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RPVCCA_CC_SR_2012_02_21_08_Proposed_RFP_City_Banking_RelationshipCITY OF MEMORANDUM RANCHO PALOS VERDES TO: FROM: DATE:. SUBJECT: REVIEWED: Staff Coordinator: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCI~ DENNIS McLEAN,DIRECTOR OF FINANCE &INFORMATION \.((Jf) TECHNOLOGY FEBRUARY 21,2012 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP CAROLYN LEHR,CITY MANAGER ~ Linda Gan-Vanderlinde,Senior Accountant RECOMMENDATION 1)Direct Staff to: a)Retain a consultant to perform a comprehensive evaluation of the banking products, services and technology currently provided to the City,as well as additional desirable cost-effective services and products,leading to the preparation of a Request For Proposals (URFP")for banking services;and b)Upon completion of the RFP,conduct a competitive process for banking services leading to a recommendation to the City Council to enter into an agreement for banking services with one qualified bank; 2)Separately develop a recommendation to the City Council to diversify a portion of the City's cash portfolio into the Certificates of Deposit Account Registry Service (UCDARS"),ensuring opportunities for selecting a local gateway bank. BACKGROUND Mayor Pro-Tem Campbell recently requested that consideration of changing the City's current banking relationship with Bank of America be agendized for consideration by the City Council. EXECUTIVE SUMMARY (Author's Note:the Executive Summary is intended to provide the reader with 2 page overview of Staff's findings and recommendations;therefore,certain points may be repeated in the body of this Staff Report) 8-1 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 2 of 11 The City has maintained its banking relationship with Bank of America for more than 15 years.Bank of America currently provides the City with checking,merchant credit card processing and purchasing cards services.The Government Finance Officers Association (GFOA)recommends that state and local governments establish a prbcurement process and assure periodic reviews of banking services.Although banking fees fluctuate with the volume of monthly transactions and offsetting earnings credits,the total annual checking and credit card processing fees range from about $26,500 to $30,000.Staff,with the concurrence of the City's Financial/Investment Advisor,does not expect that a competitive process for changing the City's banking services will lead to significant fee savings,if any. Staff expects that an RFP process and a change of the City's bank relationship would be a major undertaking for Finance &Information Technology staff and require at least 200 hours of staff time through implementation of the proposed bank change.With competing demands,Staff does not have sufficient people and time resources to prepare the RFP document;therefore,recommends the retention of an experienced treasury advisor to prepare the RFP and advise the City through the competitive process and establishment of a banking agreement.Staff believes that the cost of an advisor would range from $10,000- $14,000 requiring a budget adjustment. Staff,with the concurrence of the City's Financial/Investment Advisor,agrees with the GFOA's recommended Best Practices for procurement of banking services,including a thorough evaluation of current and desirable banking services,establishing an agreement for banking services with the selected bank and conducting an independent evaluation to determine whether the selected bank is financially sound.Staff,as well as its Financial/Investment Advisor,believes that it is essential that its depository bank must possess the expertise to adhere to the collateralization requirements of the Government Code.Although banks can outsource this responsibility,the City is best served by a bank with: ./A dedicated governmental banking organization;and ./A significant book of government accounts;hence,significant governmental experience. If the City Council's primary objective is to place deposits locally,the City's Financial/Investment Advisor has offered the following recommendation as an interim step: "The alternate proposal involves a program that we have discussed with you in the past -placement of time deposits using the "certificate of deposit account registry service"(or "CDARS").Using this approach may enable the City to accomplish the goal of a modest diversification of its deposit exposure without incurring the staff time and expense required to accomplish a wholesale review of its banking relationship at this time.It is our view that the transfer of a major portion of the City's balances to another institution might be costly,both in terms of what it pays for banking services and the amount of staff time and effort needed to accomplish the move." The City could move to begin participating in the CDARS private certificate of deposit 8-2 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 3 of 11 program.The placement service splits the invested funds into increments of $250,000 or less (the FDIC insurance limit through December 31,2013)and trades deposits with other participating institutions across the nation.This ensures that the depositor will have no more than $250,000 at anyone bank;thereby,all deposits would be protected by FDIC insurance. Malaga Bank participates in the CDARS program.In the event the City Council is interested in selecting Malaga Bank as the gateway bank (or any other participating bank) for the City's participation in CDARS,Staff recommends that the City's Financial/Investment Advisor conduct a limited review regarding the bank's financial condition. Finance &Information Technology senior staff is currently acting as project managers for the upgrade ofthe IT Plan,selection of the replacement ofthe SunGard accounting system with a Enterprise Resource Planning ("ERP"),the unexpected burdensome dissolution of the RDA and transition of its activities of the RDA's successor agency,selection of an IT consultant,revision of the City's cost-based fee system,as well as time intensive annual budgetary and storm drain oversight processes.Additionally,the City Council is nearing its completion of the establishment of its priority goals. Alternate Recommendation: In light of the competing demands,the City Council may elect an alternate recommendation to direct Staff to: 1)Begin the process leading to a recommendation to the City Council to diversify a portion of the City's cash portfolio into the Certificates of Deposit Account Registry Service ("CDARS"),preferably selecting a local gateway bank;and 2)Defer the competitive process for banking services to a future date certain to enable Staff to successfully complete the projects and tasks described above,as well as the City Council's priority goals. DISCUSSION Brief History The City has maintained its banking relationship with Bank of America for more than 15 years.Bank of America has a large portfolio of government clients nationwide,with more than 100 years of experience serving governmental agencies.Bank of America currently provides the City with: ~Checking services including online banking with three separate accounts:operating, payroll,and credit card processing; ~Merchant credit card processing for cashiering transactions originating at City Hall and the PVIC gift shop,as well as business license tax payment via the City's website;and ~Purchasing cards program. 