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HomeMy WebLinkAbout1985-09-23 85-326 ORDER85-326 Introduced by Councilor cox, September 23, 1985 CITY OF BANGOR (TITLE) VG1LYYs.. es[ of lis hi g love c c Po11cy By the City Conant of CUP of Bonny: ORDERED, THAT the attached Investments Policy and Administration is hereby approved. Statement of Pact: 1Tis order will formalize a policy of investments and the administration of same. N CI1Y COUNCIL Se tem r 23, 1985' Conslaer n«t me.in9. /ikA5. IN CITY CouNc IL Uctot r 16, 1985 ees erl {jL }� =cIxscam- 85-326 ORDER Title, ..agtaniiedio9.an.i!rr?stm?eLe.?slisx.. mu+oauc Eilea by com<>iman :o INVESTMENTS POLICY AND ADNINISTRATION Effective cash management is recognized as essential to good fiscal manage- ment. Thio- is particularly true as mounting costs and expanding programs have placed ever Increasing pressures n local gwex me [el r The extent to which local governments ca obtain investment returns onfunds snot i®edfately ceded for current operational needs can help to reduce this pressure. Temporary idle funds are usually the result of the fallowing conditions: Operating revenues received in advance of operational needs. Proceeds of bonds or temporary notes which are leaned in advance of the time for which payments for capital projects are required. It is the policy of the City of Bangor that available funds be invested to the maximum extent possible at the highest possible rates obtainable at the time of investment In conformance with the legal and administrative guidelines outlined herein. Title 30, Sec. 5051A of the Naine Revised Statutes Annotated authorizes Trens- xa to deposit orest municipal funds by direction of the Municipal Officers. This authorization specifies what investment activities are allowable as well as those which are not permitted. Thus, all investment instruments must be expressly authorized by Maine Statutes. Nevertheless, authorized investment instruments are never purchased. SWPE Min investment policy applies to all the financial assets of the City of Ban- gor. These funds are accounted for in the City's shovel financial report and In- clude the following: General Fund, Special Revenue Fwde, which accounte are established to for x obtained and expanded for specific purposes;Capital project Funds which are established to account for resources obtained and expended for the acquisition of major capital facilities. Enterprise Funds, in which the activity is intended to be self-supporting based onx charges; all Trust and Agency Funds, which are established to account for assets Feld by the City in a fiduciary cap- acity as trustee. Nl transactions involving the financial assets and related activities of all the foregoing funds shall be administered in accordance with the provisions of these policies. INVCSMFNT OBJECTIVES The following investment objectives shall apply in the management of funds .. The primary concern is the preservation of capital and the protection of investment principal. 2. The City will strive to maximize the return on the portfolio but will avoid assuming unreasonable investment risk. INVESMENT OBJECTIVES Cont'd. 3. Me portfolio shall certain sufficiently liquid to enable the City to meet operational requirements which may be reasonably anticipated. 4. The City will diversify its investments to avoid incurring unreasonable and avoidable risks regarding specific security types or Individual Institutions. 5. All participants in the Investment process shall seek to act responsibly ase custodians of the public treat. The overall program shall be designed and managed with a degree ofpro- fesslonallam that is worthy of the public trust. INVESTNETI PRINCIPLES The following Investment principles shall guide the Treasurer In the con- duct of the City's Investment program: , 1. The City my purchase only legally authorized investments pursuant to 30 N.R.S.A., Sec. 5051A. 2. The maturity dates of Investments shall not be beyond the time that the City anticipates it will need the foods. In order to maintain liquidity, investments in operating fonds shall have maturities of one year or less. 3. Investments shall be made with Judgment and care, under cir- astancea than prevailing, which persons of prudence, dis- cretion and intelligence rclse in the management of their own affairs, not for speculation, but for investment consld- eying the probable income to be derived. 4. The City will invest in State of Mein financial institutions as much as possible, but will consider investing outside the State of Maine but within the boundaries of the New England States. 5. Deposit and Investment of funds can only be made in financial Institutions that are Insured by the FDIC or FSLIC. 6. Cash balances to all demand deposit accounts shall not agreed compensating balances whatever possible. The Treasurer shall strive to Invest at least 95% of all available funds on a daily basis. I. Repurchase Agreements can only be obtained from financially stable financial Institutions. Repurchase agreements must be collater- alized by U.S. Covera ent securities with a market value equal to or Vaster than the principal amount of the repurchase agreement. INVESTMENT INSTRUTFNTS AU ORIZAT10N The following are the more common investment instruments that are authorized by Maine Statutes: 1. United States Treasury Oblicatlons Treasury Bills (or T -Bills) - These U.S. government obligations are on -interest bearing instruments that pay the beaver a fixed am after a specified number of days from the issue date. Me bills are sold at a discount price and their yield is the differ- s between the discounted price and their face value. Me full faith and credit of the U.S. Government is pledged to secure their repayment. They feature maxims liquidity and are offered weekly with maturities of ninety-one (91) and one hundred and ninety-rwo (192) days on so auction basis. Treasury Notes and Bonds - Like municipal bonds, treasury notes and bondsare csecurities unties paying interest every six (6) months. Notes have afixed maturity of not leas than one year and not more than ten (10) years. Bonds are coupon securities with maturities exceeding ten (10) years. Post treasury bonds with longer maturities, have call provisions which allow the treasury to redeem the bond prior to wturlty on or after the specified call date. 2. U.S. Government Agency Securities Other interest bearing obligations are issued by various federal agencies. Federally