DEPOSITORIES OF PUBLIC FUNDS AND PUBLIC INVESTMENTS

Transcription

1 DEPOSITORIES OF PUBLIC FUNDS AND

2 LEGAL COMPLIANCE MANUAL DEPOSITORIES OF PUBLIC FUNDS AND Intoduction A govenment entity that eceives and disbuses funds may deposit the funds only in financial institutions designated by its govening body. The govening body may authoize its teasue o chief financial office to make such designations. The govenment entity may deposit funds in amounts that ae fedeally insued o, if it deposits moe than this amount, it must eithe have the depositoy funish a bond o assign collateal to potect the excess deposit. "Govenment entity" fo the pupose of this section means: - a county;* - a city;* - a town; - a school distict; - a hospital distict; - a public authoity; - a public copoation; - a public commission; - a special distict; - a political subdivision; o - an Ameican Indian tibal govenment entity located within a esevation. Minn. Stat. 118A.01, subd. 2. "Public funds" fo the pupose of this section means all geneal, special, pemanent, tust, o othe funds, egadless of souce o pupose, held o administeed by a govenment entity, unless othewise esticted. Minn. Stat. 118A.01, subd. 4. If the audited govenmental entity is one of those listed and it has the powe to eceive and disbuse public funds, then complete this section to detemine if the govenment entity has popely invested its funds o deposited its funds in a popely designated depositoy with appopiate collateal o bond. In addition, the depositoy and collateal equiements of Minn. Stat. 356A.06, subd. 8a, and 118A.03 apply to fie elief associations. Pats I and II should be completed fo fie elief associations *Note: A city with a population in excess of 200,000 o a county that contains a city of that size (cuently the two lagest cities and counties) has additional investment authoity. See Minn. Stat. 118A /05 1-1

3 Pat I. Designation of Depositoy Wokpape 118A.02, subd. A. In the case of a govenment entity: 1. Has each depositoy of public funds been designated by the govenment entity s govening body, o by its teasue o chief financial office, if the govening body has authoized them to make such a designation? 118A.01, subd Is each depositoy one of the following: a. a savings association; b. a commecial bank; c. a tust company; d. a cedit union; o e. an industial loan and thift company? 356A.06, subd. 8a B. In the case of a elief association: 1. Has each depositoy fo assets, not held by the elief association s custodian bank, been designated by the elief association s govening boad? 2. Is each depositoy one of the following: a. a national bank; b. an insued state bank; c. an insued cedit union; o d. an insued thift institution? Pat II. Insuing o Secuing Deposits 118A.03 A. If a govenment entity desies to deposit an amount in excess of deposit insuance, it must obtain a bond o collateal which, when computed at its maket value, shall be at least ten pecent moe than the amount of the excess deposit at the close of the banking day. Fo the pupose of this section, banking day has the meaning given in Fedeal Reseve Boad Regulation CC, 12 C.F.R (f), and incopoates a financial institution s cutoff hou established unde 10/05 1-2

