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HomeMy WebLinkAboutResolutions - No. 85-144RESOLUTION NO. 85-144 A RESOLUTION ADOPTING A STATEMENT OF INVESTMENT POLICY AND INTERNAL CX24TML GUIDELINES WHEREAS, recent legislation enacted by the Legislature of the State of California requires the adoption by cities of an 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, THMMEORE, 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: October 16, 1985 I hereby certify that Resolution No. 85-144 was passed and adopted by the City Council of the City of Lodi in a regular meeting held October 16, 1985 by the following vote: Ayes: Council Members - Olson, Pinkerton, Reid, Snider, and Hinchman (Mayor) Noes: Council Members - None Absent: Council Members - None � — Alice M. Re'ne City Clerk 85-144 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. 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 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." Criteria for _Selecting Investments (in order of priority) 1 CAFRTV 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 'evel 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. Z. 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 1984-85, with average market rate of return and Lodi's comparison, are as follows. Benchmark Measures 1984-83 Average Return 90 -day U.S. Treasury Bills 8.70% Federal Fund Rate 9.26% Merrill Lynch Ready Asset 9.41% (Money Market Fund) Local Agency Investment Fund 10.80% City of Lodi - 3 - 10.42% 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 - 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 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 evaluation 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 commensurate 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 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-to-day 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 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/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 - 3 - Function Resvonsibili 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/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 - 4 -