[HISTORY: Adopted by the Board of County Commissioners (now
County Council) of Cecil County 10-5-1999. Amendments noted where applicable.]
GENERAL REFERENCES
Ethics — See Ch. 39.
It is the policy of Cecil County, Maryland (hereinafter referred
to as "the County"), to invest public funds in a manner which will
conform to all State of Maryland and County statutes governing the
investment of public funds by providing maximum security of those
funds, and meeting the daily cash flow demands of the County while
seeking the highest investment return. This policy prohibits the borrowing
of money for the sole purpose of investment. The investment manager
is required to use competitive purchasing practices, except where
impractical.
A.
Investment of County funds will comply with Article 95, § 22,
of the Annotated Code of Maryland and § 6-222 of the State
Finance and Procurement Article of the Annotated Code of Maryland,
as amended. Statutes authorize the County to:
(1)
Invest, redeem, sell, exchange and reinvest all unexpended or surplus
money in any fund or account of which the County has custody or control
in the following:
(a)
An obligation for which the United States has pledged its faith
and credit for the payment of the principal and interest;
(b)
An obligation that a federal agency or a federal instrumentality
has issued in accordance with an act of Congress;
(c)
A repurchase agreement collateralized in an amount not less
than 102% of the principal amount by an obligation of the United States,
its agencies or instrumentalities, provided that the collateral is
held by a custodian other than the seller designated by the buyer;
(d)
Bankers' acceptances guaranteed by a financial institution
with a short-term debt rating in the highest letter and numerical
rating by at least one nationally recognized statistical rating organization
as designated by either the United States Securities and Exchange
Commission or the Director of Finance;
(e)
With respect to amounts treated by the Internal Revenue Service
as bond sale proceeds only, bonds, notes or other obligations of investment
grade in the highest quality letter and numerical rating by at least
one nationally recognized statistical rating organization, as designated
by either the United States Securities and Exchange Commission issued
by or on behalf of this or any other state or any agency, department,
County, municipal or public corporation, special district, authority
or political subdivision thereof, or in any fund or trust that invests
only in securities of the type described in this subsection;
(f)
Commercial paper that has received the highest letter and numerical
rating by at least one nationally recognized statistical rating organization,
as designated by the United States Securities and Exchange Commission,
provided that such commercial paper may not exceed 5% of the total
investments made by the County under this subsection;
(g)
Money market mutual funds registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, 15 U.S.C.
§ 80(A), as amended, and operated in accordance with Rule
2A-7 of the Investment Company Act of 1940, 17 CFR 270.2A-7, as amended,
and that have received the highest possible rating from at least one
nationally recognized statistical rating organization as designated
by the United States Securities and Exchange Commission;
(h)
Any investment portfolio created under the Maryland Local Government
Investment Pool, defined under the Annotated Code of Maryland, Article
95, § 22G, that is administered by the Office of the State
Treasurer; or
(2)
Deposit moneys in any bank or banks in the State of Maryland, any
savings-and-loan association(s), any building-and-loan association(s)
and the Local Government Investment Pool.
[Amended 11-13-2012 by Ord. No. 2012-12]
B.
This investment policy is written as a guide to shorter-term cash
management practices and is not intended for longer-term cash management
programs, such as a pension fund. The financial assets, cash and investment
of all funds of the County are subject to these policies and procedures.
These funds are accounted for in the County's Comprehensive Annual
Financial Report and include:
A.
The standard of prudence to be applied by the investment manager
shall be the "prudent person rule," which states that ". . .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." The prudent person rule shall
be applied in the context of managing the overall portfolio.
B.
The investment manager, acting in accordance with written procedures
using the investment policy and exercising due diligence, shall not
be held personally responsible for an individual security's credit
risk or market price changes, provided that deviations from expectations
are reported in a timely fashion and the appropriate action is taken
to control adverse developments.
The primary objectives, in priority order, of the County's
investment activities shall be as follows:
A.
Legality. All investments will be in compliance with all applicable
State of Maryland statutes governing the investment of public funds
and will comply with the Code of Cecil County, Maryland.
[Amended 11-13-2012 by Ord. No. 2012-12]
B.
Safety. Safety of principal is the foremost objective of the investment
program. Investments of the County shall be undertaken in a manner
that seeks to ensure the preservation of capital in the overall portfolio.
To attain this objective, the County will maintain appropriate diversification
of investments and financial institutions.
C.
Liquidity. The County's investment portfolio will remain sufficiently
liquid to enable the County to meet all operating requirements which
might be reasonably anticipated.
D.
Yield. The County's investment portfolio shall be designed with
the objective of attaining a rate of return appropriate during budgetary
and economic cycles, considering the County's investment risk
constraints and the cash flow characteristics of the portfolio.
