[R.O. 2013 § 135.150; Ord. No.
08-2-08 § 1, 2-19-2008]
A.
This
policy applies to the investment of short-term operating funds, longer-term
funds and proceeds from bond issues.
B.
Pooling
Of Funds. The City of Lawson, 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.
[R.O. 2013 § 135.160; Ord. No.
08-2-08 § 1, 2-19-2008]
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 cores 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:
[R.O. 2013 § 135.170; Ord. No.
08-2-08 § 1, 2-19-2008]
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
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.
[R.O. 2013 § 135.180; Ord. No.
08-2-08 § 1, 2-19-2008]
A.
Authorized Financial Dealers And Institutions.
1.
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.
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 135-1 (uniform net capital rule).
2.
All financial institutions and broker/dealers who desire to
become qualified for investment transactions must supply the following,
as appropriate:
a.
Audited financial statements.
b.
Proof of National Association of Securities Dealers (NASD) certification.
c.
Proof of State registration.
d.
Completed broker/dealer questionnaire.
e.
Certification of having read and understood and agreeing to
comply with the City's cash management and investment policy.
3.
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 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.
B.
Internal Controls.
1.
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: (a) the cost of control should not exceed the benefits likely
to be derived; and (b) the valuation of costs and benefits require
estimates and judgments by management.
2.
The internal controls shall address the following points:
a.
Control of collusion.
b.
Separation of transaction authority from accounting and recordkeeping.
c.
Custodial safekeeping.
d.
Avoidance of physical delivery securities.
e.
Clear delegation of authority to subordinate staff members.
f.
Written confirmation of transactions for investments and wire
transfers.
g.
Development of a wire-transfer agreement with the lead bank
and third-party custodian.
C.
Delivery Versus Payment. All trades where applicable will be executed
by delivery versus 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.
[R.O. 2013 § 135.190; Ord. No.
08-2-08 § 1, 2-19-2008]
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.
a.
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.
b.
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 back 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. Government agency coupon and zero coupon securities. Bullet
coupon bonds with no embedded options.
2.
U.S. Government agency discount notes. Purchased at a discount
with maximum maturities of one (1) year.
3.
U.S. Government agency callable securities. Restricted to securities
callable at par only with final maturities of three (3) years.
4.
U.S. Government agency setup 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. Government agency floating rate securities. The coupon
rate floats off one (1) index. Restricted to coupons with no interim
caps that reset at least quarterly.
6.
U.S. Government 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, which is on file in the City offices. 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 safe kept 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
Fed wire 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-versus-payment basis.
[R.O. 2013 § 135.200; Ord. No.
08-2-08 § 1, 2-19-2008]
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: one hundred percent (100%).
2.
Collateralized time and demand deposits: one hundred percent
(100%).
3.
U.S. Government agencies and government sponsored enterprises.
No more than fifty percent (50%).
4.
Collateralized repurchase agreements: thirty percent (30%).
5.
U.S. Government agency callable securities. No more than thirty
percent (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.
[R.O. 2013 § 135.210; Ord. No.
08-2-08 § 1, 2-19-2008]
A.
Methods.
1.
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.
2.
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 bench
marks 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-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 bench marks. 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.
[R.O. 2013 § 135.220; Ord. No.
08-2-08 § 1, 2-19-2008]
A.
Exemption.
1.
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.
From time to time, the Investment Officer may choose to invest
in legally permissible securities that 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 Finance Committee shall review
the policy annually 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.
[R.O. 2013 § 135.230; Ord. No.
08-2-08 § 1, 2-19-2008]
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 canceled
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.
