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HomeMy WebLinkAbout2003-11-20 Council MinutesCouncil Agenda Item #6(a) To. Gene Kiviaho Reeve Hoppms Members of Council From. Terry Nash Date November 20, 2003 Issue Investment Policy Purpose To ensure the funds of Kneehill County are invested and secured in compliance with the various provisions of the Municipal Government Act Background The Draft Policy has been reviewed by Bob Klotz — Senior Relationship Manager and Mike Drotar — Corporate Treasurer, Community Savings and Kneehill County Auditor, Al Martino of BDO Dunwoody Discussion Under this policy Funds of the County may be invested in any of the securities authorized by Section 250 (2) (a) to (d) Municipal Government Act with a minimum (DBRS) Dominion Bond Rating Service of R 1 or AAA Financial institutions can be held accountable should they invest beyond the scope of this policy as long as this is a condition provided to them in writing when granting authorization to conduct transactions on behalf of Kneelull County Recommendation That Council approve the investment policy the ipal Government Act Terry ash Cl Assistant CAO which has been prepared in accordance with aLGene �iviaho, CAO Page 18 INVESTMENT POLICY This Investment Policy is adopted by Kneehill County pursuant to Section 250 (2) of the Municipal Government Act. PURPOSE This Policy with respect to Kneehill County investments has been adopted to establish policies and procedures that enhance opportunities for a prudent and systematic investment of Kneehill County funds The initial step toward a prudent investment policy is to organize and formalize investment -related activities Related activities, which comprise good cash management include accurate cash projection, the expeditious collection of revenue, the control of disbursements, cost-effective banking relations, and a short term borrowing program which coordinates working capital requirements and investment opportunity In concert with these requirements are the many facets of an appropriate and secure short-term investment program The funds of Kneehill County shall be invested and secured in compliance with the various provisions of the Municipal Government Act. This Policy will also specify the scope of authority of the County Designee who is responsible for the investment of Kneehill County funds SCOPE It is intended that this policy cover all County funds and funds under the direct control of Kneehill County INVESTMENT OFFICER Council hereby appoints the Chief Administrative Officer/Designate to serve as Investment Officer to handle the investment of County funds The Investment Officer shall be responsible for investing County funds in accordance with this Policy The Investment Officer shall invest County funds using the judgment and care, under circumstances then prevailing, that 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 standard of prudence to be used by the Investment Officer shall be the "prudent person," and shall be applied in the context of managing an overall portfolio The Investment Officer (1) acting in accordance with this Policy and any written procedures approved by Council and (2) exercising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided that deviations from expectation are reported in a timely fashion and appropriate action is taken to control adverse developments Disclosures of Relationships with Persons Selling Investments to the Count An investment officer of an entity who has a personal or business relationship with an entity seeking to sell an investment to the entity shall file a statement disclosing that personal business interest An investment officer who is related within the second degree by affinity or consanguinity, to an individual seeking to sell an investment to the investment officer's entity shall file a statement disclosing that relationship Page 19 Reporting by the Investment Officer Not less than each Fiscal Quarter and within a reasonable time after the end of the period reported, the Investment Officer shall prepare and submit to Council a written report of the investment transactions for all funds of the County for the preceding reporting period. The reports must (1) describe in detail the investment position of the County on the date of the reports, (2) state the book value and the market value of each separately invested asset at the beginning and end of the reporting period by the type of asset and fund type invested, (3) state the maturity date of each separately invested asset that has a maturity date (4) state the fund for which each individual investment was acquired, and (5) exceptions to the policy Selection of Bank and Securities Dealers Depositories seeking to establish eligibility for certificate of deposit purchase programs shall be selected through the County's depository procurement process, which shall begin with a formal request for proposals every three years All financial institutions and broker/dealers who desire to become qualified bidders for investment transactions must supply the Office of Corporate Services with the following (1) Audited financial statements for the financial institution or broker/dealer (2) Evidence of appropriate registration. For Bank Dealers this requires a statement from a senior bank official that the Bank Dealer is appropriately registered with its primary regulatory agency as a government securities dealer municipal securities dealer, or both. All transactions will be on a delivery versus payment basis Certifications from Approved Sellers of Investments The Investment Officer shall present this Policy to any person seeking to sell to the County an Authorized Investment and to obtain from a principal wntten confirmation of their intention to adhere to the County's investment policy prior to executing any transaction Objectives INVESTMENT OBJECTIVES The County's general objectives in investing its funds listed in the order of importance, are a. preservation and safety of principal, b understanding of the suitability of the investment to the financial requirements of the County, c liquidity, d marketability of the investment if the need arises to liquidate the investment before maturity, e diversification of the investment portfolio and f yield. 