egg-basket-segregation-of-duties“Treasuries… focus more on financial risk management and less on operational risk,” Ernst and Young, Global Corporate Treasury Survey

All businesses want to reduce financial risk but if there is no appetite to minimise exposure in day-to-day treasury operations, attempts at financial risk management will only scrape the surface.

Segregation of duties protects businesses from exposure to financial errors and mismanagement. As a rule, the person entering into a transaction must retain their independence and not be the same person checking bank confirmations, matching the deal to company policy or reporting compliance to the board.

Without segregation of duties, the business is exposed to potential fraudsters. With no verification or second pair of eyes to check settlements, the company is at risk of invoice fraud. One person’s mistakes can cost companies dearly. Not to mention the risk attached to allowing the same person to measure and report to the board on their own success. It is not hard to find examples of companies experiencing grave repercussions resulting from this situation. Lastly, without a lack of clear segregation of duties, treasury operations will not meet the audit requirements for publically listed companies – an unacceptable risk to corporate reputation.

Controls & Procedures

Identifying key operational risks is the first step towards dealing with them. There are specific risks attached to each of the main back office functions that are worth running through.

Overnight cash reconciliation

Complacency and mistakes in cash reconciliation often lead to bad funding decisions, increased bank fees and reputation risk among other things. Conversely if resolved, these risks can turn into benefits, bringing about reductions in bank fees, getting the most out of your funds, accurate actuals, increased efficiencies and reduced key person risk.

Settlements

Lack of independent invoice management and staff experience can result in fraudulent or incorrect payments and missed cut off times. This can lead to settlement failures that cause financial penalties or payments to the wrong beneficiaries – costing the business dollars, time and reputation risk.

The 2012 Ernst and Young Global Corporate Treasury Survey observed that Treasuries tend to focus more on financial risk management and less on operational risk. Unless Management appetite for risk reduction is reflected in tighter treasury operations procedures, businesses are unlikely to improve financial risk management where it counts.

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