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Session 3: Financial Planning

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2. Today's Presenters. Janice LeRoux. Nevada County. John Sims. Stanislaus County. Anne Kinney ... 2. Staff prepares background information for the commission ... – PowerPoint PPT presentation

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Title: Session 3: Financial Planning


1
Session 3 Financial Planning Budgeting,
Contracting Contract Administration, Cash
Management and Investments
2
Todays Presenters
Janice LeRoux Nevada County John Sims Stanislaus
County Anne Kinney Government Finance Officers
Association
3
What Well Cover Today
Agenda Review
4
Financial Planning Budgeting
  • Financial Planning and Budgeting Cycle
  • First 5 Strategic Planning Process
  • First 5 Long Term Financial Planning
  • Budget Process
  • Fund Allocation Plan

5
The Big Picture . . .
Strategic Plan
Long-Term Financial Plan
Budget
Evaluation of Results
Long-term goals, objectives, strategies
Tentative long-term plan for allocating resources
to objectives in strategic plan
Commitment for the use of resources in the next
budget period
6
Financial Planning and Budgeting Cycle
7
Strategic Plan - The Starting Point
8
Strategic Plan - Definition
  • A commission develops the strategic plan
    through a collaborative process that includes its
    stakeholders. Based on an assessment of the
    environment, a strategic plan includes goals,
    objectives, and strategies for achieving those
    objectives. The California Children and Families
    Act of 1998 includes requirements for developing
    a strategic plan (FMG, 3.2.1.)

9
Strategic Planning Process
  • Environmental factors affecting needs and ability
    of First 5 efforts to succeed
  • Goals and Objectives, based on analysis
  • Programs, services, and projects
  • Relationship between First 5 programs and
    community system
  • How to measure effectiveness
  • Process for setting outcomes and indicators
  • Allocation of resources by proposed objectives

10
Strategic Plan Sample Nevada County
  • Table of Contents
  • INTRODUCTION
  • THE COMMISSIONERS
  • THE 2006-2009 STRATEGIC PLANNING PROCESS
  • ABOUT NEVADA COUNTY
  • OUR VISION FOR NEVADA COUNTY
  • GUIDING PRINCIPLES
  • GOALS AND INDICATORS
  • FOCUS AREA ONE PARENT EDUCATION AND SUPPORT
    SERVICES
  • FOCUS AREA TWO EARLY CARE AND DEVELOPMENT
  • FOCUS AREA THREE HEALTH AND WELLNESS
  • FOCUS AREA FOUR ACCOUNTABILITY AND SYSTEM
    INTEGRATION
  • EXPENDITURE PLAN
  • EVALUATION PLAN
  • APPENDICES
  • Appendix A Ten-Year Financial Plan
  • Appendix B Cost Allocation Policy
  • Appendix C Funded Program or Project Mandatory
    Reporting Requirements? Fiscal Reporting ?
    Expenditure Report? Demographic Reporting ?
    Required Data Elements ? Population Served
    Definitions? Performance Reporting ? Project
    Outcomes Chart ? Definitions

11
Strategic Plan Nevada County Sample
FOCUS AREA ONE PARENT EDUCATION AND SUPPORT
SERVICES Goal 2 All children will have a
stimulating environment, which promotes language
enrichment and imaginative play.
  • Indicators
  • Arts, music, cultural and language enrichment
    programs will be available for and used by
    parents and caregivers of young children.
  • Parents and communities will be educated
    regarding child development, including the
    importance of play for young childrens
    development as well as how to support language
    and literacy development.
  • The amount of time young children and their
    families spend watching television will be
    reduced.
  • The amount of time parents and caregivers spend
    reading to babies and children will be increased.

12
Long-Term Financial Plan Definition
  • A commissions long-term financial plan
    illustrates the likely financial outcomes of
    particular courses of action or factors affecting
    the environment in which it operates. The plan
    should assess the long-term financial
    implications of current and proposed policies,
    programs, and assumptions. It should provide a
    long-term view of how resources will be allocated
    to the objectives in the strategic plan.
  • (FMG, 3.3.1., 3.3.2.)

