HomeMy WebLinkAbout18-1522 01-23-2018 RESOLUTION NO. 18-1522
A RESOLUTION APPROVING THE INVESTMENT POLICY FOR FUNDS
FOR THE CITY OF EULESS AND PROVIDING AN EFFECTIVE DATE.
WHEREAS, Chapter 2256 of the Texas Government Code, also known as the
Public Funds Investment Act ("PFIA"), requires the governing body of an investing entity
to adopt by rule, order, ordinance, or resolution, a written Investment Policy regarding the
investment of its funds; and
WHEREAS, once an Investment Policy has been adopted, the PFIA also requires
the governing body to review the Investment Policy and investment strategies annually;
and
WHEREAS, the PFIA states that the governing body shall adopt a written
instrument by rule, order, ordinance, or resolution stating that it has reviewed the
Investment Policy and investment strategies; and
WHEREAS, the City's Investment committee has reviewed the Investment Policy
and recommends City Council amend the Investment Policy; and
WHEREAS, the City Council desires to approve the Investment Policy.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF EULESS,
TEXAS, THAT:
SECTION 1.
The City Council has reviewed the attached Investment Policy for the City of
Euless and the policies and strategies contained therein (Attachment A.)
SECTION 2.
The City Council hereby adopts the attached Investment Policy as the City's
Investment Policy.
SECTION 3.
All resolutions, or parts of resolutions in force with provisions relating to this
resolution, which are inconsistent or in conflict with the terms or provisions contained
herein, are hereby repealed to the extent of any such conflict only. The non-conflicting
sections, sentences, paragraphs, and phrases shall remain in full force and effect.
SECTION 4.
This resolution shall become effective immediately upon its passage and approval.
APPROVED AND ADOPTED at a regular meeting of the Euless City Council on
January 23, 2018, by a vote of 5 ayes, 0 nays, and 0 abstentions.
APPROVED:
Aa �
�v Linda Martin, Mayor
ATTEST:
4
i . Sutter, RMC, City Secretary
Resolution No. 18-1522 Page 2 of 15
CITY OF EULESS
FINANCE POLICY
DATE: June 26, 1990 PREPARED BY:Finance Department
REV: January 23, 2018 REVIEWED BY:City Manager
RE: Investment Policy APPROVED BY:City Council
I. SCOPE
This investment policy applies to the investment activities of the Government of the City
of Euless, Texas. This policy serves to satisfy the statutory requirements of defining and
adopting a formal investment policy. The policy and strategy shall be reviewed annually
by the Investment Committee and any modifications must be approved by the Investment
Committee and forwarded to City Council for final approval. The City Council must adopt
a written instrument by rule, order, ordinance, or resolution stating that it has reviewed
the investment policy and investment strategies. Any changes made to either the policy
or strategies will be recorded in this written instrument. This Investment Policy, as
approved, is in compliance with Chapter 2256 of the Texas Government Code, also
known as "The Public Funds Investment Act."
A. FUNDS INCLUDED All financial assets of all funds, including the General Fund and
any other accounts of the City not specifically excluded in these policy guidelines are
included. These funds, as well as funds that may be created from time-to-time, shall
be administered in accordance with the provisions of these policies. All funds will be
pooled for investment purposes. The strategy developed for this pooled fund group
will address the varying needs, goals, and objectives of each fund.
B. FUNDS EXCLUDED None.
Il. OBJECTIVES AND STRATEGY
A. COMPLIANCE The City must adopt rules, designate staff to manage local funds, and
submit related reports as outlined by Chapter 2256 of the Texas Government Code,
also known as the Public Funds Investment Act ("PFIA"). All investments made on
behalf of the City must comply with the Public Funds Investment Act and all federal,
state, and local statutes, rules, or regulations. In conjunction with the comprehensive
annual financial audit and report, the City will perform, or have performed, a
compliance audit of management controls on investments and adherence to the City's
approved investment policy.
B. SAFETY OF PRINCIPAL The primary objective of the City's investment activity is the
preservation of capital in the overall portfolio. The objective will be to mitigate credit
risk and interest rate risk.
