Resource Management Process - Finance and Treasury Management

Description

The description of this process is defined within the objectives

Process Objectives

1. Timely, accurate budgets and financial reports
2. Relevant, timely and accurate information to management
3. Maximise cash flow/investment earnings
4. Provide low cost/reduced cycle time and increased accuracy for processing activities
5. Optimise the entity’s capital structure
6. Optimise tax structure to minimise overall taxes
7. Comply with financing agreements/covenants and minimise financing costs

Critical Success Factors (CSF’s)

     A.   Timely, relevant, accurate financial information (1,2)
     B.   Relationships with financing sources (5,7)
     C.      Efficient operations/qualified personnel (1,2,3,4,5,6)
     D.   Matching of cash requirements with forecasts (3,4)
     E.   Compliance with tax and loan regulations (7)

Key Performance Indicators (KPI’s) Linked to CSF’s

• Cycle time for monthly close, “customer” satisfaction levels; information systems costs as % of sales; variances between initial close and final amounts; suspense account analysis (A)
• Number/quality of financing sources (B)
• Cost per vendor invoice processed; debtor/creditor days in sales/cost of sales; employee turnover rates; finance department headcounter and costs as % of respective totals (C)
• Yield on investments; effective interest rate on borrowings (D)
• Amendments to tax returns required; effective tax rate; default notices on covenants (E)

Inputs

Strategic plan Functional budgets Process budgets

Financial resources Debt / lease agreements Economic environment

Capital budgets “Customer” requirements Market data

Activities

Outputs

Budgets / forecasts Internal reports External financials

Investments statistics Investment management

Process performance measurement Disbursements

Systems

Cash management Tax compliance Disbursement / payable

Payroll / human resources Investment management Financial reporting

Billing / accounts receivable General ledger Budgeting

Classes of Transactions

Routine Cash receipts / disbursements Daily financing Cash management

Non-Routine Debt issuance Debt retirement Accrued interest

Accounting Estimates Tax  accruals Tax provision

Risks Which Threaten Objectives

   A.   Inaccurate financial/management information (1,2,4)
   B.   Debt agreement/covenant violations (7)
   C.   Excessive exposure (interest, tax, counterparty) (5,6)
   D.   Mis-matched investments/debt (3,5)
   E.   Excessive tax exposure/non-optimal structure (5,6)
   F.   Changes in  market conditions (5,7)
   G.   External pressure to obtain results (2,7)Management Responses Linked to Risks

Management Responses Linked to Risks

• Strong financial information systems; controls over reconciliations/suspense accounts, internal audit (A)
• Monitoring of covenants (B)
• Exposure reviews with “expert” assistance (C)
• Treasury management system; strong cash forecasting system (D)
• Tax exposure review vs external environment; “expert” assistance in tax structure review (E)
• Infrastructure to track and react to market changes (F)
• Review of accounting policies; audit committee oversight (G)

Other Symptoms of Poor Performance

Cash crises High transaction costs High effective tax rates Lack of action following internal / external audit recommendations

Inaccessible information Manual systems/workflow Too many/few controls

Reports done outside financial systems Decentralised sales/use tax administration

Performance Improvement Observations

Change management Performance measurement Work process simplification Tax minimisation Management reporting review

Internal audit review Activity-based management study Electronic data interchange Treasury review Sales tax planning Global reporting

Benchmarking study Foreign sales corporation review Activity value analysis Payroll tax planning Unemployment tax planning