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Prudent Investor Update, January 23, 2019

Better Information, Better Decisions

ONE Investment understands how tracking and reporting investment performance is critical to making good decisions and to engaging Council.

To that end, ONE Investment is in the process of implementing a new portfolio management system to provide our investors with better performance reporting capabilities. As ONE evolves from a program to not-for-profit, we incorporate best industry practices in our operation.  The new system does just that. It is a comprehensive system used by like-sized investment firms. It will allow ONE to report investment returns on municipal accounts as a whole, as well as its individual portfolios.

“Municipalities need to make many financing decisions. To support the decision-making process, we acquired a new system to help collect and report information better,” said Terrie Miller, ONE’s internal investment consultant. “The transition to the new system will take place over the course of 2019.”

ONE is also encouraging all current ONE investors to look at how their investment accounts are organized. Municipalities take different approaches to setting up investment accounts.  Some create an account for each reserve fund, reserve or investment need.  Others pool these funds by service (police or fire) or timeframe. And some align specific investment accounts to specific  general ledger accounts. If a municipality has many small accounts, it makes sense to consider the most appropriate groupings and to consolidate accounts.

ONE staff will be able to assist in the consolidation of existing Legal List accounts and will provide assistance and guidance; more information will be provided over the next few months. ONE staff will guide Legal List investors through the best way to transition. Municipal Prudent Investor investments will be set up under the new structure from the onset.  Consolidating accounts will not only work better with the new system but will also improve oversight.

Better reporting provides our investors with information that municipal treasurers are required to report to Council. This also will allow treasurers to better communicate portfolio performance regarding the investments held with ONE.

As a first step, start thinking about your current Investment Account Structure with ONE and ask yourself if there is a better way you would like to see your municipalities’ investment portfolio presented. If you have any questions, please contact Eleonore Schneider at eschneider@amo.on.ca.

Investments and Audits: How Do They Align?

Auditors review financial statements to ensure that they accurately reflect a municipality’s finances, following Canadian public sector accounting standards. The Municipal Act requires that every municipality prepare annual audited financial statements.  

Financial statements provide the municipality’s overall financial position, net debt, and accumulated surplus as well as information about tangible capital assets and other non-financial assets. An audit may include recommendations or comments on items not directly related to the audit such as recommendations on process improvements, best practices or other items they believe management or those having oversight responsibility may be interested in.

You may wonder how an auditor reviews a municipality’s investment portfolio, and to what
degree auditors are looking at its performance.

Generally, auditors review a municipality’s investments to ensure that the investments and investment activity (e.g. investment income and gains and losses) are properly accounted for and presented. The audit may also include determining whether current investments are compliant with a municipal investment policy. For example, sometimes as the market changes, the overall asset mix can shift. An audit may reveal such a shift.

However, it’s important to remember that an auditor is not an investment professional and therefore, would not be in the position to provide investment advice in terms of specific holdings. They would also not be best suited to review multi-year investment strategies. For example, over the life of a long-term investment of 10 to15 years, there may be a loss in an individual year. The auditor would understand how to account for that properly in the financial statements; however, they would not be equipped to give advice on whether to hold or sell the investment. In fact, short-term ups and downs are normal in an overall portfolio. An investment expert would be needed to determine if any particular loss warrants action.

Investment portfolios should be reviewed annually, as both a best practice and to comply with existing and new regulations. The review would look at investment plans to make sure they are progressing as anticipated against investment goals. There would likely need to be adjustments every year to reflect changing timeframes. This review would be conducted by investment experts, not via a financial audit.


 

Contact

Eleonore Schneider
Program Manager

T 416.971.9856 x320
TF 1.877.426.6527
F 416.971.6191

 
Donna Herridge
Executive Director, MFOA/CHUMS

T 416.362.9001 x233