Sailendra pattanayak tsa presentation english

Establishing a Treasury Single Account (TSA) – Concept, Issues and

Challenges

Sailendra PattanayakFiscal Affairs Department

International Monetary Fund

May 2010 Sailendra Pattanayak, IMF

Overview of presentation

1. Typical banking arrangements 2. TSA principles and benefits3. Different TSA structures4. TSA coverage and interface with

transaction processing systems5. Banking Arrangement for Donor

Flows6. Issues/Preconditions for establishing

a TSA


Typical Payment System with Many Bank Accounts

SpendingMinistry

Ban

k A

ccou

nts

SU

SU

SU

SU

SU

SU

SU

SU

Ministryof

Finance

SpendingMinistry

SpendingMinistry

SU = Spending Units

SU


Banking Arrangements under TSA Regime

Debt administration

Subsidies

Local governments

Suppliers

Wage earners

Daily settlement with TSA

Current / deposit bank account(s) of the treasury (TSA)

Transit / zero-balance bank accounts of the

treasury

Tax payersGovernment Borrowings

2. TSA Principles and Benefits


TSA Principles A TSA is a unified structure of government bank

accounts that gives a consolidated view of government cash resources

It could be just one account or a set of linked accounts (main and subsidiary)

All public monies are seen as fungible to prevent inefficient use of cash resources

The consolidation of government cash resources through a TSA is comprehensive

It covers all budgetary and extrabudgetary funds The TSA should be legally recognized, institutionally

robust and stable The TSA can contain ledger sub-accounts for control

and monitoring purposes, but these should not contain over-night balances


TSA Principles – contd. Options for accessing the TSA is mainly

dependent upon institutional structures and payment settlement systems

The cash balance in the TSA is maintained at a level sufficient to meet daily operational requirements of the government

Treasury-related revenue and disbursement floats in the banking sector are kept at the minimum realizable level

Significant revenue and disbursement floats in the banking sector benefit the banks at the expense of the government


TSA and Consolidated Fund Concept All government revenues should accrue to a

common pool (such as the Consolidated Fund) and no source of revenue be earmarked for specific expenditure

In general, there is no need for revenue-specific or expenditure-specific bank accounts

Revenue and expenditure transactions should be classified through a well-developed chart of accounts and not by maintaining distinctive bank accounts for them

The TSA should be maintained in domestic currency, as this parallels the currency in which most budget transactions are executed


TSA Benefits Ensures complete, real-time information on government

cash resources Helps preparation of accurate and reliable cash flow

forecasts Optimizes the cost of government operations

including minimizing the volume and cost of government borrowing and lowering liquidity reserve needs

Facilitates efficient payment mechanisms Improves operational and appropriation control during

budget execution Enhances efficiency and timeliness of bank reconciliation Facilitates timely and more complete accounting

statements/reports E.g. preparation of full statements of sources and uses of cash

3. TSA Structure and Operation


TSA Structure – Option 1

State Treasury Head Office

State Treasury Regional office

State Treasury Local office

Central Bank

Central Bank Regional branch

Budget unit

Payment order

Payment order

Reconc.

Settlement

Settlement

Limited Treasury communication and information systems




State Treasury Regional office

State Treasury Local office

Central Bank

Payment order

Reconc.

Settlement

Budget unit

Advanced Treasury communication and information systems(2a)



Budget Unit

Commercial BankRegional Branch

Commercial BankHead Office

PaymentOrder

Very Reliable and Advanced Commercial Bank Sector

Central BankReconc.

Settlement


Requirements for an efficient TSA Co-operation of the line ministries Development of an Interbank

settlement/clearing system Real Time Gross Settlement System (RTGS)

at the central bank for high value transactions

Major commercial banks and treasury connected to the RTGS

Development of a small payments clearing system


Different Models for transactional banking under TSA

Use commercial bank branch networks to channel funds to/from regional treasury offices to the TSA at central bank (CB)

Use regional branches of the CB where a reliable commercial branch network is not available

Regional treasury offices act as banks (only recommended where the commercial banking sector is regarded as too unstable)

Use commercial banks branch network to clear funds directly between TSA and taxpayers/suppliers


TSA using Commercial Banking system network and RTOs


TSA at CB

Bank A Bank B

Branch 1 Branch 2 Branch 1 Branch 2

RTO and BIs RTO and BIs RTO and BIs RTO and BIs

Taxpayer/supplier Taxpayer/supplierTaxpayer/supplier

Use of regional CB offices


TSA at CB

Regional CB office Regional CB Office

Bank Branch 1 Bank Branch 2 Bank Branch 3 Bank Branch 4

RTO and BIs RTO and BIs RTO and BIs RTO and BIs

Taxpayer/supplierTaxpayer/supplierTaxpayer/supplier

TSA using Commercial Banking network (no RTOs)


TSA at CB

Bank A Bank B

Branch 1 Branch 2 Branch 1 Branch 2

Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier

Treasury and BIs


Management of Receipts Collection through commercial banks

Alternatively through treasury system Impose penalties on late remittances Framework agreements between

