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Home My WebLink About1995-04-12.. .., 7 DRAFT County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 MINUTES OF FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE t-1-L~I [;~ ·1i1s Office of tho Sec~at::: Couny Sanitation Dh:~trici.(.: J No(s) 4~1 3.~ t,,? I/I APR 2 61995 sv tK. Wednesday. April 12. 1995. 5:30 P.M. A meeting of the Finance, Administration and Human Resources Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on April 12, 1995 at 5:30 p.m., at the Districts' Administrative offices. (1) ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chairman Burnie Dunlap James H. Flora Wally Linn Thomas Saltarelli Roger R. Stanton, Vice Chairman Peer Swan Committee Directors Absent: John C. Cox, Jr., Joint Chairman Jan Debay John M. Gullixson William G. Steiner Staff Present: Don Mcintyre, General Manager Gary Streed, Director of Finance Gary Hasenstab, Director of Personnel Ed Hodges, Director of Maintenance Bob Ooten, Director of Operations Steve Kozak, Financial Manager Mike White, Controller Others Present Tom Woodruff, General Counsel Patti Gorczyca, Public Financial Management Kay Chandler, Chandler Liquid Asset Mgmt. (2) APPOINTMENT OF A CHAIRMAN PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS No comments were made. Minutes of Finance, A¢ istration and Human Resources C1.. Jttee Page2 April 12, 1995 (4) REPORTS OF THE COMMITTEE CHAIR. GENERAL MANAGER. DIRECTOR OF FINANCE/TREASURER. DIRECTOR OF PERSONNEL AND GENERAL COUNSEL (a) Report of the Committee Chair George Brown reminded the Directors to review their Committee Handbook for possible improvement and to comment to staff. (b) Report of the General Manager Don Mcintyre reported that staff would be bringing a conceptual budget, including the assumptions for operations, maintenance and capital improvements, to the May Committee meeting. He advised the Directors that the capital improvement budgets would be reduced and that personnel and training recommendations are expected to be increased in response to Ernst & Young's review comments. (c) Report of the Finance Director/Treasurer Finance DirectorfTreasurer Gary G. Streed reviewed the report included with the agenda package and updated the Committee on the status of the Orange County Investment Pool Portfolio and the Districts' self-managed bank and investment accounts. d) Report of the Director of Personnel No report was required. (5) APPROVAL OF MINUTES It was moved, seconded and duly carried to approve the draft minutes of the March 15, 1995, meeting of the Finance and Personnel Committee. (6) OLD BUSINESS FPC95-05 Review of Internal Controls Over Accounts Payable. Payroll and Treasury Management After discussion on this item, it was moved, seconded and duly carried to receive and file the revised internal control procedures and report. Minutes of Finance, A 1 ·stration and Human Resources C1.. tittee Page 3 April 12, 1995 FPC95-14 Continued Monitoring of Variable Rate Certificates of Participation (COP) and Consideration of Remarketing Agent Selection After discussion on this item, it was moved, seconded and duly carried to: A) Replace Merrill Lynch as remarketing agent for the Series A, Series C and 1993 Refunding Certificates of Participation. B) Negotiate with PaineWebber for remarketing agent services for the Series A Certificates of Participation. C) Negotiate with J. P. Morgan for remarketing agent services for the Series C Certificates of Participation. D) Report to the Directors on the requirements of the COP/SWAP documents to replace the remarketing agent on the 1993 Refunding COPs; and negotiate with PaineWebber to provide remarketing services. FPC 95-16 Consideration and Review of Draft Investment Policy Statement Prepared by Investment Advisor Chandler Liquid Asset Management. Inc •• and Callan Associates After discussion on this item, it was moved, seconded and duly carried to recommend approval of the Investment Policy Statement to the Executive Committee and Joint Boards. (7) NEW BUSINESS FAHR95-21 Consideration of Motion Adopting Proposed Fiscal Policy Statements Governing the Districts' Budget Preparations and Operations After discussion on this matter, it was moved, seconded and duly carried to approve staff's recommendation to adopt the General Fiscal Policy Statements for the Districts. FAHR95-22 Consideration of 1995-96 Sewer Use and Connection Fee Recommendations After discussion on this matter, it was moved, seconded and duly carried to approve staff's recommendation that the 1995-96 user fees remain unchanged from the 1994-95 rates. It was further moved, seconded and duly carried to allow the connection fees/the capital facilities connection charge, to increase in accordance with the Engineering News Record Los Angeles Index, pursuant to the adopted Resolutions. Minutes of Finance, Ar' istration and Human Resources c~ 1ittee Page4 April 12, 1995 FAHR95-23 Consideration of Motjon Adopting Revisions to the Personal Responsibility in Daily Effort (PRIDE) Program After discussion on this matter, it was moved, seconded and duly carried to approve staff's recommendation to revise the PRIDE Program as follows: 1. The minimum award is increased from $100 to $150; 2. A staff PRIDE Selection Committee will review all awards; 3. The General Manager will approve awards below $1,000 to allow the funds to be disbursed in a timely fashion; awards in excess of $1,000 will continue to be submitted to the FAHR Committee; 4. Procedures to evaluate PRIDE proposals are streamlined to take no more than 45 days, except in unusually complex circumstances. (8) CLOSED SESSION None. (9) OTHER BUSINESS. IF ANY None. (10) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING None. (11) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDAFORACTIONANDASTAFFREPORT None. (12) CONSIDERATION OF UPCOMING MEETING DATES AND ITEMS TO BE DISCUSSED AT THOSE MEETINGS Committee Chairman George Brown requested the Committee refer to the calendar of future meetings on the back of the Notice of Meeting and reminded the Directors that the next Committee meeting is scheduled for Wednesday, May 10, 1995. He recommended the Committee also review the list of future meeting topics. The Committee considered not meeting in August, November and December 1995 as no Executive Committee meetings are scheduled, and no FAHR Committee recommendation could be carried to the respective Joint Board meetings. Minutes of Finance, Ar istration and Human Resources c~ iittee Pages April 12, 1995 (13) ADJOURNMENT The meeting was adjourned at 6:55 p.m. GGS:lc J:\WPDOC\FIN\CRANEIFPC.MTG\FPC95'MNUTES'M"PC4.95 STATE OF CALIFORNIA ) ) SS. COUNTY OF ORANGE ) Pursuant to California Government Code Section 54954.2, I hereby certify that the Notice and the Agenda for the Finance, Administration and Human Resources meeting held on April 12, 1995, was duly posted for public inspection in the main lobby of the Districts' offices on April 6, 1995. IN WITNESS WHEREOF, I have hereunto set my hand this 12th day of April, 1995. / ry o each of the Boards of Directors of County S itatio istricts Nos. 1, 2, 3, 5, 6, 7, 11, 13 & 14 of Orange County, California Posted: ~ (p , 1995, .$.'SO P.M. By:~"""-----) ~'----~~re J:\WPOOC\FlNICRANE\FPC.MTGIFPC95\CERTOF.POS\CERTPOS4.95 April 6, 1995 '-'OUNTY SANIT A TIC) DISTRICTS OF ORANGE COUNTY, CALIFORNIA P.O. BOX 8127, FOUNTAIN VALLEY, CALIFORNIA 92728-8127 10844 ELLIS, FOUNTAIN VALLEY, CALIFORNIA 92708-7018 (714) 962-2411 NOTICE OF MEETING FINANCE. A.DMINISTRATION AND HUMAN RESOURCES COMMITTEE COUNTY SANITATION DISTRICTS NOS. 1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA WEDNESDAY. APRIL 12. 1995 -5:30 P.M. DISTRICTS' ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 A regular meeting of the Finance, Administration and Human Resources Committee of the Joint Boards of Directors of County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California, will be held at the above location, time and date. J:\WPDOCIFINICRANEIFPC.MTGIFPC85\NOTICE\NOTICE4.95 April 6, 1995 COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA 10844 ELLIS AVENUE P.O. BOX 8127 FOUNTAIN VALLEY, CALIFORNIA 92728- (714) 962-2411 FINANCE. ADMINISTRATION AND HUMAN RESOURCES COMMITTEE TENTATIVELY SCHEDULED MEETING DATES Finance, Administration and Action Items to Human Resources Executive Committee Action Items to Joint Committee Meetings Meeting Board Meeting April April 12, 1995 April 19, 1995 April 26, 1995 May May 10, 1995 May 17, 1995 May 24, 1995 June June 14, 1995 June 21, 1995 June 28, 1995 July July 12, 1995 July 19, 1995 July 26, 1995 August None Scheduled None Scheduled August23, 1995 September September 13, 1995 September 20, 1995 September 27, 1995 October October 11, 1995 October 18, 1995 October 25, 1995 November November 8, 1995 None Scheduled November 22, 1995 December None Scheduled None Scheduled December 27, 1995 J:IWPDOCIFINICRANEIFPC.MTGIFPC85\NOTICE\NOTICE.4.115 FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE DATE 4 -12-95 COMMITTEE MEMBERS BROWN (Chair) .............................. . ST ANTON (Vice Chair) ••••••••••••••••••••••••• DEBAY ........••..•.•..•.••..••••..........•. DUNLAP .................................... . FLORA .......••.........•.............•.•.... GUWXSON ...........................•..•... LINN ...........•............................. SAL TAREW ••....•.•.•.••.....••.....••...... STEINER ......................••.....•....... SWAN (VJC) ....•••..•..•••......••.......•••. COX (JC) .......•............•.•.•...•.......• OTHER DIRECTORS ---------······················ ---------······················ STAFF DON MCINTYRE, GENERAL MANAGER •••••••••••••••••••••••• BLAKE ANDERSON, ASST. GENERAL MANAGER ••••••••••••••• GARY STREED, DIRECTOR OF FINANCE •••••••••••••••••••••• GARY HASENSTAB, DIRECTOR OF PERSONNEL ••••••••••••••. ED HODGES, DIRECTOR OF MAINTENANCE ••••••••••••••••••• BOB OOTEN, DIRECTOR OF OPERATIONS •••••••••••••••••••• JOHN UNDER, DIRECTOR OF ENGINEERING •••••••••••••••••• ED TORRES, DIRECTOR OF TECH. SERVICES ••••••••••••••••• STEVE KOZAK, FINANCIAL MANAGER .••••••••••••••••••••••• MIKE WHITE, CONTROLLER •••••••••••••••••••••.••••••••••• OTHERS TOM WOODRUFF, GEN'L COUNSEL •••••••••••••••••••••••••• PATTI GORCZVCA, PFM ••••••••••••••••••••••••••••••••••••.• ROU.1.115 TIME 5:30 P.M. ADJOURN. ___ _ 'l "'~ J April 6, 1995 .! I AGENDA FINANCE. ADMINIS'fRATION AND HUMAN RESOURCES COUNTY SANITATION DISTRICTS NOS. 1, 2, 3, 5, 6, 7, 11, 13 AND 14 OF ORANGE COUNTY, CALIFORNIA DISTRICTS' ADMINISTRATIVE OFFICES 10844 ELLIS AVENUE FOUNTAIN VALLEY, CALIFORNIA 92708 REGULAR MEETING WEDNESDAY. APRIL 1i2. 199.5 -5~30 P.M. j·······································-·······························-·····-········-······-·-·············..,-············-···················-···················.······--···i l In accordance with the requirements of California Government Code Section 54954.2, this j i agenda has been posted in the main lobby of the Districts' Administrative Offices not less than 72 i : hours prior to the meeting date and time above. All written materials relating to each agenda item are : : : !:=:==.l:. available for public inspection in the Office of the Board Secretary. !===~== .. In the event any matter not listed on this agenda is proposed to be submitted to the . Committee for discussion and/or action, it will be done in compliance with Section 54954.2(b) as an emergency item or that there is a need to take immediate action which need came to the attention of !.,,~.=~.:::~~:~~~:.~.~~~~~~.~:.~~~'..~~::~~~~:::.·.:'.".::~: ....... J ( 1 ) Roll Call (2) Appointment of Chairman pro tern, if necessary. (3) Publ.ic Comments: All persons wishing to address the Committee on specific agenda items or matters of general interest should do so at this time. As determined by the Chairman, speakers may be deferred until the specific item is taken for discussion and remarks may be limited to five minutes. Matters of interest addressed by a member of the public and not listed on this agenda cannot have action taken by the Committee except as authorized by Section 54954.2(b ). April 6, 1995 (4) The Committee Chairman, General Manager, Director of Finance!Treasurer, Director of Personnel and General Counsel may present verbal and/or written reports on miscellaneous matters of general interest to the Committee Members. These reports are for information only and require no action by the Committee Members. (a) Report of Committee Chairman (b) Report of General Manager (c) Report of Director of Finance!Treasurer ( d) Report of Director of Personnel ( e) Report of General Counsel (5) Approval of draft Finance and Personnel Committee Minutes for Meeting of March 15, 1995. (6) Old Business. FPC95-05 Review of Internal Controls Over Accounts Payable, Payroll and Treasury Management FPC95-14 Continued Monitoring of Variable Rate Certificates of Participation (COP) and Consideration of Remarketing Agent Selection FPC95-16 Consideration and Review of Draft Investment Policy Prepared by Investment Advisor Chandler Liquid Asset Management, Inc., and Callan Associates (7) New Business. FAHR95-21 Consideration of Motion Adopting Proposed Fiscal Policy Statements Governing the Districts' Budget Preparations and Operations FAHR95-22 Consideration of 1995-96 Sewer Use and Connection Fee Recommendations FAHR95·23 Consideration of Motion Adopting Revisions to the Personal Responsibility in Daily Effort (PRIDE) Program -2- April 6, 1995 (8) Closed Session. Closed Session: During the course of conducting the business set forth on this agenda as a regular meeting of the Committee, the Chairman may convene the Committee in closed session to consider matters of pending or potential litigation, or personnel matters, pursuant to Government Code Sections 54956.9, 54957 or 54957 .6. Reports relating to (a) purchase and sale of real property; (b) matters of pending or potential litigation; (c) employee actions or negotiations with employee representatives; or which are exempt from public disclosure under the California Public Records Act, may be reviewed by the Committee during a permitted closed session and are not available for public inspection. At such time as final actions are taken by the Committee on any of these subjects, the minutes will reflect all required disclosures of information. (a) Convene in closed session, if necessary (b) Reconvene in regular session. (c) Consideration of action, if any, on matters considered in closed session. (d) Report on discussion taken in closed session, as required. (9) Other business, if any. (10) Matters which a Director would like staff to report on at a subsequent meeting. ( 11) Matters which a Director may wish to place on a future agenda for action and a staff report. (12) Consideration of upcoming meeting dates and items to be discussed at those meetings. (13) Adjourn . ......... ,. ••• , ........... •&•• .......... · ..... ·._. .............. _ ....... ···-· ....... .,. ........ :. ....... · ................. --....... · ...................... .; ........ .; ....................... -:. ................................... .. Notice to Committee Members: If you have any questions regarding the Agenda, or wish to place items on the Finance, Administration and Human Resources Agenda, Committee members should contact the Committee Chair or Secretary ten days in advance of the Committee meeting. Committee Chair: Secretary: George Brown Lenora Crane (310) 431-2185 (714) 962-2411, Ext. 2501 (714) 962-3954 (FAX) I. .................... , ............... .J ..................................... ;..: ••• .; ................................... .;; ~--· ............................ ., •••••••.••.•.•• .; ..... .;· ........................... ~-.......... J -3- ) FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 { 4): Treasurer's Report Summary: The County's Investment Pool Portfolio Summary that the Committee has been reviewing each month was not issued by Solomon Brothers in time to include in the agenda mailing. We hope to have it available for the meeting. During March, staff was able to complete the withdrawal of post-petition funds from the Orange County Treasury. Only one fund, approximately $164,000, remains at the County pending their final account reconciliation. A summary of the Districts' total cash position at month end, including our share of the pre-petition balances, follows. The pre-petition balance reported has not been reduced for any losses. Balances Estimated CS DOC March 31, 1995 Yield Deposits with County: Pre-Petition, Includes D.S.R. $395.7 Million 5.94% Post Petition .2 Million 5.27% Bank of America Money Market 7.1 Million 5.20% Bank of America Checking .3 Million 4.00% State of Calif. LAIF 11.2 Million 5.78% Debt Service Res. wrrrustees 19.9 Million 7.23% $434.4 Million 5.98% J:IWPOOC\FINICRANEIFPC.MTGIFPC9511TEMS.AGO\FPC4-95.4 TOTAL CASH & INVESTMENT $400 I! ~$300 0 • c ~$200 :i $100 Dec6 Staff Recommendation Information only item. Dec31 J:IWPDOCIFINICRANEIFPC.MTGIFPC95\ITEMS.AGDIFPC4-85."4 Jan 31 Feb28 Mar31 -2- ) FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 (5): Consideration of Motion to Approve the Draft Finance and Personnel Committee Meeting Minutes of March 15, 1995 Summary Attached is a draft of the Finance and Personnel Committee Minutes of March 15, 1995, for approval by the Committee. Staff Recommendation It is recommended that the minutes of the March 15, 1995 Finance and Personnel Committee meeting be approved and submitted to the Executive Committee for their information. J:IWPOOCIFINICRANEIFPC.MTGIFPC95\ITEMS.AGDIMFPC4.95 DRAFT County Sanitation Districts of Orange County, California P.O. Box 8127 • 10844 Ellis Avenue Fountain Valley, CA 92728-8127 Telephone: (714) 962-2411 MINUTES OF FINANCE AND PERSONNEL COMMITTEE Wednesday, March 15, 1995. 