TO: Mayor and Council Me~m FROM: Margaret Krym, City Au ... · Dolores Menendez, City Attorney...

FLORIDA

CITY AUDITOR'S OFFICE

TO: Mayor and Council Me~m FROM: Margaret Krym, City Au DATE: January 3, 2012 SUBJECT: Investments Audit Follow-up Review Procedures - Final Memorandum

In August of 2011, we engaged Telluric Current Consulting to complete a Follow Up review of the 9 recommendations made in the Investment Audit Report issued in September 2010. Jay Johnston, the Principal of Telluric Current Consulting was the auditor who performed the original audit on the City's investment policies and procedures.

In the attached report, you will find the following: • Telluric Current Consulting - Transmittal Memorandum

• The Investments Audit Follow-Up Review Procedures Report - Executive Summary and Full Report

o The updated Cash Flow Analysis as of September 30, 2010 prepared by the PFM Group.

o The City of Cape Coral Internal Controls and Operational Procedures Manual for Investments; September 1, 2011.

o The Cape Coral Investment Policy approved on August 8, 2011.

o The June 30, 2011 Quarterly Investment Report Executive Summary prepared by The PFM Group.

o The City of Cape Coral Investment Performance Review - Quarter Ending June 30, 2011.

o Email communication between Jay Johnston and the Financial Services Director.

We are grateful for the assistance of the Financial Services Department Staff in completing this review work. We are also grateful for the support of the City Manager and the Financial Services Director in pursuing the implementation of these recommendations.

If you should have any questions, we will be happy to respond.

C: Stephen Pohlman, Interim City Manager Dolores Menendez, City Attorney Rebecca van Deutekom, City Clerk Victoria Bateman, Financial Services Director Audit Committee

POBox 150027

815 Nicholas Pkwy.

Cape Coral, FL 33915-0027

Phone 239-242-3383 Fax 239-242-3384

TELLURIC CURRENT CONSULTING

[email protected] I 860 .803 .9030

City of Cape Coral

Investments Audit Follow-Up

January 3,2012

Xi-- -=

mailto:[email protected]

Telluric Current Consulting Bringing equilibrium to understanding and managing change...

Date: December 27,2011

To: Margaret Krym, City Auditor City of Cape Coral, FL

Re: Investments Audit Follow-Up Review Procedures

In September 2010, the City of Cape Coral reported on the results of an audit of the investment functions managed by the City and their Investment Advisor. Based on that report, nine (9) recommendations were identified for implementation by City staff in conjunction with their outside investment advisor.

A Follow-up Review Procedures engagement was conducted on the specific recommendations made within the original audit report. The objective of this engagement was to follow up on the status of implementation of the nine (9) agreed upon action items from the September 30,2010 Investment Audit Report, communicate the status of these nine (9) items and report on any potential unmitigated risks from any incomplete action items. Attached is the fmal report of the Investments Follow-Up Review conducted by Telluric Current Consulting.

I would like to thank the Office of the City Auditor, the City Manager and the Financial Services Department staff for their assistance in performing this review. I look forward to continuing to serve the interests ofthe residents of the City of Cape Coral in the future.

If there are further questions or concerns regarding this report, please feel free to contact me directly.

Regards,

Joseph "Jay" Johnston, Jr., Principal Telluric Current Consulting

Email: [email protected] Tel: (860) 803-9030 Website: www.telluriccurrent.com

http:www.telluriccurrent.commailto:[email protected]

City of Cape Coral

Office of the City Auditor

Investments Audit

Follow-Up Review Procedures Report

Date: December 27, 2011

Invesbnents Audit Follow-Up Review Procedures

Executive Summary

On September 30,2010 the City Auditor's Office released a report on the Investments Audit. That document reported on seven findings and made nine (9) recommendations. Management agreed to implement those recommendations.

In August, 2011, the City Auditor requested Internal Audit Services in the form of a Follow-Up Review Procedures engagement to determine the status of each of the nine (9) agreed upon action items.

Municipal investment act'ivities were governed by state statute (Flmida Statute Title XIV, Chapter 218), which provide a framework for management of the City of Cape Coral's cash and investments. The City of Cape Coral has also implemented its own Investment Policy. The City's Investment Policy applied to all cash and investments held or controlled by the City, with the exception of Pension Funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds.

The fundamental components identified as deficiencies in the original report were in place at the time of this review. This included the re-constituted Investments Advisory Committee, annual cash flow anal,ysis, monthly liquidity assessments and internal controls procedure manual.

As with the original audit there was insufficient documentation to independently verify all procedures were being communicated and followed with the requisite frequency and diligence to ensure proper investment decisions were being made. However, the increased revenue reported to City Council as a result of altering the investment approach (as recommended in the original audit) and assurances provided by Finance Department management suggests progress is being made.

The City has indicated it has accepted internal risks associated with these functions rather than internally financing or transferring them through traditional insurance mechanisms. Insufficient information was provided for this review to opine on the efficacy of the City's risk tolerance assessment.

Page 1 of 4

Full Report

On September 30, 2010 the City Auditor's Office released a report on the Investments Audit. That document reported on seven findings and made nine (9) recommendations. Management agreed to implement those recommendations as described in the attached Follow Up Action Grid.

In August, 2011, the City Auditor requested Internal Audit Services in the form of a Follow-Up Review Procedures engagement to determine the status of each of the nine (9) agreed upon action items.

The engagement objectives were to follow-up on the status of implementation of the nine (9) agreed upon action items from the September 30, 2010 Investment Audit Report, communicate the status of these nine (9) items and report on any potential unmitigated risks from any incomplete action items.

The methodology requested included a review of each recommendation and Management Agreed Upon action item, as well as, verification regarding the status of the implementation of each item and sufficient, reliable and relevant evidence to support a conclusion as to the status of each item.

Municipal investment activities were governed by state statute (Florida Statute Title XIV, Chapter 218), which provide a framework for management of the City of Cape Coral's cash and ,investments. The City of Cape Coral has also implemented its own Investment Policy. The City's Investment Policy applied to all cash and investments held or controlled by the City, with the exception of Pension Funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds.

Objective 1: Follow-up and communicate on the status of implementation of the nine (9) agreed upon action items from the September 30, 2010 Investment Audit Report.

1) Recommendation 1: Perform a monthly liquidity assessment, based on an annual cash flow analysis completed specifically for investment purposes.

The new Cash Flow Analysis prepared by PFM (the City's Investment Advisor) can be found under Tab Number 1 in this binder.

The new liquidity assessment worksheets for the months of June and July 2011 can be found under Tab Number 1 in this binder.

2) Recommendation 2: Establish a procedure to document both investment fund availability and disposition decisions based on the monthly assessment of liquidity needs.

Page 2 of 4

The new internal controls procedures manual, which establishes the procedure for documentation can be found under Tab Number 2 in this binder.

3) Recommendation 3: Diversify the management oversight control of the Investment Committee by expanding the membership to include one (1) member of the City Council and at least five (5) members from the City of Cape Coral residents. Additionally, create a charter for the Investment Committee to define its role and responsibilities regarding City investments.

The new Investment Committee charter can be found in the revised policy under Tab Number 3 in this binder.

4) Recommendation 4: Modify the Investment Committee and Council reports to adequately address all funds available for investment, including benchmarking those investments against other investors in the same markets.

The latest quarterly report from PFM (the investment advisor), containing the benchmark data for all funds available for investment can be found under Tab Number 4 in this binder.

5) Recommendation 5: Prepare a written procedures manual that can be used to guide employee's actions, train new employees and clearly define roles, responsibilities and control mechanisms for all cash and investments covered by the Investment Policy regardless of which organizational structure is handling the investments.

The new internal controls procedures manual can be found under Tab Number 2 in this binder.

6) Recommendation 6: Specifically include, in the annual contract with the external audit firm, the need to review and comment on the City's cash flow analysis, liquidity assessment process, benchmarking and written procedures regarding all investments (including those under the management control of the City staff and the Investment Advisor).

The RFP used to select the new auditing firm includes the above recommended change. Additionally, the new audit firm's (Larson Allen) acceptance letter agreed to the specifications set forth in the RFP.

Page 3 of 4

7) Recommendation 7a: Transfer all cash and investment funds (as defined by the Investment Policy) in excess of two (2) months expenses as funds available for investment to the Investment Advisor and Securities Custodian stmcture.

