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MODULE I – TREASURY MANAGEMENT

Redefining the Role of the Treasurer – The key to optimizing corporate performance in amore uncertain business environment

The role of the corporate treasurer has been dramatically evolving since the financial crisis.

There is renewed recognition of the importance of traditional treasury activities, while at the

same time treasurers are being asked to play a more strategic role in corporate activities such

as capital allocation. All this is in reaction to increased focus by corporate leaders and Boards of

Directors on optimizing the use of cash on their companies’ balance sheets and on ensuring

holistic risk management.

ne reason why treasurers are in the spotlight is that companies are under increasing pressure

to deploy the cash that has been accumulating on their balance sheets since !""#. Treasurers

are in an ideal position to critically evaluate and optimize the various strategic uses of cash,

ranging from financial options such as share buy$backs, debt repayment or dividend increases,to operational alternatives such as capital e%penditures, ac&uisitions or product development.

They are also well$positioned to evaluate emerging unconventional business opportunities such

as supplier finance, peer$to$peer lending or customer loyalty and payment strategies. The dual

'and sometimes conflicting( e%pectations of the treasury role now re&uire treasurers to provide

increased strategic input while also focusing on traditional cost$mitigating metrics. They are also

often asked to do more with fewer resources. Treasurers will have to ensure highly effective and

efficient treasury operations in order to fulfill the re&uirements of the )new* treasurer.

Definition of Treasury Management

Treasury management 'or treasury operations( includes management of an enterprise+sholdings, with the ultimate goal of ma%imizing the firm+s li&uidity and mitigating its operational,

financial and reputational risk. Treasury anagement includes a firm+s collections,

disbursements, concentration, investment and funding activities. -n larger firms, it may also

include trading in bonds, currencies, financial derivatives and the associated financial risk

management.

ost banks have whole departments devoted to treasury management and supporting their

clients+ needs in this area. ntil recently, large banks had the stronghold on the provision of

treasury management products and services. /owever, smaller banks are increasingly

launching and0or e%panding their treasury management functions and offerings, because of themarket opportunity afforded by the recent economic environment 'with banks of all sizes

focusing on the clients they serve best(, availability of 'recently displaced( highly$seasoned

treasury management professionals, access to industry standard, third$party technology

providers+ products and services tiered according to the needs of smaller clients, and

investment in education and other best practices.


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1or non$banking entities, the terms Treasury anagement and 2ash anagement are

sometimes used interchangeably, while in fact, the scope of treasury management is larger 'and

includes funding and investment activities mentioned above(. -n general, a company+s treasury

operations come under the control of the 21, 3ice$4resident 0 Director of 1inance or

Treasurer, and are handled on a day to day basis by the organization+s treasury staff, controller,or comptroller. The treasury department is responsible for a company’s li&uidity. The treasurer

must monitor current and pro5ected cash flows and special funding needs, and use this

information to correctly invest e%cess funds, as well as be prepared for additional borrowings or

capital raises. The department must also safeguard e%isting assets, which calls for the prudent

investment of funds, while guarding against e%cessive losses on interest rates and foreign

e%change positions. The treasurer needs to monitor the internal processes and decisions that

cause changes in working capital and profitability, while also maintaining key relationships with

investors and lenders. This chapter e%plores these and other responsibilities of the treasury

department, as well as such key issues as treasury centralization, bank relations, outsourcing,

and performance metrics.

Scope and Function of Treasury Management

Treasury anagement b5ectives

aintaining 6i&uidity

ptimizing 2ash 7esources

8stablishing and aintaining Access to 9hort$Term 1inancing

aintaining Access to edium$ and 6ong$Term 1inancing

aintaining 9hareholder 7elations

anaging 7isk

2oordinating 1inancial 1unctions and 9haring 1inancial -nformation

The Treasury function in any corporate has always been important in making sure that the

business has sufficient li&uidity to meet its obligations, whilst managing payments, receipts and

financial risks effectively.

