Corporate treasury is a sensitive area of a company’s business from the perspectives of risk, negligence, error and fraud. This is because large amounts of funds and cash flows are controlled and moved around by the treasury. The treasury also conducts extensive dealing in primary financial market transactions and derivatives, where again large values are involved. It is an area prone to fraud, and there many cases even in the recent past.
Five key actions to be taken to help prevent fraud are:
- Ensure that there is an effective treasury governance framework in place and operating from the treasurer to board level. This has to be well developed, documented and board-approved.
- Ensure that a comprehensive, detailed manual of procedures and controls is in place and being fully observed. This sets out all internal treasury procedures and controls. Critical among these is effective division of duties between front, mid and back offices, i.e. transaction initiation and execution; transaction confirmation, settlement and reconciliation; and transaction reporting and accounting. This division of duties has to be tested in detail to ensure that the control arrangements are effective in practice, not a smoke-screen. Make sure that treasury staff are fully aware of the importance of and trained in these procedures and controls.
- Have proper resources in the treasury: professional staff; specialist systems with built in complementary controls, and as much automation as possible.
- Operate consistent best practice methodologies within the treasury for operations, position management, analysis and reporting.
- Conduct frequent management audits and independent internal audit (ensuring competence to audit treasury) of the treasury function. Have the consequences of fraud clearly spelt out for all staff.
