Efficient Cash Management
Cash management comprise of taking the necessary actions to maintain adequate levels of cash to meet operational and capital requirements and to get the maximum yield on short term investments of pooled, idle cash. A good cash management program is a significant part of the overall financial management of a municipality. Such a program benefits the town or town by improving the control and superintendence of cash, increasing non-tax revenues, increasing contacts with members of the financial community , while at the same time maintain the safety of the funds of municipality.
The aims of Cash Management are:
ñ To maintain adequate money at hand to achieve the daily cash needs of the municipality while maximizing the amount available for investment.
ñ To get the maximum earnings on invested funds while ensuring their safety.
In order to reach primary goals, a treasurer should strive to:
1. Generate strong disbursements and internal control of cash receipts.
2. Build improved procedures for collecting outstanding taxes.
3. Build clear lines of communication bet investor en the treasurer and department heads.
4. Build solid professional relationships with local bankers and other members of the investment community.
Major Elements of an Effective Cash Management Program
a) Bank Relations
The treasurer should endeavor to be constantly aware of the range of services available from area banks. Since banks' service charges and investment rates changes, the treasurer should regularly evaluate the charges and rates of the banks utilized by the municipality to ascertain that continuing to utilize these banks best serves the interests of the municipality. When trading bonds or notes, the treasurer should try to receive a sufficient number of bids to assure competitive rates for the borrowers funds. While borrowing or investing money, the treasurer should accost bids from at least 3 area banks.
The treasurer should review bank statements for treasury checking accounts and should keep all activity into one account when possible. The treasurer should employ a uniform system of forms and procedures for all collection, disbursement activities and deposit.
b) Cash Flow Statements
As a part of developing an effective cash management program, the treasurer must prepare a cash flow statement also known as cash budget. Cash budgeting comprise the estimation of cash receipts and cash disbursements to decide cash availability. A treasurer can best recognize the municipality's major cash items by examining an annual budget, payment , collection records and past cash flow patterns.
Local taxes and state and federal grants comprise the primary sources of municipal funds. By reviewing a municipality's treasury and accounting records, a treasurer can decide the pattern of receipts of that municipality.
To aid in determining the pattern, the treasurer should design a table that show:
i) The type of receipt
ii) The total amount of the receipt
iii) The month when each portion of the receipt was received.
If the treasurer tracks the cash flow back 2 or 3 years, a recognizable pattern should become apparent.
The treasurer should evaluate the historical patterns of these cash flows in light of current estimates. Even though making adjustments for changing time environments is not certain business and attempt to make such adjustments should improve a collections forecast.
Forecasting Disbursement:
Municipal payrolls report for approximately 72% of the spending of most towns and cities. These expenditures led to be relatively constant as per they are reliably predicted. A treasurer should use prior payroll records, altogether with the next fiscal year's budget to compute the amount of the annual payroll.
The gross payroll, however, is not the amount disbursed rather, the amount disbursed is the gross payroll amount less deductions for federal and state income taxes and for marginal benefits, such as workers retirement and compensation. The payroll disbursement forecast should also comprise adjustments for temporary workers and for seasonal payments like vacation advances in the summer months. If a municipality provides a lump sum payment option for teachers and the payments are paid out at the end of the school year.
Disbursement of currencies antecedent withheld for income taxes and for employee benefits constitutes a significant payment by a municipality. To forecast the amount of this disbursement for some discrete period, such as from July 1 through January 1, the treasurer must add all of the deductions from a investor weekly or bi investor weekly payroll and multiply the sum by the number of pay periods falling within the designated time period.
As part of forecasting disbursements for personnel costs, the treasurer should attempt to figure the actual cash disbursal if that disbursal varies from the budgeted or authorized amount. Budgeted amounts can vary only with supplemental annexations, while authorized amounts can change with the increase or decrease of genuine employees.
After finishing the payroll disbursal forecast, the treasurer should devise forecasts for other kinds of payments. The treasurer might start by analyzing each departmental budget for non payroll items and then concentrating on the more expensive items first. For each item, the treasurer should converse with the departmental officials familiar with expenditures to discover the pattern of past cash disbursements with respect to that item and the anticipated pattern and amount of expenditure for the item for the upcoming year. The treasurer, based upon a greater familiarity with the timing and intensity of cash effluence should assure that these patterns and expenditure projections are fair.
Analyzing Cash Flow and Preparing a Budget
At a minimum, a treasurer should devise cash flow data on a monthly basis for the current year. In larger communities, the treasurer should compose cash flow information more frequently, on a daily,weekly, or bi investor weekly basis, depending on the size of the community.
The treasurer should devise cash flow sum-ups using two basic categories of inflows and outflows of cash, recurring and extraordinary. Recurring payments and receipts, such as payroll expenses and property taxes payments, can be anticipated regularly, month after month; extraordinary payments and receipts and result from nonrecurring programs or items, such as federal grants or capital expenditures.
The treasurer should use the history of major collections and disbursements for the previous 3 to 5 years to identify recurring expense and disbursement patterns. The treasurer should then extrapolate these past trends into the future, being thrifty to make adjustments for anticipated changes in timing and payment patterns and to recognize when particular historical data is not representative.
Analyzing the municipality's current operating budget, looking particularly for the percentage increase in payroll and in other expenditures, for changes in seasonal spending patterns and for adjustments ca utilized by the addition or deletion of programs, will provide crucial information for preparing a cash flow analysis. Also, examining the capital budget and communicating with department heads will assist in making projections concerning special cash flow items. Of course, analyzing historical information is of little assistance in projecting special revenues and expenditures in a cash flow analysis.
Because cash availability is the key concern of cash management, some treasurers are very conservative in figuring receipts of funds and liberal in figuring disbursements when they prepare a cash budget. For instance, they might budget a receipt anticipated to be taken in at the end of a month as being received the following month. Surely it is better to err on the conservative side. However, accuracy is vital in estimating and managing a municipality's cash.
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