Organization of Unified treasury
7 August 2015
Organization of the unified treasury service is an actual task for large holdings and groups of companies. The tasks facing the financial management of such companies in managing financial resources are large-scale ones and extremely critical to the provision of working capital for activities. The solution of tasks of managing working capital effectively, minimizing financial risks, and ensuring control of financial procedures at all operating levels goes beyond the trivial ones and requires centralization of functions for a company or a group of companies with geographically ramified structure and diversified capital.
Unified treasury is a service to be organized at the level of a managing company of a holding, a group. It is in essence a single center that organizes, controls and analyzes the flow of financial processes in all companies, departments of a group.
First of all, the organization of the unified treasury in a holding addresses the lack of accounting policies, methods, procedures and approaches common for all departments & companies of a group in managing financial resources. Besides, the effectively operating unified treasury is supposed to help with plenty of other problems:
- Blurring of responsibility for implementation and effectiveness of business processes in the company's financial sector;
- Same functions being implemented by various departments and responsible persons within the scope of their duties in managing finances;
- Insufficient efficiency in collecting the planned, accounting and reporting information needed for decision-making during managing the company's finances;
- Company's unreasonable costs for banking service, servicing loans, growth of debt burden, shortfall in revenue from placement of temporary free funds;
- Impossibility of operational monitoring of financial procedures;
- Ineffective management of financial risks.
In general, the list of the functions assigned to the unified treasury service of a holding company is as follows:
- Organization and control of cash flows in group companies;
- Ensuring achievement of the budget indices on the company's cash flow in terms of all the departments;
- Determination and monitoring of measures taken in providing the company with monetary funds;
- Determination and monitoring of credit policies, minimizing debt burden & costs of servicing loans;
- Optimization of the number of partner banks and provision of optimal conditions of servicing, minimizing costs for banking service;
- Organization and control of placement of free monetary funds, maximizing the company's revenues from placement of monetary funds;
- Determination of instruments and organization of intercompany (intra-group) funding;
- Organization and control of minimizing financial risks;
- Implementation of internal control functions in the sphere of the company's financial processes;
- Consolidation of accounting and reporting information related to management of financial resources in terms of a holding or a group of companies as a whole.
At present the importance and relevance of organizing the unified treasury service in holdings is recognized at the government level. The Russian government issued a Directive (dated 08.08.2014 No 5110-P13) on establishment of the unified treasury in the government-linked companies, their subsidiaries and affiliated firms. The Directive defines the main functions and stages of introduction of the unified treasury service in the companies.
Organizations outside the list of the government-linked companies define themselves the functions, structure and the order of organizing the unified treasury service.
Based on the FinExpertiza's experience of participating in the projects for introduction of the unified treasury service, we identified the following key stages of organizing the unified treasury:
1. Analysis of the operating system of managing financial resources in the company
The system of managing financial resources usually exists and operates at the time of planning the unified treasury service. Therefore, the workgroup on the projects for introduction of the unified treasury service should conduct the preliminary analysis of the effectiveness of the operating system of managing finances including:
- analysis of valid internal regulatory documents governing the organization & control of the system of managing financial resources;
- description and analysis of effectiveness of the company's business processes in the sphere of managing financial resources, the company's control mechanisms;
- identification and inventory check of weaknesses in the operating system of managing financial resources.
The analysis of the operating system of managing finances should be implemented in terms of both the managing company and subsidiaries & dependent companies.
The analysis results on effectiveness of the operating system of managing finances will, in many respects, help to determine the list of certain measures to organize the unified treasury service.
2. Listing of unified treasury functions & tasks
In accordance with the specifics of the certain company's activities (group of companies), the general list of the unified treasury functions can be supplemented with the more specific processes, i.e. control of implementation of financial discipline on state orders, including provision of procedures for project financing; execution of exchange control procedures; provision and control of procedures for project financing in scope of the corporate investment program and other.
3. Determining the structure of the unified treasury service
The degree of importance of separate functions, and consequently the degree to which the labor & time resources are involved by the unified treasury in implementing its functions depends on the specific organization of the company's business processes. The final list of the unified treasury system functions and identification of the importance degree and labor input for each function will make it possible to determine internal structure and need for labor & technical resources of the unified treasury service to be organized.
4. Development and introduction of the legal and regulatory framework governing the company's activities in the sphere of the unified treasury's responsibility
Effective implementation of the unified treasury functions is not possible without clear understanding, at all levels of the company, of common "rules of the game" in frame of organizing financial processes. The legal and regulatory framework applicable in the company defines these rules of the game, namely:
- Internal standards in the field of financial policies as a whole and separately for each area, namely liquidity management, cash flow control, management of credit resources, placement of free funds, risk management, etc.
- They are determined in financial policies, treasury policies, credit policies, financial risk management policies.
- Applicable approaches, methods, algorithms of implementing financial processes. Examples of such documents are the following:
- Methods of calculating credit covenants and other indices on management of borrowed funds;
- Methods of calculating indicators (indices) on effectiveness of subsidiaries and dependent companies;
- Methods of calculating indices on effectiveness of placement of monetary funds;
- Methods of calculating indices on assessment of financial risks;
- Methods of identifying financial risks;
- Algorithm of collecting factual data to form the budget implementation report in regard to cash flows.
- List of rights and responsibilities of participants of financial processes, clear distribution of functions & responsibilities per person. The Regulation on the unified treasury must contain the following:
- Functions and tasks of the unified treasury;
- Rights and responsibilities of the unified treasury;
- Structure of the unified treasury;
- Order of interaction between the unified treasury and the company's departments;
- Order of interaction between the unified treasury and external organizations.
- Order & principles of interaction of financial process participants with each other and the unified treasury. They are specified in the governing documents of the company. The list of the governing documents includes the guidelines on paperwork and processes relating to the management of financial resources. The main tasks of the governing documents are to separate responsibilities for implementation of all processes and ensure timely implementation of necessary procedures.
- Presence of clear comprehensive instructions on technical organization of processes.
- Presence of the albums of unified forms on source & reporting documents and the instructions on their filling out and agreeing.
5. Determining and organizing the infrastructure for functioning of the unified treasury
Given the great size of financial processes within the large holdings, their ramified organizational structure and usually scattered subdivisions, the technical support for the functioning of the unified treasury can be of crucial importance. This is primarily the automated system of the unified treasury, which should provide the following:
- Timely transfer and processing of large amounts of data in a quick time, taking into account the remoteness of participants of the processes;
- Access to the system for the required number of users;
- System functionality sufficient to implement necessary methodological procedures and user-friendly interface;
- Required level of data protection;
- Possibility of synchronizing (at least comparability of data) with other information systems of the company, namely budgetary management, accounting, keeping records of contracts, electronic document management, etc.
Thanks to the experience in the introduction of the unified treasury service, the FinExpertiza's advisers assist the companies with the effective management of monetary resources and offer the following services:
- Development of the general governing documents for the treasury;
- Development of the documents to forecast liquidity and make payments;
- Development of the methods and guidelines on management of financial risks;
- Development of the guidelines on interaction with banks and placement of temporarily free funds.