8-3 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 4 of 11 Current Banking Fees -Ongoing Service and Fee Reductions During the last several years,staff has conducted a thorough review of its banking services with Bank of America that led to a reduction of checking service fees.Checking fees include the pass-through of the banks FDIC assessment,activity-based fees for depository, disbursement,wire transfers,ACH processing and on-line banking services.A monthly earning credit,based upon the average daily balance of positive cash flow,offsets the "gross"checking fees.During 2011,Staff conducted an informal competitive process that led to transferring the City's credit card processing services to Bank of America,saving at least $5,000 annually.Because purchase card accounts are paid timely,no fees are incurred.Although banking fees fluctuate with the volume of monthly transactions and offsetting'earnings credits,the total annual checking and credit card service fees range from about $26,500 to $30,000 as follows: Range of Total Annual Checking and Credit Card Service Fees -Net of Earnings Credits v.Gross - Excluding Earnings Credits "Gross"• Net of Earnings Excluding Credits Earnings Credits Annual checking fees (net of earning credits)$7,500 Annual checking fees (gross before earning credits)$11,000 Annual credit card fees $19000 $19,000 Total (range net of earnings credits v.gross - excluding earnings credits)$26,500 $30,000 Since the City has bundled a diversified service with Bank of America during the past several years,the City has experienced a very competitive rate structure.Therefore,Staff does not expect that a competitive process for changing the City's banking services will lead to significant fee savings,if any.In 2011,Bank of America was awarded the Judges Award as the Best Internet Banking Service Provider and the Best Payment System Initiative for its CashPro online banking system by The Banker Magazine.The City's Financial/Investment Advisor has reported that many small and medium sized regional banks sub-contract the use of the banking platform of Bank of America to service their own customers. Overview of the RFP and Implementation Process The RFP process would require: ~An evaluation and development of an inventory of the banking products,services and technology currently provided the City,the frequency and numbers of banking transactions,as well as additional desirable cost-effective services and products; 8-4 CONSIDER REQUEST FOR PROPOSAL·CITY BANKING RELATIONSHIP February 21,2012 Page 5 of 11 ~An evaluation and development of an inventory of how the banking products, services and technology integrates with other systems (ex.ACOM electronic check printing,ADP payroll processing,the City's website used for business license registration,the SunGard accounting system, electronic wire transfer and automatic clearing house transactions that impact City's revenue collection process with State, County and all other entities in terms of remittance of franchise fee,property tax, sales tax,utility user tax and transient occupancy tax,and bank reconciliation process) ~Development of an inventory of the electronic transaction agreements,ACH and EFT templates currently in place with vendors,government agencies and other banks (approximately 50 currently exist); ~The development of a questionnaire regarding the banks policies and procedures regarding funds availability,collateralization of deposits,collection and depository services,calculating earnings credits,presentation of checks for payment and controlled disbursements,overdrafts,electronic storage of the City's banking documents,credit card and checking fee calculations and other services. ~Creation of the RFP document; ~Project management of the RFP process,including responses to inquiries by banks, assessment and comparisons of proposals,attendance at presentation,bid- conference and analysis meetings,development of a banking agreement or memorandum of services (ex.collateral requirements)and drafting a report to the City Council;and ~At least a limited external review of the financial condition of the bank(s)under consideration,especially with on-going failures/closings of banks (Note:The City's Financial/Investment Advisor has provided several recommendations regarding monitoring the financial condition of the successor bank described later in the report). Upon execution of a banking agreement with the selected bank,required implementation processes (in addition to those described immediately above)include: ~Re-programming the ACOM electronic check printing software (estimated cost of $500); ~Replacement of credit card terminals and re-programming of card processing on the City's website,cashiering transactions originating at City Hall and the PVIC gift shop and accounting software (Note:based upon the recent migration of the City's credit card vendor,this will require up to 50 hours of staff and independent contractors time); ~Replacement of 25 purchasing (credit)cards issued to designated staff members, several members of senior management and Council members with an aggregate $200,000 credit limit; ~Redistribution of deposit slips,bank bags,night drop keys and other daily banking activities executed by members of Staff; ~Establishment and changes of Staff and bank processes for electronic transaction agreements,on-line banking,disbursement and deposits,statement reconciliations, rejected items,credit card transactions,stop payments,customer support services, as well as agreements for certain services as required (ex.wire transfers); 8-5 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 6 of 11 ~As discussed previously above in less detail,establishing new electronic transaction agreements with ADP and re-establish the account transfer template with ADP and other third party payments process,and ~Staff training for the processes described above,including a new on-line banking system,and the rules and the fee structure of the new bank. Staff has attached the GFOA Banking RFP Checklist to provide additional