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Treasurers have always been in the business of managing financial risk.

Recently the focus has expanded to cover holistic risk management across the organisation, including liquidity, operational and country risk – all of which have a bearing on the modern treasury department.

Market conditions are giving the wider finance team a renewed impetus in cost management and the treasury is a vital part of the picture.

Assessment of the risk implications 

In a geographically diverse business, centralising both operational and technical specialist processes can clearly deliver on that objective.

Neither should be attempted, however, without an assessment of the risk implications of the proposed changes.

Suppose the finance director is discussing the intended change programme with you, nevertheless, and suggests taking the treasury operations team off-shore, co-locating them with the finance “production” team. What are your key concerns?

There are clearly a number of concerns that could be raised. How do you maintain the sound control environment that you established by supervising directly and ensuring segregation of duties through a standard workflow, with timely, secure communication of issues as they arose?

Beyond that, where should the focus be? The integrity of the balance sheet is key in that assessment.

In terms of detailed numbers generation, treasurers generally focus on the cash. They also look to their mainstream finance colleagues to provide the consolidated accounting numbers investors rely on, as well as a view of the cash generation implicit in the account sign-off.

That’s a fair segregation of duties but clearly Enron, Parmalat and plenty of other organisations over the years found, belatedly, that their balance sheet wasn’t as robust as they believed.

Corporate meltdown

Let’s role play for just a few minutes. Imagine you are reading the latest financial thriller about a corporate meltdown and this is the opening chapter….

A senior manager within a Global Plc is charged with the responsibility of account sign-off and it is becoming the bane of his life.

The balance sheet of Global Plc comprises literally thousands of accounts hit by millions of transactions resulting in assets and liabilities which run in to the billions.

Some of the assets the manager is reviewing are highly customised transactions with clients and it’s difficult to agree a mark-to-market because… well there is no market.

To further complicate the matter, the senior manager has been told that the cut-off data is incomplete because there are some cancellations which have not fed their way through yet. This job is hard enough without having inaccurate data.

The CEO is breathing down the manager’s neck because last month the trading statement told the city that everything is fine, there is a strong a balance sheet and prospects are looking good for Global Plc.

The senior manager is concerned – there are a number of balances that don’t look right but he can’t put his finger on it. He is suspicious of the business guys who are responsible for the transactions which pass through these accounts.

Cultural issue 

How can people get paid annual bonus on estimated P/L for transactions that stretch out 10 years plus?

It is a huge cultural issue within Global Plc; the business guys are paid significant bonuses on an annual basis and have zero interest in the long-term outcome of Global Plc.

Maybe he should make his concerns apparent at tomorrow’s board meeting, but his concerns are currently unsubstantiated.

The only thing he can do is rely on his people, which was fine when he could walk up and talk to them but now that 50 per cent of his department is off-shore, it is much more difficult and unnerving.

Fact or fiction? Did anything resonate with you? As treasurer of Global Plc what should your role be?

In a recent survey, commissioned by Business Control Solutions, the greatest issue facing finance departments was found to be managing the daily flow of data and information.

Ninety-four per cent of respondents claimed to find departmental workflow very challenging. This was closely followed by difficulties in achieving visibility and efficiency of controls, with which 79 per cent of respondents said they struggle.

Proliferation of disparate systems 

The survey, which was carried out in February of this year, also found that 76 per cent of respondents are hampered by a multitude of manual processes, and 58 per cent are also troubled with the proliferation of disparate systems.

Given these findings, it is no wonder account sign-off is tricky and time-consuming. The survey respondents - in this case financial institutions - do recognise that their future success relies on making improvements by combining visibility, ownership and control.

Further survey results revealed that 69 per cent of respondents ranked making improvements to control and reporting processes their highest priority remedial activity for 2008.

Fifty-five per cent of the survey respondents said that a lack of clear communication and its impact on visibility and control are the greatest risks when off-shoring.

Of particular importance to the specialist treasury area: the resources and skills of off-shore staff were also a cause for concern, with 28 per cent of respondents citing this as high risk.

Time to demonstrate value 

In order for finance departments to overcome these challenges, an over-arching control framework needs to be put in place. 

Having visibility of uncertainties around cash positions and a clear business line split gives direct understanding of the organisation’s liquidity. 

Treasurers, with their explicit risk management expertise, are highly valued by their finance colleagues.

During the recent years of expansion and growth potentially the principal focus for treasurers has been on external opportunity.

The current environment may be an opportune time to demonstrate value more widely across finance and ensure that control requirements specific to the treasury do not get overlooked in the drive to contain costs.

Nigel Walder is CEO of Business Control Solutions plc.

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Related links

• Business Control Solutions