Alan G.

Hevesi
Comptroller
State of New York
Office of the State Comptroller

Delaware County
Investment Management
Program
Report of Examination
Period Covered:
January 1, 2001 to November 5, 2002
2003M-17

Division of Local Government Services

and
Economic Development
 State of New York
Office of the State Comptroller
Division of Local Government Services
and Economic Development

March 2003

Dear County Officials:

One of the Office of the State Comptroller’s top priorities is to identify areas where local governments can
improve their operations and provide guidance and services that will assist local officials in making those
improvements. Further objectives are to develop and promote short-term and long-term strategies to
enable and encourage local government officials to reduce costs, improve service delivery and to account
for and protect their governments’ assets.

The reports issued by this Office are an important component in accomplishing these objectives. These
reports are expected to be a resource and are designed to identify current and emerging fiscally related
problems and provide recommendations for improvement. The Chairman of the Board of Supervisors
requested our services to identify potential areas of County operations where improvements could be
made. Accordingly, we assessed various segments of County operations and as a result selected various
areas for audit. This report concerning the County’s Investment Management Program is one in a series of
audits we performed based on our assessment.

This audit was conducted pursuant to the State Comptroller’s authority as set forth in Article V, §1 of the
State Constitution and Article III of the General Municipal Law. The report contains opportunities for
improvement for consideration by the County Board of Supervisors.

If we can be of assistance to you or if you have any questions concerning this report, please feel free to
contact the local regional office for your county listed at the back of this report.

Respectfully submitted,

Office of the State Comptroller

Division of Local Government Services
and Economic Development
 State of New York
Office of the State Comptroller
EXECUTIVE SUMMARY

The investment of County moneys is an integral part of Delaware County’s financial operations. Moneys
are invested by the County treasurer pursuant to the requirements of pertinent State statutes and the
County’s adopted investment policy. Such requirements limit the County’s investments to specific types.
The County treasurer generally invests all moneys not needed for immediate use after receiving quotes of
current interest rates from banks located in the County.

Scope and Objectives

The objective of our audit was to determine if County officials had maximized interest revenue. Our audit
addressed the following questions related to the County of Delaware’s investment program for the period
January 1, 2002 to November 5, 2002:

• Were County officials minimizing the number of bank accounts and banks used to make accounting
for cash and investments more efficient and cost effective?

• Were County officials depositing moneys in bank accounts that pay interest?

• Were County officials soliciting interest rate quotes from competing banks and investing moneys in
those offering the highest rates?

Audit Results

Our audit disclosed a finding that should be reviewed by the Board of Supervisors for appropriate action.

Substantial improvements should be made to the County’s investment management practices to improve
overall investment operations. We found no evidence that County officials were: minimizing the number of
bank accounts and banks used; solely depositing moneys in bank accounts that pay interest; and investing
moneys in accounts offering the highest interest rates. The County could have realized more than $46,000

2003M-17
in additional interest revenue in 2002 through the end of September by investing moneys that it had deposited
in low or non-interest bearing bank accounts and certificates of deposit into higher interest bearing bank
accounts and certificates of deposit. Also, the County could reduce the number of bank accounts; thus,
saving the staff resources used in reconciling unnecessary bank accounts.

Comments of Local Officials

The results of our audit and our recommendations have been discussed with local officials and their comments
have been considered in preparing this report. County officials were given an opportunity to respond in
writing, within thirty days of our exit conference, to our finding and recommendation. We did not receive a
written response.

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 TABLE OF CONTENTS

Page
INTRODUCTION

Background 1
Objectives 1
Scope and Methodology 2
Comments of Local Officials and Corrective Action 2

INVESTMENT MANAGEMENT PROGRAM

Certificates of Deposit 3
Checking and Savings Accounts 4
Non-Interest Bearing Bank Accounts 5
Bank Accounts and Depository Banks 5
Recommendations 6

APPENDIX A Audit Standards and Methodology 8

APPENDIX B Local Regional Office Listing 9

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 Introduction
Background The County of Delaware was erected in 1797 and has a population of
48,055 according to the 2000 Federal census. The County is mainly
rural, located in the northern part of the Catskill Mountains. Major
operating funds are: general, County road, road machinery, landfill and
enterprise (to account for the County’s nursing home).

