Treasury Single Account as the Infrastructure for Public Financial Governance
Treasury Single Account as the Infrastructure for Public Financial Governance
From Fund Consolidation to Intelligent Cash Management, Real Time Reporting, and Performance-Based Budgeting
Policy Note
Executive Summary
The Treasury Single Account (TSA) should not be viewed merely as a mechanism for consolidating the bank accounts of government agencies. Its fundamental purpose is to establish an integrated architecture for managing government cash resources, commitments, payments, and financial information. In modern financial management systems, the treasury is not merely an institution responsible for collecting revenues and making expenditures; rather, it serves as the central mechanism for government cash management and constitutes one of the key pillars of fiscal governance.
The fundamental problem is that, in the absence of integrated cash management, the government may face a cash deficit at a particular point in time while a portion of its resources remains idle in the bank accounts of various government entities. Such a situation increases the government's financing costs, complicates cash-flow forecasting, and reduces the effectiveness of fiscal policymaking.
By consolidating government cash resources, the TSA enables the government to obtain a comprehensive view of its liquidity position and manage public funds more efficiently. However, the consolidation of government accounts should not be regarded as the endpoint of reform; rather, it should be considered the starting point for modern government cash management.
This policy note argues that Iran should move from the initial stage of fund consolidation toward an integrated government financial and cash management system. Such a transformation should be based on five fundamental pillars:
1. Centralized cash management;
2. Direct payments to final beneficiaries;
3. Real-time recording and management of government commitments;
4. Integration of the treasury with performance-based budgeting;
5. Implementation of timely financial and managerial reporting.
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1. The Policy Problem
Government financial management can be conceptualized as an interconnected chain:
Resources → Budget → Allocation → Commitment → Expenditure → Payment → Reporting → Performance Evaluation
If information relating to each of these stages is maintained in separate systems and accounts, the ability to manage public resources and expenditures in an integrated manner is significantly weakened.
Under such circumstances, the treasury may know how much cash it currently holds, while lacking a comprehensive picture of:
- actual commitments of government entities;
- future payment obligations;
- receivables and expected revenues;
- government debt maturities;
- actual costs of government programs;
- progress in program implementation; and
- the relationship between expenditures and performance.
Therefore, the fundamental issue is not merely “consolidation of accounts,” but rather “consolidation of financial information and integrated management of resources and commitments.”
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2. Redefining the Treasury Single Account
Under the traditional approach:
«TSA = a centralized account for government funds»
Under a modern approach:
«TSA = an infrastructure for integrated management of government liquidity, payments, and financial information»
This conceptual distinction is highly significant.
In an advanced TSA framework, government entities should continue to be able to monitor their appropriations, commitments, expenditures, and performance in detail. However, they do not necessarily need to maintain cash balances in their own bank accounts in order to exercise these functions.
Therefore, two concepts must be clearly distinguished:
“Ownership and control of appropriations”
and
“Holding of cash balances”
A government entity can have an approved appropriation and authority to spend without necessarily holding the corresponding cash in a separate bank account.
This is precisely the point at which the TSA can evolve from a banking reform into a fundamental reform of public financial management.
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3. Proposed Conceptual Model
The proposed model for Iran can be represented as follows:
Treasury Single Account
↓
Consolidation of Government Cash Resources
↓
Cash-Flow Forecasting
↓
Management of Government Commitments and Liabilities
↓
Payment Management and Control
↓
Direct Payment to Final Beneficiaries
↓
Real-Time Recording of Financial Transactions
↓
Timely Financial Reporting
↓
Linkage of Expenditures to Programs and Performance
↓
Performance Evaluation and Budgetary Decision-Making
Under this model, the TSA becomes the core of the government's financial architecture.
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4. The First Layer: TSA and Cash Management
The most important function of the TSA is to enable centralized government cash management.
The treasury should be able to answer the following question every day:
How much cash does the government have?
However, this question alone is insufficient.
The treasury should also be able to forecast:
- how much revenue will be received tomorrow;
- how much payment will be made tomorrow;
- which commitments will mature next week;
- how much liquidity will be required at the end of the month; and
- whether the government will face a short-term financing requirement.
Accordingly, it is recommended that the Government Cash Management Unit within the Treasury be strengthened using a professional, data-driven approach.
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5. The Second Layer: Cash-Flow Forecasting
One of the most important weaknesses in public financial systems is the distinction between the budget and liquidity.
A government entity may have an appropriation in the annual budget, while the government may not have sufficient cash to execute that appropriation at the required time.
Therefore:
«Budget ≠ Liquidity»
The budget determines the amount of expenditure that the government is legally authorized to undertake, whereas cash management determines when the government is financially capable of making those payments.