13
Long Term Financial Plan The Sustainability
Plan
  • A comprehensive multi-year analysis of financial
    position, that includes recommendations for
    maintaining a favorable position and provides a
    context for annual budgeting
  • Should include analysis of past trends
  • Should include forecasts of future revenues,
    expenditures, and reserves for at least six years
  • Should include future revenue and expenditure
    levels in a likely scenario
  • LTFP should be adopted by the commission
  • LTFP should be updated every year in concert with
    budget preparation

14
Long Term Financial Plan Nevada County Sample
15
Strategic Budgeting the First 5 Way
  • The budget process goes beyond
  • Balancing revenues and expenditures one year at a
    time
  • Traditional line-item expenditure control
  • The budget also
  • Is strategic
  • Encompasses a multi-year financial perspective
    and strategies reflecting long-term goals
  • Provides flexibility to managers to be efficient
    and effective



16
Budget Process Accountabilities
17
NACSLB on the Budget Process
  • Mission of the Budget Process
  • To help decision makers make informed choices
    about the provision of services and capital
    assets and to promote stakeholder participation
    in the process.
  •  
  • Key Characteristics of the Budget Process
  • Incorporates a long-term perspective
  • Establishes linkages to broad organizational
    goals
  • Focuses budget decision on results and outcomes
  • Involves and promotes effective communication
    with stakeholders
  • Provides incentives to government management and
    employees

18
NACSLB Four Principles
19
10 Steps to First 5 Strategic Budgeting
  • 1. Commission holds a community meeting to obtain
    stakeholder input on the upcoming budget period.
  • 2. Staff prepares background information for the
    commission planning session.
  • 3. In a planning session, the commission sets
    priorities for the upcoming budget period and
    adopts a long-term financial plan.
  • 4. Staff prepares proposed budget based on
    priorities set in commission planning session.
  • 5. Commission reviews the proposed budget.
  • 6. Commission approves the budget.
  • 7. Adopted budget communicated to stakeholders
    using popular budget.
  • 8. Staff administers and monitors budget.
  • 9. Authorized party amends the adopted budget as
    necessary.
  • 10. Evaluate and report to stakeholders and the
    State.




Note You may do some of these steps as part of
your strategic planning process
20
1. Receive Community Input
  • Get stakeholder input on priorities for the
    upcoming budget period
  • What do citizens value?
  • What are citizens priorities?
  • What resources are citizens willing to commit?
  • Techniques
  • Surveys
  • Focus Groups
  • Town Hall Meetings
  • The Commissions strategic plan can be the
    framework for this step




21
2. and 3. Provide background information to
decision makers and hold commission planning
session
  • Purposes
  • Review background information
  • Set budget priorities
  • Provide direction to staff
  • Inputs
  • Strategic plan
  • Proposed long-term financial plan
  • Most recent financial and performance information
  • Stakeholder input from meetings or surveys



22
4. Prepare Proposed Budget
  • Budget Summary The big picture
  • Tables
  • Show resources related to objectives
  • Present at least three years of financial data
  • Budget Narrative
  • Presents assumptions behind estimates
  • Explains significant changes
  • Explains relationship between dollars, activities
    and objectives
  • Tells the story behind the numbers




23
5. 6. Hold Public Meeting and Then Adopt the
Budget



24
7. Communicate Budget to the Public through a
Popular Budget



25
Communicating with the Public
Annual Report To Public (Results)
  • Popular
  • Budget
  • (Spending
  • Plan)

Citizen Planning Meetings
26
8. Budget Administration



27
9. 10. Amend and Report
  • 9. Amend the Budget (if necessary)
  • 10. Evaluate and Report Results
  • Comprehensive Annual Financial Report (CAFR)
  • County evaluation studies
  • County reports
  • Annual Report to State