Resolution No. 18-1522, Page 3 of 15
1. Credit Risk — The City of Euless will minimize credit risk, which is the risk of
loss due to the failure of the security issuer or backer, by:
a. Limiting investments to the types of securities listed in Section V of this
investment policy.
b. Pre-qualifying the financial institutions, broker/dealers and advisors with
whom the City of Euless will do business.
c. Diversifying the investment portfolio so that the impact of potential losses
from any type of security or from any one issuer will be minimized.
2. Interest Rate Risk—The City of Euless will minimize interest rate risk, which is
the risk that the market value of securities in the portfolio will fall due to changes
in market interest rates by:
a. Structuring the portfolio so that securities mature to meet cash requirements
for ongoing operations, avoiding the need to sell securities prior to maturity.
b. Investing operating funds primarily in shorter-term securities, money market
mutual funds, or similar investment pools.
C. LIQUIDITY The City's investment portfolio will remain sufficiently liquid to enable the
City to meet operating requirements that might be reasonably anticipated. Liquidity
shall be achieved by matching investment maturities with forecasted cash flow
requirements and by investing in securities with active secondary markets. In addition,
all or a portion of the portfolio may be invested in money market mutual funds or local
government investment pools which offer same day liquidity for short-term funds.
D. YIELD The City's cash management portfolio shall be designed with the objective of
regularly exceeding the average rate of return on three-month U.S. Treasury Bills, or
the average Federal Reserve Discount whichever is higher. The investment program
shall seek to augment returns above this threshold consistent with risk limitations
identified herein and prudent investment principles.
Funds held for future capital projects shall be invested in securities that reasonably
can be expected to produce enough income to offset inflationary construction cost
increases.
E. RISK OF LOSS All participants in the investment process shall seek to act responsibly
as custodians of the public trust. Investment officials shall avoid any transaction that
might impair public confidence in the City's ability to govern effectively.
F. STRATEGY The strategy for all pooled funds is to assure that cash flows are
matched with projected needs and assume adequate liquidity and safety. This may
be accomplished by purchasing high quality securities in a laddered structure or
Resolution No. 18-1522, Page 4 of 15
utilizing an investment pool. Furthermore the following purposes are also
considered when investing:
1. Funds for Capital Improvement Projects or special purposes should allow for
flexibility and unanticipated project outlays by having a portion of their
investments in highly liquid securities. The stated final maturity dates of
securities held should not exceed the estimated project completion date. A
weighted average maturity of 365 days or less will be maintained and
calculated by using the stated final maturity of each security.
2. Funds for Debt Service should assure liquidity adequate to cover the debt
service obligation on the required payment date. Surplus funds outside the
debt service dates will remain within the investment and fiscal policies.
3. Debt Service Reserves, Operating Reserves, Emergency and Contingency
funds will have the ability to generate a dependable revenue stream to the
appropriate fund from securities with a low degree of volatility. Such securities
will tend to hold their value during economic cycles. The stated final maturity
dates of securities held should not exceed five years.
4. Operating funds will be structured in such a way as to minimize volatility during
economic cycles. This may be accomplished by purchasing high quality short-
term securities which will complement each other in a laddered maturity
schedule. The weighted average maturity on these funds will remain within the
6 to 9 month range and calculated by using the stated final maturity date of
each security.
III. INVESTMENT COMMITTEE
A. MEMBERS There is hereby created an Investment Committee, consisting of the City
Manager and/or his designee, the Deputy City Manager, the Director of Finance, and
the Mayor or Mayor's designee. The Investment Committee shall meet at least
quarterly to determine general strategies and to monitor results and shall call a special
meeting of the Investment Committee within 24 hours of notification of any significant
events related to the City's portfolio including a downgrade in the investment rating.
All prudent measures will be taken to liquidate an investment whose rating has been
downgraded to less than the required minimum rating. The Investment Committee
shall be authorized to invite advisors to the meetings as needed including, but not
limited to, the City Attorney, the City Council, or outside advisors.
B. SCOPE The Investment Committee shall include in its deliberations such topics as:
performance reports, economic outlook, portfolio diversification, maturity structure,
potential risk to the City's funds, authorized brokers and dealers, and the target rate
of return on the investment portfolio.
