As an organisation grows and expands there comes a time when it has the right size to establish a dedicated Treasury function within the organisation. Given the tremendous growth that emerging markets have seen over the past decades with the financial crisis and the resulting heightened awareness of the necessity for control and risk management and it is no surprise why we are seeing so many treasury functions being established in the region.

But what does it take to establish a new Treasury Function? In this article we will go through the main focus points and considerations that are required when establishing a new Treasury function.

We can divide the process into four distinct phases:

  1. Kick Off: Data Collection & Defining the Vision
  2. Documentation: Treasury Mandate, Policies and Procedures
  3. Sourcing: People & Systems
  4. Embedding in the organisation

1. Kick Off: Data Collection & Defining the Vision
When kicking off the project to establish a new treasury department it is first of all important to realise the task at hand.

The size, shape and form or priorities of the new function will depend on the number of subsidiaries, geographical spread, number of bank relationships and the industry or industries in which it operates. Another critical point that needs to be taken into account is the future plans of the organisation. If substantial growth is foreseen then the new function will need to be able to be scalable.

However, the process starts with the collection and analysis of all static treasury data. An example of the minimum details that should be obtained can be found in diagram 1.

Before the vision can be designed, it is crucial that a substantial number of meetings, or interviews, are being held both with the operational staff as well as Senior Management and the shareholders in case of a family group. Typical examples of questions that should be addressed are: Should Tax be under the control of Treasury? What about Insurance? Who will be responsible for the accounting entries of the treasury transactions?

The Kick Off phase is all about two questions: Where are we? And where do we want to be? In order to answer these two crucial questions it is important that the team responsible for these task has both the necessary corporate treasury experience and is aware of the current market best-practices. It is therefore in this phase that the assistance of an external consultant with a solid corporate treasury background or a newly appointed (interim) treasury manager or treasurer is obtained.

2. Documentation: Treasury Mandate, Policies and Procedures

When the treasury static data has been analysed and the future vision for Treasury has been defined and agreed the next step would be to create a high-level draft Treasury Mandate. This document is the strategic document for the treasury function which highlights the role and philosophy, whether the department will be a cost centre, profit centre or a value add centre and contains the high-level activity scope for the new treasury function.

After the Treasury Mandate has been approved by the Board, the more detailed Policies can be drafted. The policy should state for each activity scope the related authorised transactions as well as the governance framework in order to control the activity. The policies would also include the delegation of authority and mandate.

Finally detailed (desk-top) procedures should be drafted. Desktop procedures are very important for the day-to-day operations of the treasury department as they document every single action and step that needs to take place in details. They are also a key component of the business continuity procedures for the department. However, desktop procedures are best to be developed over time as a lot of the contents for the procedures, such as system screen shots, can only be obtained once the system has been implemented.

3. Resourcing: People & Systems

As soon as the high-level vision and Treasury Mandate have been approved, work can start to fill the open positions in the new treasury function.

The discussion will be whether to hire treasury experts externally or to promote internal staff to the treasury department. If the person responsible for setting up the new function is a seasoned treasurer or head of treasury who is recruited externally, then the preference would be for the junior team members to come from internal sources. The internal recruit can be trained by the externally appointed treasurer and education can be formalised through external treasury bodies (such as the Association of Corporate Treasurers). This route would not only provide a new career path for the existing staff, but also ensure that the department has a succession plan in place regarding staffing. Moreover, hiring internal staff who have a good knowledge of the organisation will assist in the embedding of the new treasury department throughout the organisation.

The kind of Treasury system that is required will depend on the mandate that has been given to the Treasury function, the industry/industries the organisation is operating in and the type of treasury transactions that are expected. The main considerations that would need to be taken into account is whether the treasury function is more focussed on Cash Management or Risk Management/Trading as there are specialised Treasury Management Systems for each category. The process would involve issuing a Request for Proposal highlighting the core requirements of the desired system and issuing this to suitable vendors.

4. Embedding Treasury in the Organisation

One element that is often overlooked when establishing a new function, or in fact when implementing any type of change in an organisation is to ensure that the new function, process and/or system is fully embedded in the organisation.

This means that even though everything within the function is running smoothly, the marketing of the new function needs to continue. The promotion should not only be to advertise its benefits to the organisation, but also to keep stressing the new procedures that are now applicable. These could include routing all bank requests through the new Treasury function or keeping Treasury informed of any changes in cash requirements at the unit.

The format in which to embed the new treasury function will entirely depend on the organisation but would include quarterly updates in the internal magazine, regular training sessions for finance staff, or presenting at the regular planning sessions.

The above described phases should not been seen in strict isolation from each other and they will usually run parallel in order to speed-up the set-up process. It could even be said that it is a revolving process and in order to ensure continuous improvement should start again from the beginning once the project is over. The establishment of a best-in-class treasury department that suits the organisation is a very challenging process. However, if implemented correctly, the results from a dedicated treasury function with dedicated treasury staff will add value to an organisation.


Written by              
Chris van Dijl

First published by 
ACT Middle East Treasurer Winter 2014