5:30 P.M. A meeting of the Finance and Personnel Committee of the County Sanitation Districts Nos. 1, 2, 3, 5, 6, 7, 11, 13 and 14 of Orange County, California was held on March 15, 1995 at 5:30 p.m., at the Districts' Administrative offices. (1) ROLL CALL The roll was called and a quorum declared present, as follows: Committee Directors Present: George Brown, Chairman Burnie Dunlap John M. Gullixson Wally Linn Thomas Saltarelli Roger R. Stanton, Vice Chairman William G. Steiner Peer Swan Committee Directors Absent: John C. Cox, Jr., Joint Chairman Jan Debay James H. Flora Staff Present: Don Mcintyre, General Manager Gary Streed, Director of Finance Gary Hasenstab, Director of Personnel Ed Hodges, Director of Maintenance Bob Ooten, Director of Operations John Linder, Director of Engineering Ed Torres, Director of Technical Services Steve Kozak, Financial Manager Mike White, Controller Others Present Tom Woodruff, General Counsel Patti Gorczyca, Public Financial Management Kay Chandler, Chandler Liquid Asset Management Steve Coma, Merrill Lynch Elke Chenevey, Merrill Lynch (2) APPOINTMENT OF A CHAIRMAN PRO TEM No appointment was necessary. (3) PUBLIC COMMENTS No comments were made. Minutes of Finance & r innel Committee Page2 March 15, 1995 (4) REPORTS OF THE COMMITIEE CHAIR. GENERAL MANAGER. DIRECTOR OF FINANCE/TREASURER. DIRECTOR OF PERSONNEL AND GENERAL COUNSEL (a) Report of the Committee Chair Committee Chairman, George Bro\Vn, discussed his concern over the Committee's purpose and asked the Directors to review the "Directors' Handbook for Committees." He also directed staff to put a discussion· of the Handbook on a future agenda. (b) Report of the General Manager Don Mcintyre, General Manager, reported that the new Committee and Board meeting schedule caused two Executive Committee meetings before the April Board meeting and, therefore, the March 22nd meeting has been canceled. The Committee then discussed the new meeting schedule and the flow of information. The· General Manager also requested that discussion of the CORF budget, item FPC95-19, be deferred. The Committee agreed to remove the item from the agenda. (c) Report of the Finance Director/Treasurer Finance Director/Treasurer Gary G. Streed, reported that the County has issued a brief Investment Pool Portfolio Summary as of February 28, through Soloman Brothers Asset Management, Inc. For the month of February, repor:ts have been issued for the Pre-Petition Pool and for the Post-Petition Pool. All funds continue to be invested in Treasury and Government Agency securities as follows: County Pre-Petition Post-Petition Total Funds $5.0 Billion $393 Million Average Maturity 7.3 days 7.8 Days Longest Maturity 20days 17 Days Average Yield 5.94% 5.27% A summary of the Districts' total cash position at month end, including our share of the above, follows. The pre-petition balance reported has not been reduced for any losses. Minutes of Finance 8,.-1sonnel Committee Page3 March 15, 1995 CS DOC Deposits with County: Pre-Petition, Includes 0.S.R. Post Petition Bank of America Money Market State of Calif. LAIF Debt Service Res. wlTrustees Balances Estimated February 28, 1995 Yield $395.7 Million 5.94% 7.0 Million 5.27% 1.1 Million 4.05% 11.1 Million 5.78% 19.9 Million 7.23% $434.8 Million 5.98% It was moved, seconded and duly carried to receive and file this report. (d) Report of the Director of Personnel Gary Hasenstab, Director of Personnel, distributed and discussed a chart entitled "Salary Distribution by Quartiles." This chart is reviewed annually as a part of the monitoring process for Management, Professional and Supervisory staff. The actual salary distributions are within the Boards' guidelines for the third and fourth quartiles. The General Manager reported that he believed the Management Performance Review Program was too cumbersome and that he would be recommending some changes for consideration by the Committee. (5) APPROVAL OF MINUTES It was moved, seconded and duly carried to approve the amended draft minutes of the February 15, 1995, meeting of the Finance and Personnel Committee. (6) OLD BUSINESS FPC95-14 Consideration of Continued Monitoring of Variable Rate Certificates of Participation (COP> and Consideration of Merrill Lynch Action Plan Financial Manager Steve Kozak presented updated variable rate COP monitoring information and a February 28, 1995 letter from Merrill Lynch. Mr. Kozak advised that the graphs included in the agenda package had been updated from the PFM report presented last month and included the comparative rate performance of several COPs through March 8, 1995. A revised PFM report through March 15, 1995 was distributed. Although Merrill Lynch averaged 21 basis points above the agents shown since December 1, 1994, they had reduced that to approximately 8.5 basis points for the period since the last Committee meeting. One basis point equals $10,000 per year on $100,000,000. Minutes of Finance & r ?nnel Committee Page4 March 15, 1995 I ' Mr. Kozak reported the letter from Merrill Lynch discusses their long-term remarketing of three Districts' daily rate COPs; reports Merrill Lynch's rate performance for the Districts' COPs since the December 6, 1994, Orange County bankruptcy; and recommends a four-point action plan to improve the trading performance of the Districts' COPs going forward. The Committee discussed at length the Districts' continuing relationship with Merrill Lynch. The advisability of continued use in light of perceived public opinion, potential litigation and improved performance was also discussed. Recommendation It was moved, seconded and duly carried to: authorize staff to take actions to implement the February 28, 1995 Merrill Lynch recommended action plan as appropriate; continue active monitoring and provide status reports to the Committee; issue request for proposals to other potential remarketing agents; and research an agreement between Merrill Lynch and the Districts regarding the effect of continued employment on potential litigation. (7) NEW BUSINESS FPC95-16 Review of Praft Investment Policy Statement Prepared by Investment Advisor Chandler Liquid Asset Management. Inc. Steve Kozak, Financial Manager, and Kay Chandler, the Districts' Investment Advisor, discussed the components of a well prepared Investment Policy Statement. At the January 1995 Finance & Personnel Committee meeting, the Committee approved an interim investment policy pending development and approval of a permanent investment policy. At the February 1995 Joint Boards meeting, the Boards selected Chandler Liquid Asset Management, Inc., and Callan Associates, Inc., to prepare a permanent investment policy and conduct an external money manager search for the Districts. A sample of an Investment Policy Statement, prepared by Chandler, was reviewed for the Committee. The Districts' investment policy will be prepared to meet the requirements of the Investment Policy Certification of Excellence Program sponsored by the Municipal Treasurers Association of the U.S. and Canada. This program is designed to recognize outstanding examples of written Minutes of Finance &" ···~onnel Committee Pages March 15, 1995 investment policies in the public sector throughout the U.S. and Canada. Award of a Certificate of Excellence to the Districts would be a clear example of the Boards' policy commitment to an effective investment program. Mr. Kozak advised that the details of the Investment Policy Statement will also be presented at the Directors' Workshop on Financing and Investments, which is scheduled for Saturday, March 18, 1995, from 9:00 a.m. to noon. The Districts' Investment Advisors will prepare recommendations for final investment policies for Committee consideration at the April meeting. Once the Districts' Investment Policy Statement is adopted by the Boards, Callan and Associates will conduct the external money manager search. Recommendation It was moved, seconded and duly carried to receive and file this report. FPC95-17 Consideration of a motion to renew Excess Workers' Compensation Insurance for the period May 1. 1995 to May 1. 1996. with the California Municipal Excess Workers' Compensation (CAMEX) Program Steve Kozak, Financial Manager, presented a report regarding the renewal of Excess Workers' Compensation and Employer's Liability Insurance for the period May 1, 1995 to May 1, 1996. The Districts have maintained a self-insurance fund for primary workers' compensation coverage since 1979. An appropriation of $225,000, in lieu of premium payments, was made to the Workers' Compensation Self-Insurance Fund fOr primary workers' compensation coverage for FY 1994-95. Excess Workers' Compensation and Employer's Liability coverage provides the Districts, as a self-insurer, with an additional layer of Workers' Compensation insurance protection above a $250,000 retention, and Employer's Liability at $1 million each accident. The FY 1994-95 premium cost for Excess Workers' Compensation and Employer's Liability coverage through CAMEX was $29,400. During the Excess Worker's Compensation Insurance renewal process in 1994, the Boards authorized the Districts to participate in the California Municipal Excess Workers' Compensation (CAMEX) Program. This joint powers agency was formed in 1994 to provide local agencies access to lower cost excess workers' compensation coverage. Staff and Robert F. Driver Company, the Districts' Broker of Record, reviewed Excess Workers' Compensation insurance alternatives, and determined that the Districts should continue to participate in the CAMEX program. Sufficient funds will be included in the FY 1995-96 Districts' Workers' Compensation Self- Minutes of Finance & r Pages March 15, 1995 'Onnel Committee I Insurance Fund budget to cover the premium costs which are estimated to be in the range of $24,000 to $29,500. Recommendation It was moved, seconded and duly carried to renew Excess Workers' Compensation and Employer's Liability Insurance for the period May 1, 1995 to May 1, 1996, with the California Municipal Excess Workers' Compensation (CAMEX) Program in an amount not to exceed $29,500. FPC95-18: Consideration of quarterly staff summary report of training and travel costs for the quarter ended December 31. 1994 Gary G. Streed, Director of Finance, presented a summary report of training and travel costs for the quarter ended December 31, 1994. He advised that beginning in 1993-94, the Joint Boards asked the Fiscal Policy Committee to review a staff report summarizing training and travel expenses each quarter. Accordingly, the report for the quarter ended December 31, 1994, was prepared. Training, travel and meeting expenses chargeable to the Joint Operating fund are running at 41 % of the 1994-95 budget. Travel to inspect equipment fabrication for a capital project and the initial training required for a new facility may be appropriately capitalized and charged to that project. Such costs are paid through the respective capital fund, generally the Capital Outlay Revolving Fund (CORF). Mr. Streed advised that in order to fully report to the Committee, these charges have been captured and are included in the report. For this reason, the costs in this report will not be the same as those in the quarterly JO budget review. Recommendation It was moved, seconded and duly carried to receive and file this report. Since monitoring training and travel has been delegated to the Finance and Personnel Committee, no Executive Committee action is required. The Committee asked that future reports reflect the Districts' goals. The Committee directed staff and General Counsel to prepare a revision to the Training and Travel Policy restricting travel for retiring Directors and staff. FPC95.-19 Consideration of 1995-96 Budget Recommended Changes from Approved Critical Projects List This item will possibly be considered at a future meeting in accordance with a request from the General Manager. .. Minutes of Finance 8~onn·e1 Committee Page 7 March 15, 1995 FPC95-20 Consideration of cash awards and certificates of commendation for Personal Responsibility in Daily Effort <PRIDE> suggestions After reviewing 15 cost-saving and safety PRIDE suggestions, cash awards totaling $5,584.00 and certificates of commendation were recommended by staff in accordance with the Board-approved PRIDE program. It was noted that a cost savings of $147,900.00 is expected. The cost saving and safety suggestions which were considered were received from Operations and Maintenance Department employees. Recommendation It was moved, seconded and duly carried to approve cash awards totaling $5,584.00 and certificates of commendation for PRIDE suggestions. The PRIDE program has been assigned to the Finance and Personnel Committee and no recommendation to the Executive Committee is required. (8) CLOSED SESSION None. (9) OTHER BUSINESS. IF ANY After a brief discussion, the Committee unanimously approved a motion to add consideration of a loan to the Garden Grove Sanitary District to the agenda under Other Business. Consideration of a Loan to the Garden Grove Sanitary District One of our member agencies, the Garden Grove Sanitary District, has a $5.4 million debt service payment due May 1, 1995. Director Swan proposed to the Committee that the Districts loan the Sanitary District the funds for a short term to prevent a default which could harm all the borrowing entities in the County, including us. The short-term loan would be secured by first rights to any proceeds from the Orange County Investment Pool and a loan to the Sanitary District from Bank of America. A 77% withdrawal from the OCIP would provide approximately $4.2 million for the Sanitary District to repay a short-term loan. Recommendation It was moved, seconded and duly carried to direct staff to continue to evaluate the legality and feasibility of a short-term loan to Garden Grove Sanitary District, and to return to the April 12 Committee meeting with a report. Timely final approval of a loan will require a special Board meeting. Minutes of Finance & r Jnnel Committee Pages March 15, 1995 (10) MATTERS WHICH A DIRECTOR WOULD LIKE STAFF TO REPORT ON AT A SUBSEQUENT MEETING None. (11) MATTERS WHICH A DIRECTOR MAY WISH TO PLACE ON A FUTURE AGENDA FOR ACTION AND A STAFF REPORT a) Consideration of the purpose or mission of the Committee and a review of the "Directors' Committee Handbook." b) Consideration of revisions to the Internal Controls over Accounts Payable, Payroll and Treasury Management. c) Consideration of actions by the Districts against financial advisors and consultants regarding the Orange County Investment Pool bankruptcy. d) Consideration of Agreement with Merrill Lynch regarding continued employment and litigation. e) Consideration of revision to Training and Travel Policy restricting Training and Travel of retiring or terminating staff and Directors. (12) CONSIDERATION OF UPCOMING MEETING DATES AND ITEMS TO BE DISCUSSED AT THOSE MEETINGS Committee Chairman George Brown requested the Committee refer to the calendar of future meetings on the back of the Notice of Meeting and reminded the Directors that the next Finance and Personnel Committee Meeting is scheduled for Wednesday, April 12, 1995. He recommended the Committee also review the list of future meeting topics. (13) ADJOURNMENT The meeting was adjourned at 7:30 p.m. GGS:lc J:\WPDOC\FIN\CRANE\FPCMTG\FPC95IMINUTES'M"PC3.95 ' I ·~ ., ) FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE FPC95-05: Summarv AGENDA FOR APRIL 12, 1995 Review of Internal Controls Over Accounts Payable, Payroll and Treasury Management At the January 18, 1995 Finance and Personnel Committee Meeting, the Controller, Mike White, reviewed the internal accounting controls over accounts payable, payroll, and treasury management for the Committee. Implementation of new accounting controls was needed, since the County of Orange was no longer providing auditing, check signing, bank reconciliation, and treasury management services. These internal control procedures were received, approved, and filed. Shortly after the January 18 meeting, staff received a report from the Districts' external auditors, KPMG, on their review of the aforementioned