Financial Management Functions 30% Flashcards
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.
FLOAT
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.
CASH
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
Collateral
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:
- Automatically numbers for receipts, checks, collection lockboxes,
- 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)
