FILE:  DFE

Cf:  BE, DK

 

CASH MANAGEMENT AND INVESTMENTS

 

 

Strategies for proper cash management and investment of available funds shall be reviewed and evaluated on an annual basis to ensure that investment rules and guidelines expressed in this policy are being followed according to current­ statutory provisions.  The assets of the Vermilion Parish School Board shall be held in trust by the fiduciary (fiduciaries) designated by the Vermilion Parish School Board.  The investment of funds shall be managed by the Superintendent and/or his/her designee.

 

CASH MANAGEMENT

 

All aspects of cash management operations shall be designed to ensure the absolute safety and integrity of the School Board’s financial assets.

 

Cash management activities shall be conducted in full compliance with prevailing local, state and federal regulations.  Furthermore, such activities shall be designed to adhere to guidelines and standards promulgated by applicable professional organizations.

 

Operating within appropriately-established administrative and procedural parameters, the School Board shall aggressively pursue optimum financial rewards, while simultaneously controlling its related expenditures.  Therefore, cash management functions which engender interaction with outside financial intermediaries shall be conducted in the best financial and administrative interests of the school system.  In pursuit of these interests, the School Board shall utilize competitive bidding practices whenever practicable, affording no special financial advantage to any individual or corporate member of the financial or investment community.

 

The School Board shall authorize the Superintendent and staff to design and enforce written administrative regulations, guidelines, and procedures relating to a variety of cash management issues such as the eligibility or selection of various financial intermediaries, documentation and safekeeping requirements, philosophical and operational aspects of the investment function, and such other functional and administrative aspects of the cash management program which necessitate standard setting in pursuit of appropriate prudent, enhanced protection of assets or procedural improvements.

 

DEPOSITORY BANK

 

Louisiana statutes require School Boards to select a fiscal agent for purposes of receiving or depositing funds of the School Board.  The bank selected as fiscal agent shall be asked to enter into a fiscal agency contract or such other necessary instruments setting forth the duties, responsibilities, and agreements pertaining to said fiscal agency.

 

The fiscal agency bank, when selected, shall serve for a term as agreed to by the School Board and until its successor shall have been duly selected and qualified, and shall pledge approved securities, as provided for in the fiscal agency contract subject to the regulations under state law.

 

PLEDGED SECURITIES

 

Funds on deposit shall be collateralized   in an amount at all times equal to 100% by pledged "approved securities" in accordance with state law to adequately protect the funds of the School Board.

 

The School Board shall periodically monitor the amount of approved securities to assure that an amount not less than 100% on deposit with the depository bank, less any applicable Federal Deposit Insurance Corporation (FDIC) insurance is pledged.

 

The bank shall have the right and privilege of substituting approved securities only upon obtaining the prior written approval of the School Board.  Such approval may be granted by facsimile transmission.  The approved securities shall be valued at their market value.

 

OBJECTIVES

 

  1. Safety

    Safety of principal is the foremost objective of the investment program.  Investment shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio.  The objective shall be to mitigate credit risk and interest rate risk.

 

    1. Credit Risk

      Credit Risk is the risk of loss due to the failure of the security issuer or backer.  Credit risk may be mitigated by:

 

      1. Limiting investments to the safest types of security;

      2. Pre-qualifying the financial institutions, broker/dealers, intermediaries, and advisors with which an entity will do business; and

      3. Diversifying the investment portfolio so that potential losses on individual securities will be minimized.

 

    1. Interest Rate Risk

      Interest Rate Risk is the risk that the market value of securities in the portfolio will fall due to the changes in general interest rates.  Interest rate risk may be mitigated by:

 

      1. Structuring the investment portfolio so that securities mature to meet cash requirements for ongoing operations, thereby avoiding the need to sell securities on the open market prior to maturity, and

      2. By investing operating funds primarily in shorter-term securities.

 

  1. Liquidity

    The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated.  This is accomplished by structuring the portfolio so that securities mature concurrent with cash needs to meet anticipated demands (static liquidity).  Furthermore, since all possible cash demands cannot be anticipated, the portfolio should consist largely of securities with active secondary or resale markets (dynamic liquidity).

 

  1. Yield

    The investment portfolio 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.  Securities shall not be sold prior to maturity with the following exceptions:

 

    1. A declining credit security could be sold early to minimize loss of principal;

    2. A security sway would improve the quality, yield, or target duration in the portfolio; or

    3. Liquidity needs of the portfolio require that the security be sold.

 

STANDARDS OF CARE

 

  1. Prudence

    The standard of prudence to be used by investment officials shall be the “prudent person” standard and shall be applied in the context of managing an overall portfolio.  Investment officers acting in accordance with School Board policy and written procedures, and exercising due diligence shall be relieved of personal responsibility for an individual’s security’s credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and the sale of securities are carried out in accordance with the terms of this policy.