operated agencies include: Export - report Bank of the United States Farmers been Administration (Fm.H.A.) Federal Housing Administration (F.H.A.) General Services Administration (G.S.A.) Government National Nortgage Association (G.N.H.A. or pimple Mae) Small Business Administration (S.B.A.) 3. U.S. gavernment-Sponscred Corporations - Instrumentalities Past of the growth in the so-called federal agency market has resulted from the Issuance of debt by government sponsored corporations. Mean instrumentalities are established to food various lending programa. The principal agencies that issue. such obligations are. Federal Land Banks Federal Intermediate Credit Bunke Federal Home Wan Boake Federal National Mortgage Association (F.N.M.A. or Fannie Fee) 4. Certificates of Deposit '(CD's) Certificates of Deposit issued by commercial banks have been the mainstay of mot g°veremental i�stment programs. The bank CD's are available at all traditional bank depositories and have been authorized for investment purposes by moat leg- Certificates of Deposit (CD's) Cont'd. illative bodies. CD's offer money market rates of return for minimum deposits of $100.000 and allow the purchaser to choose the maturity dates ranging from fourteen (Id) days on. The major disadvantage of Cp's is the humbility to terminate the investment before maturity without partial or total loss of interest income. Insurance coverage is provided for deposits up to $100,000 by the Federal Deposit Insurance Cotporatfon (FDIC) thus affording some measure of safety. Repurchase Agreements (REPO -or RP's) The repurchase agreement is a short term instrument tailored to specific maturities. Essentially, the REPO consists of two simultaneous transactions. First, the investor spurchases securities (collateral) from a banker ordealer At the same time, the selling bank or dealer contractually agrees to [epur- chse the security (collateral) at the same price (plus interest) at a mutually agreed future date. The interest rate is agreed upon when the repurchase agreement is executed. The collateral used moat often is a U.S. Oovernunn[ security which is ordinarily kept in a separate account created and maintained by the bank o dealer. Collateral pledged should always be equal to or greater than the face value of the repurchase agreement. Advance dis- cussion of collateral policies of each instituion should be held at time of purchase to avoid any possible confusion concerning the amount of collateral pledged on each investment. Other Authorized Investments In addition to the previously listed investment instruments, Mafne Statutes also authorizes investments in the following major categories: Corporate Securities Financial Institution Stocks Other Stock Investments INTERNAL CONTROLS Me Director of Finance has established the following system of internal controls. The internal controls shall be ewed periodically. by the external auditor of the City. The controls sballpg ibsticv[¢d to prevent possible loss of public foods arising from fraud, employee error, misrepresentation by third parties, unanticipated changes In financial markets, orimprudent actions by employees and officers of the City: 1. Separation of fractions - In order to minimize the possibility of an employee from personally benefiting from the use of public foods, the separation of functions shall be adhered to at all times. The authorized individual faitiating thelnvestment'. shall hot be coley involved in the recordkeeping functions of the investment program. INTERNAL CONTROLS. Cwt'd z. Separation of transaction authority from ordkeeping and accounting - All records generated from thepurchaseof investments shall be prepared by personnel of the Treasury Division. Me Accounting and auditing of said records shall be the function of the Auditing Division. This separation of functions shall be strictly adhered to at all times. 3. Custodial Safekeeping - All investment documents generated by the banking institutions selling securities shall be kept in safekeeping by the Bank. In absence of the actual investment document, an office generated receipt shall be held in the investment folder. This document shall be filed by maturity '. date. 4. Clear delegation of authority to subordinate staff members - Me Treasurer shall be�the Only'<4thotived individual to initiate investment instruments. The Treasurer, in his absence. shall designate the Finance Director to perform the Investment pur- chasing function. All other subordinate staff members shall act only at the request and designation of the investment officer. Me involvement of persons other than the Treasurer or Finance Directs[ shall be minimised at all times. 5. Written confirmation of telephone transactions - All purchase of Investments shall be confirmed by the banks through the use of written bank advises. All transactions shall be recorded by the investment officer at time of purchase. 6. Sup revisory control of employee actions - Whatever subordinate staff members are authorized by the Investment officer to per- form investment activities, supervision of their actions shall be exercised a all times. All investment decisions and actions shall be reviewed by the investment officer. ]. Documentation of transactions - All investment purchases shall be docummented utilizing appropriate investment forms and recorded in the investment ledger and cash book ledger of the respective cash fuvds. S. internal Auditing - These internal controls shall be reviewed periodically by the external auditor of the City.. The basis, timing and method of audit shall be determined by said external auditor. A report of the audit findings shall be included in the annual post -audit Management Letter. REPORTING The Treasurer shall submit quarterly an investment report to the Finance Director and members of the Bangor City Council. This report shall summarize the investment strategies employed in the most recent quarter, describe the portfolio in terms of types of investment securities , maturities, risks, characteristics and other features. The report shall explain the quarters' total investment return and compare with anticipated return. S� A s md. effective and aggressive ash management/investm®t program Is cognized as one aspect of sound public financial management. Interest Income earned is considered public funds as much as the original principal invested because both are resources necessary to fund the annual operating budget.