The general mission of the treasury department is to manage the li&uidity of a business. This

means that all current and pro5ected cash inflows and outflows must be monitored to ensure thatthere is sufficient cash to fund company operations, as well as to ensure that e%cess cash is

properly invested. :hile accomplishing this mission, the treasurer must engage in considerable

prudence to ensure that e%isting assets are safeguarded through the use of safe forms of

investment and hedging activities.


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Details of Treasury Functions

-n order to accomplish its mission, the treasury department must engage in the following

activities;

. 2ash management $ The treasury staff uses the information it obtained from its cash

forecasting and working capital management activities to ensure that sufficient cash is

available for operational needs. The efficiency of this area is significantly improved by

the use of cash pooling systems.?. -nvestment management. The treasury staff is responsible for the proper investment of

e%cess funds. The ma%imum return on investment of these funds is rarely the primary

goal. -nstead, it is much more important to not put funds at risk, and also to match the

maturity dates of investments with a company’ s pro5ected cash needs.@. 1und raising. A key function is for the treasurer to maintain e%cellent relations with the

investment community for fund $ raising purposes. This community is composed of the

sell side , which are those brokers and investment bankers who sell the company ’ s

debt and e&uity offerings to the buy side , which are the investors, pension funds, and

other sources of cash, who buy the company ’ s debt and e&uity. :hile all funds

ultimately come from the buy side, the sell side is invaluable for its contacts with the buy

side, and therefore is fre&uently worth the cost of its substantial fees associated with

fund raising.. Treasury risk management $ The interest rates that a company pays on its debt

obligations may vary directly with market rates, which present a problem if market rates

are rising. A company ’ s foreign e%change positions could also be at risk if e%change

rates suddenly worsen. -n both cases, the treasury staff can create risk management

strategies and implement hedging tactics to mitigate the company’s risk.. 2redit rating agency relations $ :hen a company issues marketable debt, it is likely that

a credit rating agency will review the company ’ s financial condition and assign a credit


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rating to the debt. The treasury staff responds to information re&uests from the credit

agency’s review team and provides it with additional information over time.#. Bank relationships. The treasurer meets with the representatives of any bank that the

company uses to discuss the company ’ s financial condition, the bank ’ s fee structure,

any debt granted to the company by the bank, and other services such as foreign

e%change transactions, hedges, wire transfers, custodial services, cash pooling, and soforth. A long $ term and open relationship can lead to some degree of bank cooperation if

a company is having financial difficulties, and may sometimes lead to modest reductions

in bank fees.


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treasurer usually reports directly to the 21, and may also be asked to deliver occasionalreports to the board of directors or its various committees.

TR#$S%R& )#"TR$*!+$T!"

The treasury department deals with a number of highly regimented processes. Civen the verylarge amounts of funds that the treasury incorporates into its transactions, it is critical that all

procedures be performed precisely as planned and incorporating all controls. 4roceduraloversight is much easier when the treasury function is highly centralized and progressively moredifficult when it is distributed over a large number of locations. 2entralization is easier, becausetransactions are handled in higher volumes by a smaller number of highly skilled staff. There isgenerally better management oversight, and the internal audit staff can review operations in asingle location more easily than in a distributed environment. 1urther, treasury activitiesfre&uently involve complicated terminology that is incomprehensible to non treasury specialists,so it makes sense to centralize operations into a small, well $ trained group.

Another reason for using treasury centralization is the presence of an enterprise resourcesplanning '874( system that has been implemented throughout a company. An 874 systemprocesses all of the transactions used to run all key operations of a company, so all of the

information needed to derive cash forecasts and foreign e%change positions can be derivedfrom a single system. -f this system is available, then a centralized treasury group will find thatall of the in $ house information it re&uires is available through the nearest computer terminal.2onversely, if a company has many subsidiaries, each of which uses its own 874 or accountingsystem, then it becomes increasingly difficult for a centralized treasury staff to accessinformation. -nstead, it may make more sense to assign a small treasury staff to each subsidiarythat is an e%pert in using the local system to e%tract information.

