IN THE OLD DAYS, finance and treasury were managed eight hours a day, five days a week from the 40th floor of headquarters–make a left turn down the hall and there was accounts receivable; next door was foreign exchange. Today, AR might be in a shared service center in Asia and FX could be in Europe or Latin America. Companies no longer just sell overseas or even manufacture there–they have become global citizens of the world. Such cross-border complexities can create any number of compliance and operational risk exposures when channeled through an outmoded set of financial systems and processes.
Many companies are still bogged down by a patchwork of add-ons, especially involving technology. "Your treasury model has to be in synch with the business model–not easy when the company has a global footprint," says Robert Baldoni, leader of the the global treasury advisory practice at Ernst & Young. The sad fact is that too often finance systems and processes are not reexamined to the extent that inefficiencies and risk exposures are addressed following each large merger or acquisition.
Once treasury organizations, and entire companies, fragment and internationalize, the need for standardization and integration heightens. "It's not always a given that the same technology is used by all the business units, divisions and groups worldwide," Baldoni says. "If you've been in acquisition mode, you will likely have a variety of different legacy systems. Meanwhile, you have multi-currency inputs, multi-labor challenges and multi-supply chain issues." It's not just fragmented systems that can lead to unwanted risk exposures for a global operation. With business units in different countries, it can make sense, strategically at least, to have smart finance and treasury people nearby to assist with interest rate, FX and commodity hedging, and to work with the units on pricing and financing structures. Cost is a motivating factor for such a set up–someone on the ground in Europe or Asia is closer to the market to negotiate bank account openings and closings, pay bills, move money around and invest dollars, euros or whatever currency is coming in over the transom.
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But managing treasury operations from afar to ensure consistency and transparency requires the proper processes in place to bring it all together and manage risks throughout the pipeline. Centralization and transparency are key.
"If you don't have a consolidated view of risks and don't look at risks from a global perspective, things fall through the cracks," warns Jennifer Meiselman Salzman, managing director in the risk advisory services division of BDO Consulting.
"While most global companies will have a single global director of internal audit, they are also likely to have someone heading up the audit group in India or Australia or somewhere else, managing risks in that region. Business transactions consequently are flowing around different countries on a daily basis, in different time zones and different languages. Staying abreast of it all is challenging."
That kind of fragmentation was a central problem facing Christa Davies, CFO of Aon. Just a few days into her new job last November, she was in the thick of standardizing financial reporting in the 120 countries around the world in which the global insurance broker operates. Like many CFOs, Davies, former CFO of Microsoft's profitable platform and services division, has far-flung financial functions to manage. Her treasury organization, for example, now collects cash in each country, manages it centrally and then reports on it globally. "It's the same with tax, accounting and legal," she says. "Consistent financial global reporting is very important in terms of making consistent decisions."
Aon has a team in Chicago that manages access to its data systems and, says Davies, "ensures we have the same scrutiny and controls in each region of the world as we do domestically." Supporting this objective is standardized systems for the company's general ledger and other treasury functions, and a new enterprise resource planning (ERP) technology platform from PeopleSoft that Davies is rolling out globally. "It gives us a view into sales figures, forecasting and so on, right down to the account manager," she notes.
Without standardization of processes and systems to monitor performance consistency, treasury organizations are keeping their fingers crossed that something doesn't go awry. Seemingly innocuous situations like a high turnover rate in a particular country can wreak havoc.
"If you have someone transferring funds in a place like India where there is a lot of job churn, you run the risk of a disgruntled former employee gaining access to an application though a virtual private network and wiping out your profits in a matter of minutes," explains Brian Cleary, vice president of marketing at Aveksa, a Waltham, Mass.-based security governance company. Having early detection systems and people in place is essential to catching even small aberrations that can turn into larger worries, should they travel unchecked up the line.
"Think of a broker who has access to mid- and back-office functionalities for settlements and transfers. If he or she wants to precipitate fraud, they merely create an account, log on into the settlement, make it look like a trade and then transfer it to their Cayman Islands account."
The solution are the people, processes and technology–what Aon is putting forward insofar as its global finance organization. Regular periodic reviews of outsourced treasury functions are not only recommended; they're critical from a compliance standpoint. Systematic processes governing each function no matter where it is performed is required, as is technology providing 24/7 insight into the performance of the task. "If someone in Asia running a particular function moves up the ladder or out of the company, treasury needs to know it immediately," Cleary explains. "You don't want anyone dragging access right to a particular function along with them."
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