CASH CONCENTRATION CONTROLS

There is a strong argument that having a physical sweep cash concentration system in
place is a control, since it pushes all cash balances into a single location for easier
monitoring. Kasi kung hindi ito maayos mahihirapan maayos ng mga treasury staff kasi
mag j-jumble ang mga account. Nonetheless, the following controls can improve on the
inherent control of a physical sweep system:

• Review target balances. If yung subsidiary account is allowed a target cash balance, then
kailangan mo na i time to time na ireview ang account usage to see if the target balance
is appropriate ba ito.

• Review excluded accounts. May iba kasing subsidiary accounts may have been excluded
from the sweep on the grounds that there are local currency restrictions, or that minimal
transaction activity does not justify a periodic sweep. These factors may change over
time, so schedule an annual analysis of excluded accounts.

• Compare intercompany loan rates to market rates. Ano ba itong loan rates? Ginagamit ito
ng mga treasury staff para ma determine ang amount ang intercompany loan na caused
ng Physical sweeping from the subsidiary account into the corporate cash concentration
account. Kapag ang company uses nonmarket interest rates when calculating
intercompany charges, pwedeng magkaroong ng conflict pag dating sa pag transfer
pricing rules in some tax jurisdictions. Thus, create a tracking procedure to review time
to time and compare market rates to the intercompany loan rates.

• Verify the allocation of interest income to subsidiaries. Depending on the circumstances, it

may be necessary to allocate interest earned back to the subsidiaries. If so, verify that the
calculation is consistently applied across all subsidiaries. Pag sinabi kasi nating interest
income ginagamit ito ng treasury staff para to calculate the interest income earned from
the investment of cash concentration activities less the administrative discharge. Sa pag
calculate ng allocation nito kailangan mo I summarize ang interest income for the
month as reported in investment statement. 2 nd is I record the interest income as
corporate income, with a debit to cash and credit to the interest income. 3 rd Is calculate
the administrative expenses that associated with the administration of cash
concentration. Kasama na dito ang mga bank pooling fee at labor expenses. 4 th is subract
mo ang administrative expenses sa total interest income earned. And last is allocate mo
natirang interest earned to the subsidiaries based on the outstanding to the parent
company during the month

• Verify the calculation of intercompany loan balances. A company using physical sweeping
may need to record intercompany loan balances to reflect the shifts in cash to the
 corporate consolidation account (combining the financial results of several
subsidiary companies into the combined financial results of the parent company). If
so, have the internal audit staff time to time na icheck or iverify ang calculation ng mga
balances. This review can impact the amount of interest expense or income allocated to
subsidiaries.

A notional pooling system does not create an inherent control or wala silang target
balances tulad ng mga company na gumagamit ng physical sweeping, since cash is still
sitting in what may be a large number of accounts in multiple locations. Thus, all
controls normally exercised over a bank account would be in effect in this situation.

CASH CONCENTRATION POLICIES

There is one key policy required for cash concentration, which is one that places
responsibility for cash concentration on a specific group within the company. Kasi kapag
iba iba ang nag mamanage nito mas lalo magiging magulo or magkakahiwa hiwalay ang
mga accounts that normally under control ng mga manager ng local subsidiaries. At
tinatawag ito na corporate treasury department.

At Lahat ng cash concentration activities shall be managed by the corporate treasury

department. This can be a surprisingly important policy in a larger firm where divisional
managers may attempt to retain control over their bank accounts. Bakit ng aba? At ayun
ang pag aralan natin. Pero malinaw naman sa policy na ang ang tanging responsible for
the cash concentration is the corporate treasury department.

Of course, a deliberate decentralization policy ano nga ba itong decentralization policy

ito yung policy na kung saang ang top management delegates a decision making
responsibilities and daily operation to middle and lower subordinates. And it could
revise the preceding policy to state that cash concentration activities are limited to a
lower level within the company, such as at the division level.

It is also possible, though not necessary, to state the company’s cash concentration
strategy with a policy statement. Doing so certainly clarifies the company’s direction in
this area, but also requires a subsequent policy change if the treasurer wants to turn in a
different direction. Strategies for both small and large companies are noted in the
following two policies:

1. Small-company policy. The company shall engage in cash concentration with a “physical

sweeping” strategy. Kapag sinabi kasi nating Physical Sweeping the fund physically flow
from the Subsidiary accounts into the concentration account into one concentration
 account so the cash balances they actually move into one account na kung saan
tinatawag na zero balance which in turn shall also be used as a central disbursement
account. The treasurer may exclude accounts from this strategy if sweeping is not cost-
effective. This policy works well for smaller entities using a single currency, in locations
where notional pooling is not available.

2. Large-company policy. The company shall engage in cash concentration with a “cross-

currency notional pooling” strategy. All subsidiaries are restricted to accounts with a
bank designated by the treasurer hindi tulad ng Physical sweeping na minimove into
one account. In areas where notional pooling is not available, the treasurer may opt for
physical sweeping, or no sweeping if it is not cost -effective. This policy assumes that
notional pooling will be organized under a single global bank, and para sa mga situation
na hindi maiiwasan that will arise in some jurisdictions.

It is not necessary at the policy level to define any greater level of detail regarding cash
concentration, such as the allowable methods of cash transfer for physical sweeping—
these are tactical issues over which the treasury staff should have discretion or to decide
what should be done .