What are Treasury Controls?

Treasury Controls

The term “Treasury Controls” typically doesn’t refer to a specific financial instrument or product like Treasury Bills or Treasury Bonds. Instead, in a broader context, “treasury controls” often refers to the systems, procedures, and policies implemented by an organization’s treasury function to manage its finances effectively and ensure financial integrity.

Here are some of the key aspects and components of treasury controls:

• Cash Management: Treasury controls help in predicting cash flow positions, related borrowing needs, and funds available for investment.
• Investment and Debt Management : Controls ensure that the organization’s investments and debts are managed prudently, taking into account risk and liquidity needs.
• Risk Management: Treasury controls help in managing financial risks related to currency fluctuations, interest rate changes, and other market risks.
• Bank Relationship Management: Efficient management and oversight of bank relationships, ensuring competitive service fees and optimizing the services received.
• Financial Reporting: Ensuring timely, accurate, and consistent financial reporting, which is crucial for internal decision-making and for meeting external regulatory requirements.
• Payment Controls: Procedures for authorizing, executing, and reviewing payments to avoid fraud and ensure that all transactions are carried out as intended.
• Reconciliation Procedures: Regular reconciliation of bank statements with internal records to ensure accuracy.
• Internal Audits: Periodic reviews and audits to ensure that the treasury functions are operating as intended and to identify areas for improvement.
• Compliance: Ensuring adherence to internal policies, as well as external regulations and standards.
• Technology and Security: Implementation of secure and efficient treasury management systems, and ensuring cybersecurity to protect against breaches or fraud.
• Budgeting and Forecasting: Treasury controls assist in developing financial forecasts and budgets, and in tracking performance against these benchmarks.

For many organizations, especially larger corporations, the treasury function plays a critical role in ensuring financial stability and integrity. As such, robust treasury controls are essential to safeguard the organization’s assets, manage its financial operations efficiently, and comply with regulatory requirements.

Example of Treasury Controls

Let’s create a hypothetical scenario to illustrate treasury controls in action within a company.

Scenario: XYZ Corporation, a multinational manufacturing company, has a centralized treasury department responsible for managing its global financial operations.

Treasury Controls at XYZ Corporation:

• Cash Management: Every subsidiary and business unit of XYZ Corp. must send a weekly cash flow report to the central treasury. This helps the treasury forecast cash needs and surpluses across the entire organization.
• Investment Management: XYZ Corp. has a policy that any surplus funds exceeding $10 million at any subsidiary must be invested in specific approved low-risk market securities. The treasury department oversees this and ensures compliance.
• Foreign Exchange Risk Management: Since XYZ operates globally, it’s exposed to currency fluctuations. The treasury uses forward contracts to hedge significant currency exposures, ensuring stability in reported profits.
• Bank Relationship Management: XYZ Corp. uses three major global banks. The treasury department negotiates terms, ensures competitive rates, and maintains these relationships.
• Payment Controls: Any payment above $50,000 requires dual approval. One must come from the subsidiary’s manager and another from the treasury department, ensuring checks and balances.
• Reconciliation Procedures : Each month, the bank statements of every subsidiary are reconciled with the company’s internal financial system. Any discrepancies are flagged and investigated.
• Internal Audits : Every quarter, the internal audit team reviews a random selection of financial transactions to ensure adherence to company policies and identify any irregularities.
• Compliance: XYZ Corp. operates in multiple countries, so the treasury ensures that local financial regulations are met in each jurisdiction, from tax payments to financial disclosures.
• Technology and Security: The treasury department has implemented a state-of-the-art treasury management system. This system is protected with multi-factor authentication, encryption, and other cybersecurity measures.
• Budgeting and Forecasting: At the beginning of each fiscal year, the treasury collaborates with various departments to create a consolidated financial forecast. Monthly performance is then compared against this forecast.

An Issue Arises: In one month, the internal audit team detects a payment discrepancy in one of the European subsidiaries. A payment of $200,000 was made without the required dual approval. The treasury controls in place allowed for this detection.

Action: The treasury department immediately investigates. It turns out a new manager in the subsidiary was unaware of the dual approval policy. The treasury department provides additional training to the subsidiary and strengthens its communication about company-wide financial policies.

This example showcases the significance of treasury controls. By having these controls in place, XYZ Corp. ensures its financial stability, manages risks, and maintains compliance across all its global operations.