Bank’s treasury department structure;


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TR#$S%R& )"TR*

Civen the large sums of cash involved in many treasury transactions, it is important to have abroad set of controls that help to ensure that transactions are appropriate. The followingchapters contain sections on controls related to those chapter topics. At a more general level, it

is critical that duties be properly segregated among the treasury staff, so that anyone concludinga deal never controls or accounts for the resulting cash flows.

1or e%ample, trading activities should be separated from confirmation activities, so thatsomeone fraudulently conducting illicit trades cannot way lay the confirmation arriving from thecounterparty. -n addition, a senior $ level treasury manager should approve all trades, yetanother person 'possibly in the accounting department, in order to be positioned out of thedepartmental chain of command( should reconcile and account for all transactions.

-t is also useful for someone outside of the trading function to regularly compare brokerage feesor commissions to reported transactions, to see if there are any unauthorized and unrecordedtrades for which the company is paying fees. Treasury is also an e%cellent place to schedule

internal audits, with the intent of matching actual transactions against company policies andprocedures.

Though these audits locate problems only after they have occurred, an adverse audit reportfre&uently leads to procedural changes that keep similar problems from arising in the future. -naddition to segregation controls and internal auditing, the treasurer should impose limit controlson a variety of transactions. These limits can prohibit or severely restrict the treasury staff frominvesting in certain types of financial instruments 'such as some types of financial derivatives(that present an unduly high risk of capital loss. Another limitation is on the amount of business a


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company chooses to do with a specific counterparty, which is designed to reduce companylosses in the event of a counterparty failure. 6imitations can also apply to certain currencies if there appears to be some risk that a country ’ s leaders may impose currency controls in thenear future. 1inally, there should be monetary caps on the transaction totals to which anyone inthe treasury department can commit the company. 8ven the treasurer should have such alimitation, with some ma5or transactions re&uiring the approval of the company president or

board of directors.

Responsibilities of Treasury and Treasurer

(a) Raising Capital The treasury manager arranges funds for the unit. -t is the duty of the treasury manager toensure re&uired &uantity of funds. The term &uantity refers to the amount of funds re&uired for day to day functioning of the unit. The &uantity is available to the firm either as e%ternal loans or as internal generation. The loans &uantity is arranged in the form of working capital by treasuryagainst the security of inventory and trade receivables.

Availability of funds in the right &uantity is the core ob5ectives of treasury management.

Alongside, the treasury manager has also to ensure that the funds are 5ust ade&uate for there&uirements, neither more nor less. -n case funds are kept in e%cess of the re&uirement, thee%cess portion imposes an opportunity cost over the system, i.e., the cost represented by theearnings which these funds would have obtained instead of being left idle. Again, the ade&uacyof funds has to be determined carefully. 1or this purpose, the cash flows for the relevant periodhave to be accurately charted out. 2ash flows are the actual cash flows in this case as therecan be a lag in terms of less realization of the pro5ected flows. Thus, actual cash flows only haveto be considered while determining ade&uacy. 1urther, while actual inflows should beascertained, as regards outflows, a margin of contingency should be maintained to take care of the uncertainties. 2ash is understood here to include both cash and bank balances plus thatportion of highly li&uid securities that can be converted into cash within a stipulated time period.

'b( Managing Bank Relationships

A company needs a small number of relationship banks from whom it can purchase its treasuryproducts. The products that these banks offer need to be strongly differentiated between theindividual banks that offer them. 9ome banks for instance bring powerful balance sheets andthe ability to provide substantial amounts of finance at short notice. thers have very e%tensivecapital market distribution capabilities and hence, in addition to providing effective delivery for capital market transactions, are able to provide constructive advice on the appropriate capitalmarket products for a company. thers may have very efficient derivative businesses or specialization in certain derivative products that meet the company’s particular needs.

