With over 100 treasurers interviewed from large corporations in 14 countries, the study, “Reflecting on the future”, found there were four fundamental operational issues that treasuries face with their current structures. They are; monitoring of operational risk and lack of change in the risk management approach; efficiency of cash management; people development and recruitment challenges; and concerns about the return on investment in systems and technology.
Liquidity has become a key area of focus with 30% of treasurers noting cash forecasting accuracy as a liquidity risk management challenge, and a further 20% expressing concern about refinancing and access to funding, the report indicated.
When asked about risk management and governance in general, financial risks dominated treasurers’ top concerns, and they thought this was unlikely to change in the next two years. “A quarter of respondents had not made any recent changes to their overall risk management approach, despite acknowledging the lack of maturity of that approach.
Additionally, operational risk did not feature in their concerns. The last finding is perhaps surprising given the role that operational risk management can play in identifying fraudulent activity,” Ernst & Young said.
Olivier Drion, EMEIA Head of Treasury Advisory, Ernst & Young, said “As ‘keeper of the company’s purse’, the treasury function has traditionally been involved with the general financial issues concerning the company. The financial crisis, its prolonged aftermath and the general shift to greater integration of business units and processes, has greatly enhanced this role and the capabilities of treasurers. Their concerns about liquidity are not being helped by the continued prevalence of inadequate cash forecasting mechanisms, decentralized payment arrangements and the continuing lack of transparency and access by treasury to business units’ cash. The irony is that, at a time when refinancing is proving difficult (40% of respondents have experienced this in the past 12 months), pockets of funds may exist across discrete areas of business that could be put to use as working capital by treasury”.
Treasurers acknowledge the importance of key performance indicators (KPIs) for financial risk, but the report observed that operational KPIs are still largely unused.
There are also sharp differences in the respondents’ views and their actions around technology. While the majority admit to being far from using leading practices, less than half of treasurers believe that technology and data quality improvements will help them achieve their desired future operating model.
Dimos Dimitriadis, Director, Treasury Advisory, Ernst & Young, says, “The technology options available to treasurers are highly sophisticated, but our experience has demonstrated that, despite acknowledging their technology limitations, steps are rarely taken by treasurers to improve this area. Without a carefully articulated business case, the upfront investment and related upheaval of a system change can be off putting, but it can pay dividends in the medium to long term”.
Dimos Dimitriadis concludes, “Without a clearly defined target operating model that incorporates all of the areas; risk management, cash management, people, and technology, significant progress for treasury and broader business is unlikely to be realized. If these issues are not addressed in the near future, some treasurers may find it difficult to influence not only the direction of the treasury, but also the future direction of the company”.
By Ekow Quandzie