Resolution No. 18-1522 Page 5 of 15
C. PROCEDURES The Investment Committee shall provide for minutes of its meetings.
Any two members of the Investment Committee may request a special meeting, and
three members shall constitute a quorum. The Investment Committee shall establish
its own rules of procedures.
IV. RESPONSIBILITY AND CONTROL
A. DELEGATION Management responsibility for the Investment Program is hereby
delegated to the Director of Finance, who shall establish written procedures and
internal controls for the operation of the investment program, consistent with this
Investment Policy. Such procedures shall include, but not be limited to, account
management procedures, cash flow procedures, investment transaction procedures,
authorized dealer selection process, investment portfolio reporting requirements, and
explicit delegation of authority to persons responsible for investment transactions. No
person shall engage in an investment transaction except as provided under the terms
of this policy and the procedures established by the Director of Finance. The Director
of Finance shall be responsible for all transactions undertaken and shall establish a
system of controls to regulate the activities of the Authorized Investment Officers and
subordinate officials.
B. SUBORDINATES The Director of Finance will serve as the City's chief investment
officer. The Assistant Director of Finance, Treasurer, and the accountant responsible
for cash and debt analysis are hereby designated as Authorized Investment Officers,
responsible for the investment of the City's funds, pursuant to the Public Funds
Investment Act Section 2256.005 Subsection F. Authority granted to a person to
invest the funds on behalf of the City shall remain in effect until rescinded by the City
or until the person resigns from or is terminated by the City. All authorized investment
officers shall receive not less than 8 hours of investment training relating to their
investment responsibilities, as described by Section 2256.008 of the Public Funds
Investment Act not less than once in a two-year period that begins on the first day of
the City's fiscal year and consists of the two consecutive fiscal years after that date.
This training must be provided by an independent source which has been approved
by the investment committee. At least one training session of not less than 10 hours
of investment training related to their investment responsibilities as described by
Section 2256.008 of the PFIA must be completed by the investment officer within
twelve months of assuming their duties. The training must include, but is not limited
to, education in investment controls, security risks, strategy risks, market risks,
diversification, and compliance with the Public Funds Investment Act.
C. QUARTERLY REPORTS The Director of Finance shall prepare and submit
investment reports that are compliant with Government Code Chapter 2256 Public
Funds Investment Section 2256.023.
D. ANNUAL REPORTS Within 120 days of the end of the fiscal year, the Director of
Finance shall present a comprehensive annual report on the investment program and
investment activity. The annual report shall include twelve-month and quarterly
Resolution No. 18-1522, Page 6 of 15
comparison returns, and shall suggest improvements that might be made in the
investment program.
E. MONITORING OF MARKET PRICE OF INVESTMENTS The investment officer shall
determine the market value of each investment at least quarterly and at a time as
close as practicable to the closing of the reporting period for investments. Such values
shall be included on the investment reports. The following methods shall be used:
1. Certificates of deposits shall be valued at their face value plus any accrued but
unpaid interest.
2. Shares in money market mutual funds and investment pools shall be valued at par
plus any accrued but unpaid interest.
3. Other investment securities may be valued in any of the following ways:
a. the lower of two bids obtained from securities broker/dealers for such security;
b. the average of the bid and asked prices for such investment security as
published in the Wall Street Journal; or
c. the bid price published by any nationally recognized security pricing service.
F. PRUDENCE The standard of prudence to be used by the investment officers shall be
"prudent person" standard and shall be applied in the context of managing an overall
portfolio. The "prudent person" standard states that, "Investments shall be made with
judgement and care, under circumstances then prevailing, which persons of prudence,
discretion and intelligence exercise in the management of their own affairs, not for
speculation, but for investment, considering the probable safety of their capital as well
as the probable income to be derived." Investment officers acting in accordance with
written procedures and the investment policy and exercising due diligence shall be
relieved of personal responsibility for an individual security's credit risk or market price
changes, provided deviations from expectations are reported in a timely fashion and
appropriate action is taken to control adverse developments.
