By

Salih Ahmed
Islam
 TREASURY PROCESS
INTRODUCTION

The Treasury process includes the functions associated with determining company’s cash
requirements, investment management, foreign exchange management, the investigation and
selection of appropriate forms of financing and monitoring compliance with financing agreements,
the issuance and redemption of capital stock, and the payment of dividends.

For the Treasury process, financial investments and equity investments are defined as follows:

 Financial investments result from the purchase of financial instruments (deposit certificates,
money market funds, marketable securities, medium term notes, etc.) for the sole purpose of
generating a financial return.
 Equity investments are company investments in common or preferred equity investments in
unrelated companies and joint ventures for marketing and strategic reasons.

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PROCESS OVERVIEW

The diagram below suggests that the foundational elements for the Treasury process are Internal
Controls and Compliance, Treasury Policies and Procedures, and Code of Conduct, and “Tone at the
Top.”

METRICS

 Accuracy of Cash Forecasts—Actual cash balance minus forecasted cash balance)/

forecasted cash balance.
 Accuracy of Forecasted Investment Income—Actual interest investment income minus
forecasted investment income)/forecasted investment income.
 Accuracy of Forecasted Interest Expense—Actual interest expense minus forecasted interest
expense/forecasted interest expense.
 Accuracy of Trustee/Issuing, Paying Agent Fees—Actual fees minus forecasted
fees)/forecasted fees.
 Percentage of Payments Containing Errors—(1) Number of payments by type containing
errors/total number of payments by type. (2) Number of payments containing errors/number
of payments.
 Percentage of Payments Released on Time—Total number of payments released on time/total
number of released payments.
 Percentage of Daily Cash Balances vs. Forecast—Sum of daily cash balances/forecasted total
cash balances.
 Days Cash Available—Total available cash/average value of payments per day.
 Percentage of Committed Credit—Total principal value of committed credit facilities/ total
principal value of all credit facilities.
 Credit Available—Total principal value of drawn credit/total principal value of all credit
facilities.
 Portfolio Credit Rating— weighted average of issuer credit ratings vs. stated policy
benchmark.

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 APPLICATION OF INTERNAL CONTROLS
In management’s selection of procedures and techniques of control, the degree of control
implemented is a matter of reasonable business judgment. The common guideline that should be
used in determining the degree of internal controls implementation is that the cost of a control
should not exceed the benefit derived. However, there is minimum set of controls that should exist in
a normal business environment. The internal control standards listed here represent the minimum
controls to be implemented within the Treasury process.

SUB-PROCESSES

The sub-processes functions of the Treasury process are:

1. General Treasury Controls

2. Financing Operations
3. Investment of Available Funds
4. Foreign Exchange

Introduction

Policies are implemented for all aspects of the Treasury function to ensure that segregation of duties,
controls, and reconciliation processes are in place to mitigate risk for the company. Financing,
financial investment, foreign exchange, capital stock, and equity transactions must be promptly
recorded and properly classified to facilitate the reporting and required disclosure of external
financial information. All recorded balances must be reconciled monthly to the supporting detail (e.g.
bank account reconciliations, revolving credit lines, investment sub-ledgers, capital stock, ownership
records, etc.).

GENERAL TREASURY CONTROLS

Standard of Internal Control
1. Segregation of Duties.
Policies and procedures for the treasury functions ensure:

 The financial investment decisions and actual investment activity must be separated from
accounting and custodial responsibilities.
 The payments of interest and dividend payments must be separated from accounting for debt
and equity securities.
 The access to cash receipts must be separated from the accounting for the related cash
receipts.
 The processing and the review of borrowings must be separated from financial investment
transactions.

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  Foreign exchange trades, foreign exchange confirmations, and foreign exchange accounting
activities must be adequately segregated.

2. Banking Requirements.

Procedures on opening, maintaining, and closing bank accounts must be established. At a minimum,
the procedures must cover required approvals, signature authority and limits, and documentation
standards.

3. Records and Reconciliations.

Financing, financial investment, foreign exchange, capital stock, and equity transactions must be
promptly recorded and properly classified to facilitate the reporting and required disclosure of
external financial information. All recorded balances must be reconciled monthly to the supporting
detail (e.g. bank account reconciliations, revolving credit lines, investment sub-ledgers, capital stock,
ownership records, etc.). Such reconciliations (contents are known and status is current) must be
performed by employees not involved in cash or custodial activities.

