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HomeMy WebLinkAboutResolutions - No. 89-146RESOLUTION NO. 89-146 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 as set forth in Exhibit A and incorporated herein by reference; FURTHER, RESOLVED, that the City Council of the City of Lodi hereby adapts 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 - Hinchman, Olson, Pinkerton and Reid Noes: Council Members - None Absent: Council Members - Snider JJ /u ' 40� Alice M. Reimche City Clerk 89-146 RES89146/TXTA.02J C � U N C I L C 0 M M U N I C A ION TO: THE CITY COUNCIL FROM: THE CITY MANAGER'S OFFICE COUNCIL MEETING DATE: SEPTEMBER 7, 1988 RECOMMENDED ACTION: That the City Council approve the attached Resolution adopting an annual investment policy and internal control guidelines. BACKGROUND 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 fiscal year 1987-88. Page 3 of the attached investment policy indicates these comparable benchmark rates. There is one additional investment instrument requested for approval that has not been on previously adopted investment policies. This is on Page 1 and is described as "Money Market Funds." This investment instrument was authorized by the State Legislature in January, 1987 under Government Code Section 53600. The managers of money market funds that local agencies invest in may only purchase those instruments that already exist under Government Code Section 53600 and are the same ones the City of Lodi has invested in since our investment policy was adopted in 1984. The restrictions of Government Code 53600 regarding money market funds are: 1. The money market fund must attain the highest ranking or the highest letter and numerical rating provided by not less than two of the three largest rating services. 2. Have an investment advisor registered with the Securities and Exchange Commission with not less than five years experience investing in the securities and obligations as authorized by Government Code Section 53600, Subdivision (A) to (M) and with assets under management in excess of five hundred million dollars ($500,000,000). 3. Purchase price of shares shall not include commissions and shall not exceed fifteen percent of the local agency's surplus money. Approval is requested to invest in authorized money market funds. Robert H. Holm Finance Director/Treasurer RHH/ss Attachments RES89146/TXTA.02J =BIT A CITY OF LODI STATEMENT OF INVESTI"]3�7r POLICY Purpose This statement is intended to provide guidelines for the investment of the City's temporary idle cash under the Prudent man Rule.( --'L) Objective The City's cash management system is desicmed 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. Policy The 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 ir,. the following instruments as allowed under current legislation of the State of California (Government Code Section 53600 et seq.). Securities of the U. S. Govermnent, State of California or Local Agencies Local Agency Investment Fund (State Pool) . Certificates of Deposit (time deposits) . Negotiable Certificates of Deposits . Bankers Acceptances Commercial Paper . Money Market Funds . Repurchase Agreements (collateralized by L.S. Treasury securities) . Passbook Savings Account . Other that are, or may become, 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 ir. part , "...in investing for the benefit of another, a trustee shall exercise the judgment and care, ,ynder the circumstances then, prevai ling, which men of prudence, discretion and intelligence exercise in the-i-anageme::t of their own, affairs." -i- Criteria for Selecting Investments (in order of priority) 1. Safety Safety and risk associated with an investment refers to the potential loss of principal, interest or a combination of these amounts. The first level of risk control is found in state law um- ch 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 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 some 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 or the total amount invested with the Local Agency Investment Fund can be withdrawn in a 24-hour Deriod. 3. Yield Yield is the potential dollar earnings an investment can provide and is also described as the rate of return. The City attempts to obtain the highest yield possible when selecting an invest�._nt provided the criteria for safety and liquidity are met. 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 from 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 monthly statement of what is being safekept which shall be reconciled monthly with the Citv's records. - 2 - Investment Controls The City.has developed a System of Internal Investment Controls and a Segregation. of Responsibilities of Investment Functions (Exhibit A) in order to assure an adequate system of internal control over the investment function. A Finance Department Investment Camdttee has been developed to ensure controls are in order and prudent investment procedures are followed. Members of the CcnnLi.ttee are as follows: Finance Director/Treasurer .Assistant Finance Director Revenue/Collections Technician and Department Secretary Investment Reaorts Annually, the Treasurer will submit a Statement of Investment Policy to the City Council for their approval. Monthly, the Treasurer shall submit a report to the City Council and City Manager showing the tvoe 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 ment Audit Annually, there shall be an external audit of the City's investment program to assure compliance with investment policy and controls. Investment Performance Evaluation Performance evaluation should include certain benchmark measures of rate of return. Benchmarks used for 1987-88, with average market rate o -f retu--n and Lodi's ccmparison, are as follows: Ben&znark Measures 1986-89 Average Yield 90 -day U.S. Treasury Bills 8.24% Federal Fund Rate 8.15% Merrill L,rnch Ready Asset 8.29% (14onev Market F imd ) Ipcal Agency Investment Funa8.65% Citv of I�xi - 3 - =-- STST /=. 06S 8.66% 12049100= 40 7 INTERNAL CONTROL GUIDELINES SEGREGATION' OF TREASURER RESPONSIBILITIES 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 the County Treasurers Association. OBJECTIVES OF INTERNAL 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 cmaipleteness of the accounting records . the timely preparation of reliable financial information. LIMIZATIONS OF INTERNAL CONTROL No internal control system, however elaborate, can by itself guarantee the achievement cf 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 4t recurring, rather than unusual, types of transactions . human error due to misunderstanding, carelessness, fatigue or distraction . potential for collusion that circimsvents 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 - Er � TS OF INTEJO;AL 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 commensurate with their responsibilities. Personnel selection and training policies together with -Erie quality and quantity of supervision are thus important. 3. Segregation of Functions Segregation of incompatible functions reduces the risk that a person is it 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 All 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 transaction or granting general authority for transactions should be in a position ccamnensurate 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 EDP, carried out independently to ascertain that recorded transactions are ccarplete, valid, authorized and properly recorded. 5. Safeguarding of Assets and Records Controls should be in place to prevent and detect loss, :heft 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 connare accounting records to assets to determine whether recorded assets exist and are properly recorded L --i accordance with generally accepted accounting principals (G.A.A.P.). i. Management - These are the controls exercised by management including day-to-day supervision, overall supervisory controls, management review of S.4 gnificant transactions, management review of accounts and ecmparison 4 ereof to budgets, management review of the adecraacy of internal control a_^_d the internal audit function. - 2 - SEGREGATION OF RESPONSIBILITIES OF THE TREASU-PER FUNCTIONS CITY OF LODI Function Responsibility 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 investment 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 Department Secretary . Reconciliation of Treasurer's records to bank statements and safekeeping records.................Revenue/Collections Technician Recording interest received............................Revenue/Collections Technician . Review of: (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 To achieve the objectives of internal control, the Treasurer may delegate or transfer any of the above responsibilities except those of City Council. - d - !-'\Iir.STST/ 1XTF . 06S