[R.O. 2012 §110.130; Ord. No. 3361 §2, 4-14-2008]
A.
Purpose. Effective cash flow management and cash investment
practices are recognized as essential to good fiscal management. This
statement is intended to provide guidelines for the prudent investment
of the City's temporarily idle cash in all funds and outline the policies
for maximizing the efficiency of the City's cash management system.
B.
Scope. This policy applies to the investment of all operating
funds of the City of Union. Long-term funds for the employee's retirement
fund and proceeds from bond issues are covered by those contractual
agreements rather than this policy.
Except for cash in certain restricted and special funds, the
City of Union will consolidate cash balances from all funds to maximize
investment earnings. Investment income will be recognized in the General
Fund unless legal or grant requirements provide otherwise.
C.
Objective. The objective of the investment policy is to
provide guidelines for insuring the safety of funds invested while
maximizing investment interest income to the City.
The three (3) principle factors of safety, liquidity and yield
are to be taken into consideration, in the specific order listed,
when making investment decisions.
1.
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", defined as the risk of loss due to
failure of the issuer of a security, shall be mitigated by only investing
in very safe or "investment grade" securities and diversifying where
feasible.
b.
"Investment rate risk", defined as market value
fluctuations due to overall changes in interest rates. 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:
2.
"Liquidity" refers to the ability to convert an
investment to cash promptly with minimum risk of losing some portion
of principal or interest. The investment portfolio shall remain sufficiently
liquid to meet all operating requirements that may be reasonably anticipated.
This is accommodated 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 repurchase
agreements or overnight investments that offer same-day liquidity
for short-term funds.
3.
"Yield" is the average annual return on a investment
based on the interest rate, price and length of time to maturity.
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
is 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:
D.
Standards Of Care.
1.
Prudency. The standard of prudency 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
liability for an individual security's credit risk or market price
changes, provided deviations from expectations are reported in a timely
fashion to the Governing Body 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.
2.
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 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.
3.
Delegation of authority. Responsibility for the
investment program is hereby delegated to the Finance Officer who
shall act in accordance with established procedures and internal controls
for the operation of the investment program consistent with this investment
policy. Procedures 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 City. The Finance
Officer shall be responsible for all transactions undertaken and shall
establish a system of controls to regulate the activities of subordinate
officials.
E.
Investment Transactions.
1.
Authorized financial dealers and institutions. Financial
dealers and institutions, including security broker/dealers, must
be credit worthy. Security broker/dealers may include "primary" dealers
or regional dealers that qualify under 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 following
as appropriate:
a.
Current audited financial statements.
b.
Proof of National Association of Securities Dealers (NASD) certification.
c.
Proof of Missouri State registration.
d.
Certification of having read and understood and agreeing to comply
with City's investment policy.
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A periodic review of the financial condition and registration
of qualified financial institutions and broker/dealers will be conducted
by the Finance Officer.
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2.
Internal controls. The Finance Officer is responsible
for establishing and maintaining an internal control structure designed
to ensure that the assets of the City 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:
a.
The cost of a control should not exceed the benefits likely to be
derived, and
b.
The valuation of costs and benefits requires estimates and judgments
by management.
Accordingly, the Finance 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:
(1)
Control of collusion.
(2)
Separation of transaction authority from accounting and recordkeeping.
(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.
3.
Safekeeping and custody. 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 or for the
account of the City of Union and shall be held by a third (3rd) party
custodian as evidenced by safekeeping receipts.
F.
Authorized And Suitable Investments.
1.
Investment types. The following investments will
be permitted by this policy and pursuant of Missouri Statutes governing
permissible investments by political subdivisions:
a.
U.S. government obligations, U.S. government agency obligations;
and
b.
U.S. government instrumentality obligations, which have a liquid
market with a readily determinable market value;
c.
Certificates of deposit and other evidences of deposit at financial
institutions;
d.
Repurchase agreements whose underlying purchased securities consist
of the foregoing;
e.
Money market mutual funds regulated by the Securities and Exchange
Commission and whose portfolios consist only of dollar-denominated
securities; and
f.
Local government investment pools, either State-administered or through
joint powers Statutes and other intergovernmental agreement legislation.
2.
Collateralization. Collateralization will be required
on two (2) types of investments: certificates of deposit and repurchase
agreements. The market value (including accrued interest) of the collateral
should be at least one hundred percent (100%).
For certificates of deposit, the market value of collateral
must be at least one hundred percent (100%) or greater of the amount
of certificates of deposit plus 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.
Eligible collateral for certificates of deposit shall be limited
to securities which would otherwise be qualified for purchase under
this policy and which are on the State of Missouri Office of the State
Treasurer's list of Acceptable Collateral for Time Deposits. Eligible
collateral for repurchase agreements shall be limited to securities
which would otherwise be qualified for purchase under this policy
and which are on the State of Missouri Office of the State Treasurer's
list of Acceptable Collateral for Repurchase Agreements.
All securities, which serve as collateral, shall be held by
a third (3rd) party custodian as evidenced by safekeeping receipts.
3.
Repurchase agreements. The securities for which
repurchase agreements will be transacted will be limited to U.S. Treasury
and government agency securities that are eligible to be delivered
via the Federal Reserve's Fedwire book entry system.
G.
Investment Parameters.
1.
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
reviewed.
2.
Maximum maturities. The City will attempt to match
its investments with anticipated cash flow requirements. Because of
inherent difficulties in accurately forecasting cash flow requirements,
a portion of the portfolio will be continuously invested in readily
available funds such as overnight repurchase agreements to ensure
that appropriate liquidity is maintained to meet ongoing obligations.
Maintaining funds in liquid time investments will allow the City of
Union to meet unexpected cash flow needs.
H.
Reporting.
1.
Methods. The Finance Officer shall prepare an investment
report at least semi-annual including a management summary that provides
an analysis of the current investment portfolio and transactions made
over the six (6) months. This management summary will be prepared
in a manner which will allow the City to ascertain whether investment
activities during the reporting period have conformed to the investment
policy. The report will include the following:
2.
Performance standards. The investments portfolio
will be managed in accordance with the parameters specified within
this policy. Accordingly, performance should be measured to each primary
objective in accordance to their priority.
I.
Policy Considerations.
1.
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.
2.
Adoption. This policy shall be adopted by ordinance
by the City's Mayor and Board of Aldermen. The policy shall be reviewed
as necessary. Any changes must be approved by the Mayor and Board
of Aldermen.