4. Safeguarding of Records and Securities.

Access to cash, debt, equity, financial investment, and capital stock records and securities must be
restricted.

5. Accounting for Company Securities.

Banks, brokers, independent registrars, transfer agents, or other approved third parties are to be
used to account for changes in ownership of the company’s issued and unissued shares, the change
in the company’s debt instruments, and the changes in its financial and publicly traded equity
investments.

6. Foreign Exchange Transactions.

Procedures must be established for approving foreign exchange transactions and ensuring the
transactions are properly documented and recorded in the proper accounts.

7. Financial Risk Management.

Procedures must be established to monitor counterparty exposure and market risk related to
financing, investing, and foreign exchange activities.

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 8. Counter-trade/Offset.

Procedures must be established to ensure that counter-trade/offset obligations are executed in

accordance with corporate policy.

9. Cash Pooling.

Procedures must be established to ensure that all cash pooling and netting arrangements involving
more than one company/ legal entity are executed in accordance with corporate policy.

RISK IF STANDARD IS NOT IMPLEMENTED

 Cash or securities may be lost, stolen, destroyed, or temporarily diverted.

 Records may be misused or altered by unauthorized personnel to the detriment of the
company, its owners, or its creditors.
 Reports may not be accurate, and critical decisions may then be based upon erroneous
information.
 Errors and omissions in physical safeguarding, authorization, and transaction processing may
not be detected and corrected.
 Financial statements and records may be misstated due to improper cutoff or valuation,
omission of certain financial data, or inaccurate recording or classification.
 Transactions made may not be consistent with the currency requirements of the company.
 Financing and investing activities may expose the company to unacceptable levels of
counterparty and market risk.
 The countertrade/offset arrangement may be illegal or in violation of corporate policy and
considers the company code of conduct.
 Failure to meet and fulfill countertrade/offset obligations may result in penalties, liquidated
damages, potential litigation in foreign countries, and other possible sanctions by foreign
governments.
 Transactions may result in undesirable legal and/or tax implications.

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 FINANCING OPERATIONS

The following items and activities must be approved by the board of directors of the company and
must be documented in minutes of their meetings: banking resolutions and the assigned delegation
of authority, borrowing resolutions and delegations of authority, all significant debt financing
arrangements and financing leases.

Standard of Internal Control

1. Board Approvals.

Total company financing activity must be periodically reviewed with the board of directors.

2. Delegations and Authorizations.

Delegations of signing and authorization limits must be approved by the appropriate chief financial
officer of the legal entity. All financing resolutions and authorizations must be reviewed with the
appropriate financial institutions periodically or whenever changed.

3. Treasury Approvals.

Financing arrangements must be reviewed with corporate legal and approved by corporate treasury
management. These include: customer financing agreements, debt financing agreements,
guarantees and loans in support of third parties, lease and rental of capital assets, programs for
factoring or discounting receivables, subsidiary capital stock changes, and interest and foreign
currency derivatives.

4. Capital Transactions.

All capital transactions such as the issuance of stock, stock splits, stock or cash dividends, employee
stock options, etc., must be approved by the company’s board of directors.

5. Compliance with Agreements.

All financing arrangements and foreign exchange contracts must be monitored for compliance to
terms, covenants, and underlying obligations.

6. Cancellation of Instruments.

All financing instruments must be appropriately canceled, or accounted for as canceled by the
custodian, upon completion of repayment.

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 7. Management Review.

All financial and equity investment transactions must be reviewed for reasonableness and proper
approval, be compared to transaction advices or other documentation, and be promptly recorded in
the general ledger account.

8. Stockholder Information.

For public companies, all stockholder information is confidential. Such information must be
maintained so as to account for authorized, issued, and outstanding shares, transfers of issued
shares, dividends, exercising of employee stock options, and treasury stock.

RISK IF STANDARD IS NOT IMPLEMENTED

 Financing funds may be obtained at unauthorized costs or terms. Excessive financing costs
and/or unnecessarily restrictive covenants may be incurred.
 Financing may be illegal or in violation of corporate policy. Fines, penalties, litigation, or a loss
of integrity in financial markets may occur.
 Legal or loan restrictions and covenants may be violated.
 Financing requirements may not be satisfied.
 Cash or dividend payments may be duplicated or improperly or fraudulently disbursed.
 Financial statements and records may be misstated due to improper cutoffs or valuation,
omission of certain financial data, or inaccurate recording or classification.
 Reports may not be accurate, and critical decisions may then be based upon erroneous
information.