28
Process Example City of San Clemente, California
  • Illustrates a connection to budgeting
  • Illustrates all three major phases
  • Other interesting points
  • Financial policy review step
  • Issue papers participation
  • Separate planning document produced

29
Process Example City of San Clemente, California
30
Process Example First 5 Nevada
  • 2005-06 CALENDAR OF KEY COMMISSION ACTIVITIES
  • September 2005
  • Educator Support Program Report to Commission
  • School Readiness Program Report to Commission
  • October 2005
  • Final 04/05 Budget Report
  • Public Hearing Annual Audit
  • Public Hearing Annual Report to the State
  • Preview Strategic Planning Process
  • November 2005 - Retreat
  • Annual Commission Retreat (Public Meeting)
  • Investments and Results report
  • Looking Ahead
  • November 2005 Regular Meeting
  • Strategic Plan Public Hearing No. 1
  • December 2005
  • Review of Salary and Benefit Plan Workplans
  • Preview of Fiscal Year 2006/2007 Competitive
    Grant RFP

31
Process Example First 5 Nevada, continued
  • January 2006
  • Adoption of Interim Year 2006 Strategic Plan with
    Revised Goals Objectives
  • Release Fiscal Year 2006/2007 Competitive Grant
    RFP
  • Review of Salary and Benefit Plan
  • Fiscal Year 05/06 Budget revisions
  • Revised 10 Year financial plan
  • February
  • Review of Guiding Principles
  • Preview of Expenditure Plan
  • March
  • First 5 Parent Education Report
  • Letters of Intent Review (Invitations for full
    proposals FY 06/07 RFP)
  • Adoption of Expenditure Plan
  • April
  • New 2006 Needs Assessment
  • New Expenditure Plan
  • Grantee Fair FY 05/06 Competitive Grantees
    present results
  • FY 06/07 RFP Proposal Selection Process
  • May

32
Fund Accounting What are funds?
  • Separate fiscal and accounting entity used to
    segregate resources related to specific
    activities
  • Originally separate bank accounts
  • Now just accounting units
  • Focuses on the inflow and use of current
    financial resources, whereas private sector
    accounting focuses on profit and net worth.

33
How are funds categorized?
  • Governmental Funds - used to account for
    tax-supported activities
  • First 5 Commissions are government entities that
    are required to use fund accounting.
  • Proprietary Funds used to account for
    business-type activities
  • Such as a water department or an airport
  • Fiduciary Funds - used to account for resources
    that are held by the government as a trustee or
    agent for parties outside the government
  • Fiduciary funds cannot be used to support the
    government's own programs.

34
About Governmental Funds
  • Current financial resources measurement focus
  • Focus on near-term liquidity
  • Transactions and events that affect near-term
    liquidity
  • Report only financial assets and liabilities
    normally expected to be paid from those assets
  • Report debt issuance, debt repayment and capital
    outlay
  • Do not report depreciation expense
  • Use modified accrual basis of accounting
  • Report when underlying event occurs only to the
    extent related cash flows have a near-term impact
    on liquidity

35
Types of Governmental Funds
  • Types of Funds
  • General Fund Chief operating fund of most
    governments and is used by First 5 commissions.
  • Special Revenue Fund accounts for the proceeds of
    a specific revenue source that is restricted by
    law or administrative action to be expended only
    on a specified purpose(s). Special revenue fund
    accounting is commonly used when revenue sources
    are exclusively designated for a specific
    purpose, such as
  • School Readiness
  • CARES
  • Special Needs
  • Power of Preschool

36
Fund balance
  • Components
  • Reserved fund balance
  • Net assets unavailable for spending
  • Unreserved fund balance
  • Net assets available for spending
  • Designated unreserved fund balance
  • Managements tentative plans for net assets
    available for spending

37
Illustration of components of fund balance
38
Funding Allocation Plan
  • Where does the money come from?
  • Where does the money go?
  • What are our priorities?
  • In general - should express in dollars what the
    strategic plan expresses in words.

