Managing Cash Flow in the Real World

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Managing Cash Flow in the Real World

• Kent Austin, CPFO
• Director of Finance
• City of University Park, Texas
• GFOAT Spring Institute
• April 14, 2008
• Austin, Texas

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Why the real world?

• Ground-level view vs. 50,000 feet
• Techniques for use on a daily basis
• Hands-on applications not requiring a CCM or CTP
  designation

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University Park is it the real world?

• Four square miles, population 23,100
• Home of SMU, tax base 92 residential
• Average SF home value 1.162 million
• 2008 City Council election canceled

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Bond burning ceremony11 / 5 / 2002
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Why manage cash flow?

• Ensure liquidity of funds for daily outflows
• Optimize interest earning ability
• Avoid embarrassing O/D fees
• ID irregularities errors fraud
• Stay current on recs

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Related topics

• Investment management
• Account reconciliations
• Credit cards
• Bank services

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Cash management circa 1997

• No online account monitoring ability
• No current record of outstanding payables or
  convenient record of deposits
• Repo receipts arrived in mail two days later
• Adequate balances ensured via the Lisa Method
  (You need money today)

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Assembling the pieces

• ID inflows where they come from, how much, how
  certain
• ID outflows same objectives
• Build a working model e.g. Excel worksheet

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Inflows (Deposits)

• Physical prepared deposits utility bill
  payments, court fines, building permits
• Credit card payments (ACHs)
• Investment activity maturities, interest
  income, pool withdrawals
• EFTs sales tax, wireless 9-1-1
• Property tax wires/ACHs DCTO
• Lockbox deposits utility payments

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Outflows (Disbursements)

• Vendor payables controlled disbursement service
  a MUST
• Payroll PDD
• Investment activity purchases, pool deposits
• Third-party administered payments (health and
  property insurance claims)
• Debt service

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Assemble source documents

• Check register from A/P
• Investments inventory sorted by maturity and by
  coupon date
• Cashier deposit slips
• Biweekly payroll and related items
• Online same day bank report
• Emailed notifications

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Build cash worksheet

• Start with knowns
• Estimate unknowns
• Use Previous Day bank report to ensure all
  activity is captured
• Formula Previous Day balance Receipts -
  Disbursements

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Cash flow worksheet
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Cash worksheet with comments
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Maximize certainty!

• Controlled Disbursement a must
• Online bank reporting Previous and Same Day a
  must
• Investments maturity and coupon schedules
• Payroll direct deposit

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Using the worksheet

• Locate worksheet on shared drive
• Train staff to enter their activity e.g.,
  payroll, cashier
• Compare Previous Day activity in worksheet vs.
  bank report
• Modify worksheet for Same Day
• Set threshold for minimum balance
• Look ahead two days

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Three options each day

• Move money into account (pools)
• Move money out of account (park in pool or
  invest)
• Do nothing

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Other benefits

• Identify minimum, maximum, average daily balance
• Identify trends e.g. credit card volume,
  lockbox patterns, departmental activity
• Improve coverage of cash mgmt function

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Cash management circa 2008

• 99 of daily activity is known
• Online bank reporting available to multiple staff
  members
• Account recs are current
• Adequate balances ensured via the Kathleen Method
  (We need money today)

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Conclusion

• ID inflows and outflows
• Maximize certainty
• Use controlled disbursement and online banking
• Build and use cash worksheet
• Train staff