Achieving Operational Best Practice in a Corporate Treasury

It’s unlikely that anyone would say that implementing best practice in treasury operations is a bad idea. However, corporates may in the past have judged that the costs of doing this were prohibitive. Today, SOX-driven auditing, and a general acceptance of the value of transparent control, are powerful advocates for implementing best practice solutions, scaled and configured to fit specific corporate environments.

In the banking universe, there are several well-established best practice principles for treasury and other operations. These include features such as:

• Maximum implementation of straight-through processing.
• 6? (Six Sigma) performance in the availability of mission critical facilities.
• Information security approaching military standards.
• Consistently high performance standards, virtually regardless of data volumes.

Such standards require massive technology investments to ensure that the necessary levels and standards of capacity, performance, robustness and security are reliably and comfortably achieved.

Equivalent levels of investment are not realistic for most corporate treasuries for a number of reasons, including comparison of the relative levels of financial and operational risk between corporate treasuries and financial institutions. However, there are a number of best practices that are applicable to corporates – and which can be achieved within reasonable budget parameters for ‘typical’ corporate treasuries.

Best Practice

We define best practice as “a process or technique that is established through experience, ideas and research and achieves superior results compared with any other process that could be used. This process can be implemented in or incorporated with any other relevant situation. Replicated accurately, superior results will be consistently achieved in each situation compared with the results of any other process.”

Judgement of the quality of results resides with the treasurer – and his or her management (and auditors). The designation of a given process or technique as best practice is to some extent subjective – but any such designation should be supported by, for example, reputable independent research, endorsement by formal organisations such as treasury associations, and conformity with definitive and generally accepted industry standards.

In the corporate treasury environment, best practice combines the following core elements:

• Instant access to treasury policy and process documentation, to facilitate compliance with internal and external directives and mandates, such as hedging policy, liquidity guidelines, hedge accounting rules, loan covenants.
• The instant availability of operational and management reporting to monitor, measure and manage treasury operations.
• Transparent, efficient and fully documented operational treasury processes.

Best practice-based corporate treasuries use controlled, transparent processes to drive, manage and document treasury workflows. It is important to the treasurer not only to be sure that daily tasks are performed punctually, accurately and completely – they must also be clearly seen to be properly accomplished and documented. The results include the presentation of all the information that professional treasurers require, effectively and transparently. The optimal environment combines process, management and control information with compliance with the relevant policy and regulation. The result is that the treasury team’s daily cash, risk management and treasury accounting operations are fully supported by all of the essential components. Treasurers need immediate reference to all relevant compliance and policy documentation, so that decision taking and management reporting are based on complete and accurate information, and supported by operationally efficient automated processing.

The degree to which best practice should be implemented in a given treasury is a function of size, volume and risk, and technology budget; and it is of course the treasurer’s responsibility to determine what in fact constitutes best practice in his or her environment. For instance, properly implementing STP in the treasury transaction settlement workflow offers the highest level of control and security, but is probably not justified if only a few deals are transacted each day. But if volumes and financial risk dictate that an automated solution should be used, straight through processes may be set up so that human intervention is minimal. For example, a deal may, after verification/authorisation, flow through electronic confirmation matching, payment generation and export and accounting automatically.

Treasurers who are contemplating increasing the level of best practice implemented in their department should be able to find a range of benefits to offset the costs – besides facilitating the audit and regulatory processes. Operationally streamlined treasuries will be able to redeploy staff from mundane tasks into increased availability for professional cash and risk management activities. These gains may be achieved in a variety of ways, such as automating interfaces with banks and ERPs, and eliminating the bottlenecks caused by the demands of preparing accurate monthly, quarterly and annual management reports.

Increased levels of best practice implementation are now practically available to a significantly wider range of corporate treasurers – and an increasing number of them are taking advantage of the possibilities.

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