4 Minn. Stat If ievocable standby lettes of cedit fom Fedeal Home Loan Banks ae used as collateal, the amount must be equal to the amount of the excess deposit plus inteest at the close of the banking day. Wokpape B. Review the following geneal pinciples of FDIC coveage and complete the spead sheet in this section to detemine the amount of the govenment entity s funds that ae not insued and thus need to be eithe bonded o collatealized. Deposits held by cedit unions ae coveed by sepaate deposit insuance ules pomulgated by the National Cedit Union Administation (NCUA). Geneal Pinciples of FDIC coveage: 1. Deposits ae insued only if the depositoy is a membe of FDIC. 2. Deposits in one depositoy ae insued sepaately fom deposits in anothe depositoy which is not a banch of the fist one. Howeve, a depositoy and all of the banches associated with it ae teated as a single combined depositoy, and the funds deposited in the banches ae aggegated fo puposes of insuance coveage. 3. The aggegate of a govenment entity s inteest beaing accounts, i.e., savings accounts, NOW accounts, and time deposits (CD s) with the same depositoy ae insued up to a total of $100,000. The aggegate of a govenment entity s non-inteest beaing accounts, i.e., non-inteest checking accounts, ae insued up to a total of $100,000 and ae insued sepaately fom the govenment entity s inteest-beaing deposits. This sepaate $100,000 coveage fo non-inteest beaing accounts only applies if the depositoy is in the same state as the govenment entity. 4. A public authoity, public copoation, public commission, o special distict eceives sepaate insuance coveage fom its paent govenment entity only if it was ceated expessly by state statute and funds have been allocated fo its exclusive use and contol. Subodinate o nonautonomous divisions, agencies, o boads do not eceive sepaate insuance coveage. 5. Funds held fo a special pupose and equied by law to be paid to bondholdes o beneficiaies such as membes of pension funds o elief associations ae coveed up to $100,000 pe bondholde o beneficiay whethe the beneficial inteest is vested o not. The fiduciay natue must be indicated on the account name in the bank s ecods. 6. If moe than one peson is legal o official custodian of funds fo 10/05 1-3

5 a govenment entity, each custodian is sepaately insued up to $100,000. Also, if the same peson is the custodian of funds fo two sepaate govenment entities, the funds fo the two govenment entities ae sepaately insued. Wokpape 7. Moneys held by a govenment entity in tust ae insued sepaately fom othe govenment entity funds only if the tust is an ievocable expess tust and the account ecods indicate the name of both the settlo and the tustee. C. Has the spead sheet been completed? (See page 1-10) Pat III. The Bond and Collateal 118A.03, subd. 1 A. If a bond was funished by the depositoy to the govenment entity, answe the following question: 1. Was the bond executed by a copoate suety company authoized to do business in the state? 118A.03, subd. 2 B. If the depositoy assigned collateal to the govenment entity, answe the following questions: 1. Was the collateal one of the following: a. U.S. govenment teasuy bills, notes, o bonds; b. issues of a U.S. govenment agency o instuments that ae quoted by a ecognized industy quotation sevice available to the govenment entity; c. a geneal obligation of a state o local govenment, with taxing powes, ated A o bette; d. a evenue obligation of a state o local govenment, with taxing powes, ated AA o bette; e. unated geneal obligation secuities of a local govenment with taxing powes pledged as collateal against funds deposited by that same local govenment entity; f. an ievocable standby lette of cedit issued by a Fedeal Home Loan Bank accompanied by witten evidence that the Fedeal Home Loan Bank s public debt is ated AA o bette by Moody s o Standad and Poo s; o g. Time deposits insued by the any fedeal agency? 10/05 1-4

6 Wokpape 118A.03, subd Was the collateal placed fo safekeeping: a. in a esticted account at the Fedeal Reseve Bank; o b. in an account at a tust depatment of a commecial bank o othe financial institution not owned o contolled by the depositoy? 3. Did the govenment entity appove of the selection of the safekeeping entity? 118A.03, subd A.03, subd Was the collateal assignment in witing? 5. Did the assignment povide that, upon default, the depositoy shall elease the collateal pledged to the govenment entity on demand? C. Collateal pledged must equal at least ten pecent moe than the uninsued and unbonded amount on deposit at the close of the banking day. If ievocable standby lettes of cedit fom Fedeal Home Loan Banks ae used, the amount must be equal to the amount of the excess deposit plus inteest at the close of the banking day. The depositoy may, at its discetion, funish both a bond and collateal aggegating the equied amount. Fo the pupose of this section, banking day has the meaning given in Fedeal Reseve Boad Regulation CC, 12 C.F.R (f), and incopoates a financial institution s cutoff hou established unde Minn. Stat A.03, subd. 3 [12 C.F.R (f)] If a bond was obtained o standby lettes of cedit fom Fedeal Home Loan Banks wee pledged, was the amount of excess deposit plus inteest at the close of the banking day (as defined above) equal to o less than the amount of the bond o standby lettes of cedit? 2. If othe collateal was pledged, was the amount of collateal at least ten pecent moe than the uninsued amount on deposit at the close of the banking day? D. Assignment [Fedeal Statutoy Requiements] [12 U.S.C. 1823(e)] 1. Was the witten assignment appoved by the depositoy s boad of diectos o loan committee? 10/05 1-5

