S-954 - 10/12/1999 - FINANCE - Ordinances $ '
ORDINANCE 1999-FI-EX1-S-954
AN DANCE AMENDING THE INVESTMENT'POLICY
FOR THE VILLAGE OF OAK BROOK,IL
WHEREAS,on January 24, 1995,the Board of Trustees of the Village of Oak Brook 9dopwd a
uniform and comprehensive investment policy encompassing funds governed by it;and
WHEREAS,on February 11, 1997,the Village Boni passed.atiance S_869 entiliW An
Ordinance Amending the Investment Policy for the Vlltaget of Oak Brook„IV,and
WHEREAS,Public Act 90-618 requires that aii public agencies have a often investment Policy
developed and imPWnente d by January I,2400;and
WHEREAS, Public Act 90-688 requirea that the written investment policy address twelve c rawW in
order to be in compliance with ft Act;and
WHEREAS,it is in the best interests of the Village of Oak Brook that the attached Second
Amended Investment policy be adopted in order to be in compliance with Public Act 9 4W.
NOW,THEREFORE,BE IT ORDAINED BY THE PRESIDENT AND BOARD OF TRUSTEES OF
THE VILLAGE OF OAK BROOK, DU PAGE AND COOK COUNTIES, ILLINOIS as follows:
Section 1: That the provisions of the preamble hereinabove set forth are hereby adopted as
though fully set forth heroin.
Section 2: That the Second Amended investment Policy,a copy of which is attached herelo and
incorporated herein as Exhibit A, is hereby approved and adopted in its entity and supercedes vA prior
editions of the Investment Policy.
Section 3: That the Village Clerk is hereby authorized and directed to publish this ordinance in
Pamphlet form in the manner provided by law.
Section 4: That this ordinance shall be in full force and effect from and after passe and
approval pursuant to law.
Section 5: That all ordinances or parts thereof in conflict with the provisions of this ordinance be
and the same are hereby repealed to the extent of such conflict.
PASSED THIS 12th day of October, 1999.
Ayes: Trustees Butler, Caleel, Craig, Kenny, McInerney and Savino
Nays: None
Absent: None
Abstain: None
APPROVED THIS l 2 th. day of October, 1999.
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APProved as to Form:
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Published 10-13-99 Pamphlet form
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SECOND AMENDED
VILLAGE OF OAK BROOK
INVESTMENT POLICY
SCOPE
This policy governs the investment practices of all funds of the Village of Oak Brook, excepting the
Police Pension Fund and the Firefighters' Pension Fund, which are govemed by the Boards of
Trustees of each fund and who determine investment policies of those funds, in accordance with
applicable law. The funds gov,arned by this policy are accounted for in the Village's Comprehensive
Annual Financial Report and ;nclude the General Corporate Fund, Special Revenue funds, Capital
Project funds, Enterprise funds, Internal Service funds, and any other funds that may be created from
time to time. All transactions involving the financial assets and related activity of the foregoing funds
shall be administered in accordance with the provisions of this policy. !!
OBJECTIVES
1. Safety o Capital _ l.nvestments shall to undertaken in a manner that seeks to ensure the
preservation of capital in the overall portfolio. To attain this objective, diversification is desired in
order to avoid incurring unreasonable risks from concentrating investments in specific security
types and/or particular financial institutions.
2. Liwaidity - The Village's investment portfolio shall remain sufficiently liquid to enable the Village to
meet all operating requirements which may be reasonably anticipated in any Village fund.
Maturities of investments in all funds covered by this policy shall not exceed five years, unless a .
temporary extension of maturities is approved by the Board of Trustees.
3. Maintenance of Public Tn,gt - All participants in the investment process shall seek to act
responsibly as custodians of the public trust and shall avoid any transaction that might impair
public confidence in the Village.
4. 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. The standard of prudence to be used by
investment officials shall be the "prudent person" and shall be applied in the context of managing
the overall portfolio.
RESPONSIBILITY
Management responsibility for the investment program of the Village of Oak Brook is hereby
delegated to the Finance Directorareasurer, who shall direct the investment program in a manner
consistent with this policy. The Finance Director/Treasurer shall be responsible for all transactions
undertaken., shall establish a written system of controls to regulate the activities of subordinate
employees, and shall provide written approval for each Investment placement.