Delaware County provides various services to its residents, including:

general government support, maintaining and improving County roads
and bridges (including snow removal), garbage and refuse services, law
enforcement, public safety, and human services programs. The majority
of moneys needed to help finance the cost of these services are derived
from real property taxes, County sales taxes, departmental fees, State
and Federal aid, and interest earned on investments.

The investment of County moneys is an integral part of Delaware County’s

financial operations. Moneys are invested by the County treasurer
pursuant to the requirements of pertinent State statutes and the County’s
adopted investment policy. Such requirements limit the County’s
investments to specific types. The County treasurer generally invests all
moneys not needed for immediate use after receiving quotes of current
interest rates from banks located in the County.

Objectives The objective of our audit was to determine if County officials had
maximized interest revenue. Our audit addressed the following questions
related to the County of Delaware’s investment program for the period
January 1, 2002 to November 5, 2002:

• Were County officials minimizing the number of bank accounts

and banks used to make accounting for cash and investments
more efficient and cost effective?

• Were County officials depositing moneys in bank accounts that

pay interest?

• Were County officials soliciting interest rate quotes from

competing banks and investing moneys in those offering the
highest rates?

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Scope and During this audit we examined selected financial activity for the period
Methodology January 1, 2002 to November 5, 2002.

We conducted our audit in accordance with Generally Accepted

Government Auditing Standards. More information on such standards
and the methodology used in performing this audit are included on
Appendix A of this report.

Comments of County officials were given an opportunity to respond in writing to our

Local Officials and findings and recommendations. We did not receive a written response.
Corrective Action The Board of Supervisors has the responsibility to initiate corrective
action. Pursuant to Section 35 of the General Municipal Law, the Board
of Supervisors should prepare a plan of action that addresses the
recommendations in this report and forward the plan to our office within
ninety days. For guidance in preparing your plan of action, you may
refer to applicable sections in the publication issued by the Office of the
State Comptroller entitled Local Government Management Guide
(formerly Financial Management Guide for Local Governments).
We encourage the Board of Supervisors to make this plan available for
public review in the Clerk of the Board’s office.

2003M-17 Page 2
 Investment Management Program
The County could have realized more than $46,000 in additional interest
revenue in 2002 through the end of September by investing moneys on
deposit in low or non-interest bearing bank accounts and certificates of
deposit into higher interest bearing bank accounts and certificates of
deposit.

The development and management of a sound investment program is

based not only on the County’s adopted investment policy, but also on
the accumulation of timely and accurate information and using that
information for making investment decisions. A sound investment program
should seek to maximize interest revenue. This can be achieved by
investing the maximum amount of available money in accounts paying
the highest interest rates offered. Elements of such a program should
include:

• soliciting interest rate quotes from competing banks and investing

moneys in those offering the highest rates;
• eliminating or at least limiting the number of non-interest bearing
accounts;
• minimizing the number of bank accounts maintained; and
• minimizing the number of depository banks.

If one or more of these elements of a good investment program is lacking,

interest revenue may be greatly diminished. In November 2002, we
gained an understanding of the County’s investment program and
investment management practices. Our review disclosed certain areas
that we believe could be improved. When considering our
recommendations, County officials should be cognizant of the four basic
ingredients involving the investment of public moneys: legality, safety,
liquidity and yield.

Certificates of Deposit We examined the 2002 certificate of deposit summary record through
the end of September. Such record showed the date of purchase, amount
of money invested, interest rate received, interest earnings and the date
of maturity for each certificate of deposit purchased. We noted several

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 instances where County officials purchased multiple certificates of deposit
on the same day from different banks, for similar periods, and received
different rates of interest on each. For example:

Date Amount Interest

Purchased Invested Rate Variance
4/26/2002 $1,500,000 1.95%
4/26/2002 $1,500,000 1.60% 0.35%
7/25/2002 $1,512,395 1.70%
7/25/2002 $1,505,918 1.75% 0.05%
9/9/2002 $1,516,248 1.63%
9/9/2002 $2,019,224 1.55% 0.08%

We computed the amount of interest that could have been earned had
County officials invested all money in certificates of deposit paying the
highest interest rate rather than multiple certificates of deposit with lesser,
varying rates. Based on our analysis, County officials could have earned
about $22,700 in additional interest revenue.

