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2010 12 08 IAB MinutesINVESTMENT ADVISORY BOARD MEETING December 8, 2010 CALL TO ORDER A regular meeting of the Investment Advisory Board was called to order at 4:00 p.m. by Chairman Park followed by the Pledge of Allegiance. PRESENT: Board Members Mortenson, Blum, Park and Spirtos ABSENT: Board Member Rassi STAFF PRESENT: John Falconer, Finance Director, Vianka Orrantia, Senior Secretary and Bryan Gruber, Lance Soll & Lunghard LLC, Audit Manager II. PUBLIC COMMENT -None III. CONFIRMATION OF AGENDA -Confirmed as amended. At the request of Board Member Spirtos, Mr. Falconer suggested that Section VI, Item A be the first item of discussion. Board concurred. At this time Section VI, Item A was discussed. IV. CONSENT CALENDAR A. Approval of Minutes of Meeting on November 10, 2010 for the Investment Advisory Board MOTION - It was moved by Board Members Spirtos/Mortenson to approve the minutes of November 10, 2010. Motion carried unanimously. V. BUSINESS SESSION A. Transmittal of Treasury Report for October 2010 Mr. Falconer presented and reviewed the staff report for the month of September, advising the Board that the balances decreased slightly by S2 million with the yields remaining unchanged and the average maturity decreased by 19 days as a result of the investments getting closer to maturity, the monthly payment to the Sheriff's Department, the semi-annual debt service payment and capital improvement expenditures. Mr. Falconer also advised that page 4 currently reflects an overage of the maximum allowed by Medium Corporate Term Notes. Mr. Falconer further advised that the portfolio was experiencing unrealized gains of approximately 5217,000. Mr. Falconer advised that due to the upcoming maturities in Treasury Bills, that he was considering reinvesting in three month treasuries which would result in a decline in the portfolio by approximately three to four basis points. In response to Board Member Spirtos, Mr. Falconer clarified that page 9, Column YTD Forecast; Forecasted Favorable (Unfavorable) 8.85% is reported for the Redevelopment Agency. In response to Chairman Park, Mr. Falconer advised that Riverside County Sheriff's office is scheduled to be paid on a monthly basis but they are behind on their billing by four months. In response to Board Member Blum, Mr. Falconer advised the City is invoiced monthly by the County of Riverside for police services based upon the actual service provided with some costs shared with other cities. In response to Board Member Blum, Mr. Falconer summarized for the Board the costs of building and running the firehouses in the City limits. In addition Mr. Falconer clarified the difference between a Charted City and General Law City. MOTION - It was moved Board Members Blum/Mortenson to review, receive, and file the Treasurers Report for October 2010. Motion carried unanimously. VI. CORRESPONDENCE AND WRITTEN MATERIAL A. City of La Q.uinta FY 09/10 Audited Financial Statements Mr. Bryan Gruber of Lance Soll, & Lunghard, LLP, Audit Managers presented the Audited Financial Statement for year ending June 30, 2010. Mr. Gruber advised the Board that the audit is conducted in phases; the interim audit is conducted during the fiscal year with the focus on internal controls of the City related to the City's cash and investments balances, in addition to the controls in place, the 2 investments balances, in addition to the controls in place, the purchasing of investments and the testing of transactions and backup to verify that the controls are functioning correctly, (which also includes a series of tests in other areas). The next part of the audit is conducted after the fiscal year end and the focus of the audit at that time are the City's cash balances that are reported in the financial statements, which are reviewed through a series of tests including independent third party confirmations in addition to auditing the information of the financial statements, which also includes the City's cash and investments. As a result of the audit there are two forms of communication, the first is a report of internal controls and compliance, which there were no noted material weaknesses or issues of non-compliance for the fiscal year ending June 30, 2010. The first letter issued to the City is in accordance with auditing standards and various other standards that is related to this particular communication. As a result of the final report issued to the City is the independent auditors report (the financial statements), which is an unqualified opinion, which is the best opinion that could be received in a financial audit. Mr. Gruber advised of the footnote listed on page 42, which relates to cash and investments, this footnote provides an overview of the City's cash and investments balances, the various risks that are related to the City's investing activities and also provides the City's position, and to the policy if applicable to the various risks. One potential risk to the City is the interest rate risk, a risk that changes in market interest rates that adversely affect the fair value of an investment. Mr. Gruber advised that the City is provided with a table that schedules the maturity of the City's cash and investments balances, at this time approximately 90% of the portfolio will mature within one year or less. Mr. Gruber also advised of another risk to the City's portfolio, that being credit risk, which is a risk that an issuer will not fulfill its obligation to the holder of the investment, the City's investments are disclosed by credit rating, either standard or poor at the end of the year, with the City's current rating at AA or better. Another risk to the City is the concentration of credit risk; under GASB 40 it is a requirement that the auditors report any investments that are more than 5% of the portfolio. Reported at this time was securities held with Federal Home Loan Bank. The final risk to the City is custodial credit risk, the risk that in the event of failure of depository financial institution government the City would not be able to recover its deposits; currently the City has not been exposed to any custodial credit risk. 3 Mr. Gruber advised that on page 3, the City provides a management discussion and analysis which provides an overview of the financial statements and position of the City. Mr. Gruber also advised that the City implemented a new statement, GASB Statement 54 which changes the classification and the appearance of the fund balance in the financial statements. GASB Statement 54 was issued to provide more transparency and make it more apparent the constraints on fund balances. As a result of GASB Statement 54, the report on fund balances has changed somewhat. In response to Board Member Mortenson, Mr. Gruber advised that this year there were no recommended changes to the current internal controls. General discussion ensued amongst the Board, staff and Mr. Gruber in regards to the Fiscal Year June 30, 2010 Comprehensive Financial Annual Report. The Board at this time thanked Mr. Gruber for his attendance and reporting of this year's financial report. Noted and Filed B. Month End Cash Report -November 2010 Mr. Falconer advised that the interest rates to date have been stable, but recently shown a slight increase, as a result there has been a decline in LAIF to .45% basis points. Noted and Filed C. Pooled Money Investment Board Reports -September 2010 Mr. Falconer advised that average portfolio has increased by 54 billion in comparison to last year's portfolio. Mr. Falconer commented that if Treasury Bills interest rates begin to increase, LAIF might not be able to sell Treasuries and report a gain. Board Member Mortenson advised the Board of the comment made by Councilmember Henderson and her sentiments in regards to LAIF. Noted and Filed 4 D. November 9, 2010 Joint Meeting Minutes with the City Council Due to the fact that meeting minutes were not available at this time, the joint meeting minutes will be distributed at the next scheduled Board meeting. VII. BOARD MEMBER ITEMS -None VIII. ADJOURNMENT It was moved by Board Members Mortenson/ to adjourn the Investment Advisory Board meeting at 4:44 p.m. Motion carried unanimously. Subm'tt~d' y;%' Vianka Orrantia Senior Secretary 5