HomeMy WebLinkAbout03.c. Review Draft Position Paper to Assess Risk, Draft Policies and Procedures and a Project Implementation Plan Related to the Proposed Transition to An In-House Treasury StructurePage 1 of 38
Item 3.c.
MEETING DATE:
SUBJECT
SUBMITTED BY:
BOARD OF DIRECTORS
POSITION PAPER
J ULY 18, 2023
REVIEW DRAFT POSITION PAPER TO ASSESS RISK, DRAFT POLICIES
AND PROCEDURES AND A PROJECT IMPLEMENTATION PLAN RELATED
TO THE PROPOSED TRANSITION TO AN IN-HOUSE TREASURY
STRUCTURE
INITIATING DEPARTMENT:
KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION -FINANCE
REVIEWED BY: PHILIPLEIBER, DIRECTOR OF FINANCE AND ADMINISTRATION
ROGER S. BAILEY, GENERAL MANAGER
ISSUE
Following receipt of an internal audit report identifying inefficiencies and an assessment of how similar
local government agencies handle their treasury function, Central San is considering the implementation of
an in-house treasury function. Consistent with prior Board direction, staff has returned with additional
information to support a decision regarding which treasury structure is most suitable for Central San. The
Board is now being asked to consider the information provided and authorize staff to begin the planning
and design steps for a specific in-house treasury structure.
BACKGROUND
At the July 21, 2022, Board meeting, Central San's internal auditor provided a presentation on the results
of an internal audit over Central San's accounts payable function. Overall, while the report supported
internal controls over the accounts payable function appeared to be appropriately designed and
implemented, as well as operating effectively in the new enterprise resource planning (ERP) system, there
was one finding that highlighted an internal operational inefficiency that is associated with Central San's
treasury arrangement as a voluntary pooled participant in the Contra Costa County Treasury Pool. The
finding also elaborated that certain modules within Central San's ERP were not able to be implemented
due to the non -industry standard treasury arrangement. Following the presentation by Central San's
Internal Auditor, the Board expressed concern with this matter. The General Manager responded that staff
would assess the issue and return at a future date with additional information and a recommendation for the
Board.
Thereafter, on September 15, 2022, staff provided a presentation assessing Central San's treasury
function to the Board. This assessment provided a background and pros -cons analysis of Central San's
longtime arrangement as a "voluntary pooled participant" of the Contra Costa County Treasury Pool. The
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assessment outlined the advantages to implementing an in-house treasury function outweighed the
disadvantages in several areas, providing both short-term operational and long-term strategic benefits.
Furthermore, the assessment conveyed that the relevant experience and qualifications of Central San's
staff, paired with the sufficiency of the existing staff size, would allow Central San to maintain strong
internal controls if treasury were transitioned in-house with no adverse impacts to workload or requiring an
increase in existing headcount.
Following the presentation and discussion, Central San's Board voted unanimously directing staff to
pursue the matter further. Specifically, the Board directed staff to conduct the following:
1. Assess banking and investment management alternatives and return to the Board with a proposed
alternative treasury structure;
2. Develop and present a risk assessment over the proposed "to be" treasury structure;
3. Develop and propose a draft banking/treasury policies and procedures; and
4. Develop an implementation plan (including RFP development/ issuance/ assessments and ERP
implementation/ modifications).
On May 4, 2023, staff informed the Board of their efforts to retain the services of an outside, independent
certified public accountant (CPA) firm or agency to assist with this initiative. Eide Bailly, a professional
CPA firm providing both audit and consulting services, was selected given their expertise and experience
evaluating public agencies' internal control structures and familiarity with Oracle Cloud Fusion
banking/treasury functionality. With the assistance of Eide Bailly, project milestones 1 through 4 outlined
previously have been completed.
Proposed Treasury Structure
At the September 15, 2022, Board meeting, staff presented the results of a survey of on how several
California cities and special districts similar in size to Central San structure their treasury functions. This
survey provided a sense of the most common treasury structure for similar public agencies. Most
importantly, the survey showed that most of the public agencies surveyed (15 of 16, or 93.8%) have their
own bank account rather than operate as a voluntary pooled participant with another agency, such as a city
or county. Two important structural topics that were more varied in their responses pertained to who each
agency's Treasurer was and how investment services were managed. Given the variability in responses,
these two areas required further assessment by staff.
Appointment of a Treasurer
Regarding the role of the Treasurer, the survey results showed that the most common position holding this
role was either the Chief Financial Officer (CFO) or Director of Finance at 43.8% (7 of 16). Tied with the
second most common arrangements were either member of the governing body (City Council or Board
Member) or an "other employee" (not CFO or Director of Finance) each at 18.8% (3 of 16). Other less
common arrangements included either a citizen or the County Treasurer serving as the agency's treasurer.
I n consultation with Eide Bailly, it is now the recommendation of staff that the Deputy General Manager of
Administration (formerly Director of Finance & Administration) be appointed Treasurer in Central San's
proposed "to be" treasury structure. This is largely in line with the majority of similar public agency's
surveyed (62.6%, or 10 of 16), where an executive level employee other than the City Manager or General
Manager served as Treasurer. Furthermore, Central San's incumbent Deputy General Manager of
Administration possess both the experience and skillset to serve as Treasurer, having served as the
Treasurer for other large public agencies prior to joining Central San and maintain both an active Certified
Public Accountant (CPA) license and Certified Treasury Professional designation. Beyond being in line
with arrangements for peer agencies, another key benefit of appointing a Treasurer at the Executive
Management staff level is the ability for Central San to manage its day-to-day treasury operations more
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efficiently by not needing to regularly involve a member of the governing body on administrative matters.
Staff also recommends the Board appoint the Finance Manager as Deputy Treasurer to handle lesser,
more administrative treasury matters, and serve as a backup in the absence of the Treasurer. To ensure
checks and balances on each position, the proposed responsibilities and powers of the Board, General
Manager, Treasurer, and Deputy Treasurer are outlined in a draft Banking & Cash Management Board
Policy (Attachment 2) and Administrative Procedures (Attachment 3).
Management of Investments
Management of investments was another area where the survey yielded somewhat differing results,
warranting a more in-depth assessment by staff to ascertain the most suitable option for Central San.
While the bulk of agencies surveyed (62.6%, or 10 of 16) responded they utilize an investment advisor
through a managed account, the remaining had various other responses including: managing investments
entirely in-house (18.8%), investing in highly liquid government investment pools only (12.5%), and utilizing
a non -advisory broker (6.3%). Upon further consideration of these results, as well as that of Central San's
current Finance function (i.e., staff size, experience, skillset, and certifications), and consultation with Eide
Bailly, it is the recommendation of staff for Central San to utilize an investment manager, under the
direction of Central San management, that specializes in supporting public agencies should the treasury
function be taken in-house.
While some incremental cost would be associated with utilizing an investment manager, this arrangement
would benefit Central San in several ways, which is likely why it is the most common investment
arrangement of the agencies surveyed. Contracting an investment manager will allow Central San to
evolve its long-standing investment strategy from a primarily passive approach to a far more active one. A
professionally managed active investing approach would allow Central San to better align the maturity of
investments with anticipated cash flow needs and more confidently capitalize on the most opportune times
to trade/sell investments based on market conditions. While there are no guarantees that higher
investment returns will be realized by transitioning to an investments manager, somewhat higher yields can
reasonably be expected when transitioning from a passive to an active investments approach with the
support of investment advisory services.
PFM Asset Management (PFMAM), a firm Central San has previously worked with, conducted an analysis
to assess the potential incremental increase in investment management costs as well as income had an
investment management firm been utilized. Using a proposed fee schedule from PFMAM it is estimated
that Central San would have paid approximately $80 thousand in annual investment management fees,
compared to only approximately $6 thousand in annual fees paid to the County for quarterly interest
apportionment charges custodian fees. PFMAM then compared the total return performance of a proxy
for Central San's current portfolio strategy to the performance of a more diversified investment strategy (a
strategy in compliance with California Government Code) for the 10 years ended May 31, 2023. Based on
this analysis, PFMAM estimates that Central San could have generated an estimated incremental annual
investment income of $169 thousand on a gross of fee bases (an estimated incremental annual investment
income of $89 thousand on a net of investment management fee basis), for the more diversified
investment strategy that could be implemented with the assistance of an outside investment management
firm. While this a modest increase over actual investment income recognized in that timeframe, it still
results in a net benefit to Central San, exceeding the cost of the underlying investment management
services. It should also be mentioned that over the past year, yields of shorter duration fixed income
investments have been remarkably comparable to longer duration options. This atypical "inverted yield
curve" phenomenon is a result of the rapidly rising interest rate environment from near -zero levels over the
past year. Historically, longer duration investments have generally yielded quite higher returns than shorter
term investments. Should the investment market return to more normal conditions in the future, Central
San would reasonably expect to benefit even greater from an active investment management strategy by
taking advantage of longer durations through a systematic laddered approach.
