ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED
BY THE BOARD OF SUPERVISORS
EFFECTIVE: 5/1/86
REVISED: 2/00
_________________________________
David E. Sundstrom, Auditor-Controller
1.
POLICY
Performance guaranties and equivalent substituted
legal instruments used to guarantee performance
and all negotiable instruments in the possession
of a department/agency/district as defined under
Sections 1.3.1 and 1.3.4 of this policy shall be
recorded in a trust fund. Specific information concerning
these instruments shall be maintained by the department/agency/district
in a subsidiary ledger. All other performance guaranties
as defined in Section 1.3.3 should not be recorded
in the General Ledger, as these instruments have
no monetary value. Each department/agency/district
shall provide the necessary security and control
consistent with the below-listed procedures to safeguard
these assets.
1.1
Purpose
To provide security, accountability, and
central control for all performance guaranties
and their equivalent substituted legal documents
and all negotiable instruments received by
the County.
1.2
Authority
Authority
Subject
Board of
Supervisors' Resolution No. 82-162,
dated February 2, 1982.
Authorizes the Auditor-Controller
to prescribe the accounting policies
for all offices, departments, and institutions
under the control of the Board of Supervisors.
1.3
Definitions
1.3.1
Performance Guaranty
A performance guaranty is any legal
instrument given to the County for the
purpose of assuring that a second party
will perform as contractually agreed
and/or for the purpose of offsetting
any financial loss due to the second
party's noncompliance with a contractual
agreement. Examples of performance guaranties
are letters of credit, savings passbooks
or time certificates with the power
of attorney, notes receivable or installment
notes secured by deeds of trust. These
performance guaranties must be recorded
in the trust funds and in subsidiary
ledgers. See Section 2.
1.3.2
Savings Passbook: Conditional Power
of Attorney
A conditional power of attorney over
a savings passbook should provide that
a failure of the agreed-upon performance
will give the County the right to negotiate
the instrument for restitution purposes.
1.3.3
Other Types of Performance Guaranties
All other performance guaranties,
for purposes of this policy, are a guaranty
of faithful performance of a contract
and protection for the County against
loss due to the mobility or refusal
of a contractor to perform his contract.
Examples of performance guaranties are
completion bonds, contract bonds, escrow
agreements, indemnity agreements, indemnity
bonds, and surety bonds. Some of these
instruments, such as completion bonds,
are not payable upon demand and require
a court order to collect monies due
the County. These documents, therefore,
have no financial value. These types
of performance guaranties are not recorded
in trust funds, but a listing of these
instruments should be maintained by
the department and a periodic inventory
of them conducted. See Section 3.
1.3.4
Negotiable Instruments
Negotiable instruments are written
unconditional promises to pay in money
a sum certain upon demand or at a particular
future time. Examples of negotiable
instruments are: promissory notes, drafts
or bills of exchange, checks, and certificates
of deposit. Negotiable instruments must
be recorded in trust funds and subsidiary
ledgers. See Section 2.
2.
PROCEDURES FOR PERFORMANCE GUARANTIES AND NEGOTIABLE
INSTRUMENTS THAT ARE RECORDED IN A TRUST FUND AS
DEFINED UNDER SECTIONS 1.3.1 AND 1.3.4 OF POLICY
2.1
Accountability
2.1.1
Trust Fund / Written Procedures /
Subsidiary Ledger / Inventory
All departments/agencies/districts
maintaining guaranties and negotiable
instruments must have a trust fund and
written procedures regarding the handling
and safeguarding of these instruments.
A subsidiary ledger of these instruments
must be maintained which balances to
the trust fund balance. The responsibility
for the receipt, maintenance, and disposition
of the performance guaranties and negotiable
instruments is to be fixed in a single
person whenever possible. That is, each
department/agency/district handling
guaranties and negotiable instruments
should designate one employee as being
responsible for ensuring compliance
with this policy and related procedures.
On a monthly basis, each department/agency/district
maintaining guaranties and negotiable
instruments should reconcile these items
to their respective ledgers and trust
fund. An actual inventory of the instruments
themselves should be taken at least
semiannually. The Auditor-Controller
should be advised in writing of any
needed adjustments to the trust fund
of the department/agency/district.
2.1.2
Board of Supervisors/County Counsel
Approval
All performance guaranties and negotiable
instruments shall be presented to the
Board of Supervisors or their designated
representative for acceptance or rejection
and for the purpose of establishing
the conditions necessary for the returning
of the guaranty. The conditions for
return should be clearly documented
at the time of acceptance. County Counsel
should review and approve all guaranties/negotiable
instruments as to whether or not the
terms used are adequate to make the
necessary assignment. Once County Counsel
has approved the form of a particular
type of instrument, like instruments
need not be submitted for approval in
like situations.
