Embry-Riddle Aeronautical University (ERAU), with two
residential campuses in Daytona Beach, Florida and Prescott, Arizona offers one
of the relatively few exceptions to the rule that most North American
universities lag behind in their treasury technology. This is due, in part, to
having established a discrete treasury function within its controller’s office
to focus on its cash management operations. Furthermore, it has researched and
implemented the kind of mission-specific treasury management technology that is
today most usually seen in the corporate environment. ERAU now enjoys the cash
forecasting, reporting, research and control quality benefits that strong
supporting treasury technology can bring.
Most universities offer
courses in the application of technology to practical business. ERAU’s treasury
operation has put the underlying systems theory into practice.
In common with all large American
universities, ERAU operates a finance operation that is comparable in size and
complexity with substantial commercial corporate organisations. Our total
financial assets (as reported for fiscal 2012) are approximately US$ 0.5bn. We
are generally cash-rich, and we run a short term portfolio of liquid
investments of approximately US$ 118m, comprising government securities
(US$48.5m), repos (US$ 42.7m) and required balances with banks (US$ 28.0m). Our
endowment is US$95.6m. We have long-term debt of US$ 159.5m and a small amount
of short-term debt.
ERAU’s domestic and foreign operations are
based in the US dollar (USD), and treasury operations are centred on cash
management. The university follows a cautious and conservative investment
policy, both for its surplus cash and for its endowment portfolio. Cash is
invested in high quality mutual funds and other investments based on government
securities and top-rated counterparties and issuers.
first onset of the global financial crisis in 2008, it has been a critical
priority for universities to understand how their cash is being allocated and
to understand accurately their forecasted cash requirements. At the same time,
it has been necessary to maintain strict budget discipline and to analyse the
value of significant capital expenditures before they are given the go-ahead.
The requirement for investment in enhanced cash management has been generally
counterbalanced by prudent budgetary restrictions.
Establishment of the Embry-Riddle Treasury Function
In 2011 our senior vice president and chief financial officer (SVP/CFO), Eric
B. Weekes, identified the value of establishing a professional treasury
operation within ERAU’s finance department, to improve the quality of the
organisation’s cash management and control performance. He was formerly
treasurer of the OGE Energy Corporation in Oklahoma City, a US$3bn energy
company, and this experience led him to see the benefits that a discrete
treasury operation could bring to the academic environment. As we were to
discover, building – and especially professionally automating – a treasury
function is quite an unusual organisational change and development in the
I was hired to develop ERAU’s treasury function,
reporting both to the CFO and to the controller.
Treasury Technology Project
One of the first strategic
projects assigned to treasury was the selection of technology to support
secure, transparent and professionally effective operations. In the present
financial environment within the academic world, it is generally quite
demanding to secure a budget for a significant capital project such as the
licensing of a treasury workstation. It was as a direct consequence of our
CFO’s previous track record in commercial industry treasury that we were able
to do so.
Our first step in the project was to investigate
treasury technology in use at other leading US universities. I contacted some
60 major institutions to find out what they were employing, with what
priorities and objectives, and with what benefits achieved. The results were
really quite surprising, revealing a significant gulf in universities’ approach
to treasury and treasury technology compared with the corporate world’s – this
despite the fact that both groups manage significant cash flow volumes and have
substantial levels of financial and operational risk exposure.
found that very few universities were managing their treasury operations on
anything more powerful and robust than spreadsheets, and even fewer were
forecasting cash. Whereas the corporate treasury world has now mostly
supplanted spreadsheets with workstations and treasury management systems
(TMS), the US academic world seems to be largely content to rely on
spreadsheets for record keeping, management reporting and decision support for
the treasury component of finance. In academia, knowledge of corporate treasury
operations in the outside world appeared to be very limited. Our CFO’s
corporate business experience was the catalyst for investing in specialist
treasury technology, to provide us with a base for effective cash management
and forecasting. This really proved to be a fairly unusual step for a
university finance operation to be taking.
In outline, we were
seeking a technology solution that would eliminate the spreadsheet-based risks
that are related to manual data entry errors and of calculation process errors.
We were additionally seeking to radically reduce the human resource efforts
needed to operate our spreadsheet-based solution. These are, of course, the
key technical issues that drive corporations to move away from spreadsheets to
a more robust and better-controlled supporting technology. It was soon clear
that exactly the same change drivers were in operation at ERAU’s treasury.
Eventually, our research led us to identify three specialist treasury
workstation vendors whose products generally addressed our requirements, and so
we issued a request for proposal (RFP) based on the alternative financing and
procurement (AFP) model to this group, and also to our relationship bank.
After analysing the various RFP responses plus follow-up demonstrations
and meetings, ERAU settled on GTreasury as our technology solution provider. We
were generally impressed by their operational platform, and especially in its
capabilities in cash management and forecasting. We could also see the
potential value of its database for our reporting and research purposes.