Ministry of Finance (MoF)/Treasury and agency banks Standardized services and transparent fees Penalties for delays and under-performance Monitoring

Detailed information available to MoF and agencies


Management of Payments Agencies submit payment requests Covered from TSA after control and verification Clarify roles and responsibilities between

ministries, agencies, banks, central bank and MoF

Maximize use of direct bank transfers Use checks, credit and debit cards when

efficient Minimize imprest accounts and cash payments Ensure that payments are made on due date Eliminate layered cash flows


Management of Balances Define separate pools of funds within TSA

system, for instance: Liquidity Deposit Investment

Differentiation based on liquidity needs, level of uncertainty, costs of alternative sources, etc

Select instruments that match expected cash needs

Integrated management of assets and liabilities Transparent and efficient pricing of assets,

liabilities and services

4. TSA Coverage and Interface with Transaction

Processing Systems


TSA Coverage Only central government

Should include extrabudgetary funds, if any Could include autonomous government entities Could be extended to social-security funds and

other trust funds Central and sub-national governments

Either under a single TSA or separate TSAs Public corporations are generally not

included


Bringing social security and other trust funds under TSA Each Trust Fund could be distinctly

identified and controlled through the Treasury Ledger and/or TSA sub-account

The key issues are: Whether Government has the legal right to use,

even temporarily, the surplus cash available The risk of perverse incentive to use the cash

reserves of these funds to finance budget deficits This risk is quite high in low-income countries,

particularly those with underdeveloped PFM systems


One TSA for both central and sub-national governments Could be done through the use of

correspondent accounts The key issues are:

Has the advantage of consolidating the surpluses and deficits of all correspondent governments participating in the TSA system

Minimizes the cost of general government borrowing Requires well-developed Treasury Ledger System to

monitor the balances of each correspondent Need to consider the risk of abuse by the central

government to finance its deficits at the cost of sub-national governments

Need for safeguards to ensure timely availability of funds to each correspondent government


TSA interface with transaction processing and accounting systems TSA with centralized payment and accounting

controls Payment requests are prepared by individual budget

agencies and sent to a centralized Treasury for payment Treasury manages the float of outstanding invoices Might lead to inefficiencies and high transaction costs

(particularly with manual processing) TSA with deconcentrated payment and

accounting controls Individual budget agencies process and make payments

directly to suppliers (and account for these transactions) MoF sets the cash disbursement limits (monthly or

quarterly)

5. Banking Arrangement for Donor Flows

Covering donor funds within TSA What are donor concerns?

Assurance for use of donor aid on specific projects (or non-diversion of funds)

Some ring-fencing to avoid liquidity problems (and ensure timely payments during project execution)

Minimize exposure to exchange related fluctuations/losses in the value of donor aid (when currency exchange rate regime is volatile)

Reliability of controls (in managing donors’ funds) and information produced by the national PFM systems


Banking arrangement for donors’ funds – possible options Converting donors’ funds into local currency on transfer

to the TSA (best option) The use of the resource-source arrangement would

still allow donor funds to be linked to specific projects

This, being a single-currency TSA, has technical and transparency benefits

Opening separate foreign currency sub-accounts within the TSA

There could be one account for each foreign currency, or one for each of the main donor currencies

The government’s accounts would still be reported in local currency, with foreign currency converted at the relevant exchange rate


Banking arrangement for donors’ funds – possible options Maintaining foreign currency accounts

outside the TSA, but bringing the flows within the accounting regime

Weakens the concept of the TSA, and requires additional administrative processes, but at least has the benefit of tracking transactions through the accounting system


6. Issues/Preconditions for Establishing a TSA


Some country-specific issues for design of a TSA Associate a resource source (e.g. resource from

a donor) with specific expenditure categories Could be done through sub-accounts of a TSA

Need for transit accounts e.g. for major revenue streams to monitor

their collection and remittance or to facilitate revenue sharing

Technical feasibility of daily settlement between the zero-balance accounts of budget agencies and the TSA

Some country-specific issues for design of a TSA – contd. Appropriate interface between the TSA and

transaction processing/accounting systems This issue should be carefully examined at the

conceptual design stage in case of an IFMIS

Identification of non-bank transactions (after closure of agency-specific bank accounts)

Elimination of below-the-line transactions

Strategy for obtaining retail banking services from commercial banks, including use of e-payment/EFT options



Preconditions for establishing a TSA Political support is essential (such as for closure of

agency a/cs)

Legal and regulatory requirements TSA should be legally recognized Authority to open bank accounts should vest

with the MoF/Treasury

Technological requirements Reach of the banking network and reporting

architecture Transaction clearing and inter-bank settlement

systems

Preconditions for establishing a TSA – contd. Formalization of agreements between the

Treasury, TSA Bank and Banks providing retail banking services Should cover services offered by the

banking system, service charges/fees, penalties for non-performance, reporting and reconciliation arrangements, etc.

Revisiting the chart of accounts for coverage of non-bank expenditure transactions

Capacity development of TSA users



Business

Sailendra pattanayak tsa presentation english