The new liquidity assessment worksheets (in Tab Number 1) identify the amounts above or below the two (2) month expense requirements identified above.

8) Recommendation 7b: Implement stronger controls for the remaining two (2) months expenses as funds available for investment being managed by City staff.

The new internal controls procedures manual, which establishes stronger controls can be found under Tab Number 2 in this binder.

9) Recommendation 7c: Adjust the level of liability protection commensurate with the exposure and City's risk tolerance level, in anticipation of the above changes being implemented.

A statement from the Financial Services Director stating this situation was discussed with the City's Risk Manager and the City decided to accept the risk can be found under Tab Number 5 in this binder.

Objective 2: Report on any potential unmitigated risks from any incomplete action items.

The documentation suggests the recommendation to transfer all cash and investment funds (as defined by the Investment Policy) in excess of two (2) months expenses as funds available for investment to the Investment Advisor and Securities Custodian structure is being used as a guideline rather than being strictly followed.

It could not be independently verified that the new internal controls procedure manual had been widely disseminated at the time of this review.

The City has indicated it has accepted internal risks rather than internally financing or transferring them through traditional insurance mechanisms. Insufficient information was provided for this review to opine on the efficacy of the City's risk tolerance assessment.

Page 4 of4

Tab #1

The PFM Group f.'u' I ')oal M lI,ag m. nl In PFM A~ Mal'a ment LLG PFM d,~1$

Presentation to the City of Cape Coral

FLORIDA

Of

Updated Cash Flow Analysis As of September 30,2010

prepared on November 15,2010

PFM Asset Management LLC 300 South Orange Avenue Suite 1170 Orlando, Florida 32801 Phone: (407}~2208 Fax: (407) 648-1323

Lincoln Plaza 407 648-2208 Suite 1170 407-648-1323 fax 300 S. Orange Avenue www.pfm.com Orlando, FL 32801-3470

The PFM Group Public finaooeJ !anagem-.mt Ill"

PFM As",,: Mana~ernen' UC

rFM ".all1so~

November 15, 2010

Linda Senne Deputy Financial Services Director City of Cape Coral, Florida 1015Cultural Park Boulevard Cape Coral, FL 33990

RE: Cash Flow Analysis

Dear Ms. Senne:

I have enclosed the Updated Cash Flow Analysis for the City of Cape Coral ("City"), for your review. The purpose of the analysis is to identify an allocation between funds required for short-term cash needs and funds that could be invested longer-term to potentially generate higher rates of return.

The important dement of the cash flow analysis is the determination of the "core" cash balance, which serves as one of the building blocks of the City's investment program. The "core" balance represents the minimum balance of funds the City has maintained during the defined historical period Fundamentally, the Cash Flow analysis attempts to calculate an approximate amount of "core" funds, which may be invested more strategically than funds that are needed on a short-term basis, such as operational funds. This balance often represents funds that could be invested more aggressivdy to potentially enhance the City's rate of return. It is important to note the Cash Flow analysis is based on historical data and therefore is only estimated.

This analysis is based on monthly cash balances by fund as provided by the City's finance staff. The funds are considered appropriate for possible longer-term investment strategies. The Cash Flow analysis for Liquid Funds indicates that the estimated core balance for all funds is $5,162,485, which may be invested in securities that have longer maturities (between 1 day to 2 months), possibly earning a higher return. The Cash Flow analysis for Liquid/Enhanced Cash Funds indicates that the estimated core balance for all funds is $23,595,271, which may be invested in securities that have longer maturities (between 2 months to 12 months), possibly earning a higher return. The Cash Flow analysis for Liquid/Enhanced Cash/ Long Term Funds indicates that the estimated core balance for all funds is $97,508,640, which may be invested in securities that have longer maturities (between 12 months to 5 years), possibly earning a higher return. The Cash Flow analysis for Long Term Funds indicates that the estimated core balance for all funds is $455,789, which may be invested in securities that have longer maturities (a maximum of 5 years), possibly earning a higher return.

The cash flow model for the Liquid, Liquid/Enhanced Cash, and Liquid/Enhanced Cash/Long Term analyses assumed a 20 percent cushion on the portfolios leaving a core portfolio (the blue shaded area of the cash flows) carried over the years. This cushion results in the mood calculating a 20 percent decrease in the core values, to provide a more conservative estimate of the core balances. The cash flow modd for the Long Term analysis did not assume a cushion on the portfolio due to the nature of the funds which do not require liquidity.

The Short-Term and Core Portfolios are calculated as follows:

Short-Term Portfolio

If a positive net cash flow is anticipated, the short-term portfolio equals the cushion percentage.

1) If a positive net cash flow is anticipated, the short-term portfolio equals the cushion percentage.

http:anagem-.mthttp:www.pfm.com

Linda Senne Deputy Financial Services Director

November 15, 2010 Page 2

2) If a negative net cash flow is anticipated, the short-term portfolio equals the projected negative net cash flow plus the cushion percentage.

Core Portfolio

The core is computed in two steps, as follows:

Step 1: Subtract the short-term portfolio allocation from the total portfolio balance. This is the "monthly core."

Step 2: Compute the minimum monthly core for the next 12 months. This is the actual core. The core is always a rolling 12-month average of the minimum monthly core.

The Historical and Projected Analysis of the Core Portfolio below presents the historical cash flow balances and adds two years of projected cash flows for each particular fund on to the cash flow analysis.

Liquid - Total Funds Analysis of Core Portfolio

2O,(XX),(XX)

18,(XX),(XX)

16,(XX),(XX)

14,



LiquidlEnhanced Cash - Total Funds Analysis of Core Portfolio

50,(0),00)

o Historical Short-term Portfolio • Historical Core o Projected Short-lOOn Portfolio "Projected Core

Liquid/Enhanced Cashl Long Tenn - Total Funds Analysis of Core Portfolio

200,(0),00)

100,(0),00)

160,(0),00)

140,(0),00)

120,(0),00)

100,(0),00)

00,(0),00)

60,(0),00)

40.(0),00)

20,(0),00)

o Historical Short-term Portfolio • Historical Core o Projected Short-lOOn Portfolio o Projected Core



&Xl,OOJ

450.00J

400,00J

350,OOJ

:m,OOJ

250,OOJ

2OO,OOJ

15O,00J

l00,OOJ

5O,OOJ

~ 8 ~

'" 1u.. ~ u 0

Long Tenn Funds - Total Analysis of Core Portfolio

o Historical Short-term Portfolio • Historical Core o Projected Short-term Portfolio fJ Projected Core

The Cash Flow analysis modd provides three options for calculating future growth; growth based on all historical data, growth based on historical data for a specific period of time, and a sdf-imposed growth rate. The attached Cash Flow analysis assumes a zero growth rate. For forecasting purposes we can include an appropriate growth rate for incorporation into the Cash Flow analysis.

Please give me a call with any questions and I look forward to meeting with you to discuss the analysis in further detail.

Sincerdy, PFM Asset Management LLC

Steven Alexander, CfP, CGFO, Managing Director

C: Mel Hamilton, Senior Managing Consultant David Jang, CfP, Senior Managing Consultant PFM Asset Management LLC

City of Cape Coral Liquidity Cash Balances June 30, 2011

Daily liquidity amounts

Bank of America - operations account Florida Prime (SBA) FL Safe 5/3 Bank PFM Prime Series (Money Market)

$ 37,538,060.23 54,734 ,396.65

569,225.28 7,289,359.93

2,140.99

Required Target Amount Avg Payroll AvgNP Total

2 months average expenses

$ 4,439,123.38 14,614,756.39

$ 19,053,879.77 $ 38,107,759.54

Scheduled Debt Payments

Required target amount

Jul2011 Aug 2011

12,713,066.94

amount over (under) required target amount

$ 100,133,183.08

(50,820,826.48)

$ 49,312,356.60

http:49,312,356.60http:50,820,826.48http:100,133,183.08

City of Cape Coral Liquidity Cash Balances July 31, 2011

Daily liquidity amounts

Bank of America - operations account Florida Prime (SBA) FL Safe 5/3 Bank PFM Prime Series (Money Market)