A.
Authority to manage the County's investment program is derived
from state law (Article 95 of the Annotated Code of Maryland and Title
6 of the State Finance and Procurement Article of the Annotated Code
of Maryland, as amended) and the Code of Cecil County Maryland.
B.
The Director of Finance shall develop and maintain written administrative
procedures for the operation of the investment program consistent
with this investment policy. Such procedures shall include:
(1)
Explicit delegation of authority to person responsible for investment
transactions. No person may engage in an investment transaction except
as provided under the terms of this policy and the procedures established
by the Director of Finance.
(2)
Procedures should include reference to safekeeping, repurchase agreements,
wire transfer agreements, delivery versus payment, investment accounting,
collateral depository agreements and banking service agreements.
(3)
The Director of Finance shall be responsible for all transactions
undertaken and shall establish a system of controls to regulate the
activities of any person engaged in investment program operations.
[Amended 11-13-2012 by Ord. No. 2012-12]
Officials and employees involved in the investment process shall
refrain from personal business activity that could conflict with proper
execution of the investment program or which could impair their ability
to make impartial investment decisions. Employees and investment officials
shall disclose to the County and to the Ethics Board any material
financial interest in financial institutions that conduct business
within this jurisdiction, and they shall further disclose any large
personal financial/investment positions that could be related to the
performance of the County's portfolio. Employees and officers
shall subordinate their personal investment transactions to those
of the County, particularly with regard to the time of purchases and
sales.
A.
The Director of Finance shall maintain a listing of financial institutions
authorized to provide investment services. The following is a breakdown
of the types of institutions dealt with by the County along with the
types of investment transactions handled by those institutions:
(1)
Primary government dealers. The Federal Reserve Bank of New York designates primary government dealers in government securities. The County can purchase all authorized and suitable investments as listed in § 56-2 of this chapter, except for certificates of deposit, from primary government dealers. All repurchase agreements (repo's) entered with the County will be with primary government dealers, with the exception of any repo's executed with the County's lead depository bank.
(2)
Other security dealers. The County may purchase United States government
securities, United States government agency securities, and bankers'
acceptances from dealers other than primary government dealers and
from dealer banks which market these securities.
(3)
Commercial banks. The County can only invest in banks located in the State of Maryland (certificates of deposit), with the exception of bankers' acceptances which are discussed in § 56-2 of this policy. Commercial banks must have a short-term rating of at least investment grade from the appropriate bank rating agencies. All banks shall provide their most recent consolidated report of condition at the request of the County. The County shall conduct an annual evaluation of each bank's creditworthiness to determine whether it should be on the qualified institution listing.
(4)
Money market mutual funds. The fund must be composed only of obligations
issued or guaranteed as to principal and interest by the United States
government and of repurchase agreements fully collateralized by United
States government obligations. The management company of the fund
must take delivery of the collateral either directly or through an
authorized custodian.
(5)
The County is also authorized to invest in the Maryland Local Government
Investment Pool.
B.
All financial institutions and broker/dealers who desire to become
qualified bidders for investment transactions must supply the Director
of Finance with the following:
(1)
A copy of the most recent audited financial statements. The firm
must also have adequate capital to fulfill its commitments under adverse
market conditions. The most current annual audited financial statement
must be on file with the County in order to be an authorized financial
dealer or institution.
(2)
The firm must be registered in the State of Maryland with a record
for responsible business practices and professional integrity. The
dealer must also provide adequate research facilities and market-related
information.
(3)
The County will deal only through knowledgeable and experienced representatives.
The firm will provide a reference list of other governments that buy
and sell securities through its firm, proof of National Association
of Security Dealers' certification and a trading resolution.
[Amended 5-17-2011 by Ord. No. 2011-07]
The County will diversify to avoid incurring unreasonable risk
inherent in overinvesting in specific instruments, individual financial
institutions or maturities.
A.
Diversification by instrument. (Note: See Default Risk and Liquidity
Scales, Exhibits D and E.[1]
|
Instrument
|
Maximum Percent of Portfolio
| |
|---|---|---|
|
U.S. Treasury obligations
|
100%
| |
|
U.S. government agency and U.S. government-sponsored instrumentalities
|
100%
| |
|
Repurchase agreements (master repurchase agreement required)
|
100%
| |
|
Maryland Local Government Investment Pool
|
100%
| |
|
Collateralized, nonnegotiable certificates of deposit (only
Maryland commercial banks)
|
80%
| |
|
Bankers' acceptances (from domestic banks which also include
the United States affiliates of large international banks; short-term
rating of A1 from Standard and Poor's Corporation and P1 from
Moody's Investor Service)
|
40%
| |
|
Money market mutual funds (with highest possible rating from
at least one nationally recognized statistical rating organization)
|
60%
| |
|
Commercial paper (must have a minimum of an A1/P1 rating by
at least one nationally recognized rating agency)
|
5%
|
[1]
Editor's Note: Exhibits D and E are on file in the County
offices.)