Checking and Savings To determine if the County was maximizing interest rates on checking
Accounts and savings accounts (money market accounts were included as savings
accounts), we judgmentally selected a sample of County bank accounts
and determined the total interest earnings and interest rates on deposits
for 2002 through September. We found that interest rates earned varied
greatly from bank to bank as follows:

Checking Accounts Savings Accounts

Bank High Low High Low
A 1.00% 0.75% 2.00% 1.50%
B 1.20% 0.05% n/a n/a
C 0.54% 0.25% 1.85% 0.35%
D 0.60% 0.60% n/a n/a
Average 0.94% 0.34% 1.92% 0.43%

2003M-17 Page 4
 We then determined the amount of interest that could have been earned
if County staff had consolidated all moneys in checking and savings
accounts into the highest interest earning checking and savings accounts
rather than accounts in several banks having varying lower interest rates.
Based on our analysis, the County could have earned approximately
$14,000, or 18.5 percent, of additional interest revenue.

Non-interest Bearing We reviewed bank statements and statements of collateral pledged to

Bank Accounts secure deposits for 2002 through September 2002 to determine if the
County deposited moneys in non-interest bearing bank accounts. We
found that approximately 30 percent of the County’s bank accounts
were non-interest bearing. We then compiled a list of all the non-interest
bearing bank accounts and determined the monthly ending balance for
each account. The average monthly ending balance for the total of all
these accounts ranged from about $1,086,000 to $1,960,000. The
average for the nine-month period taken as a whole was $1,382,000.
We applied the highest average checking account rate (0.94 percent as
identified in the chart above) to the average balance to determine the
amount of interest that could have been earned had all moneys been
deposited into interest bearing checking accounts. Based on our
calculations the County could have earned interest revenue of
approximately $9,700.

Prudent investment management practices call for the investment of all

cash not needed to meet immediate expenditures. Ideally, the County
should limit the number of non-interest bearing bank accounts to those
instances where this is required, or where the investment of the cash is
restricted by its purpose. By allowing significant amounts of cash to be
deposited in non-interest bearing bank account, the amount of interest
revenue the County can earn is limited. This places an additional financial
burden on the County taxpayers.

Bank Accounts and We reviewed bank account statements and statements of collateral
Depository Banks pledged to secure deposits for September 2002 to determine if the
County was using an excessive number of bank accounts and depository
banks. As of that month moneys were on deposit in approximately 100
bank accounts in six different banks throughout the County. Two of the
six depository banks were used only for certificates of deposit. County

2003M-17 Page 5
 officials informed us that the practice of depositing moneys in various
banks throughout the County was intended to help support the
Countywide economy by keeping the money local and available.

Managing an excessive number of bank accounts can be unnecessarily

time consuming to staff. We found that the sole duty of a half-time
employee in the County treasurer’s office was to reconcile cash balances
per bank statements with cash balances per County accounting records.
While certain moneys need to be segregated from other types of moneys,
most moneys can be commingled for both operating and investment
purposes. Reducing the number of bank accounts to the required
minimum would reduce the amount of staff time needed to reconcile
bank accounts.

County officials should also consider reducing the number of County

depository banks. Only three of the six depository banks used by the
County operate solely in Delaware County.

We believe that these conditions could have resulted mainly from the
lack of adequate provisions in the County’s adopted investment policy
addressing the maximizing of investment opportunities.

Findings relating to the failure to maximize interest earnings by maintaining

an excessive number of bank accounts, utilizing more depository banks
than appears necessary, and keeping money on deposit in non-interest
bearing bank accounts were included in our prior Report of Examination.

Recommendations 1. Adequate provisions should be included in the County’s investment

policy to help maximize investments opportunities. Provisions should
be incorporated in the investment policy that address the following
recommendations.

2. Ensure that certificates of deposits are invested at the highest interest

rate available.

3. Ensure that County bank accounts receive the highest interest rate
available.

2003M-17 Page 6
 4. Eliminate non-interest bearing bank accounts when possible

5. Reduce the number of County bank accounts and depository banks

to an acceptable and practicable minimum.

6. Enhance oversight by the Board of Supervisors, or a committee

thereof, to provide an added level of assurance that investment
earnings are maximized.

