Cash management workshop english


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Cash Management Training

Laura Trimble, Associate Director, Budget and Financial Accountability, US Department of the Treasury
Michael Ablowich, Budget and Financial Accountability, US Department of the Treasury
Gail Ostler, Budget and Financial Accountability, US Department of the Treasury
Laura Ross, Budget and Financial Accountability, US Department of the Treasury

A comprehensive overview of cash management objectives, challenges, and techniques faced by all public financial managers will be the focus of all the sessions today.

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  • Don’t base it strictly on return – that would not match what you need. If you match your CFF you are more likely to invest more prudently and leave less “Idle” balances.
  • Cash flow forecasting may or may not be done in conjunction with the process of preparing allotments and apportionments. Arguably, if a strong system is in place to control spending rates then cash flow forecasting as presented here is not entirely applicable.
  • Treasury Control 1. Shortening Float 2. Reducing opportunity cost of funds Financial Control 1. Cash – most important government financial asset 2. Accounts Receivable 3. Accounts payable 4. Current portion of debt 5. Loans Receivable
  • For Example: Dedicating revenue streams to finance certain categories of expenditures or pay debt service. Using cash versus debt to finance certain capital expenditures.
  • “ Net Present Value” analysis. While not totally applicable in the public sector, NPV analysis involves a discussion about the long term costs and benefits of major capital investments.
  • Do I have the right amount of cash when I need it?
  • The answer to the question of “Why are we doing a cash flow?”, will lead you to settle on what time frame you want to focus on. The key point here is that with any forecasting the further out you go the less accurate you will be. Also the shorter the time horizon the more detailed you may want to be. It does not make sense to spend time doing a daily forecast for a year from now, but a weekly forecast for the next month and a daily for this month would perhaps make sense, again depending on for what reason you are using the information.
  • Information Technology has to be a part of the participants either specifically stated or implied. An integrated financial system should be able to generate the reports or data needed to develop and monitor the cash flow forecasts.
  • It is important to remember that the Treasury, in the initial stage of the preparation of a cash flow statement, has to act as an impartial assembler of information to coordinate the preparation of a cash flow forecast. For that reason the forecast must tie back to the budget, otherwise other agencies or stakeholders will believe that the treasury is trying to alter or make judgments about the budget that has already been passed by the legislature. Make sure you properly document your assumptions.
  • The choice has to be rational and be supported by the cost/benefit of different planning, collection and forecasting techniques. If a strong I.T. system exists for compiling and synchronizing spending plans then the agency approach might make the most sense. If there are three or four major fund groups of equal size then it may make sense to approach this on a fund basis. The discussion of methodology is going to lay out a process or choice of processes that continually break down and build a plan. In the alternative some sort of regression or multiple regression can be used as well. In younger budget systems the data may not be available to support a quality forecast based on a regression model. A regression model may however be a nice compliment to the planning approach laid out here.
  • Again, the choice has to be rational and be supported by the cost/benefit of different collection and forecasting techniques as well as information available. Using the economic classification likely lends itself to the easiest forecast to compile and analyze. The functional approach is likely not needed if realistic plans are prepared by agencies (Ministries) on an economic classification basis. Robust means a little information should lead to many conclusions.
  • The methodology of “Degree of Certainty” is more applicable to a private company that forecasts expenditures for a minimum amount of business units. The degree of certainty implies that as the forecast is put together you should recognize the following levels as parts of your risk. That means that the level of comfort you develop with your forecast needs to recognize that risks exist that will lead to certain variances between forecasts and actuals. Eventually your cash planning needs to take into account the level of risk involved so that proper reserves can be established to cover for variances in your estimate. In reality this technique will be used as agencies prepare a plan.
  • How is your Treasury Single Account organized. Multiple bank accounts? A true single account? How are flows executed between bank accounts.
  • Your choice of components to include or focus on will depend on your data sources. We will talk more about some of the components later.
  • A bad budget will lead to a bad cash flow forecast especially if the revenue estimates are poor from the beginning. The Treasury must use the revenue forecasts from the budget in the initial formulation since it is the main financial document. As the year progresses updates should be made as new information becomes available on the revenue side. This needs to be a collaborative effort with revenue collecting agencies. Again the cash flow forecast, cannot be seen as an alternative budget, so updates to revenue and expenditures need to be done in a way that supports the current budget and provides information that can be used by the legislative branch if adjustments need to be made to the budget. The same observations about “on-budget” revenue can be made for off-budget revenue, expenditures and funds (cash balances).
  • Some weekend days are included for the example where zero is collected.
  • Using spending plans to control monthly cash outflows will work if there is a financial management system that integrates all the spending (budget) plans with the accounting system which process payments. If such a system does not exist the costs of collecting estimates, issuing allotments and following up on compliance with plans will likely be quite high. In an integrated system, plans may be easily synchronized and spending limits can be easily implemented, monitored and changed as conditions change. The 80 percent needs the most scrutiny. Since payroll costs are likely a major area of the budget, they should be easily forecasted and a good estimate should be easy to develop. Similarly, transfers to lower levels of government should also be relatively easy to forecast especially if the transfers are supported by a federal law or existing regulations governing the timing of their disbursement.
  • In the case of very dynamic financial situations historical information needs to be “normalized” by adjusting for, among others: inflation, changes in government programs, changes in salary levels for public employees and emergency situations which on a going forward basis will distort patterns. Also be aware of historical spending patterns that may have been distorted due to the non-payment of incurred expenditures which may have lead to growing arrears. The treasury should be able to use historical information to check the spending plans, especially in the major areas of expenditures. In mature financial and budgetary systems, budgets tend to grow at predictable rates which can translate into predictable rates of growth or decline in cash out- and in-flows. Similarly, historical revenue information needs to be normalized to adjust for changes in tax rates, types of filers, types of taxes, etc. The best information gleaned from historical cash flows is not necessarily the actual figures but the seasonality or patterns of spending and revenue collection.
  • Likely there will be peaks for cash outflows at the beginning of the month (for utilities and vendors for prior month expenses, mid month (1 st payroll) and end of month (for 2 nd payroll). Pension or other social insurance disbursements should be over laid on this pattern to begin to develop the “80” of the expenditures with transfers to other levels of government and debt service rounding out this analysis.
  • Debt Management How much is authorized but has not been issued? What are the legal limits? Are there restrictions on long vs. short term debt. What are our options for borrowing: Direct Securities Publication of plans
  • Short term investments means investments made for cash management/liquidity purposes. The budget law may address some of these areas, but if not they should be inventoried and examined to see how/if they affect the planning.
  • Short term investments means investments made for cash management/liquidity purposes. The budget law may address some of these areas, but if not they should be inventoried and examined to see how/if they affect the planning.
  • Once the forecast is prepared the actual results need to be compared to the estimate.