B.
Diversification of maturities.
(1)
In order to meet the objectives of the County's investment activities as listed in § 56-4 of this policy, the majority of the investments of the County will be on a short-term basis. However, a portion of the portfolio can contain investments with longer maturities (up to five years) without jeopardizing adequate safety and liquidity standards of the portfolio and at the same time increasing the overall yield of the portfolio. The investments in long-term maturities will be limited to direct federal government obligations and to securities issued by United States government agencies. The length of maturity of the security will not exceed five years from the time of the County's purchase.
[Amended 11-13-2012 by Ord. No. 2012-12]
(2)
The maximum level of long-term investments in the portfolio is determined
by the following method: The Director of Finance will perform an analysis
of the investment portfolio for the last three years to determine
the investment balance low point for each of those years. An average
low balance amount will then be computed for the three-year period.
The maximum level of long-term investments will be set at 30% of this
average. A low balance average will be performed at the end of each
fiscal year. If the amount of long-term investments exceeds the thirty-percent
maximum, then no new investments can be purchased in the ensuing fiscal
year.
A.
Collateralization will be required on two types of investments: certificates
of deposit and repurchase (and reverse repurchase) agreements. In
order to anticipate market changes and provide a level of security
of all funds, the collateralization level will be at least 102% of
the market value of principal and accrued interest.
B.
Collateral will be held by an independent third party with whom the
County has a current custodial agreement.
C.
Acceptable collateral is specified under § 6-202 of the
State Finance and Procurement Article of the Annotated Code of Maryland.
However, the third party trust custodian who holds the collateral
has the right to reject otherwise acceptable collateral based on its
discretion concerning market conditions.
D.
The right of collateral substitutions is granted, and all associated
costs will be paid by the seller (financial institution).
All security transactions, including collateral for repurchase
agreements, entered into by the County shall be conducted on a delivery-versus-payment
(DVP) basis. Securities will be held by a third-party custodian designated
by the Director of Finance. All repurchase agreements will be governed
by a master repurchase agreement (public securities associations,
as amended) signed by the appropriate officials of the County and
the primary government dealer.
The Director of Finance is responsible for establishing and
maintaining an internal control structure designed to ensure that
the invested assets of the entity are protected from loss, theft or
misuse. The internal control structure shall be designed to provide
reasonable assurance that these objectives are being met, while recognizing
that the cost of a control should not exceed the benefits likely to
be derived; and the valuation of costs and benefits requires estimates
and judgments by management. Accordingly, the Director of Finance
shall establish a process for annual independent review by an external
auditor to assure compliance with policies and procedures. The internal
controls shall address the following points:
A.
Control of collusion. Collusion is a situation where two or more
employees are working in conjunction to defraud their employer.
B.
Separation of transaction authority from accounting and recordkeeping.
By separating the person who authorizes or performs the transaction
from the people who record or otherwise account for the transaction,
a separation of duties is achieved.
C.
Custodial safekeeping. Securities purchased from any bank or dealer,
including appropriate collateral (as defined by state law), shall
be placed with an independent third party for custodial safekeeping.
D.
Avoidance of physical delivery securities. Book entry securities
are much easier to transfer and account for since actual delivery
of a document never takes place. Delivered securities must be properly
safeguarded against loss or destruction. The potential for fraud and
loss increases with physical delivery securities.
E.
Clear delegation of authority to subordinate staff members. Subordinate
staff members must have a clear understanding of their authority and
responsibilities to avoid improper actions. Clear delegation of authority
also preserves the internal control structure that is contingent on
the various staff positions and their respective responsibilities.
F.
Written confirmation of telephone transactions for investments and
wire transfers. Due to the potential for error and improprieties arising
from telephone transactions, all telephone transactions should be
supported by written communications and approved by the appropriate
person. Written communications may be via fax if on letterhead and
the safekeeping institution has a list of authorized signatures.
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. Portfolio performance will be compared to
appropriate benchmarks on a regular basis.
The Director of Finance shall generate monthly reports for inclusion
in the monthly Director of Finance's cash report. The investment
reports will include data on investment instruments being held, performance
and interest earnings.
The County's investment policy shall be adopted by resolution
of the Cecil County Council. The policy shall be reviewed annually
by the Director of Finance, and any modifications made thereto must
be approved by the Cecil County Council.