information about the RFP process and further evidence the depth and complexity of the process of changing the City's banking relationship. Staff Resources,Treasury Advisory Services and Possible Request for Budget Adjustment Staff expects that an RFP process and a change of the City's bank relationship would be a major undertaking for Finance &Information Technology staff and require at least 200 hours of staff time through implementation of the proposed bank change.Although several members of Staff have experienced a competitive banking process,staff does not have sufficient people and time resources to prepare the RFP document;therefore, recommends the retention of an experienced treasury advisor to prepare the RFP and advise the City through the competitive process and establishment of a banking agreement.Based upon Staff's intuition and discussions with two experienced advisors, Staff believes that the cost of an advisor would range from $10,000-$14,000.In the event the City Council directs Staff to proceed with the competitive process Staff will return with a request for a budget adjustment to appropriate the cost of treasury advisory services. Government Finance Officers Association -Best Practice -Procurement of Banking Services The Government Finance Officers Association ("GFOA")has issued and periodically amended its Best Practice regarding the procurement of banking services.The GFOA's Best Practice document includes the following: "The Government Finance Officers Association (GFOA)recommends that state and local governments establish a procurement process and assure periodic reviews of banking services." Staff agrees and believes that it has reviewed and successfully improved its banking services over the last several years.However,Staff also agrees with the following excerpts from the GFOA recommendations: "Governments should consider including the following practices in their procurement of banking services: 1.Periodically initiate a process of competitive procurement in accordance with the state and local laws and regulations,for major banking services.It is important to utilize independent bank evaluation services to verify creditworthiness of the financial institution prior to award of a contract and throughout the contract period. 8-6 CONSIDER REQUEST FOR PROPOSAL·CITY BANKING RELATIONSHIP February 21,2012 Page 7 of 11 2.Have contracts for banking services that specify services,fees,and other components of compensation.If applicable,this should include depository contracts that require that the custodian complies with collateral requirements. 3.Identify a primary relationship manager who will serve as a central point of contact, understand the needs of the entity and be able to offer recommendations for service improvements. 4.Evaluate the relative benefits and costs of paying for services through direct fees, compensating balances,or a combination of the two (blended).Factors to consider in this evaluation are the earnings credit rate,reserve requirements and insurance fees on deposits. 5.Evaluate the government's needs in comparison to the costs and benefits of specific baRking services. 6.A treasury management review and comprehensive evaluation should be performed prior to the issuance of an RFP to ensure that the treasury manager asked for all required and optional banking services.The preliminary work is necessary periodically to take advantage of changes in banking services and technology as new services become available.In the event that these services are procured through the use of a request for proposal,the request for proposal and the vendor response should be included as part of the contract." Staff agrees with the practices recommended by the GFOA described previously and underlined several important aspects not previously described in this report. Requirement for Collateralization of Deposits The California Government Code requires cash and investments of local public agencies to be collateralized,except to the extent they are FDIC-insured ($250,000 limit).Adherence to the legal requirements of collateralization is one important provision to protect the cash deposits and investments for taxpayer funds.The following excerpts are from information provided by Richards,Watson &Gershon: ~"Government Code Section 53649 requires that the contract provide for placement of pooled securities in a named agent of depository. ~The word "depository"as used in these provisions is the [qualified]financial institution. ~Section 53630 sets forth the eligible institutions.The "agent of depository"is designated by the depository for holding the securities pool serving as collateral for the local agency's deposits. ~Eligible institutions for "agent of depository"are the following:a trust company located in the State of California,the trust department of a bank located in the State of California,or the Federal Home Loan Bank of San Francisco,and in addition such institution must be authorized by the California Commissioner of Financial Institutions to act as an agent of depository. ~The depository would need to have a relationship with such an eligible "agent of depository"in order to be able to collateralize the local agency's deposits. ~Government Code Section 53656 provides that if the depository has a trust department,the trust department of the depository itself may serve as "agent of depository"only when acceptable to both the local agency Treasurer and the depository. ~The Government Code further specifies what securities are eligible to be purchased 8-7 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 8 of 11 for the securities pool serving as collateral for the local agency's deposits (see,e.g., Government Code Sections 53651,53651.2,53651.4,53651.6),which in some instances involve quite specific criteria. >-Section 53652 requires a market value of the securities held in the pool that is generally at least 110%of the total amount of the local agen~y's deposits,except that the market value for eligible promissory notes secured by first mortgages/first trust deeds must be at least 150%of the total amount of the deposits secured by such promissory notes,and the market value for eligible letters of credit issued by the Federal Home Loan Bank of San Francisco and purchased with the consent of the local agency's Treasurer shall be at least 105%of the deposits secured by such letters of credit." Government agencies,including the City of Rancho Palos Verdes,rely on the provisions of the Government Code to protect the cash on deposit and investments of their taxpayers. Staff,as well as its Financial/Investment Advisor,believes that it is essential that its depository bank must possess the expertise to adhere to the collateral