r SEGREGATION OF RESPONSIB=IES OF THE TREASURER FUNCTIONS CITY OF IDDI Function. Responsibility 1. Authorization of investment transactions: . Formal investment policy should he - pr ,pared 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 s . Recording of investrant transactions in the Treasurer's records.................Finance Department Secretary . Recording of investment transactions in the accounting records..................Senior Account Clerk 4. Verification of investment, i.e., match broker confirmation to Treasurer's records ............................... Treasurer - 3 - Function Responsibility 5. Safeguarding of Assets and Records: . Reconciliation of Treasurer's records to the Accounting records..............Finance DepGrtrnant Secretary . Reconciliation of Treasurer's records to bank statements and safekeeping records.................Revenue/Collections Techriician Recording interest received ............................ Revenue/Collections Technician . Review of: (a) financial institution's financial condition ................ Treasurer (b) safety, liquidity and potential yields of investment instnm ents.........................Treasurer and (c) reputation and financial conditio- of investment Brokers/Dealers ..................... Treasurer . Periodic.reviews of collateral should be performed..........................Treasurer 6. Mana4ea)ent ' 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 investTent yields as ��11 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. - 4 - INVESTST/TXTF.06S RESOLUTION NO. 89-146 A RESOLUTION ADOPENK3 AN ANNUAL STATEMENT OF IlWIfiIlVl N17 POLICY AND INI RNP,L CONTROL GUIDELMS 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 interna? 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 as set forth in Exhibit A and incorporated herein by reference; FURTHER, RESOLVED, that the City Council of the City of Lodi ; hereby adopts Internal Control Guidelines, attached hereto as Exhibit B and incorporated herein by reference. Cated: October 18, 1989 I hereby certify that Resolution No. 89-146 was passed and adopted by the City Council of the City of Lodi i n a regular meeting h -,Id October 18, 1989 by the following vote: Ayes : Council Members - Hinchman, Olson, Pinkerton and Reid Noes : Council Members - None Absent: Council Members - Snider Alice M. Reimche City Clerk 83-146 RES89146/TXTA.02J