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Policy: Internal Investment Program for University Units 


Date: 08/21/09 Policy ID: FIN-025 Status: Final

Policy Type: University
   
Contact Office: Treasury Management (Office of)
   
Oversight Executive: Executive Vice President and Chief Operating Officer
   
Applies To: Academic Division, the Medical Center and the College at Wise.
   
Table of Contents:  Policy Statement
  1. Pool Structure
  2. Qualifying Fund Sources
  3. Minimum Average Balance Requirements
  4. Minimum Term Requirements
  5. Compliance Tracking
  6. Fees Assessed for not Meeting Minimum Requirements
  7. Interest Rates
  8. Advance Notification Requirements
  9. Making an Investment
Procedures       
   
Reason for Policy: The policy establishes guidelines regarding internal investment options available to University units holding surplus cash balances that generally are not needed for at least twelve months.
   
Policy Summary: 
   
Definition of Terms in Statement: 

Cash Balance: Operating cash balance before commitments as reported on the Discoverer workbook “GL_Revenue Reconciliation Reports,” not to be confused with budget balance.

E&G Reserves: State educational and general (“E&G”) funds, generally held at the University or vice presidential level, which are set aside for contingency or one-time initiatives.  Examples include vice presidential reserves, central contingency reserves, and deferred maintenance reserves.  [Note: Creation of an E&G Reserve requires the approval of the University Budget Office.]

Internal Bank: Mechanism managed by Treasury Management through which treasury services are provided to the University’s units.  These services include loans, investments, and liquidity management.

University units: Schools and departments within the University typically represented by a five digit numeric code (i.e., organization code) in the University’s Integrated System.
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Policy Statement: 

University units may not invest cash directly with banks or financial institutions.  (See the policy on Establishment and Maintenance of Bank or Other Financial Institution Accounts for University Funds.)  University units holding surplus cash balances may invest those funds with the University’s Internal Bank provided the guidelines of the policy are met. University units may choose from two investment pools offered under the Program, provided pool guidelines are met. Investment in multiple pools is permitted. The two pools are designed to offer investors short-term (ST) and intermediate-term (IM) options. In general, larger investments made for a longer term will earn a higher rate of return; however, preservation of the principal is not guaranteed. Treasury Management will oversee the investment pools to assess compliance with minimum balance and term requirements, as well as monitor for operating cash balance deficits.
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  1. Pool Structure:
    The Internal Investment Program consists of two pools, each with differing minimum average balance and minimum term requirements as follows: 

    Pool

    Minimum Avg. Balance

    Minimum Term

    Short-term

    $10,000

    1 year

    Intermediate-term

    $500,000

    2 years

    University units should use these requirements to determine which Internal Investment Pools are appropriate for the surplus cash balances they hold. A University unit that fails to meet the minimum pool requirements may be subject to penalties and/or be required to remove funds from the pool in which they are invested.
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  2. Qualifying Fund Sources:
    Cash balances eligible to be invested in the Internal Investment Program include:

     Qualifying Fund Sources

    Award Type
    (GA)

    Fund Source
    (GL)

    Gift & Endowment Distribution Funds

    DR
    ER
    DU
    EU

    2075
    2090
    1100
    1105

     Local Plant Funds

    LP

    5045  /  5055  /  5110  /  5215  /  5430

     E & G Reserves

    SP

    5212

    Auxiliary Operating and Reserve Funds

    SP
    LP
    SA
    LA

    5210
    5215
    1010  /  1120  /  1140
    1125

    Unrestricted: Other Sources (Local)

    IP

    1165


    Medical Center Operating and Reserve Funds

    All funds.

    [Note: For a detailed description of the award types, see Mapping Prefix to Award Types.]
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  3. Minimum Average Balance Requirements:
    For the short-term pool, the minimum average balance requirement represents the minimum average daily balance required during a calendar quarter. Investors in the ST Pool are permitted to move money into and out of any ST Pool investment account provided the minimum average balance is maintained. 

    For the intermdiate-term pool, the minimum average balance requirement represents the minimum average daily balance required during a calendar quarter. Investors in this pool must maintain any initial and subsequent investments in the pool for the minimum term described above. Withdrawals made prior to the requirements being met are subject to fees and corrective actions as defined below in Section 6. 

