The Academy for New York State's Local Officials

Cash Management

A Tutorial for Local Governments and School Districts

Automated Systems

Many larger local governments use more advanced systems, which rely on automated call-in systems or software programs to provide daily tracking of available cash balances, check clearings, and collections of items deposited in their checking accounts. Generally, the more sophisticated cash management systems rely heavily on the use of computer-assisted software and reporting systems. The local government's depository bank may provide these systems or programs, based on varying agreements, at little or no monthly cost. Other governments may employ manual tracking of account information or use computer spreadsheets for their checking accounts or controlled disbursement account. In either situation, they have a better idea of the cash needed to fund checks presented and how much cash is available for longer term investments. The more reliable the tracking of information is, the better the cash manager can maximize the length of time funds are invested. Of course, there may be some bank charges for using these types of accounts. However, by closely and accurately monitoring the collected bank balances and outstanding checks to be presented, you can invest moneys until they are required to pay operating expenses.

Most major banks offer automated cash management systems. One type is an on-line banking system, using the Internet. This type of system alleviates the need to load financial management software on your computer to access account information. Another system requires loading financial management software on your computer's hard drive. Either banking system allows you to perform a variety of functions such as making transfers between your accounts, viewing account information, making wire transfers, and placing stop payments on checks. Depending on the bank, there may be no extra service fees to perform these functions. Use of the bank's electronic services could provide another method of reducing your compensating balance requirements. Our review of some local governments not using automated systems showed that the banks charged $25 per wire transfer and $15 to $20 for processing stop payment requests. If you have a significant number of these transactions each month, use of the bank's system could reduce your compensating balance requirement by reducing service fees. Developing a system of appropriate internal controls to safeguard your assets is important when using an automated system.

To make monitoring compensating balance requirements easier, you should make sure that the bank's monthly analysis reports include all bank accounts of your municipality. Bankers have informed us that they do not expect each account to maintain a sufficient balance to cover service costs. Rather, they are satisfied when they recover service costs on an overall basis. By having information on all your departmental accounts (tax collector, justices, town clerk, building permits and inspection, etc.), you can easily determine if excess compensating balances from these accounts can cover the compensating balance requirement for the chief fiscal officer's checking accounts. This could free CFO funds for investment purposes.

How to assess the costs of using your bank's automated cash management software:

Banks are often willing to negotiate the cost of their cash management software. Some may charge a small monthly amount for use of the software, and others may not charge you a fee at all. You should get a list of all charges for banking functions and services that can be performed using the bank's cash management software, so you can make an informed decision.