internal control procedures along with comments on possible improvements. Staff reviewed KPMG's comments and incorporated their suggestions in a revision of these procedures. At the February 15, 1995, Committee meeting, Director Dunlap offered the City of Brea's comments on the original draft of the Districts' new internal accounting controls over accounts payable, payroll, and treasury management. At the March 15, 1995 Committee meeting, a written staff report was presented that covered the comments of both KPMG and the City of Brea in regards to the Districts' internal accounting controls over accounts payable, payroll, and treasury management along with the resolution of each comment. The Committee Chairman requested that this item again be placed on the agenda for the April 12 meeting in order to provide the Committee members a further opportunity to review the revised internal control procedures and staff's responses to the comments provided by KPMG and the city of Brea. Attached is a copy of the revised internal controls over accounts payable, payroll and treasury management, and staff's report covering the comments of both KPMG and the City of Brea and the resolution of each comment. Staff Recommendation Information only item. J:IWPDOC\FINICRANEIFPC.MTGIFPC95VTEMS.AGDIFPC95.05B (_ .. I April 12, 1995 FPC 95-05: STAFF REPORT COUNTY SANITATION DISTRICTS of ORANGE COUNTY. CALIFORNIA 10844 ELLIS AVENUE P.O BOX 8127 FOUNTAIN VALLEY, CALIFORNIA 92728-8127 (714) 962-2411 Review of Internal Controls Over Accounts Payable, Payroll, and Treasury Management The Districts' Controller established new internal accounting controls over accounts payable, payroll, and treasury management as a result of the discontinuation of auditing, checks signing, bank reconciliation, and cash investment services by the County. These procedures have been reviewed by the Districts' external auditors, KPMG Peat Marwick, and by staff of the City of Brea_ Following is a list of the comments by KPMG and the City of Brea along with staff responses: KPMG Peat Ma1Wick Overall Comments Comment#1 It is important that backup assignments of responsibilities, as required during periods of employee absences, also be formalized and provide for appropriate segregation of duties. Staff Response Backup assignments that provide the appropriate segregation of duties have now been identified for all internal control procedures over accounts payable, payroll, and treasury management. Comment#2 It is essential that reconciliations be performed on a timely basis because they are a key control to detect defalcations and unauthorized investments. We suggest a target time frame for completion of these reconciliations be included. Staff Response The procedures now specify that all bank reconciliations be completed within one week following receipt of the bank statement (see KPMG Comment #11 ). FPC 95-05 Review Over Internal Controls Page2 April 12, 1995 Treasury Management Comment#3 We suggest that the area of execution of investment transactions be expanded to discuss the procedures utilized to execute investment transactions, including such controls as review and confirmation of each investment transaction by the Treasurer and Financial Manager, restrictions on faxed transactions, and callback verifications of investment instituted by fax. · Staff Response The procedures now clarify that each transaction must be competitively bid, that each transaction be confirmed by callback verification and followed up with written confirmation, and prohibit the processing of investment transactions by facsimile. Comment#4 The reconciliation of Treasurer's records and the bank account reconciliations are probably the most important reconciliations performed. The time frame for completing these reconciliations should be specified and adherence monitored each month. Staff Response The procedures have been amended to indicate that the reconciliation of the Treasurer's records to bank statements and safekeeping records be completed within one week following receipt of the bank statement. Comment#5 It would be efficient and wise to also monitor the FDIC ratings of financial institutions. Staff Response The procedures now specify that the FDIC ratings of the participating financial institutions will be monitored by the Financial Manager. Comment #6 It may be useful to explore other practical arrangements for safekeeping securities and also to address the use of book entry securities. FPC 95-05 Review Over Internal Controls Page3 April 12, 1995 Staff Response At this time, the procedures specify that the safekeeping of securities will be limited to having all investment securities held in safekeeping in the Trust Department of the Districts' bank. Other practical arrangements will be explored with Chandler Liquid Asset Management during their review of the Districts' Treasury Management operations. Comment#? It would seem prudent to establish an oversight investment advisory committee to assist the Board in monitoring treasury management activities. Staff Response The procedures now identify the Districts' Finance and Personnel Committee as the oversight investment advisory committee to assist the Board of Directors in monitoring treasury management activities. Comment#B The preparation and distribution of a monthly report of treasury activities to the Board, Advisory Committee and appropriate management personnel is an internal control which should be considered. Staff Response The procedures now specify that the Districts' Treasurer will submit a Monthly Treasurer's Report to the Finance and Personnel Committee listing the treasury activities fro the month, the monthly interest earnings and rates of return, the market value (if available) and purchase price for each type of investment security, and the bank account balances at month end. Accounts Pavable Disbursements Comment#9 An excellent control over accounts payable activities would be the periodic rotation of vendors ("A" through "L" and "M" through "Z") handled by the two clerks. Such a rotation would likely detect the unauthorized altering of invoices regarding either amounts, items or payees. FPC 95-05 Review Over Internal Controls Page4 April 12, 1995 Staff Response The procedures now specify that the accounts payable clerks will rotate assignments every six months. Comment#10 These procedures address only the main bank account. The possibility of redirecting monies to other bank accounts and related controls over such bank accounts should be addressed, if such accounts exist. Staff Response There are no other checking accounts of the Districts except for the Districts' petty cash (checking) account. Procedures on this fund have been previously established and the cash disbursements process for these two accounts are fully segregated. In addition, a surprise audit is conducted on the Districts' petty cash (checking) account by the Districts' external auditors on an annual basis. Comment#11 We suggest bank reconciliations be targeted for completion within one week of receipt of bank statements. Staff Response Staff concurs and has incorporated this clarification within Comments #2 and #4. Pavroll Comment#12 It is important that neither of the two clerks who have the combination to the safe which contains check stock be the "timekeeper." It is unclear whether this is the case or not. Staff Response As previously stated within the procedures, the combination to the safe where the manual payroll check stock is stored is known only by the two clerks who work within the Payroll Unit. The Payroll Unit is within the Personnel Department. The Timekeeper is assigned to the Accounting Division and does not have access to Personnel's safe. FPC 95-05 Review Over Internal Controls Page 5 April 12, 1995 City of Brea Accounts Pavable Disbursements Comment#1 To ensure separation of duties, Accounting Supervisors need to make sure that the Accounts Payable Clerks have exchanged responsibilities as described in Section IA7, which should continue on through the reconciling and batching process. Staff Response Accounting Supervisors and accounts payable clerks have been thoroughly trained on these procedures and understand that a clerk other than the one preparing the warrant package has to batch and post the payment information into the computer system. Comment#2 The Districts' procedures require the additional handwritten signature of either the General Manager, Director of FinancefTreasurer, or Controller. Many agencies require two facsimile signatures over $10,000. Staff Response Because of the size and nature of transactions of the Sanitation Districts, numerous payments are made between $10,000 and $25,000 that are recurring and routine in nature (i.e. plant chemicals). Our procedures could be viewed as more stringent because they require an actual handwritten signature for large checks as opposed to a second facsimile signature. Comment#3 The check log should be kept separate from the blank check stock. Staff Response Staff concurs that the check log should be maintained separately from the check stock and has revised the procedures so that the check log is kept locked up by the Fixed Asset Accounting Clerk. FPC 95-05 Review Over Internal Controls Page6 April 12, 1995 Comment#4 It appears that the timekeeper, who prepares the accounts payable checks for mailing, also mails the checks. This should be clarified to insure that the checks are not returned to the accounts payable clerks who prepared the checks or to other Districts' personnel. Staff Response The procedures were written with the intention of having the timekeeper mail the checks as noted within the comment. This has now been revised so that it is clear that signed checks are not to be returned to the accounts payable staff or distributed to other personnel. Payroll Comment#5 Why were procedures written to cover payroll checks made in error? If there are a lot of errors, then payroll procedures need to be strengthened. Staff Response The word "error'' was probably a poor choice to describe circumstances where staff must void a check and issue a replacement. The reason for including this procedure was to provide controls over the blank check stock used for manual checks. There is no blank check stock for computer generated payroll because ADP prints and delivers pay checks from blank paper stock. The actual voiding of a computer generated check and subsequent reissue with a manual check probably occurs most often as a result of a lost check. Comment"/16 Control over manual payroll check stock should be by someone other than one of the payroll clerks. Response Staff concurs and has assigned this function to another clerk located in the Accounting Division. l ~ FPC 95-05 Review Over Internal Controls Page7 April 12, 1995 Comment#7 The procedures currently indicate that Personnel distributes payroll checks to employees. The employee( s) actually distributing the checks should be someone who is not involved with inputting new employees into the Personnel Computer system or has the capability of adding new employees into the system. Staff Response Staff concurs. The procedures now specify the actual Accounting Division employees, independent of the payroll process, who are allowed to distribute the payroll checks. Treasury Management Comment#S Procedures should clarify that at least two officials should be involved in every transaction, one to execute and one to approve. The approval process should be done prior to execution. All transactions should be in compliance with formal investment policy. The approving official should verify that the investment qualifies with the policy. Staff Response Staff concurs and has identified the Director of FinancefTreasurer and the Financial Manager as the two officials who will be involved in every transaction. The procedures now indicate that all transactions will be approved by the Director of FinancefTreasurer prior to their execution by the Financial Manger. The Director of FinancefTreasurer will ensure that all transactions are performed in accordance with the Districts' investment policy. In the absence of one of these two officials, the Controller will serve as the alternate for either of these two functions. Comment#9 Whenever possible, bids and offers for any investment security should be taken from a minimum of two security dealers/brokers, banks, and/or savings and loans. Awards should be made to the highest bidder or best offer. Staff Response Staff concurs and has revised the procedures to indicate that each transaction will be competitively bid. FPC 95-05 Review Over Internal Controls Pages April 12, 1995 Comment #10 I / The periodic review of the investment portfolio for conformity with the investment policy should be done monthly by the Controller. The periodic, or annual, review by the external independent auditors would effectively supplement the Controller's review. Staff Response Staff concurs and has amended the procedures to have the Controller review the investment portfolio for conformity with the investment policy on a monthly basis. J:\WPDOCIFIN\CRANEv=PC.MTGIFPC95\STAFFRPT.FPCIFPC85-05 Revised March 15, 1 ~) County Sanitation Districts of Orange County Internal Accounting Controls Over Payroll I. Hiring of New Employees- Human Resources maintains an applicant tracking computer module (Spectrum AM2000) which contains the personal data (name, address, phone number, social security number, etc.) of all applicants applying for employment positions currently open for recruitment. Once a candidate has been selected for employment from the pool of applicants, the personal data of the selected candidate is downloaded from the applicant tracking module into the Human Resource module (HR2000). II. Payroll Maintenance- The HR2000 computer module maintains the current personal data, pay history, and employee benefit information on all Districts' employees. Only the personal data and current pay information is downloaded into the ADP interface at the end of each payroll period following the completion of the payroll process (see ADP below). ADP's system does not accept the transfer of employee benefit information from the HR2000 system. ADP, therefore, must maintain its own data base on the benefits of each employee of the Districts. Ill. Timekeeping- A. The time sheets are filled out and signed by employees, reviewed and signed by their supervisors and then turned into the Timekeeping Unit for processing. B. The Timekeeping Unit accumulates employee time sheets for each pay period and; 1. reviews time sheets for computations of payroll period hours, signatures of employees and supervisors, and for possible unapproved erasures or alterations. 2. enters the reported hours by pay code into the Data General Payroll Module, (the Districts' computer system that had been used to perform the entire payroll process prior to May 1992). 1 3. reconciles each computer batch total against an adding machine total. 4. generates a labor distribution report that indicates total hours, which is reconciled to the individual batch totals, and total payroll dollar amount. 5. downloads the data on employee hours onto a floppy disk and delivers it to the Payroll unit. IV. Payroll Processing- A. Procedures Performed By Districts' Payroll Unit: 1. prepares biweekly adjustments on the individual employee benefit changes occurring during the past payroll period (i.e., employee benefits on new employees and any changes to the deferred compensation, medical benefits, etc. on existing employees). 2. manually prepares retroactive pays, compensation payoffs, and management option plan pay adjustments. 3. transfers the biweekly adjustments, the most current update of the HR2000's data base (employee data and pay information), and the biweekly time keeping information generated by Accounting to ADP through a computer interface program. B. Procedures Performed By ADP: 1. maintains the data base for all employee benefits. 2. receives the current employee pay information and personal data from HR2000, the employee pay and benefit adjustments made by Payroll, and the biweekly time sheet information through a computer interface from payroll. 3. downloads this information into their computer systems and generates the payroll register along with the payroll checks and delivers them to the Accounting Division for review. C. Payroll Verification by Accounting: The First Timekeeper reviews the final payroll register and pay checks generated by ADP. 2 " 1. The total hours and payroll amounts per the payroll register is reconciled against the Labor Distribution Report generated by the Timekeeping Unit. 2. Individual employee payroll information per the Payroll Register is spot checked against the Labor Distribution Report. 3. If any errors are subsequently detected by Accounting, the related checks are voided and replaced with manual checks prepared by the Payroll Unit. A new final register covering the changes made is prepared by ADP. 4. The payroll register and pay checks are reviewed by the Controller who signs off on the payroll register. 