Establishing a Treasury

Single Account (TSA) –

Concept, Issues and
Challenges

Sailendra Pattanayak
Fiscal Affairs Department
International Monetary Fund
 Overview of
presentation
1. Typical banking arrangements
2. TSA principles and benefits
3. Different TSA structures
4. TSA coverage and interface with
transaction processing systems
5. Banking Arrangement for Donor Flows
6. Issues/Preconditions for establishing a
TSA

May 2010 Sailendra Pattanayak, IMF

 Typical Payment System
with Many Bank Accounts
SU

Accounts
Bank
Spending SU
Ministry
SU

SU
Ministry Spending
of SU
Ministry
Finance SU

SU

Spending SU
Ministry
SU

SU = Spending Units
May 2010 Sailendra Pattanayak, IMF
 Banking Arrangements
under TSA Regime
 



Current / deposit Transit / zero-balance
Debt administration
bank account(s) of bank accounts of the
the treasury (TSA) treasury


Subsidies
Daily settlement 
with TSA

Local governments


 Suppliers


Wage earners
Government Borrowings Tax payers

May 2010 Sailendra Pattanayak, IMF

2. TSA Principles and
Benefits
 TSA Principles
 A TSA is a unified structure of government bank
accounts that gives a consolidated view of government
cash resources
 It could be just one account or a set of linked accounts (main
and subsidiary)
 All public monies are seen as fungible to prevent
inefficient use of cash resources
 The consolidation of government cash resources
through a TSA is comprehensive
 It covers all budgetary and extrabudgetary funds

 The TSA should be legally recognized, institutionally

robust and stable
 The TSA can contain ledger sub-accounts for control
and monitoring purposes, but these should not contain
over-night balances

May 2010 Sailendra Pattanayak, IMF

 TSA Principles – contd.
 Options for accessing the TSA is mainly
dependent upon institutional structures and
payment settlement systems
 The cash balance in the TSA is maintained at a
level sufficient to meet daily operational
requirements of the government
 Treasury-related revenue and disbursement
floats in the banking sector are kept at the
minimum realizable level
 Significant revenue and disbursement floats in the
banking sector benefit the banks at the expense of
the government

May 2010 Sailendra Pattanayak, IMF

 TSA and Consolidated
Fund Concept
 All government revenues should accrue to a common
pool (such as the Consolidated Fund) and no source of
revenue be earmarked for specific expenditure
 In general, there is no need for revenue-specific or expenditure-
specific bank accounts

 Revenue and expenditure transactions should be

classified through a well-developed chart of accounts
and not by maintaining distinctive bank accounts for
them

 The TSA should be maintained in domestic currency, as

this parallels the currency in which most budget
transactions are executed

May 2010 Sailendra Pattanayak, IMF

 TSA Benefits
 Ensures complete, real-time information on government cash
resources
 Helps preparation of accurate and reliable cash flow forecasts
 Optimizes the cost of government operations
 including minimizing the volume and cost of government borrowing and
lowering liquidity reserve needs
 Facilitates efficient payment mechanisms
 Improves operational and appropriation control during budget
execution
 Enhances efficiency and timeliness of bank reconciliation
 Facilitates timely and more complete accounting statements/reports
 E.g. preparation of full statements of sources and uses of cash

May 2010 Sailendra Pattanayak, IMF

3. TSA Structure and
Operation
 TSA Structure – Option
1

Limited
Recon
State Treasury
c.
Central Bank Treasury
Head Office
Settleme
communicatio
nt n and
information
State Central Bank
Treasury Regional
systems
Payment
Regional order branch
Settleme
office nt

State Budget unit

Treasury
Payment
Local office
order
May 2010 Sailendra Pattanayak, IMF
 TSA Structure – Option
2

Advanced
Recon
State Treasury c. Central Treasury
Head Office Bank
Settlemen
t
communicatio
n and
information
State (2a)
Treasury systems
Regional
office

State
Budget unit
Treasury
Local office Payment
order

May 2010 Sailendra Pattanayak, IMF

 TSA Structure – Option
3

State Treasury Reconc.

