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Cash Management Policy

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Section 1 - Purpose and Context

(1) This policy documents the key purposes and aims for each area of liquidity management activity that are necessary for the effective planning of Western Sydney University's cash requirements.

(2) This cash management policy aims to ensure:

  1. that at all times the University has access to sufficient cash resources to meet its financial obligations as they fall due.
  2. that the University has sufficient excess liquidity to ensure the University can meet its non-discretionary financial obligations in the event of unexpected business disruption.
  3. compliance with borrowing facilities covenants and undertakings if applicable.

(3) This policy is to be read in conjunction with the University's Treasury Policy, Investment Policy and Credit Risk Policy.

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Section 2 - Definitions

(4) For the purpose of this policy the following definitions apply:

  1. Liquidity Risk - the risk that the University, through an unforeseen event or miscalculation, will have insufficient liquidity available at the right time to meet its obligations in an ordinary manner.
  2. Working Capital - is a financial metric (Working Capital = Current Assets less Current Liabilities) which represents operating liquidity available to a business.
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Section 3 - Policy Statement

Set Cash Flow and Cash Balance Forecast

(5) Good cash forecasting is the cornerstone of effective liquidity management. The Finance Office must establish and maintain a Cash Flow Forecast Model to determine the amount of funding required to maintain liquidity (or the amount of surplus funds available for investment) by consolidating forecasts of expected cash inflows and comparing them with consolidated forecasts of expected cash outflows. Corporate cash flows must also be captured in this analysis.

(6) On the basis of the forecast cash deficits or surpluses decisions can be made as to what borrowings or investments to make over what time horizon, bearing in mind expected short-term trends in interest and foreign exchange rates (refer Invest / Borrow below).

(7) The University must maintain sufficient liquidity to cover the University's short term cash needs. This balance will fluctuate depending upon the expense requirements of the University. However, as a guide the University shall maintain at least 1.5 weeks (approx $25M) of expense (Payroll & Accounts Payable) as working capital to fund:

  1. Fortnightly pay-runs, including on-costs.
  2. Weekly Accounts Payable EFT runs for operating expenses.
  3. Timing of Capital Expenditure.
  4. Any other major expenditure as indicated in cash flow projections.

(8) Longer term cash flow needs are analysed in the Cash Flow Forecast Model which must:

  1. be projected for three years (current year and next two years)
  2. exclude non-cash expense / income
  3. be updated quarterly with actual results and revised forecasts (including Office of Estate and Commercial (OEC) activities) resulting in accurate and integrated forecasts of operating activities and capital expenditures, together with significant cash receipts and payments
  4. include all related entities
  5. tie back to the University balance sheet.

(9) The Associate Director, Treasury has overall responsibility for the cash flow model and resultant forecast and the Manager, Treasury Operations and Planning has responsibility for the update of actuals and forecasts.

Monitor Daily Cash Position

(10) Estimating daily cash requirements is a critical component of cash management. Daily investment decisions are made based on expected inflows and outflows for the day.

(11) Forecast daily cash payments and receipts to calculate:

  1. funds to be recalled from NSW Treasury Corporation (TCorp) to cover daily operational or capital expenditure commitments, or
  2. surplus funds to be remitted to TCorp for investment.

(12) To optimise investment returns the goal is to maintain the University's bank account balance at the lowest possible level without going into overdraft situation. It is, however, important to maintain a small credit balance in the bank account in the event unexpected payments are deducted.

(13) The target minimum daily balance for the University's operational bank account is $200,000 credit.

(14) The main Key Performance Indicator (KPI) used to determine the success of cash management procedures, therefore, is the ability to continually maintain the bank account at the target balance.

(15) The other KPI is the ability to minimise the number of occasions the bank account goes into overdraft.

(16) The ability to maintain the balance of the bank account at this target balance will ensure:

  1. the level of borrowings is maintained at the minimum possible level, therefore minimising interest expense, and
  2. bank overdraft penalties are minimised.

Optimise Banking Architecture

(17) The University currently operates one main bank account that is held with the Commonwealth Bank of Australia (CBA). Should circumstances require the opening of multiple accounts they will be set-off (net the balances) or swept into the main interest bearing account on a daily basis.

(18) Additional bank accounts include:

  1. Whitlam Institute (CBA)
  2. Western Sydney University The College (one account with CBA and one with NAB)
  3. WSU Early Learning (NAB).

(19) Bank accounts can only be opened with approval of the Vice-President, Finance and Resources, Executive Director, Financial Operations or the Associate Director, Treasury.

(20) Authorised bank signatories are kept up to date in the register held in the Treasury office. This register is to be reviewed annually.

Invest/Borrow

(21) After processing all of the data, and weighing all decisions, management must determine what short-term instruments to use.

(22) Available instruments have been set by the Finance and Investment Committee. They include:

  1. NSW Treasury Corporation Cash Facility
  2. Term Deposits with a number of approved counterparties
  3. NSW Treasury Strategic Cash Facility.

