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Financial directions – Complacent treasuries are badly managed

Corporate treasuries may make a turn whenever interest rates or exchange rates move, but a survey by the newly re-named accountancy firm Andersen discovered that the management of treasuries in UK and European businesses was dominated by “complacency in the face of change”.

Many treasuries reported having objectives that were simply not supported by performance measures. More than 40%, for example, said that liquidity was an investment objective, but fewer than 10% had a valid performance measure other than the level of interest earned. A larger proportion (45%) said that diversification was a funding objective but, again, few had any metric other than borrowing costs.

The survey found that almost two-thirds of respondents use internal benchmarks to measure interest rate and forex risk management performance – even though a “good” performance against budget “may indicate an accurate budgeting process (but) sheds little light on whether treasury is adding value,” says the report.

Most treasuries have decentralised payables/receivables functions, and more than half (58%) do not use inter-company netting. Most companies deal with more than ten banks, but fail to address quality and service delivery issues.

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