39
Formal policy on fund balance
  • Essential characteristics
  • Temporal framework
  • Specific plans
  • Expand definition of unreserved fund balance,
    when appropriate
  • Distinguish GAAP fund balance from Budgetary fund
    balance

40
Formal policy on fund balance (cont.)
  • Minimum amount for stated purposes
  • Point of comparison
  • Revenues v. expenditures
  • Regular operating items
  • Effect of size of government
  • Evaluate in context of long-term planning
  • First 5 needs to evaluate based on sustainability

41
Formal policy on fund balance (cont.)
  • Minimum amount for fund balance
  • Key environmental factors
  • Predictability of revenues
  • Volatility of expenditures
  • Resources in other funds
  • Demands from other funds
  • Liquidity
  • Designations

42
First 5 Fund Balance Issues
  • Reserved Amount
  • Consistent with Long Term Financial Plan
  • How to report in CAFR
  • County CAFR
  • Independent Commission CAFR

43
First 5 Fund Balance (cont.)
  • Reserved Funds
  • Encumbrances for future periods
  • Future payments due to grantees and contractors
  • Future payments due on professional services
  • Future payments due under lease arrangements

44
Fund Balance (cont.)
  • Reserved funds, continued
  • Approved Contracts not yet executed
  • Restricted funds not yet obligated
  • E.g., funds received from state commission for
    specific programs or initiatives
  • Grants received restricted to specific purposes
  • Funds Invested in Capital Assets
  • Reserved for First 5 CA initiatives matching
    grants

45
Fund Balance (cont.)
  • Unreserved Designated Funds
  • Reserved for Local Initiatives and Program
    Sustainability must meet criteria
  • A written plan with specific times, dollars, etc.
  • Commission formally approved plan
  • Commission certifies it intends to follow the
    plan
  • Commission has adopted annual budgets consistent
    with the plans
  • Unreserved, undesignated funds
  • Portion not allocated or earmarked

46
Fund Balance Reporting
47
Questions?
48
Budgeting Analysis
  • Budgeting Analysis Techniques
  • The Budget Document
  • Best Practices in Budgeting

49
Budgeting Analysis Budget Role in Operations
  • Apportionments Allotments
  • Encumbrance Controls
  • Reporting
  • Position Controls
  • Budget Amendments
  • Rescissions
  • Year-End Close-outs
  • Budget transfers
  • Budget reserves

50
Budgeting Analysis Budget Development
  • Budget Development
  • Funding allocation process
  • Estimate revenue available for next fiscal year
  • Non-discretionary funding needs subtracted
    (e.g. fringe benefits, reserves)
  • Remaining pool allocated based on priorities,
    one-time needs




51
Analysis Basics Identifying whats what
  • Identify cost drivers
  • Benefits
  • People
  • Contracts
  • Identify your priorities
  • Existing Programs
  • New Initiatives
  • Identify Fixed Costs or things you have to fund
  • Overhead
  • Benefits
  • Costs associated with regulations or legislated
    activities

52
Decision Tools for Budget Analysis
  • 5 basic tools
  • Decision tables
  • Expected value tables
  • Weighted score tables
  • Decision trees
  • Breakeven analysis
  • 7 advanced tools
  • Activity-based costing
  • Net Present Value (NPV) analysis
  • Return on Investments (ROI) analysis
  • Cost-Benefit analysis
  • Fiscal impact analysis
  • Cost-effectiveness analysis
  • Sensitivity analysis

53
Decision Tree Example
54
Cost-Benefit Analysis Example
55
Potential Benefits of Technology
  • Easier data input
  • Improved data analysis and forecasting
  • More efficient document publication
  • Integrated financial/performance monitoring
  • Automated work flows
  • Interdepartmental collaboration

56
Categories of Solutions
  • Spreadsheet systems
  • Relational applications
  • On-line analytics (OLAP)
  • Corporate Performance Management (CPM)

57
Budget Formats
  • Line-item (object of expenditure) Budgeting
  • What are we buying?
  • Program Budgeting
  • What are we doing?
  • Zero-based Budgeting
  • What can we cut?
  • Performance Budgeting
  • What are we accomplishing?
  • Budgeting for Outcomes
  • What is our strategy? What do we value?

