[Ord. No. 2534 §1, 11-17-1998]
A.
This
policy applies to the investment of short-term operating funds, longer-term
funds and proceeds from bond issues.
1.
Pooling of funds. The City of Sullivan, Missouri,
(the "City") will consolidate cash balances from all funds unless
otherwise required by law or ordinance, in order to maximize investment
earnings. Investment income will be allocated to the various funds
based on their respective participation and in accordance with generally
accepted accounting principles.
[Ord. No. 2534 §1, 11-17-1998]
A.
The
primary objectives, in priority order, of investment activities shall
be safety, liquidity, and yield:
1.
Safety. Safety of principal is the foremost objective
of the investment program. Investments shall be undertaken in a manner
that seeks to ensure the preservation of capital in the overall portfolio.
The objective will be to mitigate credit risk and interest rate risk.
a.
Credit risk. The City will minimize credit risk,
the risk of loss due to the failure of the security issuer or backer,
by:
(1)
Pre-qualifying the financial institutions, broker/dealers, intermediaries,
and advisors with which the City will do business. Diversifying the
portfolio so that potential losses on individual securities will be
minimized.
b.
Interest rate risk. The City will minimize the risk
that the market value of securities in the portfolio will fall due
to changes in general interest rates, by:
(1)
Structuring the investment portfolio so that securities mature
to meet cash requirements, thereby avoiding the need to sell securities
on the open market prior to maturity.
(2)
Investing operating funds primarily in shorter-term securities.
(3)
Investing bond proceeds with maturities that match expected
disbursements.
2.
Liquidity. The investment portfolio shall remain
sufficiently liquid to meet all operating requirements that may be
reasonably anticipated. This is accomplished by structuring the portfolio
so that securities mature concurrent with cash needs to meet anticipated
demands (static liquidity). Furthermore, since all possible cash demands
cannot be anticipated, the portfolio should consist largely of securities
with active secondary or resale markets (dynamic liquidity). A portion
of the portfolio also may be placed in bank deposits or repurchased
agreements that offer same-day liquidity for short term funds.
3.
Yield. The investment portfolio shall be designed
with the objective of attaining a market rate of return throughout
budgetary and economic cycles, taking into account the investment
risk constraints and liquidity needs. Return on investment is of secondary
importance compared to the safety and liquidity objectives described
above. The core of investments are limited to relatively low risk
securities in anticipation of earning a fair return relative to the
risk being assumed. Securities will generally not be sold prior to
maturity with some exceptions such as:
[Ord. No. 2534 §1, 11-17-1998]
A.
Prudence. The standard of prudence to be used by investment
officials shall be the "prudent person" standard and shall be applied
in the context of managing an overall portfolio. Investment Officers
acting in accordance with written procedures and this cash management
and 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 the liquidity and the sale of securities
are carried out in accordance with the terms of this policy.
Investments shall be made with judgment 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.
B.
Ethics And Conflicts Of Interest. Officers and employees
involved in the investment process shall refrain from personal business
activity that could conflict with the proper execution and management
of the investment program, or that could impair their ability to make
impartial decisions. Employees and investment officials 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 which business
is conducted on behalf of the City.
C.
Delegation Of Authority. Authority to manage the investment
program is granted to the City Administrator, hereinafter referred
to as Investment Officer. Responsibility for the operation of the
investment program is hereby delegated to the Investment Officer,
who shall act in accordance with the established written procedures
and internal controls for the operation of the investment program
consistent with this investment policy. Procedures should include
references to: safekeeping, delivery vs. payment, investment accounting,
repurchase agreements, wire transfer agreements, and collateral/depository
agreements. No person may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the Investment Officer. The Investment Officer shall be responsible
for all transactions undertaken and shall establish a system of controls
to regulate the activities of subordinate officials.
[Ord. No. 2534 §1, 11-17-1998]
A.
Authorized Financial Dealers And Institutions. A list will
be maintained of financial institutions authorized to provide investment
services. In addition, a list also will be maintained of approved
security broker/dealers selected by credit worthiness. Any approved
broker/dealer must maintain a minimum capital requirement of ten thousand
dollars ($10,000.00) and have been in continuous operation for at
least five (5) years. These may include "primary" dealers or regional
dealers that qualify under Securities and Exchange Commission (SEC)
Rule 150-1 (uniform net capital rule).
All financial institutions and broker/dealers who desire to
become qualified for investment transactions must supply the following
as appropriate:
1.
Audited financial statements.
2.
Proof of National Association of Securities Dealers (NASD) certification.
3.
Proof of State registration.
4.
Completed broker/dealer questionnaire.
5.
Certification of having read and understood and agreeing to comply
with the City's cash management and investment policy.
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An annual review of the financial condition and registration
of qualified financial institutions and broker/dealers will be conducted
by the Investment Officer.
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From time to time, the Investment Officer may choose to invest in instruments offered by other broker/dealers or local financial institutions. In such situations, a waiver to the criteria under Subsection (A) may be granted. All terms and relationships will be fully disclosed prior to purchase and will be reported to the Governing Body of the City on a consistent basis. The Governing Body of the City should approve these types of investment purchases in advance.
