Treasury and Cash Management

1
Treasury and Cash Management

• Bill Dorotinsky, PRMPS
• Budget Execution Course
• January 16-17, 2003

2
Core Treasury Functions

• Cash management (flow and stock)
• Financial asset management
• Debt management, servicing guarantee management
• Accounting (policy, chart of accounts, general
  ledger) and reporting
• Revenue collection, forecasting
• Account management (payment, collection,
  reconciliation)
• Central Bank relations

3
Varied organizational options

• Treasury as an organization
• MoF core treasury plus formulation
• Core treasury only
• Treasury system system for managing government
  transactions
• Centralized
• Distributed treasury, commercial banks
• Automated, mixed, manual
• Widely differing authority
• Complete authority to reduce below budget, vire
• No authority to reduce, vire without Government
  or legislative approval

4
Cash management

• Objectives
• Assure fund availability for meeting government
  obligations (liquidity)
• Cash conservation
• Minimize borrowing, borrowing cost
• Maximize returns from idle cash
• Risk management
• Tools
• Treasury consolidated fund (single account)
• Financial plans
• Warrants (allowable draws on TCF)
• Invoice payment/cash rationing
• Debt issuance
• Supplemental budgets

5
Treasury Consolidated Fund(treasury single
account)

• Single account or accounts under treasury
  management consolidation of cash
• The more accounts, the more difficult to manage,
  report
• Payment arrangements will vary
• Centralized direct transaction from TCF
• Deconcentrated payment by spending agency from
  TCF
• Decentralized payment by spending agency from
  imprest account

6
Financial plans

• Important link between budget, agency programs
  and activity, cash flow
• Links commitments and cash
• Used for cash flow forecasting when combined with
  revenue forecast
• Allows planned, orderly debt issuance
• Usually monthly
• Periodic variance analysis to plan, budget

7
Cash rationing(misnomer cash budgeting)

• Last resort liquidity management
• Disruptive to programs, vendors
• High corruption potential
• Need transparent ex ante rules
• Public procedure
• Likely to undermine budget priorities

8
Debt management

• Debts and liabilities need to be recognized and
  inventoried
• Debt can include
• Bills, notes and bonds
• Budgetary arrears
• Accounts payable
• Unfunded pension liabilities
• Accrued but unpaid employee benefits, to name a
  few
• Debt can also include certain obligations of
  sub-national governments

9
Contingent liabilities

• Government acts as a guarantor of debt repayment
  in the event that the borrower cannot make
  repayment, or of payment under certain conditions
• Loan, pension benefit, bank deposit, agricultural
  price
• Contingent debt must be managed with the same
  detail as direct debt.
• As with direct debt these contingent debts must
  be inventoried and monitored in a central
  location
• Active identification, monitoring, management of
  risk important