Friday, 23 October 2020

Effective treasury management is key to any successful business. A solid treasury management strategy can ensure liquidity and cash flow even through lean times.

To create a smart treasury management strategy, it's important to understand and manage the risks associated with this crucial business process.

Three main factors contributing to the risks of treasury management are:

  1. The volatility and unpredictability of financial markets
  2. The volume of funds involved
  3.  Fraudulent activity

Creating an internal controls framework that addresses specific vulnerabilities and strengthens processes will help limit overall exposure.

Seven key internal controls to consider

As you're building your internal controls framework to mitigate treasury management risk, consider these seven controls as a baseline:

1. Fraud prevention. Since the treasury department controls the company's bank account, it's the last line of defense against fraudulent activity. Consider limiting who can access the company's bank accounts or authorize transfers to and from them. It's also important to have processes to detect fraudulent invoices or payment scams and a response protocol for these instances to limit exposure.

2. Quality assurance for information. Executives make a lot of key decisions based on the information that the treasury management team provides. If that information is inaccurate or insufficient, it can hurt the business. Consider a process to double-check all data and recommendations the treasury management team produces to avoid any issues.

3. Trading limits. Determine who is authorized to make trades and when. Also, consider putting in place a four-eyes rule, which requires that at least two people review a potential trade before completing it.

4. Segregation of duties. Split up the duties involved in trading and other activities to provide checks and balances.

5. Strategy implementation. A plan is only as good as its execution. That's why it's essential to have an implementation plan for policies in everyday business operations and then follow through.

6. Error reduction and prevention. Because of the high volume of financial transactions that a treasury management team deals with, there will be errors. It's critical to have a process in place to discover errors, correct information, and remove any incorrect data from the system.

7. Treasury audit. Regular internal and external audits help determine which processes work and which processes need strengthening. 

How to implement your internal controls framework

Once you've decided on your policies and procedures for mitigating treasury management risk, you will need a plan to implement your framework.

Many banks offer automated tools as part of a treasury management system. These systems can save you time and energy and prevent manual mistakes. What's more, there's a single audit trail, making it easier to check your work and ensure that the information that's shared with executives is accurate and error-free.

The process of creating an internal controls framework and implementing an integrated treasury management system can be time-consuming. But by doing so, you can successfully limit the treasury management risk your team takes on.

The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial consultant about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates. All accounts and credit are subject to approval, including credit approval. BBVA and BBVA Compass are trade names of BBVA USA, a member of the BBVA Group. BBVA USA is a Member FDIC.