Setting up of the treasury function for a growth municipality

Definition of the problem

In a growth municipality regularly investing large sums of money because of area development there was no insight into the liquidity position and need. A number of attempts at formulating a liquidity prognosis had already been made but the generating of a periodical stream of information from various departments to the Finance department did not get off the ground. This led to situations in which, on the one hand loan capital was being drawn while on the other hand at the same time money from land sales was being received. Because of this the municipality was confronted with unnecessary costs and avoidable risks. Moreover, not all obligatory duties in the field of treasury were being executed. For instance, the credit limit was fixed so low that the municipality, in case of overrunning, had to pay excess interest next to debit interest. The municipality provided guarantees to associations without the support of a guarantee fund. The administration of these guarantees was also incomplete and incorrect.

Approach

My plan of approach consisted of the following actions in chronological order:

1. identification of the largest flows of money;
2. appointing of informants per department and per flow of money;
3. advising these informants by means of a municipality wide theme meeting;
4. enter into agreements about the information delivery to the Finance department;
5. setting down these agreements.

Before the plan could be executed I discussed it extensively with all the persons involved, including the aldermen (who were also present at the theme meeting). The plan was subsequently decreed by the management team of the municipality.
During the execution of the plan employees of the Finance department were appointed as treasury employees. I involved them completely in the course and I coached them daily in the execution of their new treasury activities.

Result

I delivered a methodology for the drawing up of periodical liquidity prognoses in which the cooperation from various departments, the Finance department, the management team and the alderman of Finance is guaranteed. With this one has gained insight in the liquidity need of the municipality so that the liquidity management is being executed in a much more economical way.
Next to that the credit facility from the house banker has been raised from 2.7 to 9 million, insight has been gained in (risky) guarantees issued by the municipality in the past and the municipality has received a legitimacy declaration that is also applicable in the field of treasury. Finally, within the Finance department employees have been trained to become fully fledged treasury employees.