  • Many of these points should not be a problem measuring actuals to revised estimates, but when comparing actual to original estimates it can be a problem.
  • Float and Calendar Issues both underscore the issue that you must understand from start to finish the administrative trail the revenue and disbursements processes follow. Once you know each inside and out you can improve each and shorten or eliminate float.
  • Once we have understood the nature of our variances how do we make changes to the estimate. Fundamental changes need discussion with key stakeholders. Legal changes are not likely to be forthcoming. Technical/Administrative Changes are how treasury people earn their pay!
  • In the public sector another type of float can be identified as “apportionment float”. That is the time between making funds available to agencies and the time that they actually use the funds. What flexibility do you have with regard to making payments?
  • Decreased costs will come in the form of higher interest earnings, avoidance of interest costs and fewer errors in processing. Decreasing process time should also lead to improved internal efficiencies and improved customer service. (I.e. decreasing time from receipt of invoice to vendor receiving payment.
  • In this example there are three revenues that are collected each month. Each revenue has a different collections float. The 4 th column is the product of the dollar amount and the calendar days of float.
  • The opportunity cost of funds can be either the inflation rate, the borrowing rate or the investment rate.
  • In this example 9% is assume to be the opportunity cost of funds. This means that we lose in some form or another 99,000 each year either to lost investment earnings, loss of purchasing power or interest costs incurred.
  • The beginning of the process is to assemble a cashflow forecast. As the forecast is assembled questions will arise as to the process used by the Treasury to make payments and collect taxes. There are a couple areas where the Treasury can start to get more control over its in- and out-flows as well as improve service to its constituents. This is through the implementation of accounting/process controls or procedures and the other is through the use of available banking products and services. Of course not all products and services are available in every country or region but the goal is to see what are the possibilities of the banking system to make overall improvements in the functioning of the Treasury. In either case a legal framework needs to be in place that can facilitate either changes in procedures or using the commercial banking system if needed rather than a central bank.
  • Cash management workshop english

    1. 1. ICGFM International Conference Cash Management Workshop May 20, 2010
    2. 2. ICGFM Cash Management Workshop <ul><ul><li>Opening and Introductions </li></ul></ul><ul><ul><li>What is Cash Management? </li></ul></ul><ul><ul><li>Organization and Communication </li></ul></ul><ul><ul><li>Treasury Single Account and Banking Relations </li></ul></ul><ul><ul><li>Debt and Investment Policies </li></ul></ul><ul><ul><li>Cash Flow Forecasting </li></ul></ul><ul><ul><li>Managing Cash Inflows and Outflows </li></ul></ul><ul><ul><li>Q&A </li></ul></ul>
    3. 3. What is Cash Management?
    4. 4. What is Cash Management? <ul><ul><li>Definition </li></ul></ul><ul><ul><li>Objectives </li></ul></ul><ul><ul><li>Importance </li></ul></ul><ul><ul><li>What It Is NOT </li></ul></ul><ul><ul><li>Results of a Poorly Defined Program </li></ul></ul><ul><ul><li>Components of a Strong Program </li></ul></ul>
    5. 5. Definition of Cash Management <ul><li>Having the RIGHT money in the RIGHT place at the RIGHT time to meet Government obligations in the most cost effective way. </li></ul><ul><li>“ Government Cash and Treasury Management Reform” by Ian Storkley, ADB The Government Brief, Issue 7-2003 </li></ul>
    6. 6. Objectives of Cash Management <ul><li>Cash Mobilization: </li></ul><ul><ul><li>Get the cash in as fast as you can </li></ul></ul><ul><li>Controlled Disbursement: </li></ul><ul><ul><li>Release the cash at the last possible moment </li></ul></ul><ul><li>Investment Program: </li></ul><ul><ul><li>Do something worthwhile with the cash in the meantime </li></ul></ul><ul><li>“ Best Practices in Treasury Management” by Nicholas Greifer and Jeffrey Vieceli, Government Finance Review, April 2000 </li></ul>
    7. 7. Importance of Cash Management <ul><li>Safeguard cash and investment assets </li></ul><ul><li>Minimize the volume of idle balances </li></ul><ul><li>Match the timing of cash inflows and cash outflows </li></ul>
    8. 8. Importance of Cash Management <ul><li>Reduce operational risk by increasing the certainty that payments are made and receipts are deposited on time </li></ul><ul><li>Reduce the cost of borrowing, minimize transaction costs, increase investment income </li></ul>
    9. 9. Cash Management is NOT <ul><li>Cash Management is NOT a substitute for: </li></ul><ul><ul><li>Poor budgeting decisions </li></ul></ul><ul><ul><li>Spending in excess of budget authority </li></ul></ul>
    10. 10. <ul><li>Cash management is NOT budget or accounting control </li></ul><ul><li>Budget and accounting controls (quotas and commitments) are intended primarily to ensure budget users’ compliance with budget </li></ul><ul><li>The intent of cash management is to manage the government’s cash in a cost-effective way that minimizes risk </li></ul>Cash Management is NOT
    11. 11. <ul><li>Many countries control their budgets and facilitate their accounting through the release of funds through various cash accounts </li></ul><ul><li>Budget revenue and expenditure control must be DE-LINKED from cash to meet cash management objectives </li></ul>Cash Management is NOT
    12. 12. <ul><li>Proliferation of both private and central bank accounts which are difficult to manage </li></ul><ul><li>Restrictions on the use of cash within those bank accounts resulting in unnecessary borrowing or lost investment income </li></ul><ul><li>Lack of responsibility over idle balances or ill-timed payments </li></ul>Results of a Poorly Defined Program
    13. 13. <ul><li>Inefficient and expensive choices about how short-falls are funded </li></ul><ul><li>Inappropriate or non-existent information for projecting short-falls or excess balances </li></ul><ul><li>Isolation of the Treasury from information on cash balances and control of those balances </li></ul><ul><li>Cash rationing occurs </li></ul>Results of a Poorly Defined Program
