[HISTORY: Adopted by the Board of County Commissioners (now County Council) of Cecil County 10-5-1999. Amendments noted where applicable.]
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.
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:
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:
An obligation for which the United States has pledged its faith and credit for the payment of the principal and interest;
An obligation that a federal agency or a federal instrumentality has issued in accordance with an act of Congress;
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;
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;
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;
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;
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;
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
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]
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:
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.
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:
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]
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.
Liquidity. The County's investment portfolio will remain sufficiently liquid to enable the County to meet all operating requirements which might be reasonably anticipated.
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.
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.
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:
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.
Procedures should include reference to safekeeping, repurchase agreements, wire transfer agreements, delivery versus payment, investment accounting, collateral depository agreements and banking service agreements.
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.
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:
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.
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.
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.
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.
The County is also authorized to invest in the Maryland Local Government Investment Pool.
All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Director of Finance with the following:
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.
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.
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.
Diversification of maturities.
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]
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.
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.
Collateral will be held by an independent third party with whom the County has a current custodial agreement.
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.
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:
Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer.
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.
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.
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.
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.
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.