Cash Management

GAO: Cash-Flow Woe Boosts Treasury Debt

The problem could inadvertently boost debt at the Treasury Department.
David KatzApril 7, 2009

A glitch in cash-in, cash-out timing has hit the Department of the Treasury, according to a report issued last month by the Government Accountability Office.  

The problem could inadvertently boost debt at Treasury. “Increased volatility of monthly cash flows may lead to unexpected short-term debt issuance and hence increased borrowing” at Treasury, according to the GAO. 

Although the Social Security payments  that Treasury makes at the start of the month gradually diminish over years, similar payments to Medicare plan sponsors for Medicare Advantage and Part D benefits are expected to grow, according to the report. 

Treasury’s main debt-management goal is to finance the government’s borrowing needs at the lowest cost over time, the GAO noted. In 2006, the office reported “that Treasury faced misalignment of cash flows, with large payments due at the start of the month and large cash receipts occurring midmonth,” according to the authors of the report. 

That disconnect has boosted cash-flow volatility at the department. “The volatility leads Treasury to carry higher average cash balances and issue short-term debt outside its regular schedule, which may raise overall interest costs,” according to GAO. 

Payments made at the start of each month to Medicare plan sponsors, which have more than doubled between 2005 and 2007, have increased the misalignment of cash flows, the authors say.

GAO is proposing a number of ways to improve the timing of Medicare plan payments to make cash management easier and keep payments predictable. The options include keeping a single payment but making it on a different date or making a number of payments each month.