Federal Financial Assistance 12/31/1994

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FINDING: Deficiencies in Collateral for Deposits CONDITION: CRITERIA: Ilmar At July 31, 1994, the City had total deposits of $3,460,164.21 at Firstar Bank, requiring collateral with a fair market value of $3,587,928.62. The fair market value of the collateral pledged was $1,894,668.35, resulting in a deficiency of $1,693,260.27. Minnesota Statute 118 provides certain specific collateral requirements for deposits as follows: 118.01 DEPOSITORY BONDS AND COLLATERAL. Subd. 1. Any bank, trust company or thrift institution authorized to do business in this state may, in lieu of the corporate or personal surety bond required to be furnished to secure deposited funds, deposit with the custodian of the funds as collateral security, notes secured by first mortgages of future maturity, upon which interest is not past due, on improved real estate free from delinquent taxes, within the county wherein the depository is located, or within counties immediately adjoining the county in the State of Minnesota, the obligations which are legally authorized investments for debt service funds under section 475.66, subdivision 3, and qualified state or local government obligations acceptable to the treasurer or chief financial officer. Qualified obligations must be general obligations rated "A" or better by Moody's Investors Service, Inc. or Standard & Poor's Corporation. Subd. 2. Except for notes secured by first mortgages of future maturity, the total in amount of the collateral computed at its market value shall be at least ten percent more than the amount on deposit at the close of the business day, in excess of any insured portion, which would be permitted if a corporate or personal surety bond were furnished. The total amount of collateral consisting of notes secured by first mortgages of future maturity computed at its market value shall be at least 40 percent more than the amount on deposit at the close of the business day, in excess of any insured portion, which would be permitted if a corporate or personal surety bond were furnished. The depository may furnish both a bond and collateral aggregating the required amount. Subd. 3. Any collateral so deposited shall be accompanied by an assignment thereof to the municipality from the depository. The assignment shall recite that the depository shall pay over to the treasurer or chief financial officer on demand, free of exchange or any other charges, except for early withdrawal penalties on time deposits, all money deposited therein at any time during the period the collateral shall be so deposited and shall pay the interest thereon when due at the agreed rate; and that, in case of any default upon the part of the depository, the governing body of the municipality or the treasurer or chief financial officer may sell the collateral, or as much thereof as may be necessary to realize the full amount due the municipality and to pay over any surplus to the depository or its assigns.