Accounting for Investments TEXAS ASSOCIATION OF COUNTY AUDITORS 2017 TACA Fall conference October 17-20, 2017 Mrs. Gina Robbins Investment Accountant, Collin County

Overview from Start to Finish Investment Policy Pooling Investments Broker/Dealer List Account Reconciliations Types of Investments Investment Reports Investment Strategy Investment Software The Marketplace Audit Investment Transactions

Investment policy Prepare Formal Investment Policy Statutory Requirements Local Government Code 116.112 Government Code 2256 Review carefully and understand policy Must be adopted by Commissioners Court Annually

Investment policy I. Authority and Scope of Policy II. Objectives III. Policies IV. Responsibility and Control V. Reporting and Performance Evaluation VI. Collateral and Safekeeping VII. Strategy

investment policy Request samples from other Counties Use TAC Investment Academy Listserve Tac-invest@list.county.org

Broker/dealer list How many Brokers should you have Do what works for you Who can you trust Do your due diligence  www.finra.org  References  Review Documents

BROKER/DEALER LIST Send Email request to potential Brokers with documents attached: Investment Policy Application/Questionnaire Agreement in Principle Receive from approved Brokers Bio/Professional Profile Completed Application/Questionnaire Executed Agreement in Principle Certifications/Registrations/SEC Form BrokerCheck (www.finra.org) Financial Statements Certificate of Bond Proceeds/ IRMA

BROKER/DEALER LIST Review (Do your due diligence) Application/Questionnaire Perform BrokerCheck (http://www.finra.org/) Obtain Referrals Make your selections Prepare Broker/Dealer List Submit Broker/Dealer List for Commissioner Court review and approval Email Acceptance/Rejection Notifications

Types of investments AUTHORIZED INVESTMENTS Government Code 2256 009 Obligations of, or Guaranteed By Government Entities 010 Certificates of Deposit and Share Certificates 011 Repurchase Agreements 0115 Securities Lending Program 012 Banker’s Acceptances

Types of investments 013 Commercial Paper 014 Mutual Funds AUTHORIZED INVESTMENTS Government Code 2256 013 Commercial Paper 014 Mutual Funds 015 Guaranteed Investment Contracts 016 Investment Pools 020 Institutions of Higher Education

Types of investments AUTHORIZED INVESTMENTS Government Code 2256 0201 Municipal Utility 0202 Municipal Funds from Mgmt & Developmt of Mineral Rights 0203 Ports and Navigation Districts 0204 Independent School Districts 0205 Decommissioning Trust

Types of investments Pooled Funds Investment Accounts (PFIA) Federally Insured Cash Account (FICA) / ICS Money Market Account (MMA) Certificates of Deposit (CD) Non-Negotiable Brokered Bonds Federal Agency Bonds Municipal Bonds

Investment strategy What is an “Investment Strategy”? “An investment strategy is an investor’s plan of attack to guide their investment decisions based on individual goals, risk tolerance and future needs for capital.” “The most important part of an investment strategy is that it aligns with the individual’s goals and is closely followed by the investor.” (http://www.investopedia.com/terms/i/investmentstrategy.asp)

INVESTMENT strategy OPERATING FUNDS Perform Cash Analysis Invest in Short Term Instruments Ladder according to needs Month Payroll Debt Service TOTAL January $5,000,000 $0.00 February $50,000,000 $55,000,000 March $7,500,000 April May June

INVESTMENT STRATEGY NON-OPERATING FUNDS Determine Amount Available to Invest Short Term versus Long Term Instruments Diversification Market Trends Ladder Fund General Debt Service TOTAL Beginning Fund Balance $197,000,000 $20,000,000 $217,000,000 Estimated Revenue Projections $187,000,000 $60,000,000 $247,000,000 Expenditure Budget $195,000,000 $50,000,000 $245,000,000 Liquidity Reserve $15,000,000 $10,000,000 $25,000,000 TARGET $174,000,000 $194,000,000

INVESTMENT strategy CAPITAL PROJECTS FUNDS Determine when funds will be used Lump Sum versus partial Debt Proceeds Ladder

THE MARKETPLACE Definition of Marketplace by Merriam-Webster “the economic system through which different companies compete with each other to sell their products”

THE MARKETPLACE Multi-Bank Securities, Inc. Fernando Pulido (866) 355-0113 Fpulido@mbssecurities.com eConnectDirect

The marketplace Email Request for Offers to approved Brokers Review Offers Received Select three “best” offers and recommendation Email Request for Approval to Investment Officers Contact Broker with Order for approved selection Email Brokers that purchase has been made Notify Bank of Trade and Settlement Prepare and post journal entry to record investment purchase

Transactions PFIA Contribution PFIA Withdrawal Date GL Description Debit Credit 10/19/17 TexPool $1,000,000.00 Pooled Cash (Wire $1,000,000.00 from Pooled Cash to TexPool) Date GL Description Debit Credit 10/20/17 Pooled Cash $500,000.00 TexSTAR (Wire $500,000.00 from TexSTAR to Pooled Cash)