G. ETHICS AND CONFLICTS OF INTEREST Officers and employees involved in the
investment process shall refrain from personal business activity that could conflict with
proper execution and management of the investment program, or that could impair
their ability to make impartial investment decisions. Employees and investment
officers shall disclose any material interests in financial institutions with which they
conduct business. They shall further disclose any personal financial/investment
positions that could be related to the performance of the investment portfolio.
Employees and officers shall refrain from undertaking personal investment
transactions with the same individual with whom business is conducted on behalf of
the City of Euless.
Resolution No. 18-1522 Page 7 of 15
s
An investment officer who has a personal business relationship with a business
organization offering to engage in an investment transaction with the City shall file a
statement disclosing that personal business interest. Investment officers who are
related within the second degree by affinity or consanguinity to an individual seeking
to sell an investment to the City shall also disclose such relationship. A statement
required under this section must be filed with the Texas Ethics Commission and the
City Council. For the purpose of this section, an investment officer has personal
business relationship with a business organization if:
1. The investment officer owns 10 percent or more of the voting stock or shares of
the business organization or owns $5,000 or more of the fair market value of the
business organization;
2. Funds received by the investment officer from the business organization exceed
10 percent of the investment officer's gross income for the previous year; or
3. The investment officer has acquired from the business organization during the
previous year investments with a book value of $2,500 or more for the personal
account of the investment officer.
V. AUTHORIZED AND SUITABLE INVESTMENT SECURITIES
A. ACTIVE PORTFOLIO MANAGEMENT The City intends to pursue an active versus a
passive portfolio management philosophy. That is, securities may be sold before they
mature if market conditions present an opportunity for the City to benefit from the
trade.
B. ELIGIBLE INVESTMENTS The following investments will be permitted by this policy
as defined by state and local law where applicable:
1. Obligation, including letters of credit, of the United States or its agencies and
instrumentalities, including the Federal Home Loan Banks (except for mortgage
pass-through securities);
2. Fully insured or collateralized* certificates of deposits issued by a broker or
depository institution that has its main office or branch in the State of Texas and
is:
a. guaranteed or insured by the Federal Deposit Insurance Corporation or its
successor or the National Credit Union Share Insurance Fund or its
successor;
b. secured by obligations that are described in the Tex. Gov't. Code Sec.
2256.009(a) that has a market value of not less that the principal amount of
the certificates but excluding those mortgage backed securities as described
by Tex. Gov't Code Sec. 2256.009(b); or
Resolution No. 18-1522, Page 8 of 15
c. secured in accordance with Chapter 2257 or in any other manner and amount
provided by law for deposits of the City of Euless
3. Fully collateralized* repurchase agreements having a defined termination date.
("Repurchase agreement" means a simultaneous agreement to buy, hold for a
specified time, and sell back at a future date obligations described by Section V.
A. of this Policy, at a market value at the time the funds are disbursed of not less
than the principal amount of the funds disbursed. The term refers to direct security
repurchase agreement and a reverse security repurchase agreement.) These
investments must be in accordance with a master repurchase agreement approved
by the Investment Committee;*(see definition of collateral, Section VII).
4. Investment Pools as authorized by Texas Government Code 2256. The pool must
enter into a contract approved (by resolution) by the City Council to provide
services to the City. The pool must be continuously rated no lower than AAA or
AAA-m or at an equivalent rating by at least one nationally recognized rating
service. A public funds investment pool that uses amortized cost or fair value
accounting must mark its portfolio to market daily and, to the extent reasonably
possible, stabilize at a $1 net asset value, when rounded and expressed to two
decimal places. In addition, a public funds investment pool that uses amortized
cost shall report yield to its investors in accordance with regulations of the Federal
Securities and Exchange Commission. The pool must provide to the investment
officer or authorized representative of the entity an offering circular or other similar
disclosure instrument that contains, at a minimum, the following information:
a. the types of investments in which money is allowed to be invested;
b. the maximum average dollar-weighted maturity allowed, based on the
stated maturity date, of the pool;
c. the maximum stated maturity date any investment security within the
portfolio has;
d. the objectives of the pool;
e. the size of the pool;
f. the names of the members of the advisory board of the pool and the dates
their terms expire;
g. the custodian bank that will safekeep the pool's assets;
h. whether the intent of the pool is to maintain a net asset value of one dollar
and the risk of market price fluctuation;
i. whether the only source of payment is the assets of the pool at market
value or whether there is a secondary source of payment, such as
insurance or guarantees, and a description of the secondary source of
payment;
j. the name and address of the independent auditor of the pool;
k. the requirements to be satisfied for an entity to deposit funds in and
withdraw funds from the pool and any deadlines or other operating
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policies required for the entity to invest funds in and withdraw funds from
the pool;
I. the performance history of the pool, including yield, average dollar
weighted maturities, and expense ratios; and
m. the pool's policy regarding holding deposits in cash.
