Automating Cash Management at the State of Alaska

Hard working treasury professionals may possibly feel a
touch of envy when contemplating the concept of cash and treasury management
operations in Alaska. Certainly the 49th US state’s treasury department,
based in the city of Juneau, enjoys one of the most beautiful business
environments imaginable.

The department’s responsibilities include
cash management operations on behalf of the largest state in the US, measured
by area. Non-Alaskans are frequently amazed to see what happens when a scale
map of Alaska is superimposed on the map of the continental US: our eastern
tip bisects the coast around the Georgia-South Carolina border, and our
western Aleutian Islands extremity bisects the California coast north of Los
Angeles. 

Alaska is a cash rich and prosperous state, which is,
sadly, not typical for US state governments’ treasuries at present. The
state’s general funds and other non-segregated investments presently amount
to more than US$12bn, of which more than 50% is held in cash. The total
assets held by the state amount to approximately US$ 49bn, with prosperity
based on its abundant natural resources, primarily oil. The daily cash flow
processed in the state’s treasury division has an approximate range of US$1bn
to US$2bn.

Automating Cash Management: Genesis of the
Project

For more than 10 years, the State of Alaska’s cash
management operation was using an originally disk operating system (DOS)-based
treasury workstation, which had been upgraded to a Windows version.  The
department decided that this system needed to be replaced when a review of its
disaster recovery capabilities was conducted. In practice, it lacked
portability – so if the department were ever confronted with a situation in
which it had to relocate treasury operations to a back-up facility, there was
not much confidence in the ability to restore and use its technology to
reconstruct the cash position. Such a failure would mean the treasury team
being unable to continue cash management operations in a sufficiently
reliable way. This level of operational and financial risk was clearly
unacceptable, given its potentially adverse impact on the state’s payroll
administration, revenue, vendor payment and investment management processes.

The System Selection Project

Following
the review, the treasury team initiated – and successfully completed – the
necessary internal state processes to secure financing for a cash management
technology replacement project. The next step was to construct a request for
proposal (RFP), which was issued to potential suppliers in the cash
management/treasury workstation system solution space.  The team was seeking
an active server pages (ASP) solution able to fulfil all its functional
needs, and would additionally provide disaster recovery protection through
being fully mobile, and therefore re-locatable as might be needed.

The
department received an initial six responses from potential vendors; but
as the selection project progressed, it became evident that some vendors were
not able, or were unwilling, to work within the quite rigorous demands of the
state’s procurement process. This process is highly structured and
regulated, meaning that any deviations from standard practice from the
department’s side would have to be properly authorised by the state’s attorney
general. In practice, most of the initial responders just would not formally
comply with the state’s procurement requirements. This lack of flexibility
resulted in their withdrawal, or elimination, from the treasury workstation
selection process. In effect, some potentially viable solutions were
self-eliminated.

In the event, two strong contenders remained for the
final stages of this procurement exercise.

Ultimately, the state
team selected GTreasury as its cash management treasury workstation vendor of
choice. There were several primary reasons underlying the decision, which
included the quality of GTreasury’s RFP response in comparison to their
competitors, their strong customer service track record (revealed through
client referencing), their flexible approach to the state’s rigorous
procurement process, and their competitive pricing.

The
Implementation Project

Implementation was initially
planned to last for a period of three months, but its eventual duration was
nine months. I should stress that I do not regard this as being in any
significant way problematic; my overall judgement of the GTreasury
implementation is that it was smooth and, in comparison with many other
projects of analogous complexity and importance, relatively quick. 

I am very particular in insisting on the high quality, accuracy and
efficiency of projects for which I am responsible and can report that this
implementation phase both progressed and concluded very well against these
exacting standards. The key to the sources of this good performance lies in
understanding the detailed issues that arose during implementation – and the
ways in which they were effectively managed and resolved, through strong and
effective teamwork between the state’s treasury and the GTreasury professional
personnel.

The most significant issue encountered during
implementation related to the cash ledger functionality. The management of the
cash ledger is an essential feature of the state treasury division’s daily
cash management activities, and the initial system roll-out did not fulfil our
requirements in this regard. The GTreasury implementation team rose to the
challenge of bridging this gap by building an effective work-around solution,
which treasury was able to test and approve. This work-around was
accomplished using GTreasury’s report writing tool, Microsoft’s SQL server
reporting services (SSRS), to build the necessary functions. The solution
absolutely needed to correctly manage the opening and carried-forward
balances required for the correct functioning of the state’s cash ledger.

