The URL can be used to link to this page

Home My WebLink AboutFS 2011-19-01 Item 2D - Ordinance - Establishment of Central Treasury Fund H:A,: `PI- 4 ti City of Tukwila Jim Haggerton, Mayor 9A INFORMATIONAL MEMORANDUM TO: Mayor Haggerton Finance and Safety Committee FROM: Shawn Hunstock, Finance Director DATE: January 12, 2011 SUBJECT: Central Treasury Fund ISSUE The City currently maintains cash and investment accounts in all thirty two funds that are used on a regular basis. Maintaining cash and investment accounts in each fund makes the process much more complex for posting investment income and purchasing investments or recording the maturity of investments. Each interest posting or investment purchase /maturity must be recorded against all funds involved. The process can take hours based on the complexity of the journal entry and the number of people involved with preparing, reviewing and recording the entries. An alternative to maintaining cash and investment accounts in each fund is to maintain a Central Treasury fund that holds all cash and investments for the City. Such a fund would simplify the processes already mentioned, and would also greatly simplify the bank reconciliation process and improve the timeliness of completion of monthly bank reconciliations. BACKGROUND The City has used the current method of allocating cash and investments to all funds for many years. Posting of investment income was always time consuming because we are mandated to apply interest earned to all funds currently holding a positive balance of cash or investments. Previously the City did not spend a good deal of time purchasing investments or managing our investment portfolio. However, now with the City's new investment policy and the need to more actively manage our investments due to the historically low earnings on the Local Government Investment Pool, Finance staff are much more involved with managing the City's money. This activity requires a good deal of time to maintain the accounting because investments must currently be allocated to different funds based on the availability of cash in those funds and the projected cash flows within the fund. DISCUSSION The Finance department proposes creation of a Central Treasury fund. This would be an agency fund with only Balance Sheet accounts. The fund would include cash and investments as assets, and Due to Other Funds as liabilities. No income or expense 133 INFORMATIONAL MEMO Page 2 would be recorded in the Central Treasury fund. All income associated with the pooled cash and investments would still be credited back to the thirty -two individual funds. A Central Treasury fund would eliminate the need to account for cash and investments within each of the separate funds, and instead would be accounted for in a Treasury fund. This would be an agency fund with "Cash," "Investments" and "Due to Other Funds" only. The General Fund and all other funds would have a "Due from Central Treasury" G/L account to account for their ownership of the cash and investments in the Central Treasury fund. Investment income would still accrue to the General Fund and all other funds, but the cash receipt would be recorded in the Central Treasury fund. At year -end all interfund balances are eliminated for financial reporting purposes, which means there would be no financial statements for the Central Treasury fund, and each other fund would report "Cash" and "Investments" as they have in the past.. Again, this is just for financial reporting purposes, no entries would be made in EDEN for this elimination of interfund balances. Sample Journal Entries (not including automatic summary entries) A. Purchase of investment (old method): Dr. Investments 104.118.000 Cr. Cash 104.111.100 Dr. Investments 301.118.000 Cr. Cash 301.111.100 Dr. Investments 501.118.000 Cr. Cash 501.111.100 Purchase of investment (new method): Dr. Investments 690.118.000 Cr. Cash 690.111.100 B. As investment income is received (old method): Dr. Cash 000.111.100 Cr. Investment Income Rev. 000.361.110.00.00 Dr. Cash 104.111.100 Cr. Investment Income Rev. 104.361.110.00.00 Dr. Cash 301.111.100 Cr. Investment Income Rev. 301.361.110.00.00 Dr. Cash 501.111.100 Cr. Investment Income Rev. 501.361.110.00.00 As investment income is received (new method): Dr. Cash 690.111.100 Cr. Investment Income Rev. 000.361.110.00.00 Cr. Investment Income Rev. 104.361.110.00.00 Cr. Investment Income Rev. 301.361.110.00.00 Cr. Investment Income Rev. 501.361.110.00.00 13 4 W:12011 Info