Explaining the Integration with Treasury and Cash Management

Financial investments and borrowings, for example, for fixed or variable interest rate deposits, commercial papers or securities, can be performed using Treasury and Risk Management. The debt and investment management process helps customers to secure short-term liquidity at the best interest rates and manage their medium- to long-term debt and investments optimally.

Treasury and Risk Management can be used to automate labor-intensive processes, such as the confirmation of financial transactions and accounting postings. Both operational and accounting requirements can be managed, taking into account the handling of a variety of financial instruments as well as the representation of the relevant accounting principles in a public sector organization.

While investments are often pooled and invested by the treasurer's fund, debt in the form of bonds is issued in particular for the financing of capital projects spanning multiple years, and is typically split amongst multiple funds and projects.

During the lifecycle of an investment or debt, the account assignments used to record the financial transaction are reflected in accounting for the recording of balance sheet items as well as recording of the income or expense associated with such an investment or debt (for example, interest, amortization expenses, and others).

The focus of this learning topic is to explain the options of assigning account assignments (including fund and grant) and explaining the basic integration between Treasury and Risk Management and Public Sector Management.

In this lesson, we describe an investment example which shows the initial investment transaction for a fixed-term deposit. Many other product types exist and work in a similar fashion as far as account assignments are concerned. For an explanation of the details of the other product types and their individual features, refer to the training material in "Treasury and Risk Management".

The Treasury Specialist Front Office role contains the apps which can be used to enter financial transactions.

Depending on the product type, there are different entry screens for the creation of an investment transaction. In our example, we use the Create IR instrument app (TM_51) to create the fixed term deposit (product type 51A).

In the Structure tab of the financial transaction, the investment amount, start and end date as well as the interest rate are entered. Using this feature, the basic calculations are defined for the lifecycle of this investment and the financial documents can be calculated when it is initiated. For this, a variety of apps/transactions exist that can be reviewed in detail in the TRM training or documentation.

In our example, we record the investment (transaction type 100) of a fixed term deposit (product type 51A) for $1 million with a one year term and a fixed interest rate of 3%, which will be posted as interest income for the end of the term.

In the Administration tab of the transaction, the account assignments of the investment are entered. The account assignments WBS, cost center, profit center, fund, grant, and functional area can be entered, according to the configuration Differentiation Criteria, which will be explained later. It is possible to derive fund, grant, functional area, and profit center from the cost center or WBS element. Depending on the Fixed flag, which is maintained on the cost center or WBS master, it might not be possible to override/change the fund, grant, and functional area. In addition, a warning message appears indicating the use of the fixed account assignment, which overrides the user entry. The profit center is also always derived from the real cost object.

You must enter all defined differentiation criteria. Define a statistical WBS element for scenarios where no WBS is required from a business perspective. Since both the WBS and cost center account assignments are required, the standard rules for determining the real versus the statistical account assignment apply here.

The fund, grant and profit center are used for the balance sheet account postings in the accounting document. For profit and loss postings, the cost center and WBS will also be used.

After saving this transaction there are additional steps required to post the financial documents. In many cases, the treasury accountant performs these steps. For more details, refer to the training material in TRM.

When the transaction is saved and additional steps are performed, it is possible to display the account assignments in many different reports - for example, Treasury Position Flows and Treasury Posting Journal. In this case, we use the role of the Treasury Accountant as we want to focus on the integration to finance and Public Sector Management.

The Treasury Posting Journal app displays a list of the accounting documents that have been created for the various updates, which can occur and for each valuation area.

Information about the G/L accounts used as well as the account assignments is also available here. It is possible to drill-down to the accounting documents and, as an example, we will drill-down to the initial investment document as well as the interest income document.

You can drill-down to the document display of the accounting document of the investment purchase transaction. In the ledger view of the document, you can also see some additional account assignments and attributes which are posted for the document in a public sector environment.

For example, the budget consumption type (BCT) and budget relevant flag are attributes that are supplemented for public sector implementations on the general ledger view of the accounting document.

The balance sheet account Short Term Investment - Unaffiliated is classified as BCT unassigned (01), while Payment Request Clearing Account is assigned to BCT Payment (57). The balance sheet account assignments fund, grant, and profit center entered in the treasury transaction are also assigned to the document lines.

The drill-down to the document display for the accounting document of the interest income shows that the profit and loss account for Interest Income Unaffiliated is classified as BCT Expense/Revenue (99). The Cash Receipt account is assigned to BCT Payment (57). In addition to the fund, grant, and profit center, the cost center, functional area, and WBS are also updated on the interest income document line.

The app Treasury Position Flows shows the individual position flows (for example, investment, interest revenue accruals, repayments, and interest income at the end of the term) as well as the account assignments defined in the transaction for each of the two valuation areas we use.

In this lesson, a debt example is described, which shows the initial debt issuance transaction for a bond (product type 04A).

Since in a public sector organization bonds are often used to finance multiple capital projects, the example shows how a debt transaction can be created and split amongst multiple account assignments.

In lieu of entering a single account assignment in the administration tab (as shown in the investment part), it is also possible to enter multiple account assignments in the Cash Flow tab. The account assignments WBS, cost center, profit center, fund, grant, and functional area can be entered or derived (same logic applies as mentioned in the investment example).

In the following example, two account assignment lines are entered for a debt issuance of $100 Million (with an issue price of 99,8%). The amounts are split proportionally (60:40) to $60 million and $40 million between different funds, WBS elements, cost centers, and functional areas. Therefore, all subsequent flows shown later will display the amount split.

Let's have a look at the Treasury Position Flows and Treasury Posting Journal for this transaction. The Treasury Position Flows app shows the individual flows. In our current bond issuance example, the amounts are now split according to the entry in the transaction (multiple account assignments entered in the cash flow tab). Since the issue price of this transaction was 99.8 %, the amount in position currency is only $59.88 million and $39.92 million ($99.8 Million in total for a nominal amount of $100 Million).

In some cases, it might be necessary to reclassify the account assignments of a treasury position.

Using the Account Assignment Transfer app, you can transfer the units/nominals of a treasury position to another position with different account assignments (such as fund, grant, cost center, WBS element, functional area, and profit center). In this internal transfer, the position component values are transferred proportionally according to the transfer category of the target position management procedure.

In order to be able to assign fund, grant, WBS, cost center, profit center, and functional area to a treasury transaction as shown in the investment and debt chapters, it is necessary to define them as differentiation criteria and assign them to the valuation areas used. This is done in the configuration called Define and Assign Differentiations.

The following settings are predelivered but can be changed in the beginning of an implementation.

The first screen shows the maintenance transaction that contains the differentiation SEC_ACCOUNT_PSM, which is predelivered. The second screen shows the assigned terms and contains the account assignments fund, grant, profit center, functional area, cost center, and WBS element.