TREASURY - 1998-4 County Investment Policy

1998-4 County Investment Policy

March 2, 1998

TO: County Treasurers

FROM: Richard L. Baldermann, CPA, CGFM
Administrator, Local Audit and Finance Division

SUBJECT: Public Act 196 of 1997--Amendments to Public Act 20 of 1943--Basic Investment Policy

As was discussed at the Mid-Winter Conference, a policy specifically for the counties which meets the minimum requirements as the Act follows.

The policy must be adopted within 180 days after the end of the county's first fiscal year that ends after December 30, 1997. Required dates by which a policy must be adopted are:

Year End Effective Date

December 31, 1997 June 30, 1998

September 30, 1998 March 31, 1999

November 30, 1998 May 31, 1999

If a county, as of December 30, 1997, has adopted an investment policy that substantially complies with the minimum requirements in the Act, the local unit is not in violation of the requirement as long as that policy remains in effect.

The investment policy, at a minimum, must include all of the following:

    (a) A statement of the purpose, scope, and objectives of the policy, including safety, diversification, liquidity, and return on investment.
    (b) A delegation of authority to make investments.
    (c) A list of authorized investment instruments. If the policy authorizes an investment in mutual funds, it shall indicate whether the authorization is limited to securities whose intention is to maintain a net asset value of $1.00 per share or also includes securities whose net asset value per share may fluctuate on a periodic basis.
    (d) A statement concerning safekeeping, custody, and prudence.

If you have any questions please contact:

        Michigan Department of Treasury
        Local Audit and Finance Division
        P.O. Box 30728
        Lansing, Michigan 48909-8228
        Telephone (517) 373-3227

SAMPLE COUNTY INVESTMENT POLICY
To Comply With Public Act 20 of 1943, as amended

The blank spaces are for the County name.

Purpose--It is the policy of __________ County to invest its funds in a manner which will provide the highest investment return with the maximum security while meeting the daily cash flow needs of the County and comply with all state statutes governing the investment of public funds.

Scope--This investment policy applies to all financial assets of the County. These assets are accounted for in the various funds of the County and include the general fund, special revenue funds, debt service funds and capital project funds (unless bond ordinances and resolutions are more restrictive), enterprise funds, internal service funds, trust and agency funds and any new fund established by the County.

Objectives--The primary objectives, in priority order, or the County's investment activities shall be:

Safety--Safety of principal is the foremost objective of the investment program. Investments shall be undertaken in a manner that seeks to insure the preservation of capital in the overall portfolio. Diversification--The investments will be diversified by security type and institution in order that potential losses on individual securities do not exceed the income generated from the remainder of the portfolio. Liquidity--The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. Return on Investment--The investment portfolio shall be designed with the objective of obtaining a rate of return throughout the budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio. Delegation of Authority to Make Investments--Authority to manage the investment program is derived from the following:__________ County Board of Commissioners' most current resolution designating depositories and MCL 48.40 requiring the County Treasurer to be the custodian of the County's funds. Management responsibility for the investment program is hereby delegated to the __________ County Treasurer who shall establish written procedures and internal controls for the operation of the investment program consistent with this investment policy. Procedures should include references to: safekeeping, cash purchase or delivery vs payment, investment accounting, repurchase agreements, wire transfer agreements, collateral/depository agreements and banking service contracts. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the __________ County Treasurer. The __________ County Treasurer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials.

SAMPLE INVESTMENT POLICY
To Comply With Public Act 20 of 1943, as amended

List of authorized investments--if mutual funds are authorized, a statement indicating whether the authorization is limited to securities whose intention is to maintain a net asset value of $1.00 per share or also includes securities whose net asset value per share may fluctuate on a periodic basis.

The __________ County Treasurer is limited to investments authorized by Public Act 20 of 1943, as amended, and may invest in the following:

NOTE--the following list includes all investments authorized by Public Act 20 of 1943, as amended. Each county may remove or limit each section of the list as the county desires.

    (a) Bonds, securities, and other obligations of the United States or an agency or instrumentality of the United States.
    (b) Certificates of deposit, savings accounts, deposit accounts, or depository of a financial institution. Authorized depositories shall be designated by the __________ County Board of Commissioners at the Board's organizational meeting after each regular election of commissioners.
    (c) Commercial paper rated at the time of purchase within the 2 highest classifications established by not less than 2 standard rating services and that matures not more than 270 days after the date of purchase.
(Recommendation--a limit by fund and in accordance with the diversification requirement in the policy.)
    (d) Repurchase agreements consisting of instruments listed in (a).
    (e) Bankers' acceptances of United States banks.
    (f) Obligations of this state or any of its political subdivisions that at the time of purchase are rated investment grade by not less than 1 standard rating service.
    (g) Mutual funds registered under the Investment Company Act of 1940, title I of chapter 686, 54 Stat. 789, 15 U.S.C. 80a-1 to 80a-3 and 80a-4 to 80a-64, with the authority to purchase only investment vehicles that are legal for direct investment by the County. This authorization is limited to securities whose intention is to maintain a net asset value of $1.00 per share.
(Recommendation--the above limitation is recommended, however, the County may also include mutual funds whose net asset value may fluctuate on a periodic basis by so stating in this area.)
    (h) Investment pools through an interlocal agreement under the Urban Cooperation Act, PA 7 of 1967 (Ex Sess), MCL 124.501 to 124.512.
    (i) Investment pools organized under the Surplus Funds Investment Pool Act, PA 367 of 1982, 129.111 to 129.118.
    (j) The investment pools organized under the Local Government Investment Pool Act, PA 121 of 1985, MCL 129.141 to 129.150.

Safekeeping and Custody--All security transactions, including collateral for repurchase agreements and financial institution deposits, entered into by the __________ County Treasurer may be on a cash basis or a delivery vs payment basis as determined by the County Treasurer. Securities may be held by a third party custodian designated by the treasurer and evidenced by safekeeping receipts as determined by the Treasurer.

Prudence--Investments shall be made with judgment and care, under circumstances then prevailing, which persons of prudence, discretion and intelligence exercise in the management of their own affairs, not for speculation, but for investment, considering the probable safety of their capital as well as the probable income to be derived.