Enhancing Treasury’s Relationship with IT

Even in what many people view as an increasingly automated environment, treasury departments in corporations operate at very different levels. At one end of the spectrum are treasury departments, mostly in multinationals and other large firms, where treasury is highly automated and processes are centralised all the way up to global level.

This high level of automation is only in place at about 20% or less of treasury departments across the Asia-Pacific region. The remainder use spreadsheets and other very manual processes. While there are significant variations between countries and a majority of treasury departments are automated in a market such as Australia, automation overall is at a relatively low level.

A major problem with this lack of automation is that spreadsheets and other manual processes are more costly than they look, even when salary costs are low. Not only does it take extra time to collate the data, but there is also significant room for error, efficiency can be low, and slow transactions can result in foreign exchange (FX) or other losses. Moreover, a lack of controls or not following regulatory requirements can increase risk and errors in inputting or transferring data can result in senior treasury managers making decisions based on erroneous information.

Treasury IT Requirements

At the heart of successful treasury departments is a strong relationship between treasury and IT that enables automation and systems that meet treasury staffs’ objectives well. One key objective for treasurers is to ensure compliance with different requirements and regulations in each of the multitude of markets they handle. These requirements can differ greatly between countries around the Asia-Pacific region. For example, establishing pooling accounts is allowed in some markets and not in others. A strong relationship between treasury and IT can help ensure compliance by establishing a set of system-based rules and parameters that match the regulations and ensuring that staff must follow these requirements. System-based rules can ensure that disallowed transactions are not completed and that transactions over specified amounts get sent to senior management or head office for approval, for example. Even though transactions outside the rules may only be flagged after the fact, management can spot errors quickly and staff learn to ask themselves whether they have the authority for the transaction before completing it.

Another increasingly important need is for treasury to receive accurate data so staff can make decisions based on correct information. If the treasury systems are not automated, errors can easily creep into information that is critical for managing cash, interest rates, FX exposure and other functions. Re-keying data as information moves between departments or between countries, for example, can easily lead to costly errors if staff accidentally type in wrong information. Automating data collection, data transfer and reporting can increase accuracy and ensure better decisions.

Moreover, automation enhances treasury’s ability to execute. For example, a company that sends 50 wire transfers per day manually has large volumes of work and potential for error. Similarly, a company that makes large FX transactions in markets where FX rates are highly volatile can lose huge amounts of money if manual systems and requirements to send data to head office mean that trades only occur after several days rather than in seconds or minutes. Automated processes mean that high volumes of wire transfers, FX and other transactions can be done more quickly and accurately.

Companies in Asia-Pacific can have huge problems as they move from manual to automated processes unless treasury and IT work together effectively. By working together and discussing treasury’s actual requirements, the company’s attitude toward risk, how to increase efficiency and other company practices, IT can implement a system that actually works better and effectively meets treasury needs.

Even as many companies are simply looking at how to automate internally, a key trend over the next two to three years for companies that are further along in using technology is likely to be figuring out how to integrate better with external parties. Internally, processes may already be automated. Externally, corporations interact with third parties for their banking relationships, investments, SWIFT messages, accounts payable (A/P), accounts receivable (A/R), foreign exchange (FX) and a multitude of other services. Treasury and IT should look for more ways to automate these interactions so they can make transactions with external parties as accurate, efficient and timely as the internal processes they have automated.

One change can be seen in the new service models, such as outsourced services on a module-by-module basis. For example, SunGard has rolled out a system in North America, and will be bringing it to Asia soon, to enable its clients to outsource their treasury needs on an ASP model so that they don’t need to install their own hardware or software. This flexibility means that clients can use a hosted offering to sign up for specific modules that they need rather than installing an entire system.

Making Your IT Relationship Work

The biggest problem comes when there is an adversarial relationship between treasury and IT, especially when IT is not seen as a valued partner. When treasury simply takes IT for granted or worse, there is little opportunity for mutual benefit. Not establishing clear requirements for changes or enhancements can also easily lead to failure.

At the other end of the spectrum, SunGard has a client in Australia that treated treasury, payments and other systems just like staff members. At the beginning of the year, they set goals, expectations and performance standards for each of the systems. At the end of the year, IT and treasury jointly evaluated each system to see whether it met its goals and where there was room for improvement, then made changes needed to improve performance. Whereas most companies simply install systems and don’t evaluate them later, this company offers a sterling example of how proactive work by IT can enhance treasury performance.

To make the relationship succeed, then, there needs to be mutual respect. Putting good processes in place so that treasury and IT work together to understand future directions, setting clear requirements to meet those needs and jointly developing long-term plans, works well.

As treasury continues to move towards a more strategic role in many companies, return on investment (ROI) is increasingly important and accurate information is increasingly vital. By working together effectively to ensure accuracy, speed, efficiency and compliance, treasury and IT can maximise the benefits of an effective treasury function.

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