58
Budgeting for Outcomes
  • First 5 Financial Management Guide recommends an
    outcomes based budget.
  • What does this mean?
  • How do we reflect what we value in dollars?
  • What does it cost to get us where we want to be?

59
Example Budget Narrative
In reference material
60
Example Operating Budget
61
Contract Schedule
62
Reserves Balance
63
Questions?
64
Contracting and Contract Administration
  • Contracts
  • Notification and Appeals Process
  • Procurement
  • Performance Monitoring and Reporting

65
Contracting- Definition
  • The distribution of Prop. 10 funds should be
    conducted economically and expeditiously, under
    fair, open, and well-documented procedures, and
    in accordance with best procurement practices.
    Commissions should issue a contract when entering
    into agreements with providers for the use of
    Prop. 10 funds. Contracts should link the
    performance of providers to the objectives of the
    strategic plan through the use of indicators of
    performance (outputs and/or outcomes),
    interagency linkages, or pr4ogress on
    sustainability to be achieved. (FMG 1.2)

66
Contract Elements
  • Scope of Work
  • Contract Term
  • Contractor Payment
  • Terms and Conditions

67
Scope of Work Focus on Performance
  • Focus on outcomes to be achieved
  • Identify performance measures
  • Establish reporting requirements
  • Identify project milestones
  • Address contingencies (conditions for changing
    scope of work)

68
Contract Term
  • Project work schedule
  • When work will be started and completed
  • Dates for completion of specific activities

69
Contractor Payment
  • Clearly state total price of contract
  • Who pays for what
  • Procedures for applying for payment
  • When payment may be withheld

70
Terms and Conditions - Examples
  • Supplantation
  • Assignments and subcontracts
  • Allowable vs. unallowable costs
  • Program monitoring and evaluation
  • Insurance requirements
  • Indemnification
  • Disputes and dispute resolution

71
Contracting and Procurement Policy
  • County commissions must adopt in a public hearing
    contracting and procurement policies that are
    consistent with state law. The policies must
    contain provisions to ensure that the grants and
    contracts are consistent with the county
    commissions strategic plan.

72
Procurement Two Methods for Selecting Providers
  • Conduct RFP process
  • Select a sole source provider

73
RFPs The Basics
  • Consider a dollar threshold for using RFPs
  • If XXX lt threshold, use informal process
  • Should be approved before release
  • Notice
  • Send to inquiring and relevant parties
  • Post on Commission Web site
  • Advertise in general circulation newspapers

74
RFPs Elements to Include
  • Statement of work
  • Selection process
  • Time schedules
  • Payment terms
  • Requirements

75
Sole Source Procurement
  • Use only when competition is infeasible
  • Justify rationale in writing
  • Already attempted competitive procurement
  • Only one viable provider
  • All local providers to receive funding
  • Other non-competitive options
  • Intent to negotiate
  • Request for information

76
Selection
  • Proposal review committee
  • Reviewers sign conflict of interest form and
    recuse themselves as necessary
  • Proposals scored according to matrix
  • Commission gives final approval

77
Notification and Appeals Recommended Procedures
  • Appeal to be filed within a timeframe to be
    determined by each commission on local needs
  • Notify all proposers in writing
  • Offer a de-briefing
  • May only appeal on procedural grounds
  • Specific ruling or relief requested must be
    stated
  • If appeal is upheld
  • Refer results back to proposal review committee
  • Conduct interviews with bidders and make a
    selection
  • Re-open the RFP process

78
Performance Monitoring/Reporting
  • Achieve outcomes identified in contract
  • Outline in contract methods to be used
  • Reporting guideline enough info. to assess
    performanceno more, no less
  • Requirements may vary by provider
  • Win voluntary compliance try Winning
    Compliance approach
  • Fiscal compliance
  • Credit to Peter Hutchinson, President, The
    Public Strategies Group, for this concept.