    14. 14. <ul><li>Inability to project cash inflows and outflows </li></ul><ul><li>Volatility in the government cash balance which can thwart the central bank’s monetary policy </li></ul><ul><li>Expensive banking charges coupled with poor or non-existent banking services </li></ul>Results of a Poorly Defined Program
    15. 15. Components of a Strong Program <ul><li>All of the following components are essential for a strong cash management program. </li></ul>
    16. 16. Components of a Strong Program <ul><li>Written Policies and Procedures </li></ul><ul><ul><li>Responsibilities </li></ul></ul><ul><ul><li>Banking </li></ul></ul><ul><ul><li>Investments </li></ul></ul><ul><ul><li>Cash Handling, Collections and Deposits </li></ul></ul><ul><ul><li>Disbursements </li></ul></ul><ul><ul><li>Cash Forecasting </li></ul></ul>
    17. 17. Components of a Strong Program <ul><li>Organization </li></ul><ul><ul><li>Cash Management Unit within Treasury has primary responsibility </li></ul></ul><ul><ul><li>One Cash Management professional </li></ul></ul><ul><ul><li>Responsibilities of all players (Treasury, spending ministries, revenue generating ministries) are clearly defined </li></ul></ul>
    18. 18. Components of a Strong Program <ul><li>Banking </li></ul><ul><ul><li>Strong banking relationships are established with the Treasury, NOT THE BANKS , as the driver </li></ul></ul><ul><ul><li>Treasury is the owner and controls ALL government bank accounts </li></ul></ul><ul><ul><li>Number of bank accounts is kept to a bare minimum and cash balances are available to Treasury for disbursement </li></ul></ul>
    19. 19. Components of a Strong Program <ul><li>Banking </li></ul><ul><ul><li>There are written agreements with all banks including central bank </li></ul></ul><ul><ul><li>The government earns interest on all its available cash balances and in turn pays for all the banking services it receives </li></ul></ul><ul><ul><li>Formal selection of banks through a tender process based on security, transaction costs, interest rates and other services </li></ul></ul>
    20. 20. Components of a Strong Program <ul><li>Banking </li></ul><ul><ul><li>Banks perform the following types of services : </li></ul></ul><ul><ul><ul><li>Sweep funds at the end of day </li></ul></ul></ul><ul><ul><ul><li>Provide receipt, disbursement and cash balance information electronically in real time </li></ul></ul></ul><ul><ul><ul><li>Electronically transmit payroll and disbursements </li></ul></ul></ul><ul><ul><ul><li>Electronically interface data from banking system to cash management / treasury software </li></ul></ul></ul>
    21. 21. Components of a Strong Program <ul><li>Receipts and Deposits </li></ul><ul><ul><li>Collections are made through the banking system </li></ul></ul><ul><ul><li>Deposits are available for disbursement or investment no later than the next day </li></ul></ul><ul><ul><li>Deposit accounts are swept daily to central government accounts </li></ul></ul>
    22. 22. Components of a Strong Program <ul><li>Disbursements </li></ul><ul><ul><li>Treasury performs a centralized payment function </li></ul></ul><ul><ul><li>Payments are only made on the dates payments are due </li></ul></ul><ul><ul><li>Payments to vendors and employees are made electronically </li></ul></ul><ul><ul><li>Cash disbursements are eliminated if possible or at least minimized </li></ul></ul>
    23. 23. Components of a Strong Program <ul><li>Disbursements </li></ul><ul><ul><li>Ministries and agencies are penalized for making commitments outside of their budget authority </li></ul></ul><ul><ul><li>Disbursement timing matches timing of cash inflows (spending plans) </li></ul></ul><ul><ul><li>Monies are only transferred to disbursing accounts when payments are made </li></ul></ul>
    24. 24. Components of a Strong Program <ul><li>Cash Flow Forecasting </li></ul><ul><ul><li>Annual, monthly, weekly and daily estimates of: </li></ul></ul><ul><ul><ul><li>Receipts </li></ul></ul></ul><ul><ul><ul><li>Disbursements </li></ul></ul></ul><ul><ul><ul><li>Cash Balances </li></ul></ul></ul><ul><ul><li>Performed daily on a 12-month roll-forward basis </li></ul></ul><ul><ul><li>High rate of accuracy and predictability </li></ul></ul><ul><ul><li>Follow-up and analysis on variances </li></ul></ul>
    25. 25. Components of a Strong Program <ul><ul><li>Be Proactive </li></ul></ul><ul><ul><ul><li>Take action when projections indicate larger variances than expected </li></ul></ul></ul>
    26. 26. <ul><li>Organization and Communication </li></ul>
    27. 27. <ul><ul><li>Cash Management Unit </li></ul></ul><ul><ul><li>Flow of Information </li></ul></ul><ul><ul><li>Cash Management Committee </li></ul></ul>Organization and Communication
    28. 28. Cash Management Unit <ul><li>Responsibilities </li></ul><ul><ul><li>Forecasts, monitors and tracks cash flows </li></ul></ul><ul><ul><li>Prepares cash flow reports and identifies and reports on variances </li></ul></ul><ul><ul><li>Provides leadership and direction to all ministries / departments on cash management issues </li></ul></ul><ul><ul><li>Develops and maintains cash management policies and procedures </li></ul></ul>
    29. 29. Cash Management Unit <ul><li>Responsibilities </li></ul><ul><ul><li>Recommends improvements in all aspects of cash management to strengthen internal controls and enhance available cash balances </li></ul></ul><ul><ul><li>Prepares risk and cost benefit analyses </li></ul></ul><ul><ul><li>Maintains banking relationships </li></ul></ul>
    30. 30. Cash Management Unit <ul><li>Qualifications of a Cash Manager </li></ul><ul><ul><li>Degree in finance, accounting, economics </li></ul></ul><ul><ul><li>Excellent communication skills, both written and verbal </li></ul></ul><ul><ul><li>Ability to establish positive working relationships with internal and external key players </li></ul></ul><ul><ul><li>Ability to discern trends and identify risks </li></ul></ul>
    31. 31. Cash Management Unit <ul><li>Qualifications of a Cash Manager </li></ul><ul><ul><li>Ability to sell new ideas </li></ul></ul><ul><ul><li>Strong analytical skills: </li></ul></ul><ul><ul><ul><li>Variance analysis </li></ul></ul></ul><ul><ul><ul><li>Business processes </li></ul></ul></ul><ul><ul><ul><li>Cost benefit analysis </li></ul></ul></ul>
    32. 32. Borrowing Plan Updated Economic Forecast Liquidity Management Cash Balances Revenue Forecasts Spending Plan Investment Plan Actual Inflows and Outflows Cash Manager Flow of Information
    33. 33. Flow of Information <ul><li>Key Information Sources </li></ul><ul><ul><li>Banking System (Commercial and / or Central Bank) </li></ul></ul><ul><ul><li>Accounting System </li></ul></ul><ul><ul><li>Budget Spending Quotas, Plans and Amendments </li></ul></ul><ul><ul><li>Reports Monitoring Budget Execution </li></ul></ul><ul><ul><li>Macro-Economic Forecasts </li></ul></ul>