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Beyond benefiting Central San from a revenue/cost perspective, utilizing an investment management firm
is expected to benefit Central San in other ways. Current investment -related responsibilities of staff
include the following: directing the County on investment purchases and maturities; developing cash flow
forecasts for investing purposes; monitoring liquidity; recording transactions into the ledger; and preparing
quarterly investment portfolio reports. While Central San staff would continue to be involved in many of
these responsibilities in some capacity, having an investments manager for this important responsibility
would allow staff to spend more time on other operational needs, including projects and new initiatives.
Contracting with a professional investments manager may also have the positive effect of increasing public
confidence that investments are being managed prudently and in accordance with policy and the law,
something of particular importance given market turmoil experienced in 2022 and the subsequent high
profile banking institution failures. Lastly, investment reports and presentations from the investments
manager may allow the Board to fulfill their fiduciary role over Central San's investment portfolio more
confidently.
Risk Assessment for Proposed "To Be" Treasury Structure
Prior to this meeting, Eide Bailly completed their risk assessment of Central San's Finance Division
(Attachment 1), developing an understanding of whether inherent business risks associated with
maintaining an in-house treasury function can be mitigated to an acceptable level. Their understanding was
developed through inquiry with Finance Division staff at recurring project meetings as well as an all -day on -
site visit in May 2023. Beyond inquiry, Eide Bailly staff have had an opportunity to observe business
processes and review various relevant fiscal policies (i.e., investments, cash receipts, accounts payable,
etc.). Their completed risk assessment compares current and proposed "to be" processes in the
following four treasury cycle categories:
1. Depository Banking and Investment Services,
2. Payment Processing (Cash Disbursements),
3. Cash Receipts, and
4. Bank Reconciliations.
Immediately following the process descriptions, each section includes Eide Bailly's synopsis of "Required
Changes, Associated Risks, and Steps to Address Risk". Ultimately, in the report's "Summary and
Conclusions" section, Eide Bailly concluded that following their fact-finding procedures, Central San
should be able to transition to and maintain an in-house treasury function with an acceptable internal control
environment that mitigates inherent business risks to an acceptable level. This is in consideration of their
knowledge of Oracle cloud fusion ERP functionalities (particularly the Cash Management, Payables and
Receivables modules) as well as other like public agencies of similar and even smaller size.
Draft Banking & Treasury Policy and Administrative Procedures
At the onset of the consulting engagement, it was acknowledged that Central San would need to design
and implement additional policies and procedures over the cash management and banking as a precursor
to implementing an in-house treasury function. While Central San already had other longstanding policies
and procedures covering various treasury processes (i.e., investments, payables, receipts, payroll), there
was nothing in place that addressed banking given that those matters have were historically the
responsibility of the County Treasurer with Central San being a voluntary pooled participant. Accordingly,
staff, with feedback from Eide Bailly, developed a draft Banking & Cash Management Board Policy and
underlying Administrative Procedure. These documents, in addition to direction from key Central San's
staff involved in treasury functions were essential for Eide Bailly to complete their risk assessment report,
helping outline a framework of what the proposed "to be" treasury structure would look like.
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These policies would require Central San's adoption in conjunction with the implementation of an in-house
treasury function. While the proposed Board Policy would require the Board's adoption, the Administrative
Procedures document would be executed and enforced by the General Manager, with both policies being
reviewed and amended, as needed, periodically (either annually or biennially).
Proposed Project Implementation Plan
Working closely with Eide Bailly, staff has developed a project implementation plan for transitioning to an
in-house Treasury function, which is illustrated in the attached project implementation plan (Attachment 4)
using a GANTT chart format. This proposed project implementation plan divides the project into several
core phases highlighting key deliverables as follows:
1. Project discovery
2. Risk assessment and Board direction/action on treasury structure
3. Policy development
4. Request for proposals for banking services
5. Request for proposal for investment management services
6. ERP implementation and configuration changes
7. Withdrawal from County pool
Each of these seven phases have already or are expected to have some level of Board involvement.
Assuming each of the milestones are met without unanticipated obstructions, the soonest staff anticipates
Central San can transition to an in-house treasury function is April 1, 2024.
ALTERNATIVES/CONSIDERATIONS
The Board may elect not to implement an in-house treasury structure and continue operating with its status
quo treasury arrangement as a voluntary pooled participant of the Country Treasury. This is not the
recommended action by staff as several operational process inefficiencies would persist, and Central San
would continue to lack the control over its treasury function necessary to implement swift changes when
unforeseen circumstances and emergencies arise. Redundant, time consuming, and overly complex
processes associated with continuing to operate as a voluntary pooled participant not only impact the
efficiency of Central San's operations, but also adversely impact the morale of Finance division staff
having to execute those procedures.
The Board may opt to proceed with implementing an in-house treasury function but recommend an
alternative structure. For instance, rather than the Deputy General Manager of Administration (DGM) being
appointed as Treasurer, the presiding Board President may serve as Treasurer, with the Board taking
action to appoint the DGM as Deputy Treasurer, handling the day-to-day administrative activities. While
certain municipalities do have this structure, it is a less common arrangement amongst similar agencies
surveyed. While having a Board member serve as Treasurer would allow the Board to maintain more
control over the treasury function, it may also result in Board members becoming overly involved in
administrative matters rather than remaining at the policy -level. Furthermore, a Board policy can be
adopted limiting the Treasurer's authority by requiring Board approval for certain key actions such as
opening new bank accounts and entering into custodial banking agreements. The proposed treasury
structure establishes such a policy retaining some control at the Board level.
Regarding the investment management approach, the Board may elect not to retain an investment
management firm, but either conduct investment activities in-house. This structure would maximize the
amount of control Central San has over its investment function and result in minor savings to Central San.
This is not the recommended structure as it results in Central San retaining the most risk of all scenarios
and increases the level of effort needed over investment activities with limited net gains.
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Rather than staff being able to spend more time on operational priorities and new initiatives, a higher amount of
staff time would be spent on investment administration activities such as monitoring credit ratings, developing,
and revising cash flows, and administering investment calls and maturities.
FINANCIAL IMPACTS
As noted previously, the transition to an in-house treasury function is expected to result in some minor
incremental costs over the status quo arrangement. The County, possibly benefitting nominally from
economies of scale investing perspective, charges minimal fees for holding Central San's cash deposits.
The incremental costs of utilizing an investment management firm are estimated to be approximately $74
thousand, although this cost is reasonably expected to be offset by higher investment yields. The services
associated with opening and maintaining a commercial bank account are also expected to result in some
incremental costs, which are not currently known. Based on staff's familiarity with commercial banking
agreements with public agencies, these incremental costs are expected to be largely if not entirely offset
by credits from the bank for maintaining a minimum uninvested deposit balance. No additional staffing
costs are expected from transitioning to an in-house treasury function, as Central San currently has the
staff expertise and staff size necessary to do so, as supported by Eide Bailly's risk assessment
conclusion.
COMMITTEE RECOMMENDATION
The Finance Committee reviewed this matter at its meeting on July 18, 2023 and recommended
RECOMMENDED BOARD ACTION
Direct staff to proceed with designing and implementing an In-house Treasury Function for Central San
consistent with the draft banking and cash management policy and procedures and project implementation
plan presented by staff.
Strategic Plan Tie -In
GOAL FOUR: Governance and Fiscal Responsibility
Strategy 1 - Promote and uphold ethical behavior, openness, and accessibility, Strategy 3 - Maintain financial stability
and sustainability
GOAL SEVEN: Innovation and Agility
Strategy 2 - Implement organization -wide optimization, Strategy 3 - Be adaptable, resilient, and responsive
ATTACHMENTS:
1. In -House Treasury Risk Assessment
2. Banking & Cash Management Board Policy (Draft)
3. Banking & Cash Management Administrative Procedure (Draft)
4. Project Implementation Timeline (GANTT Chart)
5. Presentation
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Attachment 1
July 18, 2023
Treasury Implementation Risk Assessment
Central Contra Costa Sanitary District
Submitted By:
Eide Bailly LLP 2151 River Plaza Drive, Suite 308
James Ramsey, CPA, CFE Sacramento, California 95833
Partner 916.999.8511
jramsey@eidebailly.com
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Attachment 1
On July 21, 2022, Central Contra Costa Sanitary District's (Central Sans) Internal Auditor presented the results of an internal
audit over Central San's accounts payable function to ascertain whether Central San had the appropriate elements of
internal control in place after the implementation of a new cloud -based Enterprise Resource Planning (ERP) system. The
audit report and underlying presentation highlighted that while internal controls over Central San's accounts payable
function appeared to be appropriately designed and implemented, as well as operating effectively, there were operational
inefficiencies associated with Central San's treasury arrangement as a voluntary pooled participant of Contra Costa County
(County).
