Maintaining the segregation between your middle and back office functions is not just an important tick in the box for audit purposes. Lesley Mitchell, Executive Director of outsourced treasury services firm ETOS, outlines the five key threats caused by key man risk.
Risk 1 – Over-reliance on one person. When treasury system knowledge and other aspects of your company’s treasury information, are locked into one person it’s like having all your eggs in one basket. If that person departs unexpectedly due to illness or a change of circumstances, it leaves the business exposed.
Risk 2 – Lack of independent review. Information can be hidden or fudged and mistakes overlooked – intentionally or unintentionally – if the responsibility for treasury decision-making and payment processing lie in the same pair of hands.
Risk 3 – Lack of control. Without independent review, there can be poor visibility into back and middle office operations, leaving senior decision-makers with a significant blind spot. These day-to-day operations may seem mundane but oversights or errors in payment processing or deal settling can cost businesses dearly.
Risk 4 – Lack of business continuity. The knock-on impact of losing your treasury ‘knowledge-keeper’ poses a threat to business continuity – in the same way a house fire poses a threat to someone storing their savings under the mattress! Holding treasury knowledge in more than one pair of hands internally – or outsourcing it so that it is unaffected by staff changes – minimises disruption when key staff move on.
Risk 5 – Lack of support/burn-out. When responsibility for the entire middle and back office function lies on one person’s shoulders, lack of support can increase the likelihood of burn-out or employee churn in a critical role. Operations is often the most undervalued area of treasury – but it poses significant risk to revenue if poorly managed.
While back and middle office functions are not revenue-generating, they are strongly revenue-supporting. Middle and back office functions, though mundane, shouldn’t be overlooked as unimportant. At ETOS, we view treasury operations as the back-stop for every business. Treasury middle and back office roles support the physical management of risk and make sure that businesses stay within their limits, rules and policies.
Outsourcing treasury operations can help to strengthen your controls and reduce key man risk. Unlike salaried staff, outsourced middle and back office teams are able to gear up or down according to your needs – so you only pay for the service you need. Read about the experience of some of our clients and find out why ETOS is part of their team.