    34. 34. Flow of Information <ul><li>Key Information Sources </li></ul><ul><ul><li>Major Budget Institutions (Exception Reporting) </li></ul></ul><ul><ul><li>Revenue Institutions (Exception Reporting) </li></ul></ul><ul><ul><li>Debt Unit </li></ul></ul>
    35. 35. Cash Management Committee <ul><li>Members </li></ul><ul><ul><li>Macro-Economic Forecasting Unit </li></ul></ul><ul><ul><li>Revenue Agencies </li></ul></ul><ul><ul><li>Major Budget Agencies </li></ul></ul><ul><ul><li>Central Bank </li></ul></ul><ul><ul><li>MOF, Budget </li></ul></ul><ul><ul><li>MOF, Debt </li></ul></ul><ul><ul><li>Treasurer </li></ul></ul>
    36. 36. Cash Management Committee <ul><li>Purpose </li></ul><ul><ul><li>Review forecasts </li></ul></ul><ul><ul><li>Agreements on initial forecasts and changes (macro-economic statistics, budget amendments, cash flow projections) </li></ul></ul><ul><ul><li>Recommend short-term action </li></ul></ul><ul><ul><li>Establish performance goals </li></ul></ul><ul><ul><li>Recommend improvements to cash management practices </li></ul></ul>
    37. 37. Treasury Single Account and Banking Relations
    38. 38. Treasury Single Account <ul><li>Treasury Single Account (TSA ): </li></ul><ul><li>a series of linked bank accounts through which all government transactions flow </li></ul>
    39. 39. Treasury Single Account <ul><li>Active or Centralized TSA </li></ul><ul><ul><li>Requests for payment are sent to the Treasury for payment </li></ul></ul><ul><ul><li>Most efficient both from a cash management and expenditure control perspective </li></ul></ul><ul><ul><li>Avoids borrowing and additional interest charges to finance the expenditures of some agencies while other agencies keep idle balances in their bank accounts </li></ul></ul>
    40. 40. Treasury Single Account <ul><li>Passive TSA </li></ul><ul><ul><li>Multiple bank accounts in the Central or private banks controlled by Treasury but managed by spending agencies </li></ul></ul><ul><ul><li>Payments made directly by spending agencies </li></ul></ul><ul><ul><li>The Treasury sets cash limits but does not control individual transactions </li></ul></ul><ul><ul><li>Accounts cleared every day and balances transferred to the central Treasury account </li></ul></ul>
    41. 41. Treasury Single Account <ul><li>Passive TSA </li></ul><ul><ul><li>Avoid pre-funding of ministry accounts </li></ul></ul><ul><ul><li>Incentive structures: </li></ul></ul><ul><ul><ul><li>UK - spending agencies are penalized for drawing cash in advance of need </li></ul></ul></ul>
    42. 42. Treasury Single Account <ul><li>Passive TSA </li></ul><ul><ul><li>Incentive structures: </li></ul></ul><ul><ul><ul><li>New Zealand - departments negotiate annual cash requirements and pay penalties if they run out of cash or earn interest on their surplus funds. The ministry of finance sweeps department bank accounts each evening and invests the surplus in the overnight money market. </li></ul></ul></ul>
    43. 43. Treasury Single Account <ul><li>Combination of Centralized and Passive TSA </li></ul><ul><ul><li>Centralize Large Payments </li></ul></ul><ul><ul><li>Decentralize Small Payments </li></ul></ul>
    44. 44. Treasury Single Account <ul><li>Banking Relationships </li></ul><ul><ul><li>Establish strong banking relationships with the Government as the driver </li></ul></ul><ul><ul><li>Formal agreement with the central bank </li></ul></ul><ul><ul><li>The government should earn interest on all its deposits and in turn should pay for all the banking services it receives </li></ul></ul>
    45. 45. Treasury Single Account <ul><li>Banking Relationships </li></ul><ul><ul><li>Formal selection of commercial banks through a tender process. Evaluation criteria should be based on: </li></ul></ul><ul><ul><ul><li>Security </li></ul></ul></ul><ul><ul><ul><li>Ability to link the central bank </li></ul></ul></ul><ul><ul><ul><li>Ability to sweep funds at the end of day </li></ul></ul></ul><ul><ul><ul><li>Interest and transaction rates </li></ul></ul></ul><ul><ul><ul><li>Ability to provide information electronically in on-line, real time and other services. </li></ul></ul></ul>
    46. 46. <ul><li>Functional </li></ul><ul><li>Identify bank accounts </li></ul><ul><li>Close unnecessary accounts </li></ul><ul><li>Structure remaining accounts into pyramid style </li></ul><ul><li>Re-engineer disbursement process </li></ul><ul><li>Re-engineer revenue process </li></ul><ul><li>Sequence transfer of cash balances </li></ul><ul><li>Establish cash forecasting team </li></ul><ul><li>Administrative </li></ul><ul><li>Amend laws and regulations </li></ul><ul><li>Revise reporting templates </li></ul><ul><li>Draft procedures manuals </li></ul><ul><li>Revise accounting processes </li></ul><ul><li>Renegotiate banking arrangements </li></ul>Moving to Centralized Cash (Steps - in theory)
    47. 47. <ul><li>Typical issues in developing economies </li></ul><ul><ul><li>Institutional malaise </li></ul></ul><ul><ul><li>Culture change </li></ul></ul><ul><ul><li>Entitlements – Supplements/Per Diem </li></ul></ul><ul><li>Absence of modern banking system </li></ul>Challenges
    48. 48. Challenges <ul><li>Absence of reliable information </li></ul><ul><ul><li>No list of bank accounts </li></ul></ul><ul><li>Lack of Infrastructure </li></ul><ul><ul><li>For both banking and accounting systems </li></ul></ul><ul><li>Lack of Human Capacity </li></ul><ul><li>View of Imprest Accounts at Entitlement </li></ul>
    49. 49. RFPs for Banking Services - Components <ul><li>Document the Current Environment </li></ul><ul><li>Develop the RFP </li></ul><ul><li>Evaluate the Bank Responses </li></ul><ul><li>Bank Presentations and Bank Visits </li></ul><ul><li>Develop Overall Implementation and Obtain Approval </li></ul>
    50. 50. Step 1 – Document the current environment <ul><li>Banking Needs Assessment - The first step is a review of the current banking environment. The goal is to establish a firm understanding of what can and should be considered as requirements in the targeted banking structure. </li></ul>
    51. 51. Step 1 – Document the current environment <ul><li>Major Tasks </li></ul><ul><li>Prepare a customized packet for each area of your treasury organization regarding their current banking services </li></ul><ul><li>Request current bank account analyses for all banks and accounts </li></ul><ul><li>Design a checklist determining necessary information to gather from each function </li></ul>
