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Treasury and Cash Management. Bill Dorotinsky, PRMPS Budget Execution Course January 16-17, 2003. Core Treasury Functions. Cash management (flow and stock) Financial asset management Debt management, servicing; guarantee management

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Treasury and cash management

Treasury and Cash Management

Bill Dorotinsky, PRMPS

Budget Execution Course

January 16-17, 2003


Core treasury functions

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


Varied organizational options

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


Cash management

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


Treasury consolidated fund treasury single account

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


Financial plans

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


Cash rationing misnomer cash budgeting

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


Debt management

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


Contingent liabilities

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


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