Memos\CentralTreasury.doc INFORMATIONAL MEMO Page 3 As you can see from the above illustrations, the entries needed for cash and investments with a Central Treasury fund are less complex than that required from our current method of accounting. As revenue is received and recorded in the various funds, the actual cash deposit is recorded in the Central Treasury fund. Each of the thirty -two funds we have now that have cash and investments will have a "Due from Central Treasury" account rather than Cash and Investment accounts. The Due from Central Treasury account will be a receivable account, and will essentially represent that fund's percentage ownership of the cash and investments in the Central Treasury fund. Another advantage of utilizing a Central Treasury fund is it creates additional investment opportunities that would otherwise be difficult or impossible with the current method of accounting. Specifically, we are somewhat limited now with the number and amount of investments we can make because we are limited to cash available within specific funds. If a particular fund does not have a lot of excess cash, beyond that needed for regular operations, we cannot make any investments and so the particular fund currently receives less in investment income now. With a Central Treasury fund concept, all cash will be pooled into one fund and any "excess" beyond current operating needs will be invested in order to maximize investment income. As such, all funds will benefit from the higher returns we will be able to earn with the pooled resources in the Central Treasury fund. RECOMMENDATION The Finance and Safety Committee is being asked to approve an ordinance repealing the current TMC Chapter 3.24, Payroll and Claims Funds, and creating a Central Treasury fund for the City. This item is scheduled for the January 19 Finance and Safety Committee meeting, the January 24 Committee of the Whole meeting, and the February 7 Regular Council meeting. ATTACHMENTS Draft Ordinance W Info Memos\CentralTreasury.doc 13 5 1�6 DR leatO AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, RELATING TO THE ESTABLISHMENT OF A CENTRAL TREASURY FUND, SPECIFICALLY REPEALING AND RESTATING TUKWILA MUNICIPAL CODE CHAPTER 3.24; REPEALING ORDINANCE NO. 659 §1; PROVIDING FOR SEVERABILITY; AND ESTABLISHING AN EFFECTIVE DATE. WHEREAS, the current Payroll and Claims Funds chapter of the Tukwila Municipal Code was established in 1971 by Ordinance No. 659, and operational changes require an update to the regulations; and WHEREAS, the City Council recognizes the efficiencies gained by consolidating and simplifying the accounting for cash and investments for the City; and WHEREAS, the City Council has considered the additional opportunities for investing and increased investment earnings potential with a Central Treasury Fund; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, HEREBY ORDAINS AS FOLLOWS: Section 1. Regulations Established. Tukwila Municipal Code Chapter 3.24, "Central Treasury Fund," is hereby restated to read as follows: TMC Section 3.24.010, "Established." There is hereby established in the City, pursuant to RCW 35.21.085, a special fund to be known as the Central Treasury Fund for payment of salaries, wages, employee benefits, and claims against the City. Section 2. Repealer. Ordinance No. 659 §1 is hereby repealed. Section 3. Severability. If any section, subsection, paragraph, sentence, clause or phrase of this ordinance or its application to any person or situation should be held to be invalid or unconstitutional for any reason by a court of competent jurisdiction, such invalidity or unconstitutionality shall not affect the validity or constitutionality of the remaining portions of this ordinance or its application to any other person or situation. Section 4. Effective Date. This ordinance or a summary thereof shall be published in the official newspaper of the City, and shall take effect and be in full force five days after passage and publication as provided by law. W: \Word Processing \Ordinances \Payroll and Claims Funds.doc SH:mrh Page 1 of 2 1 37 PASSED BY THE CITY COUNCIL OF THE CITY OF TUKWILA, WASHINGTON, at a Regular Meeting thereof this day of 2011. ATTEST /AUTHENTICATED: Christy O'Flaherty, City Clerk Jim Haggerton, Mayor Filed with the City Clerk: APPROVED AS TO FORM BY: Passed by the City Council: Published: Effective Date: Shelley M. Kerslake, City Attorney Ordinance Number: W: \Word Processing \Ordinances \Payroll and Claims Funds.doc SH:mrh Page 2 of 2 138