79
Interim Progress Reports
  • Work progress to date
  • Comparison of work progress to date with contract
    schedule and measures, explain differences
  • Expenditures to date
  • Comparison of expenditures to date with contract
    budget, explain variances
  • Issues or barriers

80
Contracting and Procurement Audit Guidelines
  • First 5 Commission should have
  • Minutes from public hearing/meeting called for
    contracting/procurement policies
  • A written document with contracting and
    procurement policies
  • Representation letter from commissions legal
    representative verifying compliance with state
    laws
  • Samples of contract and procurement transactions
    to support source documentation

81
Samples from First 5 Nevada County
  • Contract
  • Reporting materials
  • Contract audit sheet

82
Questions?
83
CASH MANAGEMENT
  • Commission Responsibilities County Treasury
  • Objectives of Cash Management
  • Components of Cash Management
  • Cash Flow Forecasting

84
Objectives
  • Support Commission operations, not cash
    management processes.
  • Meet all legal obligations and constraints.
  • Protect the assets of the commission at all
    times.
  • Provide liquidity to meet expected and unexpected
    obligations.
  • Documentation and accountability.

85
Elements of the Cash Management System
  • Evaluating your needs
  • Establishing policy
  • Establishing objectives
  • Developing and managing relationships
  • with financial institutions
  • Accounting for what is done

86
Cycle
  • Forecast cash flows
  • Collect revenues
  • Make investments
  • Track investments
  • Make disbursements
  • Monitor, evaluate and audit

87
Components of Cash Forecasts
  • Receipts and Disbursements
  • Projections of anticipated receipts
  • Projections of anticipated disbursements
  • Cash Balances

88
Benefits of Cash Forecasts
  • Improve investment earnings
  • Identify temporary cash deficits
  • Ensure liquidity
  • Enhance creditworthiness
  • Warn of budget and cash flow problems

89
Types of Cash Forecasts
  • Annual forecasts provide monthly estimates of
    cash position.
  • Use for determining investments over
  • 30 day maturity.
  • Monthly forecasts provide weekly estimates of
    cash position.
  • Use for determining investments with
  • 0 90 day maturity.

90
Types of Cash Forecasts(Cont.)
  • Weekly forecasts provide daily estimates of cash
    position.
  • Use for determining investments less than 7 day
    maturity.

91
Evaluating Costs and Benefits of Cash Forecasting
Methods
  • Time and resources available
  • Amount of cash balances
  • Desire to improve cash management
  • Need for accurate cash information
  • Investment options

92
Developing Cash Forecasts
  • Examine 3 5 year historical patterns of
    receipts and disbursements from monthly financial
    reports recurring and non-recurring items.
  • Analyze current budget revenues and expenditures.
  • Develop a schedule of current investment
    maturities.

93
Forecasting Receipts
  • Establish categories.
  • Prop 10 funding from State
  • Investment income and maturities
  • Other receipts
  • Steps to forecasting
  • Develop historical analysis of monthly receipts -
    and of annual.
  • Create forecast of monthly receipts based on
    budget and historical distribution.

94
Creating a Cash Forecast
  • Beginning balance
  • Monthly revenue projections
  • Monthly expenditure projections
  • Net change
  • Cumulative balance

95
Updating and Reviewing Cash Forecasts
  • Regular updating improves accuracy and provides a
    database for future projections.
  • Rolling forecasts add a new month or quarter as
    each one is completed.
  • Adjust for unanticipated events.
  • Conduct annual review of cash forecast vs. actual
    results to identify reasons for variances.

