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Home My WebLink About03.d. Review draft Position Paperand consider adopting proposed Resolution 2024-XXX which (1) Elects to use a master bond in lieu of individual bonds, and (2) authorize General Manager to acquire Crime Insurance for $5 million for In-house Treasury FuncPage 1 of 5 Item 3.d. BOARD OF DIRECTORS POSITION PAPER MEETING DATE: SEPTEMBER 17, 2024 SUBJECT: REVIEW DRAFT POSITION PAPERAND CONSIDER ADOPTING PROPOSED RESOLUTION 2024-XXX WHICH (1) ELECTS TO USE A MASTER BOND IN LIEU OF INDIVIDUAL BONDS, AND (2)AUTHORIZES CENTRAL SAN'S GENERAL MANAGER TO ACQUIRE CRIME INSURANCE IN LIEU OF A MASTER BOND WITH A COVERAGE AMOUNT OF $5 MILLION AS RELATED TO THE IN-HOUSE TREASURY FUNCTION SUBMITTED BY: INITIATING DEPARTMENT: KEVIN MIZUNO, FINANCE MANAGER ADMINISTRATION -FINANCE REVIEWED BY: PHILIPLEIBER, DEPUTYGM -ADMINISTRATION ROGER S. BAILEY, GENERAL MANAGER ISSUE Central Contra Costa Sanitary District (Central San) has opted to deposit District funds with U.S. Bank and appoint a District Treasurer instead of depositing its funds with the County Treasurer, pursuant to the California Health and Safety Code. When a District takes such action, it must ensure reasonable protections are in place in the event that the Central San Treasurer were to attempt to misuse District funds. The Board is being asked to authorize the use of a crime insurance policy in lieu of a surety bond to cover such a circumstance, and to set the amount of coverage for that policy at $5 million. BACKGROUND Central San has appointed a District Treasurer and will be transferring its deposits to U.S. Bank, pursuant to California Health and Safety Code ("HSC") section 6801. HSC section 6801 requires that the newly appointed District Treasurer deposit a surety bond with Central San annually "in an amount to be fixed" by Central San Board. Surety bonds cover individual employees. In the event of a misappropriation of funds, the surety would pay the covered parties' debts but would then seek reimbursement. They also require that credit checks be run against the individual employees covered by the surety bond. Crime insurance is similar to a surety bond, but has some differences. In the event of a misappropriation, the insurer would pay Central San, and generally would not seek reimbursement. There is no need to run a credit check on individual employees to obtain such coverage. While HSC 6801 refers to a surety bond, California Government Code section 1463 provides that "a government crime insurance policy or employee dishonesty insurance policy, including faithful performance" may be used in lieu of a bond where the legislative body of the September 17, 2024 Regular FINANCE Committee Meeting Agenda Packet - Page 76 of 139 Page 2 of 5 public agency has set it as its "master bond." A master bond is a bond that covers more than one employee of the public agency. (Gov. Code § 1481.) Public agencies are permitted to choose to use a master bond. Accordingly, from a legal standpoint, Central San can comply with its obligations under HSC 6801 if it (1) Elects to use a master bond in lieu of individual bonds; and (2) Authorizes Central San's General Manager to acquire insurance for District officers and/or employees in lieu of a master bond in an amount set by Central San. With respect to that amount, Finance and Risk Management staff have reviewed premiums for crime insurance policies that include faithful performance coverage and have determined that a $5 million policy is optimal as that is the currently anticipated targeted ceiling for un-invested cash in Central San's checking account. Staff determined this amount to be appropriate because it is expected to be sufficient to cover the amount of liquid assets in Central San's U.S. Bank accounts. Staff believes that setting a higher coverage amount, which would cover non -liquid assets as well, is unnecessary, as Central San has other protections in place aside from crime insurance (such as segregation of duties and requiring separate approvals for transactions initiated by one party), and the additional premiums for such a policy would be higher. Staff therefore recommends that the Board adopt the attached resolution, which (1) Elects to use a master bond in lieu of individual bonds and (2) authorizes Central San's General Manager to acquire insurance for District officers and/or employees in lieu of a master bond with a coverage amount of $5 million. ALTERNATIVES/CONSIDERATIONS The following are alternatives that were considered in relation to this action item: 1. Consider adopting proposed Resolution 2024-XXX (recommended) 2. Do nothing (not recommended, as described below) 3. Provide alternate direction to staff Alternative 2 is not recommended, as it would put Central San out of compliance with California Health & Safety Code section 6801. Under Alternative 3, the Board could reject the idea of using a crime insurance policy, and direct staff to develop an alternate proposal. This proposal would likely be to use a surety bond instead. A surety bond has disadvantages, as described previously, so this path is not recommended. There would also be a period where Central San would be out of compliance, as it would be moving its deposit without having first addressed this issue. FINANCIAL IMPACTS Central San would have to pay crime insurance premiums for the $5 million policy. While the premium cost is currently