    52. 52. Step 1 – Document the current environment <ul><li>Results </li></ul><ul><li>Understand the current environment for banking services </li></ul><ul><li>Understand the key business and technical requirements </li></ul><ul><li>Identify potential service gaps and improvement opportunities </li></ul>
    53. 53. Step 2 – Develop the RFP <ul><li>RFP Formulation and Distribution - The second step is the development of the RFP based on the information gathered in Step 1. </li></ul>
    54. 54. Step 2 – Develop the RFP <ul><li>Major Tasks </li></ul><ul><li>Develop an overall vision for banking structure and services required </li></ul><ul><li>Analyze current bank account structures and providers </li></ul><ul><li>Inventory and assess specific concerns and issues for bank service requirements </li></ul><ul><li>Determine list of banks to be included in RFP process </li></ul><ul><li>Develop the customized RFP for those selected banks and issue RFP </li></ul>
    55. 55. Step 2 – Develop the RFP <ul><li>Results </li></ul><ul><li>Conceptual design of the future banking structure </li></ul><ul><li>Communication & recommendations for preferred services </li></ul>
    56. 56. Step 3 - RFP Evaluation <ul><li>The third step focuses on evaluating and prioritizing the bank responses to determine which banks can realistically be considered to move from the current to the target environment. </li></ul>
    57. 57. Step 3 - RFP Evaluation <ul><li>Major Tasks </li></ul><ul><li>Customize RFP evaluation tool for bank services </li></ul><ul><li>Conduct quantitative analysis of RFP responses </li></ul><ul><li>Score bank RFP results on a weighted basis </li></ul><ul><li>Perform additional technical and qualitative analysis on bank RFPs </li></ul><ul><li>Complete cost analysis on proposed pricing using the estimated volumes </li></ul><ul><li>Determine the short list of banks to participate in the presentation phase </li></ul>
    58. 58. Step 3 - RFP Evaluation <ul><li>Results </li></ul><ul><li>Banks are objectively prioritized based on their capabilities and responses </li></ul><ul><li>Recommended banks identified to participate in bank presentations and visits </li></ul>
    59. 59. Step 4 - Finalist Presentations and On-Site Tours <ul><li>The fourth step is the research and validation to ensure that the bank can meet the current and future requirements, as stated in their response, at a level of satisfaction to your needs. </li></ul>
    60. 60. Step 4 - Finalist Presentations and On-Site Tours <ul><li>Major Tasks </li></ul><ul><li>Notify the banks that did not make the final cut </li></ul><ul><li>Contact the short list of banks that made the final cut to let them know of next steps and give them advance notice </li></ul><ul><li>Develop the desired presentation format/script, and provide this to the banks </li></ul><ul><li>Schedule the presentations and bank visits </li></ul><ul><li>Evaluate the demonstrations formally and debrief after each meeting </li></ul><ul><li>Conduct on-site tours of finalist banks as necessary </li></ul>
    61. 61. Step 4 - Finalist Presentations and On-Site Tours <ul><li>Results </li></ul><ul><li>Validation of bank capabilities with regard to your requirements </li></ul>
    62. 62. Step 5 - Bank Selection and Plan Development <ul><li>The fifth step is the selection of the bank and development of an overall plan which will consider the key tasks, the staffing / skill requirements, timeframes and estimated costs required as next steps to move towards the targeted environment. </li></ul>
    63. 63. Step 5 - Bank Selection and Plan Development <ul><li>Major Tasks </li></ul><ul><li>Select the preferred bank(s) </li></ul><ul><li>Develop overall implementation plan which includes: </li></ul><ul><li>– Key project tasks and dependencies </li></ul><ul><li>– Staffing and skill set requirements </li></ul><ul><li>– Timeframes </li></ul><ul><li>– Key deliverables </li></ul>
    64. 64. Step 5 - Bank Selection and Plan Development <ul><li>Results </li></ul><ul><li>Documented and agreed upon implementation plan for the conceptual design of the preferred banking structure </li></ul><ul><li>Approval to move forward with the implementation </li></ul>
    65. 65. Debt and Investment Policies
    66. 66. <ul><li>Tying Debt Issuances to Forecasts </li></ul><ul><li>Short-Term vs. Long-Term Debt </li></ul><ul><li>Assumption of Investment Risk </li></ul><ul><li>Ensuring Investments Are Secure </li></ul><ul><li>Examples of US State and Local Government Investment Policies </li></ul>Debt and Investment Policies
    67. 67. Debt and Investment Policies <ul><li>Importance of Tying Debt Issuances to Forecasts </li></ul><ul><ul><li>Cash Flow Forecasts </li></ul></ul><ul><ul><ul><li>Length of Debt </li></ul></ul></ul><ul><ul><ul><ul><li>Match maturity date to sources of repayment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Match service dates to sources </li></ul></ul></ul></ul><ul><ul><li>Return Forecasts </li></ul></ul><ul><ul><ul><li>Debt “proceeds” must be invested </li></ul></ul></ul><ul><ul><ul><ul><li>Match return on investment to interest of bonds </li></ul></ul></ul></ul>
    68. 68. <ul><li>Long Term Debt </li></ul><ul><li>Municipal Bonds </li></ul><ul><ul><li>Bonds issued by any of the 50 states, the territories and their subdivisions, counties, cities, towns, villages and school districts, agencies, such as authorities and special districts created by the states, and certain federally sponsored agencies such as local housing authorities. </li></ul></ul><ul><ul><li>Historically, the interest paid on theses bonds has been exempt from federal income taxes and is generally exempt from state and local taxes in the state of issuance. </li></ul></ul><ul><ul><li>Approximately $1.3 trillion municipal bonds outstanding. </li></ul></ul><ul><ul><li>Generate about $50 billion tax-free interest income each year. </li></ul></ul><ul><ul><li>Can be 20 years, or for the life of the project. </li></ul></ul>Debt and Investment Policies
    69. 69. Debt and Investment Policies <ul><li>Short Term Debt </li></ul><ul><li>Municipal Notes. </li></ul><ul><ul><li>Short-term municipal obligations, generally maturing in one year or less . </li></ul></ul><ul><ul><li>Common types are (1) bond anticipation notes (BANs), (2) revenue anticipation notes (RANs), (3) tax anticipation notes (TANs), (4) grant anticipation notes, (5) project notes, and (6) construction loan notes </li></ul></ul>
