Loading...
2007 12 12 IAB Minutes INVESTMENT ADVISORY BOARD Meeting December 12, 2007 CALL TO ORDER Regular meeting of the La Ql!inta Investment Advisory Board was called to order at the hour of 4:34 P.M. by Chairperson Deniel, followed by the Pledge of Allegiance. PRESENT: Board Members Ross, Moulin, Deniel ABSENT: Board Member Rassi and Park OTHERS PRESENT: John Falconer, Finance Director, Vianka Orrantia, Secretary and Shrish Patel of Lance Soli, Lunghard LLP A. City of La Quinta FY 06/07 Audited Financial Statements: Mr. Patel, Audit Manager of Lance Soli, Lunghard LLP presented the Audited Financial Statement. He advised that this was the City's first audit with their firm and he would review the firms audit test work, along with a review of the CAFR and the cash footnotes. Mr. Patel also advised that the audit firm conducts the City's field audits twice a year, the interim field work was conducted the week of June 18'h and the year-end field work was conducted the week of August 13'h. He further advised that part of the interim process is a cursory review of cash, a review of the timeliness of the bank reconciliations and a verification of the investments listed on the Treasurers Report are in compliance with the City's investment policy, which at this time there were no findings to be reported. Mr. Patel advised that the year-end audit is a more detailed audit of the bank reconciliations verifying any unusual unidentified variances. The outstanding checklist and deposit and transient listing are also reviewed verifying their amounts. In addition, the total cash by fund is tied out from the City's general ledger to the adjusted cash and investments by bank making sure they are reconciled. Cash and investments are also verified with the various institutions in which the funds are held. Again, there were no findings to be reported. Mr. Patel reviewed the following items from the 2006/07 CAFR for the Board: Page 41; Footnote 3: The disclosure of the required cash footnote follows the requirements of GASB 40 and GASB 31. GASB 40 became effective in fiscal year 04/05, eliminating the provisions of GASB 3 and GASB 31 is requirement to record the investments of the City at fair market value. GASB 40 requires an auditor to identify and address in the form of disclosure of footnotes, the various risk 1 Investment Advisory Board Minutes December 12, 2007 categories as they relate to cash and investments. The first total in Footnote 3 is the City's total cash and investments totaling approximately $213 million, this amount is derived from the statement of net assets on page 1 5 and the statement of fiduciary net assets on page 31 . Mr. Patel advised that the footnotes go on to disclose the various types of investments that are authorized by the City's investment policy and the California State Code. Mr. Patel stated that the City's investment policy seems to be more conservative in terms of acceptable investments. One example, risky reverse repurchase agreements, which are permitted by the State code and not City code. Page 42; Footnote 3 cont'd: Reflects the City's various investments, those allowed by State code and the City's code. Mr. Patel advised that the footnotes disclose investments authorized by debt agreements. Currently the City has approximately $61.5 million in cash and investments held by bond trustees as a result of bond proceeds and issuance of debt. Mr. Patel also advised that authorized investments reflected are not governed by the State or City code and are provisions of the bond covenant. (The table on page 42 identifies those investments that are authorized by the various debt agreements held by the City.) Mr. Patel advised that these investments tend to be fairly conservative in nature and fairly liquid as well. Page 43; Footnote 3: The table reflects $6 million currently held by money market funds and $54.8 million in U.S. Treasury Bills. Mr. Patel advised that the remaining footnotes disclose the various risks disclosures that are part of GASB 40. Mr. Patel also advised of the five different types of risk disclosures that are required to be disclosed by the City; they are interest rate risk, credit risk, concentration of credit risk, custodial credit risk and the foreign concentration risk. The foreign concentration risk is not disclosed. Mr. Patel proceeded with an overview of each risk, in addition to examples of each risk. In response to Board Member Moulin, Mr. Patel advised that part of the overall audit is to review the compliance of the investments according to the City's investment policy and reflected on the Treasurer's report there is wording to indicate that investments are based on the cash flow requirements. 2 Investment Advisory Board Minutes December 12, 2007 Mr. Falconer advised that the state code requires the Treasurer to make a statement that there is adequate liquidity for the next six months, if not this would need to be reported. Chairperson Deniel asked if the auditors reviewed the model set up by the Treasurer to forecast cash flow needs. Mr. Patel responded that the auditors did not. Chairperson Deniel suggested that next year the auditors review the cash flow forecasting model used by the City. Board Member Moulin concurred. Mr. Patel advised that this is not a procedure normally performed by the auditors but could incorporate next year with the coordination of City staff. Board Member Moulin asked if the internal controls were compromised by the City staff due to the size of the department and their close working relationships. Mr. Patel advised that part of the audit is to review internal controls verifying segregation of duties and what sort of approvals are in place. Mr. Patel also advised that having an