2.1.3
Subsidiary Ledgers
All departments/agencies/districts
having guaranties/negotiable instruments
in their possession shall maintain a
ledger of all such documents which includes
the following information:
The date the guaranty/negotiable
instrument was received.
The reasons or purpose for obtaining
the guaranty/negotiable instrument.
The name and address of the person/entity
from whom the guaranty/negotiable
instrument was received.
A complete description of the
guaranty/negotiable instrument including
type, amount, issue date, maturity
date, and reference numbers such
as account number, note number,
bank or surety company, or other
pertinent descriptive information
concerning the instrument.
The date the guaranty/negotiable
instrument was returned to its depositor.
The expiration date if applicable.
The name of the person/entity
to whom the guaranty/negotiable
instrument was released and, if
different from the depositor, an
explanation including documentation
of appropriate authority. Also,
a signed receipt from the person/entity
to whom the guaranty instrument
was released must be obtained.
2.1.4
Trust Fund Coding
The value of all performance guaranties
and negotiable instruments in the possession
of the department/agency/ district and
any financial transaction involving
a guaranty/negotiable instrument is
recorded by a journal voucher in the
trust fund of the department/agency/
district. Performance guaranties and
negotiable instruments are recorded
to Balance Sheet Account Code 8080,
"Certificates of Deposit/Security
Deposits," and to Balance Sheet
Account Code 9200, "Balance –
Trust Funds."
2.1.5
Deposit of Cash and Checks
Cash and checks received for guaranty
purposes shall be deposited in the County
Treasury on a daily basis by each department/agency/district
in their trust fund (xxx-9200 –
"Monies Held for Others").
Deposits should be made in accordance
with County Accounting Procedure No.
8, "Deposits," unless the
Clerk of the Board of Supervisors is
holding a guaranty/negotiable instrument
prior to acceptance of a bid. Once a
bid is accepted, cash or checks should
be deposited as described above. If
rejected, these assets should be returned
by certified mail, return receipt requested,
or in person upon presentation of proper
identification and after obtaining a
signed receipt.
2.2
Security
2.2.1
Locked Safe/Restricted Access
All departments/agencies/districts
are to secure their guaranties and negotiable
instruments in a locked safe with access
restricted to a minimum number of authorized
personnel.
2.2.2
Safe Deposit Box
Those departments/agencies/districts
who are unable to provide adequate security
shall immediately obtain a safe deposit
box to store their performance guaranties
and negotiable instruments. The safe
deposit box acquisition should be coordinated
through the Treasurer-Tax Collector's
Office.
2.2.3
Instruments Held by County
Whenever possible, guaranty instruments
should be held by the County rather
than with a third party. For example,
the practice of accepting the power
of attorney over a savings passbook
left at the savings institution is to
be discouraged, and the County should
retain the passbook with conditional
power of attorney.
2.3
Release
2.3.1
Release Conditions
Performance guaranties/negotiable
instruments shall be released according
to the conditions established at the
time of their acceptance.
2.3.2
Acceptance/Release by Board of Supervisors
If the performance guaranty/negotiable
instrument has been formally accepted
by the Board of Supervisors, then it
must be released by formal action of
the Board of Supervisors unless at the
time of acceptance, the Board's original
action delegates the authority for release
to someone else or specifically states
that the guaranty/negotiable instrument
is to be released in some other manner.
2.3.3
Acceptance/Release by Board Designee
If the performance guaranty/negotiable
instrument was originally accepted by
the Board of Supervisors' designee,
then the release should be authorized
by this same designee within the limits
of the specifically delegated authority.
3.
PROCEDURES FOR PERFORMANCE GUARANTIES AND NEGOTIABLE
INSTRUMENTS THAT ARE RECORDED IN A TRUST FUND AS
DEFINED UNDER SECTIONS 1.3.1 AND 1.3.4 OF POLICY
3.1
Accountability/Written Procedures
All departments/agencies/districts with
performance guaranties that have no monetary
value shall have written procedures describing
the receiving and handling of these guaranties
which fixes the responsibility for verifying
that required instruments are received and
properly filed.
3.2
Listing
A listing of all performance guaranties
that have no monetary value shall be maintained,
and the listing shall include the following
information:
The date the guaranty was received.
The name and address of the person/entity
from whom the guaranty was received.
Contract name/ID number.
Time period that the guaranty is in
effect.
The date the guaranty was returned to
its depositor.
3.3
Inventory/Secure Restricted Access/Release
At least once each year these documents
must be reviewed to determine that all instruments
are on file and in effect, and that all instruments
listed on the ledger are physically accounted
for. These instruments should be placed in
a secure location with access restricted to
a minimum number of authorized personnel.
The release of these performance guaranties
shall be in accordance with the conditions
established at the time of acceptance.
Legal