Outsourcing treasuryThere are two negative perceptions that may obscure the benefits of outsourcing middle and back office treasury functions. Risk-averse treasury departments can view outsourcing as ‘handing over’ control to a third party. Compounding this uncertainty, many view outsourcing as an all-or-nothing proposition. ETOS CEO, Lesley Mitchell explains why these perceptions are not only unfounded but are often the exact opposite of outsourcing reality.

While some businesses do choose to outsource their complete middle and/or back office processes, many employ a hybrid model. Outsourcing engagements can be short or long-term to provide cover for a range of situations: periods of rapid growth and expansion; key staff absences due to illness or leave; or restructuring (often resulting in a loss of headcount). The ETOS team is often brought in to handle short-term projects like existing treasury management system (TMS) reviews and selection/implementation of new treasury systems.

In fact, outsourcing for a short-term engagement or for limited functions over a specific period can be a cost-effective way of undertaking a ‘proof of concept’. This helps to determine the value that outsourcing can offer. Often companies then go on to extend outsourcing to other treasury functions.

Common gains

Gains commonly offered by outsourcing include increased access to in-depth subject matter expertise, scalability to support growth, lower transaction costs and greater cost-efficiency. Other benefits are improved segregation of duties, the removal of key man risk and better controls – despite the common fear among treasurers to the contrary.

A couple of years ago, Stefan Azzopardi and his team at Southern Cross decided to cross-check their operational processes and systems against best practice, so they called in the team at ETOS. Southern Cross chose to retain the front end dealing and settlement approvals in-house and investigate out-sourcing their middle and back office function.

“ETOS helped us to transition from Southern Cross to their team and from a paper-based system to the automated asset and liability management system ‘Protecht’. This created a more controlled environment, reducing opportunities for human error, improving segregation of duties and producing an automated stream of reporting,” said Stefan. “They give us much more flexibility, cover and extra control than we experienced handling it all in-house.”

TMS or spreadsheets?

Deloitte’s recently released 2017 Global Corporate Treasury survey found that, while TMS investment has increased (in the two years since their 2015 survey) 20% of each functional area is still being managed by spreadsheets. Over 75% of respondents are not actively monitoring key risks, with fewer than 50% undertaking sensitivity analysis, despite the wide availability of systems and models.

ETOS does not choose nor direct their clients to use a specific TMS but works with the client’s own system. This keeps all data – and the controls that ETOS is governed by – within client control.   ETOS can also help clients to review their TMS and help to optimise functionality.

Treasurers often report that they achieve greater oversight through outsourcing to ETOS than they had before. This is mainly due to the detailed reporting provided; which includes Exception Reports outlining such items as settlement failures, confirmation mismatches, bank errors, breaches of limits and administration errors. These are measured against KPIs, agreed to by both the client and ETOS in Service Level Agreements.

In short, outsourcing is clearly not an all-or-nothing proposition, it offers an inherent flexibility and a surprising level of control through detailed reporting as well as access to specific treasury expertise. If your business needs more resource to cover short-term needs or you are looking for longer-term support, talk to the team at ETOS.