Risks and benefits of treasury automation

Automation of treasury processes can be polarising. Businesses usually find themselves sitting in one of two camps — those that use spreadsheets for most of their business (making less than effective use of their TMS) and those that leverage technology to automate their processes. Across most sectors, there is a big push towards the automation of manual processes to create efficiencies — the big four accountancy firms make no secret that they see robotics as the way of the future. But how does it really work out at the coalface? What can machines do better than people and what is best left in human hands?

Over years working for Sungard (FIS) and Wall Street Systems (ION) in the USA and UK, ETOS newly appointed Chief Operating Officer, Bruce Edhouse has closely observed a wide range of automation projects achieving varying degrees of success — some of which have over-reached their scope and fallen short of expectations.It’s fair to say that Bruce has learnt a thing or two:

“When considering automation of treasury processes, it’s important to weigh up how to get the biggest benefit with the least risk,” he commented.“I have seen corporates in Europe and the US try to automate everything without the appropriate checks in place. The result has been missing or duplicated payments, missing deals, incorrect reporting and confused staff”

Telecomms double-ups

Bruce shares an anecdote involving a large telecoms company that decided to automate everything from the moment an FX deal request hit their TMS from the business groups. “This was for creation of external and back-to-back deals — the system created the deals, automatically confirmed and settled the flows, as long as the deal value sat beneath a certain threshold,” he explained. “In effect, they created a system with no checks and balances.”

Needless to say, after a few months, the business received a wake-up call from auditors who found that their intercompany statements were incorrect – which could only mean that something had gone wrong in their payments process. “When they double-checked, staff found that payment double-ups had slipped through due a lack of manual checking. This should have been picked up earlier but a lack of operational processes and procedures, coupled with complete reliance on automated processes resulted in the settlement problems”.

The process was quickly amended to include a confirmation checking process and manual controls to support the automation were implemented.

Hedging blunder

In another case, a pharmaceuticals company automated everything on the dealing side of their hedge accounting process, including automatically creating the exposure to match against, along with the portfolio creation and hedge documentation.

“This automation meant that their hedge accounting process worked well for the setup of the portfolios, but when deals were amended or rolled the portfolios essentially became speculative because they were not correctly matching the derivative to the exposure,” explained Bruce. “Again, auditors picked up on the weakness in their process and manual controls to support the automation were implemented.”

Rates gone awry

Automating the entry of daily interest or foreign exchange rates may seem like a great way to reduce manual data transfer, however for one company this relatively innocuous step caused Profit and Loss reporting issues.

“Some rogue rates were loaded into their system without the appropriate human sense-check. These base errors effectively meant that the company ended up reporting the wrong P&L figures, creating a lot of unnecessary work – and the potential for reputational damage.”

Automation can be a great step towards operational efficiencies and can help to iron out human error, but it’s clear that failing to weigh up the risks and benefits can actually introduce reputational and financial risk. All processes are fallible, so Bruce strongly advises keeping experienced people at the centre of the process in order to identify issues and resolve problems when things go wrong.

For corporates that want to take a more ‘hands-off’ approach, outsourcing can offer a more reliable way to tackle the streamlining of treasury operations. ETOS have been experts in this market for many years and can advise where automation can offer the most tangible benefit to the corporate — and help sidestep some of the pitfalls.

Treasury is still an industry where the best resources are people and the expertise they bring.

To find out more about treasury outsourcing, call the team at ETOS on 09 917 3476 or visit our website www.etos.co.nz