The treasury should therefore maintain, alongside the annual budget, a rolling cash-flow forecast.
It is recommended that cash-flow forecasting be conducted over three horizons:
Horizon| Function
Daily| Management of current payments
Monthly| Cash-flow management
3–12 months| Financing and debt planning
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6. The Third Layer: Commitment Management
One of the risks in public financial management is that the treasury focuses primarily on payments that have already occurred.
In reality, fiscal pressure often emerges before payment takes place—at the moment when a financial commitment is created.
The government financial system should therefore be capable of recording the following chain:
Appropriation → Purchase Order → Contract → Commitment → Invoice/Progress Certificate → Verified Payable → Payment
Under such a system, the treasury can identify future payment obligations before the actual payment occurs.
This transforms cash management from a reactive function into a forward-looking function.
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7. The Fourth Layer: Direct Payment to Final Beneficiaries
An important component of a fully developed TSA is the elimination of unnecessary transfers between government accounts.
The preferred model is:
Government Entity
→ Commitment Creation and Approval
→ Treasury
→ Direct Payment
→ Final Beneficiary
This mechanism provides three major benefits.
First: Reducing idle balances
Cash remains under treasury management until the actual payment is made.
Second: Increasing transparency
The movement of public funds becomes more easily traceable.
Third: Reducing risk
The number of accounts and points through which funds can potentially be diverted is reduced.
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8. The Fifth Layer: TSA and Performance-Based Budgeting
The relationship between TSA and performance-based budgeting (PBB) is particularly important.
Performance-based budgeting cannot be achieved merely by defining performance indicators.
The government must be able to answer the question:
«“How much public money was spent to produce a specific output?”»
Accordingly, each payment should be linked to relevant budgetary elements:
Payment → Government Entity → Program → Activity → Output → Outcome
For example, knowing that a government entity spent 100 billion tomans provides limited managerial information.
However, if policymakers know:
«what the 100 billion tomans was spent on, which program it belonged to, what output it generated, and what outcome was achieved,»
then financial information becomes managerial information.
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9. TSA and Timely Financial Reporting
The TSA can provide the core infrastructure for moving from traditional reporting toward timely financial reporting.
Under the traditional model, financial reports are generally prepared after transactions have occurred.
Under the proposed model, the treasury should have access to a financial dashboard containing information such as:
Indicator| Availability
Government cash balance| Real time
Today's government receipts| Real time
Today's government payments| Real time
Recorded commitments| Real time
Overdue liabilities| Real time
Remaining appropriations| Real time
Payments to final beneficiaries| Real time
Program performance| Periodic
Next month's cash-flow forecast| Timely
This is precisely where the Treasury Single Account becomes connected to timely financial reporting.
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10. Proposed TSA Performance Indicators
To prevent the TSA from becoming merely an administrative project, quantitative indicators should be established to measure its performance.
Indicator 1: TSA Coverage Ratio
Funds managed through TSA ÷ Total Government Funds
An increase in this ratio indicates broader TSA coverage.
Indicator 2: Idle Cash Ratio
Idle Cash Balances ÷ Total Cash Resources
The objective should be a continuous reduction in this ratio.
Indicator 3: Payment Cycle Time
The time elapsed between payment authorization and transfer to the final beneficiary.
Indicator 4: Cash Forecasting Accuracy
Comparison between forecasted and actual cash inflows and outflows.
Indicator 5: Direct Payment Ratio
Direct Payments to Final Beneficiaries ÷ Total Government Payments
Indicator 6: Recorded Commitment Ratio
Recorded Commitments ÷ Estimated Total Commitments
Indicator 7: Government Financing Cost
The change in government financing costs before and after TSA implementation.
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11. A Key Proposed Indicator: Government Liquidity Gap
One of the important indicators that the treasury should continuously monitor is the government liquidity gap:
Short-Term Government Cash Requirement − Available Cash Resources
A positive value indicates a cash shortfall.
However, before resorting to external financing or borrowing, the treasury should determine whether government resources are idle or accumulated elsewhere within the public sector.
Therefore, TSA can help reduce borrowing caused by the inability to access internally available government resources.
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12. TSA and the Central Bank
The relationship between the treasury and the central bank should be based on a clear separation of responsibilities.
Treasury:
- Cash-flow forecasting;
- Management of government resources and payments;
- Management of government accounts;
- Government debt management;
- Implementation of fiscal policy.
Central Bank:
- Monetary policy implementation;
- Management of banking-system liquidity;
- Money-market operations;
- Provision of banking services to the government within the legal framework.
Such a division prevents government cash management from being confused with, or resulting in inappropriate interference in, monetary policy.