In response, Management conducted an internal assessment of the treasury function by examining processes and policies
as well as by gathering feedback from knowledgeable staff and conducting a survey of how other similarly sized
independent municipalities (i.e., cities, special districts, utilities. etc.) handled their treasury functions. This assessment
yielded results consistent with the internal audit report, identifying several operational inefficiencies and strategic risks
associated with Central San's operating as a voluntary pooled participant of the County. The results of this assessment
were presented to Central San's Board of Directors (Board) on September 15, 2022. An outcome of the assessment
included a recommendation from staff to explore banking and investment management alternatives, establish an
appropriate internal control framework to mitigate risk, draft a banking/treasury policy, and create an implementation
plan.
To assist with the risk assessment, policy development, and implementation process, Central San engaged Eide Bailly LLP
(Fide Bailly), an independent accounting firm of licensed certified public accountants (CPA) specializing in providing audit
and consulting services for public agencies, with a sizeable client -base in California.
To develop a plan for assessing the risks and recommending steps to address those risks, Eide Bailly interviewed key
personnel and reviewed various policies and procedures to gain an understanding of the current process of Central San. To
get the "full picture", Eide Bailly obtained an understanding of the following business cycles/processes: 1) treasury
(including investment and bank reconciliations); 2) accounts payable; 3) payroll; and 4) cash receipts.
The information gained from document inspection, interviews, and process observations was then used to create a
comparative analysis of the "current" versus "proposed" future treasury structures related to banking and treasury as well
as to identify risks associated with required changes, and outline steps needed to mitigate those risks.
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Attachment 1
Current
Proposed
Central San's cash and investments are held within Contra Central San will withdraw its cash and investments from the
Costa County's (County) pooled investment fund. The County's pool and will obtain and maintain a banking
County's Depository Banking services are provided by relationship with a Central San selected financial institution.
Wells Fargo. Central San will maintain its own cash and investments
A majority of Central San's investments are managed by
the County in a separate account, with specific
investments purchased and held by the County at the
direction of Central San using investment request forms
and based on the investment guidelines detailed in board
policy 005 — statement of investment policy (BP005).
Liquid funds are held in the County's pooled account for
immediate use. Remaining funds are invested in LAIF.
independently without the County's involvement.
Central San will continue to purchase investments based on
the investment guidelines in BP005 and will leverage the
expertise of an investment advisor to ensure investments
follow adopted policies and applicable government code,
whichever is more restrictive. The custody of these
investments will be with Central San's bank of choice.
Central San will continue to use their existing LAIF account as
an additional route for investing and will maintain adequate
liquid funds within its self -managed checking account.
The County and Central San currently share t Central San will have sole responsibility for tracking cash and
responsibility for tracking cash balances, monitNthe
investment balances and for ensuring that they have sufficient
investment maturities and ratings, and ensurinlo pay for obligations as they become due.
San has adequate funds to pay for expenses as
become due.
The County charges a small fee for this service, which is Central San will be solely responsible for all costs associated
charged to Central San during the allocation of interest on with depository banking and investment advisory services.
funds invested in LAIF.
r%
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Attachment 1
Risk: Service interruption risk - modifying Central San's banking structure by withdrawing from the County pool may result
in Central San's inability to continue operations as they are performed in the current environment.
Risk: Financial institution credit risk - the potential that a borrower or counterparty will fail to perform on an obligation.
Steps to address risks:
Central San should solicit and procure the services of a financial institution prior to its separation from the County's
investment pool. During the solicitation process, Central San should ensure that the institution selected is an authorized
financial institution to hold public agency deposits under the government code, can meet its operational needs, and provide
services at a reasonable cost. The appropriate financial institution should, at a minimum, provide the following services to
meet the various operational and strategic needs of Central San:
• Depository services with multiple accounts, including at a minimum, a main operating account, a sweep account,
and zero balance accounts for payroll and accounts payable.
• A robust online portal which includes detailed and summary reporting that can be extracted and used for analysis
and reconciliation. Data extracted should be able to interface with Central San's Oracle Fusion Cloud ERP system.
Online services should be protected with a strong control structure which should include, at a minimum, dual -
factor authentication and strong segregation of duties requirements to protect Central San's data and assets.
• End -to -end merchant services.
• Check payments with payee positive pay.
• Wire transfer, securities transactions, transfers, and ACH transaction capability.
• A dedicated support team to respond to Central San needs and provide troubleshooting for issues on a timely
basis.
• Collateralization of public funds for all accounts to ensure that all funds deposited are safeguarded, irrespective of
the traditional FDIC insurance limits.
Central San should issue a request for proposals (RFP) for banking services to ensure that a qualified financial institution is
selected at competitive rates. If needed, Central San can conduct interviews of qualified institutions and select the
institution that best meets its needs, and that can provide services at a reasonable cost to limit the fiscal and operational
impact of the new banking relationship on Central San.
Risk: Interest rate risk - the risk to earnings arising from movements in interest rates.
Risk: Liquidity risk - the risk that Central San will be unable to meet its obligations when they come due.
Risk: Price risk - the risk to earnings arising from changes in the value of individual investments prior to purchase.
Steps to address risks:
Central San should review its investment policy to ensure that it has appropriate policies and procedures for the safety,
liquidity, and yield of its investment pool. This should include an evaluation of its targeted average duration, primary
liquidity, and investment mix. Any updates to these policies should be vetted by a qualified investment advisor and
approved by its Treasurer and its Board.
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Attachment 1
Central San should also solicit and procure the services of an investment advisor/manager to handle the selection and
purchase of investments in accordance with Central San's investment policy and to maximize earnings on portfolio
investments while maintaining safety of its assets to protect principal and providing liquidity to meet Central San's ongoing
cash flow needs.
Central San should issue an RFP for investment advisory and management services to ensure a qualified investment advisor
is selected. If needed, Central San can conduct interviews of qualified advisors and select the candidate that best meets its
needs, and that can provide services at a reasonable cost to limit the fiscal impact of the new investment advisor
relationship on Central San.
The selected investment advisor should have expertise with similar government entities to ensure that investments
purchased will comply with Central San's investment policy, and all applicable laws and regulations. Additionally, the
investment advisor should have the ability to direct Central San's investments as to rates, diversity, and duration to
maximize investment return while still safeguarding the assets of Central San, and so that the maturity of such investments
would allow Central San to meet its obligations as they become due without the need to sell securities prior to their
maturity.
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Attachment 1
Current
Central San staff are responsible for payment processing
for Central San.
Central San's payroll staff, which is part of the human
resources division, processes timesheets for all
employees. Central San has a two -week pay period. Pay
dates fall on Fridays following the end of the pay period,
and in order to meet this date, Central San must upload
the ACH file in Wells Fargo by 6:00 PM on Thursday.
Central San is required to prefund their payroll account
before each pay period is paid, which generally must be
done two business days prior to the pay date. Additional
details related to this process can be found in the bi-
weekly payroll funding process defined in Administrative
Procedure AP 107.
Accounts payable transactions are both entered and
processed by Central San staff. After the data entry
portion of the accounts payable process has been
completed, excel and PDF copies of the register organized
by fund are emailed to the County. Staff has to wait for
county email confirmation of accepted files before driving
to the county to finalize the A/P run.
Central San relies on the County for a portion of its check
run process. Although Central San is able to print its own
checks, they must be driven to the County for counter -
counter -signature and then returned to Central San's
office for delivery. Payments to vendors are via check.
Proposed
Central San staff will maintain responsibility for all payment
processing for Central San.
The payroll process will remain unchanged from its current
structure with the exception of which financial institution will
receive the uploaded ACH file and timing of the ACH file
upload.
Upon completion of the previously mentioned banking
request for proposal process, Central San will have sole
responsibility for ensuring the accuracy of the payment
information sent to the bank for payment, and for ensuring
there is sufficient cash on hand to cover its payments.
Additionally, there will not be a need to "prefund" the payroll
account as it is expected that the payroll checking account to
be structured as a "zero -balance" account and function only as
a clearing account.
Central San will be solely responsible for processing all
accounts payable transactions. A designated treasurer or
designee will be responsible for signing checks. Central San
may choose to either manually sign its checks or adopt a
magnetic ink character recognition (MICR) printing process
which includes micro -text signature printing.