To maintain eligibility to receive funds from and invest funds on behalf of an
entity under this chapter, an investment pool must furnish to the investment
officer or other authorized representative of the entity:
a. investment transaction confirmations; and
b. a monthly report that contains, at a minimum, the following information:
1. the types and percentage breakdown of securities in which the
pool is invested;
2. the current average dollar-weighted maturity, based on the stated
maturity date, of the pool;
3. the current percentage of the pool's portfolio in investments that
have stated maturities of more than one year;
4. the book value versus the market value of the pool's portfolio, using
amortized cost valuation;
5. the size of the pool;
6. the number of participants in the pool;
7. the custodian bank that is safekeeping the assets of the pool;
8. a listing of daily transaction activity of the entity participating in the
pool
9. the yield and expense ratio of the pool, including a statement
regarding how yield is calculated;
10.the portfolio managers of the pool; and
11.any changes or addenda to the offering circular.
5. No load money market mutual fund, registered with and regulated by the Securities
Exchange Commission, which complies with Federal Securities and Exchange
Commission Rule 2a-7 as defined in Texas Government Code Sec. 2256.014.
Each fund must provide the City with a prospectus and other information required
by the Securitas Exchange Act of 1934 or the Investment Advisor Act of 1940.
6. Other such securities or obligations as approved by City Council upon
recommendation of the Investment Committee. No securities will be purchased
which have a potential for price volatility that is inappropriate for the City and
incompatible with its investment strategies. This includes, but is not limited to,
certain collateralized* mortgage obligations, such as principal and interest only
securities, inverse floaters, capped and mismatched floaters, and structures notes
and range notes.
Resolution No. 18-1522, Page 10 of 15
C. LENGTH OF INVESTMENTS Except for monies of Reserve funds, Emergency funds,
Contingency funds and construction funds, the City of Euless shall invest in
instruments whose maturities do not exceed two (2) years at the time of purchase.
1. For the General Fund, Water & Wastewater Utility Fund, and any other operating
funds, the weighted average maturity of each fund's portfolio will remain within the
6 to 9 month range. Assets held from bond proceeds may be invested in maturities
with a final stated maturity greater than (2) years based on estimated project
completion dates.
2. Assets held in the General Obligation Interest & Sinking Fund may be invested in
maturities which provide liquidity adequate to cover the debt service payment
dates.
3. Assets held in the General Emergency, General Contingency, Water &
Wastewater Emergency, and the Car Rental Tax Reserve Funds may be invested
in maturities not exceeding five (5) years.
4. An average remaining maturity of 365 days or less shall be maintained on bond
proceeds subject to arbitrage rebate restrictions, and the total portfolio average
remaining shall not exceed one year.
D. DIVERSIFICATION It is the policy of the City of Euless to diversify its investment
portfolios. Assets held in the common investment portfolio shall be diversified to
eliminate the risk of loss resulting from one concentration of assets in a specific
maturity, a specific issuer or a specific class of securities. Diversification strategies
shall be determined and revised periodically by the Investment Committee. In
establishing specific diversification strategies, the following general policies and
constraints shall apply:
1. Portfolio maturities shall be staggered in a way that protects interest income from
the volatility of interest rates that avoids undue concentration of assets in a specific
maturity sector.
