Source: KPMG Corporate Treasury News, Edition 39, January 2015 Treasury and Accounting – two departments, two worlds – connected via a process and often also a technical interface. For financial instruments, payments, cash pooling and in-house transactions, Treasury strictly serves as a supplier of data for accounting. But couldn't Treasury also fulfill other functions?
Both departments are right next to each other in the process chain of companies, but rarely communicate with each other nevertheless. This is reflected in processes and systems whose integration is insufficiently optimized in many cases. Untapped earnings potential and benefits therefore often reside at the interface between professionals and IT systems.
The interface for financial instruments (cash pooling is disregarded here) between Treasury and Accounting is designed to automatically transfer the valuations and entries generated in the treasury management system (TMS) to the ERP system, in order to be able to process them further in ERP with as little adjustment as possible. On the other hand, accounting information is needed by Treasury, for example to analyze and control transaction and translation risks, plan liquidity requirements or manage commodity risks.
While automated interfaces between the TMS and ERP are the norm in many companies, many Treasury employees quite often are still busy with valuations outside the system or entering data manually into Excel tools at the beginning of each month. Frequently, the related documentation must then be coordinated still with Accounting in several sessions within the internal control system. This, in turn, requires considerable additional effort from Accounting in dealing with subsequent processes. In many instances, manual adjustments and reconciliations are necessary between ERP, the TMS and Excel tools. In most cases, this is caused by:
These inefficiencies in the process tie up precious human resources in both departments and, not least, bear other risks for error, such as flawed valuations or entries.
The above examples also have a direct impact on external reporting, e.g. IFRS 7 disclosures (fair value disclosures or sensitivity analyses). Here also, manual processes and auxiliary calculations in preparatory processes, lead to considerable additional effort for Accounting and Treasury – at least on a quarterly basis in addition to regular closing activities.
It is clear that untapped potential resides at this professional/technical interface. To realize it, the first step is to perform an analysis, which will then be used as a basis to identify, assess and plan the individual possibilities for improvement.
The issues that require improvement can be identified quickly because they frequently emerge from the same areas (see points 1-3). Their causes, on the other hand, are highly individual, and so also the realization of inherent potential. It is useful therefore to look at the possibilities offered by the existing treasury management system. To do so, it is necessary to take a step back in many cases, and to reassess decisions taken in the past:
Of course, the costs and benefits of an automated interface need to be evaluated on a case-by-case basis. To do so, the first step is to create transparency about the organizational setup. After that, an inventory of manual processes and controls needs to be taken and staff capacities evaluated at Treasury and in Accounting. Based on this information, the systems and related interfaces used in Treasury and Accounting will be investigated. This may even result in a complete reassessment of the TMS, if, for example, the current or original requirements have changed and the TMS has not been able to keep up with these developments. Even if it is perhaps not possible in the end to do without all manual activities, automation and standardization will have the effect of significantly reducing process risks and costs.
Author: Karin Schmidt, Senior Manager, email@example.com
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