HomeMy WebLinkAboutResolutions - No. 86-171RESOLUTION NO. 86-171
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: November 19, 1986
I hereby certify that Resolution No. 86-171
was passed and adopted by the City Council
of the City of Lodi in a regular meeting held
November 19, 1986, by the following vote:
Ayes: Council Members - Olson, Pinkerton,
Snider and Reid
(Mayor)
Noes: Council Members - None
Absent: Council Members - Hinchman
Alice M.
4�e
City Clerk
86-171
CITY OF LODI
STATEMENT OF INVESTMENT POLICY
Purpose
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.
Pol icy
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 in the following instruments as allowed
under current legislation of the State of California (Government Code
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
. 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 judgement 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 priorit
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, 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 creditworthy.
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 period.
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 investment,
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, brokers/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 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 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 investment procedures are followed.
Members of the Committee are as follows:
Finance Director/Treasurer
Assistant Finance Director
Revenue & Collection 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 12 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 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 1985-86, with average market rate
of return and Lodi's comparison, are as follows.
Benchmark Measures
1985-86 Average Yield
90 -day U.S. Treasury Bills 6.53%
Federal Fund Rate 7.01%
Merrill Lynch Ready Asset 7.22%
(Money Market Fund)
Local Agency Investment Fund 9.30%
City of Lodi 8.02%
- 3 -
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 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 completeness of the accounting records
. the timely preparation of reliable financial information.
LIMITATIONS OF INTERNAL 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
on 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 -
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SEGREGATION OF RESPONSIBILITIES OF THE TREASURER FUNCTIONS
CITY OF LODI
Function Responsibility
1. Authorization of investment
transactions:
Formal investment Policy
should be
- prepared by.......................Treasurer
- submitted to.... i ... . ........... City Council
. Investment Transactions_
should be approved by...............Treasurer
2. Execution of investment Assistant Finance Director AND
transactions: ......................... Revenue/Collection 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
Function Responsibility
S. 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/Collection Technician
Recording interest
received............................Revenue/Collection 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
F3