5. The payroll register is reviewed and approved by the Director of FinancefTreasurer. D. Payroll Posting to General Ledger: After payroll is generated, ADP sends the Timekeeping Unit a diskette and hard copy printout on the summary of salary and wage and employee benefit expenditures by division. This information is: 1. Reconciled against the Payroll Register and Labor Distribution Reports. 2. Downloaded into the Accounting Division's Data General "General Ledger Module" for the purpose of updating the Districts' Accounting records. E. Processing Accounts Payable Deduction Warrants: 1. The Payroll Unit prepares vendor payment requisitions for the payroll deduction liability amounts per the payroll register and forwards them on to Accounting. 2. The Senior Accountant reconciles the hard copy printout of the summary of salary and wage and employee benefit expenditures from ADP against the vendor payment requisitions for the payroll deduction liabilities prepared by Payroll. 3. After verifying the accuracy of the requisitions, the Senior Accountant forwards them onto the Accounts Payable Unit for processing (see accounts payable internal control procedures). 3 V. Signature Authority A. Authorized signers are limited to the General Manager, Director of Financerrreasurer, and the Controller. B. All checks will be stamped by a facsimile signature plate bearing the signature of the Treasurer. C. Manual replacement checks will require the additional original signature of either the General Manager, Director of Financerrreasurer, or Controller. VI. Safeguards Over Check Stock A. All automated checks are produced from blank paper stock through the laser printing services of ADP. B. Check stock for manual checks is ordered, maintained, and provided to the Payroll Unit by the Accounting Division. The Fixed Asset Accounting Clerk stores these manual prenumbered checks within a locked cabinet within the Accounting Division computer room. C. Keys to the computer room cabinet are kept locked in the desk drawer of both the Principal Accountant over Accounts Payable and the Principal Accountant over Accounts Receivables/Cash receipts. D. All manual payroll checks are prenumbered and a blank check log is maintained by the Fixed Asset Accounting Clerk who stores the log within a locked cabinet at her desk. The Fixed Asset Accounting Clerk is responsible for issuing and controlling the blank check stock. The Fixed Asset Senior Accounting Clerk also maintains a key to the cabinet containing the blank check log and performs the controlling function over the blank check stock in the absence of the Fixed Asset Accounting Clerk. Any discrepancies will be immediately reported to the Controller and Director of Finance/Treasurer for proper action. E. All payroll checks (both automated and manual) are used in numerical sequence and the number sequence is accounted for and reconciled to the payroll check register by the Accounting Division. 4 • l ) VII. Safeguard Over the Signature Plate A. The signature plate is to be kept in the Accounting Division safe. The combination to this safe is known only by the three safe custodians; the Accounting Manager, a Principal Accountant, and the General Ledger Senior Accountant. B. An accounts payable clerk will obtain the signature plate from one of the custodians and the printed checks from the timekeeper and run the checks through the check signing machine. C. The accounts payable clerk will then return the signature stamp to the custodian and distribute the payroll checks to division secretaries throughout the Districts. A distribution log will be maintain by the accounts payable clerk acknowledging the receipt of checks by each division secretary. The log will include a listing of the employee names for which checks have been released. The secretaries will then distribute the checks to the individual employees. VIII. Bank Reconciliations A. The General Ledger Senior Accountant, independent of the Payroll processing functions, will perform the monthly bank reconciliations within one week following receipt of the bank statement. IX. Back up Assignments A. Backup personnel will be trained and used in the absence of key individuals as follows: 1. Key individual-First Timekeeper Backup-Second Timekeeper 2. Key individual-Senior Accountant who reconciles payroll with vendor payment requisitions. Backup-First Timekeeper 3. Key individual-Controller's review of payroll register and pay checks. Backup-Accounting Manager. 4. Key individual-Senior Accountant who reconciles the bank statement. Backup-Accounting Manager. 5 Internal Control Strengths 1. Timekeeping- a. Timekeeping is separated from payroll preparation. b. Formal time sheet attendance records are utilized. c.. Time sheet signature approval by supervisors is required. d. Time sheets are scrutinized for appropriateness and reasonableness. 2. Payroll Preparation- Note: a. Payroll preparation is segregated from employee wage and benefit data input and time keeping and check distribution duties. b. Overtime hours, rates, and computer computations are checked. c. The Payroll is subject to final approval before payment by someone independent of payroll preparation and time keeping. d. Payroll checks are drawn on a separate account operated on an imprest basis. e. Controls are in place over the signature plates. Sections in italics indicate new procedures that were implemented as a result of the discontinuance of auditing and check processing services by the County of Orange effective February 1, 1995. Sections in bold indicate procedural changes inserted on February 9 or March 15 to enhance internal controls. J:\WPOOC\FIN\CRANE\FPC.MTG\FPC95\STAFFRPT.FPC\IC-PAY.MDW 6 Revised March 15, 1995 County Sanitation Districts of Orange County Internal Accounting Controls Over Accounts Payable Disbursements I. Accounts Payable Processing Procedures A The first Accounts Payable Clerk processes accounts payable for vendors "A" through "L" and the second Accounts Payable Clerk processes accounts payable for vendors "M" through "Z." These two clerks will rotate assignments every six months. Duties performed by these two clerks include: 1. Verifying that all of the following applicable documents have been received, are in order, and that proper authorization for payment has been obtained and then batching them together into warrant packages: a. Original invoice from vendor. b. Payment Request Voucher (if applicable). c. Accounts Payable copy of purchase order (if applicable). d. Receiving copy of purchase order (if applicable). e. Packing slip or receiving report (if applicable). 2. Checking all invoice data to approved copies of the purchase order and receiving report. 3. Checking all extensions, footings, discounts, and freight terms for accuracy. 4. Reviewing the general ledger account coding and work order number for accuracy. 5. Entering the pay information into the computer system. 6. Running a trial warrant register and reconciling register totals against adding machine tape totals of the individual invoices. 1 7. The clerks then exchange their trial warrant registers and warrant packages and verify the accuracy of work performed by the other. B. The Accounts Payable Clerks then computer generate the final warrant registers and warrants. Each file warrant copy is then reconciled and batched with the individual warrant packages which is then machine perforated to prevent reuse. C. The Final Warrant Register and warrant packages are reviewed by the Controller who signs off on the Final Warrant Register. D. The Final Warrant Register is then reviewed and approved by the Director of Finance!Treasurer. II. Signature Authority A Authorized signers are limited to the General Manager, Director of Finance/Treasurer, and the Controller. B. All checks under $25,000 will be stamped by a facsimile signature plate bearing the signature of the Treasurer. C. All checks for $25,000 or over will require the additional handwritten signature of either the General Manager, Director of Finance/Treasurer or Controller. Ill. Safeguards Over Check Stock A. The check stock is kept in a locked cabinet within the Accounting Division computer room. B. Keys to the computer room cabinet are kept locked in the desk drawers of both the Principal Accountant over Accounts Payable and the Principal Accountant over Accounts Receivables/Cash receipts. C. All checks are prenumbered and a blank check log is maintained by the Fixed Asset Accounting Clerk who stores the log within a locked cabinet at her desk. The Fixed Asset Accounting Clerk is responsible for issuing and controlling the blank check stock. The Fixed Asset Senior Accounting Clerk also maintains a key to the cabinet containing the blank check log and performs the controlling function over the blank check stock in the absence of the Fixed Asset Accounting Clerk. Any discrepancies will be immediately reported to the Controller and Director of Finance!Treasurer for proper action. 2 • . _) D. Voided checks will be marked as such across the face of the check, presented to the Fixed Asset Accounting Clerk for notation within the blank check log, and filed with the checks cleared from the bank. E. The two Accounts Payable Clerks request blank check stock from the Fixed Asset Accounting Clerk for the purpose of printing checks. IV. Safeguard Over the Signature Plate A. The signature plate is to be kept in the Accounting Division safe separate from the check stock. The combination to this safe is known only by the three safe custodians; the Accounting Manager, the Principal Accountant over Timekeeping, and the General Ledger Senior Accountant. B. The First Timekeeping Clerk will obtain the signature plate from one of the custodians and the printed checks from one of the Accounts Payable Clerks and run the checks through the check signing machine. The Timekeeping Clerk will then return the signature stamp to the custodian, prepare the checks for mailing, and deliver the checks to the mail room for mailing. In no instance shall checks be returned to the Accounts Payable Clerks or other Districts' personnel for distribution. V. Bank Reconciliations A. The General Ledger Senior Accountant, independent of the Accounts Payable processing fundions, will perform the monthly bank reconciliations within one week following receipt of the bank statement. VI. Back up Assignments A. Backup personnel will be trained and used in the absence of key individuals as follows: 1. 2. 3. Key individuals-The two Accounts Payable Clerks. Backup-The Senior Accounting Clerk over Capital Fixed Assets. Key individual-The Fixed Asset Accounting Clerk. Backup-The Senior Accounting Clerk over Capital Fixed Assets. Key individual-The First Timekeeper. Backup-The Second Timekeeper . 3 4. Key individual-The General Ledger Senior Accountant. Backup-The Accounting Manager. Internal Control Strengths 1. All invoice data is checked to approved copies of the purchase order and receiving report and all extensions and footings and other terms are checked for accuracy. The completion of these procedural steps are clearly marked on the face of the invoice. 2. All payments are properly reviewed and approved by the Controller and Director of Finance!Treasurer. 3. Check stock is prenumbered and used in sequence. 4. Blank check stock is adequately secured against unauthorized use. 5. Checks are prepared by specified employees who are independent of payment voucher/invoice approval. 6. All supporting documents are properly canceled at time of signature to prevent duplicate payment. 7. Authorized check signers are independent of voucher preparation and approval for payment, check preparation, cash receiving, and petty cash, purchasing and receiving. 8. Custody of checks after signature and before mailing is handled by an employee independent of all payable, disbursing, cash, receiving, and general ledger functions. 9. The facsimile signature plates are adequately safeguarded against unauthorized use. 10. The bank account is reconciled monthly by someone other than persons who participated in the receipt or disbursement of cash. 11. The rotation of assignments between the two Accounts Payable Clerks will reduce the potential of invoices being altered for amounts, items, or payees. 4 Note: Sections in italics indicate new procedures that were implemented as a result of the discontinuance of auditing and check processing services by the County of Orange effective February 1, 1995. Sections in bold indicate procedural changes inserted on February 9 or March 15 to enhance internal controls. J:\WPDOC\FIN\CRANE\FPC.MTG\FPC95\STAFFRPT.FPC\IC-AP.MDW 5 '\ Revised March 15, 1995 County Sanitation Districts of Orange County Internal Accounting Controls Over Treasury Management 1. Authorization of Investment Transaction: a. Formal Investment Policy- i. is prepared by the Treasurer. ii. submitted to and approved by the Finance and Personnel Committee. b. Investment Transactions are approved by the Treasurer. 2. Investment transactions are approved by the Treasurer prior to their execution by the Financial Manager. The approval function indicates that the transactions are in accordance with the Districts' investment policy. The Controller will serve as backup for either of the execution or approval functions upon the absence of any one of these two employees. a. Each transaction will be competitively bid. Whenever possible, bids and offers for any investment security should be taken from a minimum of two security dealers/brokers, and/or savings and loans. Awards will be made to the highest bidder or best offer, assuming that the offers are made with an acceptable level of risk. b. Each transaction will be confirmed by callback verification and followed up in writing. The written confirmation will be forwarded to the Controller for verification against the Treasurer's records. c. No transactions will be processed by facsimile. 3. Recording of the investment transaction- a. within the Treasurer's records is done by the Treasurer's clerk. b. within the accounting records is done by a Senior Accounting Clerk. 1 4. Verification of investment (i.e., match broker confirmation to Treasurer's record) is done by the Controller or Accounting Manager. 5. Safeguarding of Assets and Records: a. Reconciliation of Treasurer's records to the accounting records is done by a Principal Accountant, or in his absence, the Accounting Manager on a monthly basis. b. Reconciliation of Treasurer's records to bank statements and safekeeping records is done by the Senior Accountant (or in his absence, the Accounting Manager) within one week following the receipt of the bank statement. c. Review of financial institution's financial condition, safety, liquidity, and potential yields of investment instruments and reputation and financial condition of investment brokers is done by the Controller. d. At this time, the safekeeping of securities will be limited to having all investment securities held in safekeeping in the Trust Department of the Districts' bank. e. Periodic reviews of collateral will be performed by the Controller. f. FDIC ratings will be monitored by the Financial Manager. 6. The periodic review of the investment portfolio, including investment types, purchase price, market values, maturity dates, and investment yields as well as conformance to the stated investment policy will be performed monthly by the Controller and annually by the Districts' external independent auditors. 7. The Districts' Finance and Personnel Committee will serve as the Oversight Investment Advisory Committee to assist the Board of Directors in monitoring treasury management activities. a. The Districts' Treasurer will submit a Monthly Treasurer's Report to the Finance and Personnel Committee listing the treasury activities for the month, the monthly interest earnings and rates of return, the market value and purchase price for each type of investment security, and the bank account balances at month end. 2 Internal Control Strengths 1. The specific responsibility for the performance of duties is assigned and lines of authority and reporting are clearly identified. 2. Responsibilities are commensurate with the capabilities of the personnel assigned. 3. Incompatible functions have been properly segregated to prevent errors or fraud. 4. All transactions are authorized by an appropriate responsible individual. 5. Safeguards over assets and records are in place to ensure that recorded assets exist and are properly recorded. 6. Management controls are in place to ensure that significant transactions are properly performed and recorded. J:\WPDOC\FIN\CRANE\FPC.MTG\FPC95\STAFFRPT.FPC\IC-TM.MDW 3 ,..,...