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UNCLASSIFIED
HM Treasury
ACME Market Engagement – Supplier Briefing Pack
Ref. HMT1086
____________________________________________________________________________________________________
HM Treasury
HMT1086
Supplier Briefing Pack for the Provision of Financial,
Accounting, Payments and Forecasting System for
Exchequer Funds and Accounts (EFA) ACME Market Engagement Exercise
24 June 2017
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ACME Market Engagement – Supplier Briefing Pack
Ref. HMT1086
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Contents
1
Introduction ............................................................................................................................................. 3
2
Overview of the Requirement ............................................................................................................ 4
3
Current IT Infrastructure ...................................................................................................................... 7
4
Supplier Information ............................................................................................................................. 8
5
Summary of each business unit ......................................................................................................... 9
6
PIN Process ............................................................................................................................................. 11
7
What we want from Suppliers .......................................................................................................... 12
8
Security .................................................................................................................................................... 13
9
Exchequer Funds and Accounts ....................................................................................................... 14
ANNEX 1 - ACCOUNTING FOR GILTS ................................................................................................... 15
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1
1.1
Introduction
The purpose of this supplier briefing pack is to:

Explain HM Treasury’s (HMT) needs in terms of a treasury management system
(TMS); and

To enable suppliers to provide relevant information on their products and
services to inform HMT’s strategy in this area.
1.2
The existing Accounting and Cash Management for the Exchequer (ACME) database
has been in operation since 2002, managed by the Exchequer Funds and Accounts
(EFA) team within HMT. HMT are engaging the market place through this exercise to
understand how the market has developed and what potential alternative solutions
are available that could allow EFA to move, account for and forecast government
cash flows in a more efficient way. It is anticipated that potential suppliers will
propose an existing TMS which may need an element of development /
customisation to cater for handling Gilts on the primary market.
1.3
Further information on Gilts is provided at Annex 1. Taking account of this
information, HMT requests that potential suppliers advise us on the available
solutions to meet the Department’s requirement.
1.4
HMT requests that information on possible solutions, and other relevant
information, be submitted to [email protected].
1.5
Potential suppliers will not be prejudiced by any response to the Prior Information
Notice (PIN) or their failure to respond. The PIN itself does not signify the beginning
of a procurement exercise and does not constitute a commitment by HMT to
undertake any future procurement exercise relating to this requirement. Where HMT
seek to undertake a procurement exercise, the marketplace will be informed in line
with the Public Procurement Regulations.
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2
Overview of the Requirement
2.1
The EFA team within HMT manages and accounts for transactions on the UK
government’s main bank accounts at the Bank of England which sit at the apex of the
exchequer pyramid of over 2000 public sector accounts. It also forecasts and
monitors government-wide cash flows to support the UK Debt Management Office’s
(DMO) cash management operation.
2.2
The Consolidated Fund (CF) receives government revenues, and is used to fund most
government expenditure. The National Loans Fund (NLF) receives government
borrowing, and is used to fund government lending. The CF and NLF are closely
connected with overnight sweeps by the Bank of England moving exchequer pyramid
account balances into and between these accounts. With less than 40,000
transactions a year the annual turnover of these accounts approaches £500bn (over
£1 Trillion with churn) and individual transactions exceed £20bn. Most payments are
made under specific statutory provisions and are subject to formal approval by the
National Audit Office (NAO) before payment instructions can be created and sent to
