Headlines
Following the Funds-UW's New Cash Management Team
by Nate Findley
The Cash Management Team is up and running! This team is the culmination of a multi-year effort to take a concentrated look at UW’s overall cash flow. The creation of the team is an important milestone because it represents the first time that all of the departments involved in the cash process are at the same table sharing their expertise. The team will be looking at UW’s cash flows from three perspectives: money we receive, money we pay out, and money that we hold.
What is Cash Management?
In every business there are inflows and outflows of cash that occur due to operations, capital projects or financing. It is easy to think about inflows and outflows as “revenue” and “expense.” It is true that revenue and expense do relate back to cash at one point or another, but thinking about it in terms of cash flows is a little less complex. If you ask an accountant if “expense” was really how much money went out the door they would likely pause for a moment, possibly sputter and then start throwing out terms like “period to period accruals”, “depreciation”, “pre-paid taxes”, “capital write-offs” and so on.
Have no fear; the beauty of cash management is that you only need to understand the accounting jargon enough to know what to throw out! Cash management focuses solely on optimizing how we handle cash as it leaves (checks, direct deposit, cash, etc) and comes in (loans, wires, checks, etc) and as it sits around in between (invest it where?). It is a simple process that breaks down to one tenet:
“Get money in fast, invest it wisely while we hold it, and pay it out slowly”
If we follow this mantra we will have more money on hand earning interest at any given moment. While the idea is simple, the practice is an exercise in balance. We want to pay slowly, but not so slowly that our suppliers get frustrated or have cash troubles. We want to collect revenue quickly but need to realize that other people want to hold on to their money just as much as we want to hold on to ours. We want to get a high investment return for our cash on hand but want to limit risk to our principal.
UW’s History with Cash Management
Historically, cash management responsibility has been decentralized across the units that handle cash directly, many of which lie within FM. Each unit used different methods to collect and disburse cash and the information regarding how much operating cash we needed on a daily basis was difficult to determine. While any one cash process might be efficient, the lack of coordinated information and practice around inflows/outflows led us to hold a large cash-on-hand balance as a safety net.
In the last 5 years, we have started to learn more about the way we manage cash and have begun to change it for the better. Financial Accounting started a daily cash disbursement forecast to keep as much money as possible in higher yielding accounts. As controller, Frank Montgomery drove the UW to record cash receipts in a standardized way and then went through the effort of documenting the reasons behind major receipts and disbursements. GCA implemented a new receivables system to speed up the collection of grant receivables. Lastly, this past summer we also completed documentation of most cash-related processes in the UW.
The Team and its Goals
With this groundwork completed, the EIT decided to formalize the cash management initiative on the FM strategy map and created a team led by Doug Breckel. The goals of this team are as follows:
- Understand institutional cash flows
- Identify management improvement opportunities
- Establish baseline measures
- Implement improvements
- Track and communicate
The team is made up of the following folks, all of whom have skills and experience relevant to the project.
- Doug Breckel (Treasury, Debt & Investment)
- Chris Malins (Treasury, Debt)
- Jeff Follman (Financial Accounting, Process knowledge & anything accounting)
- Ann Anderson (Controller, Knows all the financial operations)
- Wayne Sugai (Treasury, Debt)
- Judy Peterson (Treasury, Investment Operations)
- Lisa Edlin (Treasury, Investment Operations, gift specialty)
- Michael Lanham (SFS, Anything Student, Six Sigma)
- Nate Findley (DSC, Process knowledge, data & analysis specialty)
- Frank Montgomery (Controller emeritus, wealth of experience in financial ops)
For the last few months the team has been focused on analyzing monthly cash flows at an enterprise level (UW bank account) and a functional level (tuition, capital projects, research, gifts, etc…). We have learned a lot about how these flows behave and have used statistics to help quantify that behavior. With more knowledge, and the right people in the room, we are starting to formulate ideas/possibilities to improve cash management.
Almost everyone in Financial Management is part of some process that affects the way we receive, disburse or manage cash. The effort to improve cash management will always be ongoing and will involve many people over time. The CM team is starting with what we think is the largest opportunity: investing our cash funds differently. We’ll do this by building a cash flow forecasting model that will help us estimate how much cash we actually need every month.
The cash management initiative is an exciting example of knowledge workers collaborating and working together.
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