-=--.,\ I FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 FPC95-14: Continued Monitoring of Variable Rate Certificates of Participation (COP) and Consideration of Remarketing Agent Selection Summary Steve Kozak, Financial Manager, will present updated monitoring information for the Districts' variable rate COPs. Since the start of our expanded daily variable rate monitoring efforts on February 15, 1995, Merrill Lynch's remarketing rates have averaged between 3 to 13 basis points higher than comparative rates of daily COPs in Orange County. One basis point equals $10,000 per year on $100,000,000. Details are presented in the attached staff report. Staff Recommendation Staff submits the following recommendations for Committee approval. 1. Select either A or B: A. Select PaineWebber as remarketing Agent for the Districts' three daily reset variable rate COPs in order to obtain the lowest cost Agent; or B. Select remarketing agents for the Districts' three daily reset variable rate COPs as follows in order to expand the program's exposure: • Series "A" ................ PaineWebber • Series "C" ............... J. P. Morgan • 1993 Series Refunding . . . . Goldman Sachs Further, authorize staff to negotiate with J.P. Morgan and Goldman Sachs to reduce their proposed remarketing fees to equal that of PaineWebber. 2. Authorize staff to take the necessary steps to replace remarketing agents in compliance with the bond covenants for the respective COP issues. J:\WPOOC\FINICRANE\FPC.MTGIFPC95\ITEMS.AGDIFPC95.14B ----, I ) April 12, 1995 FPC95-14 STAFF REPORT COUNTY SANITATION DISTRICTS of ORANGE COUNTY. CALIFORNIA 10844 ELLIS AVENUE P.O. BOX 8127 FOUNTAIN VALLEY. CALIFORNIA 92728-8127 17141962-2411 Continued Monitoring of Variable Rate Certificates of Participation (COP) and Consideration of Remarketing Agent Selection Staff has reported monitoring information to the Committee for the Districts' three daily reset variable rate COPs at the February and March Committee meetings. Monitoring Update The following table summarizes recent remarketing agent performance as shown by the attached graphs: Daily Rates(%) Daily Rates(%) Selected Rates(%) in Orange County in Orange County in California (Feb. 15 to Present) (Dec. 94 to Present) (Dec. 94 to Present) Goldman Sachs 3.32 Lehman Bros. 3.42 J.P. Morgan 3.78 4.17 3.36 Merrill Lynch 3.90 4.41 PaineWebber 3.70 4.13 3.34 Smith Barney 3.41 Since the start of our expanded daily variable rate monitoring efforts on February 15, 1995, Merrill Lynch remarketing rates have averaged between 3 to 13 basis points higher than comparative rates. This translates into a cost to the Districts of approximately $7,000 over the last sixty days. Remarketing Agent RFP As directed by the Committee at the March meeting, staff and PFM prepared and distributed a Request for Proposals (RFP) for remarketing agent services. Ten proposals were received from underwriting firms on Friday, March 31, 1995. The proposal review process by staff and consultant (PFM) resulted in a short list of the three most responsive firms. Proposal highlights are presented on the attached summary evaluation table. FPC95-14 Monitoring Variable Rate COPs Page2 April 12, 1995 Replacement of Current Remarketing Agent The threshold question is whether to retain or replace the current remarketing agent for the Districts' daily COPs. Based on rate monitoring information gathered by the Districts and information resulting from the Remarketing Agent RFP process, it is recommended that the current remarketing agent (Merrill Lynch) be replaced. Merrill Lynch's recent higher rate performance, the higher fees in their Remarketing Agent proposal, and the continued uncertainties involving litigation matters, support the recommendation to replace the current Remarketing Agent. Section of Replacement Remarketing Agent Two options are available for selection of a replacement Remarketing Agent(s). The first would be to assign all three daily COPs to a single Remarketing Agent. The second option would be to select multiple Remarketing Agents and assign one daily COP issue to each firm. Option No. 1 Under is option, one Remarketing Agent would be selected to remarket the Districts' Series "An ($100 million), Series "Cn ($98.5 million), and the Series 1993 Refunding ($46 million). If the Committee prefers this option, staff and PFM recommend that the Committee select PaineWebber to serve as Remarketing Agent. PaineWebber demonstrated the most complete performance credentials in remarketing daily variable rate securities in both California and Orange County. In addition, their proposed remarketing fee (9.5 basis points) is the lowest of the three most responsive firms. Option No. 2 Under this option, three Remarketing Agents would be selected and assigned to separate COPs. Advantages of this approach include rate competition among the firms, and a "built-inn remarketing rate monitoring system. If the Committee chooses this option, staff and PFM recommend that the Committee select the top three firms from the Remarketing Agent RFP and assign the Remarketing Agents to an individual COP as follows: • Series "An ($100 million) ............... PaineWebber • Series "Cn ($98.5 million) ............. J. P. Morgan • 1993 Series Refunding ($46 million) ... Goldman Sachs ) ,,...---'\ \ I . FPC95-14 Monitoring Variable Rate COPs Page3 April 12, 1995 These designations match the Remarketing Agents to the issue size of each COP based on the overall performance and ranking of the firms from the Remarketing Agent RFP process. Staff and PFM further recommend that the Committee authorize staff to negotiate with J. P. Morgan and Goldman Sachs to obtain commitments from the firms for lower remarketing fees which would match PaineWebber. Staff will continue to actively monitor the rate performance of the Districts' variable rate COPs, and will report on significant new developments as they occur. Staff Recommendation Staff submits the following recommendations for Committee approval: 1. Select either A or B: A. Select PaineWebber as remarketing Agent for the Districts' three daily reset variable rate COPs; or B. Select remarketing agents for the Districts' three daily reset variable rate COPs as follows: • Series "A" ................ PaineWebber • Series "C" ............... J. P. Morgan • 1993 Series Refunding . . . . Goldman Sachs Further, authorize staff to negotiate with J. P. Morgan and Goldman Sachs to reduce their proposed remarketing fees to equal that of PaineWebber. 2. Authorize staff to take the necessary steps to replace remarketing agents in compliance with the bond covenants for the respective COP issues. SK:lc J:\WPOOC\FIN\CRANE\FPC.MTGIFPC95\STAFFRPT.FPC\SRFPC95.14 Attachment California Rates 12/94 -Present 4.50% 4.00% 3.50% . . . . . . . . . ----.. ---. - 3.00% AVERAGE RATE 2.50% Lehman 3.4211 % JP Morgan 3.3658% PaineWebber 3.3474% 2.00% Goldman 3.3289% Smith Barney 3.4132% 1. 50°/o ---. . --. . ------------------------------------------------------------------------------ l.00%~.~~--~--~~--~--~--~~--~---t-~~--~--~~--~--~--~~--~---+~~--~--~~--~- 12/1/94 12/14/94 12/28/94 1/11/95 1/25/95 2/8/95 2/22/95 3/8/95 3/22/95 4/5/95 ~Paine Webber --9-JP Morgan -Goldman -~Lehman -)I( Smith Barney - N N VJ VJ ~ ~ Ul Ul ?" °' :--:i 0 c.n 0 c.n 0 c.n 0 c.n 0 c.n 0 0 0 0 0 0 0 0 0 0 0 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0 0 0 0 0 0 0 0 0 0 0 12/1/94 - 12/7 /94 -~/ 12/13/94 - 12/19/94 12/25/94 - 12/31/94 - 1/6/95 -r:n I rt> 1/12/95 -...... rt> n '"C 1/18/95 ...... Ill rt> s· (I) ~ ~ 1/24/95 -0 (I) CT' • CT' (I) 1/30/95 (j ""t • I 2/5/95 ~ ~ ...... '-1 rt> '"C 2/11/95 ~ r;/l 0 ,..... ""t 2/17 /95 --N ()Q Ill ........ ::l \C I 2/22/95 ~ 2/26/95 l-0 ~ ""t (I) rt> ""t '"Cl -=::: r;/l ""t 3/2/95 s !!!. '"Cl Ill rt> L' ~ =::: 3. ~ = ~ 0 -'"3 .... -...... 3/6/95 Ill oq !:"" m l'1 g: ~ ~ :u :::;" 111 n ~ I .... ::r 3/10/95 m :u ""' ti" ""' ~ ...... m 3/15/95 -.... 'I ""' .,. °' .... .... <:n .... ~~~ 0 0 3/19/95 - 3/23/95 - 3/27/95 3/31/95 - 4/5/95 " N N N N W W W W W ~ ~ ~ ~ ~ ~ w ~ ~ ~ ~ w ~ ~ ~ ~ w ~ ~ ~ ~ 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft ?ft 2/15/95 2/17/95 2/19/95 2/21/95 2/23/95 2/25/95 I 2/27/95 ' ' 0 3/1/95 • '"d ' r1 ll> • ...... ~ 3/3/95 -tj ro ·' I ~ I ~ ~ 3/5/95 ' "'"'. cr' ' Ji-' ro ' ~ "1 I ' ' ' I 3/7/95 '"C:l-~ ~ !!!. '"C:l Ill ~ . ; ~ 3. I :s 0 -m ~ 3/9/95 ... -~ ...... Ill Qq r-' O" Al '< Q t'D ~ I, . O" = = m r./l '"d I . Ill ,., ' ... ::r c ~ 3/11/95 > N 0 r= "1 ' < ........ Q'q ' . t...J ~ t...J ::D ' )i-l ll> 3/13/95 ~ Q;J \c ~ ~ . 0 QO 0 ' t CJ1 . ' . ~~~ ' I ' m ' ........ I . ~~~ "'° I 3/15/95 . ·~: ' ~ . ~ 3/17/95 ' ' l-0 ro ' ""t "1 --"1 ' ' t'D ...... 3/19/95 ..... ' ' r./l ..... r' ' ' t'D ~ ,, 3/21/95 ' ,. = :::r' I I ' ' ...... I __J 3/23/95 3/25/95 3/27/95 t . I .I ~t: • f· I I 1 , I '~ . 3/29/95 + . . ' . . I I 3/31/95 4/2/95 4/4/95 'L..' ~I ; \_.I ( '-- Finn Remarketlng Fee Tier 1 Paine Webber 9.5 basis points annually paid quarterly in arrears. 11 basis points annually paid JP Morgan quarterly in arrears. Goldman Sachs 1 o basis points annually paid quarterly in arrears Tier 2 7 .5 basis points annually Smith Barney paid quarterly in arrears Merrill Lynch 12.5 basis points annually paid quarterly in arrears 12.5 basis points annually, Lehman Brothers paid quarterly in arrears County Sanitation Dit. ..:s of Orange County Remarketing Agent Evaluations Dally Remarketlng Dally Remarketlng Dally Remarketlng CSDOC Monltorlng(1) Capabllltles (National) Capabllltles (CA) Capabllltles (OC) PaineWebber currently PaineWebber currently PaineWebber currently CA 3.3474% remarkets over $1 billion in remarkets $220m in CA remarkets $85m in OC daily mode programs. dailies. dailies oc 4.2325% JP Morgan currently JP Morgan currently Currently, JP Morgan CA 3.3656% remarkets over $2.9 billion remarkets over $102 million remarkets $64 million in in daily reset programs. in CA daily reset programs. OC dailies. oc 4.2369% Goldman Sachs currently In CA, Goldman Sachs Goldman Sachs does not CA 3.3269% remarkets 81 daily variable currently remarkets 6 daily currently remarket any OC rate issues totalling approx. programs totalling over $242 dailies. oc NA $3.2 billion. million. Smith Barney currently remarkets over $262 million S.B. currently serves as Smith Barney does not CA 3.4132% of daily and weekly remarketing agent for $22 currently remarket daily OC million in CA dailies. paper oc NA programs. Merrill Lynch currently In CA, Merrill Lynch Wrthin OC, Merrill Lynch CA NA remarkets 65 daily rate remarkets 15 daily programs currently remarkets $791 programs totalling more totalling over $647 million. million in dailies. oc 4.4879% than $1.7 billion. Lehman currently Lehman current remarkets Does not currently CA 3.4211% remarkets over $1.2 billion $192 million of CA dailies. remarket any OC dailies. in daily programs nationally. oc NA Orange County Disclosure Team (Local/NonlocaQ PW bought and sold standard John Coan is a senior banker familiar to fixed rate securities (US CSDOC. Assigned bankers have strong treasuries and agency securrnes) experience w/ dailies, water & except one yield curve note repurchased by PW prior to wastewater. One of the bankers is bankruptcy. located in San Francisco. Assigned bankers have experience with Not involved in any financial variable rate and water & sewer ) dealings with OC in the last two financings. Senior staff assigned. Two years prior to bankruptcy. of the bankers are located in San Francisco. Goldman Sachs has not Very senior team of bankers with participated in any debt of signHicant remarketing water and investments transactions with OC wastewater experience. Primary banker prior to bankruptcy. contacts are located in New York. Smith Barney has been named in Strong short-term bankers, assigned a class action lawsult in bankers have limlted daily, wastewater connection with the OC experience. Three of the bankers assigned are local, 2 from Los Angeles, Bankruptcy. 1 from Sacramento. ) _,;/ Substantial involvement with OC Full senior team of banker and debt and investment transactions. Named in a class action lawsult in underwriting, remarketing staff familiar to connection with the OC CSDOC. Team of bankers located in Bankruptcy. Los Angeles. Lehman has served as dealer for Assigned bankers have limited dailies entrnes in the Pool. It has been experience, and some involved in the sale of securities, water/wastewater experience. Two of the use of the derivatives and the bankers assigned are local, one in entered into reverse repos. Los Angeles and one in Newport Beach. Flrm Remarketlng Fee Tier 3 Bear Steams 1 O basis points payable quarterly in arrears. 12.5 basis points, payable Bankers Trust quarterly in arrears for both Daily and Weekly programs $.85 /$1,000 on each of the three programs. If Morgan is Morgan Stanley remarketing agent on less than three, the fee increases to $1.00/$1,000 $.90/1,000 for a weekly Dillon Read program and $1.25 for a daily program. Smith Mitchell Artemis County Sanitation Di~ ... __ ,i:s of Orange County Remarketing Agent Evaluations Dally Remarketlng Dally Remarketlng Dally Remarketlng CSDOC Monttorlng(1) Capabllttles (NatlonaQ Capabllttles (CA) Capabllttles (OC) Bear Steams serves as Bear Steams does not Bear Steams does not remarkeling agent for $171 currently remarket daily CA currently remarket OC NA million of daily mode issues. paper. paper. Bankers Trust did not Bankers Trust currently Bankers Trust currently specify any daily does not market CalHomia does not market Orange NA information . daily paper. County daily paper. Morgan Stanley currently Morgan Stanley does not Morgan Stanley currently CA NA remarkets over $700 milnon currently remarket daily CA remarkets $80 million in in daily paper nationally. paper OC dailies OC(2) 2.61% Dillon Read does not Dillon Read does not Dillon Read does not currently remarkel any daily currently remarket any daily currently remarket any NA paper. paper. daily paper. Declined to Respond Declined to Respond (1) California Average rates based on selected weekly rates since December 1, 1994. (2) Morgan Stanley's Orange County rate Is the 1994 average for their St. Joseph Health System issue. ) --- ~/ Orange County Disclosure Team (Local/NonlocaQ Bear Steams provided a list of deals and investment The day-to-day banker appears to have transactions they have signnicant utilities experience. The day- participated with the County. to-day banker is located In the Los They also requested clarification Angeles office. of the question. ) One of the assigned traders appears to have signHicant CA remarketing BT securities placed $400 million experience. She has served as in Orange County Taxable Notes remarketing agent for Irvine Ranch in July 1993. Water. The program is being staffed primarily by bankers in the New York office. Morgan Stanley participated in Both bankers appear to have a wide the purchase and sale of variety of experience. II is not clear how much variable rate/water wastewater structured notes with the County, experience each have. Both lead and also entered into reverse bankers are located in the San repos with the County. Francisco office Dillon Read has not participated Assigned bankers appear to have in any financial transactions with the County, its agencies or the considerable experience with variable Treasure~s office subsequent to rate programs. 