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Local Government and School Accountability

Cash Management

A Tutorial for Local Governments and School Districts

Cash Management Terms

Activity Reports: A monthly bank report showing (for each bank account) the average ledger and collected cash balances for that month, along with volume and per transaction costs of servicing your account.

Automated Clearing House (ACH): A local check clearance system. It is the delivery system for electronic payments between private, government and business sectors.

Clearing Float: Time funds are unavailable because they are moving from the deposit bank to the drawee bank.

Community Reinvestment Act: Federal regulators rate banks' involvement in the community. The assessment areas are lending, service and investments. The ratings are high satisfactory, low satisfactory, needs to improve, and substantial noncompliance. Governmental entities should not deposit funds in institutions that are not rated high with regard to community reinvestment.

Compensating Balances: Money required to remain on deposit in your bank account throughout a month that, at a certain rate of interest, will produce earnings for the bank equal to the cost of the bank services.

Controlled Disbursement Account: A checking account requiring daily handling where checks to be presented are known early each morning and one deposit is made for the amount of the checks presented. These accounts maintain a zero balance at the end of the business day.

Demand Account: A non-interest-bearing checking account. Withdrawals, payments to third persons or transfers to other accounts or banks can be made without restrictions as to the number of such transactions that can be made during any given period.

Deposit (Collection) Float: The amount of funds you deposited, represented by checks drawn on other banks, that are in the process of collection.

Disbursement Float: Checks drawn on your checking accounts that have not cleared the banking system or charged to your checking account.

Electronic Funds Transfer (EFT): A financial transaction whose completion involves a computer or telecommunications link. EFT applications include direct deposit of payroll, wire transfers, Automated Clearing House (ACH) debits or credits, debit or credit cards, and Internet electronic commerce (e-commerce).

Federal Reserve Requirement: Banks' current federal reserve requirement (10 percent) as applied to the positive collected balance maintained in a demand deposit (transactions) account. In other words, your available collected balance is reduced by the 10 percent that must be maintained, and is not available for investment.

Mail Float: Time funds are unavailable because they are in the postal system.

Processing Float: Time funds are unavailable because the payee is processing the check.

Time Deposit Account: An interest-bearing account. Examples are NOW (negotiable order of withdrawal) accounts and money market accounts. There may be restrictions as to the number of transactions that may be made during any given period.

Transaction account: Checking / NOW accounts.

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