Central San will adopt a "payee -positive pay" procedure to
ensure that payments are not made in error and that the
payee name or payment amount have not been altered. This
will occur through a daily process by which payment
exceptions which are identified by the bank as payments are
processed and either validated or rejected by Central San
staff.
The Finance Manager reviews and signs a paper printout Central San will no longer require paper review of its accounts
of all accounts payable transactions. He also reviews payable transactions. Electronic workflow in Oracle, check
transaction support in more detail for all transactions printing controls, proper segregation of duties, and controls
above $5,000. put in place by Central San's bank will provide an environment
which will reasonably prevent error or fraud.
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Attachment 1
Risk: Improper payments will be processed, or payments will be improperly rejected.
Risk: Central San's ongoing cash balance will not be available to cover payments.
With the inception of a new stand-alone baking relationship, Central San would have sole responsibility for payment
processing, liquidity, and security of its resources. The removal of the County's co -signature requirement from payment
processing would allow Central San to significantly improve the efficiency of its wire transfer, ACH, and physical check
processes.
Central San's bi-weekly payroll funding policy and accounts payable policy would be modified to allow Central San to more
immediately respond to its cash needs through account transfers. Central San would ensure that adequate funds are
available for payments as they are made, and that the maturity of investments are aligned with large cash outflows to
mitigate the risk of Central San having to sell investments at a loss to cover its obligations. This will be accomplished
through a daily cash flow analysis, investment purchases with durations which align with large cash outflows, and through
consultation with their investment advisors.
Central San should adopt a policy for monitoring positive pay exceptions and assign qualified individuals to monitor this
process who understand how to differentiate between exceptions which should be approved for payment, and those which
arise from error or fraud and should be rejected. Daily cut-off for processing positive pay exceptions occurs each morning.
To ensure someone is always available to monitor these exceptions, Central San should evaluate the impacts of its
employees' schedules and each employee's unique skills, knowledge, and experience when assigning this duty. Central San
should assign, at a minimum, one primary and two (2) back-ups to this task to ensure that there is sufficient coverage for
scheduled days off, vacations, and sick time. Central San should ensure these individuals sufficiently understand this
process by implementing a training program for positive pay which will be required at the inception of the positive pay
process, and each time a new person is assigned to this task.
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Attachment 1
Current
Central San has three primary cash receipt locations
HHW, permits, and Oracle accounts receivables.
Central San employs an online remote deposit process
where checks can be scanned remotely and deposited
electronically, reducing the need to transfer physical
documents to the bank or County. All checks over
$5,000,000 must be driven to the bank to be deposited in -
person. This threshold is set by the County and is for
individual transactions, not in aggregate.
Central San staff must pull daily bank statements from
Wells Fargo to record ACH receipt and credit card fees.
These transactions must be entered both into Oracle and
into the County's ERP system. Central San staff can
process transactions in Oracle, but must use an electronic
deposit permit, which is an online form submitted to the
County to request the recording of all receivable
transactions that would not otherwise go through the
general ledger.
Cash is collected in small amounts by Central San. This
cash is accumulated and stored in a safe until $1,000 is
accumulated. This cash is then driven to the bank for
deposit.
Central San's permitting workgroup uses PayPal to collect
payments electronically. Electronic payments are not
accepted for any other transaction type.
Proposed
Central San's primary cash receipt locations will continue to be
HHW, permits, and Oracle accounts receivables.
Central San will continue to use online remote deposit for
processing check payments remotely. Central San will
eliminate or set an appropriate limit for transactions
processed to maximize efficiency and maintain adequate
security over its assets. Central San will also be able to accept
wire transfers in lieu of checks for large payments.
Central San staff will continue to use daily bank statements to
record ACH transactions and credit card fees. Central San will
increase its use of the ACH process to minimize the need for
processing transactions individually and increase efficiency.
Interaction with the County using electronic deposit permits
will cease as the need for the County to record cash balances
for Central San will no longer be required.
Cash collections will continue as they do currently. Cash on
hand will be stored in a safe until driven to the bank for
deposit.
Central San will implement the cash management module in
Oracle Fusion Cloud ERP to generate invoices and will be able
to provide payment instruction on the invoices they provide to
their customers, which should eliminate the need for
processing payments through PayPal. Central San will set up
invoice templates, reducing the data entry requirement of
routine invoice types.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 95 of 123
Page 15 of 38
Attachment 1
Risk: Improper implementation of the Oracle Cloud cash management module.
Risk: Reconciliation errors will cause inaccurate data recorded to the general ledger.
Most of the cash receipt processes would remain unchanged. The most significant process changes that are needed will
only involve removal of interaction of the County from the process, creating operational efficiencies.
The implementation of the cash management module in Oracle would create another point of data entry and reconciliation
within Central San's ERP system. To ensure that transactions recorded in Central San's cash management module are
accurate, and that information is properly sent to the general ledger, Central San should engage an implementation
consultant with knowledge of Oracle sufficient to properly design and implement the new module. Central San should focus
on module integration, data integrity, and integration with existing modules of the ERP system. Central San should adopt
best practices and change its policies and procedures to the extent practicable throughout this process.
Central San should analyze the cost of implementing the additional module when preparing future budgets and analyze
adopted budgets and process budget adjustments when necessary. The implementation of the cash management module
in Oracle will also have budget implications, due to both the cost of implementation and the ongoing cost of subscription.
To reduce the risk of errors, Central San should analyze its processes and adopt a training program to ensure that all
employees interacting with the new cash management module fully understand their new roles and responsibilities.
Central San should also analyze its control environment and segregation of duties to ensure that proper reviews are
performed, and that one person does not have the ability to initiate and post transactions in isolation.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 96 of 123
Page 16 of 38
Attachment 1
Current
Central San performs a weekly cashflow analysis as well as a
monthly bank reconciliation. Information necessary to
complete these processes necessitates data be obtained from
the County's bank, the County's ERP system, and Central San's
ERP system. The purpose of the weekly cash review is to
ensure that sufficient funds are available to make upcoming
payments, as the County will not allow Central San to process
payments if their fund's cash balance is insufficient, despite
there being a positive cash balance in total in the cash pool.
Proposed
The weekly cash review will continue to be performed to
analyze the cash flow needs of Central San, however this
process will be modified to pull information solely from
Oracle and Central San's bank.
Central San staff pulls cash balances from Oracle and the cash Weekly cash flow analysis will be used to ensure
balances and warrants payable balances from the County's ERP sufficient funds are available to make upcoming
system to come up with an available cash balance. This is t payments. Insufficient cash balances can be remedied
compared to weekly check run totals to ensure there is through the maturity of investments, or through
sufficient cash. Central San staff will initiate a transfer from V
s between accounts.
LAIF if it is determined that there is not eno ash to cover
the week's payments.
Bank reconciliations are currently done as a three-way Central San staff will pull check run and cash balances
reconciliation. The amount per GL includes both cash balan rom Oracle to come up with the available cash balance.
from Oracle and Workday, and these two are compared to %the"Central San will compare this balance to the weekly
bank balance. Any discrepancies are reduced by deposits in n totals to ensure there is sufficient cash.
transit and outstanding checks, and the remaining balance
must be determined through missing transactions or erran
entries to arrive at a reconciled end of month balance where
the GL and bank balances agree. Differences are posted to the
general ledger through journal entries.
Central San does not have a policy for the treatment of
unreconcilable transactions, such as errant transactions, bad
debt, or other non -timing related differences.
Upon implementation of the cash management module
in Oracle, Central San will be able to perform a portion of
the monthly bank reconciliation with the automated
reconciliation process available in Oracle. This process
will complete most of the transaction matching process,
allowing Central San to focus on timing differences
between their bank balance and GL balance. The updated
bank reconciliation process will reconcile the bank to the
GL with zero unreconcilable differences, considering all
deposits in transit and outstanding checks. During the
reconciliation process, differences identified from errant
transactions, bad debt, or other differences which are
not present due to a timing difference will be considered
for write-off monthly.
Central San will implement a formalized write-off policy
with approval limits to ensure that write-offs are handled
properly and with the appropriate level of transparency.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 97 of 123
Page 17 of 38
Attachment 1
Risk: Inadequate segregation of duties.
Central San's new banking relationship could allow for the elimination of its current three-way bank reconciliation process.
A bank -to -general ledger reconciliation will improve efficiency by removing one system of record from its reconciliation and
reducing the research required to identify differences and correcting entries. However, with the removal of the County's
ledger and the control environment it provides, Central San would be solely responsible for safeguarding its assets and
properly accounting for its cash and investments.
