(A) Authorized financial dealer and institution.
(1) Qualified banks can only be commercial banks and the town’s investment with the bank may be in excess of $250,000 or whatever amount is currently insured by the FDIC. The town’s Finance Director or his or her appointed designee shall obtain and review whatever documents are necessary to verify the bank’s continued stability including the monthly listing of securities pledged for collateralization to monitor the bank’s collateralization of town deposits.
(2) Nonqualified banks can be either commercial banks or savings and loans or savings banks and the town’s investment with the bank will not be in excess of $250,000 or whatever amount is currently insured by the FDIC. The Finance Director or his or her appointed designee shall inquire with bank officials and/or review an independent bank evaluation to determine the bank meets the standard selection criteria established by the Investment Committee.
(3) The town has selected a primary bank, which bank the town uses to process daily deposits and checks. It is the responsibility of the Investment Committee to determine that the bank continues to meet the Committee’s standard selection criteria. At the discretion of the Investment Committee, whether the bank continues to meet the criteria or not, a new bank may be selected as the primary bank. A formal request for proposal should be used in the selection process.
(4) The town shall maintain a list of banks and securities dealers approved for securities transactions initiated by the town, and it shall be the policy of the town to purchase securities only from those authorized firms. Securities dealers not affiliated with a bank shall be required to be classified as reporting dealers affiliated with the New York Federal Reserve Bank, as primary dealers. Broker/dealers which are not primary dealers may be used if they have been approved by the Investment Committee. The Investment Committee shall develop and document the methodology for qualifying nonprimary broker/dealers.
(B) Internal controls.
(1) The Finance Director is responsible for establishing and maintaining an internal control structure designed to ensure that the assets of the entity are protected from loss, theft or misuse. The internal control structure shall be designed to provide reasonable assurance that these objectives are met. The concept of reasonable assurance recognizes that:
(a) The cost of a control should not exceed the benefits likely to be derived; and
(b) The valuation of costs and benefits requires estimates and judgments by management.
(2) Accordingly, the Finance Director shall establish a process for annual independent review by an external auditor to assure compliance with policies and procedures. The internal controls shall address the following points.
(a) Control of collusion. Collusion is a situation where two or more employees are working in conjunction to defraud their employer.
(b) Separation of transaction authority from accounting and recordkeeping. By separating the person who authorizes or performs the transaction from the people who record or otherwise account for the transaction, a separation of duties is achieved.
(c) Custodial safekeeping. Securities purchased from any bank or dealer shall be placed with an independent third party designated as primary agent for custodial safekeeping. The primary agent shall issue a safekeeping receipt to the town listing the specific instrument, rate, maturity and other information. Securities may be purchased from the primary agent’s brokerage department and kept safe by the same bank’s trust department.
(d) Avoidance of physical delivery securities. Book entry securities are much easier to transfer and account for since actual delivery of a document never takes place. Delivered securities must be properly safeguarded against loss or destruction. The potential for fraud and loss increases with physically delivered securities.
(e) Clear designation of authority to subordinate staff members. Subordinate staff members must have a clear understanding of their authority and responsibilities to avoid improper actions. Clear delegation of authority also preserves the internal control structure that is contingent on the various staff positions and their respective responsibilities.
(f) Written confirmation of telephone transactions for investments and wire transfers. Due to the potential for error and improprieties arising from telephone transactions, all telephone transactions should be supported by written communications and approved by the appropriate person. Written communications may be via e-mail or fax if on letterhead and the safekeeping institution has a list of authorized signatures.
(C) Delivery versus payment. All trades where applicable will be executed by delivery versus payment (DVP). This ensures that securities are deposited in the eligible financial institution prior to release of funds. Securities will be held by a third party custodian as evidenced by safekeeping receipts.
(Ord. 3(1997) § 1; Ord. 24(2016) §§ 5, 6)