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S-1344 - 08/14/2012 - FINANCE - Ordinances ExhibitsExhibit A THIRD 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 governed by the Boards of Trustees of each fund and who determine investment policies of those funds, in accordance with applicable law. The funds governed by this policy are accounted for in the Village's Comprehensive Annual Financial Report and include 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. �7= 3�1X�3iP1�9 1. Safety of Capital - Investments shall be 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. Liquidity - 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 Trust - 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 Director/Treasurer, 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. Village of Oak Brook Investment 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 ILCS 235/2. Permitted investment instruments include: 1. Bonds, notes, certificates of indebtedness, Treasury bills or other securities which are guaranteed by the full faith 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 agenc1es. 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 270 days of purchase, and (d) such purchase does not exceed 10% 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 bills, or other securities which are guaranteed by the United States of America as to principal and interest. 6. Repurchase Agreements which are collateralized by full faith and credit U.S. Treasury securities. 7. 7. Insured accounts of credit unions whose principal office is in Illinois. For purposes 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 home 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. Village of Oak Brook Investment Policy Page 3 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 Fund (IMET), 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. Government Securities = 110% b) Obligations of Federal Agencies = 115% C) Obligations of the State of Illinois = 115% d) Local 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 collateral 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 fire, theft and similar causes. 3) By an escrow agent of the pledging institution. b) 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. Village of Oak 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. 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. Village of Oak Brook Investment Policy Page 5 2. Depositories - Certificates of Deposit Any financial institution selected to be eligible for the Village's competitive certificate of deposit 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 required 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 not 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 this policy and shall strive to attain a market average rate of return that exceeds the interest rate on 90 day U.S. Treasury Bills, taking into account the Village's risk constraints, cash flow characteristics, and legal restriction on eligible investments. REPORTING On a monthly basis, the Finance Director/Treasurer shall submit to the Village Board an investment report which shall describe the portfolio in terms of investment securities, maturities and cost by fund, market value, and earnings for the current period and year to date. On an annual basis, the Finance Director/Treasurer shall submit a comprehensive annual report on the investment program and activity, including a review of the overall performance for the year. POOLING OF CASH AND INVESTMENTS 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 respective participation. ETHICS AND CONFLICTS OF INTEREST Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Village of Oak Brook Investment Policy Page 6 f 9-91 i`l:lIyWAKOIZ 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 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 of the State 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 -1185 on February 27, 2007. Cash and Investment Procedures and Internal Controls Manual Introduction 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. Objective This Procedures and Internal Control Manual provides an outline for cash and investment transactions. 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 industry standards and practices. Prudence and Standard of Prudence 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. 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. Investment 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. Duties and Responsibilities 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. Separation of Duties Finance Department staff shall observe proper segregation of duties while 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. Village Bank Accounts 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 $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 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. Wire 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 Account Reconciliations 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 Internal Control Manual noted during the reconciliation process shall be reported immediately to the Finance Director and /or the Village Manager. Investment of Village Funds 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. Security Selection Process 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 preclude the use of the competitive bidding process. 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. Settlement Procedures for Investment Transactions Settlement for all "book entry" securities transactions 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 Investment Transactions In order to maximize interest earnings, the Village shall pool the cash and investment balances of its funds whenever possible. Investments shall be recorded in the financial records at amortized historical cost. Interest income will be recognized monthly based on the effective interest method of amortization. In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments, investment balances will 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. Reporting 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, earnings for the month, and total earnings for the year. A yield calculation will be performed monthly based on the original purchase yield, along with a comparison to the benchmark rate based on the yield of the 90 day U.S. Treasury Bill as specified in the Village's Investment Policy.