    70. 70. <ul><li>Suggestions for Debt Policies </li></ul><ul><li>Issuance Guidelines </li></ul><ul><ul><li>Town will strive to maintain/improve its bond and/or credit rating to minimize borrowing costs and preserve access to Credit. </li></ul></ul><ul><ul><li>Annual Debt service costs not to exceed 8% of Town’s Operating expenditures at the time obligation incurred. </li></ul></ul><ul><ul><li>Total remaining balances of Long Term Debt obligations not to exceed 1.5% of Town’s net assessable base at the time the obligation is incurred. </li></ul></ul><ul><li>2. Allowable Investments for Proceeds </li></ul><ul><li>3. Statements on Projects </li></ul><ul><li>4. Refinancing </li></ul><ul><li>5. Glossary of terms </li></ul>Debt and Investment Policies
    71. 71. <ul><li>Importance of Tying Investments to Forecasts </li></ul><ul><ul><li>Cash Flow Forecasts </li></ul></ul><ul><ul><ul><li>Length of investment </li></ul></ul></ul><ul><ul><ul><ul><li>Match maturity date to needs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Match maturity date to potential new investments </li></ul></ul></ul></ul><ul><ul><li>Forecast on Estimated Returns </li></ul></ul><ul><ul><ul><li>Benchmark </li></ul></ul></ul><ul><ul><ul><ul><li>Blending your overall return to match your benchmark </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Average rate of return </li></ul></ul></ul></ul></ul>Debt and Investment Policies
    72. 72. <ul><li>Ensuring Investments are Secure </li></ul><ul><li>Follow the code of your state or country, then be conservative </li></ul><ul><li>Be very specific in your investment policy on what can and cannot be used (examples on the next few pages) </li></ul><ul><li>Investment policy needs to have oversight </li></ul><ul><li>Constantly monitor information </li></ul><ul><li>Monitor investment report daily </li></ul><ul><li>Diversify </li></ul><ul><li>And….. </li></ul>Debt and Investment Policies
    73. 73. <ul><li>Assumption of Investment Risk – Not just earning the highest return but protecting capital </li></ul><ul><ul><li>Diversify Portfolio </li></ul></ul><ul><ul><ul><li>Term </li></ul></ul></ul><ul><ul><ul><li>Type </li></ul></ul></ul><ul><ul><ul><li>Include details in your Investment Policy </li></ul></ul></ul><ul><ul><ul><li>Investment Report </li></ul></ul></ul><ul><li>Types of Investment Risk </li></ul><ul><ul><li>Internal vs. External </li></ul></ul><ul><li>Suggestions to Mitigate Risk </li></ul><ul><ul><li>Investment Policy </li></ul></ul><ul><ul><li>Investment Monitor </li></ul></ul>Debt and Investment Policies
    74. 74. <ul><li>Investment Policy Example </li></ul><ul><li>Objective – typically safety, liquidity, yield. </li></ul><ul><li>Roles – who is responsible for investing the funds (ultimately) </li></ul><ul><li>Investment Monitor </li></ul><ul><li>Finance Board </li></ul><ul><li>5. Ethics and Conflict of Interest </li></ul><ul><li>Internal Controls </li></ul><ul><li>7. Uses for Investment Proceeds </li></ul><ul><li>8. Benchmarks </li></ul><ul><li>9. Purchasing Investments – Mechanics </li></ul><ul><li>10. Allowable Investments </li></ul><ul><li>11. Report Components </li></ul><ul><li>12. Glossary of terms </li></ul>Debt and Investment Policies
    75. 75. Note – Include these parameters in your investment report. Debt and Investment Policies Class Length % of Total Portfolio Stocks, bonds, and other evidences of indebtedness of the Commonwealth of VA 60 months or less 75% Stocks, bonds, notes and other evidences of indebtedness of the United States 60 months or less 100% Prime Quality Commercial Paper 270 days or less 35% with a 5% per issuer limit
    76. 76. <ul><li>Debt Policy Links - Links </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li>Municipal Bond Terms - Links </li></ul><ul><li> </li></ul><ul><li>Investment Policy - Links </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul><ul><li> </li></ul>Debt and Investment Policies
    77. 77. Cash Flow Forecasting
    78. 78. Cash Flow Forecasting Outline <ul><li>Objectives </li></ul><ul><li>Process </li></ul><ul><li>Components </li></ul><ul><li>Analysis </li></ul><ul><li>Float </li></ul>
    79. 79. Objectives of Cash Flow Forecasting <ul><li>Budget Execution Management </li></ul><ul><li>Financial & Treasury Control </li></ul><ul><li>Strategic Objectives </li></ul><ul><li>Capital Budgeting & Net Borrowing Costs </li></ul><ul><li>Liquidity Management </li></ul>
    80. 80. <ul><li>Cash flow planning and forecasting as a result of the synchronization of revenue estimates and spending plans results in a coordinated effort to make sure that resources are available when needed to properly execute the budget and meet the needs of a variety of budget stakeholders. </li></ul>Budget Execution Management
    81. 81. Financial & Treasury Control <ul><li>Comparing actual cash flows to estimates is fundamental to asset and liability management (especially in the “current” section of the balance sheet) </li></ul><ul><li>Preparing cash flow estimates leads to improvements in the collections and disbursement processes </li></ul>
    82. 82. Strategic Objectives <ul><li>Cash forecasting can be used as the basis for evaluating alternative strategic financial policy objectives. </li></ul>
    83. 83. Capital Budgeting & Net Borrowing Costs <ul><li>Forecasts of revenues & expenditures (incl. borrowing costs) will lead to improved techniques for evaluating different projects. </li></ul><ul><li>Cash flow forecasting leads to a financial analysis of alternatives to finance operating and capital budgets that will seek to minimize the “costs” involved. </li></ul>
    84. 84. Liquidity Management <ul><li>Forecasting the cash position is essential to managing maturities and issuance of investments and debt. </li></ul>
    85. 85. Cash Flow Forecasting Process <ul><li>Horizon </li></ul><ul><li>Participants </li></ul><ul><li>Budget </li></ul><ul><li>Methodology </li></ul><ul><li>Information Sources </li></ul><ul><li>Components </li></ul>
    86. 86. Forecasting Horizons <ul><li>Short Term </li></ul><ul><ul><li>Less than one month </li></ul></ul><ul><li>Medium Term </li></ul><ul><ul><li>Quarterly </li></ul></ul><ul><li>Long Term </li></ul><ul><ul><li>One Year or More </li></ul></ul>
    87. 87. Participants <ul><li>Treasury </li></ul><ul><li>Budget Department </li></ul><ul><li>External/Internal Debt Departments </li></ul><ul><li>Ministry of Finance (Macro Economic Department) </li></ul><ul><li>Tax/Customs Ministries </li></ul><ul><li>Other Line Ministries </li></ul><ul><li>Spending Units </li></ul><ul><li>Central Bank (or Commercial Banks) </li></ul><ul><li>Everyone has to be involved in some way to get a good forecast! </li></ul>