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 APPENDIX A

AUDIT STANDARDS AND METHODOLOGY

Our audit procedures included examining selected investment and financial transactions and practices of
the County.

To accomplish our objective in this audit we interviewed appropriate County officials and employees,
reviewed County financial reports, tested selected records and transactions, and examined pertinent
documents. The specific tests and procedures we used are noted in the Investment Management Program
section of this report.

We conducted our audit in accordance with Generally Accepted Governmental Auditing Standards. Such
standards require that we plan and conduct our audit to adequately assess those County operations that
are included in our audit scope. Further, those standards require that we understand the County’s management
controls and compliance with those laws, rules and regulations that are relevant to the County’s operations
included in our scope. An audit includes examining, on a test basis, evidence and supporting transactions
recorded in the accounting and operating records and applying such other auditing procedures as we
consider necessary in the circumstances. We believe our audit provides a reasonable basis for our findings
and recommendations.

2003M-17 Page 8
 APPENDIX B
OFFICE OF THE STATE COMPTROLLER
DIVISION OF LOCAL GOVERNMENT SERVICES
AND ECONOMIC DEVELOPMENT
Anthony R. Nanula, Deputy Comptroller
Steven J. Hancox, Assistant Comptroller
John Clarkson, Assistant Comptroller
LOCAL REGIONAL OFFICE LISTING
BUFFALO REGIONAL OFFICE ROCHESTER REGIONAL OFFICE
David H. Slusarz, Chief Examiner William W. Campbell, Chief Examiner
Office of the State Comptroller Office of the State Comptroller
1050 Ellicott Square Building The Powers Building
295 Main Street 16 West Main Street - Suite 522
Buffalo, New York 14203 Rochester, New York 14614
(716) 847-3647 Fax (716) 847-3643 (585) 454-2460 Fax (585) 454-3545
E-Mail: Muni-Buffalo@osc.state.ny.us E-Mail: Muni-Rochester@osc.state.ny.us

Allegany, Cattaraugus, Chautauqua, Erie, Cayuga, Chemung, Livingston, Monroe, Ontario,

Genesee, Niagara, Orleans, Wyoming Schuyler, Seneca, Steuben, Wayne, Yates

SYRACUSE REGIONAL OFFICE BINGHAMTON REGIONAL OFFICE

Debora Wagner, Chief Examiner
Office of the State Comptroller
State Office Building, Room 409
333 East Washington Street
Syracuse, New York 13202
(315) 428-4192 Fax (315)426-2119
E-Mail: Muni-Syracuse@osc.state.ny.us
Patrick Carbone, Chief Examiner
Office of the State Comptroller
State Office Building, Room 1702
44 Hawley Street
Binghamton, New York 13901-4417
(607) 721-8306 Fax (607) 721-8313
E-Mail: Muni-Binghamton@osc.state.ny.us

Herkimer, Jefferson, Lewis, Madison, Oneida, Broome, Chenango, Cortland, Delaware,

Onondaga, Oswego, St. Lawrence Otsego, Sullivan, Tioga, Tompkins

GLENS FALLS REGIONAL OFFICE ALBANY REGIONAL OFFICE

Karl Smoczynski, Chief Examiner
Office of the State Comptroller
One Broad Street Plaza
Glens Falls, New York 12801
(518) 793-0057 Fax (518) 793-5797
E-Mail: Muni-GlensFalls@osc.state.ny.us
Thomas J. Kelly, Jr., Chief Examiner
Office of the State Comptroller
22 Computer Drive West
Albany, New York 12205
(518) 438-0093 Fax (518) 438-0367
E-Mail: Muni-Albany@osc.state.ny.us

Clinton, Essex, Franklin, Fulton, Hamilton, Albany, Columbia, Dutchess, Greene, Orange,
Montgomery, Rensselaer, Warren, Washington Putnam, Saratoga, Schenectady, Schoharie, Ulster

HAUPPAUGE REGIONAL OFFICE

Allan S. Cohen, Acting Chief Examiner
Office of the State Comptroller
NYS Office Building, Room 3A10
Veteran’s Memorial Highway
Hauppauge, New York 11788-5533
(631) 952-6534 Fax (631) 952-6530
E-Mail: Muni-Hauppauge@osc.state.ny.us

Nassau, Rockland, Suffolk, Westchester

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