(23) The aim of this activity is to preserve capital, maintain liquidity and maximise yield consistent with the preservation of capital and liquidity.

Receive Bank Statements

(24) Bank statements are to be downloaded from the CBA web site and then uploaded into the cash management system in Oracle. This is to be undertaken daily by the Financial Accountant.

Reconcile Bank Statements

(25) The reconciliation of transaction and balance information is to be undertaken daily by the Financial Accountant.

(26) At the end of each month this reconciliation is to be reviewed and signed off by the Senior Financial Accountant.

(27) Reconciliations are undertaken for the following bank accounts:

  1. Western Sydney University AUD account and Foreign Currency Accounts.
  2. Whitlam Institute
  3. Western Sydney University - The College
  4. WSU Early Learning

Measure and Report Performance

(28) A key internal control mechanism for the management of liquidity risk is the regular review by senior management of the monthly and quarterly cash flow forecast for the financial year compared to the forecast budget.

(29) There should be a regular review and refinement of the Cash Flow Model over time by monitoring budgeted cash flows against actual cash flows. Understanding patterns of cash movements to identify the fixed or variable and seasonal or periodical components will mean that changing circumstances can be faced with maximum flexibility.

(30) The following review pattern is in place for University monthly cash flow forecasts:

  1. Vice-President, Finance and Resources, Executive Director, Financial Operations and Associate Director, Treasury (primary accountability for cash management and maintaining University liquidity) - Weekly.
  2. University Executive - Monthly (as required).
  3. Finance and Investment Committee - at each meeting.
  4. Audit and Risk Committee - at each meeting.
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Section 4 - Procedures

Cash Flow and Cash Balance Forecast

(31) The University Cash Flow Model (TM1) has been designed to calculate forecast cash and investment balances on a monthly basis over a three year period.

(32) The Manager, Treasury Operations and Planning is responsible for overseeing the preparation of forecast cash flows, including liaison with the Office of Estate and Commercial for major capital expenditure forecasts, estate development expenditure and income forecasts.

(33) The forecasts will be developed and reviewed on a quarterly basis and cover the current and the two subsequent years.

(34) The Management Accountant for OEC is responsible for forwarding the major capital expenditure forecasts on a monthly basis to the Associate Director, Treasury.

(35) The Commercial Manager, Commercial Development, Services and Governance (OEC) is responsible for forwarding property development expenditure and income forecasts on a monthly basis to the Accountant, Treasury.

(36) The Manager, Treasury Operations and Planning is responsible for the ongoing updates and revisions to cash flow forecasts.

(37) The files making up the cash flow forecasts are held on the Finance Office shared drive. Worksheets are 'locked' to maintain data integrity.

Daily Cash Position

(38) The Manager, Treasury Operations and Planning is responsible for calculating the amount of cash to be recalled or remitted each day with the aid of the Daily Cash Flow file and daily Liquidity Report.

(39) These files are to be completed each day.

(40) The target minimum daily balance for the University operational bank account is $200,000 credit.

(41) It is the responsibility of the Accounts Payable Operations Supervisor, the Manager, Remuneration, Payroll and Superannuation and the Superannuation Officer to provide advice of funds required from their areas of responsibility on a timely basis.

(42) Once the Daily Liquidity Report is complete it is checked, printed and reviewed with the Associate Director, Treasury prior to organising a drawdown of investment funds into the University's operational bank account or an investment of surplus funds.

(43) The completed forms are to be filed and be available for audit purposes.

Investing/ Borrowing

Invest

(44) Investing funds from the University's operational bank account is required when the balance in the bank account exceeds the target balance required to meet total expected payments. It is also required when the fortnightly government grant from the Department of Education, Skills and Employment is received.

(45) If the Daily Liquidity Report determines that there are surplus funds in the bank account and an investment is required, the surplus funds will be transferred to the NSW Treasury Corporation Cash Facility (TCorp). This is done electronically via the TCorp Client Portal and must be submitted to TCorp before midday on the day of transfer. The actual transfer from the University bank account to the NSW Treasury Corporation Cash Facility is performed electronically using the CBA's Online CommBiz banking software. The target minimum daily balance to be held in the TCorp Cash account is $2,000,000 and this amount provides a short term liquidity buffer.

Borrow

(46) If the Daily Cash Flow calculation determines a drawdown of funds is required, the funding source in priority order will be as follows:

  1. NSW TCorp Cash Facility: the purpose of this investment is to meet the immediate cash requirements of the University and to contribute to the operational income. Drawdowns from this facility into the University's bank account are done electronically via the TCorp Client Portal and must be submitted to TCorp before 12 midday for same day transfer.
  2. Bank Borrowing Facility: The purpose of the facilities is to meet the cash requirements of the University in excess of funds available. An Accommodation notice with the drawdown details must be completed and emailed to the appropriate lending bank at least two working days prior to the required drawdown date.
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Section 5 - Guidelines

(47) Nil.