$ 23,319,937 .26 54,744 ,114.72

569,257.24 7,290,905 .86

2,141 .18

Required Target Amount Avg Payroll Avg AlP Total

2 months average expenses

$

$

4,253,581 .56 14,197,794.63 18,451 ,376.19

$ 36,902 ,752 .38

Debt Payments

Required target amount

Aug 2011 Sep 2011 26,613,331.08

amount over (under) required target amount

$ 85,926,356.26

(63,516,083.46)

$ 22,410,272.80

http:22,410,272.80http:63,516,083.46http:85,926,356.26

Tab #2

(' it~· of Calle (~oral

INTERNAL C~ ():\TR()LS A:\J) OPER·\TIO~:\L PROCEDl"RES

[\IIA:\ l "AL F()R INVESTI\) ENTS

Prepared by: Financial Services Director

Date: 9/0112011

Internal Controls and

Operational Procedures Manual

for

Investments

City of Cape Coral

I. PURPOSE

The City of Cape Coral recognizes that as a public entity the City is endowed with the trust and use of funds from various sources including the issuance of debt, federal, state and local grants, property taxes, and proceeds generated from operations. An important part of the earnings is the investment of funds derived from these sources. Therefore, the purpose of this Internal Controls and Operational Procedures Manual for Investments is to provide guidelines to assist the Authorized Staff with day-to-day investment operations.

II. SCOPE

In accordance with Section 218.415, Florida Statutes, this Internal Controls and Operational Procedures Manual for Investments ("Manual") applies to all cash and investments held or controlled by the City with the exception of pension funds and funds related to the issuance of debt proceeds. The investments are consistent with the approved Investment Policy (see Attachment A).

The Financial Services Director has established a system of internal controls and operational procedures. The internal controls have been designed to prevent loss of funds, which might arise from fraud, employee error, misrepresentation by third parties, or imprudent actions by employees. The procedures are intended to reduce, to a relatively low level, the risk that material losses may occur that are note detected, within a timely period, by employees in the normal course of performing their assigned functions. The written procedures include reference to safekeeping, repurchase agreements, wire transfers, custodian agreements, banking service contracts, collateralization, and separation of transactions from accounting and record keeping. No person may engage in any investment transaction except as authorized under the terms of this Manual.

III. DELEGATION OF AUTHORITY

In accordance with the Charter of the City of Cape Coral, the responsibility for providing oversight and direction in regard to the management of the investment program resides with the City Manager. The daily management responsibility for all City funds in the investment program and investment transactions is delegated to the Financial Services Director. The Financial Services Director shall maintain written procedures for the operation of the investment portfolio and a system of internal accounting and administrative controls to regulate the activities of employees. The City may employ an Investment Advisor to assist in managing some of the City ' s portfolios. Such Investment Advisor must be registered under the Investment Advisors Act of 1940.

City of Cape Coral Internal Controls and Operational Procedures Page 2

IV. INTERNAL CONTROLS

A. Chain of Command

For the purpose of obtaining approval on investment activity, the following chain of command is appropriate.

1. City Manager 2. Financial Services Director 3. Assistant Financial Services Director

As designated by the City Manager, management responsibility for the investment program is assigned to the Financial Services Director and the Assistant Financial Services Director. The Financial Services Director, Assistant Financial Services Director and DebtlTreasury Manager, who are granted investment authority, shall be considered and referred to as "Investment Officers" for the purposes of this Manual. As such, the Investment Officers are authorized to deposit, withdraw, invest, transfer, execute documentation, and otherwise manage City funds according to this Manual. No person may engage in an investment transaction or the management of funds except as provided under the terms of the Investment Policy and this Operating Procedures Manual.

B. Duties and Responsibilities

The Assistant Financial Services Director and DebtlTreasury Manager have specific duties and responsibilities as assigned by the Financial Services Director. The Financial Services Director shall be responsible for the management of the investment program and the Assistant Financial Services Director and Debt/Treasury Manager shall be responsible for the operational duties (i.e., purchases, liquidations, bank accounts and wires).

C. Separation of Duties

The Assistant Financial Services Director and Debt/Treasury Manager shall not be responsible for the reconciliation of the bank accounts or writing checks; these responsibilities reside with the Accounting Assistant and Accounts Payable Supervisor.

Furthermore, adequate separation of duties requires that the Assistant Financial Services Director, Debt/Treasury Manager, Accounting Assistant and Accounts Payable Supervisor shall not prepare bank deposits or handle receipts (cash or checks). The Cashiers' Office shall prepare bank deposits.

D. Custodial Accounts

Securities purchased through broker/dealers or financial institutions, including the provision of appropriate collateral, shall be placed with a third party custodian in a custodial account governed by a custodial agreement.

• The Assistant Financial Services Director will maintain the Third-Party Custodian Agreement.

• The Assistant Financial Services Director and DebtlTreasury Manager will avoid the use of physical delivery securities insofar as such securities must be properly safe guarded, as are any valuable documents. The potential for fraud and loss is minimized with primary


reliance upon book entry securities, which do not involve the physical delivery of securities.

• The Custodian shall have a signature authorization form that lists the authorized persons (Financial Services Director, Assistant Financial Services Director, and Debt/Treasury Manager) that can give instructions to the custodian.

• The Assistant Financial Services Director or Debt/Treasury Manager provides written instructions on money that will be wired from the custodian account back to the City's bank account.

E. Delivery vs. Payment

Simultaneous with the release of City funds to purchase a security there will be a delivery of the securities purchased. Similarly, for any sale of securities, there will be a simultaneous transfer of funds to the City before the release of the securities.

This policy ensures that the City neither transfers money or securities before receiving the other side of the transaction . Accordingly, both transfers will occur simultaneously through a custodial bank, authorized to act in such capacity for the City.

F. Collateralization

Cash deposits that are held by a local bank (this includes savings accounts and non-negotiable interest being time certificates of deposit) must qualify as a public depository under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statutes. First $250,000 is insured by FDIC. Any deposits above the $250,000 are fully insured by the Public Deposits Trust Fund. This includes all bank accounts and Certificates of Deposits with a Qualified Public Depository.

The Financial Services Director may invest in repurchase agreements composed of only those investments based on the requirements set forth by the City's Master Repurchase Agreement. All firms are required to sign the Master Repurchase Agreement prior to the execution of a repurchase agreement transaction.

Collateral requirements for overnight or short-term repurchase agreements shall reqUire collateral with a market value of principal and accrued interest of at least 100% of the Repurchase Agreement.

Term Repurchase Agreements, which may be entered into from time to time, shall be limited to primary government security dealers. The actual collateral requirements for such term Repurchase Agreements will be based upon economic and financial conditions existing at the time of execution, as well as the particular broker/dealer, which enters into the Repurchase Agreement with the Financial Services Director.

However, such term repurchase agreements shall require collateral with a market value of principal and accrued interest of at least 102% of the term repurchase agreement. Securities authorized for collateral are negotiable direct obligations of the United States Government, Government Agencies, and Federal Instrumentalities with maturities under five (5) years and must have a market value for the principal and accrued interest of 102 percent of the value and for the term of the repurchase agreement. Immaterial short-term deviations from 102 percent requirement are permissible only upon the approval ofthe Financial Services Director.


A third party custodian with whom the City has a current custodial agreement shall hold the collateral for all repurchase agreements with a term longer than one (1) business day. A clearly marked receipt that shows evidence of ownership must be supplied to the Financial Services Director and retained The right of collateral substitution may be granted; however, in no event shall the collateral securities to be accepted represent securities other than those recognized as authorized investments for the Financial Services Director.

G. Interest Rate Risk

Longer maturity investments have a greater potential for price volatility. Accordingly, in support of the desire to protect public funds from market price erosion, resulting from rising interest rates, the City will limit all securities in its portfolio to a maturity of five years. This policy shall not apply to securities assembled and placed in reserve or escrow accounts in order to satisfy specific financial obligations of the nature typically associated with defeased bond issues .

H. Liquidity Objectives

I. Cash Flow Forecasting

The Debt/Treasury Manager will attempt to forecast expected cash outflows and inflows with as much precision as reasonably possible. The Assistant Financial Services Director will monitor the findings of the cash flow forecast and will revise the forecast and the investment portfolio annually.

