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Financial Management for Elected Officials January 2013 <br /> <br />Institute for Local Government www.ca-ilg.org 15 <br /> <br /> <br /> <br />Cash Management and Investments <br /> <br />Sometimes, public agencies have funds on hand that are being held for longer-term needs. These <br />may be invested in a variety of bonds (but not stocks), notes and other instruments allowed by <br />state law. <br /> <br />The governing body’s role is to be a wise steward of the public’s resources. The objectives in <br />managing public funds are, in priority order: <br /> <br />1. Safety (the likelihood that the agency will get all its money back) <br /> <br />2. Liquidity (the agency’s ability to withdraw funds on short notice) <br /> <br />3. Yield (the interest or other return on the investment) <br /> <br />In light of these objectives, prudent public agency investment managers never seek to earn <br />maximum returns on the agency's portfolio at the expense of safety or liquidity. This would <br />expose the agency to an unacceptable level of too much risk. <br /> <br />Instead, they focus on seeking to earn a reasonable rate of return on the agency's investments, <br />while preserving capital in the overall portfolio and meeting the cash flow needs of the agency. <br /> <br />There are funds that specialize in investing public agency funds; the Local Agency Investment <br />Fund (LAIF) of the State Treasurer’s office and CalTrust are examples. <br /> <br />Questions to Ask <br /> <br />• What oversight procedures does the agency use for its investments? Who is responsible for <br />the day-to-day supervision of the agency’s investment activities? If that authority has been <br />delegated to the agency’s treasurer, has that authority been delegated annually as required by <br />law?23 <br /> <br />• If that authority has been contracted out, who is responsible for oversight? <br /> <br />• What is the agency's investment policy? Is it understandable? Does the governing body <br />review it annually as the law requires?24 <br /> <br />• Do governing body members receive and review periodic investment reports?25 Do these <br />reports include an analysis of cash flow needs? <br /> <br />• Are the investment reports clear and understandable? (A lack of clarity can be a sign of <br />problems or undue investment complexity.) <br /> <br />Page 65 of 109