2. Securities shall be selected which provide for stability of income and reasonable
liquidity. In addition, the City will invest a portion of the City's portfolio in readily
available funds such as local government investment pools and money market
funds to ensure that appropriate liquidity is maintained in order to meet ongoing
obligations.
3. The Investment Committee shall establish strategies and guidelines for the
percentage of the total portfolio that may be invested in securities other than
repurchase agreements, treasury bills, or insured and collateralized* certificates of
deposit.
Resolution No. 18-1522 Page 11 of 15
4. The Investment Committee shall conduct a quarterly review of these guidelines,
and shall evaluate the probability of market and default risk in various investment
sectors as part of its considerations. *(see definition of collateral, Section VII)
5. The investment officer will obtain at least three competitive bids from approved
brokers on our broker/dealer list before making an investment transaction. In the
event of a tie, the choice will be made by a cumulative and objective manner.
E. ARBITRAGE Although steps have been taken to distribute bond issuance annually in
amounts not to exceed $5 million dollar increments, if this process does not occur, the
City of Euless will fall under arbitrage regulations.
The Tax Reform Act of 1986 provided limitations restricting the City's investing of tax-
exempt General Obligation Bond proceeds and debt service income. New arbitrage
rebate provisions require that the City compute earnings on investment from each
issue of bonds on an annual basis to determine if a rebate is required. To determine
the City's arbitrage position, the City is required to perform specific calculations
relative to the actual yield earned on the investment of the funds and the yield that
could have been earned if the funds had been invested at a rate equal to the yield on
the bonds sold by the City. The rebate provision states that periodically (not less than
once every five years, and not later than sixty days after maturity of the bonds), the
City is required to pay the U.S. Treasury a rebate of excess earnings based on the
City being in a positive arbitrage position. The Tax Reform restrictions require
extreme precision in the monitoring and recording facets of investments as a whole,
and particularly as relates to yields and computations so as to insure compliance.
Failure to comply can dictate that the bonds become taxable, retroactively from the
date of issuance.
The City's investment position relative to the new arbitrage restrictions is the continued
pursuit of maximizing yield on applicable investments while insuring the safety of
capital and liquidity. It is a fiscally sound position to continue maximization of yield
and rebate excess earnings, if necessary.
VI. SELECTION OF BANKS AND DEALERS
A. BIDDING PROCESS Periodically, a Depository shall be selected through the City's
banking services procurement process, which shall include a formal request for
proposal (RFP) issued in compliance with applicable State law. The contract can be
extended as per the RFP specifications. In selecting depositories, the credit
worthiness of institutions shall be considered, and the Director of Finance shall
conduct a comprehensive review of prospective depositories credit characteristics and
financial history.
B. INSURABILITY Banks and Savings & Loan Associations seeking to establish
eligibility for the City's competitive investment program, shall submit financial
Resolution No. 18-1522, Page 12 of 15
statements, evidence of federal insurance and other information as required by the
Director of Finance.
C. AUTHORIZED BROKER/DEALERS A list will be maintained of"primary" dealers and
regional dealers that qualify under the Securities and Exchange Commission (SEC)
Rule 15C3-1 (uniform net capital rule). All financial institutions and broker/dealers
who desire to become qualified for investment transactions must supply the audited
financial statements, proof of state registration, and a completed broker/dealer
questionnaire: All brokers and dealers must be authorized by the Investment
Committee, as analyzed by this Broker Questionnaire. Investment Officers shall not
conduct business with any firm with whom public entities have sustained losses on
investments or whose name has been removed from an approved list by the
Investment Committee. At least annually, the investment committee will review, revise
and adopt a list of qualified brokers that are authorized to engage in investment
transactions with the City.
D. COMPLIANCE A written copy of the investment policy will be presented to any
investment pool or business organization offering to engage in an investment
transaction with the City. A qualified representative (as described by section
2256.002, subdivision 10 of the Texas Government Code) of such business
organization shall execute a written instrument, in a form acceptable to both the City
and the organization, certifying that they have received and reviewed a written copy
of the City's investment policy. The firm must acknowledge that it has implemented
reasonable internal procedures and controls in an effort to preclude investment
transactions conducted between the City and the organization that are not authorized
by the City's investment policy, except to the extent that this authorization is
dependent on an analysis of the makeup of the City's entire portfolio or requires an
interpretation of subjective investment standards or relates to investment transactions
of the entity that are not made through accounts or other contractual arrangements
over which the business organization has accepted discretionary investment authority.
