HomeMy WebLinkAboutResolutions - No. 88-128RESOLUTION NO. 88-128
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, attached hereto as 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: September 7, 1988
I hereby certify that Resolution No. 88-128 was passed and
adopted by the City Council of the City of Lodi in a regular
meeting held September 7, 1988 by the following vote:
Ayes: Council Members - Hinchman, Olson, Reid, Snider and
Pinkerton (Mayor)
Noes: Council Members - None
Absent: Council Members - None
J&e
Alice M. Reimche
City Clerk
88-128
0
CITY OF LODI
STATE= OF INVESTMENT POLICY
Purrose
This statement is intended to provide guidelines for the
investment of the City's temporary idle cash under the Prudent Man Rule.(1)
Objective
The City's cash management system 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.
Policv
The City maintains a pooled cash concept for investment
purposes. Interest earnings are allocated according to average daily cash
in each Fluid.
Investments may be made in the following instruments as allowed
under current legislation of the State of California (Gove=mmnt Cade
Section 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 Deposits
. Bankers Acceptances
. Commercial Paper
. Money Market Rinds
. Repurchase Agreements (collateralized by U.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 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
i and intelligence exercise in the management of their own affairs."
- 1 -
)�, r,",7,jr'11[1RR �7
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 ccnbination of these amounts.
Ti+e 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 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 instru-rents that are considered
very safe.
2. Licauidity
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
cc=anies are selected in anticipation of disbursement needs. Portions of
or the total amount invested with the Local Agency Investment Fund can be
withdraw; in a 24-hour period.
3. Yield
Yield is the potential dollar earrings an investrent can provide
! and is also described as the rate of return. The City attempts to obtain
the highest yield possible when selectir_g an investRent provided the
criteria for safety and licruidity are ret.
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 staterrent of what is being safekept which
shall be reconciled monthly with the City's records.
- 2 -
Investrent 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 Committee has been developed to ensure
' controls are in order and prudent invesbient procedures are followed.
Members of the Ccrranittee are as follows:
Finance Director/Treasurer
Assistant Finance Director
Revenue/Collections Technician and
Department Secretary
Investment Reports
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
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 investr:ent 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 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
of return and Lodi's comparison, are as follows:
Benchmark Measures 1987-88 Average Yield
90 -day U.S. Treasury Bills 5.95%
Federal Fund Rate 6.87%
Merrill Lynch Ready Asset 6.45%
(Money Market Fund)
Local Agency Investment Fund 7.77%
City of Lodi 7.16%
- 3 -
L.
1
INVESTST/TXTF.06S
EXHIBIT A
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 INTEIZIAL 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 ccmpleteness of the accounting records
the tir.ely preparation of reliable financial information.
LIMIITATIONS OF Ilv'TERNAL CONTROL
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 member of management is
frequently in a position to override controls which
management has set up.
- 1 -
F7, LN WS OF 11MIMNIAL COMROL
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
the quality and quantity of supervision are thus important.
3. Segregation of Functions
Segregation of incompatible 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 perfo_xzning 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 commensurate with the nature and significance of the
transactions. Delegation of authority to authorize transactions should be
handled very carefully.
S. 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 complete, 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 compare 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 comparison
thereof to budgets, management review of the adequacy of internal control
and the internal audit function.
- 2 -
SEGREGATION OF RESPONSIBILITIES OF THE TREASURER FUNCTIONS
CITY OF LODI
Function Rescorsibility
1. Authorization of investment
transactions:
. Formai 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 XND
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
Iperformed..........................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.
- 4 -
1NUESTST/TXTF.06S