Compliance Analysis Overview
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This enhanced analysis condenses guidance documents issued by Department of the Treasury to eliminate redundancy while preserving all substantive requirements and legal obligations.
Guidelines for Federal Home Loan Bank Letters of Credit
COMMONWEALTH OF VIRGINIA
SECURITY FOR PUBLIC DEPOSITS ACT
TREASURY BOARD GUIDELINES - THE USE OF FEDERAL
HOME LOAN BANK LETTERS OF CREDIT AS ELIGIBLE
COLLATERAL TO SECURE VIRGINIA PUBLIC DEPOSITS
PURPOSE – To establish guidelines for the use of Federal Home Loan Bank letters of credit as eligible collateral under the Security for Public Deposits Act, §§2.2-4400 through 2.2-4411 of the Code of Virginia.
STATUTORY AUTHORITY – Code of Virginia §2.2-4401 which defines “eligible collateral “ for purposes of the Virginia Security for Public Deposits Act.
CONDITIONS FOR ELIGIBILITY - Letters of credit issued by the Federal Home Loan Bank are eligible as collateral under the Security for Public Deposits Act provided that:
A. The letter of credit:
- Has been delivered to the Virginia Treasury Board in the standard format approved by the Treasury Board in Exhibit A;
- Is an irrevocable standby letter of credit issued subject to the International Standby Practices 1998, International Chamber of Commerce Publication No. 590
(“ISP98”);
- Is not transferable;
- Contains a statement that identifies the Virginia Treasury Board as beneficiary;
- Contains an issue date and a date of expiration;
- Contains a term of at least one year and an evergreen clause that provides at least forty-five days written notice to the beneficiary prior to expiration date for nonrenewal;
- Contains a statement that it shall also be governed by the laws of the Commonwealth of Virginia to the extent not inconsistent with ISP98;
- Is issued, presentable, and payable at a Federal Home Loan Bank in United States dollars. Presentation may be made by the beneficiary, submitting the original letter of credit, including any amendments, and the completed and duly executed demand;
- Is unconditional and contains a statement that the beneficiary need only present the original letter of credit with any amendments and the demand form to promptly obtain funds.
B. Obligations of the Federal Home Loan Bank (1) be rated at least double A by two nationally recognized rating agencies or (2) be rated the same credit rating as the lowest long-term sovereign credit rating of the United States. Qualified public depositories will have thirty days from the date that obligations of the Federal Home Loan Bank are downgraded to pledge other eligible collateral to secure their public deposit balances.
C. The qualified public depository completed an agreement covering the use of the letters of credit as eligible collateral as provided in Exhibit B.
D. The qualified public depository has not been notified by the Treasury Board that Federal Home Loan Bank letters of collateral shall not be allowed as eligible collateral because the Federal Home Loan Bank failed to pay a draw request as provided for in a letter of credit issued to secure public deposits.
COMPLIANCE AND REPORTING
A. The original letter of credit will be held by the Treasury Board.
B. A copy of the letter of credit will be forwarded to the depository.
C. The depository is required to include the value of the letter of credit on its monthly Listing of Collateral Pledged to Treasury Board Report.
D. Since the Treasury Board holds the original letter of credit, escrow agents are not required to account for the letter of credit or report the amount of the letter of credit on their monthly Listing of Collateral Pledged to Treasury Board Report.
Exhibit A - FEDERAL HOME LOAN BANK LETTER OF CREDIT STANDARD
FORMAT
Exhibit B - FEDERAL HOME LOAN BANK LETTERS OF CREDIT
AGREEMENT
Annual Audit Certification Guidelines for Public Deposits
VIRGINIA SECURITY FOR PUBLIC DEPOSITS ACT REGULATIONS – VAC-75-20-110
ANNUAL AUDIT CERTIFICATION GUIDELINES
Period to be covered: The 12 months preceding the end of the depository’s fiscal year.
For example, if December 31 was the close of a fiscal year, the certification must cover January 1 through December 31.
Due Date: Due 10 calendar days after June 30th of the calendar year immediately following the close of the fiscal year of the depository
Prepared by: A public depository’s independent certified public accountant or its internal audit department
Agreed-upon procedures:
In order to comply with the regulations, the agreed-upon procedures shall include but are not limited to the following:
Conduct a review to ensure all public deposit accounts are accurately reported on the weekly, monthly, and quarterly public deposit reports submitted to the Treasury Board.
If the population of Virginia public deposit accounts is large (i.e. more than 30) select a representative sample for review.
Review to ensure the adequacy of the depository’s process to identify bank accounts as public deposit accounts at the time the accounts are opened.
Review the adequacy of the depository’s process for compiling public deposit account balances in preparation of submission of the weekly, monthly, and quarterly public deposit reports to the Treasury Board.
Review for accuracy the official custodians reported on the quarterly public deposit reports submitted to the Treasury Board.
Review the depository’s process for identifying when additional collateral must be pledged to the Treasury Board when public deposit balances at the depository increase.
If additional collateral needs to be pledged, it must be pledged at the same time the additional deposits are accepted.
Review to ensure that CDARS public deposits are accurately reported on the monthly public deposit reports submitted to the Treasury Board.
Review for accuracy the federal deposit insurance coverage netted against public deposit balances on the weekly, monthly, and quarterly reports submitted to the Treasury Board. Test for the following: Virginia Security for Public Deposits Act Regulations Annual Audit Certification –Page 2 of 2 o FDIC coverage is properly calculated for public time and savings accounts (including NOW accounts and money market deposit accounts). o FDIC coverage is properly calculated for public demand deposit accounts. o FDIC coverage is properly calculated when the same individual is an official custodian of multiple public deposit accounts of one public entity. o FDIC coverage is properly calculated when the same individual is an official custodian for more than one public entity. o FDIC coverage is properly calculated when there is more than one official custodian of a public deposit account.
Reporting Format of Annual Certification:
State period covered by the Certification. For example: “This certification covers the depository’s fiscal year ended _____________. “
Address certification report to the depository’s management with the Virginia Treasury Board copied.
Have the certification signed and dated by the independent certified public accounting firm conducting the certification or the depository’s internal audit department.
Include a statement that the certification was conducted in accordance with attestation standards of the AICPA or the Institute of Internal Auditors (specify which one was used).
List the procedures performed to complete the certification and any related findings associated with each procedure. For public deposit accounts that were incorrectly omitted from SPDA weekly, monthly, or quarterly reports, include a list of the account name, account number, and account custodian.
Provide an update on the status of any findings noted in previous certifications.
Provide any restrictions or limitations encountered when conducting the procedures performed.
Submit a copy of the certification report by the required due date to Department of the Treasury, Operations Division, SPDA Accounting, P.O. Box 1879, Richmond, VA 23218-1879 or e-mail the certification report to SPDAMail@trs.virginia.gov.
Reference Material: The Security for Public Deposits Act, SPDA Regulations, SPDA Guidelines, collateral requirements and other pertinent data found at the Dept of the Treasury’s website at www.trs.virginia.gov under the Operations Div
Section 330.15 of the FDIC regulations governing the insurance of public unit accounts
Contacts:
SPDAMail@trs.virginia.gov or
Kristin Reiter at 804-225-3240; kristin.reiter@trs.virginia.gov
Kathy Green at 804-371-6009; kathy.green@trs.virginia.gov
Executive Summary
The enhanced compliance analysis of Department of the Treasury guidance documents has achieved an overall reduction of 33.3% across 2 documents.