Cash management technology for small governments.

• Author: Redlin, Bruce Michael

Cities around the country are responding to the ever-increasing demand for enhanced return on invested capital, as well as pressure for improved security through the use of state-of-the-art technology.

It is the responsibility of today's finance directors to take advantage of every opportunity to maximize the return on invested capital. In order to do this, finance directors must use the latest available technology in order to maximize the total amount of capital to invest. To meet these objectives, systems must be upgraded and new technologies need to be implemented.

Evolution of accounting systems is nothing new to financial managers, whether they are government employees or otherwise. Bookkeeping is a constantly evolving process. Most recently, this evolutionary trend has involved the installation of computers and peripheral devices. The principal utility of these improvements is a reduction in the amount of time required for bookkeeping, enhanced accuracy, and a reduction in the occurrence of fraud and embezzlement.

After achieving a good deal of success in the areas of accounting and financial analysis through the use of technology, financial managers have begun to appreciate some of the more sophisticated uses of electronic systems. With the advent of improved telephone communications (including the Internet), cash managers have the opportunity to "get closer" to their funds and manage them more efficiently.

However, many small banks cannot afford the equipment and software to provide these types of services. Given this fact, it becomes a matter of cooperation between small units of government and their banks as to which of these state-of-the-art services can be utilized and when. There are banking relationships that must be maintained. It must be stressed, however, that one of the fiduciary duties of government finance officers is to obtain the greatest investment returns allowed by law, while maintaining the highest level of security for taxpayers money. In order to achieve this outcome, finance officers must strive to implement whatever new technology is available.

Automated Collections

One of the most significant technological advances is the development of the Automated Clearing House (ACH) system. This is a system that allows funds to be transferred electronically between banks. This system is both inexpensive and relatively easy to use.

By using the ACH system, finance officers can collect taxes and receive state and federal aid quickly, thereby extending the time that funds are on hand. With more time to invest, earnings can be maximized.

Collection of taxes electronically is probably the newest innovation to be used by local governments. Electronic tax payments require fewer taxpayer trips to city hall and reduced chance for late payment penalties.

The method used to implement this plan is to solicit taxpayer ACH by including a notice with annual tax bills. This notice states that taxes can be paid electronically and requires that taxpayers supply certain information on a preprinted form that is included with the tax bill. Such information includes the bank account number, the bank's routing number, and whether it is a savings or checking account. As an alternative, taxpayers may provide a deposit slip for the account containing all the necessary information. Taxpayers also are required to sign an authorization form stating the amount to be withdrawn from their accounts and the dates of...