2 . Maintenance of Liquidity Base

A liquidity base of approximately 2 months of anticipated disbursements will be kept in relatively short-term and liquid investments. These would include local bank accounts, repurchase agreements, U.S. Treasury obligations, money market funds, and local government investment pools ("LGIP").

Money market funds must meet the ratings standards and cannot exceed the asset allocation limits as set forth in the Investment Policy.

3. Weighted Average Maturity

The Financial Services Director will strive to maintain the investment portfolio in such a way as to limit the weighted average to maturity of the short-term portfolio to a period of less than 365 days. For purposes of this test, adjustable rate securities shall be measured on the basis of the period elapsed between interest rate re-set dates.

The weighted average for the long-term portfolio will be limited to a period of less than three years.

4. Purchase of Securities with Active Secondary Markets

Although many securities are acceptable for investment using the legal authorized list, some may not be very desirable from a liquidity standpoint. Accordingly, the Assistant Financial Services Director's overall liquidity concerns shall include a conscious element and desire to avoid undue reliance upon securities that do not possess active secondary markets.


I. Portfolio Management

I. Portfolio Composition and Maturity Management

• When structuring the maturity composition of the investment portfolio, the Director of Financial Services' procedure is to evaluate current economic conditions, relative interest rate levels and the general direction of interest rates. During periods where economic conditions demonstrate considerable potential for interest rate increases in the near future, the Financial Services Director will consider appropriate actions to modestly shorten maturities. Similarly, during periods where economic conditions demonstrate considerable potential for interest rate decreases in the near future, the Financial Services Director will consider appropriate actions to modestly lengthen maturities. These actions should not be confused with speculative activities, which are specifically prohibited.

• The City will utilize 3 tiers of cash and investments I. Liquid: cash for operations (payroll, accounts payable) - less than 6 months maturity:

and 2. Enhanced Cash: six to twelve (6-12) months maturities: and 3. Long-Term: core funds - greater than 12 months maturity and the weighted average

maturity will be limited to a period of less than three years.

Note: #1 and #2 are considered short-term.

The City has funds in local bank accounts and in 2 Local Government Investment Pools [Florida PRIME (State Board of Administration "SBA") and the Florida Surplus Asset Fund Trust ("FLSAFE")]. The bank accounts and pools are considered short-term.

Florida PRIME (State Board of Administration "SBA") • Florida PRIME is structured as a fund with an objective to pool investments from

participants in a portfolio of eligible securities that principally provides liquidity while

preserving capital and secondarily provides competitive yields.

• Primary objective: preservation of principal.

• Federated Investment Counseling is the Investment Manager that provides investment

advisory services for Florida PRIME.

• AAAm rating which is the highest principal stability fund rating assigned by Standard & Poor's.

• Weighted Average Maturity (WAM) of portfolio shall not exceed 60 days.

• Pool's guidelines allow for the purchase of only top-tier, money-market assets of the

highest quality (at least 50% A-I+ and no more than 50% A-I) such as u.S. Treasury and

Agency obligations; corporate obligations (including commercial paper); municipal

securities; bank obligations (CDs, etc .); repurchase agreements; and money market mutual

funds.

• Strives to maintain a stable NA V (net asset value) of $1.00 per share; however there is no guarantee that it will be able to do so.

• An AAAm rating means "Fund/pool provides extremely strong capacity to maintain principal value and limit exposure to principal losses due to credit risk".


Florida Surplus Asset Fund Trust ("FLSAFE") • FLSAFE is organized pursuant to Florida Statutes 163.01, is an authorized investment

under 218.415 and invests according to the provisions of its Permitted Investments (see

Attachment B)

• Investment Advisor and Administrator is Davidson Fixed Income Management, Inc.

• FLSAFE is authorized to invest in securities of the U.S. Treasury, U.S. Agencies, Primary

Dealer Repurchase Agreements, highly rated Commercial Paper; AAAm rated Money

Market Funds and Florida Depositories in which the deposits are collateralized under

Florida Statutes 280.

• AAAm rating which is the highest principal stability fund rating assigned by Standard & Poor's.

• Weighted Average Maturity (WAM) of portfolio shall not exceed 60 days.

• Strives to maintain a stable NAY (net asset value) of $1.00 per share; however there is no

guarantee that it will be able to do so.

• An AAAm rating means "Fund/pool provides extremely strong capacity to maintain

principal value and limit exposure to principal losses due to credit risk".

Both LGIPs (Securities and Exchange Commission Rule 2a-7-like external investment pools) operate under investment guidelines established by Section 215.47, Florida Statutes.

2. Security Trading

The Financial Services Director will pursue trades as they may present themselves over the term of any investment. All trades should adequately compensate the City for administrative costs, reinvestment risk, and quality considerations. The following categories of security trades are considered appropriate for the Financial Services Director:

a. Swaps to Increase Yield

Market aberrations are often caused by supply and demand conditions for particular securities. For example, if a short supply exists for a particular security or maturity range, then it may be advantageous to swap out of a security in short supply and into another similar security.

b. Swaps between Different Issuers

Interest rate differentials commonly exist between U.S. Treasury and agency securities. Periodically, these relationships may become distorted and thereby present advantageous swap opportunities.

c. Swaps to Reduce Maturity

Market aberrations occasionally create a situation where longer maturity securities are yielding the same or less than securities with a shorter maturity. Portfolio quality can be improved by switching from the longer maturity security to the shorter maturity with little or no interest rate penalty.

d. Net Loss vs. Initial Accounting Loss

The procedure for the Director of Financial Services is to avoid swaps that result in a net loss over the accounting period of the applicable securities included in the swap. The new security should produce a net gain over the maturity period of the applicable securities involved in the swap.


J. Banking Service RFPs

The procedure for the Department of Financial Services is to formally define banking needs and periodically issue requests for proposals ("RFP") from area financial institutions for the general banking services. The scope of such banking services generally includes elements that can impact return on investment objectives; a competitive environment for these services can best ensure that the City's interests in this area are maximized.

v. OPERATIONAL PROCEDURES

A. Cash and Investments Review

The Debt/Treasury Manager will review the cash ba1lances and investment portfolio daily, or as needed, and the accountants will monitor their assigned specific funds for relevant draw schedules for capital projects. Items to be reviewed should include the following:

I. Bank balances by account

2. Maturing investments (includes Repurchase Agreements, Certificates Of Deposit, Commercial Paper, Bankers' Acceptances and general securities).

3. Bond sales and other large, periodic receipts.

4. Bond and coupon payments (debt service) and other large periodic cash disbursements.

5. Anticipated cash flow transactions.

At the end of each month, the Debt/Treasury Manager will document the current cash balances, approximately 2 months operational expenses (accounts payable and payroll), and debt service obligations to arrive at liquidity needs.

The Assistant Financial Services Director and Debt/Treasury Manager will discuss the liquidity needs and document the investment decisions made for short-term diversification based on this evaluation. Input from the Investment Advisor will also be utilized for investment decisions. The Assistant Financial Services Director will sign off on the investment decisions.

B. Purchasing/Selling an Investment

The Assistant Financial Services Director or Debt/Treasury Manager (or external Investment Advisor) shall only purchase securities from financial institutions, which are qualified in conformance with the City's Investment Policy.

An Independent Investment Advisor is authorized as an agent of the City to purchase and sell securities for the City. The Investment Advisor places all orders for the purchase, sale, or exchange of portfolio securities, for the City's account, with banks and/or brokers and dealers.

The Investment Advisor determines which type of investment to purchase by considering market conditions and the Investment Policy limitations.

The Investment Advisor must, at a minimum, obtain three (3) quotes per security and selects the banks and/or broker/dealer based on the yield to maturity. All quotes received from banks and/or brokers/dealers must be recorded on a trade ticket, which includes but is not limited to the account name, trade date, the dollar amount, settlement date, security description, offer


infonnation, and comments. The trade ticket (with the 3 quotes listed) which lists the security description is faxed or e-mailed to the City.

The Assistant Financial Services Director or Debt/Treasury Manager verifies that the security is allowed under the Investment Policy.

The Debt/Treasury Manager reconciles the trade tickets to the custodian statement.

The Investment Advisor has authority to authorize the sale and reinvest the funds. If a sale is due to meet cash flow needs, the Debt/Treasury Manager will email the instructions to the Investment Advisor to sell a certain dollar amount.