The essence of good banking relationships is for the company to e%ploit the favoured products

and market positions of banks to the mutual benefit of the company and the banks.

/ow many banking relationships

A company probably needs at least one bank in any territory where it has ma5or operations. Thisbank will need to be able to offer the administration of current accounts, short$term creditfacilities and efficient international payments. There is no rule for the number of bankingrelationships. any treasury teams believe that there is no point in establishing relationshipswith investment banks. 9hould ma5or ac&uisitions or disposals be effected, then advice will


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come from the company’s merchant banks where officials are close to the company’s senior e%ecutives. This is probably true, but today most banks that have advisory arms to their business are also part of a large banking group. -n these circumstances the company should beable to Elever off’ the e%isting relationship to access products that interest and concern it.

7elationships are never stable. 7ightly or wrongly, a bank usually achieves the status of a

relationship bank by participating in one of the company’s ma5or bank financings. This financingfor most companies is a revolving credit that provides the company’s core finance to meetworking capital, capital and small ac&uisition needs. Banks are continually changing theperception of their desire to be involved in such financings. -n addition, they are continuallycomparing the return from the total business generated by the relationship with the cost of capital re&uired to support it. -f banks consider the returns are inade&uate they will reducesupport to the company. As such, a treasurer needs to be continually open to new potentialrelationships, and ever sensitive to the possibility of any e%isting relationship withering.

ost banks that participate in ma5or financing, maintain that the returns from traditional banklending are insufficient to cover the cost of capital re&uired to support their commitment. As aresult, they are continually looking for ancillary business from a company to subsidize the bank

lending activities effectively. This is a real problem for many treasurers since many companiesdo not have that volume of ancillary business. nfortunately, there is not much that can be doneother than to be e%tra sensitive to ensuring that all treasury business goes to relationship banks.

Additionally, treasurers need to ensure that relationship banks have, wherever possible, anopportunity to bid for all relevant treasury business.

:hat each side must give the relationship

ost treasurers would probably see the key elements to a successful relationship as being; 4roduct compatibility 4ersonal chemistry -ntegrity; the ability to see each other’s point of view

pen information and understanding 2redit standing by the bank and credit consciousness by the company.

'c( Money Management

The treasury function is concerned with management of funds at the micro level. -t means thatonce the funds have been arranged and investments identified, handling of the funds generatedfrom the activities of the firm should be monitored with a viewing to carry out the operationssmoothly. 9ince funds or cash is the lubricant of all business activity, availability of funds on day$to$day basis is to be ensured by the treasury manager. The role of the treasury management isto manage funds in an efficient manner, so that the operations in the area of finance arefacilitated in relation to the business profile of the firm. The treasury function is thus

supplemental and complemental to the finance function. As a supplemental function, itreinforces the activities of the finance function by taking care of the finer points while the latter delineates the broad contours. As a complementary function, the treasury manager takes careof even those areas which the finance function does not touch. 6ooked at from this point of view,the treasury function integrates better with manufacturing and marketing functions than thefinance function. This is because the treasury department of a firm is involved in more fre&uentinteraction with other departments. 1or the purpose of performing this role, the treasurymanager operates in various financial markets including the inter$corporate market, moneymarket, C$sec market, fore% market etc.


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'd( Treasury Performance Management

ne of the prime ob5ectives of a treasury manager is to ensure timely procurement of rightamount of funds and timely deployment of right amount of funds. This ob5ective results inadministrative smoothening and paves way for easier achievement of performance targets of

the firm. odern day treasury manager has another ob5ective, which is to profit from suchsourcing and deployment. 4rofit from this function is derived as under;

9ourcing of funds at the right time and right &uantity is a result of realization of debtors andfinancing of borrowings. 7ealization of debtors in time has a direct impact upon profitability of the firm through decrease in cost of holding debtors. 1inancing of borrowings is a capitalstructure decision but the actual availment of these borrowings is the domain of the treasurymanager. Ade&uate and timely utilization of the borrowed funds results in the avoidance of strainon other sources of funds.