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B.
Internal Controls. The Investment Officer is responsible
for establishing and maintaining an internal control structure that
will be reviewed annually with the City's independent auditor. The
internal control structure shall be designed to ensure that the assets
of the City are protected from loss, theft or misuse and to provide
reasonable assurance that these objectives are met. The concept of
reasonable assurance recognizes that (1) the cost of control should
not exceed the benefits likely to be derived and (2) the valuation
of costs and benefits require estimates and judgments by management.
The internal controls shall address the following points:
1.
Control of collusion.
2.
Separation of transaction authority from accounting and record keeping.
3.
Custodial safekeeping.
4.
Avoidance of physical delivery securities.
5.
Clear delegation of authority to subordinate staff members.
6.
Written confirmation of transactions for investments and wire transfers.
7.
Development of a wire transfer agreement with the lead bank and third
(3rd) party custodian.
C.
Delivery vs. Payment. All trades where applicable will be
executed by delivery vs. payment (DVP) to ensure that securities are
deposited in eligible financial institutions prior to the release
of funds. All securities shall be perfected in the name of the City
and shall be held by a third-party custodian or a mutually agreeable
custodian as evidenced by safekeeping receipts.
[Ord. No. 2534 §1, 11-17-1998]
A.
Investment Types. In accordance with and subject to restrictions
imposed by current Statutes, the following list represents the entire
range of investments that the City will consider and which shall be
held by a third-party custodian as evidenced by safekeeping receipts.
1.
United States treasury securities. The City may
invest in obligations of the United States Government for which the
full faith and credit of the United States are pledged for the payment
of principal and interest.
2.
United States agency securities. The City may invest
in obligations issued or guaranteed by any agency of the United States
Government.
3.
Repurchase Agreements. The City may invest in contractual
agreements between the City and commercial banks or primary government
securities dealers. The purchaser in a repurchase agreement (repo)
enters into a contractual agreement to purchase Treasury and government
agency securities while simultaneously agreeing to resell the securities
at predetermined dates and prices.
A master repurchase agreement, as outlined by the Public Securities
Association, will be required to be completed before the City enters
into a repurchase agreement with an authorized financial dealer or
institution. All repurchase agreements shall meet the City's collateralization
and safekeeping requirements.
4.
Collateralized public deposits (certificates of deposit). Instruments issued by financial institutions which state that specified
sums have been deposited for specific periods of time and at specified
rates of interest. The certificates of deposit are required to be
backed by acceptable collateral securities as dictated by State Statute
or by a bank deposit guaranty bond which shall be preapproved by the
Investment Officer.
B.
Security Selection. The following list represents the entire
range of United States Agency Securities that the City will consider
and which shall be authorized for the investment of funds by the City.
Additionally, the following definitions and guidelines should be used
in purchasing the instruments:
1.
U.S. Govt agency coupon and zero coupon securities. Bullet coupon bonds with no embedded options.
2.
U.S. Govt. agency discount notes. Purchased at a
discount with maximum maturities of one (1) year.
3.
U.S. Govt. agency callable securities. Restricted
to securities callable at par only with final maturities of three
(3) years.
4.
U.S. Govt. agency set-up securities. The coupon
rate is fixed for an initial term. At coupon date, the coupon rate
rises to a new, higher fixed term. Restricted to securities with final
maturities of three (3) years.
5.
U.S. Govt. agency floating rate securities. The
coupon rate floats off one index. Restricted to coupons with no interim
caps that reset at least quarterly.
6.
U.S. Govt. mortgage backed securities. Restricted
to securities with final maturities of three (3) years.
C.
Investment Restrictions And Prohibited Transactions. To
provide for the safety and liquidity of the City's funds, the investment
portfolio will be subject to the following restrictions:
1.
Borrowing for investment purposes ("Leverage") is
prohibited.
2.
Instruments known as Structured Notes (e.g., inverse floaters, leveraged
floaters, and equity-linked securities) are not permitted. Investment
in any instrument, which is commonly considered a "derivative" instrument
(e.g., options, futures, swaps, caps, floors and collars), is prohibited.
3.
Contracting to sell securities not yet acquired in order to purchase
other securities for purposes of speculating on developments or trends
in the market is prohibited.
D.
Collateralization.
1.
The securities acceptable as collateral to secure City deposits are
listed in Appendix A. Collateralization will be required on two (2)
types of investments: certificates of deposit and repurchase agreements.
In order to anticipate market changes and provide a level of security
for all funds, the market value (including accrued interest) of the
collateral should be at least one hundred three percent (103%).
2.
For certificates of deposit, the market value of collateral must
be one hundred three percent (103%) or greater of the amount of certificates
of deposits plus any demand deposits with the depository, less the
amount, if any, which is insured by the Federal Deposit Insurance
Corporation, or the National Credit Unions Share Insurance Fund.
3.