Transactions shall be recorded as necessary to penn it accurate preparation of financial records and maintain accountability for assets.

C. Prepare and Review Investment Transactions

The Debt/Treasury Manager will prepare the journal entries to be posted for all investment

transactions and the journal entries will be submitted to the Assistant Financial Services

Director for review and posting into the City ' s accounting system. The DebtJTreasury

Manager must supply the necessary supporting documentation for all journal entries, for

example brokerage or bank statements. Additionally, the Debt/Treasury Manager will perfonn

the following:

I. Prepares staff accounting entries into general ledger.

2. Reviews and analyzes monthly reports (statements, excel worksheets).

3. Reviews all bank account reconciliations .

D. Operations of Cash and Investments

Operations are defined as those duties and procedures required to maintain the investment

program.

Summary of Operations • The Debt/Treasury Manager downloads the month end custodian and Investment Advisor

statements from their website at month end.

• The DebtJTreasury Manager reconciles the trade tickets to the custodian statement and Investment Advisor statement.

• The DebtJTreasury Manager enters the infonnation from the Investment Advisor statement and custodian statements into the Sympro Treasury Management Software.

For the long tenn portfolio:

• The excel investment document allocates the investment activity to the participating funds based on that fund's percentage of the total balance in the long tenn portfolio.

• The totals for cash and investments from the sympo reports are reconciled to the

Investment Advisor and custodian statement.

• The journal entry is created by Sympro after the accounting process is run.

• The journal entry is then imported into the general ledger.

• The journal entry is reviewed and approved by the Assistant Financial Services Director.


For the short term portfolio:

• The interest earned in the short term portfolio is part of the City's short term balance which includes money deposited in Florida PRIME ("SBA") and Florida Surplus Asset Fund Trust ("FLSAFE") and other money market funds.

• The Accounting Assistant II posts the interest net of fees for all short term funds as one journal entry.

• The Accounting Assistant II prepares the bank reconciliation for the short term funds (this is included with reconciliation for the operations account as well as the short term cash accounts).

• The bank reconciliation is reviewed and signed off on by the Debt/Treasury Manager and then the Assistant Financial Services Director.

Detail of Operations Debt/Treasury Manager reports to the Assistant Financial Services Director and has the

following responsibilities associated with investment transactions:

1. Confirms the timely receipt of income.

2. Reviews all trades with trade tickets and confirms.

3. Reviews portfolio for compliance:

a) Securities selected

b) Maturities

c) Portfolio overall composition

4. Enters investment data into Sympro:

a) Investment trades and maturities

b) Income received

5. Enters the journal entry into the system.

6. An edit is run to determine if there are any errors in count (number of lines) or if debits do not equal credits.

7. Goes to general ledger and reconciles the general ledger (includes pending transactions) to the Sympro report and Investment Advisor statements. If it does not reconcile, the errors are identified and corrected.

8. After the general ledger (including pending transactions) is reconciled, the journal entry is reviewed and approved by the Assistant Financial Services Director.

9. The Accounting Assistant II runs the balances on the general ledger for the interest and realized gain/loss accounts and enters the transactions into the Interest Posting Allocation excel worksheet. The worksheet allocates the activity based on a fund's share of the cash and investment balance. The trade tickets from the Investment Advisor are matched against the transactions on the statement. The balances are verified against the Custody statement.

10. All activity is recorded in Sympro by the Debt/Treasury Manager and is reconciled to the Investment Advisor statements and general ledger.

11. All journal entries are reviewed and approved by the Assistant Financial Services Director, if any discrepancies are discovered a correcting journal entry would be made.

12. Reviews and approves reconciliation of bank accounts.


13. Assistant Financial Services Director will be backup for the Debt/Treasury Manager.

Accounting Assistant II I. The Accounting Assistant II reports directly to the Debtffreasury Manager and has the

following duties :

a. Executes wire instructions from Debt/Treasury Manager; and

b. Obtains bank, SBA, FLSAFE, and money market funds and custodian information via

automatic on-line system; and

c. Performs bank reconciliations monthly.

Authorized Wires The City has funds in local bank accounts and local government investment pools [Florida PRIME ("SBA") and the Florida Surplus Asset Fund Trust ("FLSAFE")]. Cash deposits that are held by a local bank must qualify as a public depository under the Florida Security for Public Deposits Act as required by Chapter 280, Florida Statutes. These deposits are fully insured by the Public Deposits Trust Fund.

The Department of Financial Services has segregation of duties surrounding wire transfers of

funds for investment purposes from the operations local bank account to another bank account,

and to the local government investment pools [Florida PRIME ("SBA") and the Florida

Surplus Asset Fund Trust ("FLSAFE")]. Only Authorized Staff will be able to wire the City's

funds. Wire instructions and personal identification numbers (PIN's) shall be safeguarded by

the Authorized Staff. One authorized representative will enter the wire information into the

bank's electronic wire system and another authorized representative will verify the

information, release the wire, and verify the wire has been sent by reviewing the bank's wire

report.

All wire transfers from the other local bank account and the local government investment pools are configured to transfer back to the City's local operations bank account only.

A Summary of Job Duties is attached (Attachment C)

E. Reporting Requirements

The DebtlTreasury Manager shall provide the Financial Services Director and the Assistant Financial Services Director with the monthly cash and investment balances. The Investment Advisor shall provide the Financial Services Director with quarterly and annual investment reports that include all funds managed by the Investment Advisor and funds that are managed by the City. The Financial Services Director shall provide the Investment Committee with quarterly investment reports. Quarterly, the Investment Advisor will present the quarterly investment report to the Investment Committee. Schedules in the quarterly reports shall include the following:

I. A description of all securities held in investment portfolios at month end.

2. Percentage of available funds represented by each investment type.

3. Coupon, discount or earning rate.

4. Average life or duration and final maturity of all investments.

City of Cape Coral Internal Controls and Operational Procedures Page I I

5. Par value and market value.

6. The total rate of return for the quarter and year-to-date versus appropriate benchmarks.

In addition, the quarterly investment reports summarize but are not limited to the following:

1. Recent market conditions, economic developments and anticipated investment conditions.

2. The investment strategies employed in the most recent quarter.

3. Any areas of policy concern warranting possible revisions to current or planned investment strategies. The market values presented in these reports will be consistent with accounting guidelines in GASB Statement 31.

4. Notations of corrections/planned corrections of instances of non-compliance (if any) with the Investment Policy.

The Financial Services Director shall submit the annual reports to the City Council.

The annual report shall provide all, but not limited to, the following: a complete list of all invested funds, name or type of security in which the funds are invested, the amount invested, the maturity date, income earned, the book value, the market value and the yield on each investment.

The annual report will show performance on both a book value and total rate of return basis and will compare the results to approved performance benchmarks. All investments shall be reported at fair value per GASB standards. Investment reports will be available to the public.

VI. INVESTMENT COMMITTEE

The City has established an Investment Committee for the purpose of formulating alternative investment strategies within the guidelines herein set forth and for monitoring the performance and structure of the portfolio. The Committee Membership shall include the City Manager, one department director appointed by the City Manager, Financial Services Director, one City Council Member, one member of the Financial Advisory Committee.

The Investment Advisory Committee shall review the City's quarterly and annual investment reports and make recommendations to the City Manager on risk, allocation, return on investment, and service of the investment advisor. The Investment Advisory Committee shall review the Investment Policy annually and comment on the adequacy of the policy in a report to the City Manager. However, it is not within the Investment Advisory Committee's charge to make investment recommendations regarding the acquisition or disposal of specific investment securities.

VII. REVIEW AND APPROVAL

The Financial Services Director shall revIew the Manual annually and, if necessary, make modifications.

Approved this __ day of_____ 2011.

Financial Services Director of the City of Cape Coral

VIII. ATTACHMENTS


ATTACHMENT C

JOB DUTIES

Responsibilities

Strateg ies and

External Investment

Advisor Recommends

City Manager

Reviews and

Financial Services Director

Reviews and

Assistant Financial Services

Director Aware of strategies

DebtfTreasury Manager

Aware of

Accounting Assistant II

Cashier's Office

policies

Supervision

Forecasting

Reporting

Compliance

investment strateg ies & changes to policy

Advises and informs investment officer(s) relative to economic conditions and trends

Prepares quarterly and annual investment reports.