nce the funds have been sourced in correct measure, the deployment adds further to theprofitability of the firmF it has come about done in tandem with the pace of sourcing. 2orrect

deployment ensures that there is no unnecessary accumulation of funds in the firm at any pointin time. Geeds of every department are met as per schedule. This action results in avoidance of special and e%traordinary costs, interests and the like. :ith costs being in control, surplus fundsemerge from the system which is deployed profitably either as long term investments or asshort$term parking tools. Both ways, the net result for the firm is an addition to profits.

'e( *i,uidity Management

2ash forecasts are generally made over three time horizons; short, medium and long term.

9hort$term cash forecasts

Cenerally, these cover appro%imately =" days. 9hort$term forecasts are usually used e%clusivelyby the treasury department to manage li&uidity on a day$to$day basis. Their purpose is to aiddecisions on the management of short$term borrowings and deposits, to ensure that there areno idle balances sitting in bank accounts and that shortages are detected and financed in themost cost$effective manner.

9hort$term cash forecasts are generally prepared on a daily basis for the following five to tendays. pening cleared cash balances at banks are calculated and ad5usted for anticipated dailycash receipts and cash payments. This day$by$day forecast is ideally updated daily. Thefollowing days are often prepared on a week$by$week basis, since trends, as opposed to dailymovements, are more important. 9hort$term forecasts are usually prepared by the treasurydepartment from records at their disposal, or information supplied by other parts of the

business. Those companies with stable and predictable cashflows, sometimes prepare parts of these forecasts from historic data, updated for known circumstances.

4reparation of short$term cash forecasts.-t is normally the responsibility of the cash manager to prepare short$term cash forecasts. Theopening balance will be the cleared balance reported through the company’s bank balancereporting system. -t will represent the total of cleared balances at the start of the day on thebanking pool, or the net of different individual accounts with a particular bank. The bank balancereporting system will also inform the company of those payments or receipts that are being


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cleared through the clearing system that day, and for which their accounts will be debited or credited by the end of the day.

edium$term forecasts

edium$term cash forecast is generally prepared for financial management purposes by the

various finance departments within the organization. 8&uity analysts are putting more and moreemphasis on cash flow as an indicator of the financial health of a company. 2ompany directorsalso are seeing cash control as one of the primary tools in the creation of value. As a result themanagement of cash, effected through a whole series of controls over every aspect of workingcapital and capital e%penditure, becomes a key management issue. 2entral to these controls isthe efficient and effective forecasting of cash over the budget or current financial year andbeyond.

ost companies will produce medium$term cash forecasts on a month by$month basis, whichare then updated at regular intervals. any will produce medium$term cash forecasts that cover a rolling

cycle. edium$term cash forecasts are usually prepared on a receipts and payments basis, withemphasis being placed on the key drivers in cash management.

se by treasury of medium$term forecasts

edium$term cash forecasts are used by the treasury department for a number of purposes.Treasury also uses medium$term forecasts to;

9trategically manage short$term li&uidity. 1or instance, a treasury department with somecash surpluses, if it believes interest rates may decline more rapidly than the market predicts,may use the medium term cash forecasts in determining whether to deposit those funds for amore e%tended period than usual.

anage the actual interest cost, which for many treasury departments is one of their annual

ob5ectives. The medium$term forecast aids the management of derivative and li&uidityinstruments in meeting this ob5ective.6ong$term cash forecasts6ong$term cash forecasts generally cover a period of three to five years and are producedduring the strategic planning process. These cash forecasts are only indicative of the likely trendof a company’s cash generation. 6ong$term cash forecasts are little used in the management of li&uidity, but have a greater significance in the management of a company’s debt structure.

