Risk and renew

Treasury: There is no doubt the role of corporate treasury is changing, and there is strong demand for choice of corporate treasury systems. Susan Campbell and Jan Barned explain why.

The role of corporate treasury is changing in the face of volatile financial markets, increased compliance requirements and demand for improved efficiencies in the midst of a labour shortage.

As a result, corporate treasuries are now looking towards either implementing corporate treasury systems (CTS) or increasing the functionality of their existing CTS. The real question is: do organisations really need a dedicated CTS? After talking to a number of participants in the market, it appears the answer is yes, with some considerations.

Although the existing vendors such as Sunguard, Acorn and Capix are experiencing a growing client base, the Australian market has seen a number of new entrants enter the market to meet the demand. These include City Financials and ITS from the UK, FinPacific and Ecofinance from Europe, and a new Australian entrant, CCK Financial Solutions.

An existing vendor, Visual Risk, has moved its offer to a full-service treasury system in response to what it sees as the growing trend in treasury responsibilities.

Richard Hughes, director at Visual Risk in Sydney, states these as: 'A greater emphasis on risk management, being driven by accounting standards like IFRS7. Treasury will need to become smarter, with more emphasis on strategic and analytic modelling capabilities in addition to the more mundane basic back-office processing. SOX compliance is a big issue overseas and will become so here, too. This seeks to reduce potential human error from the operational aspects of treasury management. This will require a greater focus on automated processing, straight through processing and better integration with payment/accounting systems. And so fully integrated treasury systems are inevitable, which will result in the long-term elimination of spreadsheets.'

CTS vendors all agree that role of treasury is changing, and that there is a demand for choice of systems.

Gavin Ewer, who works in business development at FinPacific concurs: 'With the growing trend of organisations out-sourcing their IT infrastructure and support, there has been an increased demand among treasurers for CTS, particularly for smaller corporations without the resources to support a fully deployed treasury-management solution. These organisations are increasingly realising the need for compliance and efficiency, to update their processes, including moving towards a more robust solution that will handle their treasury and business cash flows, and provide required reporting capabilities to meet hedge accounting requirements.'

Patrick Coleman is director of sales and marketing for IT2 Treasury Solutions. He believes that clients are looking for higher levels of automation, integration, transparency and control in response to globally tightening audit standards.

'Corporate treasuries are attracted to the efficiency and cash-flow basis of integrating investment position management and performance analysis with settlement workflows and cash forecasting. We also see an increasing interest in the United States for a solution like IT2 that combines international treasury management with efficient domestic cash management.'

Joseph Wong is managing director, CCK Financial Solutions Ltd, which operates in Perth and Kuala Lumpur. 'Customers are looking for high levels of automation,' he says. 'Staff are increasingly difficult to find, whereas at the same time the operation of treasury becomes increasingly complex, and so integration becomes more of an issue.'

It appears that the vendors are correct. Greg Bertram, group treasury manager of ComputerShare, a leading Australian company that uses the Visual Risk treasury system, shares his experience.

'The treasury system acts as robust central depository for recording treasury transactions. The system allows multi-user access, which assists internal compliance through segregation of duties. This central depository is then utilised for creating board and management reports, to complete hedge effectiveness testing and to generate accounting entries. The system also acts as an analytical tool by providing forward-looking analysis of current positions or proposed hedging instruments using either current future projections, Monte Carlo simulations or randomly created scenarios.'

He says the most useful feature about the system that has been in place for five years is the ability to easily use current market positions for future analysis. 'We can quickly test the impact to our portfolio from different scenarios, and add or change hedging proposals to test their impact against these scenarios,' he explains.

One of the more important issues when selecting a CTS is to ensure that the system will in fact meet growing requirements.

As leading multinational Cadbury Schweppes found out, integrating treasury requirements into global accounting and reporting systems does not necessarily work. 'At that time, a global company philosophy was that all company systems must be standardised on the one platform, including treasury,' says Ken Davies, treasury manager for Cadbury Schweppes in Australia. 'This meant that although this treasury management system was now part of one integrated management and reporting system, it was not necessarily the best tool for the company to manage and report its treasury risks and activities.'

'We used a global treasury management system (TMS) that was a separate module of a large and complex integrated accounting and reporting system. This TMS was implemented in September 2003 after a significantly long implementation time and at a large monetary cost to the company. This TMS was found to be both inefficient, since it was so complex that it was resource hungry and very difficult for treasury staff to understand, and ineffective since it did not provide adequate reporting of treasury activities and was not flexible enough to tailor to the company's requirements. It was only implemented down to the regional treasury level because of the cost involved, and therefore did not provide proper visibility of all business unit activities to group treasury,' Davies reveals.

'Therefore group treasury decided that it was necessary to move from this legacy TMS to a new TMS that more adequately served the group's treasury requirements. eTC is provided by City Financials, a small London-based treasury system, and is a dedicated stand-alone TMS that mainly records and reports treasury transactions but also generates accounting entries.'

So what should an organisation look for when considering a CTS?

Hughes considers clients should seek four main outcomes when selecting a CTS:

full integration, a treasury system will need to encompass market risk management, back office, hedge accounting and compliance
full STP, many would like to achieve this holy grail but this appears to remain unachievable in most instances
elimination of multiple spreadsheets (such as for risk analysis). These require too much maintenance, are too error-prone and are unpopular with auditors
reliable customer support from CTS vendors, major consolidation among industry vendors coupled with high staff turnover in a tight employment market has brought about a material decline in the quality of support delivered to CTS users.

Paul Travers is chief operating officer for Oakvale Capital Limited (provider of Acorn). 'Price remains the critical driver for acquiring a CTS,' he says. 'There are a number of treasury system solutions now available that cost un-der $50,000 per annum. These offerings also provide add-on services that enhance the value they receive from such offerings.

These solutions are either online offerings (which provide full treasury system functionality) or stand-alone treas-ury systems that have limited functionality. In addition, there has been an increasing acceptance for receiving ser-vices over the internet. Three years ago organisations rejected solutions that were internet-based, whereas now this is not a issue. In fact, there is a trend of clients seeking internet-based solutions, a trend being particularly wit-nessed in Europe and Australia/New Zealand.'

Travers provides this insight for all those considering their CTS: 'The future of CTS is a service that covers your various treasury needs. Corporations may not use a single service to support all their treasury needs, but the ser-vices they do use will be linked. Providing advice or outsourced service around these requirements will continue to grow, particularly if the employment market remains tight and specialist skills are needed.'

Finpacific's Ewer says: 'The recent trends in the Australian corporate market are part of a global trend towards streamlining workflows and freeing up resources to concentrate on the core business.'

Susan Campbell runs consulting company ARGYLL, which reviews treasury processes and controls. She is on the Treasury and Finance CoE. Jan Barned is policy adviser, finance and treasury, for CPA Australia.

Risk and renew

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