Archived - Departmental Response to the
Evaluation of the Receiver General Cash Management Program
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KPMG was engaged in the winter of 2005-06 through the Department of Finance's Treasury Evaluation Program to conduct a review of the Receiver General Cash Management program.
The Government holds Canadian-dollar ("Receiver General") cash balances as part of the financial management of its operational requirements. The Department of Finance, with the Bank of Canada acting as its fiscal agent, oversees the Receiver General (RG) cash balances. The core objectives of cash management are to ensure that the Government has sufficient cash available at all times to meet its operating requirements while maintaining effective, low-cost borrowing through the Government's Treasury bill and cash management bill programs.
Under the Treasury Evaluation Program, the Department commissions evaluations by independent third parties to ensure that policies and practices in the domain of federal government treasury operations are appropriate and achieving their objectives. The program reflects the Department's commitment to transparency and accountability with respect to the management of its responsibilities.
Conclusions of KPMG Report
The Department is pleased to note that KPMG has concluded that the RG cash management program is effective in providing sufficient cash balances to meet the Government's needs. Canada's cash management program also compares well with the international comparators used by KPMG - Australia, New Zealand, the United Kingdom, and the United States. In some areas, the Government is the most advanced, for example in the regular auctioning of Government excess cash balances. With respect to the design of the framework, the following are some of KPMG's recommendations to the Government:
- take measures to improve ongoing operations by:
- continuing to fine-tune RG cash flow forecasting methods (p. 2),
- periodically reviewing custodial arrangements (p. 51),
- assessing the benefit of adjusting the RG afternoon auction timelines (p. 33), and
- consider measures aimed at expanding participation by the current bidders in the RG auctions, at least during periods when the balances are high (p. 22), by:
- expanding the list of eligible collateral,
- reviewing margin rules on eligible collateral for the RG auctions,
- expanding the amount of uncollateralized term deposits permitted to current market participants, and
- accepting securities with a coupon detachment occurring during the period of the term deposit;
- consider changes to the existing framework for managing balances:
- analyzing the spread between Cash Management Bills (CMBs) and outstanding Treasury bills to gain insight into the market's preference for fungible issues (p. 48),
- assessing the option of a 1-month Treasury bill, which could be a useful additional tool to further smooth balances and help reduce fluctuations in the size of consecutive auctions (p. 3),
- constructing a benchmarking model to measure performance (p. 3); and
- assessing the usefulness of a Bill buyback program as an additional method for managing large future cash requirements (p. 48), or callable RG deposits as a means to significantly reduce the minimum target for RG balances (p. 54);
- consider expanding the list of eligible alternative investments for excess RG balances (p. 52, 53), by:
- undertaking longer-term investments,
- sourcing the funds to an external investment manager or other financial intermediary during periods of sustained high cash balances, and
- investing excess cash balances in the short-term debt of foreign sovereigns.
The Department, in conjunction with the Bank of Canada and in consultation with all interested parties, will be conducting follow-up analysis in the 2007-08 and 2008-09 planning periods regarding its ongoing operations as well as to encourage greater participation in the RG auctions. Over the medium-term horizon, the potential benefits of alternative treasury management tools in enhancing the effectiveness of the management of the RG account will also be considered. At this point, the Department does not believe there is significant value or benefit to the Government of Canada in expanding the list of alternative investments. These suggestions might be of interest if the Government planned to increase the average level of balances or to extend the periods when balances are elevated; however, the Government's current objective is to minimize cash balances subject to its operational needs.