requirement of the Government Code.Although banks can outsource this responsibility,the City is best served by a bank with: ./A dedicated governmental banking organization;and ./A significant book of government accounts;hence,significant governmental experience. Recommendation to the City Council to Diversify a Portion of the City's Cash Portfolio into the Certificates Of Deposit Account Registry Service ("CDARS") Background AB2011 (2006)authorized local agencies to invest their surplus funds in nonnegotiable CDs with a depository institution that is a participant in a private CD placement service. The CD placement service splits the invested funds into increments of $250,000 or less (the FDIC insurance limit through December 31,2013)and trades deposits with other participating institutions across the nation.This ensures that the depositor will have no more than $250,000 at anyone bank;thereby,all deposits would be protected by FDIC insurance.Currently,the only placement service of this type is the Certificate of Deposit Account Registry Service (CDARS)operated since 2001 by Promontory Interfinancial Network,LLC (Promontory)in Arlington,Virginia. CDARS Process The following excerpts from an Issue Paper published by the California Debt and Investment Advisory Commission in 2007 offer an overview how CDARS works: "A local agency interested in purchasing non-negotiable CDs through CDARS first selects a bank that participates in the CD placement service. The local agency signs an agreement with the participating bank that specifies the amount of investment,interest rate and maturity.The maximum investment amount per depositor currently is $50 million.CDs are offered in 4-week,13-week,26-week, 52-week,104-week (2 years),and 8-8 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 9 of 11 156-week (3 years)maturities.However,each participating bank has the option to select which maturities to offer its depositors. The participating bank places an order with CDARS to have the deposit divided into less than [$250,000]increments (principal plus interest).Each individual [$250,000]deposit is FDIC- insured. A transaction fee is paid by the banking institution to CDARS in the form of basis points per transaction on a sliding scale.While CDARS specifically prohibits this transaction fee from being passed on to the depositor,the banking institution may cover these fees in the interest rates offered for their CDs. In the ~vent of a bank failure,the Bank of New York as master custodian provides the electronic records to the FDIC for insurance coverage." General Considerations -CDARS The following excerpts from the Issue Paper published by the California Debt and Investment Advisory Commission offer several considerations and cautions: "CDs placed with CDARS are nonnegotiable,that is,there is not an active secondary market to buy and sell these investments.If the local agency needs to liquidate this investment prior to maturity,accrued-interest penalties are imposed:100 percent of accrued interest for 4-week and 13-week maturities,and 50 percent of accrued interest for longer maturities. CDARS prohibits member banks from passing the transaction fees on to the depositor.A random sampling of California's CDARS member institutions revealed a wide range of approaches to cover these fees.The responses included:absorbing the costs as a cost of doing business,evaluating the market weekly and setting CDARS rates to a brokered CD level, and offering a lower interest rate. Although CDARS rates could be lower than the rate received ifthe local agency invested directly with the banking institution,the local agency would be responsible for managing its deposits to ensure FDIC coverage.If the local agency decides to invest through CDARS,it should determine which bank offers the best rates for the services provided." Consideration -Malaga Bank as CDARS Gateway Bank Malaga Bank participates in the CDARS program.The following overview was obtained from the website of Malaga Bank: "Malaga Financial Corporation is the holding company of Malaga Bank,a full service community bank headquartered on the Palos Verdes Peninsula with branch offices on the Peninsula,Torrance and San Pedro.For over 26 years,Malaga Bank has been delivering competitive banking services to residents,businesses and community organizations of the South Bay.As the largest community bank headquartered in the South Bay,Malaga Bank remains committed to its standard of excellence in customer service and strong relationship- based banking philosophy." In the event the City Council is interested in selecting Malaga Bank as the gateway bank 8-9 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 10 of 11 (or any other participating bank)for the City's participation in CDARS,Staff recommends that the City's Financial/Investment Advisor conduct a limited review regarding the bank's financial condition. Recommendation by the City's Financial/Investment Advisor The City's Financial/Investment Advisor,Tim Schaefer,Principal of Magis Advisors,made the following recommendations regarding the City's banking relationship and investments in CDARS: "ISSUE PRESENTED You have posed the following question to us:"Should the City consider altering its banking relationship in order to better support local banks?"We believe that this may be unnecessary. SUMMARY The City may wish to consider an alternative as an interim step.The alternate proposal involves a program that we have discussed with you in the past -placement oftime deposits using the "certificate of deposit account registry service"(or "CDARS").Using this approach may enable the City to accomplish the goal of a modest diversification of its deposit exposure without incurring the staff time and expense required to accomplish a wholesale review of its banking relationship at this time.It is our view that the transfer of a major portion of the City's balances to another institution might be costly,both in terms of what it pays for banking services and the amount of staff time and effort needed to accomplish the move. CONCLUSION 1.We recommend that the City consider the CDARS program now as an interim diversification measure; 2.We recommend that the City maintain its current cash management and primary depository relationship,assuming no further deterioration in financial condition of the City's primary bank until the regulatory environment becomes more clear; 3.We recommend that the City begin gradual development of a framework for monitoring its banking relationship in a manner consistent with the GFOA recommendations cited above in order to be ready for changes in the regulatory environment and/or a change of primary depository; 4.We recommend that the framework for evaluating risk