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.
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IN CITY CouNc IL
Uctot r 16, 1985
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85-326
ORDER
Title,
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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.