Presents reports to the investment committee

Includes compliance with investment policy as part of reports

Reports non compliance to Director and Assistant Financial Services Director

approves strategies

Reviews reports

approves strategies

Responsible for overall supervision of strategies, external reporting & internal controls Evaluates current economic conditions, relative to interest rate levels and the general direction of interest rates

Reviews reports from external investment advisor and submits to City Manager and City Council

Reviews monthly cash and investment balances worksheet

Reviews quarterly reports to ensure compliance

Reports non compliance to City Manager and City Council

-

approved

Responsible for the daily operational duties(i.e., purchases, liguidations, wires,l Meet with DebU Treasury Manager monthly to discuss cash flow and liquidity needs. Document investment decisions.

Reviews reports from external investment advisor

Reviews monthly cash and investment balances worksheet

Reviews quarterly reports to ensure compliance

Reports non compliance to Financial Services Director

strategies approved

Forecasts expected cash outflows and inflows to meet investment strateg ies and ongoing cash flow needs

Reviews reports from external investment advisor

Prepares monthly cash and investment balances worksheet

ATTACHMENT C

JOB DUTIES

Pa1!e 2

Responsibilities External

Investment Advisor

City Manager



Director

DebtlTreasury Manager


Cashier's Office

Safekeeping Reconciles safekeeping receipts with custodian bank.

Approves reconciliation

Reconciles custodian statement with PFM statement

Trades

Cash Management

Authorized to buy and sell trades and prepares trade tickets

Reviews trade tickets

Reviews and approves journal entries for posting

Authorizes bank wires or transfers for the purchase of securities or movement of monies between investment accounts

Review trades and confirms completion of trade

Prepares Investment Journal Entries Reviews the cash balances and investment portfolio

Authorizes bank wires or transfers for the purchase of securities or movement of monies between investment

Executes wire instructions from investment officer(s)

Reviews the cash balances and investment portfolio daily

Executes wire instructions from investment officer(s)

Prepares bank deposits

accounts


ATTACHMENT C

JOB DUTIES

Page 3

Responsibilities External

Investment Advisor

City Manager



Director

DebtfTreasury Manager


Cashiers Office

Accounting Reviews and approves Investment Journal Entries

Reviews & Approves Monthly Bank Reconciliations

Records activity into Sympro and Reconciles Sympro to investment advisor statement and general ledger

Confirms timely receipt of income

Allocates investment activity to participating funds on the GL

Prepares Monthly Bank Reconciliations

Prepares adjusting journal entries

Depository services

Defines banking needs & issues RFPs for needed depository services

Defines banking needs & issues RFPs for needed depository services

Reviews & Approves Monthly Bank Reconciliations

Education Required to complete 8 hours Public Funds Investment (PFI) training annually

Maintains Third-party custodian agreement Required to complete 8 hours Public Funds Investment (PFI) training annually

Required to complete 8 hours Public Funds Investment (PFI) training annually


Tab #3

MAYOR SULLlV AN 06/30/11

ORDINANCE 40 - 11

I AN ORDINANCE OF lHE CITY OF CAPE CORAL, FLORIDA, AMENDING ORDINANCE 87-00, AS AMENDED BY ORDINANCE 88-04, WHICH ESTABLISHED lHE CITY OF CAPE CORAL INVESTMENT POLICY FOR SURPLUS FUNDS, BY ADOPTING AN AMENDED CITY OF CAPE CORAL INVESTMENT' POLICY; A COpy OF lHE AMENDED POLICY IS ATTACHED HERETO AND INCORPORATED HEREIN; PROVIDING SEVERABILITY AND AN EFFECTIVE DATE.

NOW, THEREFORE, lHE CITY OF CAPE CORAL, FLORIDA, HEREBY ORDAINS lHIS ORDINANCE AS FOLLOWS:

SECTION 1. The City of Cape Cow hereby adopu the amended investment policy attached hereto, identified as Exhibit A and incorporated herein as if fully set forth in this ordinance.

SECTION 2. Severability. In the event that any portion or Section of this ordinance is determined to be invalid, illegal or unconstitutional by II court of competent jurisdiction, such decision shall in no manner affect the remaining portions or Sections of this ordinance which shall rc.rnain in full force and effect

SECTION 3. Effective Date. 1bis ordinance shall become effective immediately after its adoption by the Cape Cow City Co.mcil.

