cashmanagementvogt

7/31/2019 CashManagementVogt

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Cash Management

World Bank WorkshopMinistry of Finance Officials, Afghanistan

Washington, D. C.

September 12, 2007A. John Vogt, Professor of Public Finance &Government, School of Government The

University of North Carolina at Chapel Hill


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Elements of Cash Management

(Treasury Function)

Collection of taxes,& other revenues due

(Conversion of receivables to cash)

Safekeeping of collected cash: cash indepository 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


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Importance of Cash

Management

Efficient and honest cash management is a

foundation for a governmentscredibility, for the confidence that citizensand taxpayers have in government

Efficient and honest cash management canenable a government to hold down or

reduce tax rates and fees or charges


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Framework for Effective Cash

Management

Laws: tax and revenue assessment & collection,use of depository institutions, investments,expenditure & disbursement control

Policies & procedures:. Addressing, forexample, segregation of duties in

collections, investment objectives. Surety bonds on officials collecting or

handling cash: Such bonds protectgovernmental entity against officials & employees.

Types: honesty, true accounting, faithfulperformance,

Periodic reporting on cash managementto governing authority, public, regulators

External or independent audit or checkof cash management activities & officials


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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 ofelectronic collection

methods for taxes and fees.


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Collection of taxes & other

revenues

Require daily or frequent deposit of

collections to depository institution orwith Treasurer. Require daily cash collection report from

any collection official

Do not delay in obtainingintergovernmental revenues or grantproceeds when they are payable or

available. Enforce penalties and be as respectfully

aggressive on delinquent accounts aspossible.


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Banking Have governing authority formally approve

any bank or depository institution in which tax and

other revenue collections are deposited, or fromwhich payments are made.

Insure or collateralize full value of money held indepository institutions.

Evaluate financial condition of any depositoryinstitution before using it

Utilize a central depository system: Such a

system would consist of one or as few collectionaccounts as possible, a payroll account, an accountspayable account, and perhaps some other accountsfor special funds. Such a centralized system relies

on accounting records to track the equity of differentfunds in the central depository.


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Banking

Identify needed and available banking services:lock box tax collection service, electronic drafting oftaxpayer & enterprise customer accounts, zero- balancedisbursement accounts with daily sweep into overnight

investments, safety deposit or vault services, positivepay for disbursements, etc.

Negotiate for or use request for proposal toselect among banks capable of serving as official

depositories Obtain and reconcile periodic bank statements.

Should be done by someone who is not part of thecollection & banking process.


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Investment of idle funds Which funds, perhaps all, may be invested?

Which officials are authorized to make investments?

Governing board or authority should specifically providesuch authorization. Should the investment function becontracted, in whole or part?

What are the objectives of the investment program?

Safety of principal & liquidity should take precedence overyield.

What are the authorized investment instruments orsecurities? Operating funds should be invested only or

predominantly in money market securities (maturities ofaround a year or less)

What limitations concerning maturity,diversification, etc. should be placed upon the

investment portfolio, on individual investments?


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Investment of idle funds

How are investment securities bought and

soldnegotiation, informal bidding, etc. Use of aninvestment trading agreement.

How are investment securities safeguarded?They should be in the name of the governmental

entity. Either that entity or its third party safekeeper should hold the securities. If a third partysafe keeper is used, this should be pursuant to acontract.

What kind of reporting should be done by theinvestment officer to the governing authority?Yearly, quarterly, monthly? Content of reports.

Should there be an oversight/advisorycommittee for the investment program?


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Investment of idle funds

Is there a cash forecast to help determine the

amount of temporarily idle funds & make decisionsabout 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 takeadvantage of increase yield.

Trading & swapping securities before maturity, toincrease yield

Investing portions of the portfolio in equities, realestate, economic development ventures, etc.


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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 mustapprove such delegation?

Disbursements

Approval to determine if requested disbursementsare covered by budget, are payable, etc.? .

Who approves disbursements?

Who signs checks or authorizes drafts?

Are dual signatures required? Should be someoneother than the official approving disbursement (s).

Use and control ofsignature machines/stamps


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Expenditure Control &

Disbursements

Disbursement procedures:

Process accounts payable on a regularschedule, e. g., weekly or monthly

Evaluate & take advantage of discounts forearly payment

Otherwise, pay as close to the due date aspossible.

Use separate account and procedures for

payroll. When available and feasible, use electronic

payments for disbursements

Avoid or minimize manual checks


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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 haspositive pay capacity

Have vendormanagement system

Control use of credit &

debit cards by officials& employees

Vary officials whoapprove disbursements

Reconcile banksstatements on timelybasis

Check backgrounds ofapplicants for financepositions

Have external,independent audit

Create audit committee

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