To ensure cash and investments are adequately safeguarded and accounted for properly, Central San should continue to
perform the weekly cash review process to monitor its cash needs. Additionally, the reconciliation process should be
performed monthly and reconciled with no reconciling differences each time. This reconciliation should be performed by an
individual who does not have the ability to modify Central San's vendor master file, sign checks, or process check runs. This
will create adequate segregation of duties and prevent one individual from controlling one transaction from start to finish.
Additionally, the bank reconciliation should be reviewed by an individual who does not initiate transactions, and ideally also
does not have the ability to do so.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 98 of 123
Page 18 of 38
Attachment 1
Central San initiated the process of separating from the County pool due to concerns over inefficient processes and lack of
control of financial assets which are currently impacting operations. All transactions require interaction with the County,
and sometimes even requires Central San to drive to the County office for the delivery of physical documents, or for
obtaining physical signatures.
After identifying the need to separate from the County, Central San determined that staff had the ability to oversee and
lead the separation, and that systems in place could either be used as -is or be modified or replaced to handle the change in
operations. With a new banking relationship Central San could improve efficiency and gain additional control over their
processes and financial assets.
Eide Bailly was engaged to assist Central San with this process. We have completed an assessment of Central San's key and
impacted processes. Procedures included reviewing various policies, obtaining an understanding of procedures currently in
place, , having in-depth conversations with Central San employees about their roles and responsibilities as well as their
background and knowledge, observations of Central San staff performing the tasks in all the previously discussed
transaction cycles, as well as reviewing board meeting minutes. Eide Bailly then evaluated these against best practices in
internal controls for the specific transaction cycles.
Eide Bailly noted, based on the procedures noted above, that Central San has the capability (operational and human capital)
to adjust their internal control environment and activities to address the risks noted above to facilitate the movement of
the treasury function from a voluntary participant in the County pool to a self -managed treasury function.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 99 of 123
Attachment 2 Page 19 of 38
Number: BP 049
Central Contra Costa
Sanitary District
Authority: Board of Directors
Effective: XX/XX/2023
Revised: Not applicable
Reviewed: Not applicable
Initiating Dept./Div.: Administration/Finance
BOARD POLICY
BANKING & CASH MANAGEMENT
PURPOSE
To set forth policy direction for banking and cash mana2tnt at Central San.
POLICY
2
The Board recognizes the strategic value of
as it relates to improved operational control,
to change (i.e., emergencies, disasteAbj&w
Management shall establish and
and cash management fun '
range of internal controls uId
detective, as well as cor 've.�
3. The Deputy Gen
with specific aul
4. Custodial service
AUTHORITY
prng an in-house treasury function
s efficiencies, and responsiveness
Ltions, programs, etc.).
PFPM fd internal controls over the banking
and Central San's liquid assets. A wide
gyred including those that are preventative,
ministration shall serve as Central San's Treasurer
internal administrative procedures.
king agreements must be authorized by the Board.
The General Manager has the authority to execute all custodial service and other
agreements once the necessary Board authority to proceed is obtained. The General
Manager shall establish, implement, and enforce administrative procedures to support
this policy.
POLICY REVIEW
This policy shall be reviewed at least biennially to ensure alignment with current strategic
priorities set by the Board. Any changes must be approved by the Board following initial
review by the Administration Committee.
[Original Retained by the Secretary of the District]
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 100 of 123
Page 20 of 38
Attachment 3
Number: AP 10X
Related Board Policy: N/A
Authority: General Manager
Effective:
Revised:
Reviewed:
Initiating Dept/Div: Administration/Finance
Date Signed:
Philip Leiber, Deputy General Manager, Administration
Roger S. Bailey, General Manager
ADMINISTRATIVE R
--Y_1 ill I:11 0
To set forth administrative p
functions establishing req
accounts and cash balance
this policy shall also o F
covering operation
L
ve entral San's banking and cash management
op .ng, closing, updating, and managing bank
athe security of Central San's monetary assets,
Is to ensure Central San maintains adequate liquidity for
iLidle cash for utilization in the investment portfolio.
The policies in this doZ shall apply to all employees involved in the banking and cash
management function. EWuded from the scope of this administrative procedure are many
policy requirements associated with Central San's investments, accounts payable, payroll,
and cash receipts processes as those are covered in separate related policies listed hereafter.
3. RELATED POLICIES
This policy focuses on the administrative procedures associated with banking protocols.
Other administrative procedures covering protocols associated with cash management
include the following:
a. Investments (BP 005)
b. Petty Cash Reimbursements (AP 103)
c. Cash Receipts Handling (AP 105)
d. Bi-weekly Payroll Funding (AP 107)
e. Accounts Payable (AP 108)
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 101 of 123
Page 21 of 38
Attachment 3
Number: AP 1OX
BANKING & CASH MANAGEMENT
Page 2 of 11
C!
5
BACKGROUND
Central San's Banking & Cash Management Administrative Procedures were developed in
preparation for its transition from being a voluntary pooled participant with the Contra Costa
County Treasurer Tax Collector's Office to taking the treasury function (i.e., banking and cash
management) in-house. Following several months of deliberation and planning involving peer
agency benchmarking, risk assessment analysis, best practice research, independent
professional consultations, and public discussions with the Board, it was concluded that a
transition to an in-house treasury function was in the strategic best interest of Central San.
As a prerequisite to this move, the Board took action to appoint a Treasurer and adopt these
Banking & Cash Management Administrative Procedures, with the purpose of establishing
clear policy and process guidelines, roles, and responsibilities for staff, as well as establishing
a framework for developing internal controls to protect thoseAnetary assets.
DEFINITIONS
a. ACH Credit — Equivalent to a digital the written" by payer that instructs the
ACH network to transfer funds from their oun a payee account. An ACH credit
transaction is completely electronic, elim n e need for a written paper check and
visit to the bank. The most common type o H credit transactions are payroll direct
deposits. Often referred to as " trans ns, ACH credits typically take 1-2
business days to process.
b. ACH Debit — Initiated ay receiver, an ACH debit is the most common
type of ACH transfer. o kn n as "pull" transaction, the receiver is "pulling" funds
from the payer. Pe tion a Clearing House (NACHA) rules, ACH debits
must be completed e s day.
c. Automate leari om(ACH) — The primary system that agencies use for
electron i ds trans ith ACH, funds are electronically deposited in financial
institutions, payme are made online.
d. Bank Account and all bank and investment accounts with financial institutions
including but not li ited to checking, savings, money market, certificates of deposits
(CDs), mutual funds, and investment accounts.
e. Cash — coins and currency and all negotiable instruments with monetary value
(including but not limited to checks, money orders, ACH transactions, etc.), that can
be deposited into a bank account.
f. Check - A written, dated, and signed instrument that directs a bank to pay a specific
sum of money to the bearer. The person or entity writing the check is known as the
payor or drawer, while the person to whom the check is written is the payee.
g. Collateralization of Deposits — Process by which a bank or financial institution
pledges securities, or other deposits for the purpose of securing the repayment of
deposited funds.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 102 of 123
Number: AP 1OX
Page 22 of 38
Attachment 3
BANKING & CASH MANAGEMENT
Page 3 of 11
R
7
h. Custodial Agreement — An arrangement wherein one holds an asset or property on
behalf of the actual owner (beneficiary). This may include cash, stock certificates,
bonds, and other financial instruments. The custodian is responsible for safeguarding
these types of assets, usually held at one of the custodian's premises, a sub -custodian
facility, or an outside depository.
k.
Electronic Funds Transfer (EFT) - This encompasses Automated Clearing
House (ACH) debits, ACH credits (e.g., direct deposit) and wire transfers.
Positive Pay - A common automated cash service that helps banks detect fraud by
matching a company's issued check with the check presented for payment. The dollar
amount, check number and account number must allmatch, or the check is flagged
and sent back to the issuer for review.
Win
ban4
sen(
trans
SEGREGA-
that is administered by
ire transfers involve a
the party initiating the
As an underlying principle, cash managY
ssMshould be developed such that no
individual is able to complete a transacto finish. This entails segregating the
core transactional duties of r e, ability to record the transaction in the
accounting system), custody h o blank check stock or ability to initiate an
ACH credit or wire transf and (i.e., signing a check or releasing a wire
transfer) between different as work groups) when practical. Alternatively,
compensating intern Is Id be implemented where full segregation of duties is not
feasible. General a co i enting an internal control (i.e., number of employees,
staff time, techn etc.) sh Id n t exceed its benefit.
Individuals with the a rity instruct a bank to make positive pay exceptions cannot have
any responsibility for p ing the bank reconciliation of that bank account. Individuals
assigned by the Finance anager to reconcile the account shall not be the same individuals
who are authorized to sign checks or approve EFTs on the account.