All securities which serve as collateral against the deposits of
a depository institution, must be safekept at a non-affiliated custodial
facility in the City's name or held by the pledging depositor's trust
department or agent in the City's name. Depository institutions pledging
collateral against deposits must, in conjunction with the custodial
agent, furnish the necessary custodial receipts within five (5) business
days from the settlement date.
4.
The City shall have a depository and contract pledge agreement with
each safekeeping bank that will comply with the Financial Institutions,
Reform, Recovery, and Enforcement Act of 1989 (FIRREA). This will
ensure that the City's security interest in collateral pledged to
secure deposits is enforceable against the receiver of a failed financial
institution.
E.
Repurchase Agreements. The securities for which repurchase
agreements will be transacted will be limited to Treasury and government
agency securities that are eligible to be delivered via the Federal
Reserve's Fedwire book entry system. Securities will be delivered
to the City's designated Custodial Agent or a mutually agreeable custodian.
Funds and securities will be transferred on a delivery vs. payment
basis.
[Ord. No. 2534 §1, 11-17-1998]
A.
Diversification. The investments shall be diversified to
minimize the risk of loss resulting from over concentration of assets
in specific maturity, specific issuer, or specific class of securities.
Diversification strategies shall be established and periodically revised.
At a minimum, diversification standards by security type and issuer
shall be:
1.
U.S. treasuries and securities having principal and/or interest guaranteed
by the U.S. Government: 100%.
2.
Collateralized time and demand deposits: 100%.
3.
U.S. Government agencies, and government sponsored enterprises: No
more than 50%.
4.
Collateralized repurchase agreements: 30%.
5.
U.S. Government agency callable securities: No more than 30%.
B.
Maximum Maturities.
1.
To the extent possible, the City shall attempt to match its investments
with anticipated cash flow requirements. All investments shall mature
and become payable not more than three (3) years from the date of
purchase. The City shall adopt weighted average maturity limitations
that should not exceed two (2) years and is consistent with the investment
objectives.
2.
Because of inherent difficulties in accurately forecasting cash flow
requirements, a portion of the portfolio should be continuously invested
in readily available funds such as in bank deposits or overnight repurchase
agreements to ensure that appropriate liquidity is maintained to meet
ongoing obligations.
[Ord. No. 2534 §1, 11-17-1998]
A.
Methods. The Investment Officer shall prepare an investment
report at least quarterly, including a management summary that provides
an analysis of the status of the current investment portfolio and
transactions made over the last quarter. This management summary will
be prepared in a manner that will allow the City to ascertain whether
investment activities during the reporting period have conformed to
the investment policy. The report should be provided to the governing
body of the City. The report will include the following:
B.
Performance Standards. The investment portfolio will be
managed in accordance with the parameters specified within this policy.
The portfolio should obtain a market average rate of return during
a market/economic environment of stable interest rates. A series of
appropriate benchmarks shall be established against which portfolio
performance shall be compared on a regular basis.
C.
Marking To Market. On an annual basis, in conjunction with
the City's annual audit, the auditor shall provide:
1.
Realized and unrealized gains or losses resulting from appreciation
or depreciation by listing the cost and market value of securities
over one (1) year duration (in accordance with Government Accounting
Standards Board (GASB) 31 requirements), and
2.
Average weighted yield to maturity of portfolio on investments as
compared to applicable benchmarks. The market value of the portfolio
shall be calculated at least annually and a statement of the market
value of the portfolio shall be issued at least annually to the Governing
Body of the City. This will ensure that review of the investment portfolio,
in terms of value and price volatility, has been performed.
[Ord. No. 2534 §1, 11-17-1998]
A.
Exemption. Any investment currently held that does not meet
the guidelines of this policy shall be exempt from the requirements
of this policy. At maturity or liquidation, such monies shall be reinvested
only as provided by this policy.
From time to time, the Investment Officer may choose to invest
in legally permissible securities which may not meet the parameters
set forth herein. In such situations, all terms and relationships
shall be fully disclosed to the Governing Body of the City, who shall
approve the investment purchase in advance.
B.
Adoption And Amendments. This policy shall be adopted by
ordinance of the City's Governing Body. The policy shall be reviewed
annually by the Finance Committee and the Governing Body maintaining
internal controls must approve any modifications made thereto.
C.
Competitive Bids. The Investment Officer shall seek competitive
bids for the investment of funds pursuant to this Cash Management
and Investment Policy. Additional consideration may be given to local
financial institutions and broker/ dealers.
[Ord. No. 2534 §1, 11-17-1998]
A.
The
selection of a primary depository shall be made in compliance with
Section 95.355, RSMo. All deposits shall be properly secured as provided
by Section 110.010, RSMo., and the City's cash management and investment
policy. In order to maximize investment capabilities and minimize
banking costs, centralization of deposits in a primary banking institution
will be maintained.
B.
A monthly
statement of each account must be provided which details debit and
credit transactions and provides numerically sorted cancelled checks
which will be used to reconcile transactions against the City's ledger
accounts. A monthly account analysis report with average daily balances
and available funds shall be provided to facilitate cash management
and enhance float analysis.
[Ord. No. 2534 §1, 11-17-1998]