Aspects of cash forecasting

ost companies accept the need for accurate cash forecasts but few are able to produce themon a consistent basis. ne of the main reasons for this is the difficulty of forecasting the timing

of certain ma5or items of cash e%penditure and receipt. 1or instance, a company may haveplanned the purchase of certain items of capital e&uipment, but identifying the e%act timing of the payments for the plant may be e%tremely difficult. -f the assets are being specificallymanufactured, timing of payment depends on delivery of the order by the company, the designand production at the supplier, and then delivery, testing and acceptance by the company.

Alternatively, e%penditure may relate to the development of freehold premises, with all theproblems of planning, consent, and construction progress. :orking capital in some companiescan fluctuate &uite substantially. :hile companies can forecast the total cash outflow or inflowfor the year as a whole, it is e%tremely difficult to achieve the same accuracy on a month by


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month basis. There are however, a number of general principles that, when applied, can lead tomore efficient cash forecasting;

Are full variances produced of actual cashflow against that budgeted or most recentlyforecast This analysis should give an understanding as to permanent variances and those thatare due to timing. :hat lessons for cash forecasting can be learned from these variances

Are the forecasts being prepared in sufficient detail to enable meaningful variance analysis to

be undertaken -s there a continual review of the underlying assumptions used in thepreparation of the forecasts :ho vets and reviews these assumptions

-s sensitivity analysis used to determine the possible boundaries of cash inflows andoutflows -s the sensitivity analysis sensible and related to the historic volatility of the business

:ho prepares the forecasts and for what purpose 9ometimes, medium$term cash forecastsare prepared for treasury by the finance function. -f the finance function has no involvement inmanaging actual cashflow to that budgeted, then it is unlikely they will give the e%ercise highpriority and may not be too concerned with its accuracy.

Are the time horizons used in the forecast appropriate This very much depends on thevolatility of the cash cycles in the business. /ow fre&uently are forecasts, actual cashflow andvariance analysis reports prepared

The more regularly they are undertaken, the more accurate they, generally, become. 9pecificforecasting techni&ues should be applied to each component of the cash forecast. 1or instance,to forecast the timing of cash receipts from customer trade payments re&uires an understandingof the payment methods used by customers '2he&ue, bill of e%change, 2ash anagement4roduct of Banks etc.(, the company’s payment terms and billing cycle, and the paymentroutines on their receivables ledger used by customers. -t may also re&uire an analysis of thecomparative importance of different customers and different payment terms attached to differentgroups of customers.

Do other related items need to be forecast This may include foreign e%change receipts andpayments that are related to forecasts for overseas sales.

Are incentives aligned to the management of cash against that budgeted and forecast, anddoes a cash management culture pervade the whole organization -t needs to be remembered

that successful cash forecasting is often heavily reliant on the individuals preparing theforecasts, and their e%perience, skill and knowledge of the business and its current operations.'f( 2redit anagement2redit anagement Croup within the Treasury Department is responsible for implementing andensuring compliance with credit policies established by the organization for the management of derivative credit e%posures. Through strategic, tactical and risk$oriented teams of professionals,Treasury 2redit delivers the highest &uality service and e%pertise to its stakeholders.

The most crucial part of credit management is to manage credit risk. ost of the institutionshave faced difficulties over the years for a multitude of reasons, the ma5or cause of seriousproblems continues to be directly related to la% credit standards for borrowers andcounterparties, poor portfolio risk management, or a lack of attention to changes in economic or

other circumstances that can lead to a deterioration in the credit standing of an organization’scounterparties.

