Position paper Treasury Organisation 4.0

Position paper Treasury Organisation 4.0

This article is an excerpt from the KPMG position paper Treasury-Organisation 4.0.



Partner, Advisory

KPMG AG Wirtschaftsprüfungsgesellschaft


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Source: KPMG Corporate Treasury News, Edition 46, August 2015

This article is an excerpt from the KPMG position paper Treasury-Organisation 4.0.

The current benchmarks for assessing the appropriateness and propriety of risk management and risk controlling at industrial and commercial enterprises are the publications by the German Association of Corporate Treasurers (Governance in Corporate Treasury) and the 'Corporate Finance' working group of Schmalenbach-Gesellschaft für Betriebswirtschaft e.V. (Risk Management and Risk Controlling at Industrial and Commercial Enterprises). In the absence of binding legal requirements for industrial and commercial enterprises, the corresponding application of the Minimum Requirements for Risk Management (MaRisk) at German banks issued by the German Federal Financial Supervisory Authority (BaFin) and their predecessor forms the basis not only for the audit of the internal control system by the external auditor, but also for internal audit. In this context, the basis as a benchmark for assessing good market practice should also be taken into account.

The publication by Schmalenbach-Gesellschaft für Betriebswirtschaft dates from 2000, while the publication by the German Association of Corporate Treasurers dates from 2008.

In light of the changes in the global economy and their impact on financial risk as well as the technological developments in the area of treasury software, it is easy to conclude that benchmarks that are seven or even 15 years old may no longer be appropriate.

But what is the right benchmark to apply today, and what are the resulting consequences?

In a recently published KPMG position paper, we formulated four propositions to address the consequences of economic change and technical development for treasury and put them up for discussion.

Preliminary remark: The term 'Industry 4.0' is on everyone’s lips: the 'informatisation of production technology' with the aim of creating a smart factory that is characterised by adaptability, resource efficiency, ergonomic design, and the integration of customers and business partners into business and value-added processes.

If IT becomes a key factor (as it already is in many areas), the concept of 'Industry 4.0' must necessarily also have a direct impact on treasury. This can already be seen from three developments: firstly, the opportunities for complex controlling offered by high-end treasury systems and the accompanying concept of management by exception, which represents the highest degree of treasury automation; secondly, the – in some cases extremely cost-effective – implementation of core treasury functions using SaaS solutions; and thirdly, the creation of heterogeneous best-of-breed system platforms by connecting individual third-party applications to optimise system support.

What does this mean for treasury in concrete terms, irrespective of size and complexity?

It means that IT will become a key benchmark for good market practice, if not the most important benchmark. This means the IT standards, i.e. applications, that are currently available and being used by companies, and hence that have demonstrated their functionality.

The systems currently available and the system landscapes that can be configured using them offer an extremely high degree of automation in treasury processes ('true straight-through processing'). This leads to a considerable reduction in manual activity and hence significant efficiency gains. In particular, processing and control activities throughout the entire cash and risk management process can be performed largely by the system and automated.

At the same time, changing business models and risk structures and new regulatory and amended accounting requirements mean that the focus of treasury activities is shifting (even further) away from processing activities and towards the analytical activities of a centre of knowledge and excellence (CoKE).

In our view, this will inevitably have consequences at the level of internal organisation. If the available technological opportunities and best practice strategies are applied to risk and cash management, this means that the established organisational structures at many industrial and commercial enterprises – the separation of front office, middle office and back office as described in the two benchmarks mentioned above – are no longer relevant in terms of the use of resources, process interfaces and employee focus, and are only required even from a compliance perspective with regard to the separation of front office and back office.

Nevertheless, treasury remains a critical area when it comes to the conclusion of derivative financial instruments and the implementation of payment transactions and cash management, among other things. Mismanagement can lead to serious problems for the entire company, so the effectiveness of the internal control system must remain a fundamental point.

Accordingly, we have formulated four propositions for redefining the cornerstones of an adequate treasury organisation:

1. The use of professional treasury IT is mandatory

2. There is no alternative to a central treasury organisation in core areas

3. Technical development means that the traditional trader is a thing of the past

4. Back office has had its day as a separate organisational unit

You can read more about these propositions and how we arrived at them in the complete position paper, which is available for download [see below].

Author: Carsten Jäkel, Partner, cjaekel@kpmg.com



© 2017 KPMG AG Wirtschaftsprüfungsgesellschaft, ein Mitglied des KPMG-Netzwerks unabhängiger Mitgliedsfirmen, die KPMG International Cooperative (“KPMG International”), einer juristischen Person schweizerischen Rechts, angeschlossen sind. Alle Rechte vorbehalten.

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