Ville of Oak Brook II
Inv"tment Policy
Page 2
INVESTMENT INSTRUMENTS
The Village may invest in any type of investment instrument permitted by Illinois law, as described in
Chapter 30 of the Illinois Compiled Statutes, 30 #I_CS 235/2. Permitted investment instruments
include:
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1. Bonds, notes, certificates of indebtedness, Treasury bills or other securities which are guaranteed
by the full with and credit of the United States of America as to principal and interest.
2. Bonds, notes, debentures, or other similar obligations of the_United States of America or its
agencies.
3. Commercial paper, provided that, (a)the issuer is a U.S. Corporation with more than $500 million
in assets, (b)the security is rated within the 3 highest classifications by.two standard rating services,
(c)the security will mature within 180 days of purchase, and (d) such purchase does not exceed 10`yo
of the issuer's outstanding obligations.
4. The State of Illinois Public Treasurer's Investment Pool.
5. Money market mutual funds which are registered under the Investment Company Act of 1940,
provided the portfolio is limited to bonds, notes, certificates, treasury hills, or other securities which
are guaranteed by the United States of America as to principal and interest.
8. Repurchase Agreements which are collateralized by full faith and credit U.S. Treasury securities.
7. Short term discount obligations of the Federal National Mortgage Association.
8. Insured accounts of credit unions whose principal office is in Illinois.
For purpol )s of this section, the term "agencies of the United States of America" include: the federal
land banks, federal intermediate credit banks, banks for cooperative, federal farm credit banks, or any
other entity authorized to issue debt obligations under the Farm Credit Act of 1971; the federal game
loan banks and the federal home loan mortgage corporation; and any other agency created by act of
Congress.
This policy expressly prohibits investments in derivative type securities.
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Viftm of Oak Brook
went Policy
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DIVERSIFICATION
It is the policy of the Village to diversify its investment portfolio. Investments shall be diversified in
order to reduce the risk of loss resulting from concentration in a specific maturity, issuer, or class of
securities. In order to achieve a diversified investment portfolio, no one financial institution shall hold
more than 25% of the Village's investments, exclusive of securities guaranteed by the full faith and-
credit of the United States of America, or obligations of the United States of America agencies.
COLLATERALIZATION
1. It is the policy of the Village to require that all deposits in excess of FDIC insurable limits, except
those in the Illinois Metropolitan Investment F=und (INLET), be secured by collateral to protect public
deposits in a single financial institution if it were to default.
2. Eligible collateral instruments and collateral ratios (market value divided by deposit)are as follows: '
a) U.S. Govem rent Securities = 110%
b) Obligations of Federal Agencies 115%
c) Obligations of the State of Illinois = 115%
d) Lord and Municipal Bonds rated "A"or better 115%
by Moody's
The ratio of fair market value of collateral to the amount of funds secured shall be reviewed at least
quarterly and additional co lateral shall be requested when the ratio declines below the level required.
3. Safekeeping of Collateral
a) Third party safekeeping is required for all collateral. To accomplish this, the securities can
be held at the following locations:
1) A Federal Reserve Bank or branch office.
2) At another custodial facility-generally in a trust department through book-entry at
the Federal Reserve, unless physical securities are involved. if physical securities are
involved, at a third party depository in a suitable vault and insured against loss by firer
theft and similar causes.
3) By an escrow agent of the pledging institution.
h) Safekeeping of collateral shall be documented by a written agreement approved by the
Village. This may be: in the form of a safekeeping agreement, trust agreement, escrow agreement or
custody agreement.
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VINage of teak Brook
Investment Policy
Page 4
c) Substitution or exchange of securities held in safekeeping as collateral may occur without
prior written notice to the Village provided that the market value of the replacement securities are
equal to or greater than the market value of the securities being replaced. The Village shall be
notified in writing within two days of all substitutions.
SAFEKEEPING OF SECURITiES
1. Third party safekeeping is required for all securities owned by the Village. To accomplish this, the
securities shall be held in a trust department through book-entry at the Federal Reserve.
2. Safekeeping shall be documented by an approved written agreement. The agreement may be in
the form of a safekeeping agreement, trust agreement, escrow agreement or custody agreement.
Fees for this service shall be mutually agreed upon by the Village and the safekeeping bank selected
by the Village.