unknown (discussions are currently underway with the insurance provider), the premium is $5,000 currently for crime insurance coverage of $1 million. Staff anticipates this premium amount to increase modestly, and less than proportionately. COMMITTEE RECOMMENDATION The Finance Committee reviewed this matter at its September 17, 2024 meeting, and recommended September 17, 2024 Regular FINANCE Committee Meeting Agenda Packet - Page 77 of 139 Page 3 of 5 RECOMMENDED BOARD ACTION Consider adopting proposed Resolution 2024-XXX, which (1) elects to use a master bond in lieu of individual bonds, and (2) authorizes Central San's General Manager to acquire insurance for District officers and/or employees in lieu of a master bond with a coverage amount of $5 million. Strategic Plan re -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. Proposed Resolution September 17, 2024 Regular FINANCE Committee Meeting Agenda Packet - Page 78 of 139 Page 4 of 5 RESOLUTION NO. 2024 - A RESOLUTION OF THE CENTRAL CONTRA COSTA COUNTY SANITARY DISTRICT AUTHORIZING MASTER BOND OR PURCHASE OF INSURANCE IN LIEU OF PURCHASING INDIVIDUAL OFFICIAL BONDS AND SETTING COVERAGE AMOUNT AT $5,000,000 WHEREAS, Health and Safety Code section 6801 provides: As an alternative to the functions of the treasurer, the district board may elect to disburse funds of the district. Such election shall be made by resolution of the board and the filing of a certified copy thereof with the treasurer. The treasurer shall thereupon and thereafter deliver to the district all funds of the district. Such funds shall be deposited by the board in a bank or banks, or savings and loan association or savings and loan associations, approved for deposit of public funds. The treasurer shall deposit with the district, prior to October 1 st of each year, a surety bond in the annual amount fixed by the district board. The deposit and withdrawal of funds of the district shall thereafter be subject to the provisions of Article 2 (commencing at Section 53630), Chapter 4, Part 1, Division 2, Title 5, of the Government Code. The district board shall appoint a district treasurer who shall be responsible for the deposit and withdrawal of funds of the district; and WHEREAS, by separate action, the District has elected to disburse funds of the district and to appoint a District Treasurer; and WHEREAS, Government Code section 1481(b) provides: Notwithstanding any other provision of law, when deemed expedient by the legislative body of a local public agency, a master official bond or other form of master bond may be used which shall provide coverage on more than one officer, employee, or agent of the local public agency, whether elected or appointed, who is required by statute, regulation, the appointing power, the governing board of a local public agency, or the board of supervisors of a chartered or general law county to give bond; and WHEREAS, Government Code section 1463 provides: For the purposes of this chapter, a government crime insurance policy or employee dishonesty insurance policy, including faithful performance, may be provided as an alternative to the official bond by any county or city, subject to approval by the presiding judge of the superior court and recording and filing as provided in Sections 1457 to 1460.1, inclusive. An insurance policy procured pursuant to this section may be used as a master bond as though it were an official bond, subject to approval of the appointing power or the legislative body as provided in Section 1481; and WHEREAS, Central Contra Costa Sanitary District is covered by an Alliant Property Insurance Program, Insurance Policy that covers all District employees for theft, fraud, or crime and for faithful performance of duties with a coverage limit of one million dollars ($1,000,000); and September 17, 2024 Regular FINANCE Committee Meeting Agenda Packet - Page 79 of 139 Page 5 of 5 WHEREAS, this policy covers all District employees, including those required to be bonded by the District, and all other employees required by law to be individually bonded, as well as any Treasurer of the District. WHEREAS, a similar policy is available with a coverage limit of $5,000,000, the cost of which would not be significantly higher than the current policy, NOW, THEREFORE, BE IT RESOLVED by the Board of Central Contra Costa Sanitary District as follows: SECTION 1: The above recitals are true and correct and are incorporated herein by this reference. SECTION 2: The use of a master bond in lieu of individual bonds of District officers and employees is expedient and therefore a master bond may be substituted for individual bonds. SECTION 3: The District's General Manager is authorized to acquire insurance for District officers and/or employees in lieu of a master bond in an amount not less than five million dollars ($5,000,000). PASSED AND ADOPTED this 3rd of October, 2024, by the Board of Directors of the Central Contra Costa Sanitary District by the following vote: AYES: Members: NOES: Members ABSENT: Members: Mariah N. Lauritzen President of the Board of Directors Central Contra Costa Sanitary District County of Contra Costa, State of California well] 01921:&9Eel 0112193 Katie Young Secretary of the Central Contra Costa Sanitary District County of Contra Costa, State of California Approved as to form: Leah J. Castella Counsel for the District September 17, 2024 Regular FINANCE Committee Meeting Agenda Packet - Page 80 of 139