In auditing the implementation of a treasury management system (TMS), one will always find the inevitable question: why? Every company has its treasury management processes in place that have worked for them, so why should we fix a process that isn’t broken? Good question!

The answer is that, despite some processes that may have worked in the past, there are many risks associated with maintaining these processes because they are manual and disparate treasury practices that can impact the company’s reputation. In this article, we explore some of the top risks that are often overlooked when evaluating the current processes versus the future state of treasury management.

Poor Understanding of Global Liquidity

Chief Financial Officers (CFOs) rely on Treasury Management Systems (TMS) to make informed decisions aligned with strategic goals, ensuring financial stability amidst volatile economic, political, and social landscapes. Without a TMS, outdated data and manual processes increase the risk of missed opportunities and errors, potentially damaging an organization’s reputation and financial performance. Personal experience highlights the challenges of managing payments to comply with debt covenants, where manual reviews and urgent requests led to a $2.5 million payment without CFO approval. Implementing a TMS with systematic liquidity analysis and payment controls could have prevented such incidents, safeguarding both the company’s finances and the treasurer’s career.

Business Longevity

Outdated treasury processes hinder human resource optimization, leading to decreased employee satisfaction and higher turnover rates, which incur costs for training new staff and reduce operational efficiency. When assessing the structure’s ability to support growth, potential overhead increases must be considered, especially if experiencing significant expansion. Implementing treasury software automates processes, enhancing talent retention, reducing turnover risk, and lessening dependence on specialized experts, thereby optimizing the workforce to support sustained growth and expansion.

Over-reliance on IT for Maintenance & Support

IT departments face challenges in providing timely support across the organization amidst evolving cyber threats, often leading to delays in treasury maintenance, particularly in securing bank-to-ERP connections. Establishing and managing these connections require significant collaboration and can take up to 1,500 hours for just one file format, forcing treasury departments to implement temporary workarounds to avoid disruptions. In my experience as a treasury manager, a bank-to-ERP connection failure jeopardized a key customer’s production lines, risking preferred supplier status and industry reputation. Implementing a Treasury Management System (TMS) with global support staff would have mitigated these risks by continuously monitoring and maintaining connections, and proactively alerting organizations to any issues.

Controls and Compliance

Treasurers face significant pressure to ensure compliance with evolving regulatory requirements, including OFAC, J-SOX, FBAR, KYC, and audits. Failure to stay compliant can result in severe financial and reputational consequences. Implementing a Treasury Management System (TMS) consolidates reporting and audit trails, ensuring payment validation and compliance with regulatory standards. Standardized controls and enhanced reporting capabilities empower treasurers and CFOs to focus on strategic priorities rather than compliance tasks, leading to a more effective approach to treasury management.

Conclusion

Assessing risks tied to maintaining the current state can be challenging, leading to reluctance to recognize potential shortcomings. Relying on manual processes increases the likelihood of failures, necessitating a proactive approach to updating the treasury management system. With professional assistance, companies can mitigate risks and ensure compliance with updated policies and global standards. By reaching out for expert help, companies can proactively manage their treasury without the fear of potential system failures. Contact us today at customerexperience@bluebulbfinancials.com or call +234 913 1037 987 for more information on treasury management services.

CC: Kyriba