Investment Advisory Board to review investment reports is an added extra level of control, which is not very common with other cities. He further advised that the statement of auditing standards for the upcoming year will include not only looking at these controls but verifying that these controls are in place. In response to Board Member Moulin, Mr. Falconer advised that as part of the City ordinance payroll checks require two "wet" signatures, the authorized signers are the Mayor, the Mayor Pro Tem, the City Manager and the Treasurer, on average there are about fifteen payroll checks with "wet" signatures and the rest are direct deposits. Mr. Falconer also advised that the City normally generates approximately 300 to 350 accounts payable checks, these checks are signed with a facsimile plate on behalf of the City Manager and the second signature is always a "wet" signature generally signed by the Treasurer. Board Member Moulin commented that he had a concern regarding the dual signatures and the review of the checks by the second signer. Mr. Patel commented that there is a review by his audit staff regarding the signature of checks. 3 Investment Advisory Board Minutes December 12, 2007 Mr. Falconer advised of the procedures of invoice payments and the steps involved prior to generation of payment and signature. In response to Board Member Ross, Mr. Falconer advised that if there were an inquiry regarding a payment or non-payment to a vendor, the computer system is able to generate a report of all invoices and payments made to that particular vendor. Board Member Moulin commented that it was his understanding there were no material weaknesses found in regards to cash and investments. Board Member Moulin asked if the auditors had any suggestions that pertained to this area, in addition to asking how one would define material weaknesses. Mr. Patel advised that the term "material weakness" has been replaced and the new term now used is "significant deficiencies" and there were no significant deficiencies found in the areas of cash and investments. Board Member Moulin asked if there were any comments from the auditors regarding the operation of cash and investments as compared to other cities in similar size. Mr. Patel stated that he felt the City's portfolio was pretty conservative as compared to cities of similar size, therefore there is no concentration of credit risk. Chairperson Deniel thanked Mr. Patel for his review of the City's audit. Mr. Falconer advised that he would include a copy of the City's follow up letter from the auditors in the next scheduled meeting's agenda packet. Noted and Filed II Public Comment - None III CONFIRMATION OF AGENDA - None. IV CONSENT CALENDAR A. Approval of Minutes of Special Meeting on October 9, 2007 and November 14, 2007 for the Investment Advisory Board. 4 Investment Advisory Board Minutes December 12, 2007 Chairperson Deniel advised that she had a handout of typed revisions to the meeting minutes and would like them included as part of the amended minutes. One of the revisions was the title of the October 9th meeting. Title of Meeting: "Special" Meeting, should be Regular Meeting. Mr. Falconer advised that upon checking with the City Clerk's office they informed him that any meeting conducted on any other day than the regular scheduled meeting is considered a "Special Meeting." Therefore the title is correct as is. Chairperson Deniel asked the other Board Members if they had any comments to the meeting minutes. Board Member Moulin advised that because he was not in attendance at the October 9th meeting he could not make any comments to the minutes and the meeting minutes of November 14th he contacted staff with his changes. Board Member Ross advised that on Page 2 of the Minutes of October 9th, page 2, second paragraph should read: Councilman Osborne reiterated the concerns of Council, #lese ~~ being; what is 5'h paragraph, last sentence should read: if decided, he would report to City Council, which #Ie he already does with LAIF. 6th paragraph, first sentence: Chairperson Deniel reviewed LAIF's various investments and advised that the only difference in LAIF - Board Member Ross advised that to his recollection he thought Chairperson Deniel used the word "main" not the word only. Page 3, 7th paragraph should read: Mr. Falconer advised that he has been opposed to hiring a professional 5 Investment Advisory Board Minutes December 12, 2007 portfolio management firm because the current market ~e~ ae not warrant it at this time. Page 4, 5th paragraph: Chairperson Deniel advised of market risk, a risk of interest rate fluctuations. For example: when the value of commercial paper fises iIlIi and the interest rates deoline ~ and when the value of the investments decline the interest rates rise, if held to maturity the principal will always be collected. Chairperson Deniel advised that this paragraph was listed on her handout as part of the amended minutes. Mr. Falconer advised that staff relies on what is said during a meeting and minutes will reflect those comments. Chairperson Deniel advised that she typed her corrections to help staff transcribe what was said and clarified her corrections to the meeting minutes. Chairperson Deniel asked Staff for clarification to the meeting minutes of November 14'h, page 3, second paragraph, 3rd sentence, which reads: at $+8(;) 1$8Q million, with a permissible $45 million to invest. Mr. Falconer clarified for the Board that he was trying to convey that the total portfolio of the City was $180 million and would be limited to a maximum of $45 million. MOTION - It was moved by Board Members RosslDeniel to approve the minutes of October 9, 2007 as amended. Board Member Moulin advised the Board of his change to the November 14'h meeting minutes, page 7, 1st sentence Board Member Moulin stated that he felt that, Rever was ~~r thil a loss in principal in LAIF, liquidity is a possible issue. General discussion ensued among the Board regarding LAIF'S liquidity. 