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Making the Tough Choices
by Karin Amacher, Treasury Director, Cash Management and Oliver Wolfensberger, Global Head of Treasury Operations, Rio Tinto
Following the acquisition of Alcan in 2007, treasury needed to re-evaluate and integrate its processes and organisation in order to achieve its strategic and operational objectives. At that time, we had five treasury centres, but we recognised the potential to rationalise these centres, and streamline processes more effectively across the group.
Although the new group had a large and in some ways disparate treasury organisation, it was possible to identify and leverage the most efficient processes from within the Alcan and Rio Tinto legacy businesses. We also needed to rationalise our treasury team, whilst ensuring that there was sufficient scope for managing project work as well as daily activities.
Meeting the challenges
While some decisions were straightforward, there were inevitably some more challenging aspects of the treasury re-organisation. In some cases, there were activities undertaken by treasury that we recognised would be better managed by other business functions. In others, there were tasks undertaken elsewhere in the organisation, or distributed across business units, that needed to be centralised in treasury to enable us to perform our role effectively.
Challenge 1: Shared payments responsibility
While payments and collections are an essential function of treasury, we recognised that treasury had too broad a remit in these areas. Not only was treasury responsible for treasury payments, but we also performed a large number of vendor payments. This created a variety of challenges. Firstly, we had insufficient resources to conduct this activity, and manual payment processes increased the risk of error and fraud. Furthermore, it was difficult to verify approval requirements at business unit level. There was also a potential conflict between the activities of treasury and our shared service centres (SSCs) that have primary responsibility for vendor payments. Invoices were not captured in the ERP and were not subject to the SSCs’ approval requirements. Reconciliation was inconsistent, and it was difficult to identify who had processed the payment in the event of follow up enquiries.
Solution 1: Defined payment responsibilities
We went through a process of identifying which payments were derived from a treasury transaction, and therefore best managed by treasury, and which were vendor payments that should be managed by the SSC. The transfer of responsibility required communication with the relevant internal stakeholders to explain why the shift was taking place and to allay any concerns. It was important to take any issues seriously and find ways of addressing them to avoid any interruption of payment services.
Challenge 2: Inefficient and inaccurate collections posting
Treasury was also dealing with a large number of day-to-day collection issues. We spent a considerable time trying to reconcile miscellaneous receipts, and there was a large number of misallocations. It was also difficult to allocate funds to the right business unit, and then to the correct clearing account and cost centres. Delays and errors in collection and allocation processes led to incorrect reminders to customers, with the potential to damage relationships in addition to wasting resources.
Solution 2: Migrating customer collections
We took a similar approach to addressing this issue as we had with payments, and reallocated collection activities to the SSC as far as possible. We identified which receipts related directly to treasury, and which were customer collections. Once again, we needed to ensure that internal parties understood the need for the shift in responsibility to the SSC. We made sure that all queries or concerns were addressed in detail, and managed the migration process to the SSC carefully.