7 Wokpape 2. Was the assignment an official ecod of the depositoy? Pat IV. Public Investments A. Wee all epuchase ageements and evese epuchase ageements only enteed into with: 118A.05, subd a financial institution qualified as a depositoy of public funds; 2. any othe financial institution which is a membe of the Fedeal Reseve System and whose combined capital and suplus equals o exceeds $10,000,000; 3. a pimay epoting deale in United States govenment secuities to the Fedeal Reseve Bank of New Yok; o 4. a secuities boke-deale licensed pusuant to chapte 80A, o an affiliate of it, egulated by the Secuities and Exchange Commission and maintaining a combined capital and suplus of $40,000,000 o moe, exclusive of subodinated debt? B. Ae all investments held in safekeeping? If so: 118A Is the govenment entity s owneship of all secuities in which the fund is invested evidenced by witten acknowledgments identifying the secuities by: a. the names of the issues? b. matuity dates? c. inteest ates? d. CUSIP numbes o othe distinguishing maks? C. Wee the secuities sold o pledged unde the epuchase ageement o evese epuchase ageement pemissible diect investments unde Minn. Stat. 118A.04 (see L and M below)? D. Wee all evese epuchase ageements only enteed into: 118A.05, subd fo a peiod of 90 days o less, and 2. only to meet shot-tem cash needs and not to geneate cash fo investments? 10/05 1-6

8 E. Wee all secuities lending ageements (including custody ageements) enteed into only with: Wokpape 118A.05, subd a financial institution qualified as a depositoy having a pincipal executive office in Minnesota; o 2. a financial institution which is a membe of the Fedeal Reseve System and whose combined capital and suplus equals o exceeds $10,000,000, and which has a pincipal executive office in Minnesota? F. Did the custodian o entity opeating the secuities lending pogam only ente into secuities lending tansactions with those entities identified in Pat IV.A. (above)? G. Wee all guaanteed investment contacts o ageements only enteed into with an issue o guaanto: 118A.05, subd that was a U.S. commecial bank, a domestic banch of a foeign bank, a U.S. insuance company, o its Canadian subsidiay, o the domestic affiliates of any of the foegoing. 2. whose cedit quality fo long-tem and shot-tem unsecued debt was ated in one of the highest two categoies by a nationally ecognized ating agency? H. Did all guaanteed investment contacts give the public entity withdawal ights in the event the issue s o guaanto s cedit quality was downgaded below A? I. Did the govenment entity only invest in shaes of a Minnesota joint powes investment tust whose investments wee esticted to secuities descibed in Minn. Stat. 118A.04 and 118A.05? 118A.05, subd. 4 J. Mutual Funds - Did the govenment entity only invest in shaes of an investment company that met the citeia in eithe 1 o 2 below: 1. a. egisteed unde the Fedeal Investment Company Act of 1940; b. whose shaes wee egisteed unde the Fedeal Secuities Act of 1933; c. whose fund eceived the highest cedit ating; d. that was ated in one of the two highest isk ating categoies by at least one nationally ecognized statistical 10/05 1-7