2redit risk is most simply defined as the potential that a borrower or counterparty will fail to meetits obligations in accordance with agreed terms. The goal of credit risk management is toma%imize organization’s risk$ad5usted rate of return by maintaining credit risk e%posure withinacceptable parameters. rganizations need to manage the credit risk inherent in the entireportfolio as well as the risk in individual credits or transactions. rganizations should alsoconsider the relationships between credit risk and other risks. The effective management of


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credit risk is a critical component of a comprehensive approach to risk management andessential to the long$term success of any organization. 1or most organizations, debtors 'loans incase of banking organization( are the largest and most obvious source of credit risk. Banks areincreasingly facing credit risk 'or counterparty risk( in various financial instruments other thanloans, including acceptances, interbank transactions, trade financing, foreign e%changetransactions, financial futures, swaps, bonds, e&uities, options, and in the e%tension of

commitments and guarantees, and the settlement of transactions. 9ince e%posure to credit riskcontinues to be the leading source of problems in banks worldwide, banks and their supervisorsshould be able to draw useful lessons from past e%periences. Banks should now have a keenawareness of the need to identify, measure, monitor and control credit risk as well as todetermine that they hold ade&uate capital against these risks and that they are ade&uatelycompensated for risks incurred.

'g( Fore- Management

Deployment of foreign currency resources needs to be managed in such a way that it would notcreate any e%cess position i.e., )verbought* or )versold* and at the same time cash flow isnot affected. There are various funding alternatives available for 1ore% 2ash anagement such

as 2urrency 9waps i.e., lending in one currency and borrowing in another currency, foreigne%change i.e., swapping of one currency into other foreign currency or local currency for deployment so as to ma%imize the yield without creating the position and affecting the cash flow.

'h( Risk Management

All the organizations aim to run risk$free operations. /owever, the truth is that no matter howcareful they are, there is always a danger of e%posure to une%pected and unplanned threats.-mplementing a risk management policy throughout an organization is the best way of identifying and managing these threats before they become costly problems. 8mbedding such apolicy within daily operations also helps in making well$ informed choices as decision$makersbetter understand and evaluate the wider impact their actions have. A good risk management

policy builds a sound framework for 'i( 7isk assessment and identification, 'ii( 7isk ranking, 'iii( Action 4lan, 'iv( Assessment and review, 'v( 2ompliance and 'vi( 1eedback and -mprovement

9o far, we have been considering risk management from the standpoint of the corporatetreasurer, and the concept of financial risk that was used was the one which the treasurer hasthe responsibility of managing. 2ompanies have come to pay particular attention to themanagement of risks throughout their organization due to a combination of; legal andcompliance re&uirements on companiesF the increasing need to communicate a company’s riskmanagement processes to various stakeholdersF and a recognition of the benefits that an active,and corporate$wide, risk management programme can have on achieving the strategic aims of the organization and building shareholder value.

An assessment of the system of internal control is as relevant for the smaller listed company asit is for larger ones, since the risks facing such companies are generally increasing. 7iskmanagement is essential for reducing the probability that corporate ob5ectives will be

5eopardized by unforeseen events. -t involves proactively managing those risk e%posures thatcan affect everything the company is trying to achieve.

Among the steps involved in implementing and maintaining an effective risk managementsystem are;

-dentifying risks


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7anking those risks Agreeing control strategies and risk management policy Taking action 7egular monitoring 7egular reporting and review of risk and control.

As can be seen, the process for managing risks on an enterprise$wide basis is essentially the

same as that established by the treasurer for managing treasury$related financial risks.

Responsibilities of $ Treasurer

Treasury anager is also called /ead of the Treasury and he looks after the day$to$daytreasury and investment operations. /e is responsible for formulation of detailed investmentpolicy, and to get it approved by the Board. /is note to the Board should consist of thefollowing points;


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Principles .uiding the Role and #-pectations of a )F

A professional chief financial officer '21( should; A. Be an effective organizational leader and a key member of senior management $ As an

effective leader and key member of senior management, the 21 needs to facilitate thedelivery of sustainable value creation and preservation.