    An exception may be granted if a University unit is making its first investment into the Program in the middle of a calendar quarter. University units failing to meet the minimum balance requirements may be subject to a fee and/or removal from the pool holding the funds.
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  4. Minimum Term Requirements:
    Minimum term requirements represent the amount of time an investment, which meets a pool’s minimum average balance requirement, must be kept in the pool. University units failing to meet minimum term requirements may be subject to a fee and/or removal from the pool holding the funds.
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  5. Compliance Tracking:
    Treasury Management will track the following items to monitor compliance with the Program’s guidelines:
      1. Minimum Average Balance – At the end of each calendar quarter, Treasury Management will review the average daily balance for each investment in the Program for the past quarter to determine if any balance failed to meet the minimum average balance requirement.
      2. Minimum Term Requirements – At the end of each calendar quarter, Treasury Management will monitor the beginning, ending and average daily balances for investments in the Program to determine if funds have been kept in the Program for the required term.
      3. Negative Cash Balances – At the end of each calendar quarter Treasury Management will monitor operating cash balances to determine if deficits exist in other accounts held by the investing University unit. 
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  6. Fees Assessed for not Meeting Minimum Requirements:
    The following table lists the fees which may be assessed, and the actions that may be taken, for failure to meet Program requirements:

Requirement

Fee

Action

Minimum Average Balance

Forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed.

Reclassification into different pool or removal from pool.

Minimum Term

Forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed.

Reclassification into different pool or removal from pool.

Negative Operating Cash Balance

Potential forfeiture of the greater of half of the interest earned to date or 1% of the assets redeemed if corrective action results in violation of balance and term requirements.

Required redemption of investments equal to any negative operating cash balances.

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  1. Interest Rates:
    Interest rates offered under the Program will be market-based rates.  The rate structure by pool is as follows:

  2. Short-term Pool

    90 day t-bill

    Intermediate Pool

    BoA US TSY 1-5 yr

    [t-bill: treasury bill; BoA: Bank of America]
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  1. Advance Notification Requirements:
    University units investing or redeeming aggregate funds in excess of $10 million within any calendar month are required to provide written notification to Treasury Management at least 45 days in advance of the transactions. In cases where advance notification is not provided, Treasury Management will make a best-efforts attempt to meet the University unit’s request in a timely manner. Treasury Management does not guarantee the preservation of principal invested in the program; however, it does make all attempts to insulate investors from earnings volatility and periods of negative return.
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  2. Making an Investment:
    Before making an investment, a University unit must decide which pools are appropriate based on the size and term of its investment. University units may invest in multiple pools simultaneously provided the minimum average balance and minimum term requirements are met for each pool. If University units anticipate having a cash balance in excess of $1 million for at least five years, they may wish to consider creating a quasi endowment account (see the policy on Creating and Managing Quasi Endowment Accounts) after considering the risks inherent in longer-term investments.
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Procedures: 

University units may:

  1. Invest in any of the pools by making a journal entry into the Integrated System General Ledger, debiting the appropriate object code based on the table below, using the default organization value (99999). This transaction recognizes the investment asset balance in the appropriate departmental project and creates an offset balance in the Internal Investment Program project.

    Pool

    Object Code

    Minimum Average Balance

    Minimum Term

    ST

    1215

    $10,000

    1 year

    IM

    1216

    $500,000

    2 years


  2. Divest from the Internal Investment Program by making a journal entry debiting Investments/Pool using the default organization value (99999) and crediting Investments/Pool using the department’s organization code. This effectively transfers the money back into the department project.
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Related Information: 

Creating and Managing Quasi Endowment Accounts
Establishing and Creating Bank or Other Financial Institution Accounts for University Funds

   
Policy Background: 
   
Major Category: Finance and Business Operations
   
Category Cross Reference: 
   
   
Process: 
   
Next Scheduled Review: 12/10/15
   
Approved By, Date: Executive Vice President and Chief Operating Officer, 08/21/09
   
Revision History: Updated 12/10/12, 1/25/10.
   
Supersedes (previous policy):  Imputed Interest Program, Financial and Administrative Procedure 9-40.