'The lead banker is in January 1992. San Francisco and one in LA. J FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 FPC95-16: Consideration and Review of Draft Investment Policy Statement Prepared by Investment Advisor Chandler Liquid Asset Management, Inc., and Callan Associates Summary Steve Kozak, Financial Manager, and Kay Chandler, the Districts' Investment Advisor, will present the draft Investment Policy Statement for the Districts. At the March 1995 Finance & Personnel Committee meeting, the Committee considered a sample Investment Policy Statement prepared by the Districts' Investment Advisor. The details of developing the attached Investment Policy Statement were discussed at the Directors' March 18, 1995 Workshop on Financing and Investments, and also at a working session with the Districts' Investment Advisors on March 22, 1995. The Districts' team of Investment Advisors has prepared a conservative set of policies and practices to guide the Districts' permanent investment program in its early stages. The policies reflect the mandate to manage the Districts' funds prudently and they appropriately emphasize the goals of safety of principal first, liquidity second and yield last. Staff Recommendation That the Finance, Administration and Human Resources Committee recommend approval of the attached Investment Policy Statement to the Executive Committee and the Joint Boards. J:\WPDOC\FIN\CRANEIFPC.MTGIFPC95\ITEMS.AGOIFPC95.16A April 12, 1995 STAFF REPORT COUNTY SANITATION DISTRICTS of ORANGE COUNTY. CALIFORNIA 10844 ELLIS AVENUE P.O. BOX 8127 FOUNTAIN VALLEY. CALIFORNIA 92728-8127 1714) 962-2411 FPC95-16: Review of Draft Investment Policy Statement Prepared by Investment Advisor Chandler Liquid Asset Management, Inc., and Callan Associates Summary At the March 1995 Finance & Personnel Committee meeting, the Committee considered a sample Investment Policy Statement prepared by the Districts' Investment Advisor. The details of developing the attached Investment Policy Statement were discussed at the Directors' March 18, 1995 Workshop on Financing and Investments, and also at a working session with the Districts' Investment Advisors on March 22, 1995. The Districts' team of Investment Advisors has prepared a conservative set of policies and practices to guide the Districts' permanent investment program in its early stages. The policies reflect the mandate to manage the Districts' funds prudently and they appropriately emphasize the goals of safety of principal first, liquidity second and yield last. The Investment Policy has been prepared to meet the requirements of the Investment Policy Certification of Excellence Program sponsored by the Municipal Treasurers Association of the U.S. and Canada. The Policy spells out which investment products can be bought and in what proportions, to ensure diversification of the portfolio. Also, investment maturities will match the Districts' cash flow requirements. The Investment Policy recommended by the Committee and adopted by the Board of Directors will also provide the framework for selection of external money managers who will manage the Districts' investment portfolio. Callan Associates will conduct the money manager search. A slate of recommended money manager candidates will be returned to the Committee for consideration. At the January 1995 meeting, the Committee approved internal controls for Accounts Payable, Payroll and Treasury. Once the permanent Investment Policy is adopted, staff will review the Treasury internal controls for consistency with the permanent Investment Policy, and will update the internal controls as necessary. FPC95-16 -Draft Investment Policy Statement Page2 April 12, 1995 The Policy requires that the Districts shall review its Investment Policy annually. It is suggested that the following topics be reviewed as potential additions/revisions after the first year of the Districts' investment program: • the use of Districts' staff to manage the very short-term portfolio (Liquid Operating Monies); • the use of futures and options to reduce portfolio risk; • the allowable percent of portfolio in various institutions and market sectors; • the maximum maturity of individual securities in the portfolio. Staff Recommendation That the Finance, Administration and Human Resources Committee recommend approval of the attached Investment Policy Statement to the Executive Committee and the Joint Boards. SK:lc J:\WPOOC\FINICRANEIFPC.MTGIFPC85\STAFFRPT.FPC\SRFPC95.16 CHANDLER LIQ ASSET MGM T.Q":-: 6_19_-5_·46_-:_~.74_1 __ ___,_Ap_r _Q?_. 95 13: 25 No. 012 P. 02 ) DRAFT COUNTY SANITATION DISTRICTS OF ORANGE COUNTY INVESTMENT POLICY Adopted ____ , 1995 CHANDLER LIQ ASSET MGM TE~:619-546-3741 ~~___,Ap~~.-0 ~6~,9~5;...........=.1•3~=2-6;.....;.;N_a_.0_1_:_,_P_._0_3.,.. 1.0 Polley: 1.1. This Investment Policy is set forth by the County Sanitation Districts of Orange County (CSDOC) for the following purposes: 1.1.1. To establish a clear understanding for the Board of Directors, CSDOC management, responsible employees and third parties of the objectives, policies and guidelines for the investment of the CSDOC's idle and surplus funds. 1.1.2. To offer guidance to investment staff and any external investment advisers on the investment of CSDOC funds. 1.1.3. To establish a basis for evaluating investment results. 1.2. CSDOC establishes investment policies which meet its current investment goals. CSDOC shall review this policy annually, and may change its policies as its investment objectives change. 2.0 ~ope: 2. 1. This investment policy applies as foHows to all financial assets of CSDOC, except for the following excluded funds : 2.2. Excluded funds: 2.2.1. CSDOC's Deferred Compensation Plan is invested in accordance with a separate inve_stment policy, and not in accordance with this document. 2.2.2 Proceeds of CSDOC's capital projects financing program are invested in accordance with provisions of their specific bond indentures. 3.0 Prudence: 3.1 The standard of prudence to be used by investment officials shall be the prudent person standard defined below in Section 3.1.1 1 and shall be applied in the context of managing an overall portfolio. Investment staff acting in accordance Wtth written procedures and the investment policy and ex~rcising due diligence shall be relieved of personal responsibility for an individual security's credit risk or market price changes, provided deviations from expectations are reported in a timely fashion and appropriate action is taken to control adverse developments. Page 1of9 CHA~JDLER LIQ ASSET MGM T J :6 19-546-3741 Apr 06~,9~5:::__-=.1~3~:~~'6:,_;..N~o-._o_12--.P_._0_4 __ ) 3.1.1 The Prudent Person Standard: 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. 4.0 Delegation of Authority: 4.1 Authority to manage CSDOC's investment program is derived from the California Government Code Sections 53600 et seq. and Sections 53635 et seq. The Board of Directors hereby delegates management responsibility for the investment program to CSDOC's Treasurer, who shall establish written procedures for the operation of the investment program consistent with this investment policy. Such procedures shall include explicit delegation of authority to persons responsible for investment transactions. No person may engage in an investment transaction except as provided under the terms of this policy and the procedures established by the Treasurer. The Treasurer shall be responsible for all transactions undertaken by CSDOC's internal staff, and shall establish a system of controls to regulate the activities of internal staff and external investment advisers engaged in accordance with Section 4.2 .. 4.2 The Board of Directors of CSDOC may, in its discretion, engage the services of one or more registered investment advisers to assist in the management of CSDOC's investment portfolio in a manner consistent with CSDOC's objectives. Such external investment advisers shall be granted discretion to purchase and sell investment securities in accordance with this Investment Policy. Such advisers must be -registered under the Investment Advisers Act of 1940, or be exempt from such registration. 5.0 Ethics and Conflicts of Interest: 5. 1 Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with proper execution of the investment program, or which could impair their ability to make impartial investment decisions. Employees and investment officials shall disclose to the General Manager any material financial interests in financial institutions that conduct business within this jurisdiction, and they shall further disclose any large personal financial/investment positions the performance of whic.ti could be related to the performance of positions in CSOOC's portfolio. Page 2of9 CHANDLER LIO ASSET MGM TEL:619-546-3741 6.0 Authorized Ftnanclat Qealers and_ Institutions: HprIJ..6,95 I 13:26 No.012 P.05 6.1 For investments purchased by CS DOC internal staff, the Treasurer will maintain a list of financial institutions authorized to provide investment services to CSDOC, including primary dealers, regional dealers, and banks. No public deposit shs1ll be made except in a qualified public depository as astabnshed by State !aw. All financial institutions which desire to become qualified bidders for investment transactions must supply the Treasurer with the following: 6.1 1. Audfted financial statements for the institution's three most recent fiscal years. 6.1.2. A statement certifying that the institution has reviewed CSDOC's Investment Policy and that all securities offered to the CSDOC shall comply fu!ly and in every instance with all provisions of the California Governrnent Code and with this Investment Policy. Serectict"l cf financial institutions and broker/dealers authorized to engage in transac'..ions wlth CSDOC shall ba at the sola discretion of CSDOC. An an!1ual review of the financial condition of qualified institutions will be conducted by the Treasurer. 6.2 Selection of bmkar/dealers used by external investment advisers retained by CSDOC shall be at the sole discretion of the investment advisers. 7.0 Investment Categorie_s: 7.·t CSDOC monies invested in accordance with this Policy are divided into two categories: 7 .1.1 Uquld Operating Monies. Funds needed for current operating and capital expenditures are known as Liquid Operating Monies. 7 .1. 1.1 The maximum final stated maturity of individual securities in the Liquid Operating Monies account shall be one year from the date of purchase. 7.1.1.2 The average duration of the Liquid Opeiating Monies account shall not exceed 90 days. 7.1.2 Long Term Operating Montes. Funds needed for longer term p1Jrposes are known as the Long Tem) Operating Monies. Page 3of9 CHANDLER LIQ ASSET t'1GM T~619-546-37 41 Ap~--~·95_ 13:27 No.012 P.06 7 .1.2.1 The maximum final stated maturity of individual securities In the Long Term Operating Monies account shall be five years from the date of purchase. 7 .1.2.2 The duration of the Long Term Operating monies account portfolio shall not exceed 120% of the duration of its performance benchmark. 7.1.2.3 The duration of the Long Term Operating Monies accounts portfolio shall never be less than 80% of the duration of its performance benchmark. 7.2 CSDOC's Treasurer shall designate from time to time the amounts to be allocated to each of the two accounts. 8.0 Oblectives: 8.1 The primary objectives of CSDOC's investment program are, in priority order: 8.1.1. To preserve capital 8.1.2. To provide liquidity for operating expenses and capital requirements 8.1.3. To eam a total rate of return commensurate with the first two goals. 9.0 Authorized & Suitable Investment Transactions: All investments shall be made in accordance with Sections 53600 et seq. of the Government Code of Califomia and as described within this Investment Policy. Permitted investments under this policy· shall include: 9.1.1 Securities issued by the US Government or an agency of the US Government and fully guaranteed as to payment by the US Government or agency of the US Government. Investment in mortgage-backed bonds and CMOs is not governed by this Section 9.1 .1, even if such bonds are issued by agencies of the US Governmant. See Section 9.1.12 for conditions of purchase for CMOs. See Section 9.1.2 for conditions of purchase of mortgage-backed securities. 9.1.2 Mortgage-backed securities issued by an agency of the US Government, provided that the stated final maturity of such securities does not exceed five (5) years from the date of purchase. Page4 of9 CHANDLER LI C! ASSET MGr1 rn : 619-54 6-37 41 A p r --Cl.6 ' 9 5 _::..,:13::....:=:....::L.:...:..' ?~NO;:;..:.,;. 0;;..;1;.,,;;2;.._P_ • ._o .,_, - \ 9.1.3 Commercial paper rated a minimum of P1 by Moody's Investor Services (Moody's) or A1 by Standard & Poor's Inc. (S&P) provided that (a) the maturity does not exceed 180 days from the date of purchase; (b) the issuer ie a corporation organized and operating in the United_States with assets in excess of $500 mi!lion; (c) no more than 15% of the portfolio is invested in commercial paper, except that a maximum of 30% of the portfolio may be invested in commercial p.aper, so long as the average maturity of all commercial paper In the portfolio does not exceed 31 days. 9.1.4 Banker's acceptances issued by institutions the short term obligations of which are rated a minimum of P1 by Moody's or A 1 by S&P provided that (a) the a.cceptance is eliglble for purchase by the Federal Reserve System (b) the maturity does not exceed 270 days, and (c) no more than 40% of the total portfolio may be invested in banker's acceptances. 9.1.5 Medium term (or corporate) notes issued by corporations organized and operating within the United States or by depository institutions licensed by the United States or any state and operating within the United States, the long term obligations of which are rated at least "A-" by S&P or "'A3" by Moody's. No more than 30% of the portfolio ma~1 be invested in eligible medium term or corporate notes. 9.1.6 Mutual funds invested in US government securities which strive to maintain a price of $1.00 per share (~Government money market funds11 ) with a minimum of $500 million in total portfolio value and a rating of Aaa by Moody's or AAA by S&P. Investment in such funds shall not exceed fifteen percent ( 15%) of the total portfolio. 9 1. 7 Certificates of deposit: 9.1.7.1 Insured time deposits in amounts not to exceed $100,000 per bank, in banks which are active members of the Federal Deposit Insurance Corporate (FDIC). 9.1. 7 .2 Secured (collaterallzed) time deposits in banks meeting the following criteria: (a) in good standing with the California State Collateral Poo!; and (b) having a net op~rating profit in the two most recently completed fiscal years. 9.1 .7.3 Negotiable certificates of deposit (NCDs) shall be permitted only in those financial institutions meeting the criteria listed in 9. 1. 7 .2 and having long term debt rated A-or higher by S&P or A3 o!' higher by Moody's; or having short term debt rated at least A 1 by S&P or P 1 by Moody's. Page 5 of 9 ~ ::HAt~DLER L IG1 ASSET MGM T,P-~ 619-546-37 41 Ap r n5 ,95 13:29 Mo.012 P.O ?_ 9.1.8 Taxable or tax-exempt munlclpal bonds issued by the State of California or its subdivisions, rated "A·" or higher by S&P or RA3" or higher by Moody's. 9.1.9 The State of Callfomla Local Agency Investment Fund (LAIF). 9.1.1 O The Orange County Investment Pool. 9.1.11 Passbook accounts maintained solely to provide for ongoing operational needs. 9.1.12 Collateraflzed mortgage obli·gations (CMOs) issued by agencies of the US Government with a maximum stated final maturity of five years and asset-backed securities rated "AAA" by S&P and "Aaa" by Moody's, with a maximum final stated maturity of five years. Securities eligible for purchase under this section shall be issued by an issuer having a rating on its unseci.1red long term debt of "A" or higher. Combined purchases of CMOs and asset-backed securities as authorized under this section may not exceed 20% of the CSDOC's portfolio. 9.1.13 Repurchase agreements col!ateralized with securities eligible for purchase under this policy maintained at a level of at least 102% of the market value of the repurchase agreements. Collateral securities shall be delivered to a third party safekeeping agent or to CSDOC's custodian bank. 9.1 .14 Reverse repurchase agreements provided that 9.1.14.1 No mora than 20% of CSDOC's portfolio shall ba invested in reverse repurchase agreements 9.1.14.2 The maximum maturity of reverse repurchase agreements shall be 90 days. 9.1. 14.3 Reverse repurchase agreements shall mature on the exact date cf a known cash flow which will be unconditionally available to repay the maturing reverse repurchase agreement. 9.1 .14.4 Proceeds of reverse repurchase agreements shall be used solely to supplement portfolio income, and shall not be used to speculate on market movements. 9.2 Sales of CSDOC-owned securities in the secondary market may incur losses in order to improve the risk or return characteristics of the portfolio, Page6of9 CHANDLER LIQ ASSET MGt11 TEL: 619-546-37 41 ) Apr D_6,95 13:29 No.012 P.09 to prevent anticipated further erosion of principal or when trading for securities that result in an expected net economic gain to CSDOC. 9.3 If securities owned by the CSDOC are downgraded by either Moody's or S&P to a level below the quality required by this Investment Policy, it shall be the CSDOC's policy to review the credit situation and make a determination as to whether to sell or retain such securities In the portfolio. If a decision is made to retain the downgraded securities in the portfolio. their piesence in the portfolio will be monitored and reported monthly to the CSDOC General Manager and Board of Directors. 10.0 DIVERSIFICATION REQUIREMENTS 10.1 With the exception of securities issued by the U.S. government and its agencies, no more than 5% of the portfolio may be invested in securities of any one issuer. 10.2 No individual holding shall constitute more than 5% of the total debt outstanding of any issuer. 10.3 No more than 40% of the portfolio may be invested in banker's acceptances. 10.4 No more than 15% of the portfolio may be invested in commercial paper. except that 30% of the portfolio may be so invested so long as the average maturity of all commercial paper in the portfolio does not exceed 31 days. 10.5 No more than 30% of the portfolio may be invested in medium term (corporate) notes. 10.6 No more than 15% of the portfolio may be invested in government money market funds. 1O.7 No more than 30% of the portfolio may be invested in negotiable certificates of deposit. 10.8 No more than 10% of the portfolio may be invested in eligible municipal bonds. 10. 9 No more than 20% of the portfolio may be invested in a combination of CMOs and asset-backed securities. 