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13. TSA and Fiscal Discipline
One of the major effects of TSA is strengthening fiscal discipline.
Under a fragmented system, a government entity may follow the sequence:
Appropriation → Receipt of Funds → Holding of Funds
Under the TSA model, the dominant sequence becomes:
Appropriation → Commitment → Control → Payment
Therefore, financial control shifts from control over account balances to control over the entire financial cycle.
This represents a fundamental transformation in public financial management.
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14. Challenges to Full Implementation
Full implementation of TSA faces several important challenges.
1. Institutional Resistance
Some government entities may perceive the retention of funds in their own accounts as a form of financial autonomy.
2. Fragmented Information Systems
If budget, treasury, accounting, contract, debt, and payment systems are not interconnected, TSA may remain limited to account consolidation.
3. Weak Cash Forecasting
Without accurate cash-flow forecasting, consolidation of resources alone will not generate the expected efficiency gains.
4. Tension Between Institutional Autonomy and Cash Centralization
The solution is to distinguish authority to spend appropriations from ownership and holding of cash.
5. Data Quality
A TSA without reliable data may become merely a large centralized account rather than a foundation for intelligent financial governance.
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15. Proposed Roadmap
Phase One: Complete TSA Coverage
Identify all government accounts and public resources and eliminate unnecessary accounts.
Phase Two: Information Integration
Integrate:
Budget + Treasury + Accounting + Banking + Debt + Contracts + Payments
Phase Three: Cash Forecasting
Establish daily, monthly, and rolling cash-flow forecasting mechanisms.
Phase Four: Commitment Management
Record commitments from the moment a contract or financial obligation is created until final payment.
Phase Five: Direct Payments
Reduce unnecessary transfers of funds to intermediary government accounts.
Phase Six: Timely Reporting
Establish a government-wide financial management dashboard.
Phase Seven: Performance Integration
Link major expenditures to programs, activities, outputs, and outcomes.
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16. Proposal for a “National Government Liquidity Dashboard”
A practical proposal of this policy note is the establishment of a National Government Liquidity Dashboard at the level of the General Treasury.
The dashboard should contain at least five major components.
Window One: Resources
- Tax revenues
- Customs revenues
- Asset sales
- Oil revenues
- Other government revenues
Window Two: Expenditures
- Wages and salaries
- Current expenditures
- Capital expenditures
- Debt repayments
- Other payments
Window Three: Commitments
- Current commitments
- Capital commitments
- Overdue liabilities
- Future liabilities
Window Four: Liquidity
- Cash balance
- Cash inflows
- Cash outflows
- Liquidity gap
- Financing requirements
Window Five: Performance
- Program appropriation
- Actual expenditure
- Output achieved
- Unit cost of output
- Variance from target
Under such an architecture, the treasury would evolve from a payment-processing institution into the government's financial command center.
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17. A Step Further: “Smart Treasury”
The next generation of treasury reform can be conceptualized as Smart Treasury.
Under this model, TSA data would be integrated with data analytics and artificial intelligence to:
- forecast future cash flows;
- identify potential liquidity shortages;
- detect unusual payments;
- identify idle balances;
- detect budgetary deviations; and
- compare government performance with expenditure levels.
Thus:
TSA + Financial Data + Accounting + Artificial Intelligence = Predictive Treasury
This could represent one of the most important stages in the digital transformation of public financial management.
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18. Policy Conclusion
The Treasury Single Account should not be regarded as the final objective of public financial reform.
«TSA is an infrastructure, not the destination.»
The ultimate objective should be to establish a system through which the government can determine, at any given time:
«how much cash it has;
how much it is committed to spend;
how much it owes;
how much liquidity it will require in the future;
which programs are consuming public resources;
how much each public output costs;
and what outcomes have been generated by that expenditure.»
From this perspective, the Treasury Single Account can serve as the connecting mechanism among five major government systems:
Budget System
↓
Accounting System
↓
Treasury System
↓
Cash Management System
↓
Performance Evaluation System
The ultimate outcome would be a transition from “management of government funds” to “government financial governance.”
Final Policy Recommendation
It is recommended that, within the framework of public financial management reform, the Treasury Single Account be defined as a national public financial transformation project. Its success should not be measured merely by the number of government accounts closed or the volume of funds transferred into the TSA. Instead, evaluation should be based on a comprehensive set of financial and performance indicators, including reductions in idle balances, lower government financing costs, improved cash-flow forecasting accuracy, shorter payment cycles, greater use of direct payments, improved reporting quality, and higher efficiency of public expenditure.
Under such an approach, the Treasury Single Account can evolve from a bank-account mechanism into the core infrastructure of government financial governance.