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B. The Finance Director shall establish an annual process of independent review by an <br /> external auditor. This review will provide internal control by assuring compliance with <br /> policies and procedures. <br /> C. The investment portfolio will be designed to obtain a market average rate of return during <br /> budgetary and economic cycles, taking into account the City of Elk River's investment risk <br /> constraints and cash flow needs. <br /> D. The Finance Director shall prepare an investment report directed to the City Council on a <br /> per4o lie­garterl basis and including: <br /> 1. Listing of individual securities held at the end of the reporting period. <br /> 2. Listing of investments by maturity date. <br /> 3. Percentage of the total portfolio which each type of investment represents. <br /> 4. Market to market analysis. <br /> 5. Rate of return for the quarter. <br /> Fund Balance <br /> Fund balance reserves are an important component in ensuring the overall financial health of a <br /> community,by giving the city sufficient funds to meet contingency and cash-flow timing needs. In <br /> establishing an appropriate fund balance,the city needs to consider the demands of cash flow, need <br /> for emergency reserves, ability to manage fluctuations of major revenue sources, credit rating and <br /> long-term fiscal health. <br /> A. Classification of Fund Balance/Procedures <br /> 1. Nonspendable <br /> Amounts that are not in a spendable form or are required to be maintained intact. <br /> Examples are inventory or prepaid items. <br /> 2. Restricted <br /> Amounts subject to externally enforceable legal restrictions. Examples include grants, <br /> tax increment and bond proceeds. <br /> 3. Unrestricted <br /> The total of committed fund balance, assigned fund balance, and unassigned fund <br /> balance: <br /> • Committed fund balance—amounts that can be used only for the specific <br /> purposes determined by a formal action of the government's highest level of <br /> decision-making authority. Commitments may be changed or lifted only by the <br /> government taking the same formal action that imposed the constraint originally. <br /> • Assigned fund balance—amounts a government intends to use for a specific <br /> purpose;intent can be expressed by the government body or by an official or body <br /> to which the governing body delegates the authority. <br /> • Unassigned fund balance—residual amounts that are available for any purpose <br /> in the general fund. The General fund should be the only fund that reports a <br /> positive unassigned fund balance amount. This classification is also used to <br /> account for deficit fund balances in other governmental funds. <br /> Financial Management Policies Page 7 <br />