ROLES AND RESPONSIBILITIES
The following are the core parties involved in the cash management and banking function and
associated roles and responsibilities:
a. Board of Directors
Central San's elected Board of Directors (Board) are the governing body of Central
San. While administrative matters are delegated to the General Manager, policy -level
decisions and responsibilities are retained by the Board. Key banking and cash
management responsibilities of the Board include the following:
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 103 of 123
Page 23 of 38
Attachment 3
Number: AP 1OX
BANKING & CASH MANAGEMENT
Page 4 of 11
i. Authorize master banking and investment services agreements.
ii. Adopt and periodically review banking and cash management policies.
iii. Appoint the position to serve as Central San's Treasurer, currently the Deputy
General Manager of Administration.
b. General Manager
Central San's General Manager serves as the chief executive officer of Central San
overseeing all operating departments through two Deputy General Managers, among
other members of the executive team. Key banking and cash management
responsibilities of the General Manager include the following:
iii
iv
v
vi
Execute
approval.
Authorize and ensure the enfc
procedures. Adopt policy revisions
Check signer (backup to Treasur
Wire transfer approver (see 1
Authorize investment actions in Im,
Authorize intra-banking tr�`s (I
c. Deputy General Manager of
Central San's Di
Administration D
being involved in
signatory wit
Treasurer i dE
iv
reements, following Board
icies and administrative
District)
omits)
BP 005 (see Exhibit A for limits)
Lto Treasurer)
Maner of Administration oversees Central San's
nll so serve as Treasurer. The Treasurer, not
g conciliation function, shall serve as the primary
banking and cash management responsibilities of the
Ov comp ce with banking custodial services agreement. Ensure
timely w f master contract and solicitation for new banking services as
needed.
Implement and enforce policies and administrative procedures as authorized
by the General Manager. Recommend policy revisions for consideration of
approval by the General Manager as needed.
Authorize banking services ancillary to master custodial agreement (i.e.,
lockbox, credit card acceptance, remote deposit, etc.).
Authorize creation or closure of operational accounts under master custodial
bank agreement.
Add/remove online banking users and specify authorization limits (secondary).
Check signer (in addition to the General Manager and Secretary of the District)
Wire transfer approver (see Exhibit A for limits)
ACH Filters/Blocks administration (secondary)
Approve positive pay file exceptions (secondary)
Authorize investment actions in line with BP 005 (see Exhibit A for limits)
Authorize intra-banking transfers (secondary, see Exhibit A for limits)
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 104 of 123
Page 24 of 38
Attachment 3
Number: AP 1OX
BANKING & CASH MANAGEMENT
Page 5 of 11
d. Finance Manager (Deputy Treasurer)
Central San's Finance Manager oversees the Finance Division, within the
Administration Department, and shall also serve as Deputy Treasurer. The Deputy
Treasurer, not being directly involved in any recording or reconciliation functions, shall
serve as a secondary signatory with the bank. Key banking and cash management
responsibilities of the Deputy Treasurer include the following:
i. Oversee Finance Division, including assigning banking and cash management
responsibilities and tasks to staff as deemed appropriate.
ii. Primary point of contact with bank on day-to-day administrative matters.
iii. Assist with the implementation and enforcemer]lof policies and administrative
procedures. Recommend policy revisions
iv. Serve as Treasurer in prolonged absence
v. Add/remove online banking users and s�
vi. Review and approve (but not prepar
vii. Prepare and deliver quarterly inv
viii. Wire transfer approver (see Ex
ix. Edits ACH Filters/Blocks (primary .
x. Approve positive pay file eptions
A. Authorize investment acts e
xii. Authorize intra-banking tra fers
xiii. Delegate submiss uploa Cl
appropriate Fin ision ff.
8. AUTHORIZATION / SIG
171",
ed.
easurer.
f horization limits (primary).
reco ations.
rtfolios.
its).
005 (see Exhibit A for limits).
see Exhibit A for limits).
lit and positive pay files to bank to
There should be th a'atones for each bank account. An authorized signatory
who is separate om Ce I or otherwise has a change in employment or job
responsibilities, be remo d from the list immediately and the bank notified in writing.
Central San staff s d mo ' r the list of signatories with the bank and at least annually
verify and update as he bank's record of authorized signatories. No custodian or
individual who reconciles accounts can be a signatory.
9. BANKING STRUCTURE AND CONTROLS
a. Check Signing
Checks must be signed manually by an authorized signatory or by an authorized
representative of the signatory using the appropriate mechanism (e.g., magnetic ink,
printers, check signatory plates). Such mechanisms must be always secured.
Additional procedures and internal control requirements over payments (and the
underlying invoices/claims) are covered separately in AP 108.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 105 of 123
Page 25 of 38
Attachment 3
Number: AP 1OX
BANKING & CASH MANAGEMENT
Page 6 of 11
b. Operational Accounts
i. General Account
This account is considered the master bank account and is designated for non-
credit card deposits. As a control, disbursements should not be issued from
this account, but from other operational clearing accounts described below
funded by authorized bank transfers from the General Account.
ii. Disbursement Clearing Account
All disbursements are generated through
except for petty cash, ACH, and wire tran
initiated outside the system. To enhance s
reporting of general disbursements, all 0
payments shall be made from a disb m
shall be treated as a zero-balancin cour
the General Account sufficient t et krA
Payroll Clearing Account
To enhance si
disbursements,
from a payroll
balancing ac
sufficient to
checks, payro
for addiiiLdo
iv.
the
counting system via check,
ayments which are generally
and assist in the tracking and
,oll related checks and ACH
ing account. This account
cl transferred funds from
an s thMracking and reporting of general
Erroll c s and ACH payments shall be made
acc This account shall be treated as a zero-
bei transferred funds from the General Account
o bligations (i.e., payroll direct deposits, payroll
an r payroll -related transactions). Refer to AP 107
n how this account shall be monitored and funded.
various accounts may be required by grantees or state
may also be established if Central San is the fiscal agent for
c. Physical Security of Checks and Printer
All check stock, manual or blank, and the check printer device must be kept in a
secure location with limited and restricted and controlled access to select personnel
only. Refer to AP 108 for additional details on payment processing security.
d. ACH Controls
To achieve more efficient processing, cost savings as well provide a more secure
transaction as compared to utilizing paper transfers (i.e. checks), agencies are
strongly encouraged to receive and send funds electronically via ACH (Automated
Clearing House) whenever possible. Because ACH transfers are conducted by the
bank using batch processing, ACH transfers are far less expensive than wire transfers.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 106 of 123
Page 26 of 38
Attachment 3
Number: AP 10X
BANKING & CASH MANAGEMENT
Page 7 of 11
Central San staff shall employ common ACH bank controls, coupled with controls
outlined in AP 108, to safely utilize this efficient payment methodology:
i. ACH Filters —This control is ideal for routine, recurring bank debit transactions,
allowing an institution to establish a maximum dollar amount on ACH
transactions with specific approved organizations.
ii. ACH Blocks - A debit block prevents ACH debits received for processing at a
bank from posting to the designated bank account. Unauthorized debits are
automatically returned to the originating (sending) company.
Use of Positive Pay
Positive Pay is a service whereby an institution p
issued that day. If a check does not exactly matq
to notify the account holder. Unless the acc
item noted as not matching, the bank will n
institute, whenever feasible and approp e, th,
bank to protect itself from check fraud.
10. POOLED CASH
11
Consistent with common
agencies, Central San's un
efficient cash flow analysis,
cash to individual funds is 2
with the pooled cash fund in
gains, etc.) of the po
based on their we' ed avi
its bank with a file of all checks
wed item, the bank is required
SP
cts the bank to pay the
ecpaid. Central San shall
ieservice provided by its
for a(gWbnd medium-sized multi -fund public
Ln
h i ccounted for in a pooled cash fund to allow for
an aximize investment returns. The allocation of
a pooled cash account, which shall balance
:ate. estment earnings (i.e., interest income, realized
rtionately divided among the funds on a quarterly basis
Bank reconciliations are an essential internal control tool and are necessary in
detecting fraud and correcting accounting errors. Bank reconciliations ensure that all
transactions that have been processed by a bank have been reviewed and checked,
thus reducing the probability of errors in the data used to record book balances. Bank
reconciliations also assist in ensuring that all payments and receipts have been applied
to a bank account and have also been recorded in the accounting records. Any
differences shall be identified, explained, and rectified.
b. Segregation of Duties
The reconciliation function requires segregation of duties. In that regard, the person
who performs the bank reconciliations shall also not have access to the independent
recording of transactions in the accounting system or the processing of cash
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 107 of 123
Page 27 of 38
Attachment 3
Number: AP 1OX
BANKING & CASH MANAGEMENT
Page 8 of 11
disbursements or receipts. Any differences identified between the accounting records
and the bank statements shall be adjusted by a person other than the one performing
the reconciliation.
