Cash balance management

This topic seems to be more interesting for regular college classes rather than anyone on a distance learning or a fast-track private college course.

In both my classes there are students from local government. In previous years there have been students who worked for the NHS or MOD. If you work in practice or work in a commercial organisation it is quite an eyeopener to hear how public sector firms have limits placed on them.

Short term investment of cash balances is a balancing act of return and risk.

Invariably the cash has been earmarked for some use in say 6 months time (may be even later this month) but you want it to earn something for you while you have it. (the return)
And you want to be pretty sure it doesn't disappear before you need it. (your attitude to risk)

So you will look round for an investment that lets you take your money back when you want it (keeping the risk of losing it low) and paying you back more than you put in (giving you a return).

I would look at commercial deposits in banks etc but for a public sector organisation the risk part is so important that they propbably have a policy that rules out even well known banks because they are not solid enough. So they will have a short list of where surplus funds can be lent to which aims to ensure that council taxpayers will not have to face the risk of the cash being lost.

Shares in blue chip or other firms are often ruled out. In the case of West Sussex County Council, I think that bank deposits exclude Abbey and Barclays but do allow the Royal Bank of Sotland and HSBC.
if anyone reading this knows differently please say so as I have no intention of putting down any of these organisations

So going back to:

What's the difference between the management of cash balances in public sector organisations to that of private sector organisations and are there any restrictions?


The issue is risk and Public Sector Organisations will have policies to avoid as much risk as they can and as a result they limit the level of return they can obtain by investing cash balances.