the Bank of England.
2.3
EFA monitors government-wide cash flow using information supplied by the Bank of
England, the Government Banking Service (which provides account keeping and
transaction services to government departments and other public sector bodies,
through its commercial partners) and other banking sources. Drawing on these and
many other sources EFA supplies DMO with long-term, day-by-day, and in-day
forecasts of the net exchequer position - the net of all cash flows that cross the
boundary between central government and the wider economy.
2.4
Treasury Stocks (Gilts) issued by the DMO are liabilities of the NLF; EFA records and
accounts for all bulk transactions arranging consequent interest and principal
payments. EFA also receives temporary deposits from, and makes loans to, public
sector organisations using the NLF. EFA sets up transactions between the central
accounts and external bodies including the European Commission and International
Monetary Fund.
2.5
EFA also has some lower level responsibilities associated with the Consolidated Fund:
the collection of fines from solicitors, architects etc.
2.6
Ad hoc, monthly, quarterly and annual accounts, reports and analysis of all these
operations are produced. Annual Accounts are audited by the NAO.
2.7
The EFA user team of 20 is currently based at 1 Horse Guards Road, London, SW1A
2HQ. There are 3 additional HM Treasury users from another team. The NAO have
access to the system, via a web front-end interface, to approve payments from the
NLF and CF, and these users are based in London and Newcastle. HMT would be
interested in utilising a TMS that could be used by other government departments, at
least in providing cash forecasts to EFA and possibly for other purposes, thereby
making efficiency savings.
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2.8
EFA faces a number of challenges: the majority of information flows into EFA are
either paper-based or e-mail and a number of Excel-based systems have grown up
around ACME which could benefit from consolidation.
2.9
It is anticipated that the requirement will be met using one or more configurable
packages marketed for the purposes of banking, accounting and data-handling (i.e. a
TMS). We would like to be able to securely exchange “signed” information
electronically with the Bank of England and the NAO and be able to import electronic
(structured) data as and when it becomes available from other information suppliers.
2.10
The table below gives an indication of the basic requirement:
BASE SPECIFICATION CHECKLIST
1. Financial Instruments
Foreign exchange
Need to account for:
1) Spot
2) Forwards
Debt interest rate products
Commercial paper Treasury bills – primary issuer
Bonds and Securities: Primary issuer of Conventional and Index-linked Gilts, foreign
currency and sterling bonds.
Facility for inputting base Interest rate and offsets against base rate.
Ability to enter deals for deposits and loans including confirmations.
2. Cash Management
Balance and transaction management
Automated scheduled delivery of bank balance and transaction reports.
Manual delivery of bank balance information and transaction reports.
Transfer processing – payment and receipts.
Reconciliation
Automated scheduled reconciliation of bank statements and TMS position.
Manual reconciliation on an ad hoc basis.
Ability to import a reconciliation file from an external source.
Performed within the TMS on a total balance basis.
Forecasting
Ability to record and report treasury transaction flows.
Ability to record and report interest flows.
Ability to record and report internal transactions.
Ability to perform comparative analysis between forecast and actual figures or allow
uploads from Microsoft Excel.
3. Accounting
Support an internal and integrated general ledger
Provide access to system (web-front end) for NAO to authorise transactions.
4. Reporting
Maintain a library of reports that a user can adapt
Have an internal report writing feature
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Link to a third party report writing tool
5. Security
Conform with security principles in accordance with HMG Security Framework and
HMT-specific policies.
6. Risk
Risk management module that allows users to calculate and measure risk.
2.11
Any TMS provision is expected to cover the supply, installation and configuration of
software, and require the migration of data from the existing computer systems as
well as the provision of documentation, training and ongoing support and
maintenance.
Requirement
Application software
Software configuration and
integration
System hardware*
Server systems software*
Provision of five system
environments as in 12.1
Laptop/Network infrastructure
Laptop systems software
Integration into HMT desktop
environment
Implementation services
Data conversion/migration
Training
System support and maintenance
System enhancements
Hosting off-site*
In scope

