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Flashcards in Financial Management Functions 30% Deck (26):

Prompt Payment Act

Federal/ State : The Prompt Payment rule makes sure that valid and proper invoices submitted by vendors are paid on time by federal agencies. Usually, within 30 days if a proper invoice is received. A proper invoice has the following correct items: 1. quantity or of the items delivered, 2. price per items, 3. amount due and the due date.
Take discounts when cost effective.

Legal Reference: In 1982, Congress enacted the Prompt Payment Act (Act''; Pub. L.97-177) to require Federal agencies to pay their bills on a timely basis, to pay interest penalties when payments are made late, and to take discounts only when payments are made by the discount date.

Prompt Payment Act Amendments of 1988 - Revises Federal law to provide that for purposes of determining a payment due date and the date upon which any late payment interest penalty shall begin to accrue, the head of a Federal agency is deemed to have received an invoice on the later of: (1) the date on which the designated place or person of an agency actually receives it; or (2) the seventh day after the date on which a property is actually delivered, or final performance of a service is actually completed, unless the contract specifies otherwise or the agency has accepted such property or services before such seventh day.
Eliminates grace periods for payment of interest penalties.

Requires an agency to pay an additional interest penalty if: (1) the agency owes the interest penalty; (2) the interest penalty is not paid to the business concern on or after the date the penalty is due; (3) the agency does not pay the penalty within ten days after such payment is made; and (4) a written demand is made within 40 days after such payment is made.


Deficit Reduction Act of 1984

Make federal agencies accountable for collection and deposit practices. The federal government is required to use EFT, Lockboxes, Automatic Clearing Houses (ACH) for withdrawing and depositing funds.


Cash Management Improvement Act of 1990

Improves the transfer of Federal Funds to states and other entities. The improvement will 1. minimized the time between the transfer of federal funds to a State governments; 2. ensures Federal funds are available when requested; and 3. Assess the interest liability for compensation.


Cash in the Government

One of the major resource in the government.
Cash generate by taxes (property, sales and income), service fee (i.e. DVM fees) and grant receipts (State and local government.



The period between the time the check is issued and the time it is presented for payment which sometimes accrue interest depend how long the check is sitting before cashing it.

EFT ( Electronic Funds Transfers) eliminates the FLOAT because payments are directly credited and debited to the account.


31CFR Part 208 Management of Federal Agency Disbursements

Requires federal agencies to disburse payments via EFT with the exception of one time or small dollars.


Cash Management Improvement Act of 1990

Minimized the time between the transfer of Federal Fund to a State government and other entities. Ensures federal funds are available when requested. Assess and interest liability to the Fed to compensate.



One major resource in government. Cash exist in government due to taxes, grant receipts, and fees. Cash is invested in Retirement Funds. Cash requires an understanding of the legislation and regulation affecting cash, the importance of sound internal controls and the role of the Float. Cash is very risk because its easy to steal without a trace in some cases.


Governmental Cash Management Legislation

The following are the affects on government cash management (state and local)
Limitation on depository accounts
Bank headquarters
Size of bank in relation to deposits
One time Payment and Transfers
Portion of cash permitted to be deposited


Internal Control for Cash

Cash is the most liquid of Assets- Most likely risk to unauthorized loss.
Suspicion of fraud must be reported to management.
Holding different individuals accountable for the distinct roles in handling cash.
Ex: Separation Duties
1. Authorization and collection (Position 1)
2. Recording Transaction (Position 2)
3. Deposits Receipts or Mail Receipts( Position 3)
4. Bank Reconciliation (Position 4)

Automated Systems include the following to improve internal controls:
1. Automatically numbers for receipts, checks, collection lockboxes,
2. Optical character recognition


US Treasury

Responsible for Cash management for the Federal government. Cash is obtain by Taxes, customs duties, fines, sale of goods and services and benefits.

History: "Established by an Act of Congress in 1789 to manage government revenue, its responsibilities include producing currency and coinage, collecting taxes and paying bills of the US government, managing the federal finances, supervising banks and thrifts, and advising on fiscal policy."- Internet source


Federal Reserve System

"The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises." Internet Source

Known a the Central Bank of the United States
oversees banking institution

Maintain banking Stability of the financial system
Provides financial services to the US and foreign banking institutions.

Founded by Congress in 1913

Comprised of a board of Government nominated by the President and confirmed by the senate.

12 Federal Reserve Banks or District


State and Local Banking

State Legislature determines the banking relationship.

State and local banks compete to gain the governments business.

Some states require that banks to hold and deposits and collateral.


State and Local Banking Services

Collection services, including lock boxes and concentration banks
Payment services- EFT, ACH, Wire Transfers, consolidation of geographically dispersed deposits into a Central account.
Borrowing Short and long terms
Credit Cards ( Govt travel and supplies)
Safe deposit box
Compensation balances and Actual service charges


LOCK BOX internal controls ( Same Day- Service)

Position 1: Deposits Receipts for the lock box (PO BOX)

Position 2: Record receipts for the lock box (PO BOX)


What are the ways to accelerate government collections?

Lock Boxes - Postal employees deposit checks from this box the same day.

Concentration banks

Collection Agents banks-Property taxes for the region can pay at the bank.


Payment by debit or credit card
Eliminated cash handle by employees


Prepaid accounts that are drawn down


Cash Concentration Account

Deposits are automatically centralized in one account for better cash management. This way, you can have separate accounts for daily business activities but pool the funds in one master account. Remember to diversify for safety.


Zero Balance Account (ZBA)

The total of all checks presented against the ZBA is offset from the linked operating account, bringing the ZBA balance back to zero. Balance is zero after matching checks with the expenses.


Over the counter collections

Same day payments when the bank is the collection agency


Cash Forecasting

use to reveal when cash is needed and when there is excess cash that can be invested. Cash are estimate will entities collect property taxes ( March and September) and income taxes (April). Investments, retirement and capital projects is when cash is needed.


What are the ways to implement timely payments?

1. Prompt payment act
2. Warrants from Treasury
3. Check from the bank
4. Automatic Clearing Houses- large dollar irrevocable real time deposit.
5. Electronic Payments Next Day (EFT and Wire Transfers)
6. Credit and Debit cards
7. Cash Discount when payments are made in advance.


Ways to improve Internal Controls for Electronic Payments

1. Government Issued credit cards need to identify when the card was, requirement for filling receipts for credit card payments and credit card reconciliation.

2. Electronic Benefits can track the spend, limit spending on unauthorized purchases and sets dollar thresholds.

Both methods can help detect improper payments.


The Improper Payments and Elimination and Recovery Act of 2010

The Improper Payments and Elimination and Recovery Act of 2010 defines an “improper payment” as any payment that should not have been made or that was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements.


How to prevent Improper Payments?

Create a plan to reduce improper payment
. recapture plans
. prevention
. detection

Identity programs that are subject improper payment
.new offices or programs and .disaster relief

Running report to statistically estimate the amount and when it occur to analyze patterns.


Three Elements of Investing

1. Safety (Avoid Risk)
2. Liquidity (How fast can you turn securities into cash)
3. Yield (Dividends/Returns on Investments)


What are the four types of Risk in investing?

1. Credit or Default Risk
2. Market Risk
3. Currency Risk
4. Political Risk