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Be Ready! Internal Controls in Treasury Departments

by François Masquelier, Head of Corporate Finance and Treasury, RTL Group, and Honorary Chairman, EACT

This article deals with the importance of improving internal controls in the treasury departments of European MNCs. Automation and straight-through processing (STP) is the radical solution. The critical and specific features of their work make treasury managers potential specialists in internal control. 

If you ask people, even financiers, how to define internal control, you may well get a big surprise and a major disappointment. So what is an internal control? According to the ICI (Internal Control Institute – www.internalcontrolinstitute.org) an internal control is:

 “…a process, effected by an entity’s Board of Directors, management or other personnel (including treasury team), designed to provide reasonable assurance regarding the achievement of (treasury and corporate finance) objectives in the following categories: effectiveness and efficiency of (treasury) operations; reliability of financial (and treasury) reporting; compliance with applicable laws and regulation”. 

Treasury managers, like any other employees, are required (for companies governed by national laws embodying the European Eighth Directive) or will be required (for unlisted companies) to map out the internal controls applicable/applied to their businesses. Besides, IT technology and the resources at the disposal of treasury managers now enable them to fine-tune their internal controls or to strengthen them. The sums at stake are sizeable, the transactions can be complex, there is a high risk of fraud (due to the amounts being processed) and the timing is by definition extremely tight in order to ensure that the same day’s value date is applied. The treasury manager can start by simply listing his internal controls on a spreadsheet (see Figure 1).

An example of an internal control framework for treasury departments

In terms of policies and procedures, treasury managers have one of the most regulated jobs, with the most checks and restrictions. They are organised and must be organised to ensure their departments run efficiently.They measure their effectiveness by using Key Performance Indicators (KPIs). They automate all systems and procedures as much as possible. Furthermore, they fulfil all the functions of effective internal control: they adhere to the code of conduct but are themselves subject to their own rules of conduct through ‘general treasury policy’; they adhere to the firm’s core values and to the general principles of their own policies; they set the example (‘walk the talk’); they have a quite structured organisation; staff that have to be competent and highly qualified (ever more so); they delegate and are themselves delegated to by management; they hold general authorisations, mandates and proxies; they are frequently subject to internal audits (very much so, given the specific features of their work and amounts involved); they are responsible for safeguarding the group’s financial assets and finally, as a tenth feature, they monitor their performance using KPIs.

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