Ken Lillie, Founder, Lillie Associates
The currently volatile financial and political environments leave the treasurer working within potentially unstable markets and a frequently challenging business scenario. This often means that with limited time and resources available the treasurer’s attention - see figure below - is devoted in greater part to being reactive to events and external influences and so relies upon existing systems and processes to carry through the day-to-day routine work.
Corporate treasury - time and resource pressures
If no problems arise in that area then so much the better and there is therefore no need to turn ones attentions to areas that do not create problems. “If it ain’t broke, don’t fix it” is frequently considered a suitable mantra to apply.
While it is quite understandable that one feels there are bigger issues to address than to spend time on areas that seemingly are running smoothly, this route is fraught with potential danger. Certain of your processes may be producing the correct answer but those processes may be inefficient and time consuming, while other processes might be producing the wrong answer, albeit efficiently, but you are unaware of the problem.
Central to the effectiveness of any treasury department is the technology employed and principally that used to manage the day to day operations, be that a fundamental use of spreadsheets or the application of a treasury management system (TMS). If those systems have been run for a number of years they will be truly “bedded in”, as will the operators using those systems and their use and output will be routine. Unfortunately, hidden within that routine there are likely to be costly process inefficiencies together with risks arising from a potential lack of controls and insufficient security. The use of spreadsheets within a small treasury function can provide a suitable solution at a basic level, but a number of potential issues arise and their application should be continually reviewed to ensure:
- Spreadsheet application and design is controlled at a central point
- Access to individual spreadsheets is controlled (password control, access rights, read/write, etc.)
- There is no duplication of data within different spreadsheets neither is there contradiction of data between spreadsheets
- The need to re-key data, providing opportunities for error and fraud, is removed
- Calculations within spreadsheets and their output should be regularly audited.
Although indeed it may be appropriate for spreadsheets to be used in a small and relatively simple function or within a start-up treasury, the problems usually arise when the requirements of and demands on treasury increase over a period of time as the business develops. So that the spreadsheet structure no longer meets the functional and/or reporting needs, the lack of integration with other technology employed becomes and issue (including straight through processing) and the control and security aspects fall below those required of a best-practice treasury.
A similar set of circumstances could arise where a company has been running a “legacy” TMS for a number of years and which has not been regularly upgraded or supported or its application to a changing treasury environment reviewed. Many such older systems are either simply receiving basic maintenance support from the supplier with minimal input into further development or, in some cases, no support at all. Under these circumstances the system may be able to continue meeting the original basic requirements of the user but could also be dragging in internal IT or external consulting services to keep it afloat. Potential issues that could arise include:
- Certain instruments and/or functionality need to be managed outside of the TMS on spreadsheets or non-integrated third party software
- New instrument types are not made available within the TMS
- Incomplete position reporting creating problems for cash and risk management
- Treasury is restricted as to what it can do or how it operates due to the inadequacies of its TMS
- System integration may be lacking or not sufficiently secure (bank systems, dealing systems, accounting, etc.)
- Outdated system controls and security within the TMS
- Poor quality reporting output with data sometimes having to be dumped into spreadsheets for manipulation or simply not available
- Lack of immediate supplier help-desk support and/or reliance upon internal IT
- Lack of in-house functional system knowledge, frequently diluted through personnel turnover, often leading to under-utilisation of the functionality that is available.
The overriding danger here is that the system could suddenly fail catastrophically thereby leaving treasury in a highly vulnerable position. A difficult situation for the treasurer to explain.
So far we have listed the potential issues that arise from running treasury on spreadsheets or legacy TMSs. But there are opportunity costs as well and some examples of the potential benefits are:
- Improved cash flow forecasting results in better use of funds available (increased investment income) and more efficient borrowing strategies (reduced borrowing costs)
- Reliable position reporting and forecasting enables better treasury risk management
- System integration and straight through processing improves efficiency and accuracy
- Personnel employed on manual repetitive tasks (keying and rekeying data, collecting bank positions, reconciliations, deal tickets, paper confirmations, etc.) can be released for more value-added roles within the department.
When pro-active actions are needed
It is easy to understand that when a treasurer is fully employed with a demanding range of day-to-day responsibilities, special project issues (funding, business acquisition/sale, board reporting, etc., etc.) and firefighting and all the while the department’s processes and systems are seemingly operating as required, then there is no desire to investigate further. Yet as we can see from the above there remains a potential minefield of problems combined with hidden inefficiencies and questions over the accuracy and completeness of output. Add this to the missed opportunities for treasury to contribute to the profitability of the business then it is clear that the treasurer should ensure all systems and processes running within treasury and integration with those outside of treasury are running efficiently and all of the required controls are firmly in place.
For companies that have been running spreadsheet-based treasury systems for some time and for those whose TMS is known to be outdated and/or poorly supported and maintained, it is therefore critical to take the initiative and carry out a review of the processes employed within treasury and the associated application of systems. The result of not doing this will at best be missed opportunities but at worst will be considerable cost to the business, both accrued over some time and on-going, and potentially a serious threat of loss due to error or fraud.
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