Out of scope













*If provision of these items is not within the remit of your organisation, this should
not preclude you from providing a response to the PIN
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3
Current IT Infrastructure
3.1
EFA staff are connected to the HMT Ethernet LAN using a PC running Windows XP
Professional (SP3) to access HMT's Office system “Flex Public Sector" which is based
upon the MS Office 2007 suite of products. Email is provided by Outlook 2007 on the
desk top and Exchange 5.5 Servers. The ACME system spans five environments:
production, test, development, local DR and remote DR. External communications
are routed via the Government Secure Intranet (GSI). The IT hardware and
infrastructure is maintained and managed by Fujitsu. Support is provided on a
16x7x365 basis.
3.2
It should be noted that the HMT IT infrastructure may change over time, therefore,
due account should be taken of the portability of solutions across platforms or
hosting externally.
3.3
Provision of a hosted system may also be an option that HMT may consider.
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4
4.1
Supplier Information
The ACME market engagement exercise aims to inform HMT and help it understand
developments in the market place for a TMS service. Any future solution to HMT’s
needs should:





4.2
EFA has 5 separate branches:





4.3
Funds – banking and accounting functions.
Cash Management – monitoring government (and other) departments’
monthly payments and receipts.
Forecasting – monitoring receipts and payments to/from government (i.e. tax
receipts, duties etc) over a 17 week period.
Swing – monitoring forecasts on an intraday basis.
Business Continuity and System Support – providing local IT support and
maintaining the static data (bank accounts, users etc).
There are other business units, outside EFA, that would need access to the system:


4.4
improve the “fit” between IT systems and the business;
enable and support identified business change;
meet the business objectives above within the context of continuous
technology change and the government’s modernising agenda.
Identify functionality within a product which would save money.
Retain a high level of system resilience.
Fiscal Statistics and Policy Team within HM Treasury – dealing with long term
forecasting (up to three years ahead); will also need access to the banking and
accounting as well as the forecasting data.
National Audit Office – based in London and Newcastle, approves payment
from the CF and NLF requests online. This is a legal requirement.
Each supplier is requested to nominate one person who could act as primary contact
for liaison with HMT in the event of further questions arising.
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5
5.1
Summary of each business unit
Funds

Reconcile CF and NLF transactions against the bank statement (auto reconcile, manual
reconcile of 1-to-1, many-to-1 and 1-to-many, undelete reconciliations)

Create the Ways and Means (overnight sweeps) transactions from the bank statement

Transactions to public bodies

Creation of Temporary Deposits [up to six months] interest paid on maturity

Creation of Extended Deposits [over six months] interest paid twice a year

Creation of short-term loan [up to six months] interest due on maturity

Creation of long term loan [over six months] interest due twice a year

Import of monthly data from GBS for the system to calculate daily interest for the
calendar month

Creation, calculate dividend, redeem, write-off and part cancelation of government gilts

All created transactions need two approvals plus NAO approval, where necessary

To release payments require two approvals
5.2

5.3
Cash Management
Monitor various transaction methods (BACS, CHAPS etc) that each department use for
payments and receipts
Forecasting

Input transaction flows for each day over the next 19 weeks

The forecast will be revised each day

The day before the actual day, the forecast is handed over to the Swing

Report to DMO on a daily basis
5.4
Intra-Day Forecasting

Takes the forecast position of each specific day from the Forecast

On an intra-day basis a forecast snapshot is entered into the database to provide the
net Exchequer position to the Debt Management Office.

Each snapshot has to be kept for audit purposes
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
There are 6 snapshots for each day

Information feeds are provided to EFA by telephone or e-mail. Data can be entered
manually or uploaded onto the database from Excel spreadsheets.
5.5
Business Continuity and Systems Support

Create users

Assign profiles to users

Create all standing data
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6
PIN Process
6.1
If a decision is made to undertake a formal procurement exercise following this Prior
Information Notice exercise, the opportunity will be advertised in the Official Journal
of the European Union (OJEU).
6.2
Suppliers are requested to submit any response in connection to this PIN via
[email protected], stating ref HMT1086.
6.3
HMT will contact suppliers, if necessary, to further understand supplier information
packs.
6.4
Suppliers are requested to submit their ideas for potential solutions, electronically,
to HM Treasury demonstrating how they would approach implementation of a
solution and covering the specific functionality including related to gilts using the
background information given in Annex 1.
6.5
Indicative Timetable:
6.6

PIN and Supplier Briefing Pack to be published week commencing 4 February
2013.