exposure to depositories not be finalized until the regulatory environment becomes more certain;and 5.We recommend that you develop a basic "minimum qualifications"level for any bank that you might solicit as a major depository of City funds to streamline the procurement process as much as possible." The City Council may wish to direct Staff to begin the process to select Malaga Bank as the gateway bank for its participation in CDARS and defer the competitive process for its banking relationship until a future date certain. CDARS Investment Strategy Although Staff,and the City's Financial/Investment Advisor,has not finalized a CDARS investment strategy,it would include a laddering of CD terms (ex.13-week and 26-week terms)staggered to spread interest rate risks and cash flow smoothing.The initial 8-10 CONSIDER REQUEST FOR PROPOSAL -CITY BANKING RELATIONSHIP February 21,2012 Page 11 of 11 investment would likely be less than $1 Million. Consideration -Deferral of Competitive Process for Banking Services Finance &Information Technology senior staff is currently acting as project managers for the upgrade of the IT Plan,selection of the replacement of the SunGard accounting system with a Enterprise Resource Planning ("ERP"),the unexpected burdensome dissolution of the RDA and transition of its activities of the RDA's successor agency,selection of an IT consultant,revision of the City's cost-based fee system,as well as time intensive annual budgetary and storm drain oversight processes.Additionally,the City Council is nearing its completion of the establishment of its priority goals. Alternate ·Recommendation In light of the competing demands,the City Council may elect an alternate recommendation to direct Staff to: 1)Begin the process leading to a recommendation to the City Council to diversify a portion of the City's cash portfolio into the Certificates of Deposit Account Registry Service ("CDARS"),preferably selecting a local gateway bank;and 2)Defer the competitive process for banking services to a future date certain to enable Staff to successfully complete the projects and tasks described above,as well as the City Council's priority goals. FISCAL IMPACT Staff expects that an RFP process and a change of the City's bank relationship would be a major undertaking for Finance &Information Technology staff and require at least 200 hours of staff time through implementation of the proposed bank change.Additionally, Staff does not have sufficient people and time resources to prepare the RFP document; therefore,recommends the retention of an experienced treasury advisor to prepare the RFP and advise the City through the competitive process and establishment of a banking agreement. Based upon Staff's intuition and discussions with two experienced advisors,Staff believes thatthe cost of a treasury advisor would range from $10,000-$14,000.In the event the City Council directs Staff to proceed with the competitive process as recommended,Staff will return with a request for a budget adjustment to appropriate the cost of treasury advisory services.Staff does not expect that a competitive process for changing the City's banking services will lead to significant fee savings,if any. ATTACHMENTS GFOA Banking RFP Checklist 8-11 Banking RFP Checklist Note:This document should not be used as a substitute for developing an RFP specifically for your government's unique needs,requirements,and procurement practices. Section 1 -Introduction 1.Summary of RFP D State why the government is issuing an RFP (e.g.,previous contract expired,new services needed,something has changed to create a need,etc.) D Briefly list required and optional service areas D State the government's intent,if applicable,to award full or partial services (bundled/unbundled) D State anticipated start date and duration of banking services agreement (include initial contract periods with options for extension,if possible) 2.Background information on the government Provide a short section with relevant background information on the government with a focus on the current banking situation,including: D Government structure and community background (including population) D Current accounts and average collected balances,noting types of accounts (ZBA,MMA, etc.) D Number of employees and percent paid by direct deposit or pay cards 3.Timeline for the procurement process Provide a brief,specific timeline with key milestones,including: D Issue date of the RFP D Timeframe for questions about the RFP and the government's responses to the questions, with specifics on how to submit questions.(Some governments may also choose to hold a pre-bid conference.) D Date and method for submitting the bank's RFP response D Interview and/or demonstration dates (if required) D Contract approval D Implementation 4.Minimum bank qualifications List the government's minimum requirements in order for a bank to be considered.For example: D A banking corporation authorized to do business in the state. D Geographic proximity to the government (specify government's requirements). D Compliance with bonding requirements (if applicable). D Compliance with state and local laws. D Ability to provide collateral (if applicable)on all deposits. D Submission of: •Call report for prior period •Rating agency rating (Veribanc,Highline,etc.) •Community Reinvestment Act (CRA)rating ©GFOA 8-12 Section 2 -Scope of Banking Services In this section,describe the services that the government is seeking in the RFP.Clearly indicate which services are required and which are optional.For each service,briefly describe how the government currently uses the service and what the government expects from the bank. •Indicate any specific needs or any unique qualities that the government might have. •Specify any deadlines or time constraints the government might have. •Provide historical usage data (or estimates)for all services currently being used.Governments seeking a new service that lacks historical data may:(a)need to estimate usage numbers based on peer governments'experience (or other methodology)and/or (b)estimate a range of transactions per service.Governments should indicate that these are estimates,but not guarantees of service level requirements. •Use open-ended questions to identify differences between banks rather than setting specific requirements. Require the bank to describe my alternatives,enhancements,or improved methods of providing the services mentioned in the RFP.In addition,ask the bank to describe any products or services not specifically mentioned in the RFP that the bank believes would be beneficial to the government Below is a list of core and optional services that governments typically include in an RFP. 1.Wire Transfer Services o Describe the government's requirements for incoming,outgoing,and other wire transfers. o Request that the bank describe its service,including: •Policy on daylight overdrafts,including aggregation of accounts and wire deadlines. •Ability of government to initiate and monitor wire transfers online. •Ability to create and store recurring/repetitive wire instructions/templates. •Ability to create and store future-dated wire instructions. •Security measures for wire initiation and approval. 