ADOPTED BY 1E COUNCIL ~ THE CITY OF CAPE CORAL AT ITS REGULAR SESSION THIS 'tf,... DAY OF 1Mt- ,2011. L " .

~~~ I JOHN J. SULLIVAN, MAYOR

VOTE OF MAYOR AND COUNCILMEMBERS:

SULLIVAN McCLAIN BRANDT DEILE CHULAKES-LEE1Z

KUEHN \~1

McGRAIL ~C DONNELL

ATTESTED TO AND FILED IN MY OFFICE THIS 17f IJ DAY OF A::;usf 201l.

~@M~BECCA VAN DEUTEKOM

CITY CLERK

APPROVED AS TO FORM:

'-;P~ 1>-~1~ ~ DOLORES D. MENENDEZ / --CITY ATTORNEY

ord/AmendlnvestrnentPolicy

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Table of Contents

Page

I. PURPOSE 3

II. SCOPE 3

III. fNVESTMENT OBJECTIVES 3

IV. DELEGATION OF AUTHORITY 3

V. STANDARDS OF PRUDENCE 4

VI. ETHICS AND CONFLICTS OF INTEREST 4

VII. INTERNAL CONTROLS AND INVESTMENT PROCEDURES 4

VIII. CONTINUING EDUCATION .. 5

IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS 5

X. MATURITY AND LIQUIDITY REQUIREMENTS 5

XI. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS 6

XII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSTION 6

XIII. DERIVATIVES AND REVERSE REPURCHASE AGREEMENTS 15

XIV. PERFORMANCE MEASUREMENTS 15

XV. INVESTMENT COMMITTEE 16

XVI. REPORTING 16

XVII. THIRD-PARTY CUSTODIAL AGREEMENTS 16

XVIII. fNVESTMENT POLICY ADOPTION 17

AITACHMENT A: Glossary of Cash and Investment Management Tenns

AITACHMENT B: Investment PooVFund Questionnaire

City of Cape Coral, Florida Investment Policy Page 2

Investment Policy

The City of Cape Coral, Florida

I. PURPOSE

The purpose of this policy is to set forth the investment objectives and parameters for the management of public funds of the City of Cape Coral, Florida (hereinafter "City"). These policies are designed to ensure the. prudent management of public funds, the availability of operating and capital funds when needed, and an Investment return competitive with comparable funds and financial market indices.

II. SCOPE

In accordance with Section 218.415, Florida Statutes, this investment policy applies to all cash and investments held or controlled by the City with the exception of Pension Funds and funds related to the issuance of debt where there are other existing policies or indentures in effect for such funds. Funds held by state agencies (e.g., Department of Revenue) are not subject to the provisions of this policy.

ITI. INVESTMENT OBJECTIVES

Safety of Principal The foremost objective of this investment program is the safety of the principal of those funds within the portfolios. Investment transactions shall seek to keep capital losses at a minimum, whether they are from securities defaults or erosion of market value. To attain this objective, diversification is required in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio.

Maintenance ofLiquidity The portfolios shall be managed in such a manner that funds are available to meet reasonably anticipated cash flow requirements in an orderly manner. Periodical cash flow analyses will be completed in order to ensure that the portfolios are positioned to provide sufficient liquidity.

Return on Investment Investment portfolios 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 least 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.

IV. DELEGATION OF AUrnORITY

In accordance with the Charter of the City of Cape Coral, the responsibility for providing oversight and direction in regard to the management of the investment program resides with the City Manager. The daily management responsibility for all City funds in the investment program and investment transactions is delegated to the Financial Services Director. The Financial Services Director shall maintain written procedures for the operation of the investment portfolio and a system of internal accounting and administrative controls to regulate the activities of employees. The City may employ an Investment


Advisor to assist in managing some of the City's portfolios. Such Investment Advisor must be registered under the Investment Advisors Act of 1940.

V. STANDARDS OF PRUDENCE

The standard of prudence to be used by investment officials shall be the "Prudent Person" standard and shall be appl ied in the context of managing the overall investment program. Investment officers acting in accordance with written procedures and this 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 expectation are reported to the City Manager in a timely fashion and the liquidity and the sale of securities are carried out in accordance with the terms of this policy. The "Prudent Person" rule states the following:

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 oftheir capital as well as the probable income to be derived from the investment.

While the standard of prudence to be used by investment officials who are officers or employees is the "Prudent Person" standard, any person or firm hired or retained to invest, monitor, or advise concerning these assets shall be held to the higher standard of "Prudent Expert". The standard shall be that in investing and reinvesting moneys and in acquiring, retaining, managing, and disposing of investments of these funds, the Investment Advisor shall exercise: the judgment, care, skill, prudence, and di,ligence under the circumstances then prevailing, which persons of prudence, discretion, and intelligence, acting in a like capacity and familiar with such matters wou'ld use in the conduct of an enterprise of like character and with like aims by diversifying the investments of the funds, so as to minimize the risk, considering the probable income as well as the probable safety of their capital.

VI. ETHICS AND CONFLICTS OF INTEREST

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. Also, employees involved in the investment process shall disclose to the City Manager and the Mayor any material financial interests in financial institutions that conduct business with the City, and they shall further disclose any material personal financial/investment positions that could be related to the performance of the City's investment program.

VII. INTERNAL CONTROLS AND INVESTMENT PROCEDURES

The Financial Services Director shall establish a system of internal controls and operational procedures that are in writing and made a part of the City's operational procedures. The internal controls should be designed to prevent losses of funds, which might arise from fraud, employee error, and misrepresentation by third parties, or imprudent actions by employees. The written procedures should include reference to safekeeping, repurchase agreements, the separation of transaction authority from accounting and recordkeeping, wire transfer agreements, banking service contracts and collateralization. No person may engage in an investment transaction except as authorized under the terms of this policy.


Independent auditors as a nonnal part of the annual financial audit to the City shall conduct a review of the system of internal controls to ensure compliance with policies and procedures.

VIII. CONTINUING EDUCATION

The Financial Services Director, the Assistant Financial Services Director, and other appropriate staff shall annually complete 8 hours of continuing education in subjects or courses of study related to investment practices and products in accordance with Florida Statute 218.415.

IX. AUTHORIZED INVESTMENT INSTITUTIONS AND DEALERS

Authorized City staff and Investment Advisors shall only purchase securities from financial institutions, which are qualified as public depositories by the Chief Financial Officer of the State of Florida; institutions designated as "Primary Securities Dealers" by the Federal Reserve Bank of New York, direct issuers ofcommercial paper and bankers' acceptances or approved non-primary securities dealers.

All approved non-primary securities dealers that qualify under Securities and Exchange Commission Rule 15C3-1 (unifonn net capital rule) must provide the following infonnation prior to executing investment trades with the City:

1. Annual financial statement, as well as most recent quarterly statement. 2. Regulatory history, through either the Office of the Comptroller of the Currency for dealer banks, or

the NASD for securities finns. 3. Statement ofany pending lawsuits materially affecting the finn's business.

Authorized City staff and Investment Advisors shall only enter into repurchase agreements with financial institutions that are state qualified public depositories and primary securities dealers as designated by the Federal Reserve Bank of New York.

X. MATURITY AND LIQUIDITY REQUIREMENTS

The Financial' Services Director or designee shall detennine the approximate amount of funds required to meet the day-to-day expenditure needs of the City. In order to have an available source of funds to meet unexpected cash requirements, a minimum of two months operating expenses will be invested in appropriate short tenn securities, i.e. fully-collateralized repurchase agreements, interest in time deposits, savings accounts or money market funds. The balance of the City'S funds will be available for investment according to the guideHnes incorporated within this policy.

Investments of bond ,reserves, construction funds, and other non-operating funds ("core funds") shall have a tenn appropriate to the need for funds and in accordance with debt covenants, but in no event shall exceed five (5) years, and the weighted average maturity will be limited to a period of Jess than three years.

The maturities of the underlying securities of a repurchase agreement will follow the requirements of the Master Repurchase Agreement.


XI. COMPETITIVE SELECTION OF INVESTMENT INSTRUMENTS

After the Financial Services Director, the Assistant Financial Services Director and/or the Investment Advisor, has detennined the approximate maturity date based on cash flow needs and market conditions and has analyzed and selected one or more optimal types of investments, a minimum of three (3) qualified banks and/or approved, broker/dealers must be contacted and asked to prov'ide bids/offers on securities. Bids will be held in confidence until the bid best deemed to meet the investment objectives is detennined and selected.

However, if obtaining bids/offers are not feasible and appropriate, securities may be purchased utilizing the comparison to current market price method on an exception basis. Acceptable current market price providers include, but are not limited to:

A. Telemte Infonnation System

B. Bloomberg Infonnation Systems.

C. Wall Street Journal or a comparable nationally recognized financial publication providing daily market pricing

D. Daily market pricing provided by the City's custodian or their correspondent institutions

The Financial Services Director, the Assistant Financial Services Director, or the Investment Advisor shall utilize the competitive bid process to select the securities to be purchased or sold. Selection by comparison to a current market price, as indicated above, shaU only be utilized when, in judgment of the Financial Services Director, the Assistant Financial Services Director, or the Investment Advisor, competitive bidding would inhibit the selection process.

Examples of when this method may be used include:

A. When time constmints due to unusual circumstances preclude the use of the competitive bidding process

B. When no active market exists for the issue being tmded due to the age or depth of the issue

C. When a security is unique to a Single dealer, for example, a private placement

D. When the transaction involves new issues or issues in the "when issued" market

Overnight sweep repurchase agreements will not be bid, but may be placed with the City's depository bank relating to the demand account for which the repurchase agreement was purchased.

XII. AUTHORIZED INVESTMENTS AND PORTFOLIO COMPOSITION

Investments should be made subject to the cash flow needs' and such cash flows are subject to reviSions as market conditions and the City's needs change. However, when the invested funds are needed in whole or in part for the purpose originally intended or for more optimal investments, the Financial Services Director, or the Assistant Financial Services Director may sell the investment at the then-prevailing market price and place the proceeds into the proper account at the City's custodian.