INVESTMENT OF AVAILABLE FUNDS

Financial investment policies and procedures must exist and be approved in advance by the company
treasurer or designee and must specify, at a minimum: type, credit quality, and maturity of
instruments, approved counterparties, counterparty exposure guidelines, and personnel authorized.

Standard of Internal Control

1. Investment Policies.

Any investments outside of policy must be approved individually and in advance by company’s
treasurer.

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 2. Safeguarding of Securities.

Where possible, purchased securities must be registered in the name of the company or an
appropriate legal subsidiary. Where bearer securities are purchased, appropriate confirmation
advices must be received. All securities must be held in safekeeping by the appropriate financial
institution, in an in-house safe, or by a company-designated custodian.

3. Record keeping.

Detailed records of financial and equity investments must be maintained and safeguarded to protect
essential information regarding ownership and anticipated income. These records must be kept
independent from the custodian and must be reconciled to the securities on hand on a periodic
basis.

4. Investment Transaction Requirements.

All investment transactions, either financial or equity, must have prior approval, be properly
documented, and be promptly recorded in the proper accounts.

5. Valuation of Investments.

Methods of valuation of financial and equity investments, including those within the pension plans,
must be developed in accordance with finance policies established by the corporate controller and
requirements of governmental reporting bodies. Write-offs and adjustments to the investment
accounts must be properly reviewed, evaluated as to worth, and approved by the director of
corporate finance in accordance with finance policy.

RISK IF STANDARD IS NOT IMPLEMENTED

 Legal or loan restrictions and covenants may be violated.

 Investments may be made illegally or in violation of corporate policy, resulting in fines,
penalties, and/or investment losses.
 Cash or securities may be stolen, lost, destroyed, or temporarily diverted.
 Records may be lost or destroyed.
 Financial statements and records may be misstated due to improper cutoffs or valuations,
omission of certain financial data, or inaccurate recording or classification.
 Reports may not be accurate, and critical decisions may then be based upon erroneous
information.
 Transactions may result in undesirable legal and/or tax implications.

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 FOREIGN EXCHANGE

The corporate treasurer is solely responsible for managing the company’s foreign currency risk.
Foreign currency “spot” transactions as defined as the purchase and/or sale of foreign currency to
satisfy payment obligations due in the next one to three business days are not “hedging” but require
the establishment of operating procedures and controls that must be approved by the corporate
treasurer or designee.

Standard of Internal Control

1. Hedging Strategies and Transactions.

Hedging strategies and transactions (vehicles used to manage foreign currency risk) can only be
executed with the explicit approval of the corporate treasurer.

2. Procedures for Spot Transactions.

Foreign currency “spot” transactions, as defined as the purchase and/or sale of foreign currency to
satisfy payment obligations due in the next one to three business days, are not “hedging” but require
the establishment of operating procedures and controls that must be approved by the corporate
treasurer or designee.

3. Operating Procedures.

Operating procedures for purchase and/or sale of foreign currency must include the selection and
rotation of counterparties, specification of authority and limits for the trading process and trade
execution, and responsibilities for settlement, confirmation, and recording of transactions.

4. Netting of Exposures.

When feasible, foreign currency obligations between company operating units and designated third
parties are to be settled through a company intercompany netting process. Foreign currency
contracts between company operating units and designated third parties must be priced, recorded,
and accounted for as if they were (independent) third-party contracts.

5. Hedging Procedures.

Operating procedures for “hedged” transactions are the same as those designed for “spot”
transactions in line 2 and 3 above. Additionally, any “hedged” transaction, irrespective of accounting
treatment, must be “marked to market” on a regular basis, at least quarterly.

RISK IF STANDARD IS NOT IMPLEMENTED

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 The company may be exposed to increased risk, increased cost, and/or potential financial
loss.
 Transactions may not be consistent with the currency requirements and risk parameters of
the company.
 Inconsistent actions may occur, resulting in the company increasing its exposure to foreign
exchange risk rather than mitigating its exposure.
 Errors and omissions in physical safeguarding, authorization, and transaction processing may
not be detected and corrected.
 Reports may not be accurate, and critical decisions may then be based upon erroneous
information.
 Financial statements and records may be misstated due to improper cutoffs or valuation,
omission of certain financial data, or inaccurate recording or classification.
 Inaccurate classification may have tax and external reporting consequences.

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