Chapter 18 - Treasury Policies and Procedures Flashcards
(39 cards)
Policy vs. Procedure
Policy – guides activities and establishes performance evaluation guidelines and process measurements
Procedure specified series of actions or operations to achieve the desired result of the policy
Policies and procedures can often be used as what?
Training tools to help document best practices and expectations
5 Primary Reasons Treasury Policies and Procedures are Necessary
Organizational Needs – documented guide to best practices
Risk Management – control process to mitigate identified risks
Roles and Responsibilities – clear definition of the roles and responsibilities
Compliance – effective internal audit and control environment
Good Governance – granted and delegate the authority required to conduct treasury
Who is ultimately responsible for ensuring that adequate internal controls are established and maintained?
The board of directors (or the owner/governing body)
Correctly designed and effectively operating controls can do which two things?
Prevent financial loss
Result in more effective management
Regardless of delegation of authority, who ultimately retains responsibility for actions taken to delegated employees?
The board or the CFO
Ideally, all policy changes should happen with the approval of what?
The board
Key Considerations for Treasury Policies
* Structure of Controls
* Segregation of Duties
* Delegtion of Authority
* Roles and Responsibilites
* Records Retention
Structure of Controls – take into account internal and external controls, reporting requirements, compliance, etc.
Segregation of Duties – dual control
Delegation of Authority – clear delegation of authority to those with relevant knowledge and experience
Roles and Responsibilities – define and identify responsibilities and authority for each position
Records Retention – must state how long documentation for a good audit trail should remain
Creating a Treasury Policy Document
1. Objectives and Scope
2. Developing the Policy
* Building Support
* Consultation
* Policy Structure
* Drafting the Text
3. Policy Approval (and stages)
4. Procedure Development and Implementation
5. Policy Review, Updates, and Revisions
Objectives and scope
* Determine the primary objective to set the scope
* Scope helps to determine discussions with those inside and outside treasury
* Objectives should be clearly communicated and reinforced
* Identify links with other relevant activities
Developing the Policy
Building Support
* Need authorization and support
Consultation
* Consult with existing parties to understand current processes and identify risk areas
Policy Structure
* Strike a balance between policy and procedure detail
Drafting the Text
* Common format and set of definitions
* Address what the rule will be rather than how to implement it
Policy Approval
1. Treasury Department Review
1. Functional Area Managers Review
1. Review by Internal Audit or Compliance Group
1. Final Approval
Procedure Development and Implementation
Policies drive standard operating procedures and procedures help to reinforce the policy
Policy Review, Updates, and Revisions
* Change as needed and review on a recurring basis
* Compliance reviews are important and should be handled by those outside the operational area
Policies drive what and what helps to reinforce the policy?
Standard operating procedures
Procedures
Why should managers and employees be involved in developing procedures?
Creates ownership and better compliance
Basic Policy Elements
* Objectives
* Scope
* Basic Guidelines
* Roles and Responsibilites
* Performance Measurement and Reporting
* Required Controls and Compliance Considerations
* Exception Management
* Review Cycle
* Definitions
* Policy Attachments
Objectives – clearly stated at the beginning
Scope – the areas and processes the policy will cover
Basic Guidelines – listing of all areas covered by the policy and procedures for how each process should be performed and managed
Roles and Responsibilities – authority, delegation, and segregation of duties
Performance Measurement and Reporting – metrics or benchmarks used for performance measurement should be defined clearly (important for hedging, investments, etc.)
Required Controls and Compliance Considerations – proper controls should be outlined and external controls should also be considered
Exception Management – determine how exceptions will be handled and who can approve them; clearly stated criteria is important here
Review Cycle – determine how frequently the policy will be reviewed
Definitions – self explanatory
Policy Attachments – glossaries, distribution lists, charts, standard reports, etc.
In the consultation phase of developing a new policy, is it important to focus on the existing policy or the existing procedures?
The existing procedures because the existing policy may not be followed
The structure of the specific treasury policy and procedures documents will need to reflect what?
The department’s practice
This will determine whether policies are high level or detailed
Liquidity Management Policy
(review and also tied to which other policy?)
Limit the probability of cash shortages
Liquidity management objectives
Tied into the cash forecasting policy
Identify potential events that can create liquidity shortages
Bank Account and Financial Services Authority Policies
Providing appropriate delegation of authority for opening, closing, and managing accounts
Which policy would include criteria for financial institutions based on their credit rating, etc.?
Bank Account and Financial Services Authority Policy
Payments Policy
(review)
Permitted payment methods
Permitted payment service providers
Payment and approval limits
Authorization requirements
Fraud prevention controls
Wire Transfer Policy
(review and which policy might this be a part of?)
May be part of a wider payments policy
Minimum wire transfer amount
Approval requirements
Template requirements
Approval requirements
Credit and Collections Policy
(review)
Extending credit to customers and collecting payments
Criteria for payments
Criteria for customers
Credit limits
Incident response
Cash Flow Forecasting Policy
(review)
Goals of the cash flow forecast
Frequency
Schedule for updating the forecast
Acceptable forecasting methods
Variance analysis
Short-Term and Long-Term Investment Policies
(review)
Scope of policy
Investment objectives
Approved investments
Approved counterparties
Portfolio management rules
Bank account management policy (credit quality)
Performance management
Use of external providers
The S/T and L/T Investment Policies should refer back to which policy when it comes to the counterparty credit quality perspective?
The bank account management policy
Investment Valuation and Impairment Policies
(review)
How will investments be valued
Mark-to-market requirements
OTTI and impairment steps
