Elements of Cash Management (Treasury Function)

Transcription

1 Cash Management World Bank Workshop Ministry of Finance Officials, Afghanistan Washington, D. C. September 12, 2007 A. John Vogt, Professor of Public Finance & Government, School of Government The University of North Carolina at Chapel Hill

2 Elements of Cash Management (Treasury Function) Collection of taxes,& other revenues due (Conversion of receivables to cash) Safekeeping of collected cash: cash in depository institutions, on hand, or elsewhere Investment of temporarily idle funds: objective (s), available investment instruments, safekeeping of invested funds, etc. Expenditure & disbursement of funds Control of cash management

3 Importance of Cash Management Efficient and honest cash management is a foundation for a government s credibility, for the confidence that citizens and taxpayers have in government Efficient and honest cash management can enable a government to hold down or reduce tax rates and fees or charges

4 Framework for Effective Cash Management Laws: tax and revenue assessment & collection, use of depository institutions, investments, expenditure & disbursement control Policies & procedures:. Addressing, for example, segregation of duties in collections, investment objectives. Surety bonds on officials collecting or handling cash: Such bonds protect governmental entity against officials & employees. Types: honesty, true accounting, faithful performance, Periodic reporting on cash management to governing authority, public, regulators External or independent audit or check of cash management activities & officials

5 Collection of taxes & other revenues Determine amounts due Bill as soon or as possible Decide on more centralized or decentralized cash collection points (control versus convenience to tax payers) Determine/approve procedures for any official collecting cash. Take advantage of electronic collection methods for taxes and fees.

6 Collection of taxes & other revenues Require daily or frequent deposit of collections to depository institution or with Treasurer. Require daily cash collection report from any collection official Do not delay in obtaining intergovernmental revenues or grant proceeds when they are payable or available. Enforce penalties and be as respectfully aggressive on delinquent accounts as possible.

7 Banking Have governing authority formally approve any bank or depository institution in which tax and other revenue collections are deposited, or from which payments are made. Insure or collateralize full value of money held in depository institutions. Evaluate financial condition of any depository institution before using it Utilize a central depository system: Such a system would consist of one or as few collection accounts as possible, a payroll account, an accounts payable account, and perhaps some other accounts for special funds. Such a centralized system relies on accounting records to track the equity of different funds in the central depository.

8 Banking Identify needed and available banking services: lock box tax collection service, electronic drafting of taxpayer & enterprise customer accounts, zero- balance disbursement accounts with daily sweep into overnight investments, safety deposit or vault services, positive pay for disbursements, etc. Negotiate for or use request for proposal to select among banks capable of serving as official depositories Obtain and reconcile periodic bank statements. Should be done by someone who is not part of the collection & banking process.

9 Investment of idle funds Which funds, perhaps all, may be invested? Which officials are authorized to make investments? Governing board or authority should specifically provide such authorization. Should the investment function be contracted, in whole or part? What are the objectives of the investment program? Safety of principal & liquidity should take precedence over yield. What are the authorized investment instruments or securities? Operating funds should be invested only or predominantly in money market securities (maturities of around a year or less) What limitations concerning maturity, diversification, etc. should be placed upon the investment portfolio, on individual investments?

10 Investment of idle funds How are investment securities bought and sold negotiation, informal bidding, etc. Use of an investment trading agreement. How are investment securities safeguarded? They should be in the name of the governmental entity. Either that entity or its third party safe keeper should hold the securities. If a third party safe keeper is used, this should be pursuant to a contract. What kind of reporting should be done by the investment officer to the governing authority? Yearly, quarterly, monthly? Content of reports. Should there be an oversight/advisory committee for the investment program?

11 Investment of idle funds Is there a cash forecast to help determine the amount of temporarily idle funds & make decisions about investment maturities? What investment strategies are used? Maintenance of liquidity buffer Staggering maturities with disbursement dates Matching investments with certain liabilities Diversifying into higher yielding, yet safe, securities Extending investment maturities, marginally, to take advantage of increase yield. Trading & swapping securities before maturity, to increase yield Investing portions of the portfolio in equities, real estate, economic development ventures, etc.

12 Expenditure Control & Disbursements Expenditure or pre-audit control: Verification that proposed contract, purchase order, or other obligation is covered by budget Who does pre-audit? Budget or finance officer, delegation to departmental officials, etc. Who must approve such delegation? Disbursements Approval to determine if requested disbursements are covered by budget, are payable, etc.?. Who approves disbursements? Who signs checks or authorizes drafts? Are dual signatures required? Should be someone other than the official approving disbursement (s). Use and control of signature machines/stamps

13 Expenditure Control & Disbursements Disbursement procedures: Process accounts payable on a regular schedule, e. g., weekly or monthly Evaluate & take advantage of discounts for early payment Otherwise, pay as close to the due date as possible. Use separate account and procedures for payroll. When available and feasible, use electronic payments for disbursements Avoid or minimize manual checks

14 Control of Cash Management Technology can help with control Require departmental cash control plans Build in redundancy, segregation of duties. Create Internal audit function Use risk based auditing Use bank that has positive pay capacity Have vendor management system Control use of credit & debit cards by officials & employees Vary officials who approve disbursements Reconcile banks statements on timely basis Check backgrounds of applicants for finance positions Have external, independent audit Create audit committee