[HISTORY: Adopted by the Mayor and City Council of the City
of Maroa 7-27-2020 by Ord. No.
2020/07/27. Amendments noted where applicable.]
This policy applies to the investment of short-term operating
funds. Longer-term funds, including investments of employees'
investment retirement funds and proceeds from certain bond issues,
are covered by a separate policy.
Except for cash in certain restricted and special funds, the
City of Maroa will consolidate cash balances from all funds 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.
The primary objectives, in priority order, of investment activities
shall be safety, liquidity and yield:
A.Â
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.
(1)Â
Credit risk. The City of Maroa will minimize credit risk, the risk
of loss due to the failure of the security issuer or backer, by:
(a)Â
Limiting investments to the safest types of securities.
(b)Â
Prequalifying the financial institutions, broker/dealers, intermediaries
and advisers with which the City of Maroa will do business.
(c)Â
Diversifying the investment portfolio so that potential losses
on individual securities will be minimized.
(2)Â
Interest rate risk. The City of Maroa will minimize the risk that
the market value of securities in the portfolio will fall due to changes
in general interest rates by:
(a)Â
Structuring the investment portfolio so that securities mature
to meet cash requirements for ongoing operations, thereby avoiding
the need to sell securities on the open market prior to maturity.
(b)Â
Investing operating funds primarily in shorter-term securities,
money market mutual funds or similar investment pools.
B.Â
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 money market mutual funds or
local government investment pools which offer same-day liquidity for
short-term funds.
C.Â
Yield. The investment portfolio shall be designed with the objective
of attaining a market rate of return throughout budgetary and economic
cycles, considering 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 shall
not be sold prior to maturity, with the following exceptions:
A.Â
Prudence.
(1)Â
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 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.
(2)Â
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.Â
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 whom business is conducted
on behalf of the City.
C.Â
Delegation of authority. Authority to manage the investment program
is granted to City Treasurer, hereinafter referred to as the "investment
officer," and derived from the following: statute: 65 ILCS 5/3.1-35-50.
Responsibility for the operation of the investment program is hereby
delegated to the investment officer, who shall act in accordance with
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 versus
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.
A.Â
Authorized financial dealers and institutions.
(1)Â
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 creditworthiness.
These may include "primary" dealers or regional dealers that qualify
under Securities and Exchange Commission (SEC) Rule 15C3-1 (uniform
net capital rule).
(2)Â
All financial institutions and broker/dealers who desire to become
qualified for investment transactions must supply the following, as
appropriate:
(a)Â
Audited financial statements.
(b)Â
Proof of National Association of Securities Dealers (NASD) certification.
(c)Â
Proof of state registration.
(d)Â
Completed broker/dealer questionnaire.
(e)Â
Certification of having read and understood and agreeing to
comply with the City of Maroa's investment policy.
(3)Â
An annual review of the financial condition and registration of qualified financial institutions and broker/dealers will be conducted by the investment officer. From time to time, the investment officer may choose to invest in instruments offered by minority and community financial institutions. In such situations, a waiver to the criteria under Subsection A(2) may be granted. All terms and relationships will be fully disclosed prior to purchase and will be reported to the appropriate entity on a consistent basis and should be consistent with state or local law. These types of investment purchases should be approved by the appropriate legislative or governing body in advance.
B.Â
Internal controls.
(1)Â
The investment officer is responsible for establishing and maintaining
an internal control structure designed to ensure that the assets of
the City of Maroa are protected from loss, theft or misuse. The internal
control structure shall be designed to provide reasonable assurance
that these objectives are met. The concept of reasonable assurance
recognizes that:
(2)Â
Accordingly, the investment officer shall establish a process for
an annual independent review by an external auditor to assure compliance
with policies and procedures. The internal controls shall address
the following points:
(a)Â
Control of collusion.
(b)Â
Separation of transaction authority from accounting and recordkeeping.
(c)Â
Custodial safekeeping.
(d)Â
Avoidance of physical delivery securities.
(e)Â
Clear delegation of authority to subordinate staff members.
(f)Â
Written confirmation of transactions for investments and wire
transfers.
(g)Â
Development of a wire transfer agreement with the lead bank
and third-party custodian.
C.Â
Delivery versus payment. All trades, where applicable, will be executed
by delivery versus payment (DVP) to ensure that securities are deposited
in an eligible financial institution prior to the release of funds.
Securities will be held by a third-party custodian as evidenced by
safekeeping receipts.
A.Â
Investment types.