2.ACH o Describe the government's current use of and requirements for this service: •Describe how ACH will be used.This might include direct deposit for payroll disbursements,collections for utility billing accounts,payments to credit card vendors,and any other anticipated payments. •Provide estimated number of ACH debit and credit transactions per account. •Request that the bank be both a sending and receiving bank of the National Automated Clearing House Association (NACHA). o Request that the bank describe its service,including: •Method by which the government can submit ACH files or initiate ACH via bank software •Pre-notification policy and cost •Re-presentment of checks (RCK)through ACH on a targeted date •Security measures for ACH initiation/origination and ACH reception (ACH filters and blocks) 3.Availability of Funds o Specify expectations regarding the availability of funds.Ask whether availability policies differ from Federal Reserve Bank availability schedule o Request the bank's policy on receiving same day credit for deposits.Require same day credit for US obligation security maturities and coupon flow,on-us checks,and wires. o Ask the bank if an expedited availability is offered. ©GFOA 2 8-13 4.Monthly Statements and Acconnt Analysis D Describe the government's requirements for this service. D Request a sample copy of the bank's monthly statement and account analysis. D Request that the bank describe its service,including: •When reports are available and how they are made available (e.g.,online). •How long report images are maintained online. •The bank's dispute resolution process. 5.Collection and Deposit Services D Describe the government's current use of and requirements for this service. D Request that the bank describe its service,including: •Cutoff times and requirements by location (vault,teller,bank center,branch) •Bank policy on strapped/rolled and pricing basis •Credit advice processing (online or mailed) •Discrepancy and write off policies •Type of deposit bag used/required •Change order processing •Standard return and re-clear processing •Deposit locations •Deposit reconciliation services availability 6.Remote Deposit Services including Check Truncation and Check Conversion D Describe the government's current use of and requirements for this service. D Request that the bank describe its service,including: •Scanning equipment (lease options),software,transfer procedures,batching,and security. •Portal entry or stand-alone service. •Deadlines for same day credit of deposits •Document retention policy for checks converted to ACH or processed via remote deposit capture •Liability for fraudulent deposit items. 7.Collateralization of Deposits D Describe the government's statutory requirements for this service,including: •Funds to be collateralized •Eligible collateral instruments •Marking-to-market reporting requirements •Margin requirement •Independent third party safekeeping requirement •Substitution requirements D Request that the bank confirm agreement to the government's conditions. D Request name of custodian to be used. 8.Lockbox (Wholesale and Retail) D Describe the government's current use of and requirements for this service,including: •Type of services required (e.g.,wholesale or retail,imaged or paper) •Types of payments received and percent from each category (e.g.,consumer checks, business checks,credit card payments,etc.).Include remittance document sample. •Geographic origination locations •Current lockbox address and location requirement o Breakdown on wholesale versus retail processing ©GFOA 3 8-14 •Average weekly amounts and cycles •Number and type of transactions (full and partial payments) •Critical dates/cycles associated with the government's billing cycle •Error tolerance D Request that the bank describe its service,including: •Deadline and format of data transmissions •Current lockbox address and location requirement •Breakdown on wholesale versus retail processing •Locations of processing centers •Handling of unprocessable items or return items •How processing errors are resolved and expected timeframes for resolution •Remittance document layout requirements •Timing requirements •Transmission requirements (bank to government and government to bank) •Treatment of exception (non-standard,unprocessable,walk-in)items •Imaging capabilities •Conversion of consumer checks to ACH payments •Disposition of documents (including imaging capabilities and truncation) 9.Online Banking Services D Provide information on the government's financial management system and the formats that it accepts for receiving banking data. D Request information on how banking data can be interfaced or integrated with the government's financial management system,and what support will be available under the contract. D Ask how and when training will be provided for on-line services. D Request that the bank provide a detailed description of its online services and a list of all capabilities,including its ability to provide the following basic services: Reporting: •Daily balance reporting -summary •Daily balance reporting -detail (with check detail and images) •Daily ACH and wire with full addenda information •Current day reporting •Intra-day reporting (real time or delayed),optional Execution of Transactions: •Transfers between accounts •Initiation of wire transfers •Initiation of stop payment orders •Positive pay actions including time requirements •Initiation of ACH transactions;recurring/repetitive/future ACH debit (collection)or credit (direct deposit)transactions •Maintenance of wire transfer templates •Stale-dating of checks •Other services such as EDI,remote collection,controlled disbursement •Confirmations availability and format Internal Controls: •Online cleared check information/images •Multi-level security administration requirements ©GFOA 4 8-15 •Positive pay reports (including imaging of exception items). •Training of government's system administrator for managing access. 