9 ating oganization; and Wokpape e. that only invests in financial instuments with a final matuity no longe than 13 months? 2. a. egisteed unde the Fedeal Investment Company Act of 1940; b. which holds itself out as a money maket fund meeting the conditions of SEC ule 2a-7; and c. is ated in one of the two highest ating categoies fo money maket funds by at least one nationally ecognized statistical ating oganization? K. Did the govenment entity only invest in units of a shot-tem investment fund: 1. established and administeed pusuant to egulation 9 of the Comptolle of the Cuency, and 2. in which investments ae esticted to secuities descibed in Minn. Stat. 118A ? L. Wee all othe funds invested in instuments which met at least one of the following citeia: 118A In govenmental bonds, notes, bills, motgages, and othe secuities, which wee diect obligations o ae guaanteed o insued issues of the United States, its agencies, its instumentalities, o oganizations ceated by an act of Congess, excluding motgage-backed secuities defined as high isk (see M - Motgage-Backed Secuities); 2. In a geneal obligation of a state o local govenment with taxing powes which was ated A o bette by a national bond ating sevice; 3. In a evenue obligation of a state o local govenment with taxing powes which was ated AA o bette by a national bond ating sevice; 4. In a geneal obligation of the Minnesota Housing Finance Agency which was a moal obligation of the State of Minnesota and is ated A o bette by a national bond ating sevice; 10/05 1-8

10 Wokpape 5. In commecial pape issued by a United States copoation o its Canadian subsidiay and that: a. was ated in the highest quality categoy by at least two nationally ecognized ating agencies, and b. matues in 270 days o less; subd In time deposits fully insued by the Fedeal Deposit Insuance Copoation; subd In bankes acceptances issued by United States banks; o 8. In its own tempoay obligations issued unde Minn. Stat , subd. 7 (special assessments), , subd. 5 (tax incement bonds), o , subd. 6? subd. 7 Note: A debt sevice fund can puchase any issue payable fom the fund. subd. 8 subd. 2 M. Motgage-Backed Secuities Govenment entities may only puchase motgage-backed secuities that ae diect obligations o guaanteed o insued issues of the United States, its agencies, its instumentalities, o oganizations ceated by an act of Congess. Motgage-backed secuities puchased shall not be high isk. Minn. Stat. subd. 6, states high isk motgage-backed secuities ae: subds. 2 & 6 1. inteest-only o pincipal-only motgage-backed secuities; and 2. any motgage deivative secuity that: a. has an expected aveage life geate than ten yeas; o b. has an expected aveage life that: (1) will extend by moe than fou yeas as the esult of an immediate and sustained paallel shift in the yield cuve of plus 300 basis points, o (2) will shoten by moe than six yeas as the esult of an 10/05 1-9

11 immediate and sustained paallel shift in the yield cuve of minus 300 basis points; o Wokpape c. will have an estimated change in pice of moe than 17 pecent as the esult of an immediate and sustained paallel shift in the yield cuve of plus o minus 300 basis points. 2. Wee all motgage-backed secuities puchased by the govenment entity afte August 1, 1993, not high isk? Pat V. Boke Acknowledgment Cetification A. Annually, pio to completing an initial investment tansaction with each boke, did the govenment entity povide to that boke a witten statement of investment estictions? subd. 9 B. Did the boke acknowledge eceipt of the investment estictions and agee to handle the govenment entity s account in accodance with the estictions? C. Did the govenment entity etain documentation of compliance with A and B above?did the govenment entity etain documentation of compliance with A and B above? C. Did the govenment entity etain documentation of compliance with A and B above?did the govenment entity etain documentation of compliance with A and B above? 10/

12 Pat VI. Audit Conclusion Wokpape The audito must state a conclusion--based on this questionnaie and any othe audit pocedues pefomed-- whethe the client has complied with the legal povisions eviewed elating to conflicts of inteest. Conclusion: 10/

13 SPREADSHEET Name of Depositoy * ** a b c d (a+b) - (c+d) = e e x 1.1 = f g g - f Amount of Funds in Collateal Non- Needed Inteest (110% of Maket Beaing Amount of Deposits Deposits Value of Checking Insuance Amount of Requiing Requiing Collateal Accounts Coveage Bond Collateal Collateal) Povided Funds in Savings, CD's, and NOW Accounts Sufficient (Insufficient) Collateal Coveage * Put a check in this column if depositoy is a membe of FDIC o NCUA. ** Put a check in this column if depositoy is not a banch of any of the othe depositoies hee. 10/