    88. 88. Budget <ul><li>The primary financial management tool of the government. </li></ul><ul><li>All estimates of cash flows must start with this financial management tool, especially since it is usually prepared on a cash basis. </li></ul>
    89. 89. 80 – 20 Rule <ul><li>In cash flow forecasting every piece of the puzzle is important, but……. </li></ul><ul><li>80 percent of our revenue (& expenditures) comes from (or goes to) 20 percent of our sources </li></ul><ul><li>This means that we need to spend the most time on the “80” rather than on the “20”! </li></ul>
    90. 90. Methodology <ul><li>Fund vs. Agency Basis </li></ul><ul><ul><li>Fund: Forecasting cash flows on the basis of governmental fund types i.e. general revenue fund, highway (road) fund, etc. </li></ul></ul><ul><ul><li>Agency: Forecasting cash flows on the basis of governmental agency or ministry </li></ul></ul>
    91. 91. Methodology <ul><li>Economic vs. Functional Basis </li></ul><ul><ul><li>Economic Class – Forecasting cash flows on the basis of economic classification is probably the best, because it lends itself to robust variance analysis </li></ul></ul><ul><ul><li>Functional – Forecasting cash flows on the functional basis of government is possible but probably does not lend itself to a thorough analysis of patterns or variances between forecasts and actuals. </li></ul></ul>
    92. 92. Methodology <ul><li>Degree of Certainty </li></ul><ul><ul><li>Certain Flows </li></ul></ul><ul><ul><li>Forecastable Flows </li></ul></ul><ul><ul><li>Less Predictable Flows </li></ul></ul>
    93. 93. Information Sources <ul><li>Information Systems </li></ul><ul><li>Cash vs. Accrual </li></ul><ul><li>Banking System </li></ul><ul><li>Budget Documents </li></ul>
    94. 94. Components <ul><li>Revenues </li></ul><ul><li>Expenditures </li></ul><ul><li>Lending </li></ul><ul><li>Borrowing </li></ul><ul><li>Other Balance Sheet Accounts </li></ul>
    95. 95. Revenues <ul><li>Budget as source reference. </li></ul><ul><li>The initial budget revenue estimate must be backed by some consistent, corroborating macroeconomic analysis. </li></ul><ul><li>Revenue collecting agencies should prepare monthly estimates using budget as a base. </li></ul><ul><li>Weekly or daily estimates of the monthly plan can be prepared using historical daily data lined up against “payment due dates”. </li></ul>
    96. 96. Revenues <ul><li>For example: 1,000 currency units are estimated in a given month for corporate income tax which is due on the 15 th of the month. It is probable that 70/80 percent of the tax estimated to be collected will be received from the 14 th to the 18 th of the month. (Assuming all are business days.) This type of information can be confirmed by reviewing historical cash flow information and comparing the dates received to the dates due. </li></ul>
    97. 97. Revenues <ul><li>More than likely, for a tax like a corporate profits tax, you will see such a pattern during a month. </li></ul><ul><li>A sales tax or VAT collected through the month will likely have a flatter, more even pattern. </li></ul>
    98. 98. Expenditures <ul><li>Spending Plans </li></ul><ul><li>Historical Review </li></ul><ul><ul><li>Rates of Spending </li></ul></ul><ul><ul><li>Seasonality of Spending </li></ul></ul>
    99. 99. Spending Plans <ul><li>The use of spending plans is probably the most thorough way to develop a forecast of cash outflows. </li></ul><ul><li>Spending Units (or other level of Ministry) should prepare monthly spending estimates based on budget and guidance on revenue forecasts. </li></ul><ul><li>The spending plan should incorporate the proper level of flexibility given the seasonal nature of some spending categories. </li></ul><ul><li>The development of spending plans must be examined on a cost benefit basis relative to the value of their preparation. </li></ul><ul><li>The “80 percent” of the spending still needs the most attention! </li></ul>
    100. 100. Historical Information <ul><li>The past is usually the best predictor of the future in countries with mature financial and budgetary systems. </li></ul><ul><li>The past can be the best predictor of the future in countries with young financial and budgetary systems if information can be “normalized” for the current year’s situation. </li></ul><ul><li>Use the Calendar to examine the patterns! </li></ul>
    101. 101. Expenditures <ul><li>The spending plans and historical data can be used to forecast monthly data. </li></ul><ul><li>Historical information, common sense and “known” dates will assist with weekly and even daily breakdowns. </li></ul>
    102. 102. Lending (Assets) <ul><li>Estimated cash flows from outstanding loans. </li></ul><ul><li>Cash flows out to fund new loans </li></ul><ul><li>Should be included in budget. </li></ul>
    103. 103. Borrowing (Liabilities) <ul><li>Existing debt payments </li></ul><ul><li>Timing of issuance of debt </li></ul><ul><li>Timing of new payments on recently issued debt </li></ul>
    104. 104. Changes in Other Balance Sheet Accounts <ul><li>Cash flows from: </li></ul><ul><ul><li>Accounts Receivable </li></ul></ul><ul><ul><li>Asset Sales (Privatization) </li></ul></ul><ul><ul><li>Sale of Precious Metals </li></ul></ul><ul><ul><li>Equity Investments (Dividends) </li></ul></ul><ul><ul><li>Foreign Exchange Activity </li></ul></ul><ul><ul><li>Maturing Short Term Investments </li></ul></ul>
    105. 105. Changes in Other Balance Sheet Accounts <ul><li>Cash flows to: </li></ul><ul><ul><li>Equity investments in public entities </li></ul></ul><ul><ul><li>Purchase of precious metals </li></ul></ul><ul><ul><li>Pay down of past due accounts payable </li></ul></ul><ul><ul><li>Foreign exchange activity </li></ul></ul><ul><ul><li>New short term investments </li></ul></ul>
    106. 106. Variance Analysis <ul><li>Fundamental Issues </li></ul><ul><li>Legal Issues </li></ul><ul><li>Technical (Administrative) Issues </li></ul>
    107. 107. Fundamental Issues Affecting Variances <ul><li>Economic growth higher or lower relative to assumptions: </li></ul><ul><ul><li>Higher/lower than expected tax collections </li></ul></ul><ul><ul><li>Decrease/Increase in citizens seeking social benefits </li></ul></ul><ul><li>Economic conditions leading to increased borrowing costs or higher investment earnings </li></ul><ul><li>Inflation rates higher than expected leading to higher rates of growth in indexed payments. </li></ul><ul><li>Disasters/Emergency Situations </li></ul><ul><li>Foreign Exchange </li></ul>
    108. 108. Legal Issues Affecting Variances <ul><li>Changes to tax laws by legislature that effect revenue collections. </li></ul><ul><li>Payouts of settlements of court cases. </li></ul><ul><li>Court interpretations of existing tax laws or spending mandates. </li></ul><ul><li>Sharing ratio of taxes between levels of government. </li></ul>
