1. Rationales for an independent implementation for a Cash Management
System in the Ministry of Finance of Serbia
Jean-Marc Lepain,
Team Leader Treasury Support Project
February 6th, 2003
Background
The Ministry of Finance has received a grant of 4.3 M euros for support in establishing Treasury
Functions and creating a Public Procurement System. 1.3 M euro has been earmarked for “Financial
Management Information System”. A public Tender was launched and awarded to Thales Engineering
and Consulting, a French Consulting firm.
Thales Team has used the Inception Phase of the project to define the IT Strategy of the Ministry. The
main component of the project will be a General Ledger based Accounting System. An analysis phase
for 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 Management
System (CMS). The Analysis phase of the project will start with a two months analysis of the cash
management function. The purpose of that analysis phase will be to write the system specifications
and to launch in June 2003 a public tender for the procurement of the CMS.
Rationales for implementing a Cash Management System
A 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 revue
payments to be made during the days and to establish priorities. In practice pending payments have to
be streamlined over a period of several days. Without effective cash management, data on fund
availability and forthcoming payments, the Budget Execution Committee is often not in position to
make 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 the
exception 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 Interim
Treasury System shall start running. That system is the result of customisation of the Interim Treasury

2. System that was operational in Montenegro a year ago. The ITS will be supported by USAID for the
next two years until the new FMIS start running.
An external agency called the Treasury Agency is operating a Payment System which is being
customized along the project’s recommendations to serve the needs of the Treasury and to create the
Single Treasury Account.
The Cash Management Department of the Treasury in the Ministry of Finance
The Ministry of Finance and Economy was created without any legacy organization inherited from the
Federal Ministry of Finance. All Treasury staff has been recruited during the past ten month and
capacity 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 Control
The total staff of the Treasury at present consists of around 15 people if we do not count
persons 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 Treasury
should reach 144 people. This does not include the Treasury Agency, which although under
the direct authority of the Assistant Minister, will be a separate organization with a staff of
about 800 people coming from the ZOP.
Fundamentally, the Cash Management Department is responsible for maintaining the liquidity
of the Treasury Single Account. It does so through careful financial planning, monitoring cash
flows on every account and sub-account, making cash flow forecasts and identifying
financing 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 appropriations
and spending plans to assign initial quota to budget Beneficiaries, to follow any modification
of the appropriation and quotas made by competent authorities. It requires an analytical
follow-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 accounts
and sub-accounts, the supervision of Payment Order sent to the servicing banks, bank
reconciliation and the centralization of revenues from the Public Revenue Authority.
The Manager of the Cash Management and Financial Planning has been recruited and is being
trained. However no efficient training can be put in place unless the cash management tools
are 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 Excel
spreadsheets.

3. The Treasury Agency
The Republic of Serbia has inherited from the former regime, a system of payment unique in
its conception and of which no equivalent can be found in any former socialist country. This
system called ZOP was the cornerstone on which the whole financial system of the Federal
Republic of Yugoslavia was built. It achieved a level of centralization of the economy that
had not been seen anywhere else in any former socialist country.
Fundamentally, the ZOP is a clearing system that processes payments. Until January 1 there
was no alternative to the ZOP to make a payment other than cash in Serbia. All legal entities
and physical persons were required to have an account in the ZOP to receive or send
payments. The ZOP was also providing cash on behalf of the National Bank of Yugoslavia to
all 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
ZOP
On 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 Serbia
Payment System is still under discussion and the Thales Team is actively engaged in the
discussion with the Central Bank on behalf of the Ministry of Finance
There 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 possible
During the Inception phase it appeared that the only way to solve the problem of Indirect
Budget Beneficiaries would be to keep part of the IT infrastructure of the ZOP with some of
its 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 the
selection and implementation of the General Ledger which is facing financing problem under
discussion with the European Agency for Reconstruction and the World Bank.
The new Treasury Agency will have the following characteristics

4.  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 function
The 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 as
operator of the TSA. The Treasury Agency will control all the movement between the TSA
sub-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 the
implementation of the Treasury Single Account.