October 13, 2009Doug Hadden
Ian Lienert from the IMF has published a Technical Note on Modernizing Cash Management. Mr. Lienert has articulated most of the issues that governments face when managing cash. The approach used for the Technical Note is very helpful by describing objectives then features of modern cash management. This is followed with advice on sequencing cash management features.
There is a very good argument for the use of the Treasury Single Account (TSA) to assist in cash pooling. Mr. Lienert describes how many government entities confuse cash control with expenditure control. The use of separate bank accounts to manage expenditures is really a form of cash rationing. “Modern cash management is not concerned with controlling expenditure authorizations so that the timing of cash disbursements matches the timing of cash receipts.”
We have found a difference in government between short-term liquidity management and long-term cash management Many governments in emerging economies need to manage short-term liquidity. They often need to adjusts budgets on a daily basis to reflect the changes in the cash position. Managing payroll can be a significant burden on governments. Some of our customers have designed payroll approval processes and payroll forecasting to better manage cash.
Mr. Lienert points out that cash needs can be determined based on expenditure commitments. This is one of the advantages to using commitment accounting where expenditure steps can help forecast the future government cash position. And, many governments request managers to estimate longer term cash needs.
FreeBalance has enhanced cash management functionality in the web-based FreeBalance Accountability Suite. We were able to gather requirements from our customers at the FreeBalance International Steering Committee and the CARTAC User Group.