10.Electronic Storage of Documents D Request information on electronic document storage options (e.g.,archiving by CD or online and retention periods) 11.Vault Services D Describe the government's current use of and requirements for this service. D Require differentiation on branch,banking center,and vault services (locations) D Give an example deposit and have bank calculate the fees involved on it for comparison purposes between banks. D Request that the bank describe its service (deadlines,preparation) 12.Payment Card Services . D Describe the government's current use of and requirements for this service,including: •Number of sites where cards are accepted •Average ticket type (debit/credit,MasterCardNisa,etc.)and size per site •Average volume per site •Percent of volume that is a card present swipe versus the percent of volume that is taken over the telephone,mail,or internet. •Make and models of any point-of-sale terminals that the government owns. D Request that the bank describe its service,including: • A description of the process •Rate and fee structure with breakdown of all fees (bank and association) •Time period that pricing is guaranteed for and how customers are notified of a price change. •Type of point-of-sale terminals required and the cost or lease options per terminal (or the cost to reprogram government's existing terminals). •Software that is provided and the support and training that are available •Charges for multiple merchant accounts •Percentage of downtime and notification of down periods •Guarantees against "down time"with service •Reporting and availability of reports •Clearing time lag between deposit and posting •Security features -including account number encryption and purging policy •Payment Card Industry (PCI)data security standard compliance and liability •Chargeback policy (including the bank's role in this process). •Customer service procedures •Wireless service availability •Type of processor (e.g.,front-end,back-end) 13.Interactive Voice Response/Interactive Web Response (IVRIIWR)Functionality D Describe the government's current use and requirements for this service. D Request that the bank describe its service. 14.Purchasing Card Services D Describe the government's current use of and requirements for this service,including: •Number of cards that will be issued •Annual total purchases and average card volume per card •Average transaction amount ©GFOA 5 8-16 D Request that the bank describe its service,including: •Online card management processes:new card issuance,deletion,replacing, modifying,etc. •Settlement terms/billing cycle options •Payment options •Card control and usage restriction options •Information reporting capabilities -paper vs.electronic •Technical capabilities -Internet •Security features -including account number encryption policy •System requirements •References •Interface options with internal financial systems,specify interface requirements •Fraud policy •Rebates for purchases 15.Stored Value Cards D Describe the government's current use of and requirements for this service. D Request that the bank describe its service,including: •Availability of service •Bank's experience •Online initiation and update requirements •Dormancy •Multi-lingual services and customer support •Service charges to users •Turnaround time for issuing new cards 16.Overdraft Processing D Describe the government's history on overdrafts. D Request that the bank describe its service,including: •Whether accounts are aggregated for calculation/fee purposes •Rate basis for overdrafts •Rate basis and definition of "daylight overdrafts" 17.Controlled Disbursement Services D Describe the government's current use of and requirements for this service. D Request that the bank describe its service,including: •Availability of service •Location of collection point (endpoints) •Endpoint check cashing policies •Number and timing of daily Fed letters •Funding alternatives •Transmission alternatives •Imaging options 18.Account Reconciliation Service D Describe the government's current use of and requirements for this service. D Request levels of reconciliation service (partial,full,deposit) D Request sample reports from the bank. D Request that the bank describe its full,partial,deposit and serial sort reconciliation services,including: •File transmission deadlines •File layout requirements ©GFOA 6 8-17 • • • Imaging capabilities and availability Reporting capabilities -(e.g.paper,electronic) System requirements for interface 19.Positive Payor "Payee"Positive Pay Service D Describe the government's current use of and requirements for this service. D Request sample reports from the bank. D Request that the bank describe its service,including: •Positive pay services and verification items •Teller data update schedules •Data transmission methods and time windows •Control options -notification default •Internet/online access (including technical capabilities and system requirements) 20.Stop Payment Services D Describe the government's current use of and requirements for this service. D Request that the bank describe its service,including: •Online stop payment services (initiation and renewal) •Confirmation requirements •Duration of a stop payment (e.g.,six months or in perpetuity)and renewal processing options. 21.Safekeeping Services D Describe the government's current use of and requirements for this service,including: •Average volume and clearing type •Request safekeeping process when handled through correspondent bank •Require delivery versus payment settlement and get confirmation of requirement. D Request that the bank describe its service,including: •Charge breakdown on clearing •Safekeeping •Income distribution ©GFOA 7 8-18 Section 3 -Bidding Instructions It is critical to the success of the RFP process that the government provides clear bidding instructions along with finite timelines for completion and submittal.The timeline for the process needs to be described in detail and needs to allow ample opportunity and time for the banks to provide their responses. 1.Timeline for the procurement process Provide a detailed timeline with key milestones including: o Issue date of the RFP o Timeframe for questions about the RFP and the government's responses to the questions, with specifics on how to submit questions.(Some governments may also choose to hold a pre-bid conference.) o Date and method for submitting the bank's RFP response o Interview and/or demonstration dates (if required) o Contract approval o Implementation 2.List information that banks must submit with proposal forms o General banking information •Financial strength •Capital ratios,asset quality,earnings,liquidity,sensitivity to market risk,deposits,and loans. •Financial statements for the past two fiscal years (with an unqualified opinion from a certified public accountant).Require the bank to resubmit its financial statements for each year of contract. •Call reports for the last four quarters or credit rating information for senior and subordinate debt from a recognized credit rating agency (e.g.Moody's,S&P,etc.) •Rating information from recognized bank rating agencies (e.g.Veribanc,Highline,etc.). •Confirmation from the bank that it will communicate to the government any changes in its credit rating or bank rating during the contract period. •Proof of current standing as an eligible public depository •Community Reinvestment Act (CRA)rating and rating authority.Include information on the bank's CRA activity within the government's jurisdiction. •Bank locations (main office and branches near the government) •Description of industry standard index and spread upon which available balances earn interest or earnings credit by account type.(The government might choose to specify the index and spread that it is looking for.) •Funds availability schedule and policy (if it differs from schedule) • A copy of the bank's proposed custodial agreement for the collateral pledged to secure the government's account,if applicable.Requirement for execution of the agreement under FIRREA requirements. •Confirmation that the bank will adhere to government's collateral policy. •Bank's disaster recovery plan (back-up sites and system back-up process). •Description of the bank's dispute resolution and customer service/feedback process. o Incentives offered by the bank for transition or retention. o Account servicing ©GFOA 8 8-19 • • • Designated account representative.(Representative should have sufficient decision-making authority within the bank in order to resolve issues.In addition,the representative should have a strong understanding of the government's operations.) Back-up staff person Bios of all personnel assigned to the government o References (including two comparable public entities) D Fee attachment listing pricing for required and optional services.To facilitate comparison between banks,the government should provide banks with a standard form/spreadsheet and include the government's transaction volumes. D Historical rate attachment that gives the average of interest bearing options for the prior 12 months (interest bearing accounts,money market accounts,ECR,and sweep rates) o Transition plan approach and time line defining implementation periods and defined responsibilities. 3.List the government's standard procurement requirements,for example: (The following list is merely an example and should not replace your government's standard procurement requirements.) D State that the government intends to enter into a formal banking services contract with the awarded bank that will incorporate all provisions of the RFP and bank response.Additional terms and conditions will not be included in the contract unless mutually agreed to by both parties. o Require proposers to complete proposal forms.No proposal will be considered without completion of these forms.If a bank is unable to meet or exceed the requirements specified,then the phrase "no proposal"should be entered for that particular item. o Reserve the right to reject any or all bids,and select the best bid in the opinion ofthe government entity. o Reserve the right to eliminate any individual service contained in the proposal,if based on analysis,the fees for providing the service are excessive,or if the service proposed can be performed in an alternative manner. o Require banks to separately list their exceptions to RFP specifications,with the proviso that exceptions will otherwise be invalid. o Prevent unauthorized changes of the specifications,forms,or terms,which may render the response invalid. o Declare that the failure to enter into a subsequent contract/agreement within a certain time period will render the response invalid. o Provide that a subsequent contract/agreement may be terminated by the bank on 180 days written notice or by the government with 90 days notice (or some predetermined number of days).The time selected should be sufficient for a new RFP to be issued and an award made. o Include an indemnification section that states the limited liability of the government. ©GFOA 9 8-20 Section 4 -Proposal Evaluation There are differing viewpoints about the use of scoring systems to evaluate bank RFP responses.Two different approaches are presented below.The appropriateness of either approach will depend on your government's procurement practices. One approach is to evaluate bank RFP responses using a scoring system in which precise weights are given to various criteria.These weights (and the objectives upon which they are based)should be clearly described in the RFP so that banks know how proposals will be evaluated.Advocates of this approach argue that a scoring system is an effective way to demonstrate to banks that the evaluation process is objective and without favoritism. Another approach is to not use a precise weighting or scoring system to evaluate RFP responses. Advocates of this approach argue that,while it is important to provide as much evaluative information to the banks as possible,governments should retain flexibility in judging the proposals.For example,there may be non-quantifiable aspects of a bank that should be incorporated into the selection process,and imposing a precise weighting scheme may hamstring the selection team. One key factor to remember with either approach is that there are three areas in which the bank must be evaluated:service capabilities,fees,and earnings options. 1.Describe the proposal evaluation process. 2.Describe the government's evaluation criteria,which may include: o Financial strength (may be an additional evaluation criterion,or it may be a minimum qualifying standard.) o Ability to meet the government's current and projected service requirements over the term of the banking agreement (any past experiences with the bank will be taken into consideration) o Best availability schedule for deposit items o Capacity to provide a wide range of electronic banking services o Cost per identified activity,aggregate banking services cost,and corresponding compensating balances (if applicable). o Best rate of interest paid historically on accounts (including evaluation of indexed rates) D Best earnings credit rate (ECR) D Experience and governmental knowledge of bank team o Quality of references o Completeness of response to all required items on the standard forms provided 3.Provide a copy of the government's evaluation form (if one will be used). Section 5-Other Attachments Include the following documents with the RFP (or provide website links): o Government's annual financial report o Government's investment policy,including collateral requirements and statutory certification o Standard contract documents (if applicable),including: •Banking services agreement •Wire transfer agreement •Collateral agreement ©GFOA 10 8-21