Supplier information packs to be returned no later than 23:59, Sunday 14 April
2013.
If clarification of any aspect of the PIN and/or Supplier Briefing Pack is required,
queries should be sent to [email protected] quoting ACME
Market Engagement reference HMT1086.
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7
7.1
What we want from Suppliers
HMT would like suppliers to demonstrate the following in their information packs:

Overview of the proposed solution (including details of how well established
the product is in the market place, organisations using it and the update
policies for the package);

Demonstration of the proposed solution covering at least the following along
with those aspects described in paragraph 2.10:
o Reconcile bank statement
o Creation of transaction to payment with all approval stages
o Creation of Deposits
o Creation of Loans
o Forecasting
o Life cycle of a Gilt (see annex 1)
7.2
Information packs should not be greater than 20 sides of A4. Relevant supporting
documents can be submitted as an annex to the primary information document.
7.3
All information packs are requested by 23:59, Sunday 14 April 2013. These should be
submitted to [email protected], referencing HMT1086.
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8
8.1
Security
Suppliers should be aware that all security aspects (including physical, personnel,
technical and information security) of any potential future replacement ACME
system would need to be compliant with all relevant controls set out in the HMG
Security Policy Framework (April 20012) (SPF), as well as with any additional security
policies specific to HMT. The current ACME system operates at business impact level
3 (BIL3). Within their information packs, suppliers are requested to demonstrate
compliance with the SPF and HMT specific policies, which can be made available on
request; or detail how their TMS would be able to achieve this.
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9
Exchequer Funds and Accounts
9.1
The Exchequer Funds and Accounts team is headed by the Treasury Accountant.
9.2
EFA manages the government’s main bank accounts including the CF and NLF, and
supports the DMO’s cash and debt management operations.
9.3
A relatively low volume of mostly high value payments and receipts are processed
through a small number of accounts. The annual turnover of these accounts
currently amounts to £500Bn with individual transactions over £20Bn. Most
payments out of the two main accounts (CF and NLF above) are made under specific
statutory provisions and are subject to formal approval by the National Audit Office
before payment instructions can be created and sent to the Bank of England.
9.4
Temporary deposits are taken from and loans are made to public sector
organisations. Details of Treasury Stock (Gilts) issued by the DMO are recorded and
consequent principal and interest payments are managed.
9.5
The issue of money to government departments (supply) is controlled and their
cashflow monitored using information supplied by the Government Banking Service.
9.6
The cash management function of DMO is supported through in-day and day-by-day
as well as long-term “whole of government” cashflow forecasting.
9.7
All the above operations involve the recording, checking, authorising and forecasting
of monetary transactions which are executed elsewhere. However EFA also has
some lower level responsibilities associated with the CF: the collection of fines from
solicitors, and the administration of some sensitive low-volume public sector salary
and pension payrolls.
9.8
As appropriate, monthly, quarterly and annual accounts, reports and analyses of all
these operations are produced.
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ANNEX 1 - ACCOUNTING FOR GILTS
Contents
Introduction ............................................................................................................................................. 14
Gilt-edged stocks – Basic Principles .......................................................................... 14
Subsequent issues of stock .......................................................................................... 17
Cancellation .................................................................................................................... 17
Switches and Conversions ........................................................................................... 17
Redemption .................................................................................................................... 18
Coupon payments.......................................................................................................... 18
CALCULATION OF THE REAL ACCRUED INTEREST .............................................................. 19
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Introduction
1. This document sets out the processing requirements for handling gilt-edged stock. It
describes the instruments and their accounting treatment which reflects the requirements
of FRS4.
2. There will be a need for flexibility in the detailed processing requirements in order to
cater for different ways of dealing with transactions, for example, where accounting
standards or policies change or new instruments are introduced.
Gilt-edged stocks – Basic Principles
3. These are borrowing instruments issued by HM Government. The basic form of the
instrument is a contract to repay the nominal sum borrowed at a defined future date, in
return for a cash payment to government at the time of issue.
4. Interest is normally paid at a defined percentage rate on the nominal value. For most
gilts interest is paid twice yearly with the same due dates in each year. (But some gilts have
interest paid quarterly).
5. Special arrangements may apply for the first and/or second coupon date after initial
issues, where the rate may be set at a different level from the subsequent payments. This
allows for the possibility of a non-standard period from first issue to first interest payment.
The system should allow for such non-standard coupon payments following first issue.
6. Gilts are identified by:
i.
Coupon. This is expressed as a percentage (eg 6½% ), and is the interest rate
paid annually on the nominal value of the stock;
ii.
Maturity date. This is the date on which the borrowing will be repaid.
