Accountant General takes over salary payment for entire Government
THE JAMAICAN Government will be rolling out its new its Central Payroll Payment System during the first quarter of the new fiscal year under which salaries for some 60,000 government employees will be channelled through the accountant general's single account at the Bank of Jamaica (BOJ).
Under the current system, government ministries, departments and agencies - referred to as MDAs - have individual dealings with financial institutions, which process their payrolls for fees that can range up to $600 per transaction/employee.
The new centralised system is expected to get rid of that processing fee, which is a cost to the Government. Once commissioned, it is expected that salaries will be distributed through the accountant general's account at BOJ directly into the bank accounts of government employees or into the accounts of their preferred institution.
Essentially, the salaries and deductions for public officers across 17 ministries, 12 executive agencies and more than 20 departments, who are paid monthly and fortnightly, will now be administered by the accountant general.
Berome Edwards, head of the Financial Systems Unit of the Public Expenditure Policy Coordination Division in the Ministry of Finance and Planning, said savings are already being realised from bank fees avoided as well as from better cash management in other areas of operation, under the Central Treasury Management System which is managed by the Accountant General's Department and operates as an interface with MDAs.
And while he anticipates more savings once the salary system is centralised, Edwards says the finance ministry does not yet have an accurate estimate of the bank fees attached to payrolls across the Government, given that each MDA has had its own arrangement.
However, based on a canvas of banks by the Financial Gleaner, even at the lowest fee quoted, the cost appears to run into millions of dollars each month.
The salary project involves two phases. In the first, MDAs will continue to use their own software to access the accountant general's system and make payments. In this phase, personnel will not be affected, says Edwards.
In the second phase, the "single payroll and human-capital software will be installed, at which point there might be an impact", but the ministry official notes that the displacements have not yet been measured.
The consolidation of the payroll system, which Edwards said is designed for about 60,000 employees, is expected to be wrapped up by June 2015 when the software, which is now being procured, is expected to be in installed.
Once commissioned, salary transactions will be settled under the Automated Clearing House (ACH) system because of its capacity for high-volume transactions, Edwards said.
Use of the ACH by the accountant general is free. The government authority, which itself is a department of the Ministry of Finance, was assigned the status of 'agent' by the BOJ, thereby permitting it to channel funds to commercial bank accounts. Previously, ACH transactions were restricted to the six commercial banks that own the facility and form its membership base.
"We are technically a part of the BOJ; BOJ has put us as an agent," said Edwards. "We will use their platform."
Edwards said Government workers who are being told that they need a commercial bank account to receive their salaries are being misinformed.
The central payroll system will also accommodate salary payments through credit unions, building societies and other non-bank institutions via deposits to the relevant accounts at those entities, and workers may choose their preferred institution.
"In April, we will get out there to tell the workers that their arrangements with their credit unions and the building societies are okay. We recognise that many, because of financial reasons, arrange for their salary to go to a credit union or building society, so it's not easy for an employee to transfer to a bank," said the ministry official.
"We could not build a system which does not allow money to go to the credit unions. It's just that it's not going to the credit union directly; it's going to go to the bank account of the credit union," Edwards explained.
The ACH does not include non-banks and cannot be used to settle transactions directly with a credit union or a building society. Instead, the funds go to the commercial bank accounts of these institutions.
"Until the banking system allows credit unions to be on their networks, we have to send money not to the credit union directly, but to the bank account of the credit union and the bank account of the building societies," said Edwards.
"I must admit it will take a much quicker time to send the money to your personal bank account than to your credit union," he said.
The Government's wages and salary bill is estimated at $165.23 billion for the upcoming 2015-16 fiscal year, which starts April 1.
A survey of commercial bank rates charged for salary deposits to individual accounts ranged from a low of $320 up to $500 per transaction for deposits at the processing bank; and $600 per item for deposits to accounts not held at that bank.
Banks canvassed by the Financial Gleaner said these costs are negotiable, and that some offer one flat rate for payroll on a monthly basis, on request.
One government agency told the Financial Gleaner that the processing fees for its payroll were set by the banks and varied according to the number of transactions on a monthly basis.
"There are not only the fees, there is also tax on the fees," the person said, referring to the standard 16.5 per cent GCT charge.
Under the Central Treasury Management System, Edwards said that the Government is now managing cash more efficiently.
"Previously, our cash was in about 60 bank accounts. Now it is in one account, and the one account is used for everybody. In the past, we did not have the mechanism to use one ministry's money for the other," he said.
Asked whether individual MDAs financed by the Government were losing out on interest earned, Edwards said that the MDAs have never been allowed to keep accumulated interest. It was always funnelled to the Consolidated Fund, he said.
fungibility of accounts
Government is seeing savings from the centralisation of accounts, but it would need to do a study to determine the precise financial impact, the ministry official said.
"There is a term which we accountants use called 'fungibility of accounts' - we don't have to borrow or find money to give one ministry money when another ministry has money ... . Also we believe that we are able to borrow less for the public sector; it somewhat reduces the debt," Edwards said.
"It has resulted in Government having less money in the commercial banks. We used to have all our bank accounts in the commercial banks and they benefited from that."
Now: "Almost all the MOFP accounts have been closed. They [banks] stand to lose out because of this," he added.