I should emphasise that GTreasury brought in all the necessary
management and technical staff to ensure that a complete and effective
solution to this vital issue for the state’s cash management was delivered and
implemented. The solution was built using the entry of starting balances,
which GTreasury then automatically updated with the daily changes that
reflect the actual debit and credit cash movements that passed through the
system. In the course of a year’s cash flow business, large volumes of data
naturally accumulate; this fills the database, and slowly degrades system
performance.  The issue was resolved by working with GTreasury to set up an
annual process, in which a cash ledger cut-off exercise is performed about two
months after the fiscal year-end. In this process, the database is stored,
cleared and then re-loaded with the current opening balance data; the cash
ledger management cycle is then re-started, and continues over the ensuing
fiscal year.

An interesting issue that the team encountered
during implementation was the management of certain data extract processes,
in situations in which reference fields were found to be lacking in the
course of the validation exercise, resulting from errors and omissions during
the original data entry operations. GTreasury were able to build a report
that fully managed this situation, enabling the treasury department to
implement the necessary repairs in an effective manner.

The
GTreasury solution which has been implemented additionally manages the most
important control function of cash position reconciliation. This is a
three-way reconciliation exercise, which is performed between the banks’
account balance and transaction reports, the GTreasury cash ledger, and the
Alaska state accounting system. The State presently holds about 150 bank
accounts with five different banks. 

Project Benefits
Realised

An important implementation benefit that the
team realised from its investment in GTreasury is the standardisation of its
cash management processes and procedures, resulting in automation benefits
and cash management control gains. In practice, this includes the automated
assignment of the correct general ledger (GL) code to incoming cash
transactions. The state’s cash management team has been pleased to find that
there is a very high degree of flexibility, accuracy and efficiency in
GTreasury’s solution to this mapping issue: today, about 98% of cash flows are
successfully assigned to the correct GL account automatically. The residual
2% are non-conforming entries, or those that are treated separately by choice.
These include all unexplained debits to the state’s bank accounts, which
must, by policy, be individually researched and approved. Additionally,
other transactions which need some manual processing to be performed include
debits and credits which require splitting operations, and incomplete cash
entries which require repair. These exceptional items are channelled through
for human intervention and correction.

The State of Alaska Treasury
division’s cash management operation’s typical US$1bn – US$2bn in daily cash
volume range reflects the processing of some 400 to 500 cash movements per
day. This substantial cash flow complex stems primarily from the state’s oil
based revenues and royalties. The other major cash flow debits and credits
relate to construction projects, other major purchases, the administration of
the state payroll, and the investment, income and redemption management, plus
the contribution and pension payment management of the US$22bn state pension
fund.

It is important for me to stress how well I feel the
GTreasury team performed under the rigorous regime of the state of Alaska’s
official procurement process, and in their management of the stringent
requirements of the Department of Revenue in implementing the solution.

Success Factors

In my judgement, it was
absolutely critical to the project’s success that the state’s cash management
team worked, in practice, closely and effectively with GTreasury’s
professional services delivery team throughout the implementation exercise.
GTreasury’s people really deserve very high marks for having provided
sustained and excellent service quality. So often in this kind of technology
implementation, the vendor’s team falls short in delivering effective and
knowledgeable training and support to their company’s new client. In our
case, this was definitely not so: right through the project, both teams
contributed great value in the design and delivery of strong solutions for
the problem issues which were encountered. 

Today’s
Situation

The outcome of the GTreasury project is that the
state of Alaska’s cash management operation is now based on a much more robust
technology infrastructure.  The treasury department is very confident in the
assured continuity of its treasury operations, which are now secured against
the most feasible operational risks. The investment in the GTreasury
workstation is a totally appropriate infrastructure investment, which is
helping to secure a substantial financial operation, conducted on behalf of
the State’s citizens and employees.

Potential Next
Steps

The treasury workstation replacement project is now
complete. The next stage in the evolution will occur with the implementation
of a replacement accounting system, which will be the AMS Advantage
enterprise resource planning (ERP) system. I anticipate that the process of
building and implementing the interface with GTreasury will be relatively
easy, although  I will continue to insist on high standards for timely and
accurate solution delivery 

A possible further future development
is to implement an additional GTreasury module for bank performance
analysis.  The team has evaluated using such solutions periodically over the
last 10 years and it remains to be seen whether an analysis of GTreasury’s
offering indicates that there will be sufficient realisable cost/benefits to
justify this further investment.  

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