2 Safety of principal is the foremost objective of the County Page 20 3 Investment decisions should favor stability of principal over income 4 The County's investment portfolio shall be structured so as to be sufficiently liquid to enable the County to meet all operating requirements which might be reasonably anticipated This need for investment liquidity may be tempered to the extent that the County is allowed to borrow under a short term basis to meet its operating requirements if needed, taking into consideration the net cost to the County 5 Investments shall be made to avoid incurring unreasonable and avoidable risks regarding specific security types or individual financial institutions 6 No investments shall be made for the purpose of trading or speculation such as anticipating an appreciation of capital through changes in market interest rates 7 The Investment Officer shall seek in the investment process to act responsibly as a custodian of the public trust The Investment Officer shall avoid any transaction that might impair public confidence in the County's ability to operate effectively The Investment Officer shall recognize that the investment portfolio is subject to public review and evaluation. The overall program of managing the County's funds shall be designed and managed with a degree of professionalism that is worthy of public trust. The County, as a general objective, plans to hold investments to maturity while protecting principal and obtaining the highest rate of return possible at the date of investment It is not the intent to devote substantial efforts to earn profit on investment market fluctuations Investments will be purchased because of their interest yield expectations over their remaining life rather than for speculative purposes 9 Investments will be primarily fixed income securities and generally held to maturity Investments can be sold prior to maturity as long as it can be demonstrated to be in the best interests of the County Investments will not be sold based on projected interest rate movements 10 Pooling of fund groups for the purposes of investment is approved and allowed Authorized Investment Instruments Funds of the County may be invested in any of the securities authorized by Section 250(2) (a) to (d), Municipal Government Act with a minimum (DBRS) Dominion Bond Rating Service of R 1 or AAA Page 21 • El Internal Accounting Controls The Investment Officer, shall prepare a system of internal accounting controls which shall be documented in writing The controls shall be designed to prevent losses of public funds ansing from fraud, employee error, misrepresentation by third parties, unanticipated changes in financial markets, or imprudent actions by employees and officials of the County Controls deemed most important include control of collusion, segregation of duties, segregation of transaction authority from accounting and record keeping custodial safekeeping, avoidance of bearer form securities, clear delegation of authority, specific limitations regarding securities losses and remedial action, approved written confirmation of telephone transactions documentation of transactions and strategies and code of ethics standards Investments will be valued and accounted for according to Generally Accepted Accounting Principles Matunty County funds, except funds accumulated for debt service, Road renewal and replacement, and operating contingency shall be invested only in investments whose maturities do not exceed three years at the time of purchase Debt service funds may be invested for a period not to exceed two years Capital funds may be invested for a period not to exceed three years Road Renewal and Replacement Funds and Contingency Funds may be invested for a period not to exceed five years In addition, the weighted average maturity of the overall portfolio, excluding those investments held for future mayor capital expenditures (construction funds), debt service, and Road renewal and replacement shall not exceed two years Diversification It is the policy of the County to diversify its investment portfolio All funds shall be diversified to eliminate the risk of loss resulting from over concentration of assets in a specific maturity, a specific issuer or a specific class of securities In establishing specific diversification strategies, the following general policies and constraints shall apply I Portfolio maturities shall be staggered in a way that avoids undue concentration of assets in a specific maturity sector Maturities shall be selected which provide for stability of income and reasonable liquidity 2 Liquidity shall be maintained through practices that ensure that the liquidity needs of the next disbursement date and payroll date are covered through maturing investments or marketable securities 3 Risks of market price volatility shall be limited through maturity diversification 4 The following diversification limitations shall be unposed on the portfolio a. Maturity No more than 25% of the portfolio, excluding those investments held for future mayor capital expenditures, debt service payments may be invested beyond twenty four (24) months, and the average Page 22 • 0 maturity of the overall portfolio, with the previous exception, shall not exceed two years b Risk Default Stringent restrictions on legally authorized investments and the legal requirements for full collateralization severely reduce the potential of default risk. Nonetheless, no more than 50% of the overall portfolio may be invested in time deposits, including certificates of deposit, of a single issuer unless 100% guaranteed c Marketability At least 15% of the portfolio excluding those investments held for future mayor capital expenditures, and debt service payments shall be invested in overnight instruments or in marketable securities, which can be sold to raise cash within one day's notice Risk Tolerance The County recognizes that investment risks can result from issuer defaults, market price changes or various technical complications leading to temporary liquidity Portfolio diversification is employed as a way to control risk The Investment Officer is expected to display prudence in the selection of securities as a way to minimize default risk. No individual investment transaction shall be undertaken which jeopardizes the total capital position of the overall portfolio In addition to these general policy considerations, the following specific policies will be strictly observed 1 All investment funds will be placed directly with qualified financial institutions 2 All transactions will be settled on delivery versus payment basis 3 The County will not enter into reverse repurchase agreements or trade in options or future contract 4 A competitive bid process will be used to place government security purchases or sales Based on an annual evaluation, banks and securities dealers will be dropped from or continued on the eligibility list. The following criteria will be used in the annual evaluation a. number of transactions competitively won, b prompt and accurate confirmation of transactions, C efficient securities delivery, d accurate market information, e account servicing, f moral character and public ethics of both broker and firm. g trading history Safekeeping and Custody To protect against potential fraud and embezzlement, the financial assets of the County shall be secured through safekeeping procedures County employees shall be bonded to protect the public against possible embezzlement and malfeasance Page 23 Policy of Securiniz Deposits of County Funds Applicable to all Deposited County Funds 1 Only Alberta Credit Unions are insured by the Province of Alberta. for 100% of its member s deposits The County recogruzes that CDIC (or its successor) insurance is available for County funds deposited at any other Financial Institution (including branch banks) only up to a maximum of $60,000 (including accrued interest) for each of the following (i) demand deposits, (ii) time and savings deposits, and (iii) deposits made pursuant to an indenture or pursuant to law in order to pay bondholders or noteholders It is the policy of the County that all deposited funds in each of the County's accounts shall be insured by the CDIC, or its successor unless 100% guaranteed by the Province 2 Certificates of deposit, to the extent that they are not insured, may be secured by any securities allowed under the Investment Act and depository contract 3 Demand deposits (for example, checking accounts) and savings accounts, to the extent that they are not insured, may be secured by any securities allowed under the Collateral Act. Investment Polic Review The Investment Policy shall be formally reviewed and approved by Council when amendments are made or at least annually INVESTMENT STRATEGIES FOR FUNDS General Fund Group The County's operating expenditures and the revenues to fund those expenditures are accounted for in the County's general fund The general fund is also used to account for revenues restricted by statute for debt service funds and to account for the accumulation of resources for public improvement contingencies Most of the general fund is pooled with other County funds for investment purposes The amount restricted for the Contingency Fund is invested in the County's pooled investments The debt service funds included within the general fund classification are not pooled with other County funds for investment purposes and should be invested in compliance with the strategies for Debt Service Funds Short term borrowing may be necessary during the fiscal year for the general fund operating expenditures to cover negative cash positions until ad valorem tax receipts are received The average duration of the investments relating to the general fund operating activity is to be one year or less Debt Service Funds The debt service funds, including those reported in the County's financial reports within the general fund, are used to account for the accumulation of resources to fund periodic principal and interest payments on outstanding obligations The revenue stream is predictable and the majority comes from ad valorem tax and special purpose revenues The average duration is nine months or less for these funds Most of these debt service funds are not pooled with other funds for investment purposes Page 24 C is 0 Canrtal Project Funds Capital project funds for the County are used to account for construction and other nonrecurring capital expenditure activity Investment of most of these funds results in a maximum duration of three years for the investments Propnety Funds The County's Road project is also accounted for as a proprietary type fund with investments restricted by a trust indenture executed in connection with the financing of the project The duration of the investments is generally three years or less, with the exception of the bond reserve and Road renewal and replacement funds which are invested with an average duration of five years or less Page 25