The investment officer of the City may not acquire or otherwise obtain any authorized
investment described in the City's investment policy from a business organization that
has not delivered such instrument. This instrument does not, at any time, relieve the
City of the responsibility of monitoring all investment transactions to determine if they
are in compliance with this policy.
VII. COLLATERALIZATION, SAFEKEEPING AND CUSTODY
A. COLLATERALIZATION OF DEPOSITS The City requires that all uninsured collected
balances plus accrued interest, if any, in depository accounts be secured in
accordance with the requirements of this Policy and Chapter 2257, Government Code
("Public Funds Collateral Act") and the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (FIRREA). Financial institutions serving as City depositories
will be required to sign a depository agreement with the City which details securities
that can serve as eligible collateral, collateralization ratios, standards for collateral
Resolution No. 18-1522 Page 13 of 15
custody and control, collateral valuation, rights of substitution and conditions for
agreement termination.
Pledged securities serving as collateral will always be held in the City's name or on
behalf of the City by an independent third party with which the City has a current
custodial agreement. Depository and custodial records shall assure the notation of
the City's ownership of or explicit claim on the securities. Collateral levels will be
reviewed no less than monthly to ensure the market value of the pledged securities is
at least 105% of the deposit and investment balances less any amount insured by
FDIC or FSLIC. Eligible collateral is as follows:
B. ELIGIBLE COLLATERAL
1. FDIC and FSLIC insurance coverage.
2. Eligible securities that are compliant with Government Code Chapter 2257
Collateral for Public Funds Section 2257.002.
The City's Investment Officers reserve the right to accept or reject any form of collateral
or enhancement at their sole discretion.
C. SUBJECT TO AUDIT All collateral shall be subject to inspection and audit by the
Director of Finance, or designee, as well as the City's independent auditors.
D. SAFEKEEPING AND CUSTODY Safekeeping and custody of the City's
investments shall be in accordance with applicable law and accounting standards.
Investment securities will be held by a Custodian designated by the City and will be
required to issue safekeeping receipts clearly detailing that the securities are owned
by the City. Monthly safekeeping reports detailing the City's securities held by the
Custodian will be provided no less than monthly.
E. DELIVERY VS. PAYMENT Treasury Bills, Notes and Bonds and Government
Agencies' Securities, and all other investment transactions, except investment pools
and mutual funds, shall be purchased using the delivery versus payment method
(DVP). That is, funds shall not be wired or paid until verification has been made that
the security was received by the Custodian. The original copy of all safekeeping
receipts shall be delivered to the City.
VIII. MANAGEMENT AND INTERNAL CONTROLS
The Director of Finance, or designee, shall establish a system of internal controls which
shall be reviewed by an independent auditor. The controls shall be designed to prevent
losses of public funds arising from fraud, employee error, misrepresentation by third
Resolution No. 18-1522 Page 14 of 15
parties, unanticipated changes in financial markets, or imprudent actions by employees
or Investment Officers of the City.
Controls and managerial emphasis deemed most important that shall be employed where
practical are:
A. Control of collusion;
B. Separation of duties;
C. Separation of transaction authority from Accounting and Record-keeping;
D. Custodian safekeeping receipts records management;
E. Avoidance of physical delivery securities;
F. Clear delegation of authority;
G. Documentation of investment bidding events;
H. Written confirmation of transactions for investments and wire transfers;
I. Reconcilements and comparisons of security receipts with the investment subsidiary
records;
J. Compliance with investment policies;
K. Accurate and timely reports;
L. Validation of investment maturity decisions with supporting cash flow data;
M. Adequate training and development of Investment Officials;
N. Verification of all interest income and security purchase and sell computations;
O. Review of financial conditions of all brokers, dealers, and depository institutions; and
P. Staying informed about market conditions, changes and trends that require
adjustments in investment strategies.
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