Commercial Bank
Head Office Central Bank
Head Office
Settlement

Very Reliable and

Advanced Commercial Bank
Commercial Bank Regional Branch
Sector
Payment
Order

Budget Unit

May 2010 Sailendra Pattanayak, IMF

 Requirements for an
efficient TSA
 Co-operation of the line ministries
 Development of an Interbank settlement/clearing
system
 Real Time Gross Settlement System (RTGS) at the
central bank for high value transactions
 Major commercial banks and treasury connected to
the RTGS
 Development of a small payments clearing system

May 2010 Sailendra Pattanayak, IMF

 Different Models for
transactional banking under
TSA
 Use commercial bank branch networks to channel funds
to/from regional treasury offices to the TSA at central
bank (CB)
 Use regional branches of the CB where a reliable
commercial branch network is not available
 Regional treasury offices act as banks (only
recommended where the commercial banking sector is
regarded as too unstable)
 Use commercial banks branch network to clear funds
directly between TSA and taxpayers/suppliers

May 2010 Sailendra Pattanayak, IMF

 TSA using Commercial
Banking system network and
RTOs
TSA at CB

Bank A Bank B

Branch 1 Branch 2 Branch 1 Branch 2

RTO and BIs RTO and BIs RTO and BIs RTO and BIs

Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier

May 2010 Sailendra Pattanayak, IMF

 Use of regional CB offices
TSA at CB

Regional CB office Regional CB Office

Bank Branch 1 Bank Branch 2 Bank Branch 3 Bank Branch 4

RTO and BIs RTO and BIs RTO and BIs RTO and BIs

Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier

May 2010 Sailendra Pattanayak, IMF

 TSA using Commercial
Banking network (no
RTOs)
Treasury and BIs TSA at CB

Bank A Bank B

Branch 1 Branch 2 Branch 1 Branch 2

Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier Taxpayer/supplier

May 2010 Sailendra Pattanayak, IMF

 Management of
Receipts
 Collection through commercial banks
 Alternatively through treasury system
 Impose penalties on late remittances
 Framework agreements between Ministry
of Finance (MoF)/Treasury and agency
banks
 Standardized services and transparent fees
 Penalties for delays and under-performance
 Monitoring
 Detailed information available to MoF and
agencies

May 2010 Sailendra Pattanayak, IMF

 Management of
Payments
 Agencies submit payment requests
 Covered from TSA after control and verification
 Clarify roles and responsibilities between
ministries, agencies, banks, central bank and
MoF
 Maximize use of direct bank transfers
 Use checks, credit and debit cards when efficient
 Minimize imprest accounts and cash payments
 Ensure that payments are made on due date
 Eliminate layered cash flows

May 2010 Sailendra Pattanayak, IMF

 Management of
Balances
 Define separate pools of funds within TSA system,
for instance:
 Liquidity

 Deposit

 Investment

 Differentiation based on liquidity needs, level of

uncertainty, costs of alternative sources, etc
 Select instruments that match expected cash needs
 Integrated management of assets and liabilities
 Transparent and efficient pricing of assets,
liabilities and services

May 2010 Sailendra Pattanayak, IMF

 4. TSA Coverage and
Interface with Transaction
Processing Systems
 TSA Coverage
 Only central government
 Should include extrabudgetary funds, if any
 Could include autonomous government entities
 Could be extended to social-security funds and
other trust funds
 Central and sub-national governments
 Either under a single TSA or separate TSAs
 Public corporations are generally not
included

May 2010 Sailendra Pattanayak, IMF

 Bringing social security
and other trust funds
under TSA
 Each Trust Fund could be distinctly identified and
controlled through the Treasury Ledger and/or TSA
sub-account
 The key issues are:
 Whether Government has the legal right to use, even
temporarily, the surplus cash available
 The risk of perverse incentive to use the cash reserves of
these funds to finance budget deficits
 This risk is quite high in low-income countries, particularly those
with underdeveloped PFM systems

