HomeMy WebLinkAbout20-1569 01-28-2020 RESOLUTION NO. 20-1569
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 approve 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herein, are hereby repealed to the extent of any such conflict only.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 28, 2020, by a vote of 7 ayes, 0 nays, and 0 abstentions.
APPROVED:
Linda Martin, Mayor
ATTEST:
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Kim utter, TRMC, CMC, City Secretary
Resolution No. 20-1569, Page 2 of 14
Attachment A
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.
II. 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.
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.
Resolution No. 20-1569, Page 3 of 14
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 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.
Resolution No. 20-1569, Page 4 of 14
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 compliment 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.
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
Resolution No. 20-1569, Page 5 of 14
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 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
Resolution No. 20-1569, Page 6 of 14
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.
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
H. 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.
Resolution No. 20-1569, Page 7 of 14
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 vaue 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
c. secured in accordinance 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;
Resolution No. 20-1569, Page 8 of 14
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 secodary 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 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 maturites 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 Secruities 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
Securites Exchange Act of 1934 or the Investment Advisor Act of 1940.
Resolution No. 20-1569, Page 9 of 14
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.
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 Contigency, 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. 20-1569, Page 10 of 14
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 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
Resolution No. 20-1569, Page 11 of 14
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 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.
Resolution No. 20-1569, Page 12 of 14
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 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;
Resolution No. 20-1569, Page 13 of 14
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.
Resolution No. 20-1569, Page 14 of 14