QUALIFIED FINANCIAL INSTITUTIONS
All depositories of the Village shall execute a contract every three years which shall designate the
requirements of serving as depository for the Village, including collateralization of Village funds
invested at such depository and the related safekeeping requirements of pledged securities. The
Village shall have a separate contract with an "operating bank"for demand deposits, which shall also
execute a contract with the Village for such service at least once every three years. Such financial
institutions shall provide such financial data to the Finance Director/Treasurer as may be required by
the Finance Director/Treasurer to evaluate the financial condition of the institution. Such data may be
in the form of audited financial statements, FDIC regulatory reports, and shall be provided at least
annually to the Finance Director/Treasurer. Any refusal to provide such information to the Village
may cause termination of the depository contract with such institution.
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1. Depositories - Demand Deposits
a) The Village shall select one financial institution to provide operating banking services
including, but not limited to: checking accounts, wire transfers, credit card processing, ACH
processing, etc.
b) The Village shall not maintain funds in any financial institution that is not a member of the
FDIC. In addition, the Village shall not maintain funds in any institution not willing or capable of
posting required collateral for funds in excess of FDIC insurable limits.
c) Fees for banking services shall be mutually agreed to by an authorized representative of
the depository bank and the Village from time to time.
Wopof Oak Brook
kivest"rit Policy
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2. Depositories - Certificates of Deposit
Any financial institution selected to be eligible for the Village's competitive certificate of depo °
purchase program must meet the following requirements.
a) Shall provide wire transfer and safekeeping services.
b) Shall be a member of FDIC system and shall be willing and capable of posting requir
collateral for funds in excess of FDIC or insurable limits.
3. The total amount of Village funds deposited and/or invested in a financial institution shall no
exceed 25% of the institution's capital stock, surplus, and undivided profits.
PERFORMANCE STANDARDS
The investment portfolio will be managed in accordance with the parameters specified within thi
policy and shall strive to attain a market average rate of return equal to 50 basis points greater tha
the interest rate on 90 day U.S. Treasury Bills, taking into account the Village's risk constraints, cas
flow characteristics,and legal restriction on eligible investments
REPORTING
On a monthly basis, the Finance Director/Treasurer shall submit to the Village Board an investme
report which shall describe the portfolio in terms of investment securities, maturities and cost by fun ,
market value, and earnings for the current period and year to date. On an annual basis, the Fina
Director/Treasurer shall submit a comprehensive annual report on the investment program a
activity, including a review of the overall performance for the year.
POOLING OF CASH AND INVESTMENTS
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The Village may pool the cash and investments of various funds in order to maximize investment
earnings. Investment income shall be allocated to the various funds based upon their respecav'
participation.
ETHICS AND CONFLICTS OF INTEREST
Officers and employees involved in the investment process shall refrain from personal busines'
activity that could conflict with the proper execution of the investment program, or which could impa r
their ability to make impartial investment decisions.
O* Srook
M Policy
INDEMNIFICATION
Investment officers and employees of the Village acting in accordance with this Investment Policy and
such written procedures as have been or may be established, in relation thereto, and exercising due
diligence, shall be relieved of personal liability for an individual security's credit risk or market:
changes.
AMENDMENT
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This policy may be amended by the Village.'President and Board of Trustees, upon recommendation
of the Finance Director/Treasurer and Village Manager.
CONFLICT
In the event of any conflict between this Policy and the Illinois Compiled Statutes or case decisions
the agitate of Illinois, the Statutes and case law decisions shall control.
ADOPTION
Adopted as amended by the Village President and Board of Trustees by Ordinance # s-954 on
October 12, 1999.
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SEEN
Gash and Investment Procedures and Internal Controls Manual
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The Finance Department is responsible for conducting cash and investment
transactions for all funds held by or for the benefit of the Village of Oak Brook.
The responsibility for the administration of the cash and investment program has
been delegated to the Finance Director, who shall implement the following
investment procedures and internal controls, as prescribed by the Village's
Investment Policy.
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This Procedures and Internal Control Manual provides an outline for cash and
investment transactiorts. This manual shall be reviewed on a yearly basis for
Possible revisions by the Finance Director to ensure that the manual is current
with investment indust. o standards and mss.
Prudence and Standard of Pri___$n
The standard of prudence to be used by the investment staff shall be that of a
"Prudent person" and shall be applied in the context of managing the overall
portfolio.` The Finance Director, or persons performing the investment functions,
acting in accordance with written policies and procedures and exercising due
diligence, shall not be responsible for an individual security's credit risk or market
price changes, provided that deviations from expectations are reported in a
timely fashion and appropriate action is taken to control or mitigate adverse
developments. i
The 'prudent person" standard is herewith understood to mean that 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.
vestment Decisions
The Finance Department staff shall adhere to the guidelines of the Village of Oak
Brook's investment Policy and the Procedures and Internal Control Manual
regarding all investment procedures or any other cash and investment
transactions.
