Investment Policy Statement for the Cynthiana/Harrison County Public Library


Introduction:

General Policy

It is the policy of the Cynthiana Harrison County Public Library to invest funds in a manner which will provide the highest return with the maximum security of principal while meeting the daily cash flow demands on the Library and conforming to all state statutes and the Library’s regulations governing the investment of funds.

Scope

This investment policy applies to all financial assets held directly by the Library. These financial assets are accounted for in the Library’s annual financial report and include all moneys in investment fund accounts.

Investment Objectives:

The Library’s primary investment objectives, in order of priority, are:

  • Safety. Safety of principal is the foremost objective of the Library’s investment program. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio.
  • Liquidity. The Library’s investment portfolio shall remain sufficiently liquid to enable the Library to meet all operating requirements which might be reasonably anticipated.
  • Return on investment. The Library’s investment portfolio shall be designed with the objective of attaining a market rate of return throughout the budgetary and economic cycles, taking into account the Library’s investment risk constraints and the cash flow characteristics of the portfolio.

Designated Official and Prudent Person Rule

Designated Official Management responsibility for the Investment Policy is delegated by the Board of Trustees to a designated official. Unless otherwise indicated, the designated official will be the Library Director.

The Director shall have the authority, subject to the approval of the Board, to uphold and to establish additional specific written procedures for the operation of the investment program which are consistent with the Investment Policy. The procedures shall include explicit delegation of authority, if any, 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.

The Director shall be ultimately responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials and employees. The controls shall be designed to prevent and minimize losses of funds arising from fraud, employee error, and misrepresentation by third parties, or imprudent actions by officers and employees.

The Director has the responsibility to ensure that all records are maintained related to the Library’s investment program.

Prudent Person Rule

The actions of the designated official in the performance of his/her duties as manager of the Library’s funds shall be evaluated using the “prudent person” standard. Investments shall be made with judgment and care under prevailing circumstances 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.

Authorized Investments

Authorized investment instruments

The funds of the Library available for investment shall be invested in accordance with this policy and all applicable state statutes only in the following type of investment instruments: Obligations of the United States and of its agencies and instrumentalities (Treasury Bonds, for example), including obligations subject to repurchase agreements, provided that delivery of these obligations subject to repurchase agreements is taken either directly or through an authorized custodian in the Library’s name.

All transactions conducted through or on behalf of the Library through an investment advisor or Trust Department shall be limited to a maximum of 1% gross commission or annual fee to the advisor or Trust Department.

Certificates of deposit or other interest-bearing accounts of any bank or savings and loan institution which are insured by the Federal Deposit Insurance Corporation or similar entity or which are collateralized, to the extent uninsured, by any obligations permitted by Section 41.240(4) of the Kentucky Revised Statutes.

Shares of mutual funds and money markets where the mutual funds are an open-end diversified investment company registered under the Federal Investment Company Act of 1940, as amended, and the management company of the investment company shall have been in operation for at least five (5) years.

Limitation on investment transactions

No investment shall be purchased for the Library on a margin basis or through the use of any similar leveraging technique.

To the extent possible, the Library will attempt to match its investments with anticipated cash flow requirements. Unless matched to a specific cash flow need, the Library’s funds should not, in general, be invested in securities maturing more than one (1) year from date of the purchase.

In general, the Library has little control outside of provisions in the Kentucky Revised Statutes over the investment instruments used to collateralize its accounts. Where the Library does have control, the Library may collateralize its repurchase agreements using longer dated investments not to exceed thirty (30) years if maturity of the investments is made to coincide as nearly as practicable with the expected use of the funds. Reserve funds may be invested in securities exceeding one (1) year if maturity of the investments are made to coincide as nearly as practicable with the expected use of the funds.

Diversification of Investments

The Library recognizes that some level of risk is inherent in any investment transaction. Losses may be incurred due to market price changes or closing of investments prior to maturity due to unanticipated cash flow needs. Diversification of the Library’s investment portfolio by type of investment instrument and term to maturity is the primary method to minimize investment risk

Authorized Financial Dealers and Institutions

All financial institutions who desire to provide investment services to the Library may supply the Director with information sufficient to evaluate the institution and answer any and all inquiries posed, including the following information:

  • Audited financial statements;
  • Regulatory reports on financial condition;
  • Written Memorandum of Agreement for the deposit of public funds or trading resolution, as appropriate;
  • Any additional information considered necessary to allow the Board to evaluate the creditworthiness of the institution.

No financial institution shall be selected as a depository of Library funds if the Library funds on deposit at any time will exceed ten percent of the institution’s capital surplus and stock. The Director shall evaluate the financial capacity and creditworthiness of financial institutions prior to the placement of the Library’s funds.

All sales concession based transactions conducted through or on behalf of the Library through an investment advisor or Trust Department shall be limited to a maximum of 1% gross commission or annual fee to the advisor or Trust Department.

Safekeeping and Custody

To protect against potential fraud and embezzlement, investment assets shall be secured though third-party custody and safekeeping procedures. Any officer or employee of the Library authorized to engage in investment transactions shall be bonded in an amount established by the Board.

The safekeeping procedures utilized in the Library’s investment program shall be reviewed annually by an independent auditor.

Collateral

It is the policy of the Library to require that all cash and investments (in excess of the $250,000 insured by FDIC) maintained in any financial institution named as a depository be collateralized. In order to anticipate market changes and provide a level of security for all funds, the collateralization level shall be 102% of the market value of principal, plus accrued interest.

Collateral shall be limited to the types of instruments authorized as collateral for state funds in KRS 41.240. Collateral for the Library’s funds shall be held separately from any other collateral held by the financial institution.

Investment Reporting

The Director shall retain documentation concerning the Library’s investments including:

  • Name of the financial institution from which the investment was purchased or in which assets are deposited;
  • Type of investment;
  • Certificate or other reference number, if applicable;
  • Percentage yield on an annualized basis;
  • Purchase price and maturity date;
  • Current market value of the investment.

Where applicable, the Director will indicate earnings, losses, or changes in the Library’s investments in his/her monthly report to the Board.

Providers of Trust or Brokerage accounts are required to provide monthly reports indicating type of investment, annualized yield, purchase price, maturity date and current maeket value of the individual assets.

Audit

In connection with the audit of the Library’s funds conducted by an independent certified public accountant, the auditor shall conduct a review of the Library’s investment program, including internal controls and procedure. The results of the review and recommended changes will be presented to the Board at the time of the annual audit.