When the $200 million Art Institute of Chicago initiated a treasury function in 2004, it hired Margaret Annett, a treasury veteran (Borg Warner, Amoco) to run it. She found a hodgepodge of bank accounts that required tedious, manual reconciliation, so she drafted a plan to rationalize cash management and added 10 new receiving accounts and split an all-purpose depository account into four.
"Most treasuries are reducing accounts to save money, but we needed to add accounts because
different business activities were commingling funds and creating a reconciliation nightmare. We needed more granularity. Now all cash flows are segregated by business unit."
The new account structure doesn't save money, but it does untangle cash flows. Even more significantly, it improves security. When Annett, who is assistant treasurer, arrived, none of the Art Institute's disbursing accounts had positive pay and ACH debit blocks or filters. Now they all do. And all transactions now require an initiator and an approver.
What does save money is an efficient cash concentration system that put $1 million of formerly idle cash to work. The old system used prior day balances to determine a cash position.
That meant keeping large compensating balances to avoid overdrafts. Switching to same-day balances has prevented simultaneous borrowing and investing and reduced overall use of the revolving credit, Annett says.
Controlled disbursement replaced pre-funding accounts payable, which sometimes included an entire check run. Streamlined cash collection procedures move money faster from various collection points into depository accounts, cutting float by several days. Only credit banks are used for cash management, and bank communication has moved from dial-up to web technology. While the Art Institute is unlikely to use a lockbox for collections, Annett's next big project is implementing a program to scan checks and transmit files to the bank instead of using armored couriers.