The following are the investment requirements and allocation limits on security types, issuers, and maturities as established by the City. The Financial Services Director or the Assistant Financial Services Director shall have the option to further restrict investment percentages from time to time based on market conditions, risk, and diversification investment strategies. The percentage allocations requirements for investment types and issuers are calculated based on the original cost of each investment. Investments not listed in this policy are prohibited.

A. The Florida PRIME

1. Investment Authorization

Financial Service Director may invest in the Florida PRIME. Any investment with the Florida PRIME will be evaluated with the same criteria as Money Market Mutual Funds, detai led in section 1.

2. Portfolio Composition

A maximum of twenty five (25%) of available funds may be invested in the Florida PRIME.

3. Rating Requirements

The Florida PRIME shall be rated "AAAm by Standard & Poor's or the equivalent by another rating agency.

4. Due Diligence Requirements

A thorough investigation of the Florida PRIME is required prior to investing, and on a continual basis. There shall be a questionnaire developed by the Investment Advisor that will contain a list of due diligence considerations that deal with the major aspects of any investment pool/fund. A current prospectus or equivalent documentation, including an Investment Policy, Financial Statements, and Portfolio Holdings must be obtained.

B. United States Government Securities

I. Purchase Authorization

The Financial Services Director may invest in negotiable direct obligations, or obligations the principal and interest of which are unconditionally guaranteed by the United States Government. Such securities will include, but not be limited to the following:

Cash Management Bills Treasury Securities - State and Local Government Series ("SLGS") Treasury Bills Treasury Notes Treasury Bonds Treasury Strips



A maximum of 100% of available funds may be invested in the United States Government Securities.

3. Maturity Limitations

The maximum length to maturity of any direct investment in the United States Government Securities is five (5) years from the date of purchase.

C. United States Government Agencies

1. Purchase Authorization

The Financial Services Director may invest in bonds, debentures, notes or callables issued or guaranteed by United States Government agencies, provided such obligations are backed by the full faith and credit of the United States Government. Such securities will include, but not be limited to the following:

Government National Mortgage Association Direct obi igations and mortgage pass through securities

United States Export - Import Bank -Direct obligations or fully guaranteed certificates of beneficial ownership

Farmer Home Administration -Certificates of beneficial ownership

Federal Financing Bank -Discount notes, notes and bonds

Federal Housing Administration Debentures General Services Administration United States Maritime Administration Guaranteed

-Title XI Financing New Communities Debentures

-United States Government guaranteed debentures United States Public Housing Notes and Bonds

-United States Government guaranteed public housing notes and bonds United States Department of Housing and Urban Development

-Project notes and local authority bonds


A maximum of 50% of available funds may be invested in United States Government agencies.

3. Limits on Individual Issuers

A maximum of 25% of available funds may be invested in individual United States Government agencies.


The maximum length to maturity for an investment in any United States Government agency security is five (5) years from the date of purchase.


D. Federal Instrumentalities (United States Government sponsored agencies)


The Financial Services DiJector may invest in bonds, debentures, notes or callables issued or guaranteed by United States Government sponsored agencies (Federal Instrumentalities) which are non-full faith and credit agencies limited to the following:

Federal Fann Credit Bank (FFCB)

Federal Home Loan Bank or its district banks (FHLB)

Federal National Mortgage Association (FNMA)

Federal Home Loan Mortgage Corporation (Freddie-Macs) including Federal Home Loan Mortgage Corporation participation cert.jficates


A maximum of 80% of available funds may be invested in Federal Instrumentalities.


A maximum of 25% of available funds may be invested in anyone issuer.


The maximum length to maturity for an investment in any Federal Instrumentality security is five (5) years from the date of purchase.

E. Interest Bearing Time Deposit or Saving Accounts


The Financial Services Director may invest in non-negotiable interest bearing time certificates of deposit or savings accounts in banks organized under the laws of this state and/or in national banks organized under the laws of the United States and doing business and situated in the State of Florida, provided that any such deposits are secured by the Florida Security for Publ.ic Deposits Act, Chapter 280, Florida Statutes. Additionally, the bank shall not be listed with any recognized credit watch information service.


A maximum of 10% of available funds may be invested in non-negotiable interest bearing time certificates of deposit.


A maximum of5% of available funds may be deposited with anyone issuer.


The maximum maturity on any certificate shall be no greater than One (1) year from the date of purchase.


· :~ ~ .

F. Repurchase Agreements


a. The Financial Services Director may invest in repurchase agreements composed of only those investments based on the requirements set forth by the City's Master Repurchase Agreement. All finns are required to sign the Master Repurchase Agreement prior to the execution of a repurchase agreement transaction.

b. A third party custodian with whom the City has a current custodial agreement shall hold the collateral for all repurchase agreements with a tenn longer than one (I) business day. A clearly marked receipt that shows evidence of ownership must be supplied to the Financial Services Director and retained.

c. Securities authorized for collateral are negotiable direct obligations of the United States Government, Government Agencies, and Federal Instrwnentalities with maturities under five (5) years and must have a market value for the principal and accrued interest of 102 percent of the value and for the tenn of the repurchase agreement. 1mmaterial short-tenn deviations from 102 percent requirement are

.pennissible only upon the approval of the Financial Services Director.


A maximum of 25% of available funds may be invested in repurchase agreements excluding one (1) business day agreements and overnight sweep agreements.


A maximum of 10% of available funds may be invested with anyone institution.

4. Limits on Maturities

The maximum length to maturity of any repurchase agreement is 90 days from the date of purchase.

G. Commercial Paper


The Financial Services Director may invest in commercial paper of any United States company that is rated, at the time of purchase, "Prime-I" by Moody's and "A-I" by Standard & Poor's (prime commercial paper). If the commercial paper is backed by a letter of credit ("LOC"), the long-tenn debt of the LOC provider must be rated "A" or better by at least two nationally recognized rating agencies.


A maximum of 25% of available funds may be directly invested in prime commercial paper.


A maximum of 10% of available funds may be invested with anyone issuer.



The maximum length to maturity for prime commercial paper shall be 180 days from the date of purchase.

H Bankers' Acceptances


The Financial Services Director may invest in Bankers' Acceptances issued by a domestic bank or a federally chartered domestic office of a foreign bank, which is eligible for purchase by the Federal Reserve System, at the time of purchase, the shortterm paper is rated, at a minimum, "P-I" by Moody's Investors Services and "A-I" Standard & Poor's.


A maximum of 25% of available funds may be directly invested in Bankers' Acceptances

3. Limits on lndividuallssuers

A maximum of 10% of available funds may be invested with anyone issuer.


The maximum length to maturity for Bankers' Acceptances shall be 180 days from the date of purchase.

I. State and/or Local Government Taxable and/or Tax-Exempt Debt


The Financial Services Director may invest in state and/or local government taxable and/or tax-exempt debt, general obligation and/or revenue bonds, rated at least a minimum "Aa" category by Moody's and a minimum long term debt rating of "AA" category by Standard & Poor's for long-term debt, or rated at least "VMIG2" by Moody's or "A-2" by Standard & Poor's for short-term debt.


A maximum of20% of availab Ie funds may be invested in taxable and tax-exempt debts.


A maximum of 5% of avai lable funds may be invested with anyone issuer.

4. Maturity Limitations for Fi~ed Income Securities

A maximum length to maturity for an investment in any state or local government debt security is three (3) years from the date of purchase.

City of Cape Coral, Florida Investment Policy Page II

5. Maturity Limitations for Variable Rate Demand Obligations

A maximum length to maturity for an investment in any state or local government debt security is the shorter of put or tender date, where the put or tender does not expire for the life of the security, or final maturity.

1. Registered Investment Companies (Mutual Funds)


The Financial Services Director may invest in shares in open-end, no-load provided such funds are registered under the Federal Investment Company Act of 1940 and operated in accordance with 17 C.F.R. § 270.2a-7. In addition, the Financial Services Director may invest in other types of mutual funds provided such funds are registered under the Federal Investment Company Act of 1940, invested exclusively in the securities specifically pennitted under this investment policy, and are similarly diversified.


A maximum of25% of available funds may be invested in mutual funds.

3. Limits of Individual Issuers

A maximum of 10% of available funds may be invested with anyone non-SEC Rule 2a-7 investment mutual fund.


The mutual funds shall be rated "AAAm" by Standard & Poor's or the equivalent by another rating agency.

S. Due Diligence Requirements

A thorough review of any investment mutual fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed by the Financial Services Director that will contain a list of questions that covers the major aspects of any investment pool/fund.

K. Intergovernmental Investment Pools


The Financial Services Director may invest in intergovernmental investment pools that are authorized pursuant to the Florida Inter-local Cooperation Act, as provided in Section 163.01, Florida Statutes and provided that said funds contain no derivatives.

2. portfolio Composition

A maximum of 25% of available funds may be invested in intergovernmental investment pools.



The investment pool shall be rated "AAAm" by Standard & Poor's or the equivalent by another rating agency

4. Due Diligence Requirements

A thorough review of any investment pool/fund is required prior to investing, and on a continual basis. There shall be a questionnaire developed by the Financial Services Director that will contain a list of questions that covers the major aspects of any investment pool/fund.

L. Corporate Notes

I . Purchase Authorization

The Financial Services Director may invest in corporate notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States that have a long tenn debt rating, at the time of purchase, at a minimum "A" category by Moody's and a minimum long term debt rating of "A" category by Standard & Poor's.


A maximum ,of25% of available funds may be directly invested in corporate notes.


A maximum of 5% ofavai lable funds may be invested with anyone issuer.


The maximum length to maturity for corporate notes shall be 3 years from the date of purchase.

M. Corporate Obligations


The Financial Services Director may invest in corporate obligations issued by financial institutions that participate in the FDIC's Temporary Liquidity Guarantee Program and are fully insured by the FDIC and are guaranteed by the full faith and credit of the United States Government.


A maximum of 50% of available funds may be directly invested in corporate obligations.

3. Limits on Indiv

TO: Mayor and Council Me~m FROM: Margaret Krym, City Au ... · Dolores Menendez, City Attorney...

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Transcript of TO: Mayor and Council Me~m FROM: Margaret Krym, City Au ... · Dolores Menendez, City Attorney...