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The Finance Director shall be responsible for the management of the cash and
investment program (i.e., purchase and sale of securities, bank account
transfers, wire transfers, and reporting) and the Accounting Manager shall be
responsible for the accounting of all transactions. The Accounting Manager shall
have the authority to perform operational duties as authorized by the Finance
Director in his/her absence.
Bvqamfion of Duties
Finance Department staff shall observe proper segregation of duties while II'
engaged in cash and investment activities whenever possible. Persons
responsible for initiating cash and investment transactions should not perform the
reconciliation of bank or safekeeping account statements. j
Village l ankA=unts
The Finance Director is responsible for establishing the appropriate number of
bank accounts in order to transact Village business. The Village President,
Village Manager, and Finance Director shall be named as authorized signers on
all Village accounts. One signature is required for all disbursements under
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$10,000. Two signatures are required for all disbursements in excess of
$10,000.
The use of a facsimile signature for Signing Village checks is allowed. The plates
bearing the facsimile signatures shall be kept in the possession of each
authorized signer, with proper care taken to secure the plates in order to avoid
the potential for unauthorized use. A facsimile signature is not allowed for the
second required signature on checks in excess of$10,000.
Bank Account Transfers
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Routine transfers of funds from one bank account to another within the same
financial institution may be initiated by staff members authorized by the Finance
Director. For all transfers, a bank transfer form must be completed which
contains, at a minimum, the account number the funds are transferred from, the
account number the funds are transferred to, the amount of the transfer, an
explanation as to the reason for the transfer, and a notation as to the bank
representative contacted and the time the contact is made. The individual
initiating the account transfer shall prepare the necessary journal entry form for
entry into the Village's accounting system.
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}�yire Transfers
The Village Manager and Finance Director are authorized to wire funds from one
financial institution to another. For all wire transfers initiated, a wire transfer form
must be completed which contains, at a minimum, the account number the funds
are transferred from, the account number the funds are transferred to, the
amount of the transfer, an explanation as to the reason for the transfer, and a
notation as to the bank representative contacted and the time the contact is
made. Proper care shall be taken to safeguard any personal identification
numbers or security codes given by the Village's financial institutions in order to
prevent unauthorized use. The financial institution is not required to confirm wire
transfers initiated by the Village Manager or Finance Director with another
authorized signer.
Bank Acco conciliations
All bank accounts and investment accounts shall be reconciled on a monthly
basis by the Accounting Manager. Any deviations from the procedures
prescribed in the Village's Investment Policy or this Procedures and lntemal
Control Manual noted during the reconciliation process shall be reported
immediately to the Finance Director and/or the Village Manager.
Investment of Village Funds
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The Village shall utilize the Illinois Funds and money market sweep accounts for
the investment of its short term funds. Funds available for longer term investing
may be invested in any investment vehicle allowed by the Village's Investment
Policy.
°i#Y Selection Pmcem
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When purchasing securities, the Finance Department shall select the security
which provides both the highest rate of return within the established parameters
of the Investment Policy and satisfies the current objectives and needs of the
Village's portfolio. These selections shall be made based on a minimum of two
(2) bids/quotes (unless securities are being purchased at the FED window)being
obtained from banks and/or broker/dealers on the securities in question. Two
bids/quotes are not necessary in the following situations:
1) When time constraints E•,eclude the use of the competitive bidding process, l
2) When no active market exists for the issue being traded due to the age or
depth of the issue.
3) When a security that the Village is purchasing is not widely traded.
4) When the transaction involves a new issue being sold at no greater than par
value.
When using the competitive bid process, all bids shall become part of the record
of the specific security Involved.
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;kItt@ ent Proud,res for Investment Transactions
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Settlement for all "book entry" securities traneactions shall be made"delivery vs.
payment" (DVP) by the Village's designated custodian for safekeeping. The
Village's designated safekeeping institution shall be notified of the trade prior to
or on the day of settlement. Confirmation of the delivery will include the type of
security purchased/sold, CUSIP number, coupon rate (if applicable), maturity,
purchase and settlement dates, par value and purchase price.
Certificates of deposit purchased by the Village shall be settled by wire transfer
once documentation has been received indicating that the appropriate amount of
collateral has been placed with an independent third party financial institution.