(1)Â
Consistent with the GFOA Policy Statement on State and Local Laws
Concerning Investment Practices, the following investments will be
permitted by this policy and are those defined by state and local
law, where applicable:
(a)Â
U.S. government obligations, U.S. government agency obligations
and U.S. government instrumentality obligations, which have a liquid
market with a readily determinable market value;
(b)Â
Canadian government obligations (payable in local currency);
(c)Â
Certificates of deposit and other evidences of deposit at financial
institutions, bankers' acceptances and commercial paper, rated
in the highest tier (e.g., A-1, P-1, F-1 or D-1 or higher) by a nationally
recognized rating agency;
(d)Â
Investment-grade obligations of state, provincial and local
governments and public authorities;
(e)Â
Repurchase agreements whose underlying purchased securities
consist of the foregoing;
(f)Â
Money market mutual funds regulated by the Securities and Exchange
Commission and whose portfolios consist only of dollar-denominated
securities; and
(g)Â
Local government investment pools, either state-administered
or through joint powers statutes and other intergovernmental agreement
legislation.
(2)Â
Investment in derivatives of the above instruments shall require
authorization by the appropriate governing authority. (See the GFOA
Recommended Practice on Use of Derivatives by State and Local Governments,
1994.)
B.Â
Collateralization. Where allowed by state law and in accordance with
the GFOA Recommended Practices on the Collateralization of Public
Deposits, full collateralization will be required on nonnegotiable
certificates of deposit. (See GFOA Recommended Practices, Appendix
3.)
C.Â
Repurchase agreements. Repurchase agreements shall be consistent
with GFOA Recommended Practices on Repurchase Agreements. (See GFOA
Recommended Practices, Appendix 3.)
A.Â
Diversification. The investments shall be diversified by:
(1)Â
Limiting investments to avoid overconcentration in securities from
a specific issuer or business sector (excluding U.S. Treasury securities);
(2)Â
Limiting investment in securities that have higher credit risks;
(3)Â
Investing in securities with varying maturities; and
(4)Â
Continuously investing a portion of the portfolio in readily available
funds such as local government investment pools (LGIPs), money market
funds or overnight repurchase agreements to ensure that appropriate
liquidity is maintained in order to meet ongoing obligations. (See
the GFOA Recommended Practice on Diversification of Investments in
a Portfolio in Appendix 3.)
B.Â
Maximum maturities.
(1)Â
To the extent possible, the City of Maroa shall attempt to match
its investments with anticipated cash flow requirements. Unless matched
to a specific cash flow, the City of Maroa will not directly invest
in securities maturing more than five years from the date of purchase
or in accordance with state and local statutes and ordinances. The
City of Maroa shall adopt weighted average maturity limitations (which
often range from 90 days to three years), consistent with the investment
objectives.
(2)Â
Reserve funds and other funds with longer-term investment horizons
may be invested in securities exceeding five years if the maturity
of such investments is made to coincide as nearly as practicable with
the expected use of funds. The intent to invest in securities with
longer maturities shall be disclosed in writing to the legislative
body. (See the GFOA Recommended Practice on Maturities of Investments
in a Portfolio in Appendix 3.)
(3)Â
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 LGIPs, money market funds or overnight
repurchase agreements to ensure that appropriate liquidity is maintained
to meet ongoing obligations.
A.Â
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 which will allow the City of Maroa to ascertain whether
investment activities during the reporting period have conformed to
the investment policy. The report should be provided to the investment
officer, the legislative body and any pool participants. The report
will include the following:
(1)Â
Listing of individual securities held at the end of the reporting
period.
(2)Â
Realized and unrealized gains or losses resulting from appreciation
or depreciation by listing the cost and market value of securities
over one-year duration that are not intended to be held until maturity
[in accordance with Governmental Accounting Standards Board (GASB)
requirements].
(3)Â
Average weighted yield to maturity of portfolio on investments as
compared to applicable benchmarks.
(4)Â
Listing of investment by maturity date.
(5)Â
Percentage of the total portfolio which each type of investment represents.
B.Â
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.Â
Marking to market. The market value of the portfolio shall be calculated
at least quarterly and a statement of the market value of the portfolio
shall be issued at least quarterly. This will ensure that review of
the investment portfolio, in terms of value and price volatility,
has been performed consistent with the GFOA Recommended Practice on
Mark-to-Market Practices for State and Local Government Investment
Portfolios and Investment Pools. (See GFOA Recommended Practices,
Appendix 3.) In defining market value, considerations should be given
to the GASB Statement 31 pronouncement.
A.Â
Exemption. Any investment currently held that does not meet the guidelines
of this policy shall be exempted from the requirements of this policy.
At maturity or liquidation, such monies shall be reinvested only as
provided by this policy.
B.Â
Amendments. This policy shall be reviewed on an annual basis. Any
changes must be approved by the investment officer and any other appropriate
authority, as well as the individual(s) charged with maintaining internal
controls.