Treasury management software: ERP or best of breed?

• Author: Masson, Dubos J.

The treasury management modules of ERP systems have evolved to the point that they now represent a viable alternative to stand-alone systems. But which option makes the most sense for your government?

The growth in the use of enterprise resource planning systems has allowed governments to reduce information fragmentation and the need to custom develop and maintain solutions using in-house resources. The first generation of ERP systems focused mostly on core financial and human resources applications. Many of the other administrative systems--fleet management, work orders, inventory, and treasury management--often relied on third-party products that had to be integrated to the central ERP system. Upgrading the ERP system often meant redeveloping the interface between it and third-party applications. This article takes up the question of whether governments today can rely on ERP systems for their treasury management needs, or if a best-of-breed solution is still required.

Treasury Information Management

In most governments, a finance or treasury department is responsible for managing the cash and revenue flows throughout the organization. Although there may be billing or accounts payable departments, there is typically a central entity that oversees the collection and deposit of funds, manages bank accounts and short-term investments, and initiates and reconciles disbursements. This is commonly referred to as treasury information management. The daily objectives of treasury information management include determining cash requirements, tracking transaction activity, identifying opportunities, updating forecasts, and updating management information. Increasingly, treasury departments use electronic systems to store, edit, share, and retrieve information using compatible computer systems connected through either internal networks or the Internet.

Although the treasury functions use of information and technology involves more than just the preparation of a cash position, this daily compilation has been the driving force behind the development of bank-related treasury workstations. In pursuing its objectives, the treasury department effectively acts as an information clearinghouse that compiles internal and external information; sorts, stores, and analyzes this information for reporting to various stakeholders; and monitors and manages any resulting financial risks. On a daily basis, this means tracking and managing information relating to a wide variety of activities, including account balances and transaction detail, cash positions, fund transfers, short-term investments, and cash flow forecasts. Although the primary purpose of these activities is to support tactical decision making, in the long run they are critical to upper management decisions and strategic planning.

In compiling internal financial information, treasury managers must communicate with other organizational units, such as tax assessment, purchasing, collections and accounts receivable, accounts payable, payroll, and accounting. Internal information exchanged between the treasury department or divisions can be classified as either classes of data or uses of data. Classes of data may include tax revenue projections, purchasing summary reports, cash receipts and disbursements, and investment/borrowing schedules. Uses of data may include preparing a cash journal, updating the general ledger, and forecasting cash flows.

External sources of treasury information typically include a government's financial institutions and service vendors. Information gathered from external sources is generally categorized as either prior day or current day information. Prior day information includes activities related to balances and transactions, investment and borrowing, custody, check inquiries, stop payments, and account analysis. Current day information includes lockbox deposits and remittance detail, controlled disbursements, cash concentration reports, wire and ACH transactions, money market rates, maturing investments, return items, and positive pay exception items.

Governments that use two or more banks may establish an arrangement whereby one of those banks or a third-party reporting service gathers and consolidates account balances and transaction activity from the various financial institutions. This arrangement is commonly referred to as data exchange. Banks are increasingly offering this service via the Internet.

Two standardized formats are typically used to receive external data from financial institutions: (1) the Bank Administration Institute format, or BAI, and (2) the Accredited Standards Committee X12 format, or ASC X12. The BAI format is the more established of the two formats and is more commonly used. However, there has been...