Accounting for lnv fitment Transactions
In order to maximize interest earnings, the Village shall pool the cash and
investment balances of its funds whenever possibis. Investments shall be
recorded in the financial records at amortized hbkxical cost. Interest income will
be recognized monthly based on the effective irderest method of amortization. In
accordance with GASB Statement No. 31, Ming and Financial ReportkV
for Certain Investments, investment balances wig be adjusted at the end of the
fiscal year to fair market value,
Trust Account Statements
Original statements for the Village's investment accounts which are held by the
custodian shall be reconciled by the Accounting Manager on a monthly basis. A
duplicate copy of the statement shall be sent directly by the custodian to the
Village Manager for review.
R-PROEfing
A Treasurer's Report detailing cash and investment balances as of the end of
each month shall be prepared and forwarded to the Village Board. At a
minimum, the Report shall contain the following information:
a) Security/Account description e)Purchase yield rate
b) Purchase date f)Book value
c) Maturity date g)Market value
d) Coupon rate
The Report will also present each fund's share of cash and cash equivalents,
investments, eaming for the month, and total earning for the year. A yield
calculation will be performe6 monthly based on the original purchase yield, along
with a comparison to the benchmark rate of 50 basis points greater than the 90
day U.S. Treasury Bill as specified in the Wage's Investment Policy. The
benchmark rate will be calculated based on the 3-month T-bill rate at the end of
each month as provided in the "Money and Investing" section of the We# Street
Journal,
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VILLAGE OF OAK BROOK
1200 'OAK BROOK ROAD
j OAK BROOK, ILLINOIS 60523-2255 I'
PHONE: 630 990-300
k FAX, 630 990.087
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W E B S I T E: a w .o•k•brook.
Date: September 27, 1999
To: Village President and Board of Trustees
From: Darrell LangkAs
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Recommendation: That the Village President and Board of Trustees adopt the
attached ordinance revising the investment Policy for the Village
of Oak Brook.
Public Act 90-0688, signed into law during 1998, requires that every unit of government
in Illinois adopt a written investment policy by January 1, 2000. The legislation specifies
that the investment Policy address twelve different areas governing ft Vifiage's
investment activities. Although the Village's existing investment policy already contains
most of the requirements of P.A. 90-0688, minor adjustments are needed in order to be
in full compliance with the new legislation. to addition, I am recommending updating the
policy in various minor ways at this time.
The following are the recommended revisions to the investment policy:
• All references to the Finance Officer position have been changed to Finance
Director, reflective of the change in title made in 1988.
• The section titled "Return on Investments" has been removed from the "Objectives"
section and has been moved and renamed "Performance Standards". This change
was made since the new legislation specifically separates performance standards
from objectives.
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• The language in the "Responsibility" section requiring the Finance Director to
establish a system of controls has been strengthened to require that these controls
be in written form. The attached Cash and Investment Procedures and Internal
Controls Manual documents the controls that the Finance Department has had in
place for several years.
The "Reporting" section now requires that market value be reported on the monthly
Treasurer's Report. The prior requirement that the annual report include as
projection of what may be anticipated In the future" has been deleted In that it is
difficult, even for Investment professionals, to predict the future of Interest rates.
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The seen previously titled'*BMkV Procedures on Investments"has been ry nXAo9ed
from the Investment Policy and is now addressed In the Gush and Inveseysent
Procedures and Internal Controls.Marl, White I strongly erWo se the ink of
bidding on all investment Wises, them are times when exceptkm are r000ded,
especially In the area of goveanment agency securities.
When deciding to purchase agency securities, the analysis Is usually based on Vw
incremental yield over U.S. Treasury securities, the "call" provisions, etc. The agency
securities.we have purchased so far ha%,*been new issues, which trade at par, and are
priced the same from bracer to broker. in this case competitive bidding doesn't make
sense. The situation may arise later in that a broker holds a specific agency Issue that is
not widely traded but Is a good investrent from a yield and call provision standpoint. In
this case competitive bidding be very difficult when we have to try to fwd anotter
broker holding exactly the :same issue. Simply stated, getting an 'apples to
comparison with agency securities can be ddf wft;
A provision has also been I made to forgo cwnpetitive bidding when time constrains
predude the use of ice bidding, "his situation happens infrequently arc!occurs
when a broker is not available,or fa s to deliver their bid at the specified time, Wherever
possible and practical we w con nue t a seek competitive bids on all Investment.
purchases.
Please feel free to contact me,d you have any comments or questions.
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