B. Balance the responsibilities of stewardship with business partnership $ The 21 rolere&uires an appreciation of the importance of the dual aspects of conformance andperformance. 2onformance includes providing stewardship of organizational assets andensuring that the organization conducts itself in accordance with relevant legal andregulatory re&uirements. 4erformance includes helping the organization developstrategy, obtain resources, and deliver its strategic ob5ectives sustainably. Thesedifferent and distinct facets of the 21’s role need to be undertaken with integrity andwithout compromising one another

2. Act as the integrator and navigator for the organization $ :ith their broad perspective of the organization and the environment in which it operates, 21s need to help their organization navigate through the processes and challenges of strategy development,management, and e%ecution. As integrators and navigators, 21s should facilitate the

sustainable creation of value by helping to ensure that their organizations incorporate or integrate economic, environmental, and social factors at all levels of decision makingand reporting.

D. Be an effective leader of the finance and accounting function $ The 21 needs to leadan efficient and effective 1IA function, guiding the organization to efficiently useresources at the same time as delivering value to its customers. The 21 should beable to assess and optimize the benefits, and manage the challenges, arising fromtrends, such as centralization, outsourcing, and offshoring of the 1IA function, whileensuring that financial talent and capability is retained and groomed within theorganization.

8. Bring professional &ualities to the role and the organization $ 21s should bringprofessional &ualities to their role and encourage ethical behavior and decision making

throughout an organization to ensure sustainable value creation. -n performing the 21role, professional accountants are anchored by their fundamental principles of integrity,ob5ectivity, professional competence and due care, confidentiality, and professionalbehavior

The 21 principles relate to these roles and will need to ensure success in each by; J creatingvalueKdeveloping strategies for sustainable value creationF J enabling valueKsupporting thegoverning body and senior management in making decisions and facilitating the understandingof performance of organizational functions or unitsF J preserving valueKasset and liabilitymanagement, managing risk in relation to setting and achieving the organization’s ob5ectives,and implementing and monitoring effective internal control systemsF and J reporting valueKensuring relevant and useful internal and e%ternal business reporting.


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21s’ responsibilities typically include; J demonstrating ethical leadership and businessintegrityF J balancing short$term concerns and pressures, such as managing cash, li&uidity, andprofitability, and long$term vision and sustainable organizational successF J fulfilling stewardship

responsibilities by ensuring effective compliance and control and responding to ever increasingregulatory developments, including financial reporting, capital re&uirements, and corporateresponsibilityF J sharing strategic leadership responsibilities with the 28 and other senior managers and ensuring the 1IA function supports the business at a strategic and operationallevelF J driving and managing change and innovation within the organizationF and J engagingand communicating effectively with colleagues, investors, customers, suppliers, regulators, andother internal and e%ternal stakeholders.

Typical /ob profile of )F

Basic 1unction; The chief financial officer position is accountable for the administrative,

financial, and risk management operations of the company, to include the development of a

financial and operational strategy, metrics tied to that strategy, and the ongoing development

and monitoring of control systems designed to preserve company assets and report accurate

financial results. 4rincipal accountabilities are;

4lanning


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!. onitor and direct the implementation of strategic business plans

=. Develop financial and ta% strategies

>. anage the capital re&uest and budgeting processes

?. Develop performance measures that support the company+s strategic direction

perations

. versee the financial operations of subsidiary companies and foreign operations

?. anage any third parties to which functions have been outsourced

@. versee the company+s transaction processing systems

. -mplement operational best practices

. versee employee benefit plans, with particular emphasis on ma%imizing a cost$

effective benefits package

#. 9upervise ac&uisition due diligence and negotiate ac&uisitions

1inancial -nformation


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!. onitor all open legal issues involving the company, and legal issues affecting the

industry

=. 2onstruct and monitor reliable control systems

>. aintain appropriate insurance coverage

?. 8nsure that the company complies with all legal and regulatory re&uirements

@. 8nsure that record keeping meets the re&uirements of auditors and government

agencies

. 7eport risk issues to the audit committee of the board of directors

. aintain relations with e%ternal auditors and investigate their findings and

recommendations

1unding

. -nvest pension funds

Third 4arties

module i -tm

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