Treasury Today Country Profiles in association with Citi
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November/December 2005

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Treasury in crisis?

‘Treasury in crisis’ has been something of a recurring theme lately. It has been in the news and a subject covered at the recent EuroFinance International Cash and Treasury Management conference in Berlin.

Encouragingly, while scarcely a month has gone by this year without the trial of some disgraced former executive (such as the Richard Scrushy story featured in September’s magazine), the flood of corporate scandals does seem to be abating. Moreover, we are seeing former ‘victims’ coming out the other side. In fact, in this month’s news we report that Parmalat, the Italian dairy company, is beginning to turn itself around. Two years ago, it was delisted from the Milan stock exchange amid revelations of a €14 billion ‘gap’ in its accounts. Parmalat is now relisted on the exchange, proving that companies can bounce back from accounting scandals.

Cases like Parmalat suggest that crisis can accelerate change and promote best practice. This theory was echoed at the EuroFinance Conference in Berlin. Companies that have survived a financial disaster spoke about how treasury has played a key role in developing and implementing the necessary changes to ensure it does not happen again.

The accountancy scandals over the past five years – the most notable being Enron – have been a catalyst for a programme of dramatic reforms, including Sarbanes-Oxley. However, while there are those who have embraced Sarbanes-Oxley, there are others who see it as a major impediment. This was certainly not the aim. In fact, it was intended to make companies more transparent in their operations and promote better planning and control. Of course, since Board Directors are now personally liable for many mistakes, they are keen to ensure effective treasury controls are in place. This, in turn, has resulted in more comprehensive and efficient treasury audits to assess the effectiveness of these controls and the company’s operations in general. We look at how treasury audits are used to reduce a company’s exposure to risk in this month’s risk management article.

If you are a Board member or head up your company’s treasury, you need to ensure you have the right processes and appropriate controls in place. Firstly, to safeguard your liability. Secondly, to help protect your business from fraud and potential failure. Thirdly, to meet the regulators’ requirements. However, at the same time, you should not let these controls and processes replace the need for common sense, intuition and a pragmatic approach. Running a treasury, like running a business, requires good management and good judgement – not just processes and controls.