    109. 109. Tech/Admin Issues Affecting Variances <ul><li>“Float” </li></ul><ul><ul><li>Collections </li></ul></ul><ul><ul><li>Disbursements </li></ul></ul><ul><li>Calendar Issues </li></ul><ul><li>Coding Issues </li></ul>
    110. 110. Modifications to Cash Flow <ul><li>Fundamental Issues </li></ul><ul><li>Legal Issues </li></ul><ul><li>Technical (Administrative) Issues </li></ul>
    111. 111. Understanding and Measuring “Float”
    112. 112. Collection Float <ul><li>Mail Float </li></ul><ul><ul><li>The delay between the time a check (payment) is mailed and it is received. </li></ul></ul><ul><li>Processing Float </li></ul><ul><ul><li>The delay between the time a payment is received and it is deposited. </li></ul></ul><ul><li>Availability Float </li></ul><ul><ul><li>The delay between the time a payment is deposited and the time the account is credited. </li></ul></ul>
    113. 113. Disbursements Float <ul><li>Mail Float </li></ul><ul><ul><li>The delay between the time a check is mailed and the date the check is received. </li></ul></ul><ul><li>Processing Float </li></ul><ul><ul><li>The delay between the time the payee receives the check and the time the check is deposited. </li></ul></ul><ul><li>Clearing Float </li></ul><ul><ul><li>The delay between the time the check is deposited and the time it is presented to the payor’s bank for payment. </li></ul></ul>
    114. 114. Float Analysis <ul><li>The purpose of analyzing disbursement and collections float is to shorter this float to as few days as possible. </li></ul><ul><li>Cutting down the time for funds to go from point A to point B and having information systems tracking this information every step of the way will lead to decreased costs. </li></ul><ul><li>Shortening disbursement or collections float will likely be the result of using improved banking products or making changes in internal administrative processes. </li></ul>
    115. 115. Measuring Float Revenue Dollar Amount Calendar Days of Float Dollar Days of Float 1 1,500,000 4 6,000,000 2 4,500,000 2 9,000,000 3 3,000,000 6 18,000,000 Totals 9,000,000 33,000,000
    116. 116. Measuring Float <ul><li>Average Daily Float = Total Dollar Days of Float/Total Calendar Days in Period </li></ul><ul><li>Annual Cost of Float = Average Daily Float * Opportunity Cost of Funds </li></ul>
    117. 117. Measuring Float <ul><li>Average Daily Float = 33,000,000/30 </li></ul><ul><li>Average Daily Float = 1,100,000 </li></ul><ul><li>Annual Cost of Float = 1,100,000*9% </li></ul><ul><li>Annual Cost of Float = 99,000 </li></ul>
    118. 118. Managing Cash Inflows and Outflows
    119. 119. Managing Cash Flows <ul><li>Accounting Controls </li></ul><ul><li>Banking Products & Services </li></ul>
    120. 120. Accounting Controls <ul><li>Payment Frequency </li></ul><ul><ul><li>On-Demand vs. Once Per Week Disbursements </li></ul></ul><ul><li>Vendor Analysis </li></ul><ul><li>Aggregation of Multiple Payments to Single Vendors </li></ul><ul><li>Payment Terms </li></ul>
    121. 121. Banking Products <ul><li>Zero Balance Account </li></ul><ul><li>Fraud Prevention </li></ul><ul><li>Wire Transfers </li></ul><ul><li>Automated Clearing House </li></ul><ul><li>Disbursements </li></ul><ul><li>Purchasing and T/E Cards </li></ul>
    122. 122. Banking Products/Terminology <ul><li>Deposits - Paper Checks </li></ul><ul><li>Armored Car/Currency </li></ul><ul><li>Lock Box </li></ul><ul><li>Credit Cards </li></ul>
    123. 123. Zero Balance Account <ul><li>ZBAs are linked to Concentration Accounts </li></ul><ul><li>At the end of each day any positive or negative balances are netted </li></ul><ul><li>Can accept deposits or disbursements </li></ul><ul><li>Not the same as a sweep account </li></ul>
    124. 124. Zero Balance Account <ul><li>Can be used to improve reconciliation process </li></ul><ul><ul><li>Typically used for payroll or benefits </li></ul></ul><ul><ul><li>Federal Receipts </li></ul></ul>
    125. 125. Fraud Prevention <ul><li>Debit Blocks </li></ul><ul><li>Debit Filters </li></ul><ul><li>Both restrict potentially fraudulent ACH transactions from posting to an account </li></ul>
    126. 126. Wires <ul><li>Real Time Gross Settlement (RTGS) </li></ul><ul><li>Same day availability </li></ul>
    127. 127. Automated Clearing House <ul><li>Batch processed electronic payment system </li></ul><ul><li>Not same day credit </li></ul><ul><li>Funds Availability </li></ul><ul><li>Used for high volume/low value payments </li></ul><ul><li>Payments can be scheduled up to two weeks in advance </li></ul><ul><li>Electronic Data Interchange </li></ul><ul><li>Cash Concentration </li></ul>
    128. 128. Paper Checks - Disbursements <ul><li>Account Reconcilement </li></ul><ul><ul><li>“ Issue File” </li></ul></ul><ul><ul><li>“ Positive Pay”/”Payee Name Verification” </li></ul></ul><ul><li>Controlled Disbursement </li></ul>
    129. 129. Purchasing Cards <ul><li>Simplifies Purchasing and Payment Process </li></ul><ul><li>Lower Overall Transaction Processing Costs per Purchase </li></ul><ul><li>Increased Information </li></ul><ul><li>Reduced Paperwork </li></ul>
    130. 130. Purchasing Cards <ul><li>Decentralizes the Purchasing Function </li></ul><ul><li>Set/Control Purchasing Dollar Limits </li></ul><ul><li>Set/Control Vendors </li></ul><ul><li>Rebates Available </li></ul>
    131. 131. Purchasing Cards <ul><li>Written Agreement with Bank </li></ul><ul><li>Written Polices and Procedures with Staff </li></ul><ul><li>End of Year Tax Reporting </li></ul>
    132. 132. Paper Checks - Receipts <ul><li>Deposit Reconciliation </li></ul><ul><ul><li>Reporting of deposits by location </li></ul></ul><ul><li>Remote Deposit </li></ul><ul><ul><li>“ On-site” conversion of checks to electronic images for deposit </li></ul></ul>
    133. 133. Armored Car - Outsourcing <ul><li>Some armored car companies can offer private “vaults.” </li></ul><ul><li>“ Vault” acts as an extension of the bank’s teller line. </li></ul>
    134. 134. Lockbox <ul><li>Wholesale </li></ul><ul><ul><li>High dollar value/low volume </li></ul></ul><ul><ul><li>Many non-standard invoices or single payments for multiple invoices </li></ul></ul><ul><li>Retail </li></ul><ul><ul><li>Low dollar value/high volume </li></ul></ul><ul><ul><li>Standardized invoices (Utilities) </li></ul></ul>
    135. 135. Credit Cards <ul><li>Types of Payments </li></ul><ul><li>Infrastructure needed </li></ul><ul><li>Internal Controls </li></ul><ul><li>Liability </li></ul>
    136. 136. Questions?
    137. 137. Laura Trimble: Gail Ostler: