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A Real Share Repurchase Alternative to ASRs and OMRs: eOMRs

Reverse Repo: A Safe Haven for Cash Amid Financial Turbulence

 

Justin Jones
In Compliance, Risk Management

Documentation Overload: Internal Controls Over Financial Reporting

A survey of financial executives includes complaints of excessive documentation required by external auditors.

Finance executives at large US companies are finding it increasingly difficult to document internal controls over financial reporting (ICFR) to the satisfaction of their internal and external auditors, according to a study recently published by the Financial Executives International’s research arm.

A survey of financial executives includes complaints of excessive documentation required by external auditors.

Finance executives at large US companies are finding it increasingly difficult to document internal controls over financial reporting (ICFR) to the satisfaction of their internal and external auditors, according to a study recently published by the Financial Executives International’s research arm.

  • Several of the most difficult controls to design, implement and operate are common in corporate treasury.

Pain points. Controls around non-routine transactions—bond issuances, significant one-off payments and others endemic to treasury—topped the list of challenging ICFR, according to responses from 123 large public companies and interviews with 16 financial executives. Controls over access to data, fraud risk assessment and processing of data also made the top five.

  • “Controls tend to be one-off and the underlying data and structures vary from transaction to transaction and company to company, depending on their systems,” said Jeff Wilks, EY professor of accounting at Brigham Young University and part of the research team that conducted the two-year study.

Excessive documentation. A general complaint emerging from the study is excessive documentation required by external auditors, especially if auditors have recently received negative reviews from the Public Company Accounting Oversight Board (PCAOB).

  • Executives say ICFR guidance in the COSO framework is good, but auditors often make highly specific demands—particularly as it relates to documentation—that the guidance does not address, Mr.  Wilks said, “leaving financial executives with little redress.
    • “And they’re doing it because the PCAOB is hovering over them,” he added.

Technology to the rescue? Study respondents pointed to technology’s help in addressing ICFR challenges, although for cost centers like finance, insufficient funding is an issue. Mr. Wilks noted that in addition to purchasing the technology itself, corporate finance teams’ often ad hoc processes must be cleaned up. 

  • “What treasury may not understand and what we’re hearing from controllers is that if you want to improve the technology around controls you have to first fund improving the controls,” he said. “Once those processes are cleaned up, the technology can automate them.”

Mostly plusses, a few big minuses. Implementing a treasury management system (TMS) to more efficiently track treasury activities may be an early step on the way to reducing ICFR risks, and other, emerging technologies like AI and blockchain may play a role.

  • Some of the ICFR risks that technology could reduce, according to survey respondents, include failures to detect material misstatements, internally and by external auditors; unauthorized alterations of accounting information; and failures to prevent material misstatements.
  • The biggest challenge in adopting new technologies is finding personnel qualified to use the technology. “Executives tell us everyone is looking for people with accounting and IT talent,” Mr. Wilks said.
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Justin Jones
In Banking, Libor SOFR

Cutting the Cord: When Banks Plan to Stop Making Libor Loans

A NeuGroup survey shows SOFR is the replacement rate for most banks, and many accounting systems aren’t yet ready.

The opportunity to give feedback on a plan announced in December to allow legacy USD Libor contracts to stretch to June 30, 2023—18 months beyond the initial deadline—ended Monday. Almost everyone expects Libor’s administrator to make it official and is planning accordingly.

  • At a recent meeting of the Bank Treasurers’ Peer Group, NeuGroup members reviewed the results of a survey on their plans for the transition away from Libor.

A NeuGroup survey shows SOFR is the replacement rate for most banks, and many accounting systems aren’t yet ready.

The opportunity to give feedback on a plan announced in December to allow legacy USD Libor contracts to stretch to June 30, 2023—18 months beyond the initial deadline—ended Monday. Almost everyone expects Libor’s administrator to make it official and is planning accordingly.

  • At a recent meeting of the Bank Treasurers’ Peer Group, NeuGroup members reviewed the results of a survey on their plans for the transition away from Libor.
  • The survey showed that most members (62%) said their bank is most likely to use SOFR in place of Libor, while 28% expect to use a mix of rates.
  • On the key question of when the banks will stop originating loans priced off of Libor, none of the respondents said they’ll cease this quarter. As the first pie chart below shows, 86% of the banks will cut the cord in the second half of 2021, split evenly between the third and fourth quarters.

The calculation conundrum. The second pie chart reveals that only one-third (34%) of the banks responding said their loan accounting systems are currently able to handle SOFR calculated in arrears. System readiness for the transition is among the the most challenging issues facing both banks and corporates.

How to bill customers? The final question of the survey asked treasurers how their banks plan to bill customers for loans set in arrears. Here are excerpts from some of the written responses, edited for length and clarity.

  • “The bank will send an interest bill about two weeks before the payment date, with an estimated amount due using the last daily reset variable rate, plus a credit spread for an estimated interest rate. Any difference between the interest actually accrued and paid (based on the estimate) will be adjusted in the next period.”
  • “We plan to give them an estimated amount assuming flat rates mid-month, then bill them in arrears using actual rates. This will at least give them a ballpark estimate of what to expect.”
  • “By using an outsourced solution until vendor readiness is reached.”
  • “We are hoping that a forward SOFR rate develops and is widely accepted.”
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Justin Jones
In Cyber risk, Talking Shop

Talking Shop: Which Area of Your Company Owns Fraud Risk and Training?

Member question 1: “Which area of your company ‘owns’ fraud risk?

  • “I am interested in benchmarking ownership of fraud risk management, from policy setting to training and compliance monitoring. The scope of the fraud risk management is broad and includes data security, wire transfers, general theft, IP protection, etc.
  • “Do you have one owner or is it co-owned by multiple departments (treasury, legal, auditing, etc.)?”

Member question 1: “Which area of your company ‘owns’ fraud risk?

  • “I am interested in benchmarking ownership of fraud risk management, from policy setting to training and compliance monitoring. The scope of the fraud risk management is broad and includes data security, wire transfers, general theft, IP protection, etc.
  • “Do you have one owner or is it co-owned by multiple departments (treasury, legal, auditing, etc.)?”

Peer answer: “For us, it is owned by different groups based on the source of the fraud. For example, fraud through phishing attacks is owned by infosec, fraud soliciting payment would be owned by treasury, etc.”

Member question 2: “Where does fraud awareness training responsibility fall within your organization?

  • “Who owns the development and maintenance the training content? Who owns the governance of ensuring your organization has received proper fraud training?”

Peer answer: “Fraud is broadly included in our annual global security and privacy training. The global security office rolls up under IT.

  • “These types of trainings are mandatory and managed through the learning portal or an outsourced service for on-demand learning. The data and privacy and compliance teams in legal also play a role in the content and establishment of governance.”
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Justin Jones
In Pension and Benefits, Risk Management

Pension Endgames: Insights for Managers Mulling Moves

A session sponsored by Insight Investment probes pros, cons and timing of transferring liabilities to insurers.

A key consideration for corporates with traditional defined benefit plans is whether to transfer pension liabilities to insurance companies as funding deficits narrow or plans go into surplus. The primary benefits of risk transfer are eliminating PBGC fees, which have escalated substantially in the last few years, and removing all risk from the company’s balance sheet—both interest rate and longevity risk.

A session sponsored by Insight Investment probes pros, cons and timing of transferring liabilities to insurers.

A key consideration for corporates with traditional defined benefit plans is whether to transfer pension liabilities to insurance companies as funding deficits narrow or plans go into surplus. The primary benefits of risk transfer are eliminating PBGC fees, which have escalated substantially in the last few years, and removing all risk from the company’s balance sheet—both interest rate and longevity risk.

  • Half of the members surveyed at a recent meeting of NeuGroup for Pension and Benefits sponsored by Insight Investment are undecided on the desired end-state of their plans (see chart below).
  • NeuGroup senior executive advisor Roger Heine moderated a discussion of the advantages and drawbacks of liability transfers and provided the key takeaways and analysis that follow.

Cost is the key concern. How much insurance companies charge corporates to take liabilities off their hands is the primary consideration for pension fund managers.

  • The amount charged reflects the insurer’s expected return on equity (ROE), and that typically leads to pricing that exceeds the accounting valuation of the pension liability used by the corporate.
  • Insight Investment says the “spread premium” insurers are currently charging to generate adequate ROE ranges from about 60 basis points for older, retired participants to up to 100 basis points for active employees.
    • So non-retiree pools can look prohibitively expensive to transfer relative to holding a matching fixed income portfolio.
  • Members are aware that risk transfers in many cases are more expensive than managing a plan in-house, which is also called taking a hibernation or self-sufficiency approach.

Be ready for opportunities to lower costs. Companies may have the potential to transfer risk at a lower cost when corporate bond spreads widen, as they did briefly in early 2020 following the spread of Covid-19. That makes bonds cheaper for insurers to buy and increases the discount rates they apply to the pension liability.

  • Heightened competition makes insurers hungry to win risk transfer deals, which can also reduce pricing.
  • So it may make sense for corporates to complete all the work necessary before a risk transfer so the company is ready to move forward quickly if and when pricing becomes more favorable.

Lessons learned. The session benefited from one member who has recently executed a significant risk transfer and another who is seriously considering one and has many questions. This brought out several interesting observations:

  • The entire exercise is complex and can take six to seven months to complete after board approval.
  • There are experienced third party advisors and experts that can do the heavy lifting, know the other players and will execute well, avoiding the need for additional company staffing for the project.
  • Cleaning up the participant database is key, but records are generally already in good shape where participants are already receiving benefits.
  • Hiring a bank to hedge the execution cost makes the transaction feasible despite market volatility.   
  • Surprisingly, the only retirees who complained at the company that did a partial transfer were those who did not make the transfer pool; they would have preferred exposure to an insurance company with a household name.
  • The company took a charge on writing off unamortized losses but the market and equity analysts disregarded it.
  • The liabilities typically get transferred into a separate account within the insurance company where the plan assets directly protect the participants should the insurance company get into trouble.

Intermediate steps towards risk transfer. Risk transfer of participants with small balances—roughly a benefit of less than $500 a month—has been popular because of tangible positive NPVs from saving per-participant PBC fees (now $86 annually).

  • Voluntary lump sum offers to retirees or terminated-vested participants can be more economical than insurance company risk transfer because participants don’t get additional premium for a required return on equity. 
  • A lump sum offer can also provide an alternative to participants who may not want to be transferred to an insurance company.  But companies need to be careful not to offer lump sums too frequently, or they may be deemed a component part of the plan requiring regular offers.
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Justin Jones
In Accounting & Disclosure, Libor SOFR, Risk Management

Libor Transition Puzzle: FASB Provides Clarity, Relief to Corporates

Guidance from FASB clarifies accounting for all hedges impacted by the discounting transition.

The Financial Accounting Standards Board (FASB) started 2021 by clarifying accounting guidance aimed at facilitating the transition of corporate floating-rate transactions away from the Libor reference rate. The standard setter is also expected to resume progress this year on issues it had set aside to address the Libor transition.
 
Background. On Jan. 7, FASB issued ASU 2021-01, an accounting standards update that clarifies issues stemming from Topic 848, titled Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The Topic 848 guidance, issued in March 2020, eased the potential accounting burden arising from reference rate reform. The clarifications provide corporates with operational relief as they pursue transactions.

Guidance from FASB clarifies accounting for all hedges impacted by the discounting transition.

The Financial Accounting Standards Board (FASB) started 2021 by clarifying accounting guidance aimed at facilitating the transition of corporate floating-rate transactions away from the Libor reference rate. The standard setter is also expected to resume progress this year on issues it had set aside to address the Libor transition.
 
Background. On Jan. 7, FASB issued ASU 2021-01, an accounting standards update that clarifies issues stemming from Topic 848, titled Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The Topic 848 guidance, issued in March 2020, eased the potential accounting burden arising from reference rate reform. The clarifications provide corporates with operational relief as they pursue transactions.
 
Discounting relief. Last October, the CME and LCH swap clearing houses changed the rate used for discounting, margining and calculating price alignment to the Secured Overnight Financing Rate (SOFR), which has been referred to as the “discounting transition.” That provided a major boost to SOFR, which regulators and major financial institutions have promoted as the replacement for USD Libor.

  • However, concerns arose among market participants that the discounting transition impacted trades that did not reference Libor. They questioned the scope of Topic 848 and whether there were possible hedge accounting consequences.
  • For example, the index is not expected to change for centrally cleared Federal Funds interest rate swaps. However, they were impacted by the discounting transition, prompting questions whether those contracts required reassessment.
  • In ASU 2021-01, “The FASB clarified that trades affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848,” said Brittany Jervis, head of Chatham Financial’s corporate accounting advisory practice.

Saving net investment hedges. Stakeholders also raised concerns that “float-to-float” cross-currency swaps involving receive-variable rate and pay-variable rate legs could, under reference-rate reform, lead to a difference in repricing dates and intervals, disqualifying certain net investment hedges. The recent ASU clarifies that the discrepancy can be disregarded.

  • “The ASU allows companies to make an optional election that permits them to continue with the original designation,” Ms. Jervis said.  “So any of these trades that previously qualified as net investment hedges would continue to qualify and would not need to be de-designated and marked to market.”

What to watch out for. Under the original Libor cessation date, FASB’s Topic 848 guidance had a sunset date of Dec. 31, 2022. The ICE Benchmark Administration’s current proposal to extend support of Libor to June 30, 2023 would give corporate treasury more time to transition existing financial products priced over Libor to SOFR or other alternative reference rates. FASB is expected to consider pushing the sunset date of its guidance past that. 

Another hedging issue. With accounting changes around reference rate reform completed, other issues may advance. One is accounting for changing the hedged risk in a cash flow hedge, say, from one-month Libor to three-month Libor. Prior to ASU 2017-12, guidance triggered a de-designation of the hedging relationship and potential forecasting considerations when the hedged risk changed, putting hedge accounting treatment at risk.

  • FASB issued a proposal in 2019 to help clarify guidance allowing hedge accounting to continue when the hedged risk changed, as long as the hedge met the criteria to remain “highly effective,” raising concerns about the proposal’s application.
  • “FASB has been working on further clarifications based on feedback, and they’re hoping to issue that this year, now that they’ve wrapped up the ASU on reference rate reform,” Ms. Jervis said.
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Justin Jones
In Cash & Working Capital, Talking Shop

Talking Shop: What is Your Cash Flow Coverage Target?

Member question: “Looking to take a quick pulse of the group. What is your cash flow coverage target for your current fiscal year period? Coverage can be defined as hedges placed vs. earnings exposure estimate or maximum hedge accounting capacity.

  • “Our cash flow hedges are currently covering ~70% of our entire estimated earnings exposure (which closely aligns with our max hedge accounting capacity). This is up significantly from two years ago and is the culmination of a huge effort. Wanting to understand if this is within a normal range since I’m [being asked] to push coverage higher.

Member question: “Looking to take a quick pulse of the group. What is your cash flow coverage target for your current fiscal year period? Coverage can be defined as hedges placed vs. earnings exposure estimate or maximum hedge accounting capacity.

  • “Our cash flow hedges are currently covering ~70% of our entire estimated earnings exposure (which closely aligns with our max hedge accounting capacity). This is up significantly from two years ago and is the culmination of a huge effort. Wanting to understand if this is within a normal range since I’m [being asked] to push coverage higher.

Peer answer 1: “Our policy allows us to hedge up to 80% of the current year’s exposure in a cash flow program.”

Peer answer 2: “We target 40-60% but can go as high at 75%, one year and in.”

Peer answer 3: “Our coverage targets depend on our position (long or short) and our views on if the currency is expected to come our way or if it is moving against us. We are allowed to hedge up to 100% of our rolling 12-month net cash flow currency exposures. We watch very closely if we get between 70%-80% of our accounting cash flow exposures.”

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Justin Jones
In Banking, Capital Markets, Treasury Management

Tear Down, Rebuild: A Treasurer Lays a Foundation for Best Practices

How a newly hired treasurer revamped her company’s capital structure, banking group and her team. 

Soon after arriving at a fast-growing midsized multinational company, a newly-hired treasurer with extensive experience in loan restructurings and amendments launched a loan compliance cleanup. That was the first step on the path to establishing best practices at a company that had never had a treasurer with experience in treasury.

  • The treasurer described what she did and her thinking at a recent meeting of NeuGroup’s Treasurers’ Group of Thirty and in a follow-up interview.
  • While each company’s situation is different, this member’s experience provides insights for peers committed to implementing new treasury practices, policies and procedures that meet an expanding business’s rapidly changing needs and help set it on a course for more growth.

How a newly hired treasurer revamped her company’s capital structure, banking group and her team. 

Soon after arriving at a fast-growing midsized multinational company, a newly-hired treasurer with extensive experience in loan restructurings and amendments launched a loan compliance cleanup. That was the first step on the path to establishing best practices at a company that had never had a treasurer with experience in treasury.

  • The treasurer described what she did and her thinking at a recent meeting of NeuGroup’s Treasurers’ Group of Thirty and in a follow-up interview.
  • While each company’s situation is different, this member’s experience provides insights for peers committed to implementing new treasury practices, policies and procedures that meet an expanding business’s rapidly changing needs and help set it on a course for more growth.

Triage, fixes, goals. The treasurer’s knowledge of loan covenants, operational limitations in credit agreements, technical defaults and compliance certificates allowed her to quickly conclude that the loan compliance situation needed immediate attention. “I saw there were some things that we needed to fix,” she said. The good news: “There was an understanding at the company that this was an area that needed an upgrade and a fresh set of eyes,” she said.

  • Following a relatively “easy negotiation” with banks over cleaning up the credit agreement, the treasurer set about stress test modeling on the company’s credit facility and reviewing existing covenants.
  • She then seized the moment to initiate significant changes as she engaged with senior management and the board to focus their attention on the strategic importance of capital structure.
  • Before embarking on projects of this scale, “You have to be mindful of the time frame to achieve your goals,” the treasurer advises. Ask yourself, “What can you realistically accomplish within the first 12 to 24 months to get some quick wins?
  • “And thinking to the future, what is it you need over the next couple years to really expand what you’re doing? When you go into these new situations and you’re in a rebuilding mode, you’ve got to show some accomplishments.”

New terms, new flexibility. Her goals set, the treasurer realized “we needed to have more flexibility within our capital structure given the size of the company and the fact that we were much more global than we had been several years prior. And I knew that we needed to work with more than just two banks.

  • “It was all about crafting a credit agreement that would work with not only where the company was, but where it’s going,” she said. “The company had very good financial performance so it was really the right time to lay out what it is we needed, what were the exact terms that we were looking for.”
  • The revamped capital structure now features a five-year credit facility and a seven-year term loan. “It was really structuring this so we could have a good runway for the next couple of years.”
  • As a result, “Our pricing went down and our flexibility went up because I took it out to four or five different banks who came back and presented term sheets to us. We also bid out the international banking business at the same time.” The company used its newfound flexibility relatively soon, she said, declining to elaborate.

The people part. The member also put her stamp on the treasury team. “The positions needed to be reworked, the personnel needed to be switched out, essentially,” the treasurer said. Among her moves:

  • The elimination of an assistant treasurer position, in part because of overlapping capabilities with the treasurer.
  • An “opportunistic hire” of a senior manager of treasury with international experience at a large tech company looking for broader treasury experience.
  • The creation of a cash manager position staffed by someone in the company’s accounts receivable area who had treasury experience.
  • “What worked out well for me is I was able to use a combination of internal and external people. I didn’t go 100% external, and that was important, at least within our organization,” the treasurer said.

In focus now. Having laid a solid foundation for treasury, the member has her team focused on investment policy, cash forecasting and position, assessing foreign exchange risk and other areas requiring “some more refinement,” she said.

  • After tackling big areas like capital structure and bank groups, treasurers have to meet the challenge of showing senior management the value of addressing other areas that may seem less exciting or important.
  • The engagement this requires is made more difficult by the pandemic, working from home and the absence of “informal communication,” the member noted.

Needed: support, hard work. Not surprisingly, the feasibility of entering a new company and revamping the capital structure and the banking group and making other major changes requires the support of senior management.

  • “You’ve got to have the support from your manager to really go in and assess what is existing, what are the positions, what is the structure, what do you need immediately to accomplish your goals,” the treasurer said.
  • Don’t underestimate the amount of work involved in pushing a company to shift gears and adopt best practices. And then make the most of the opportunity.
  • The treasurer told herself, “You don’t get to do this a lot. It’s kind of an unusual experience and even though it’s a lot of work I’m going to take advantage of it.”
  • Sure enough, “It was a lot of work, it took a lot of energy,” she said. “But I think it has paid a lot of dividends for the company.”
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Justin Jones
In Banking, Capital Markets

Borrowing Authority and the Board: How Often Do You Renew?

NeuGroup’s survey results on the frequency of borrowing authority renewals, use of carve-outs for M&A and more.

Nearly two-thirds of the treasurers responding to a recent NeuGroup survey renew their borrowing authority with the board on an ad hoc or as-needed basis, while about one-third do it every year. That’s shown in the first pie chart below.

  • But at a follow-up meeting to discuss the results, the general consensus seemed to be that an annual review made the most sense, as it can be part of the overall conversation with the board regarding capital structure.
  • The second chart shows that for the majority (59%) of companies that responded, the full board grants borrowing authority, with the finance committee of the board playing that role at 29% of the companies.

NeuGroup’s survey results on the frequency of borrowing authority renewals, use of carve-outs for M&A and more.

Nearly two-thirds of the treasurers responding to a recent NeuGroup survey renew their borrowing authority with the board on an ad hoc or as-needed basis, while about one-third do it every year. That’s shown in the pie chart on the left, below.

  • But at a follow-up meeting to discuss the results, the general consensus seemed to be that an annual review made the most sense, as it can be part of the overall conversation with the board regarding capital structure.
  • The second chart shows that for the majority (59%) of companies that responded, the full board grants borrowing authority, with the finance committee of the board playing that role at 29% of the companies.

Context. The importance of borrowing authority flexibility was underscored at another NeuGroup meeting in 2019. The takeaways then included:

  • Winning authority from the board to go to capital markets opportunistically is a best practice. Treasury needs to have authority from the finance committee to refinance or issue debt when market stars are in alignment. This provides the flexibility to act fast, and members agreed it’s ideal for everyone as long as there’s full transparency between treasury and the board of directors.

Other observations from the more recent meeting:

  • Some companies with a specified dollar amount ceiling for borrowing have carve-outs which do not require additional approval for purposes such as M&A financing, where borrowing needs are discussed during the normal evaluation and approval process.
  • Members do not share details of their borrowing authority with the rating agencies, but rather provide a range of borrowing which might occur in the upcoming year.
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Justin Jones
In FX, Talking Shop

Talking Shop: Net Investment Hedging Programs

Member question: “Anyone have a net investment hedging program? If so, how often are you rolling hedges?

  • “What is your typical tenor? Are you hedging 100% or something less?”

Member question: “Anyone have a net investment hedging program? If so, how often are you rolling hedges?

  • “What is your typical tenor? Are you hedging 100% or something less?”

Peer answer: “We have done some opportunistic NIH hedging in JPY with FX forwards. We generally use our EUR capacity for debt issuances as well. Hedges have been in the two- to three-year range.

  • “We will go up to 100% of capacity (we do not seek to push to the 125% mark that is allowed).
  • “We also believe it should be thought of as synthetic debt—that the currency being hedged should have real underlying cash flows (e.g., would be able to pay off the debt if issued locally).”
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Justin Jones
In Tax, Treasury Management

Learning New Strokes: A Treasurer Adds Tax to Her Skill Set

One NeuGroup member has “had to learn from doing” to tackle tax—and also tap internal and external experts.

When the head of tax at a midsized multinational company left to take another job a couple of years ago, the CFO tapped the treasurer to run tax, too. The treasurer shared some of the challenges she faced and how she addressed them at a recent meeting of the Treasurers’ Group of Thirty and in a follow-up interview.

A difficult beginning. Three of four junior tax staffers also ended up departing, leaving the treasurer with only one other tax person after being in the tax job for just a month. “That was obviously pretty difficult,” she said. “I literally had to do two jobs because we didn’t have many people at first.”

One NeuGroup member has “had to learn from doing” to tackle tax—and also tap internal and external experts.

When the head of tax at a midsized multinational company left to take another job a couple of years ago, the CFO tapped the treasurer to run tax, too. The treasurer shared some of the challenges she faced and how she addressed them at a recent meeting of the Treasurers’ Group of Thirty and in a follow-up interview.

A difficult beginning. Three of four junior tax staffers also ended up departing, leaving the treasurer with only one other tax person after being in the tax job for just a month. “That was obviously pretty difficult,” she said. “I literally had to do two jobs because we didn’t have many people at first.”

  • The exodus also changed the nature of the role senior management had initially intended the treasurer to play in tax. “At the time, they thought that it would be more of a management role for me; whereas with the departure of all those people and a new set of eyes, it became much more of a rebuilding cleanup exercise than a pure managerial exercise,” she said.

A key hire with an accounting background. Senior management combined the roles in part because “there was enough crossover between the two disciplines that it made sense to have a more unified approach,” the treasurer said. But when it comes to matters of tax compliance, GAAP tax provision, tax returns and audit defense, there is little crossover with treasury, she said.

  • “I ended up going out and hiring a really ‘heavyweight’ director of tax,” she said. “And one of my requirements was that they had to have a CPA. Because there’s two types of people out there in the tax world. There’s the CPAs and then the lawyers. We didn’t have enough structuring going on at our company to warrant a legal background. We really needed the accounting background.”
  • Her advice to peers building in-house tax teams: “If you are going to build internally, you need to get someone very heavy underneath you.”

Scaling the learning curve. To learn what she needed to know about tax, the treasurer posed lots of questions to her tax director and, when necessary, the company’s outside tax auditor. And, like a lot of learning, much is done on the job. “I had to learn from doing,” she said, including the analysis of the implications of a tax and legal structure proposed by the company’s outside auditor.

  • “I felt like I was really good at asking questions. And I felt like I could sort of think the way tax people think. But when you just don’t have the fundamental subject matter expertise, that’s where it gets difficult because you haven’t done the tax return yourself.”

The need to pick your spots. Making the transition to running tax and treasury requires deciding how much effort to devote to mastering tax concepts. “The tricky thing as a manager going from treasury to tax is how much time do you invest in that stuff,” the member said. “Because learning about these tax concepts is complicated and most things are not 10-minute discussions, it’s 20- or 30-minute discussions, at a minimum.

  • “I have to pick and choose how much I want to learn. I’m never going to be a tax professional and sit and do a tax return for a multinational company. I have no desire to do that and I won’t do that,” she added.

When wearing two hats pays off. The treasurer’s knowledge of repatriation of cash, global cash forecasting and cross-border investments has proven valuable in her management of this multinational’s tax team.

  • “Whenever there is cross-border, you have to involve tax,” she said. “So as we look at cross-border investments around the world and repatriating cash, now that I know more about the tax elements, I can really represent both areas at meetings and we don’t have to have yet another tax person on the call.
    • “So our tax director can focus on the stuff he needs to be working on and then I can go back to him for clarification or ask him to work on certain things.”

When outsourcing makes sense. The company does most of its domestic tax work in-house, but outsources transfer pricing studies to its outside auditor in addition to having the firm review other complicated, international tax matters. In response to a question from a peer at the meeting, she said, “Outsourcing is very expensive when you talk to the big four firms.”

  • The company outsources more in its operations abroad, including the preparation of tax returns and value-added tax (VAT) payments.

Dividing her time. When the treasurer took over tax, the company was in the midst of a global tax restructuring that required her to spend 80% to 90% of her time on tax. Her goal for 2021 is to spend 20% to 30% on tax and the rest on treasury.

  • “But I’d be happy if I could get down to 50% on average,” she said.
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Justin Jones
In Cash & Working Capital, COVID-19

Sign of the Times: Retailers Say Coin Shortage Worries Persist

Burned by a dearth of coins during the pandemic, many retailers are cautious despite some signs of stability.

“Cash-mageddon” is how one member at a recent meeting of NeuGroup for Retail Treasury described the havoc wreaked by the coin shortage that made life hellish for many retailers last year. And despite signs of normalization and increased production by the US Mint (see below), some members remain unconvinced that the coin supply disruption caused by the pandemic is truly over.

Burned by a dearth of coins during the pandemic, many retailers are cautious despite some signs of stability.

“Cash-mageddon” is how one member at a recent meeting of NeuGroup for Retail Treasury described the havoc wreaked by the coin shortage that made life hellish for many retailers last year. And despite signs of normalization and increased production by the US Mint (see below), some members remain unconvinced that the coin supply disruption caused by the pandemic is truly over.

Cautious about outlook. “The Fed hasn’t really given any new updates, so I would not take your sign down,” one member said, referring to the ubiquitous signs asking customers to use exact change or telling them to use credit or debit cards. One company resorted to giving out gift cards as change.

  • Another member whose company sometimes went weeks without a new coin delivery echoed the caution voiced by her peer.  “I’m uber-sensitive to coin; it was incredibly draining for our stores,” she said. “We’re at a point where it’s stable, but given all the uncertainty, keep your signs up, maybe to save you from having to reprint them.”
  • A third treasurer remarked that because the coin shortage stems from a circulation issue, if Covid protocols send consumers back online and away from physical stores, he “doesn’t see us being through it.”
    • The member said his company is completely reliant on courier services to deliver new coin to brick-and-mortal locations, and if for some reason there is an issue with the courier, the coin shortage would return. “It feels like they don’t have enough built-up inventory, they’re just using up what they have for that day,” he said.

Courier issues. Other members who use couriers for cash pickup and delivery said they share similar worries after years of inconsistent service, even before the pandemic.

  • When the coin shortage worsened last summer, couriers were hit hard as well, sometimes going up to 10 days without service for retailers. Though delivery has improved to a level that one member called “stable,” it still is not meeting some corporates’ needs.
  • “I’m being incredibly frustrated by the quality and level of service of these companies,” one member said. “I’m trying to be sensitive to their situation, I’m guessing their business is declining. They’re claiming there are driver shortages due to Covid, but sometimes we are going weeks without pickup.”

An unplanned stress test. One member said because the coin shortage became a large pain point, it served as something of a stress test, showing companies just how much they could take and providing a warning to prepare for all scenarios.

  • Another member said she is now preparing buffers and sensitivity analysis for her company, planning for the possibility of another lockdown.
  • “We’re thinking through a lot of the things we probably thought would never happen,” she said. “I don’t think anyone ever thought that we wouldn’t have coin, so when it stopped showing up, that was devastating to our stores. We had to be nimble and quick.”
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Justin Jones
In Banking, Capital Markets, COVID-19

Calmer Seas: Revolvers Recover, Return to Pre-Covid Pricing, Tenor

Upfront fees are higher, but treasurers renewing facilities see reason for optimism; U.S. Bank is also positive.

Multiyear tenors for revolving credit facilities are now available to investment-grade (IG) corporate borrowers, according to several NeuGroup members who have been talking to their bankers recently. This week, one treasurer said, “Things have normalized a fair amount for solid credits,” citing a large bank.

Upfront fees are higher, but treasurers renewing facilities see reason for optimism; U.S. Bank is also positive.

Multiyear tenors for revolving credit facilities are now available to investment-grade (IG) corporate borrowers, according to several NeuGroup members who have been talking to their bankers recently. This week, one treasurer said, “Things have normalized a fair amount for solid credits,” citing a large bank.

  • This member, who was in the process of renewing his company’s revolver last year when Covid hit, is now deciding when to “pick it back up” and wanted to know what his peers have heard.
  • “Multiyear is back,” said one of them.

Longer tenors. “It sounds like five years is back on the table,” said another treasurer. She works for a company that postponed extending the tenor and raising the amount of its revolver last year.

  • This treasurer—whose company is a “new IG credit”—recently circled back with traditional lenders and said, “The reception’s been good,” noting that she got very little pushback to her plans to restructure the revolver.

Is the price right? The company did not get quotes, but “pricing appears to have settled down,” the member said. Another treasurer said upfront fees remain higher than before Covid, adding “how much you can push that” depends on your relationship with the banks and, of course, the size of your wallet.

  • This treasurer said some banks want funded facilities now that revolver drawdowns have been repaid. They are eager to increase assets and have a healthy risk appetite, he said, adding that they all want higher fees.

U.S. Bank’s analysis. NeuGroup Insights reached out to Jeff Stuart, head of capital markets at U.S. Bank, who keeps close tabs on the revolver market. Here are his observations:

  • The market for large-cap investment-grade revolving credit facilities has largely recovered to pre-Covid levels in terms of both pricing and tenor, with many borrowers executing five-year renewals at pre-Covid pricing levels.
  • U.S. Bank is seeing higher upfront fees pretty much across the board, one to three basis points for the higher-rated names.
  • The market is a bit sector- and ratings-specific, with higher impacted sectors still exacting a pricing premium, and more bank caution around lower investment-grade borrowers.
  • Some sectors, like utilities, have been slower to normalize despite their relative credit quality, with discussions going to five-year tenors only just recently.
  • On the bank side, there seems to be a higher post-Covid emphasis on returns, with a specific focus on available ancillary business, particularly by smaller regional banks.
  • U.S. Bank expects the trend toward a full return to pre-Covid terms on revolving credits to continue amid recovery overall during the first half of 2021. But it will continue to vary by situation and sector.

Sustainability-linked revolvers anyone? Back at the meeting, one treasurer raised the issue of revolving credit facilities whose terms are linked to the company achieving sustainability goals, unlike green bonds or loans whose proceeds must be used for sustainable purposes (see next story).

  • He has not seen the value in the idea, saying the savings for hitting the targets are minimal, a few basis points at most. “The net benefit is not good enough” given the incremental cost, he said. Another treasurer agreed that “treasury is not driving” the move by some companies to use sustainability-linked revolvers.
  • One treasurer drew laughs when he said his efforts to research “green revolvers” with a Google search turned up images of green handguns.

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Justin Jones
In Capital Markets, ESG, Risk Management

Green Hedges: What You Need to Know About ESG Derivatives

Standard Chartered explains the potential value of “use of proceeds” and performance-linked ESG derivatives.

The flood of money pouring into ESG finance—everything from green bonds to sustainability-linked revolving credit facilities—has washed up on the shores of derivatives markets. At a recent NeuGroup meeting of European treasurers, sponsor Standard Chartered dove beneath the surface to reveal what value ESG derivatives may offer. The bank described two types:

  • “Use of proceeds” ESG derivatives that hedge FX or interest rate risks arising from ESG financing and are ring-fenced as hedges referencing a specific loan or bond.
  • ESG performance-linked derivatives that link a payoff with ESG metrics or key performance indicators (KPIs).
    • The sustainability metrics are determined by a third party’s score or index or by the corporate itself.

Standard Chartered explains the potential value of “use of proceeds” and performance-linked ESG derivatives.

The flood of money pouring into ESG finance—everything from green bonds to sustainability-linked revolving credit facilities—has washed up on the shores of derivatives markets. At a recent NeuGroup meeting of European treasurers, sponsor Standard Chartered dove beneath the surface to reveal what value ESG derivatives may offer. The bank described two types:

  • “Use of proceeds” ESG derivatives that hedge FX or interest rate risks arising from ESG financing and are ring-fenced as hedges referencing a specific loan or bond.
  • ESG performance-linked derivatives that link a payoff with ESG metrics or key performance indicators (KPIs).
    • The sustainability metrics are determined by a third party’s score or index or by the corporate itself.

Case studies. Standard Chartered’s presentation included several examples of how ESG derivatives can be used.

  • A company using an FX forward to hedge export pricing in Asia that will receive a discounted FX rate if it meets ESG targets which support the United Nations Sustainable Development Goals.
  • A company enters into an interest rate swap where the credit spread is linked to the corporate’s sustainability performance as measured annually by Sustainalytics.
  • A company enters into a cross-currency basis swap with a bank where either party’s interest rate payments can rise if they don’t meet their sustainability targets.

Any takers? While NeuGroup members expressed interest in the topic, it’s unclear if treasury teams are ready to embrace ESG derivatives since many companies are still figuring out where green bonds or sustainability-linked loans or revolvers fit in their sustainability plans.

A poll at the meeting revealed the low percentage of companies that have given treasury a specific sustainability mandate or have linked ESG to performance (see below).

One of the Standard Chartered bankers said the fact that almost half of those polled expect performance to be tied to ESG initiatives within one to three years was better than he expected and was “encouraging.”

  • An outside risk management consultant asked by NeuGroup Insights about the firm’s clients said, “It’s actually a new enough market development that we haven’t seen a lot of corporates exploring the use of ESG derivatives just yet.” Stay tuned.
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Justin Jones
In Capital Markets, Technology

Fertile Ground: Capital Markets Look Good for Growing Tech Companies

Bank of the West/BNP Paribas sees inviting conditions for young companies raising capital in 2021.

Capital markets bounced back strongly in the second half of 2020, with soaring levels of convertible bond deals and a healthy climate for IPOs and high-yield bonds. Favorable conditions will continue to benefit emerging technology companies this year, according to Bank of the West/BNP Paribas, sponsor of the fall meeting of the Tech20 High-Growth Treasurers’ Peer Group.

Bank of the West/BNP Paribas sees inviting conditions for young companies raising capital in 2021.

Capital markets bounced back strongly in the second half of 2020, with soaring levels of convertible bond deals and a healthy climate for IPOs and high-yield bonds. Favorable conditions will continue to benefit emerging technology companies this year, according to Bank of the West/BNP Paribas, sponsor of the fall meeting of the Tech20 High-Growth Treasurers’ Peer Group. Highlights:

Low high-yields. Volatility due to political tensions and a second wave of Covid cases worldwide put a damper on the high-yield market at the start of the fourth quarter, but the market quickly strengthened following the November election.

  • High-yield deals had reached a record $453 billion through mid-December, nearly twice the levels of 2019.
  • Yields are in record low territory, around 4.3% vs. 2019-2020 average of 6.41%, Bank of the West/BNP Paribas said, a favorable environment for high-growth companies.

Cool convertibles. The US convertible bond market hit near-record issuance levels in 2020, reaching over $100 billion, with tech companies issuing nearly half of all convertible debt (see below).

  • Even with investor-friendly deals made at the onset of the pandemic, last year had the highest conversion premium and the lowest average coupon in the last decade, creating an ideal environment for issuers.
  • The bankers said market confidence has sparked the return of 24-hour marketing periods, as opposed to pre-market launches for same day pricings.

IPOs made easier. Constructive market conditions and a faster, easier process have made initial public offerings increasingly attractive for developing companies.

  • Many members shared their positive experiences with virtual roadshows, which can take under an hour and require no travel expenses. They also give growth companies access to a broad range of US and international investors.
  • “It’s hard to see a world post-Covid where investors fly to Europe to attend investor meetings,” one member said. “I think it’s here to stay.”
  • The lag between public filing and pricing an IPO rose to a month or more, a growing pipeline that the bankers described as “a sign that issuers have more confidence in the stability of markets.”

SPACs surge. Special-purpose acquisition companies (SPACs), an alternative to IPOs, surged last year, a trend that some analysts say is likely to continue in 2021.

  • Hedge funds looking for money market alternatives in a low-yield environment boosted demand for SPACs, a positive for growing tech companies.
  • Between the high-profile success story of Virgin Galactic and a willingness of target companies to go public via a “de-SPACing” acquisition rather than a traditional IPO, SPAC issuance in 2020 alone exceeded the previous decade combined.
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Justin Jones
In COVID-19, Technology, Treasury Management

Bridging a Skills Gap Facing Finance Teams as Businesses Transform

Data from The Hackett Group show more companies plan to launch talent development initiatives this year. 

The good news is that more finance teams are placing a higher priority on aligning the skills and talents of their members with changing business needs amid digital transformation. The somewhat bad news is that many of those teams currently lack the abilities necessary to make that alignment a reality.

Data from The Hackett Group show more companies plan to launch talent development initiatives this year. 

The good news is that more finance teams are placing a higher priority on aligning the skills and talents of their members with changing business needs amid digital transformation. The somewhat bad news is that many of those teams currently lack the abilities necessary to make that alignment a reality.

  • Those are among the takeaways from survey data collected and analyzed by The Hackett Group and presented at several NeuGroup 2020 second-half meetings by Nilly Essaides, senior research director for Hackett’s finance advisory practice.

Progress report. Finance teams looking ahead ranked aligning skills and talent with changing business needs among their top 10 priorities in Hackett’s 2021 Key Issues Study. That’s a sign of progress, Ms. Essaides said, given that talent development did not crack the top 10 a year earlier.

  • That fact provides context in which to evaluate the significance of 42% of finance organizations reporting they plan to launch a talent development initiative in 2021—one of several findings presented in the graphic below.
  • “I see more and more finance teams that want to own staff development rather than hanging on the coattails of HR,” Ms. Essaides said. “There’s more interest by CFOs to develop these programs.”

Pushed by the pandemic. The prioritization of skills development is also significant as it comes amid the pandemic and plans by many finance teams to cut costs and enable remote work through process automation—the number one initiative on the function’s transformation agenda for this year. 

  • “Covid has really intensified the need to go digital,” Ms. Essaides said, adding that Hackett is seeing increased use of robotic process automation (RPA) and cloud-based applications, among other signs.
  • More than 20% of the organizations surveyed plan to hire more RPA specialists, data architects and scientists, and digital transformation managers.

Falling short. The graphic also shows that more than half of those surveyed (54%) see a big gap between current and desired analytic skills. More broadly, Hackett data show that finance organizations ranked their staffs’ lack or deficiency of critical skills second among the hurdles to making “transformation progress,” Ms. Essaides noted.

  • Those critical skills include analytics, emerging technologies, process redesign, design thinking and change management.
  • Technology and process complexity ranked first on the list of hurdles and organizational resistance to change came in third.

It’s not all about analytics. It’s critical to remember that in addition to technical and analytical skills, finance team members must possess the “ability to tell a story,” as one NeuGroup member put it.

  • Other NeuGroup members and Ms. Essaides agreed on the need for so-called soft skills that form the basis of communication, the ability to negotiate and influence and bring groups together.
  • Hackett calls these “core skills,” in part to counteract the perception that soft is somehow less important than the hard skills that often overshadow qualities that are essential for leaders in finance and every other function.
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Justin Jones
In COVID-19, Cyber risk, Technology

Locking Up: Preventing Cyberfraud Attacks by Identifying Weaknesses

NeuGroup members share successes and failures keeping their companies secure amid the shift to an all-digital workforce.

The all-digital work from home environment has left treasury teams more connected to their devices than ever, but also left them—and their companies—more vulnerable to fraud. But by identifying weaknesses early, teams can resolve issues before fraudsters even have a chance to strike.

NeuGroup members share successes and failures keeping their companies secure amid the shift to an all-digital workforce.

The all-digital work from home environment has left treasury teams more connected to their devices than ever, but also left them—and their companies—more vulnerable to fraud. But by identifying weaknesses early, teams can resolve issues before fraudsters even have a chance to strike.

  • Members at a recent meeting of NeuGroup’s Treasurers’ Group of Thirty discussed their approaches to prevent the threat, one that continues to worsen.
  • Fatigue caused by working from home led to a communication breakdown for one member’s company, but others reported success through their preparation.

Success stories. Many NeuGroup members reported recent close calls with cyber breaches and have implemented processes to prevent future issues.

  • One member nearly fell prey to a fraud scheme when a phishing email included highly detailed information about the company, which could have fooled an employee into providing secure information.
    • This happened because one employee innocuously posted an update on LinkedIn about the company’s goings-on, and the scammers are growing more and more advanced.
    • The member suggests encouraging employees to only share what is necessary on social media to keep malicious third parties in the dark.
  • Another member had an issue with hackers accessing the company’s internal instant messaging system, allowing them to imitate employees with “no way to verify it was them.”
    • Some members use a series of steps to authenticate accounts before accessing sensitive information, including callbacks from verified phone numbers.

“A breakdown in communication.” One NeuGroup member had this type of system in place, but a series of internal mistakes led to a loss of nearly $10,000; thankfully, the member said they were able to recover the stolen cash.

  • When a new employee was hired at the member’s company, fraudsters hacked the digital account of an actual vendor that the company uses and corresponded with the new employee from a seemingly authentic  email address.
  • Though the member’s company does use a callback authentication process, he said there were application errors “on multiple levels” and plans more frequent audits and training to identify and prevent these weaknesses in the future.
    • “Fatigue is a real issue,” another member said, recommending smaller, “bite-size” trainings for employees to prevent burnout and ensure employees apply the knowledge they learn.
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Justin Jones
In Compliance, Risk Management

Why Internal Audit Needs to Blow Its Own Horn

Like other functions, internal audit needs to publicize its value to senior executives and the broader corporation.

After the completion of a lengthy process audit at a multinational company, the chief audit executive (CAE) reported results to the owner of that process. After a cursory review, the process owner, also a senior executive, asked, “What else have you done?”

  • The CAE was somewhat taken aback. The audit took several months and ate up lots of FTE hours. But since it only resulted in a few findings, the audited executive thought there must be more that audit was working on.

Like other functions, internal audit needs to publicize its value to senior executives and the broader corporation.

After the completion of a lengthy process audit at a multinational company, the chief audit executive (CAE) reported results to the owner of that process. After a cursory review, the process owner, also a senior executive, asked, “What else have you done?”

  • The CAE was somewhat taken aback. The audit took several months and ate up lots of FTE hours. But since it only resulted in a few findings, the audited executive thought there must be more that audit was working on.

A need for self-promotion. This led the CAE to question how familiar management is with audit’s work. “We have not done a good job of selling audit” to management, he said, adding that his task now was to “reeducate the management team about the value of internal audit.”

  • To be sure, audit departments do not need to prove or explain themselves to management. Most, if not all, report directly to the audit committee of the company’s board. Their budgets in most cases are growing and not shrinking.
  • Still, administratively they typically report to the CFO, so there is some explaining to do when it comes to budget allocations. Nonetheless, this auditor felt that management needed to know more about what internal audit (IA) does and the benefits it can bring.

Stepping up. At another company, the auditor has seemingly cracked the code when it comes to showing IA’s benefits. This company, a serial acquirer with a tight fist when it comes to budgets across the company, wanted to cut its external auditor budget by 15%. When its external auditor balked at the request, IA stepped up to fill in any gaps. This saved the company millions of dollars.

  • This same auditor took a close look at the company’s licensing relationships and found many of the deals out of date or companies out of compliance with the terms of their contracts. Thus, the IA team was able to claw back several million dollars in fees. The same was done with supplier performance agreements.
  • All of these efforts were well received by senior management and, best of all, the chief executive.

Best foot forward. While some IAs have struggled with promoting their skills and value to the rest of the company, in some cases, Covid has allowed them to shine. Many IAs, forced to change audit plans at the outset of the pandemic (not stopping or canceling audits, but slowing timelines), have been able to do extra work outside of their purview.

  • This includes assisting with Covid response, data analytics, accounting or lending out FTEs to help in other functions where there is a need. This showed other parts of the organization all the good IA can do.
  • Consulting is on the docket in 2021 for the first auditor. He said IA is going to work on and highlight “what the value is we can bring beyond the X amount of audits and findings,” which he hopes to accomplish by doing more consultative projects. 
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Justin Jones
In Compliance, FX, Talking Shop

Talking Shop: Derivative Regulatory Compliance in Hedging Programs

Member question: “Our hedging programs have trading entities in multiple jurisdictions requiring continual monitoring of derivative regulatory compliance regulation. This is mostly handled internally, leveraging external counsel to advise on specific topics and questions.

  • “How do others manage derivative regulatory compliance such as EMIR (European Market Infrastructure Regulation), FMIA (Financial Market Infrastructure Act) and others? Do you outsource, handle internally, hybrid solution or is it not applicable? Are there advisors that you would recommend?”

Member question: “Our hedging programs have trading entities in multiple jurisdictions requiring continual monitoring of derivative regulatory compliance regulation. This is mostly handled internally, leveraging external counsel to advise on specific topics and questions.

