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