    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.

  2. 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 and management of the investment program, or that could impair their ability to make impartial decisions.  Investment officials shall disclose any material interests in financial institutions with which they conduct business.  They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio.

  3. Delegation of Authority

    Authority to manage and operate the investment program is delegated to the Superintendent and Chief Financial Officer, who shall carry out established written procedures and internal controls for the operation of the investment program consistent with School Board policy.  Procedures should include safekeeping, delivery vs. payment, investment accounting, wire transfer agreements, collateral/depository agreements and banking services contracts.  No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Chief Financial Officer.  The Chief Financial Officer shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate staff.

 

SAFEKEEPING AND CUSTODY

 

  1. Internal Controls

    The Chief Financial Officer shall be responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse.  The internal control structure shall be designed to provide reasonable assurance that these objectives are met.  The concept of reasonable assurance recognizes that (1) the cost of a control should not exceed the benefits likely to be derived; and (2) the valuation of costs and benefits requires estimates and judgments by management.

    Accordingly, the Chief Financial Officer shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures.  The internal controls shall address the following points:

 

    1. Control of Collusion

      Collusion is a situation where two (2) or more employees are working in conjunction to defraud their employer.

    2. Separation of Transaction Authority from Accounting and Record Keeping

      By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved.

    3. Custodial Safekeeping

      Securities purchased from any bank or dealer including appropriate collateral (as defined by State Law) shall be placed with an independent third party for custodial safekeeping.

    4. Avoidance of Physical Delivery Securities

      Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place.  Delivered securities must be properly safeguarded against loss or destruction.  The potential of fraud and loss increases with physically delivered securities.

    5. Clear Delegation of Authority to Subordinate Staff Members

      Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions.  Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities.

    6. Written Confirmation of Telephone Transactions for Investments and Wire Transfers

      Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the Chief Financial Officer or his/her designee.  Written communications may be via fax if on letterhead and the safekeeping institution has a list of authorized signatures.

    7. Development of a Wire Transfer Agreement with the Fiscal Agent

      This agreement should outline the various controls, security provisions, and delineate responsibilities of each party making and receiving wire transfers.

 

  1. Delivery vs. Payment

    All trades where applicable shall be executed by Delivery vs. Payment (DVP).  This ensures that securities are deposited in the eligible financial institution prior to the release of funds.  Securities shall be held by a third party custodian as evidenced by safekeeping receipts.

 

SUITABLE AND AUTHORIZED INVESTMENTS

 

  1. Investment Types

    Investments shall not be made in derivative security investments.  All investments shall only be in securities that are allowed under La. Rev. Stat. Ann. §33:2955.

  2. Collateralization

    Funds invested in certificates of deposit shall not exceed at any time the amount insured by the Federal Deposit Insurance Corporation (FDIC) in any one banking institution, or in any one savings and loan association, or savings bank, or national credit union, unless the uninsured portion is collateralized by the pledge of securities in the manner provided for in La. Rev. Stat. Ann. §39:1221.

  3. Repurchase Agreements

    Any repurchase agreements should include appropriate supplemental provisions regarding delivery, substitution, margin maintenance, margin amounts, seller representative and governing law.

 

INVESTMENT PARAMETERS

 

  1. Diversification

    As much as is feasible, the investments held by the Vermilion Parish School Board shall be sufficiently diversified by security type.

  2. Maximum Maturities

    The Vermilion Parish School Board should limit their maximum final stated maturities to two (2) years (twenty-four months) unless specific authority is given to exceed said time frame.  To the extent possible, the Vermilion Parish School Board shall attempt to match its investments with anticipated cash flow requirements.

 

REPORTING METHODS

 

The Chief Financial Officer shall prepare an investment report at least quarterly, that provides a clear picture of the status of the current investment portfolio.  This management summary shall be prepared in a manner which will allow the School Board to ascertain whether investment activities during the reporting period have conformed to the investment policy.  The report shall include the following:

 

  1. A listing of individual securities held at the end of the reporting period.

  2. Listing of investment by maturity date.

 

SCHOOL AND STUDENT ACTIVITY FUNDS

 

The School Board recommends that any surplus funds in the various school and organization accounts be invested in bank certificates of deposit, money market accounts, or savings accounts, whenever possible, with the exception of school food service funds.

 

Adopted:  July 20, 2016

 

 

Ref:    La. Rev. Stat. Ann. §§17:99, 33:2955, 39:1211, 39:1212, 39:1219, 39:1221, 39:1222, 39:1223, 39:1225, 39:1226

Board minutes, 6-20-96, 5-3-01, 7-20-16

 

Vermilion Parish School Board