Transactions Interest Received (Cash Basis) Interest Received (Accrual Basis) Date GL Description Debit Credit 10/31/17 Pooled Cash $2,500.00 Interest Income (Investment Interest Received) Date GL Description Debit Credit 10/31/17 Interest Receivable $2,500.00 Interest Income (Record Accrued Interest) 11/30/17 Pooled Cash (Investment Interest Received)

transactions CD Purchase CD Maturity Date GL Description Debit Credit 10/19/17 CD Investment $2,500,000.00 Pooled Cash (Record CD Purchase 24 Mo @ 1.50%) Date GL Description Debit Credit 10/19/19 Pooled Cash $2,575,000.00 CD Investment $2,500,000.00 Interest Income $75,000.00 (CD Matured)

TRANSACTIONS Investment Bond Purchase Investment Bond Purchase with Purchased Accrued Interest Date GL Description Debit Credit 09/29/17 Investment Bonds $5,000,000.00 Pooled Cash (Purchase FHLMC #3134GBH21 3Yr @ 1.70%) Date GL Description Debit Credit Investment Bonds $2,801,000.00 Interest Receivable $396.81 Pooled Cash $2,801,560.20 (Purchase FHLMC #3134GBD33 3Yr @ 1.70%)

TRANSACTIONS Amortization (Bond purchased at a premium) Accretion (Bond purchased at a discount) Date GL Description Debit Credit 06/30/17 Bond Premium Account $294.96 Investment Bonds (Record Amortization FNMA #31398ADM1) Date GL Description Debit Credit 06/30/17 Investment Bonds $355.12 Discount on Bond Account (Record Accretion FHLMC #3134G9VF1)

transactions INVESTMENT BOND CALLED/MATURED Record Final Interest Received Record Final Amortization (or Accretion) Record Maturity/Call Date GL Description Debit Credit 08/28/17 Pooled Cash $2,500,000.00 Investment Bonds (Accretion) $24.68 Investment Bonds $2,499,774.68 Realized Gain $225.32 Discount on Bond Account (Record FHLB #3130ABDU7 Bond Called)

Pooling investments OPERATING NON-OPERATING CAPITAL PROJECTS Liquid Cash and Short Term Investments Diversify between Short & Long Term Investments Investment based on Cash Needs

Pooling investments OPERATING INVESTMENT POOL Establish GL Accounts Pooled Cash Operating Investment Pool Investment Interest Receivable/Accrued Interest Investment Receivable (Clearing Account) Investment Interest Revenue

Pooling investments NON-OPERATING INVESTMENT POOL Establish GL Accounts Pooled Cash Non-Operating Investment Pool Investment Interest Receivable/Accrued Interest/Purchased Accrued Interest Investment Receivable (Clearing Account) Investment Interest Revenue Premium/Discount on Bonds Amortization/Accretion Expense Capital Gains/Losses Market Adjustment

Pooling investments CAPITAL PROJECTS INVESETMENT POOL Establish GL Accounts Pooled Cash Capital Projects Investment Pool Investment Interest Receivable/Accrued Interest Investment Receivable (Clearing Account) Investment Interest Revenue

Pooling investments Parallel Methodology OPERATING NON-OPERATING CAPITAL PROJECTS POOLED CASH MONEY MARKET ACCOUNT FIXED TERM INVESTMENTS < 1 YEAR CERTIFICATES OF DEPOSIT PFIA FICA/ICS INTEREST RECEIVABLE INVESTMENT POOL EQUITY INVESTMENT INTEREST REVENUE POOLED CASH MONEY MARKET ACCOUNT FIXED TERM INVESTMENTS > 1 YEAR CERTIFICATES OF DEPOSIT FEDERAL AGENGY BONDS MUNICIPAL BONDS INTEREST RECEIVABLE INVESTMENT POOL EQUITY INVESTMENT INTEREST REVENUE POOLED CASH MONEY MARKET ACCOUNT FIXED TERM INVESTMENTS CERTIFICATES OF DEPOSIT INTEREST RECEIVABLE INVESTMENT POOL EQUITY INVESTMENT INTEREST REVENUE

ACCOUNT RECONCILIATIONS Perform account reconciliations on a monthly basis Compare GL Ending Balances with outside source Identify Discrepancies Discrepancies/Exception items should be cleared ASAP Update as changes occur Submit for Supervisor Review and Approval

INVESTMENT REPORTS Monthly Investment Report

INVESTMENT REPORTS Quarterly Investment Report

Investment software PROS CONS Reporting Allocation Amortization/Accretion Validation Import Journal Entries System Quirks Outside of GL Software Duplicate Entry

AUDIT Fiscal Year End Be Prepared Perform Final Review before submitting documents to Auditor