Importantly, its pricing was also attractive.
Treasury Operations at ERAU
We implemented the GTreasury
solution, and have now enjoyed the benefits of automated treasury operations
for over a year. On a daily basis, the system helps us to track cash balances
and volumes effectively and efficiently, instead of struggling with
spreadsheets to enter and verify the data. We are able to perform a quick check
at the start of activities each morning, so that we can see the expected
outflows; they can be subsequently monitored against the actual cash movements
in a controlled way.
In implementation, we did encounter a data
conversion issue with the historical cash flow history that we were holding,
and we worked with our vendor to research and resolve this problem. It turned
out to be a consequence of our historical data being held in spreadsheets in a
technically odd way, which would have been very difficult to unscramble. To
resolve this, we decided to start from scratch and accumulate three months of
operational history in the new system’s database, and we then cut over to use
this information as the base for live cash forecasting going forward. This
proved to be an effective solution, and we are now very happy with forecast
performance, based today on a substantial accumulation of dependable historical
We prepare two cash forecasts; one with a weekly time
horizon for our CFO, and one with a two-weekly time horizon for the controller.
For the forecasting processes, we employ a simple model, using averages on a
rolling day-to-day basis; we have found it to be very reliable. We have
measured that the forecasts are in practice accurate to within plus or minus 2%
(forecasted cash versus actual cash positions) and our treasury policy allows a
5% tolerance. The tolerance limits have only been breached once, and that was a
consequence of an unexpected and large cash flow, as the result of a capital
expense payment that had not been forecasted. Generally, we now need to perform
very little manual adjustment in the cash management workflow.
Today’s forecasting environment compares very favourably with the previous
situation, in which we had to enter numbers and formulas into Excel manually.
The ability we now have to view transactions at a very granular level is
extremely beneficial, and it really helps us when forecasting ERAU’s data. In
the past, forecasting had been a very taxing – and a very tedious – exercise,
involving the use of a set of mutually-interdependent spreadsheets, with a very
high risk of error. In contrast, we are now fully confident in the quality of
our cash visibility, and in our estimates of future requirements.
Forecasting is as important to ERAU as it is to companies: all of us need to
be able to track and analyse any variances between the actual cash movements
and the forecast, and to initiate any necessary remedial action. This was
virtually impossible with our spreadsheet solution; today, it is a routine part
of our daily treasury operation.
Our research activities have been
significantly improved and we can now use very straightforward point-and-click
operations to find transactions that require investigation, verification or
inclusion in an analysis for a management report. It is very helpful for the
investigation process that the system uses the same technical language as the
bank. This contributes significantly to the speedy resolution of
irregularities, for example in sales tax issues.
Finally, I should
briefly outline some of the other areas in which ERAU’s treasury is benefitting
from the use of a treasury workstation. The GTreasury system provides us with a
powerful automated solution for accurately and effectively managing all of the
usual cash management business activities found in North American treasuries,
including cash receipts (essentially, student tuition fees), payroll, automated
clearing house (ACH) debits and credits, lockbox deposits and internal money
now running efficient cash management and forecasting operations at ERAU and
are enjoying the planned – and cost effective – benefits in treasury operations
and the related research through the application of appropriate technology.
We are looking to further develop our usage of the system. One
extension will be to automate the posting of accounting journals into the
university’s general ledger, Oracle Financials. This would eliminate the human
efforts and potential errors of a manual solution for this interface.
A further possible development we are evaluating is to automate the
reconciliation of our master account, plus our four zero-balanced (ZBA) bank
accounts, which are used for accounts payable (AP), federal revenue, payroll
and student refunds. This would eliminate the related manual activity, and
would also improve the level of treasury control being achieved.
Adoption of Treasury Technology in the Academic World
mentioned, we were really surprised to find how low the present level of
treasury technology adoption is among US universities. As the academic world
faces very much the same challenges as the corporate world in terms of
liquidity, financing and financial risk exposure management, it follows that it
ought to be able to derive the same cost effective performance benefits from
prudent investment in supporting technology as is generally realised by
It does seem strange that the two environments do not
communicate more about what are in fact common problems, and which have common
solutions. Today, it does not require astronomical investment levels to
implement workstation technology that will help to radically improve treasury
and finance performance quality.
One particular function that
seems to be quite lacking among university treasuries is the tracking of
forecast versus actual cash movements. We have found this analysis to be
especially beneficial, as it enables us to pinpoint areas which need
improvement in our forecasting workflow; it is therefore straightforward to
initiate the necessary changes to optimise forecast accuracy.
ERAU, we are happy to enjoy the benefits of a professional treasury operation,
supported by professional treasury technology. We warmly encourage our
university peers worldwide to do the same, through enhancing their visibility
and control of one of their most precious resources, cash.
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