96
Investments
  • Fundamentals of Investment
  • Establishing an Investment Policy
  • Working with Your County Managers or
    Investment Advisors

97
Financial Management Guide
  • Information
  • Commissions should maintain a written investment
    policy
  • Submitting the policy to your Commission
  • Considerations when developing the policy

98
Investment Management Responsibilities
  • Commission
  • Establish policies
  • Review investment reports
  • Ensure appropriate controls in place
  • (Audits)
  • Commission Staff (ED, CFO)
  • Work with cash manager
  • Report to Commission
  • Execute appropriate controls

99
Components of Investment Management
  • Investment policy
  • Internal procedures
  • Cash flow forecasting
  • Investment strategies
  • Broker/dealer due diligence
  • Investment instruments
  • Portfolio performance reporting

100
The Investment Process
  • Recognize risk tolerance
  • Recognize cash flow limits
  • Choose your authorized securities
  • Create a policy framework
  • Develop a strategy
  • Establish procedures
  • Understand market forces
  • Structure the portfolio
  • Report
  • Monitor results and compliance

101
The Fundamentals
  • Safety
  • Liquidity
  • Diversification
  • Yield
  • Prudence
  • Policies
  • Procedures
  • Goal Reasonable Incremental Income

102
Risk Reward
  • No risk no reward
  • Know risk know reward
  • Portfolio management is risk management
  • Double edged sword
  • Greater risk increases potential returns
  • Greater risk increases potential losses

103
Risk - Reward
  • Risk
  • Type of securities
  • Maturity of securities
  • Issue size of securities
  • Market movement
  • Portfolio imbalances
  • Non-diversification

104
Manage risk, not reward
  • Goal
  • Manage risk in portfolio to increase portfolio
    value overall, given risk parameters
  • Yield and value
  • Highest yield moves do not always guarantee value
  • Bear market scenarios
  • Price to pay
  • Think in terms of buying a series of cash
    payments
  • Consider magnitude and degree of certainty

105
Investment Policy
106
Why an Investment Policy?
  • Defines investment program
  • Legal permitted activities
  • Whos in charge
  • Measurement of results
  • Relationship to counterparties
  • Protection
  • Dynamic process

107
Policy Components - 1
  • Statement of Intent
  • Overview
  • Sound fiscal management
  • Adoption of policy
  • Approval by governing board
  • Scope
  • Funds covered by policy

108
Policy Components - 2
  • Objectives
  • Safety, liquidity, yield/return (SLY) others
  • Delegation of Authority
  • Statement of Prudence Indemnification
  • Prudent person standard of conduct
  • Usually contained in state statute

109
Policy Components - 3
  • Authorized Investments Transactions
  • Research state statutes
  • Risk tolerance
  • Types of securities transactions
  • Maximum maturities weighted average maturities
  • Credit criteria
  • Repurchase agreement criteria

110
Policy Components - 4
  • Other Guidelines
  • Diversification
  • Liquidity
  • Competitive quotes
  • Selection of Financial Institutions
  • Selection of Broker-Dealers

111
Policy Components - 5
  • Safekeeping
  • Criteria for selecting custodian
  • Delivery versus payment (DVP) settlement
  • Fed wire
  • Depository Trust Company (DTC)
  • Performance Benchmarks
  • Criteria for selecting benchmarks
  • Minimum yield standards
  • Methods of calculation

112
Policy Components - 6
  • Reporting
  • Disclosure of activities holdings
  • Methods for calculations
  • Frequency of reports who receives them
  • Ethics Conflicts
  • Existing guidelines for the entity
  • Expectations of investment personnel
  • Guidelines for handling deviations

113
Policy Components - 7
  • Possible Appendix Items
  • Authorized personnel
  • Statutes, ordinances, etc.
  • Authorized broker-dealers
  • Authorized depositories
  • Formulas for returns
  • Safekeeping agreement
  • Master repurchase agreement

114
Reporting Adjusting
  • Reporting
  • Initial cost of investment
  • Stated yield
  • Timing (purchase and maturity)
  • Performance and benchmarking
  • Adjusting investments
  • Incorporating revised economic outlook

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Investment Policy Help
  • Government Finance Officers Association
  • Sample Investment Policy
  • (312) 977-9700 www.gfoa.org
  • Association of Public Treasurers
  • Model Investment Policy
  • (202) 737-0660 www.aptusc.org
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