Recommendations for CFOs based on corporate treasury survey results
Listing of ten recommendations for chief financial officers based on findings from Ernst & Young's 2006 Corporate Treasury Survey - Australia and New Zealand.
Provide good quality cashflow and exposure analysis information to your board. The survey shows an increase in reporting of this information as directors become more actively involved in treasury issues via participation in risk management committees.
Report all breaches of policy to your board. The survey showed only 50 per cent of respondents report breaches to their board. Anecdotal evidence suggests directors want to receive information on any breach of policy regardless of its nature (ie technical and non-technical)
Ensure continued focus on operational risk management issues such as documentation of treasury procedures and segregation of duties. The survey shows a decrease in these areas despite operational risk being ranked as the second most important treasury function.
Put in place a disaster recovery plan for your treasury system and ensure it is tested regularly. Survey results reported a decline in the proportion of respondents with disaster recovery plans in place.
When borrowing, hedging and investment decisions undertaken by the treasury can have a material impact on the organisation, ensure that treasury performance is measured. This provides worthwhile information on the value treasury is contributing to the organisation.
Ensure treasury staff are appropriately trained to deal with the increasingly diverse functions undertaken by treasury units. The survey shows increases in functions such as equity raising, dividend policy and insurance risk.
Ensure that opportunities to manage working capital across the organisation are captured with clear lines of responsibilities between business units and treasury. Some bank products can have an important role to play in this area.
Encourage business units and treasury to work together to improve the quality of information provided by business units to treasury.
As treasuries develop a more quantitative approach to risk management (i.e. through the use of at risk models and sensitivity analysis and stress testing), ensure that reviews of the treasury are staffed by appropriately skilled resources. Manage model risk by ensuring that financial models are independently verified and then secured.
Question the use of cash and liquid investments as a liquidity reserve. They inflate the balance sheet and can have the effect of distorting key finance measures (e.g. gearing, return on assets).
