Rationales for an independent implementation for a Cash Management System in the Ministry of Finance of SerbiaJean-Marc Lepain,Team Leader Treasury Support Project February 6th, 2003BackgroundThe Ministry of Finance has received a grant of 4.3 M euros for support in establishing TreasuryFunctions and creating a Public Procurement System. 1.3 M euro has been earmarked for “FinancialManagement Information System”. A public Tender was launched and awarded to Thales Engineeringand Consulting, a French Consulting firm.Thales Team has used the Inception Phase of the project to define the IT Strategy of the Ministry. Themain component of the project will be a General Ledger based Accounting System. An analysis phasefor all the system components will be launched, probably in early March.One of the recommendations of the Inception Report is to start implementing a Cash ManagementSystem (CMS). The Analysis phase of the project will start with a two months analysis of the cashmanagement function. The purpose of that analysis phase will be to write the system specificationsand to launch in June 2003 a public tender for the procurement of the CMS.Rationales for implementing a Cash Management SystemA number of reasons made us decide for an independent implementation of the CMS: Liquidity Management is critical for the Treasury The system does not need to be fully integrated with the Accounting System at least in the first phase The implementation time will be short The cost of the system should be a fraction of the total IT budget.Due to the lack of available cash, the Budget Execution Committee is meeting everyday to revuepayments to be made during the days and to establish priorities. In practice pending payments have tobe streamlined over a period of several days. Without effective cash management, data on fundavailability and forthcoming payments, the Budget Execution Committee is often not in position tomake informed decisions and payments are delayed without valid reasons.IT infrastructures,The Ministry of Finance does not have any IT Department and there is presently no IT staff with theexception of two people in charge of running the network.At the moment the Treasury does not have any operational system. At the end of February an InterimTreasury System shall start running. That system is the result of customisation of the Interim Treasury
System that was operational in Montenegro a year ago. The ITS will be supported by USAID for thenext two years until the new FMIS start running.An external agency called the Treasury Agency is operating a Payment System which is beingcustomized along the project’s recommendations to serve the needs of the Treasury and to create theSingle Treasury Account.The Cash Management Department of the Treasury in the Ministry of FinanceThe Ministry of Finance and Economy was created without any legacy organization inherited from theFederal Ministry of Finance. All Treasury staff has been recruited during the past ten month andcapacity remains very low as no systematic training program has yet been put in place.The Treasury is presently composed of 4 departments: Treasury Accounting and Reporting Debt Management Cash Management and Financial Planning Accounting Services and Expenditure ControlThe total staff of the Treasury at present consists of around 15 people if we do not countpersons who will join the treasury staff from other existing units such as Mutual Services.When the planned organization will have been fully deployed the total staff of the Treasuryshould reach 144 people. This does not include the Treasury Agency, which although underthe direct authority of the Assistant Minister, will be a separate organization with a staff ofabout 800 people coming from the ZOP.Fundamentally, the Cash Management Department is responsible for maintaining the liquidityof the Treasury Single Account. It does so through careful financial planning, monitoring cashflows on every account and sub-account, making cash flow forecasts and identifyingfinancing needs.The Department will have three sub-departments: Quota Management, Banking and Payment,and a Cashier section.The Quota Management Group will be responsible for the processing of annual appropriationsand spending plans to assign initial quota to budget Beneficiaries, to follow any modificationof the appropriation and quotas made by competent authorities. It requires an analyticalfollow-up of budget execution and continuous planning and revision of quota expenditures.The Banking and Payment Group is responsible for opening and controlling all bank accountsand sub-accounts, the supervision of Payment Order sent to the servicing banks, bankreconciliation and the centralization of revenues from the Public Revenue Authority.The Manager of the Cash Management and Financial Planning has been recruited and is beingtrained. However no efficient training can be put in place unless the cash management toolsare being put in place. Information received from the central bank on the TSA is poor,unreliable and difficult to manipulate. Analysis and forecasts have to be made using Excelspreadsheets.
The Treasury AgencyThe Republic of Serbia has inherited from the former regime, a system of payment unique inits conception and of which no equivalent can be found in any former socialist country. Thissystem called ZOP was the cornerstone on which the whole financial system of the FederalRepublic of Yugoslavia was built. It achieved a level of centralization of the economy thathad not been seen anywhere else in any former socialist country.Fundamentally, the ZOP is a clearing system that processes payments. Until January 1 therewas no alternative to the ZOP to make a payment other than cash in Serbia. All legal entitiesand physical persons were required to have an account in the ZOP to receive or sendpayments. The ZOP was also providing cash on behalf of the National Bank of Yugoslavia toall economic entities. It has a wide network of agencies covering all the country.Currently the Treasury and the Budget Execution Sectors interface with the ZOP in two areas: Outgoing; processing of payments to vendors and transferring of money to giro accounts belonging to Direct and Indirect Budget Beneficiaries. Incoming; information on the centralization of revenues on the Budget Account at the ZOPOn January 1, the ZOP has been replaced by a Real Time Gross Settlement System (RTGS)which is an interim system still in the phase of fine tuning. The final architecture of SerbiaPayment System is still under discussion and the Thales Team is actively engaged in thediscussion with the Central Bank on behalf of the Ministry of FinanceThere are also a number of consequences for the Treasury: RTGS are on the prerequisites of Treasury Single Account efficient management The Treasury will need the services of the NBY and of RTGS for processing funds to its TSA Efficient Cash Management will become possibleDuring the Inception phase it appeared that the only way to solve the problem of IndirectBudget Beneficiaries would be to keep part of the IT infrastructure of the ZOP with some ofits staff to create a Public Payment Agency. Later it was decided to rename that agency“Treasury Agency”. It has also been decided to give priority to the Treasury Agency over theselection and implementation of the General Ledger which is facing financing problem underdiscussion with the European Agency for Reconstruction and the World Bank.The new Treasury Agency will have the following characteristics
A large network of agencies covering 120 cities A staff of 800 people (10% of the present staff) A cash distribution function requiring 2 cashiers per site A strong reporting functionThe Treasury Agency has a strong IT infrastructure and a large IT staff.While the National Bank of Yugoslavia (NBY) will hold the Treasury Single Account (TSA),all sub-accounts will be hold by the Treasury Agency, limiting the role of the NBY asoperator of the TSA. The Treasury Agency will control all the movement between the TSAsub-accounts. Money in excess will be sweep to the NBY’s TSA for overnight deposits.It should be noted that during the past two weeks a lot of progress has been made toward theimplementation of the Treasury Single Account.