Sound cash management assures that investments are optimized for the best possible return for taxpayers.
We strongly recommend the following best practices for cash management.
Actively Monitor Cash Flow
Improving cash management starts with building an accurate cash flow estimate and monitoring actual receipts and disbursements.
- Review monthly analysis reports from the bank, along with monthly account reconciliations. Alternatively, consider using an automated financial management information system or online banking to track daily cash balances.
- Perform a detailed cash flow analysis and update it throughout the year. Conduct more frequent cash flow analyses if your local government or school district is experiencing fiscal stress or a declining financial condition.
- Identify major revenues and expenditures and their expected timing when formulating the budget.
- Review historical data to determine typical cash inflows and outflows throughout the fiscal year.
- Identify reserves and other balances that could be invested longer term in investments allowable by law.
Accelerate Collection and Depositing of Receipts
Increasing the frequency of the collection and deposit of receipts will provide a quicker and steadier stream of income, which can be invested sooner for additional interest earnings.
- Increase the frequency of billing (for example, from semiannual to quarterly), but first perform an analysis to ensure that the added operational costs of more frequent billing do not significantly offset the earnings from the extra investment income.
- Explore contracting with a bank for the collection of receipts, such as property taxes, so that payments can be made directly to your local government or school district’s bank account.
- Set up electronic funds transfer (EFT) with the bank to receive payments from the State and certain other entities.
- Develop procedures for making deposits in a timely manner to ensure funds are protected and earning interest.
Optimize Timing of Disbursements
Generally, the longer cash is held prior to disbursement, the more interest can be earned. However, late fees may be incurred if bill payments are delayed too long.
- Analyze disbursements to identify vendors that offer early-payment discounts.
- For all other disbursements, determine the due date to ensure these payments can be approved by the governing board in time to avoid late payment charges.
- Consider using online banking and EFTs to optimize timing of disbursements.
Maximize Interest Earnings
Following prudent yet effective investment strategies can improve cash inflow and even reduce costs.
- Ensure, when possible, that all cash is in interest-bearing accounts.
- Consider longer-term investments that pay higher interest rates for infrequently disbursed funds (e.g., reserves not expected to be needed in the near term).
- Establish a formal investment policy, if you haven’t already, to guide your local government or school district in making these decisions, and review it annually.
- Consolidate accounts when feasible to minimize bank fees, while continuing to maintain separate detailed accounting records as needed.
- Issue a request for proposals for banking services every three-to-five years to maximize interest and minimize fees.
Legal Requirements
Public moneys must be deposited and invested in accordance with New York State statutes. A number of federal laws also pertain to the deposit and investment of public moneys. Please consult with your legal counsel for advice.
Following are select General Municipal Laws related to cash management:
- Section 5-a authorizes local government officers to transfer funds electronically, subject to conditions.
- Section 10 requires the designation of one or more "banks" or "trust companies" for deposit of public funds and for the securing of public deposits.
- Section 11 allows for certain temporary investment of moneys not required for immediate expenditure.
- Section 39 requires the adoption, by resolution, of an investment policy.
- Section 99-b allows the governing board of a local government to authorize the receipt of check images in lieu of cancelled checks.
- Articles 3-A and 5-G govern generally the temporary investment of moneys by more than one municipal corporation pursuant to a municipal cooperation agreement.
Additional Resources
Updated 2021