Corporate governance is critical in the treasury management area for the following reasons:
- It is a high-risk aspect of corporate business and the risk area in a company often has the greatest potential to affect financial performance.
- It is the activity in a company where large sums of funds and cash flows are controlled and moved, more so than any other area of corporate business. So, there is wide scope for mishaps.
As a result, it is essential that the corporate treasury business area is controlled and regulated, meaning that there is effective corporate governance.
My five suggested actions are:
- Recognise that effective corporate governance must be undertaken at all management levels from the treasurer to the board – each level, especially the board or its sub-committee, playing an appropriate effective role.
- Have in place a well thought out and developed treasury governance framework, covering management levels from the treasurer to the board, which is fully documented, approved by the board and updated annually.
- Have independent audit establish annually that the framework is fully implemented and observed. The framework should include organisation, roles and responsibility and reporting; authority; decision-making; policy (well developed document) and its approval; strategy development and its approval and implementation; position management; MI: performance management; and audit.
- A comprehensive treasury management report should be presented to corporate management and the board at least every quarter, in understandable presentation style, so that informed judgements can be formed and decisions can be made.
- Make sure that the 12 or so essential internal treasury controls are in place and that they are permanently fully implemented and observed. A detailed procedures and controls manual is essential to ensure that these are well developed and effective, and so that all staff are fully aware of them. These and their implementation should be audited annually.