iii.
Coupon dates. These are determined at the time of first issue. Most gilts have
two coupon dates each year. A few have four coupon dates.
7. The majority of gilts in issue reflect the characteristics above and can be described as
“conventional” gilts. For these, the parameters of the stock are completely defined at the
time of issue, (ie coupon, coupon dates, redemption date, redemption amount). There are,
however, three variant types which need special treatment. These are:
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Index-linked gilts
-
the redemption amount is not fixed at issue but is determined by
increasing the nominal value by an uplift calculated from the change in
the RPI over the life of the gilt.
-
the coupon payable is similarly indexed.
Floating rate gilts
-
the coupon rate is determined by current interest rates, rather than
being pre-determined.
Undated and double dated stock
-
For these there is either no predetermined redemption date or two
possible dates, between which the government may redeem the stock.
Issue of gilts
(a)
Discounts and premiums
8. At issue, the cash paid to purchase a gilt may not equal the nominal value of the stock
issued. The difference between the cash received and the nominal value is described as:
Premium
-
if the sum paid exceeds nominal value
Discount
-
if the sum paid is less than nominal value
9. FRS 26 requires that the amortised cost of a financial liability is calculated using the
“effective interest method” which allocates interest expense over the relevant period by
applying the “effective interest rate” to the carrying amount of the liability. When
calculating the effective interest rate, all contractual terms should be considered in
estimating the cash flows and this includes all premiums and discounts.
(b)
Clean/Dirty price
10. The price at which a gilt sells takes account of the future stream of income derived from
the gilt, including the final redemption payment and the market’s prevailing view of interest
rates. These income streams will include those arising from the first coupon after issue,
unless issue is after the ex-dividend day. Since the coupon is paid on the basis of the stock
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eligible for interest on the register on the ex-dividend day, on a new issue (other than the
first issue) some interest is typically paid in respect of the period before issue. This is known
as accrued interest. The holder receives this, but has not ‘earned’ it, since the stock was not
in issue for that period.
11. Similarly, if the stock is issued ex-dividend, the holder is “entitled” to interest for the
period from purchase up to the next coupon date, but none will be received. The amount
foregone is known as rebate interest.
12. The overall price received for a stock is known as the dirty price. For a stock with
accrued interest, part of the dirty price is in respect of the accrued interest which attaches
to the issued stock. The clean price is the difference between the dirty price and the
accrued interest. For example, if a stock with a coupon of 6%, payable annually in two
installments, is issued exactly half way between coupon dates, accrued interest attaches
equal to 1½ % of the nominal. So if £100 nominal was sold for £150 (ie dirty price of £150),
£1.5 of that is deemed to be in respect of interest. So the clean price is:
150-1.5 = 148.5
13. Similarly, if the same stock was sold with £0.50 of rebate interest, the clean price is:
150 – (-0.5) = 150.5
14. For calculations affecting the balance sheet carrying value of gilts it is the clean price
which is important.
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Subsequent issues of stock
15. The same stock can be issued at different times. Once a subsequent issue has been
made, the two (or more) tranches of stock lose their distinct identity. The accounting
treatment is to merge the two tranches of stock into one. Balance sheet and nominal values
are additive. As shown later, subsequent finance costs and amortisation rates are
calculated for the merged data. (An alternative could be to treat each issue as a distinct
block but this is likely to be cumbersome when dealing with subsequent cancellations and
amortisation at a constant rate).
Cancellation
16. Liabilities in respect of stock can be cancelled in two circumstances:
-
Cancellation without an NLF cash payment
Cash or stock may be bequeathed to the National Debt Commissioners
(NDC). This can be cancelled, reducing the NLF’s liability.
-
Stock may be repurchased by the NLF for cancellation
The price paid for such a stock is likely to be different from the nominal
price.
Switches and Conversions
17. The composition of a liability may be changed through a process of conversion. In this, a
holding of one stock is converted into a holding of a different stock. Nominal and balance
sheet values and maturity profiles will change as a result.
18. The process may be run by the DMO as an auction (a “switch auction”) or as a
conversion offer. The mechanics differ, but the implications for NLF accounting are the
same.
19. Although one stock is directly exchanged for another and no cash changes hands
between the government and the lender, the fair value of the stock being cancelled has to
be determined. The transaction is essentially accounted for as a stock issue whose proceeds
are applied to repurchase an equal value of stock for cancellation.
Redemption
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20. At maturity, a cash payment equal to the outstanding nominal value of stock is made.
Coupon payments
21. Interest accrues daily between coupon days at a constant daily amount (ie simple
interest). The rate applicable per £100 for any twice-yearly coupon is (coupon%/2)/(days
between coupons). This will vary slightly between coupons because the days between
payment dates will vary. For index-linked and floating rate stocks, the interest accrual rate
for any coupon paid is known at the time of the preceding coupon. If the coupon date falls
on a non-working day that does not matter for the accruals calculations, notwithstanding
the fact that the cash payment will be made on the next working day.
CALCULATION OF THE REAL ACCRUED INTEREST
(1)
Standard dividend periods
t c
if the settlement date occurs on or before the ex - dividend date
s  2