May 2010 Sailendra Pattanayak, IMF

 One TSA for both central
and sub-national
governments
 Could be done through the use of
correspondent accounts
 The key issues are:
 Has the advantage of consolidating the surpluses
and deficits of all correspondent governments
participating in the TSA system
 Minimizes the cost of general government borrowing
 Requires well-developed Treasury Ledger System to
monitor the balances of each correspondent
 Need to consider the risk of abuse by the central
government to finance its deficits at the cost of sub-
national governments
 Need for safeguards to ensure timely availability of
funds to each correspondent government

May 2010 Sailendra Pattanayak, IMF

 TSA interface with
transaction processing and
accounting systems
 TSA with centralized payment and accounting controls
 Payment requests are prepared by individual budget agencies
and sent to a centralized Treasury for payment
 Treasury manages the float of outstanding invoices
 Might lead to inefficiencies and high transaction costs
(particularly with manual processing)
 TSA with deconcentrated payment and accounting
controls
 Individual budget agencies process and make payments
directly to suppliers (and account for these transactions)
 MoF sets the cash disbursement limits (monthly or quarterly)

May 2010 Sailendra Pattanayak, IMF

5. Banking
Arrangement for Donor
Flows
 Covering donor funds
within TSA
 What are donor concerns?
 Assurance for use of donor aid on specific projects (or
non-diversion of funds)
 Some ring-fencing to avoid liquidity problems (and
ensure timely payments during project execution)
 Minimize exposure to exchange related
fluctuations/losses in the value of donor aid (when
currency exchange rate regime is volatile)
 Reliability of controls (in managing donors’ funds) and
information produced by the national PFM systems

May 2010 Sailendra Pattanayak, IMF

 Banking arrangement for
donors’ funds – possible
options
 Converting donors’ funds into local currency on transfer to the TSA
(best option)
 The use of the resource-source arrangement would still allow
donor funds to be linked to specific projects
 This, being a single-currency TSA, has technical and
transparency benefits

 Opening separate foreign currency sub-accounts within the TSA

 There could be one account for each foreign currency, or one
for each of the main donor currencies
 The government’s accounts would still be reported in local
currency, with foreign currency converted at the relevant
exchange rate

May 2010 Sailendra Pattanayak, IMF

 Banking arrangement for
donors’ funds – possible
options
 Maintaining foreign currency accounts
outside the TSA, but bringing the flows within
the accounting regime

 Weakens the concept of the TSA, and

requires additional administrative
processes, but at least has the benefit of
tracking transactions through the
accounting system

May 2010 Sailendra Pattanayak, IMF

6. Issues/Preconditions for
Establishing a TSA
 Some country-specific issues
for design of a TSA
 Associate a resource source (e.g. resource from a
donor) with specific expenditure categories
 Could be done through sub-accounts of a TSA

 Need for transit accounts

 e.g. for major revenue streams to monitor their

collection and remittance or to facilitate revenue

sharing

 Technical feasibility of daily settlement between the

zero-balance accounts of budget agencies and the
TSA

May 2010 Sailendra Pattanayak, IMF

 Some country-specific
issues for design of a TSA
– contd.
 Appropriate interface between the TSA and transaction
processing/accounting systems
 This issue should be carefully examined at the

conceptual design stage in case of an IFMIS

 Identification of non-bank transactions (after closure of

agency-specific bank accounts)

 Elimination of below-the-line transactions

 Strategy for obtaining retail banking services from

commercial banks, including use of e-payment/EFT
options

May 2010 Sailendra Pattanayak, IMF

 Preconditions for
establishing a TSA
 Political support is essential (such as for closure of
agency a/cs)

 Legal and regulatory requirements

 TSA should be legally recognized

 Authority to open bank accounts should vest with

the MoF/Treasury

 Technological requirements
 Reach of the banking network and reporting

architecture
 Transaction clearing and inter-bank settlement

systems

May 2010 Sailendra Pattanayak, IMF

 Preconditions for
establishing a TSA –
contd.
 Formalization of agreements between the
Treasury, TSA Bank and Banks providing retail
banking services
 Should cover services offered by the banking

system, service charges/fees, penalties for non-

performance, reporting and reconciliation
arrangements, etc.

 Revisiting the chart of accounts for coverage of

non-bank expenditure transactions

 Capacity development of TSA users

May 2010 Sailendra Pattanayak, IMF

May 2010 Sailendra Pattanayak, IMF