  • “How do others manage derivative regulatory compliance such as EMIR (European Market Infrastructure Regulation), FMIA (Financial Market Infrastructure Act) and others? Do you outsource, handle internally, hybrid solution or is it not applicable? Are there advisors that you would recommend?”

Peer answer 1: “My company is similar; predominantly navigated internally with legal’s assistance as needed.”

Peer answer 2: “Response from our derivatives manager:

  • “We monitor internally in treasury and at our regulated financial units (typically through either internal legal or accounting/compliance groups, and this in the past has sometimes been a reactive position rather than proactive).
  • “Sometimes the banks may notify us of a change; I’ve seen this in the onshore highly regulated markets due to the local complexities/language/access to regulation, etc.—Brazil, India, China, Thailand.
  • “For the US and European market regulations, there are a few representatives that have actively participated in the Coalition for Derivatives End-Users run by Gibson Dunn.”
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Justin Jones
In Tax, Treasury Management

Learning a New Language: Tax Experts Who Become Treasurers

Insights and advice from a tax professional who left her comfort zone to become treasurer. 

A “steep learning curve” is how one member of NeuGroup’s Treasurers’ Group of Thirty (T30) who has extensive experience in tax described what she encountered in taking on the added responsibility of treasury at her company at a recent meeting sponsored by Standard Chartered.

Insights and advice from a tax professional who left her comfort zone to become treasurer. 

A “steep learning curve” is how one member of NeuGroup’s Treasurers’ Group of Thirty (T30) who has extensive experience in tax described what she encountered in taking on the added responsibility of treasury at her company at a recent meeting sponsored by Standard Chartered.

  • She is one of several members in the group who previously led tax teams and are relatively new to leading treasury. Below is a Q&A the treasurer had with NeuGroup Insights following the meeting, edited for space and clarity.

Q: What has made taking over treasury a tall order for someone with a deep background in tax?

A: While both are financial disciplines, a different language can be spoken and there can be different norms for various interactions, aside from the difference in general education for the roles.

  • I remind myself that I didn’t earn the treasurer role based on my finance background, but rather my ability to build and motivate teams, learn quickly and distill complex topics into understandable language for stakeholders—along with strong communication and leadership qualities.

Q: What are the biggest challenges you’ve faced moving to treasury from tax?

A: Being entirely out of my comfort zone. When presenting to our board on tax matters, I know I’m the expert in the room, which allows a certain confidence.

  • With treasury topics, I’m not the expert and have realized I second-guess myself, which can impact confidence in leading the discussion.
  • And given that I took on treasury in January 2020, Covid was a huge challenge in March/April/May and continues to require ongoing focus.  

Q: How have you scaled the learning curve to get a grip on treasury—peers, colleagues, other sources of information?

A: I was extremely clear with my CFO when agreeing to take on treasury that it was not my wheelhouse and his support and expertise would be critical.

  • He and I work closely together and I also have a very bright and steady assistant treasurer with a finance background. Our styles mesh well and his background is complementary to mine.
  • T30 has been helpful to meet others in similar roles; I’ve sought advice from others which has been very helpful. Our banking group has provided valuable insight and support, too.

Q: How has your tax background aided your transition to running treasury? How do the two areas complement each other?

A: In tax, I learned to be comfortable making decisions with partial (but best available!) information; avoiding analysis paralysis. This arises extremely often in treasury as well, be it cash management, insurance renewals, debt.

  • I work to keep things simple in both areas; if I can’t explain it to the CFO and others clearly and concisely, we need to simplify.

Q: Is there an example of something you’re working on now that allows you to leverage your knowledge of both tax and treasury?

A: Consolidated cash planning/forecasting and cash repatriation. I have a new appreciation of bank account complexity and KYC queries that can arise and have been able to share additional insight from a tax perspective with the treasury team regarding specific structures and nuances.

Q: What advice do you have for other treasurers who have a tax background; and what advice for treasury folks who find themselves running tax? Which is the harder transition in your view?

A:I don’t think one is harder than the other, both have a steep learning curve! A lot of treasurers may have had exposure to tax concepts through cash repatriation work, intercompany loan documentation or structuring external debt.

  • My advice for both sides of the coin: Ask questions—there is no such thing as a stupid question. Your team and advisors are paid to answer your questions, so leverage their expertise!
    • I’ve found a lot of the questions I have are similar to what others want to ask as well.
  • My other piece of advice is around each team—build and maintain a strong team that meshes and communicates well. I rebuilt the tax team and it was critical to eliminate some bad apples; the treasury team I joined works very well together and we recently added an analyst, too.
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Justin Jones
In Cash & Working Capital, Regional, Technology

Raising the Bar: How AI, ML and Big Data Could Fix Cash Forecasts

Asia Treasury members discuss how advanced technology may boost satisfaction with forecasting tools. 

A quick poll at a fall meeting of the Asia Treasury Peer Group sponsored by Standard Chartered underscored both the dissatisfaction of members with their cash forecasting tools and the intensifying scrutiny of cash positions by senior management since the beginning of the pandemic.

  • None of the treasurers polled are highly satisfied with their current set of tools: 60% have low satisfaction and 40% said medium. All of the treasurers said they’re fielding more questions about cash from the C-Suite.

Asia Treasury members discuss how advanced technology may boost satisfaction with forecasting tools. 

A quick poll at a fall meeting of the Asia Treasury Peer Group sponsored by Standard Chartered underscored both the dissatisfaction of members with their cash forecasting tools and the intensifying scrutiny of cash positions by senior management since the beginning of the pandemic.

  • None of the treasurers polled are highly satisfied with their current set of tools: 60% have low satisfaction and 40% said medium. All of the treasurers said they’re fielding more questions about cash from the C-Suite.

Building better tools. In a presentation by Kyriba arranged by Standard Chartered, members heard about the potential for big data, artificial intelligence (AI) and machine learning (ML) to “move treasury into true management of working capital” and improve the accuracy of cash forecasts.

  • As the chart below shows, this vision for building a so-called behavioral model of working capital depends heavily on extracting huge amounts of data from a multitude of sources and collecting it in a data lake.
  • ML allows the model to learn patterns based on innumerable variables—and the effects of one upon another—and then predict future flows with more precision.
  • In breakout discussions, members discussed their data management challenges, including the need to standardize exogenous data before it is fed into a model.

Addressing the AR problem. The presentation included discussion of pain points experienced when forecasting invoice payment dates. “We do not know when our customers are going to finally pay their invoices,” read one example.

  • Another said cash collection “is very blurry,” resulting in a “manual and time-consuming process” to build a cash position for future days, weeks and months.
  • The presentation identified the value proposition as creating an automated process to forecast the payment date of each invoice.
  • Using AI in pilot programs with two corporates, Kyriba said, helped reduce payment forecast variances from 25 days to five days.

Other use cases. In addition to forecasting invoice payment dates, the presentation identified these use cases for companies that use systems built with AI and ML:

  • Assign budget codes to bank movements.
  • Reduce manual cash reconciliations made by users.
  • Detect payment anomalies compared to history.
  • Detect abnormal FX transactions.
  • Suggest financing request to suppliers.
  • Forecast investment and debt.
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