"In the light of the current fiscal position, good cash
flow management is more important than ever. Departments and the
Treasury are working to improve performance, but central government
as a whole is not maximising value for money in the way it manages
its cash.
"More money needs to be kept in the Exchequer by
departments and sponsored bodies, and forecasts of cash flows
should be improved. Where organisations do need to use commercial
bank accounts, they should use shared knowledge to negotiate
arrangements which give the best possible deal for the
taxpayer."
Amyas Morse, head of the National
Audit Office, 16 October 2009.
Central government could improve its day to day cash management
and reduce the amount of interest it pays on debt if its
departments and their sponsored bodies held less money in
commercial bank accounts. Today’s report to Parliament by the
National Audit Office recommends that these organisations instead
use the Exchequer as their main banking provider.
The NAO points out that keeping as much money as possible in the
Exchequer is one of the most important elements of good cash
management in government, since it not only reduces government
borrowing but also minimises risks and allows the government to
plan and manage its cash flow more cost-effectively.
But central government departments and their sponsored bodies
hold more money in commercial bank accounts than is necessary. The
Treasury estimated that at the end of March 2008 such organisations
held a total of £4 billion in commercial bank accounts, equivalent
to four days of central government spending. The interest paid out
by commercial bank accounts on balances held by the study’s sample
of 16 public sector bodies was typically lower than the rate at
which central government borrows money. The NAO estimates that some
£28 million might have been saved in a year if the £4 billion had
been held in the Exchequer.
Another important aspect of cash management is forecasting, as
inaccurate forecasting of cash flow by government departments can
lead to losses for the taxpayer. Although departments have
generally become more accurate in their forecasting, some
departments recognise that they do not do enough to collect the
information they need to forecast accurately. In 2008-09, the
government as a whole over or under forecast its cash requirements
by an average of £63 million a day, which represents four per cent
of the Government’s net spending.
There are also a number of important, but less quantifiable
benefits associated with accurate forecasting. For example, with
accurate long-term forecasts the government can make better use of
opportunities in the financial markets to even out future cash
flows by borrowing and lending money at the best rates. It would
also reduce the risk of making high value, last minute transactions
at poor rates.
Publication details:
HC: 546, 2008-09
ISBN: 9780102963250