The bank reconciliation must be reviewed and approved by someone other than the
preparer. Central San must maintain supporting documentation with all reconciliations
in accordance with the record retention policies.
c. Timeliness
A comprehensive reconciliation of all bank accounts held by Central San must be
performed, at a minimum, monthly, by the end of the
practicable. Central San is encouraged to obtain bA
d. Stale Checks
Through the bank reconciliation pr
requiring action. Assigned staff shall
outstanding for six months that have
shall either be cancelled or cancfft
Stop Payments -
delegated the r
has been iss
since desig d
positive pay re
Nbseauent month or sooner as
statements electronically.
may iderTtify outstanding checks
pliers for all checks that have been
ed as "stale". At that point, checks
Ffaff'Wmber of the Finance Division shall be
approval of all orders to stop a check after it
is utilized, stop payments are not necessary
Sff can remove the check in question from the
,IN check is a check written or partially written but then
J by Central San prior to issuance. of "void" is used because
mbered for control purposes and every check needs to be
Voided checks may require some adjustments when
iii. Cancelled Checks - A canceled check is a check that has cleared the
depositor's bank account and has been marked as "canceled" by the bank.
Both voided and canceled checks must be retained in accordance with Central
San's record retention policy.
12. LIQUIDITY
The Finance Division monitors Central San's cash position weekly to ensure sufficient liquidity
to meet Central San's weekly payment obligations and other cash flow needs. The weekly
cash flow analysis incorporates anticipated cash receipts and disbursements based on
historical information, projected financial activity and value of investment returns. Additional
cash requirements are identified and drawn down from the Central San's balance in the State
of California Local Agency Investment Fund (LAIF) managed by the State of California
Treasurer's Office or other fund(s) as approved by the Treasurer. Temporary idle cash
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 108 of 123
Page 28 of 38
Attachment 3
Number: AP IOX
BANKING & CASH MANAGEMENT
Page 9 of 11
identified in the cash flow analysis shall be invested in a manner consistent with Central San's
Board Policy on Investments (BP 005).
Central San's available cash balance is maintained at a flexible goal of at least $2 million in
its primary cash account. The target cash balance may vary depending upon anticipated
receipts and disbursements identified during the weekly cash flow analysis.
13. COLLATERALIZATION OF DEPOSITS
An inherent risk to maintaining cash at a bank, as disclosed annually in Central San's Annual
Comprehensive Financial Report, is "custodial credit risk." Custodial credit risk for deposits
is the risk that, in the event of the failure of a depository financial institution, the Central San
will not be able to recover deposits or will not be able to rec collateral securities that are
in possession of an outside party. This risk is mitigated at, of Central San's total bank
balance, $250,000 is insured by the Federal Deposit e Corporation (FDIC). The
remaining on deposit must be collateralized with s rities by the pledging financial
institution's agent. Pursuant to California Gover nt Code se 53652, the depository
(bank) is required to maintain a market value o east 0% of th pledged collateral. The
collateral ization agreement between the banki Ne
n and Central San shall adhere to
state and federal law.
14. INVESTMENT ADVISOR
The General Manager, with rov f the Board, may appoint an independent
Investment Advisor registere th t Secu s and Exchange Commission pursuant to the
Investment Advisers Act of 40 a I dopted thereunder, or a "Municipal Advisor"
as defined by Section 975 0 - Wall Street Reform and Consumer Protection
Act, amending S<:)ent"
of Securities Exchange Act of 1934, and interpreted by the
Securities and Exin its final rules adopted September 10, 2013, to advise
the Unified Govstm nt activities. The Investment Advisor will be selected
through a competder the Unified Government's Procurement Code. The terms
and conditions oionship shall be set out in a contract. The duties and
responsibilities of the In Advisor at a minimum shall include the following.
a. Providing advice and analysis on the Unified Government's Investment Policy,
portfolio management techniques, portfolio structures, and new investment securities
and products;
b. Assistance in developing or improving and implementing cash flow modeling;
c. Providing advice on investment benchmarking and performance reporting;
d. Evaluation of the capabilities and usage of software utilized in management of and
accounting for the investments;
e. Assisting in any investment related presentations to the Finance Committee and/or
Board; and
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 109 of 123
Page 29 of 38
Attachment 3
Number: AP IOX
BANKING & CASH MANAGEMENT
Page 10 of 11
f. Providing analysis, advice, and assistance on other investment -related matters,
including investment of bond proceeds.
15. EXCEPTIONS AND ALTERNATIVE PROCEDURE
Any exception to this Administrative Procedure shall be approved by General Manager,
documenting the justification for deviating from standard procedures. All exceptions will be
deemed non -recurring and approved on a case -by -case basis. Repeated requests for
exceptions should trigger management's review of policy for consideration of revisions.
16. PERIODIC REVIEW
This Administrative Procedure shall be reviewed at least
needed to ensure protocols and internal controls over pay
reflect changes in Central San operations, personnel, J
Attached Supporting Documents:
Exhibit A — Banking & Cash Management Autho
(Original retained by the Secretary of the
Pry two years and revised as
s are revised, as necessary, to
actives.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 110 of 123
Attachment 3
Number: AP 10X
BANKING & CASH MANAGEMENT
Page 11 of 11
Exhibit A
Banking & Cash Management Authorization Limits
Employee Posi ' / Title
Transaction
Deput neral
Finance Manager
Type
General Manager
Secretary of the
M g
(Deputy
Accounting
District
inistra
Supervisor
Tre surer)Treasurer)
Bank Account
No limit (backup to
limit
None (b p tao Finance
No limit
No limit
Transfers
Treasurer)
(secondary)
(primary)
Checks'
No limit
No limit o limit
None
None
(backup)
(se ) (primary)
Investment
Purchases2
>$5 million
o <_ $5 million
<_ $1.5 million
None
Positive Pay
No limit
No limit
No limit
No limit
Exceptions
(backup)
o (backup)
(secondary)
(primary)
Wire Transfers3
No limit
limit No limit
No limit
None
(backup)
ackup) (secondary)
(primary)
All manual checks must be signed by two authorized personnel, with the Treasurer being the primary signer. Checks generated through Central San's
accounting system shall be signed via a properly secured signature plate and include both General Manager's and Treasurer's signatures.
2 Ordinarily, barring a short or long-term absence of an approving party, transactions must be approved by all involved parties. For instance, a $6 million
investment purchase should be authorized by the Finance Manager, Treasurer, and General Manager.
3 Execution requires approval by two different authorized personnel.
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 111 of 123
Project Implementation Timeline (In -House Treasury)
Attachment 4
PROJECT START
November 1,
2021
November
cember
DeTASK
January
February
March
April
May
June
July
August
September
October
November
December
January
February
Discovery
Internal audit on payables function
11/01/21
03/25/22
Finalize reporting and present audit findings to Board 03/26/22
07/21/22
Internal process assessment and survey on best practices
07/11/22
08/12/22
Inform Board and obtain direction
08/23/22
09/15/22
Retain independent specialist to assist with project
01/01/23
04/10/23
Risk Assessment and Board Direction
Fieldwork and information gathering
05/11/23
06/06/23
Engagement findings/reporting phase
06/06/23
06/13/23
Report review and finalization
06/13/23
07/06/23
Finance Committee presentation and project support
07/06/23
07/18/23
Board presentation and direction to proceed
07/19/23
08/17/23
Policy Development
Draft Banking and Cash management BP and AP
05/11/23
06/06/23
Consultant review
06/06/23
06/13/23
Review other policies and procedures for potential changes
06/13/23
06/30/23
Update Additional policies as needed
08/01/23
09/30/23
Board/GM adoption of new or changes to policies/procedures
10/01/23
10/31/23
Depository Banking Services RFP
Gather service need requirements
07/01/23
07/21/23
Complete RFP draft and release
07/21/23
07/28/23
Deadline for questions from banks
07/29/23
08/11/23
Responses to questions from District
08/12/23
08/18/23
Proposal submission deadline
08/19/23
08/25/23
Institution interviews and initial selection
08/26/23
09/08/23
Contract negotiations
09/09/23
09/22/23
Contract approval by Board
09/23/23
10/05/23
Commencement of services
10/05/23
10/05/23
Account structure, check stock, wire transfer, ACH setup
10/13/23
12/31/23
Role designation and banking portal setup dell.
