According to the State Budget Act, the Ministry of Finance is responsible for management of cash receipts and payments for all ministries, agencies, social security funds and for various State-owned foundations. For this, the State Treasury centrally manages all incoming and outgoing payments of State entities through its bank accounts with four local financial institutions - State entities do not have their own current accounts with financial institutions but only an internal balance in the State Treasury’s system. This set-up is called a Treasury Single Account (TSA) system.
The State Treasury ensures that ministries, agencies, social security funds, and State-owned foundations can make payments whenever they need, subject to their budget limits and internal cash balances. As of 31.12.2017, there were a total of 112 State entities in the TSA system: 50 ministries and agencies, 58 State-owned foundations, the Estonian Health Insurance Fund, the Estonian Unemployment Insurance Fund, AS Pensionikeskus (a register and a payment agent for II and III pillar pensions in Estonia) and the European Commission. The TSA in Estonia covered 65% of central and general government entities’ financial assets as of end-2016.
TSA bank accounts are held in four local commercial banks: Swedbank AS, AS SEB Pank, Luminor Bank AS and Danske Bank AS Estonia Branch. The State Treasury does not have a TSA main bank account in the Central Bank but instead actively invests surplus cash in money markets to keep cash balances in the TSA bank accounts at the four commercial banks within approved limits.
All incoming and outgoing payments by ministries, agencies, and State-owned foundations are channelled through the State Treasury. State entities’ payment instructions are forwarded centrally to commercial banks by the State Treasury using the e-State Treasury payment system (a treasury ledger system); social security funds send their payment instructions to commercial banks themselves due to the large payment volumes.
The e-State Treasury system is an internet bank-based application. It is the in-house banking system for State entities where State entities’ accounts are maintained. The reference number that must be included on all incoming payments to the entity is the State entity’s account number in the e-State Treasury system. Entities can make payments, send notices, receive lists of transactions and get reports through the e-State Treasury system. All of these transactions are carried out quickly and securely. The identification of customers is based on an ID card or a mobile-ID PIN code.
In 2017 more than 12.4 million outgoing payments and 3.5 million incoming payments were channelled through the TSA. The Social Security Board made approximately 8.8 million pension and other benefit payments; the Estonian Health Insurance Fund made 559 thousand and the Estonian Unemployment Insurance Fund 763 thousand payments in 2017. The remaining payments are made through the e-State Treasury system.
Banking arrangement principles for State entities
Ministries and agencies are not allowed to have bank accounts (except embassies), to borrow, give loans and guarantees or invest into securities (unless specifically approved in the State Budget).
The Social Insurance Board (pensions, allowances, and benefits), the Health Insurance Fund and the Unemployment Insurance Fund have their own bank accounts due to their large payment flows, but these accounts still form part of the overall State Treasury balance (so-called ‘cash pool’) in each of the four local banks where the TSA bank accounts are held.
Management of cash receipts
Taxes are paid to the Tax and Customs Board’s bank accounts, which form part of the State Treasury cash pools in the four local banks. All other State revenue (EU grants, penalties, state fees, dividends, sale of assets, etc.) and income for State-owned foundations is paid into the Ministry of Finance’s bank accounts and recorded automatically in the e-State Treasury system.
It is essential that the State entities inform their customers, counterparties and service providers of the obligatory reference number (i.e., the State entity’s account number in the e-State Treasury system) to be included in all payment instructions. The compulsory reference number system ensures that State entities receive information on their cash receipts in the e-State Treasury system within seconds of the money being credited to the State Treasury’s bank accounts. For cash receipts from abroad, the respective reference number (i.e., an account number in the e-State Treasury system) or the name of the entity must be added to the explanation field of the payment instruction.
Management of Payments in the e-State Treasury system
An entity can insert payments one by one or import a list of payments into the e-State Treasury system and is responsible for checking that the payments are correct and lawful.
All payments are electronic funds transfers - checks are not used. State entities use bank cards for their petty cash expenditure. Debit and credit cards for State entities are centrally managed by the State Treasury.
The e-State Treasury system checks that every payment is covered by pre-bookings (i.e., a daily request of funds for two days ahead) and is within the entity’s internal cash balance (e.g., own-revenue accounts, cash accounts for State-owned foundations). Based on these checks, the system accepts or rejects payments automatically. Budgetary limit controls for ministries and agencies are automatically carried out on the financial accounting platform (SAP) and entities’ outgoing payments forwarded to the e-State Treasury system.
An entity can follow both the status and history of payments in the e-State Treasury system. For example, the status of a payment can be pending, forwarded to State Treasury, forbidden or implemented.
All outgoing payments by State entities and State-owned foundations are channelled through the State Treasury: either through the Ministry of Finance’s accounts at local banks or through the e-State Treasury system from one State entity to another.
Payment of interest to social security funds and State-owned foundations by the State Treasury
The State Treasury pays interest on the cash balances of the State-owned foundations, the Health Insurance Fund and the Unemployment Insurance Fund. The interest rate paid to them equals the return achieved for the Liquidity Reserve (with a minimum of 0%).
Bank fees covered by the State Treasury
The State Treasury covers all bank fees for domestic and international payment instructions, except for urgent payments and for payments where transfer charges are paid by the remitter. State entities cover all other fees, such as for bank cards, payment terminals, specific international payments.