Treasury Management: An Overview.

What is treasury? Webster defines treasury as "a place where stores of treasures are kept; the place of deposit, care, and disbursement of collected funds." Moreover, if you consider the treasury function in your own organization, this definition would most likely broadly describe it. This article will expand on this definition and describe the scope of responsibilities in a typical treasury function.

Treasury and its responsibilities fall under the scope of the Chief Financial Officer. In many organizations, the Treasurer will be responsible for the treasury function and also holds the position of Chief Financial Officer. The CFO's responsibilities usually include capital management, risk management, strategic planning, investor relations and financial reporting. In larger organizations, these responsibilities are usually separated between accounting and treasury, with the controller and the treasurer each leading a functional area. Generally accepted accounting principles and generally accepted auditing standards recommend the division of responsibilities in areas of cash control and processing. Accounting will create the entries for treasury to process payments, treasury will advise accounting of receipts of cash, so accounting can make the proper entries, and reconciliation of bank accounts under the control of treasury will be completed by accounting. The working relationship between the managers of t hese two financial functions must be very close and ethical.

High-level treasury responsibilities will normally include capital management, risk management and relationship management. Treasury is a staff service function that supports many different areas of the organization. As an internal consultant to the teams in the different functional areas, treasury provides advice in the areas of cost of capital, risk analysis and mitigation, and the effects of the teams' actions on vendors, customers or investors.

The specific tasks of a typical treasury function include cash management, risk management, hedging and insurance management, accounts receivable management, accounts payable management, bank relations and investor relations. Following is a description of each of these tasks:

Cash Management includes the control and care of the cash assets and liabilities of the organization. This will include the selection of banks and bank accounts, investment vehicles, investment brokers, methods of borrowing, cash management information systems, and the development and compliance with cash and investment policy and processes. Bank selection can be based on geographical location, services provided (controlled disbursements, positive pay, lockbox processing, sweep account investing, trade finance, etc.), technology provided to customers, financial strength, covenants in the credit agreement and customer service provided by the bank. Investment vehicles can include commercial paper, bonds, mutual funds, certificates of deposit and savings accounts. Of course, investment broker selection will depend on the investment vehicles they can provide, their bonding, technology provided to their customers and their service abilities. Borrowing will include the selection of lenders and borrowing vehicles th at best serve the business and the lenders. These vehicles can include prearranged revolving and term credit agreements, commercial paper, debentures and private loans. Just as credit agreements will control the methods of borrowing, treasury must also develop an investment policy that discusses the level of risk taken through investments of excess cash. Information systems provided by the banks, investment brokers and other cash management providers must be integrated. All of these pieces of the cash management puzzle need to be coordinated and documented in a procedural manual in order to control the risk associated with cash.

Risk Management includes customer credit management, vendor/contractor financial analysis, liability claims management, business disaster recovery, and employee benefits program risk. Customer credit management includes financial analysis, credit limit establishment and order control. Vendor/contractor financial analysis involves the advising of purchasing management of the viability and risk associated with those contractors and vendors that supply our organizations. From time to time, every organization must defend itself against some type of lawsuit. These suits can involve bodily injury, environmental issues, investor suits or even frivolous suits; treasury is the conduit for information to the ...