RAI  
t
 c
  1 
if the settlement date occurs after the ex - dividend date

 2
 s
Where all the terms are as above, and:
= Number of calendar days from the previous quasi-coupon date to the
settlement date.
= Number of days in the quasi-coupon period
t
S
Note: s  s1 for trades settling in the first quasi-coupon period.
(2)
Short first dividend periods
 t c
 
 s1 2
RAI   

 t  r
 s1

if the settlement date occurs on or before the ex - dividend date
 c

 2

if the settlement date occurs after the ex - dividend date
Where all terms are as above, and:
t
(3)
= Number of calendar days from the issue date to the settlement date.
Long first dividend periods
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HM Treasury
ACME Market Engagement – Supplier Briefing Pack
Ref. HMT1086
____________________________________________________________________________________________________
 t  c


if the settlement date occurs during the first quasi- coupon period
 s1 2
 r
r  c
RAI   1  2  
if the settlement date occurs during the second quasi- coupon period on or before the ex - dividend date
s
s
2 2
 1
 r
 c
if the settlement date occurs during the second quasi- coupon period after the ex - dividend date
 2  1 
 s2
 2
Where all terms are as above, and:
t 
r2
s2
= Number of calendar days from the issue date to the settlement date in the first quasicoupon period (this term only applies if the gilt settles in the first quasi-coupon
period).
= Number of calendar days from the quasi-coupon date after the issue date to the
settlement date in the quasi-coupon period in which the issue date occurs (this term
only applies if the gilt settles in the second quasi-coupon period).
= Number of calendar days in the full quasi-coupon period after the quasi-coupon
period in which the issue date occurs.
UNCLASSIFIED
Version 7.6
24 June 2017
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