6 Investment Advisory Board Minutes December 12, 2007 It was moved by Board Members MoulinlRoss to approve the minutes of November 14, 2007, as amended. Motion carried unanimously. V BUSINESS SESSION A. Transmittal of Treasury Report for October 2007 Mr. Falconer presented the Treasurer's report and advised that portfolio declined $7 million with an ending monthly balance at approximately $180 million. Mr. Falconer also advised that the City pools were at approximately 5.10% at the end of October with the money market funds with the fiscal agent at 4.84%, with the six month treasury bill yield at 3.94% ending with the overall yield just over 5%. Mr. Falconer advised that on pages 5 and 7 reflect two commercial papers currently held by the City, Merrill Lynch and AIG Funding,(due to mature in January) which have recently been in the media lately. In response to Board Member Ross, Mr. Falconer advised that the broker/dealer's provide a security description page on the paper being purchased, and at the time of purchase Merrill Lynch and AIG Funding were rated as an A 1 + and Merrill Lynch has been now down graded to an A1. In response to Board Member Ross, Board Member Moulin advised that AIG Funding was similar to GE Capital. Mr. Falconer advised that it is getting harder to obtain good quality paper. He further advised that the average maturity is out 116 days. MOTION - It was moved by Board Members MoulinlRoss to approve, receive and file the Treasury Report for October 2007. Motion carried unanimously. Board Member Moulin advised the Board of his conversation with Councilwoman Henderson at the open house luncheon. In his conversation with Councilwoman Henderson, he asked her to clarify her comment made at the joint meeting in regards to LAIF. Councilwoman Henderson stated that LAIF deserves another look. Mr. Falconer advised that Councilman Henderson asked him what she 7 Investment Advisory Board Minutes December 12, 2007 meant, his feeling as to her comment was that she felt that a discussion of LAIF should be included as part of the investment policy review. Board Member Moulin advised that Councilwoman Henderson proceeded to say that LAIF has investments that are not authorized by the City's investment policy. This was an issue in prior years with previous board members and council members. Board Member Moulin suggested this be added to the work plan. Chairperson Deniel advised there will be a review of the investment policy with the Board taking another look at LAIF. She further advised the Board will also be consolidating topics so that they are not spread throughout the policy. Chairperson Deniel commented that she felt that the section regarding the professional portfolio management firm be changed from Council's authorization and lor approval to that of the Treasurer. She also commented that while LAIF has investments not authorized by the City's investment policy, LAIF has a full staff of qualified investment professionals that dedicate their time monitoring the state's portfolio. Chairperson Deniel advised that these investments are within state regulations. Board Member Moulin advised that previous concerns regarding LAIF were that they were subject to political influence, but have since been clarified and the risk is minimal. VI CORRESPONDENCE AND WRITTEN MATERIAL A. City of La Quinta FY 06/07 Audited Financial Statements This item was discussed at the beginning of the Investment Advisory Board meeting. B . Month End Cash Report - November 2007 Mr. Falconer advised that page 7 reflects a drop in the daily yield PMIA and this is an indicator that LAIF is dropping with the market. Noted and Filed 8 Investment Advisory Board Minutes December 12, 2007 C. Pooled Money Investment Board Report - September 2007 Mr. Falconer informed the Board that the States of Florida, Maine and Montana's pools are currently in trouble due to investments in subprime mortgages. LAIF has issued a statement to all participants informing them that they never investment in these types of vehicles. Mr. Falconer also advised of his conversation with Dan Dowell, the Head Investment Trader in Sacramento and the criticism received for not yielding what other states were yielding. General discus,s ensued among the Board regarding some of PMIA's investments on page 2 of the report. Noted and Filed D. October 23, 2007 Joint Meeting Minutes with the City Council Chairperson Deniel asked why the minute's state "due to a lack of quorum" a meeting was not held. Mr. Falconer clarified that discussion took place during this joint meeting but there was no action taken due to a lack of quorum from the Investment Board. Chairperson Deniel stated that her understanding was that the Board was invited to speak with Council if there were any issues that needed to be addressed, but did not realize that a quorum was required. Mr. Falconer advised that at the previous Board meeting he would provide an analysis of the investment percentage changes by year, the first page is the percentages and the second page is the changes. He also advised that this is not a static document, it changes from year to year, and we will be discussing these percentages again in January. Noted and Filed VII BOARD MEMBER ITEMS VIII Adjournment MOTION - It was moved by Board Members Moulin/Ross to adjourn the meeting at 5:35 p.m. Motion carried unanimously. 9 Investment Advisory Board Minutes Vianka Orrantia Senior Secretary December 12, 2007 , 10