10.10 No more than 15% of the portfolio may be invested in LAIF 10.11 No more than 15% of the portfolio may be invested in the Orange County Investment Pool. Page 7of9 -i CHANDLEK LIQ ASSET MGM T~6 19-546-3741 Apr~.95 13:29 No.012 P.10 10.12 No more than 20% of the portfolio may be invested in repurchase agreements. 10.13 No more than 20% of the portfolio may be used as collateral for reverse repurchase agreements. 10. 14 No more than 20% of the portfolio may be invested in futures contracts. 11.0 Safekeeping and Custodv: 11.1 All security transactions, including collateral for repurchase agreements, entered into by CSDOC shall be conducted on a dellvery-versus- payment (DVP) basis. 11.2 Securities will be held by a third party custodian designated by the Treasurer and evidenced by safekeeping receipts. 12.0 Internal Control: 12. 1 The Treasurer shall establish an annual process of independent review by an external auditor. This review will provide internal control by assuring compliance with policies and procedures. 13.0 Performance Benchmarks and Objectives: 13.1 Overall objective. The investment portfolio shall be designed with the overall objective of obtaining a rate of return throughout budgetary and economic cycles, commensurate with investment risk constraints and cash flow needs. 13.2 The Liquid Operating Monies. The investment performance objective for the Liquid Operating Mon!es shall be to earn a total rate of return over a market cycle which exceeds the return on an index of three-month Treasury bills. 13.3 The Long Term Operating Monies. The investment performance objective for the Long Term Operating Monies shall be to earn a total rate of return over a market cycle which exceeds the return on a market index US Treasury and federal agency securities with Maturities from one to five years. 14.0 Report~n.s: 14.1 Monthly investment reports shall be submitted by the Treasurer to the Finance and Personnel Committee. These reports shall disclose, at a Page 8of9 CHAt~DLER LIQ ASSET MGI·~ lEL :1)19-54G-z;741 l Apr -1)6, 95 l 13:30 No.012 P.11 minimum, the following information about the risk characteristics of CSDOC's portfolio: 14.1.1 14.1.2 14.1.2 14.1.3 14.1.4 14.1.5 14.1.6 14.1.7 14.1.8 Cost and accurate and complete market value of the portfolio. Modified duration of the portfolio compared to Benchmark. Dollar change in value of the portfolio for a 1 % change in interest rates. Percent of portfolio invested in reverse repurchase agreements, and a schedule which matches the maturity of such reverse repurchase agreements with the cash flows which are available to repay them at maturity. For the Liquid Operating Monies account only, the percent of portfolio maturing within 90 days. Average portfolio credit quality. Percent of portfolio with credit ratings below 11A" by any rating agency, and a description of such securities. Listing of any transactions or holdings which do not comply with this policy or with the California Government Code. Time-weighted total rate of return for the portfolio for the prior three months, twelve months, year to date, and since inception compared to the Benchmark returns for the same periods. 14.2 External investment advisers and CSDOC's Treasurer shall meet quarterly with the Finance and Personnel Committee to review investment performar.ce, pruposed strategies and compliance with this investment policy. 15.0 INVESTMENT POLICY ADOPTION 15.1 CSDOC's Investment PoliC}' ~hall be reviewed by the Finance and Personnel Committee and shall be adopted by resolution of the Board of Directors .of CS DOC. The policy snall be reviewed on an annual basis by the1 Finance and Personnel Committee, which shall recommerid revisions. as app:oporiate, to the Board of Directors. Any modifications made theretc shall be approved by the Board of Directors. Page 9of 9 ) ~- FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 FAHR95-21: Consideration of Proposed Fiscal Policy Statements Governing the Districts' Budget Preparations and Operations Summary One method of matching the Districts' financial solutions to specific needs and objectives is by specifying basic financial objectives in general policy statements. Although a broad range of existing policy statements, decisions, and activities can be construed as financial policies, staff recommends a more formalized set of financial policies be established to more clearly define the goals for the financial operation of the Districts. Compilation of coordinated, concise fiscal policy statements can assist in discovering conflicts, inconsistencies, and gaps in policies currently existing in budgets, capital improvement plans, long-term financial plans, and in administrative practices. When financial policies are scattered among many documents, are unwritten, or are developed case-by-case, decisions can be made without due consideration of other current or past policy decisions, or future policy alternatives. Benefits from establishing financial policy statements in one document include: • Publicly adopted policy statements can contribute greatly to credibility. Such statements show the credit rating industry and prospective investors our commitment to sound financial management and fiscal integrity. • Established policies can save Districts' staff time and energy. Once policies are developed and published, issues do not need to be discussed each time a decision is required. • As overall policies are developed, the process of trying to tie issues together can bring new information to the surface and reveal additional areas that may need attention. • Using policy statements to set financial goals provides a means of measuring progress in improving the Districts' financial condition. Staff Recommendation: Staff recommends the adoption of the attached General Fiscal Policy Statements for the Districts. As part of the current year's budget process, staff will continue to evaluate the Districts' compliance with the policies and make recommendations for improvements. J:IWPOOC\FIN\CRANEIFPC.MTGIFPC95\ITEMS.AGD\FPC95.21 I • April 12, 1995 County Sanitation Districts of Orange County General Fiscal Policy Statements General Financial Goals COUNTY SANITATION DISTRICTS of ORANGE COUNTY. CALIFORNIA 10844 ELLIS AVENUE P.O BOX 8127 FOUNTAIN VALLEY. CALIFORNIA 92728-8127 1714) 962-2411 1. To maintain financially viable Sanitation Districts that can maintain an adequate level of wastewater treatment services. 2. To maintain financial flexibility to be able to continually adapt to local and regional economic changes. 3. To maintain and enhance the sound fiscal condition of the Districts. Operating Budget Policies 4. The Districts will adopt a balanced budget by June 30 of each year. 5. The Finance Director will prepare a budget calendar no later than January of each year. 6. An annual operating budget will be developed by verifying or conservatively projecting revenues and expenditures for the current and forthcoming fiscal year. 7. During the annual budget development process, the existing base budget will be thoroughly examined to assure removal or reduction of any services or programs that could be eliminated or reduced in cost. 8. Current operating revenues, including reserves, will be sufficient to support current operating expenditures. 9. Annual budgets will provide for adequate design, construction, maintenance and replacement of Districts' capital plant and equipment. 10. The Districts will maintain all physical assets at a level adequate to protect the Districts' capital investment and to minimize future maintenance and replacement costs. Fiscal Policy Page2 April 12, 1995 11 . The Districts will project equipment replacement and maintenance needs for the next five years and will update this projection each year. From this projection a maintenance and replacement schedule will be developed and followed. 12. The Districts will avoid budgetary and accounting procedures which balance the current budget at the expense of future budgets. 13. The Districts will forecast Joint Works expenditures and revenues for each of the next five years and will update this forecast at least annually. Revenue Policies 14. Because revenues are sensitive to both local and regional economic conditions, revenue estimates adopted by the Districts' Board must be conservative. 15. Staff will estimate annual revenues by an objective, analytical process utilizing trend, judgmental, and statistical analysis as appropriate. 16. User fees will be adjusted annually, if necessary, to recover the full cost of services provided. Expenditure Policies 17. The Districts will maintain a level of expenditures which will provide for the health, safety and welfare of the residents of the community. 18. Expenditures will not exceed current revenues, including funds carried over from the prior year and approved borrowing. Service Charges and Fees 19. The Districts will set fees and user charges at a level that fully supports the total direct and indirect cost of the activity. 20. Sewer Service User Fee rates will be projected for each of the next five years and this projection will be updated annually. ,,-, Fiscal Policy Page3 April 12, 1995 Capital Improvement Budget Policies 21. The Districts will make all capital improvements in accordance with an adopted and funded capital improvement program. 22. The Districts will develop an annual five-year plan for capital improvements, including design, development, implementation, and operating and maintenance costs. 23. Staff will identify the estimated costs, potential funding sources and project schedule for each capital project proposal before it is submitted to the Joint Boards for approval. 24. The Districts will use intergovernmental assistance to finance only those capital improvements that are consistent with the Capital Improvement Plan and Districts' priorities, and whose operating and maintenance costs have been included in the budget. 25. Staff will coordinate development of the capital improvement budget with the development of the operating budget. All costs for internal professional services needed to implement the CIP will be included in the operating budget for the year the CIP is to be implemented. 26. The Districts will use intergovernmental assistance and other outside resources whenever possible. 27. Cost tracking for components of the capital improvement program will be updated quarterly to monitor project completion against budget and established timeliness. Short-Term Debt Policies 28. The Districts may use short-term debt to cover temporary or emergency cash flow shortages. All short-term borrowing will be subject to Board approval by resolution. 29. The Districts may utilize Board-approved inter-District loans rather than outside debt instruments to meet short-term cash needs. Inter-District loans will be permitted only if an analysis of the affected Districts indicates excess funds are available and the use of these funds will not impact the District's current operations. The prevailing interest rate, as established by the Districts' Treasurer will be paid to the lending District. Fiscal Policy Page4 April 12, 1995 Long-Term Debt Policies 30. The Districts will confine long-term borrowing to capital improvements that cannot be financed from current revenue. In accordance with the 1989 Master plan, one-half of all future long-term capital improvements will be funded from long-term debt with the remaining cost funded from capital improvement reserves and current revenues. 31. Proceeds from long-term debt will not be used for current ongoing operations. 32. Before any new debt is issued, the impact of debt service payments on total annual fixed costs will be analyzed. Reserve Policies 33. An operations contingency reserve will be established to provide for non- recurring, unanticipated expenditures or to set aside funds to cover known contingencies with unknown costs. The level of this reserve will be established as needed but will not be less than 20% of the annual operating expenses. 34. A dry-period operations reserve will be established to fund operations and maintenance expenses for the first half of the fiscal year prior to the receipt of taxes and user fees. The level of this reserve will be established as needed, but will not be less than 50% of annual operating expenses. 35. Board approval is required before expending contingency reserve funds. 36. Reserve balances will be accumulated and maintained to fund approximately one years worth of the total cost of future capital improvements. 37. Self-insurance reserves will be maintained at a level which, together with purchased insurance policies, adequately protect the Districts. The Districts will maintain a self-insurance reserve of $100,000,000. Investment Policies 38. The Districts' Treasurer will annually submit an investment policy to the Districts' Board for review and adoption. 39. The investment policy will emphasize safety and liquidity before yield. Fiscal Policy Pages April 12, 1995 Accounting. Auditing. and Financial Reporting 40. The Districts' accounting and financial reporting systems will be maintained in conformance with generally accepted accounting principles and standards promulgated by the Governmental Accounting Standards Board. 41. A fixed asset system will be maintained to identify all Districts' assets, their condition, historical cost, replacement value, and useful life. 42. Quarterly financial reports will be submitted to the Districts' Board and will be made available to the public. 43. Full disclosure will be provided in the general financial statements and bond representations. 44. The Districts will maintain a good credit rating in the financial community. 45. An annual audit will be performed by an independent public accounting firm with the subsequent issue of an official Comprehensive Annual Financial Report, including an audit opinion and a management letter. /mw J:\WPOOCIFINICRANE\FPC.MTG\FPC95\STAFFRPT.FPCIFAHR95.21 ~, ... i ) ---... \ FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE FAHR95-22: Summary: AGENDA FOR APRIL 12, 1995 Consideration of 1995-96 Sewer Use and Connection Fee Recommendations Each property connected to a sewer system in each of the Districts, except District No. 14, pays an annual sewer use fee which partially finances operating, maintenance, replacement (OM&R) costs and debt service used to fund sewerage system improvements. (Properties in District No. 14 are billed by the IRWD.) Each of those Districts, except District No. 13, also receives a share of the ad valorem property tax which is applied to debt service. New development must pay a one-time sewer connection fee which finances capital expansion of the sewerage system. Again, District No. 14 is the exception because IRWD pays its share of capital expansion. For the last three years, because of the poor economic climate, staff recommended and the Boards agreed not to increase user or connection fees over the 1991-92 rates. In order to do this, certain Districts' programs were scaled back. California economic conditions have not improved significantly since last year. Conditions in Orange County have worsened as a result of the County bankruptcy. Although the Districts have the ability to increase fees to pay for the rising costs of wastewater services, the staff is sensitive to the continuing economic situation and the very difficult financial problems our member agencies are struggling with, exacerbated by the losses of local government in the County Pool; most of which are unable to be replaced by fees. Staff Recommendation Staff believes it is important for Orange County municipalities to hold the line as much as practical on 1995-96 fee increases. The County of Orange has proposed an increase in the sales tax of 1 /2¢ in order to repay depositors in the County Investment Pool. To add other local fee increases on top of this proposed sales tax increase could stall any economic recovery in 1995-96. Therefore, staff recommends 1995-96 user fees remain unchanged from the 1994-95 rates. J:IWPOOC\FINICRANEIFPC.MTGIFPC95\ITEMS.AGOIFPC95.22 April 12, 1995 FAHR95-22 Summary STAFF REPORT 1995-96 SEWER USE AND CONNECTION FEE RECOMMENDATIONS COUNTY SANITATION DISTRICTS of ORANGE COUNTY, CALIFORNIA 10844 ELLIS AVENUE P.O. BOX 8127 FOUNTAIN VALLEY, CALIFORNIA 92728-8127 (714) 962-2411 Each property connected to a sewer system in each of the Districts, except District No. 14, pays an annual sewer use fee which partially finances operating, maintenance, replacement (OM&R) costs and debt service used to fund sewerage system improvements. (Properties in District No. 14 are billed by the IRWD.) Each of those Districts, except District No. 13, also receives a share of the ad valorem property tax which is applied to debt service. New development must pay a one- time sewer connection fee which finances capital expansion of the sewerage system. Again, District No. 14 is the exception because IRWD pays its share of capital expansion. For the last three years, because of