10/06/23
10/31/23
Investment Management Services RFP
Gather service need requirements
07/01/23
07/21/23
Complete RFP draft and release
07/21/23
07/28/23
Deadline for questions from investment advisors
07/29/23
08/11/23
Responses to questions from District
08/12/23
08/18/23
Proposal submission deadline
08/19/23
08/25/23
Interviews and initial selection
08/26/23
09/08/23
Contract negotiations
09/09/23
09/22/23
Contract approval by Board
09/23/23
10/05/23
Adopt revisions to investment policy
09/23/23
10/05/23
Commencement of services
10/05/23
10/05/23
Planning and strategy meeting with investment advisor
10/09/23
10/13/23
ERP Implementation and Configuration Changes
Align internal resources (Finance and IT)
08/01/23
08/31/23
ERP implementation contracting
08/15/23
09/30/23
Discovery and planning
10/01/23
11/30/23
Scenario testing
12/01/23
02/28/23
Software functionality deployment
03/01/24
03/31/24
Post -go live support
04/01/24
04/30/24
Withdrawal From County Pool
Review Contra Costa County Treasury withdrawal procedures
08/01/23
08/31/23
Appointment of Treasurer (Board policy and resolution)
10/01/23
10/31/23
Insurance provider updates for bonded employees/board
10/01/23
10/31/23
Notify Bond counsel
10/01/23
10/31/23
Draft formal letter to County Treasury notifying intent of withdrawal
10/01/23
10/31/23
Board report about current funds in county treasury
10/01/23
10/31/23
Adopt resolution (Board) for withdrawal of funds from county pool
10/01/23
10/31/23
Draft formal letter to county treasurer request to withdraw funds
11/01/23
11/30/23
County evaluation of withdrawal
01/01/24
01/31/24
County Treasury transfer of funds to designated bank
04/01/24
04/01/24
Page 1 of 2
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 112 of 123
Project Implementation Timeline (In -House Treasury)
Attachment 4
PROJECT START
Discovery
Internal audit on payables function
Finalize reporting and present audit findings to Board
November 1,
11/01/21
03/26/22
2021
03/25/22
07/21/22
March
April
May
June
July
August
September
October
November
December
January February March April
Internal process assessment and survey on best practices
07/11/22
08/12/22
Inform Board and obtain direction
08/23/22
09/15/22
Retain independent specialist to assist with project
01/01/23
04/10/23
Risk Assessment and Board Direction
Fieldwork and information gathering
05/11/23
06/06/23
Engagement findings/reporting phase
06/06/23
06/13/23
Report review and finalization
06/13/23
07/06/23
Finance Committee presentation and project support
07/06/23
07/18/23
Board presentation and direction to proceed
07/19/23
08/17/23
Policy Development
Draft Banking and Cash management BP and AP
05/11/23
06/06/23
Consultant review
06/06/23
06/13/23
Review other policies and procedures for potential changes
06/13/23
06/30/23
Update Additional policies as needed
08/01/23
09/30/23
Board/GM adoption of new or changes to policies/procedures
10/01/23
10/31/23
Depository Banking Services RFP
Gather service need requirements
07/01/23
07/21/23
Complete RFP draft and release
07/21/23
07/28/23
Deadline for questions from banks
07/29/23
08/11/23
Responses to questions from District
08/12/23
08/18/23
Proposal submission deadline
08/19/23
08/25/23
Institution interviews and initial selection
08/26/23
09/08/23
Contract negotiations
09/09/23
09/22/23
Contract approval by Board
09/23/23
10/05/23
Commencement of services
10/05/23
10/05/23
Account structure, check stock, wire transfer, ACH setup
10/13/23
12/31/23
Role designation and banking portal setup
10/06/23
10/31/23
Investment Management Services RFP
Gather service need requirements
07/01/23
07/21/23
Complete RFP draft and release
07/21/23
07/28/23
Deadline for questions from investment advisors
07/29/23
08/11/23
Responses to questions from District
08/12/23
08/18/23
Proposal submission deadline
08/19/23
08/25/23
Interviews and initial selection
08/26/23
09/08/23
Contract negotiations
09/09/23
09/22/23
Contract approval by Board
09/23/23
10/05/23
Adopt revisions to investment policy
09/23/23
10/05/23
Commencement of services
10/05/23
10/05/23
Planning and strategy meeting with investment advisor
10/09/23
10/13/23
ERP Implementation and Configuration Changes
Align internal resources (Finance and IT)
08/01/23
08/31/23
ERP implementation contracting
08/15/23
09/30/23
Discovery and planning
10/01/23
11/30/23
Scenario testing
12/01/23
02/28/23
Software functionality deployment
03/01/24
03/31/24
Post -go live support
04/01/24
04/30/24
Withdrawal From County Pool
Review Contra Costa County Treasury withdrawal procedures
08/01/23
08/31/23
Appointment of Treasurer (Board policy and resolution)
10/01/23
10/31/23
Insurance provider updates for bonded employees/board
10/01/23
10/31/23
Notify Bond counsel
10/01/23
10/31/23
Draft formal letter to County Treasury notifying intent of withdrawal
10/01/23
10/31/23
Board report about current funds in county treasury
10/01/23
10/31/23
Adopt resolution (Board) for withdrawal of funds from county pool
10/01/23
10/31/23
Draft formal letter to county treasurer request to withdraw funds
11/01/23
11/30/23
County evaluation of withdrawal
01/01/24
01/31/24
County Treasury transfer of funds to designated bank
04/01/24
04/01/24
Page 2 of 2
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 113 of 123
Page 33 of 38
Attachment 5
1
Table of Contents
1. Introductions & Background
2. Risk Assessment
3. Banking & Cash Management
Policies/Procedures
4. Implementation Timeline
5. Alternatives/Considerations
6. Recommended Board Action
7. Questions & Discussion
2
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 114 of 123 1
Page 34 of 38
Attachment 5
Introductions &
Background
July 21, 2022 — Internal audit report
identifying treasury structure inefficiencies
presented to Board
September 15, 2022 - Board directed staff
to explore in-house treasury arrangement
and return with recommendation and
action plan
May 23, 2023 — Update to Board on project
progress and introducing project
consultants
3
Introductions
Background
James Ramsey, CPA, CFE
Partner
4
& EideBailly.
{2I5. fs RL::146L' hl?'r'I!iCYlti
Over 17 years working with governmental agencies
throughout California providing accounting, assurance,
and/or advisory services
Provides unique perspective to clients, having worked in
finance department of California city conducting a wide
array of governmental accounting and financial functions
Experience conducting audits of local government agencies,
including Single Audits of federal awards
CENTRALSAN
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 115 of 123 2
Page 35 of 38
Attachment 5
Introductions & EideBaitty
Background
Nick Rosas, CPA
Senior Manager
r
• Over 11 years of experience in various aspects of auditing,
compliance and financial regulatory reporting for California
governmental agencies
Served as Accounting Manager for medium-sized full -service
city in Northern California
Helped lead the implementation of Oracle Cloud Fusion,
including its Cash Management module
Risk Assessment
Z'l_R) CENTRALSAN
Understand and document status quo
versus desired "to be" structure, policies
and procedures
Required changes, associated risks and
steps to address risk
Overall conclusion on Central San's ability
to administer an in-house treasury function
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 116 of 123 3
Page 36 of 38
Attachment 5
Policy Development
• In-house treasury goals
• Process and internal control
• Internal controls
details
Definitions for key treasury
• Treasurer appointment
,
terms
• Custodial services agreement
• Staff roles and responsibilities + '
approval
• Reference to internal
•Specific treasury solutions
administrative procedures
7
Implementation Timeline
2. Board 3. Policy
Direction Development
4. Banking 5. Investment
Services RFP Services RFP
Target go -live date for in-house
banking services is April 1, 2024
E✓.�
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 117 of 123 4
Page 37 of 38
Attachment 5
Alternatives/Considerations
• No change
management
risk or
incremental cost
increase
• Inefficiencies and
underutilization
of ERP persists
0
• Appoint a Board
member or
other employee
• Less common
arrangement,
more Board
involvement in
administrative
matters
• Conduct in
house or use a
non -advisory
broker
• Higher risk of
non-compliance
and increase to
staff workload
Recommended Board Action
Review risk assessment, draft policies and procedures, and
project implementation plan related to the proposed
transition to an in-house treasury structure and receive a
staff presentation on the topic.
Direct staff to proceed with designing and implementing an
in-house treasury function for Central San consistent with
the draft banking and cash management policy and
procedures and project implementation plan presented by
staff.
10
r
mom
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 118 of 123 5
Page 38 of 38
Attachment 5
11
July 18, 2023 Regular FINANCE Committee Meeting Agenda Packet - Page 119 of 123