I was interested to read in todays Boston Globe that Merrill Lynch has agreed to repay the City of Springfield for nearly $14 million in investment losses, as well as the City’s legal fees. The losses were reportedly related to “collateralized debt obligations,” which are securities linked to bonds and loans, including subprime mortgages, according to the Globe.

Interestingly, these reports are coming on the heals of several recent investment related reports and advisories that TLB has been monitoring on behalf of its clients. As well as downgrades from rating agencies on some government investment pools.

November 30, 2007, Standard & Poor’s issued a report entitled “S&P Rated Local Government Investment Pools Weathering Storm.”

On December 5, 2007, the Boston Globe ran an article with the headline “Volatile holdings part of state fund - SIV’s add risk as communities seek to increase income,” referring to the MMDT cash portfolio.

This was followed by a frequently asked questions report by S&P on December 10, 2007, related to local government investment pools and a separate question and answer piece issued by Fidelity on the MMDT cash portfolio and its perspectives on Structured Investment Vehicles. S&P also issued a separate report entitled “U.S. State and Local Government Investments and Recent Market Disruption,” on December 10, 2007.

Just recently, I received the 2007/2008 investment circular from the MMDT on the cash portfolio and the MMDT short-term bond fund.

TLB has been adding additional procedures to its municipal audits to ensure our clients are meeting the disclosure requirements of GASB 40, have an investment policy, are following and monitoring adherence to the investment policy and that city and town treasurers understand to what extent municipal investments may be at risk.

TLB will be adding future posts on a treasurers responsibility for deposits and investments under Massachusetts General Laws, and otherwise. But, in the meantime, there is no time like the present to review where your community stands. If you have any questions regarding the recent reports, on investment policies or municipal investments in general please contact Rich Bienvenue at (508) 255-2240 or via e-mail rich@tlbcpa.net

Posted by Rich Bienvenue

As part of our municipal audit procedures TLB has always incorporated procedures to evaluate the validity of budget encumbrances at year-end. TLB has noted in many communities and school districts year-end encumbrances practices and procedures are being followed without an understanding of the concepts underlying the encumbrance process. For our fiscal year 2007 municipal audits we have spent additional effort with our clients to ensure they understand what constitutes a valid encumbrance for annual operating budgets. (more…)

If your community has already issued permanent debt on its school construction project when it receives a lump-sum payment reimbursement from the Massachusetts School Building Authority the Town must set up a reservation of general fund balance according to Informational Guideline Release (IGR) 06-101 issued by the DLS.

According to the DLS the reserved fund balance may be segregated into two portions, either discretionary or non-discretionary.

Discretionary reservations can be used to offset prior general fund revenues used to pay school project ban/bond interest. (this assumes the issue was not raised outside the levy limit, ie: debt exclusion). Non-discretionary reservations must be amortized over the remaining life of the permanent debt of the approved school building project.

These issues/reservations are expected to be handled in conjunction with the local communities Bureau of Accounts field representative and through the tax rate setting process.