the poor economic climate, staff recommended and the Boards agreed not to increase user or.connection fees over the 1991-92 rates. In order to do this, certain Districts' programs were scaled back. Subsequent to the 1992-93 fee adoption, the Governor and State Legislature confiscated a portion of the Districts' property taxes and shifted them to help finance schools. After lengthy deliberations, the Boards of Districts 1, 2, 3, 5, 6 and 7 concluded that they had no really viable alternative but to increase the user fees to make up for the confiscation of 1992-93 property taxes by the state. The total amount shifted by the state was $3.5 million. California economic conditions have not improved significantly since last year. Conditions in Orange County have worsened as a result of the County bankruptcy. Although the Districts have the ability to increase fees to pay for the rising costs of wastewater services, the staff is sensitive to the continuing economic situation and the very difficult financial problems our member agencies are struggling with, exacerbated by the losses of local government in the County Pool; most of which are unable to be replaced by fees. The General Manager has directed staff to prepare a budget for 1 995-96 that will allow sewer use and connection fees not to be increased in 1995-96. These are the same rates adopted 1994-95. FAHR95-22 -1995-96 Fee Recommendations Page 2 March 12, 1995 Staff believes it is important for Orange County municipalities to hold the line as much as practical on 1995-96 increases. The County of Orange has proposed an increase in the sales tax of 1 /2¢ in order to repay depositors in the County Investment Pool. To add other local fee increases on top of this sales tax increase could stall any economic recovery in 1995-96. BACKGROUND During the 1980's and early 1990's, each of the Districts was required to consider the adoption of a sewer use fee for ongoing operations, maintenance and rehabilitation costs. Although property taxes, connection fees and federal and state construction grants had historically been the major sources of financing of Districts' activities, they became inadequate during the past decade. After the passage of Proposition 13, all ad valorem property tax revenue has been used in the Operating Funds for maintenance, operations and rehabilitation. Beginning in 1991-92, ad valorem property tax receipts were dedicated to be first used to repay the principal and interest due for COP issues. No property tax revenue has been directly available for capital improvements. The costs of providing service have risen beyond the ability of the property tax apportionments to keep pace with the increasingly stringent requirements of the federal, state and regional regulatory agencies for wastewater treatment to protect public health and the environment. In addition to new regulatory requirements, cost increases are also attributable to inflation, and to additional flows generated by the natural population increases from the excess of births over deaths and in-migration and additional residential, commercial and industrial development. Federal and state assistance from the clean water grant program has essentially been eliminated by Congress because of federal funding problems. All Districts except Nos. 13 and 14 currently receive a reduced historical allocation of the 1 % basic property tax levy equal to approximately 2. 7% of the 1 % basic levy. The typical property owner pays $27 per year in property taxes to the Districts. District No. 13 is fully funded by user fees and District No. 14 is fully funded by the IRWD. FUTURE FINANCING PROJECTIONS As a part of the rate setting process, staff has analyzed statements of Projected Cash Flows for Districts Nos. 1, 2, 3, 5, 6, 7, 11 and 13 prepared in accordance with the adopted "2020 VISION" Financial Plan recommendations, adjusted to ) FAHR95-22 -1995-96 Fee Recommendations Page 3 March 1 2, 1995 reflect changing circumstances. Under the Plan, each District's share of the treatment plant construction, and its respective trunk sewer construction projects are to be financed by a combination of increased connection fees to pay for new capacity and borrowing to pay for rehabilitation and improved treatment. Debt retirement and operating and maintenance costs are to be paid by a combination of property taxes and the annual sewer use fees, under the following assumptions: 1 . Renewal of NPDES Permit and Continuation of Current Treatment Levels (301 (h) Waiver) 2. This scenario represents the minimum probable level of construction, rehabilitation and operations and maintenance costs. For the first five years of the planning period, the differences between renewal of our existing permit and full secondary treatment are not significant. Increased annual flow projections and new sewer service connections have been revised downward from the 1989 Master Plan to reflect current and expected economic development and levels of flow. Connection Fees The capital facilities connection fee includes the cost of future and existing facilities on a per unit basis. The reason to include future costs is that any new flow will require new, additional facilities and capacity. The Board-approved connection fee policy provides for an automatic annual adjustment of fees to reflect changes in the Engineering News Record-LA construction cost index. Connection fees are uniform throughout the Districts. Staff is recommending that the fees for 1995-96 remain unchanged from the 1993-94 rates of $2,350 per residential unit and $470 per 1,000 square feet of floor area for non-residential properties. A 5% per year increase is projected from 1996-97 through 2003-2004 for cash flow analysis. 3. Debt/Borrowing Through 1998-99, all of the Districts except Nos. 13 and 14 are expected to issue additional COP-type debt to meet a portion of Joint Works treatment facilities improvements. Borrowing has been a part of the long-range financial plan for capital improvements since 1979 when the policy of using all property tax revenues for operations, maintenance and rehabilitation was implemented. Extensive use of the now discontinued federal and state Clean FAHR95-22 -1995-96 Fee Recommendations Page 4 March 12, 1995 Water Grant Program enabled the Districts to stretch out their reserves and other income and to generally avoid borrowing until 1990. Three primary reasons to issue debt are: to protect and to preserve capital reserves; to avoid major increases and fluctuations in user fees from year-to-year; and to spread the cost of facilities over their useful lives. The preliminary cash flow projections include additional COP issues that will be required to meet capital project award and cash flow requirements through 1998-99. Any COP issue will need to be approved by the Boards. The 1996-97 issue is proposed for late in the year. 4. Reserves As a part of the financial plan developed by the team of Directors, staff and consultants, the Boards have implemented a plan to build reserves for certain future events. The current reserve policy calls for Dry Period Funding Reserves, Contingency Reserves, Capital Project Reserves, Insurance Reserves, Environmental Requirement Reserves, and Debt Service Reserves. The projected reserve levels have been allowed to decrease to coincide with the reduced capital improvement budget projections. 5. Capital Improvement Projects As the Directors are aware, the Districts are continuing to experience reductions in total flow from previous years. This flow reduction and the economic climate have caused staff to review the timing of the capital improvement program. Accordingly, projects for certain additional capacity and improved treatment are proposed to be delayed, resulting in the ability to postpone some COP issues. 6. Ad Valorem Property Taxes The cash flow projections are based on the continuing receipt of ad valorem property taxes at the same level as allocated by the County for 1994-95. 1995-96 USER FEE AND CONNECTION FEE RECOMMENDATIONS Taking all of the above assumptions into consideration and the current and projected near-term economic climate, staff is again preparing an overall "hold-the-line" budget. The portion of each individual District's total operations, maintenance and COP service budget, determined largely by the Joint Operating FAHR95-22 -1995-, Page 5 March 12, 1995 ee Recommendations Fund budget to operate and maintain the treatment and disposal facilities, is approximately 47%. Keeping this significant portion of the operating budget constant and rescheduling certain capital projects, thereby minimizing additional borrowing and subsequent repayment will allow the Districts to maintain the 1994-95 user fee rates for 1995-96. The following table shows the single-family residential annual user fee rates and one-time connection fees for 1995-96 that were anticipated when last year's budget was adopted, the predicted rates in the "2020 VISION" Master Plan, and the revised rates now proposed. 1 2 3 5 6 7 11 13 Weighted Average All Districts Capital Fees Connection Fees GGS:lc SINGLE-FAMILY RESIDENTIAL FEES 1995-96 $ 83.24 $125.00 $83.24 71.52 100.00 71.52 73.89 125.00 73.89 96. 75 125.00 96. 75 76.47 100.00 76.47 50.09 75.00 50.09 66.00 175.00 60.00 100.00 165.00 100.00 $71.34 $113.11 $71.68 $2,350.00 $2,880.00 $2,350.00 J :\ WPDOC\FIN\CRANE\FPC .MTG\FPC95\ST AFFRPT .FPC\MMUSEFEE.95 Enclosures .. , \ .. ,;"""' ~, I ' ) ) FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 FAHR95-23: Consideration of a motion adopting revisions to the Personal Responsibility in Daily Effort (PRIDE) Program. Summary: The Districts' suggestion award program, entitled Personal Responsibility in Daily Effort (PRIDE), was initiated by Board Resolution on May 13, 1981. The amount of the various awards has remained essentially unchanged over that period, and no longer offer an appropriate level of incentive to potential contributors. Further, the current process can take literally months from submittal to award. During that period, interest may wan with regard to the proposal, and program credibility suffers. Staff believes that a revitalization of the PRIDE Program would prove to be a worthwhile effort in view of present concerns for effective and efficient operations. The Ernst and Young Evaluation of Operations and Maintenance supported this notion with the suggestion that the PRIDE Program be modified" ... to ensure that objective and timely responses are provided to suggestions." The PRIDE Program has been revised to address these issues. Major changes from the current program are: 1. The minimum award is Increased from $100 to $150; 2. A Pride Selection Committee will review all awards; 3. The General Manager will approve awards below $1,000 to allow the funds to be disbursed in a timely fashion; awards in excess of $1,000 will continue to be submitted to the FAHR Committee; 4. Procedures to evaluate proposal are streamlined from often several months to no more than 45 days, except in unusually complex circumstances. Staff Recommendation Approve the revised PRIDE Program as proposed above and in Attachment 1. There is no increase in cost associated with this proposal; however, there is a potential for increased savings. J:IWPOOC1FINICRANE\FPC.MTGIFPC95VTEMS.AGD\FPC95.23 \. Personal Responsibility In Daily Effort Proposal The PRIDE Program recognizes that many of the most effective ideas for enhancing procedures, processes, and improving safety and working conditions come from the employees who work with these issues on a daily basis. Employees are encouraged to extend their creative thoughts beyond the boundaries of their own job, and suggest ways to make operations more efficient, effective or responsive to our needs. If you have a suggestion, please complete this form, adding any additional information you feel would be helpful in understanding and evaluating your proposal, and submit it to the Personnel Office. You will receive acknowledgement of receipt of your proposal within ten days, including notification of th.e date your proposal will be considered by the PRIDE Review Committee. 1. Your name Additional name Date submitted Additional name 2. Describe your idea or suggestion in sufficient detail to permit an -evaluation of its potential for savings or improvement. Attach additional sheets or drawings as necessary. 3. -What prompted your suggestion or idea? 4. How will implementation of your proposal improve or benefit the Districts? 5. What is your best estimate of the savings that might be realized through implementation of your proposal? Personal Responsibility in Daily Effort POLICY. The "Personal Responsibility In Daily Effort" Program recognizes that many of the most effective ideas for enhancing Districts' procedures or improving safety or working conditions come from employees. The program encourages all employees to extend their creative thoughts and influence beyond the boundaries of their own job and present their ideas to the Districts' management for consideration. Awards of up to $1500 and special recognition will be given to employees whose ideas and suggestions are adopted and result in improved efficiency or lower costs. The actual amount of the award will depend upon the amount of savings. PRIDE forms are available through the Personnel Office. Completed forms must be delivered to the Personnel Office for submittal to the PRIDE Review Committee. PROCEDURE. All suggestions or ideas must be submitted on a PRIDE Proposal form, and include specific information describing how the proposal could be accomplished. This information must be sufficiently detailed to permit an evaluation of the proposal. A separate fom:i should be submitted for each idea. Suggestions are encouraged that save time, labor, material, money, supplies or other resources, and that improve service, methods, procedures or safety and work conditions. For an idea to be considered, it must offer an original solution as well as identifying an opportunity for improvement, and must not have been under active consideration during the previous twelve month period. Only those proposals that do not affect Districts' administrative policies or decisions and are clearly beyond the scope of the presenter's normal duties and responsibilities will be considered for an award. EVALUATION OF PROPOSALS. All proposals are logged in upon being received at the Personnel Office. After being reviewed for completeness, they are routed to the affected department for evaluation of both feasibility and savings. The presenter may be contacted at this point for further information if necessary. Within fourteen days of receipt of the proposal, the affected department will submit their evaluation findings to the PRIDE Review Committee for consideration. The PRIDE Review Committee, consisting of representatives from each department, will meet once a month to evaluate proposals and suggestions submitted during the previous month. Proposals that are determined to merit awards will be submitted to the General Manager for approval. Those proposals recommended for an award of over $1000 will be submitted to the Finance and Personnel Committee for consideration of presentation of the award before the full Board. All employees who present proposals will be informed of the Committee's decision regarding their idea as soon as possible, including those instances where the proposal is determined to be ineligible for an award. AWARDS AND RECOGNITION. All successful proposals will receive a minimum cash award of $150. Successful proposals that offer cost savings will be entitled to an award equivalent to 10 percent of the initial years' projected savings, up to a maximum of $1500, but not less than $150. The names of all individuals receiving awards will be placed on a special plaque in the Board Room Lobby. Those individuals who receive the highest award of $1500 will also be presented a special certificate before the Boards of Directors. (12): Summary FINANCE, ADMINISTRATION AND HUMAN RESOURCES COMMITTEE AGENDA FOR APRIL 12, 1995 Consideration of upcoming meetings and items to be discussed at those meeting. The calendar of future meetings is on the back of the Notice of Meeting each month. The next Finance, Administration and Human Resources Committee meeting is scheduled for Wednesday, May 10, 1995. This will be the first meeting on the new schedule. Some of the potential major non-routine items the Committee will be reviewing, considering and acting on over the next few months follow. Some items will carry forward to future months, but are listed only once at the start of a process. Personnel Policies Manual Nine-Month 1994-95 Joint Works Budget Review Nine-Month Training and Travel Expenses Quarterly COP Monitoring Report Debt Financing Strategy for 1995-2000 As there is no Executive Committee meeting scheduled in· August, the Committee may wish not to meet. Staff Recommendation Information only item. J:IWPOOCIFIN\CRANBFPC.MTGIFPC95VTEMS.AGDIAGDtTM12