The CFO and Treasury: Aligned for Organizational Transformation and Growth
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Transcript of The CFO and Treasury: Aligned for Organizational Transformation and Growth
October 29, 2014
The CFO and Treasury: Aligned for Organizational Transformation and Growth
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 2
Today’s speakers
Phillip MattesTreasury Strategist, Kyriba
Phil provides clients with consulting and advice on all aspects of treasury system projects. He has over 18 years of consulting and corporate experience in treasury. He began his treasury career as a treasury analyst at the global oilfield services firm, Schlumberger.
He then spent more than eight years with the corporate treasury consulting practice of PricewaterhouseCoopers. He later joined CareerBuilder in Chicago as the director of treasury. Prior to his current position with Kyriba, Phil was the global director of treasury for Groupon, where he established its treasury function.
Russell HoffmanDirector - Market and Treasury Risk, KPMG LLP
Russell is a Director in KPMG’s Market and Treasury Risk Management division, with over 15 years of extensive treasury, financial instrument and risk management experience in the corporate treasury and financial services industry.
Russell works on numerous treasury advisory projects focused on organizational structures, governance and controls, back office operations, technology and regulatory aspects. Russell serves many of KPMG’s largest Fortune 500 and private multinational audit and advisory clients.
Current CFO initiatives and their association with Treasury
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The economic outlook
U.S. Fiscal D
eficit
Bankruptcies
Plunging commodity
prices
Housing markets remain under pressure
Uncertain financial markets
in many investment
sectors
Tightness of credit and liquidity
Global recession and negative outlook
Volatile FX markets
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
5
CEOs Setting the Course for Growth
KPMG's CEO Study "Setting the Course for Growth: CEO Perspectives" gathered 400 U.S. CEOs viewpoints on the most critical business issues the next three years and over the longer-term.
Key Themes
Growth• 50% of respondents characterize their
overall growth strategy as aggressive • 72% say that the focus on growth is more
important than a focus on operational efficiencies
• The top growth strategies are geographic expansion and organic growth
Transformation• 67% of CEOs said that their companies are
at some stage of transforming or having just transformed their operating models
Regulation• Regulatory environment is the top issue that
can have the most impact on a company • Second most critical challenge that CEOs
expect to face over the next three years (after geographical expansion)
Risk Management • Second-highest concern about the company
following financial performance • Risk planning is proactively discussed on a
regular basis at just 27 percent of organizations
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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Issues impacting the CFO’s agenda…and Treasury
More challenging credit and business environment, investor concerns
• Greater M&A activity resulting in finance reorganization and integration
• Transform organizational structure
• Leverage technology / data analytics
• Optimize available resources
• Rigorous cost management
• Arrange lowest cost of funding
• Improve working capital management
· Achieve operational efficiency
· Continued identification and monitoring of risk (FX, commodity, interest rate)
· Identify new risks i.e., Cyber security
• Greater regulatory compliance (Basel III, Dodd-Frank, FACTA, FBAR,SEPA)
• Understand and react to impact
• Establish performance indicators
Governance Risk & Controls
Cash EfficiencyGlobalization Regulatory &
Market Changes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The Increasing importance of the treasurerMoving up the organization pyramid – partnering with the CFO
Strategic planning Data analytics Treasury support to corporate leadership Learning and development
1.Treasury becomes more strategic in focus
Leveraged services Highly efficient, standardized, automated transaction
processing Integrated information technology framework
2.Better alignment with the broader strategic finance transformation
Centralized treasury Segregation of duties Specialized treasury expertise Leading practice sharing
3.Aligns with leading value added treasury organizations
Drivers for Change
Strategic
Analytical
Executional
The Treasurer’s role has become more strategic in nature and is more closely aligned with the CFO. Today’s challenging environment forces treasurers to focus on their core processes and to remain relevant to the entire organization.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The CFO agenda - GlobalizationTransforming treasury – greater integration with finance
Topic Category Impact Challenge/opportunity
Treasury Transformation
Organization Technology Process & Control Market Risk Management
Opportunity – Performing a treasury transformation will align Treasury and Cash Management process with a Company’s broader Finance and operational efforts resulting in:
■ Improved operational and financial decision making and control
■ Leveraged resources to maximize efficiencies and minimize cost
■ High level of scale, control, and standardization
■ Flexibility to evolve as business requirements evolve
■ Reduced risk
Centralization of Treasury
Organization Opportunity – Centralizing treasury functions in order to utilize a Center of Excellence and/or Shared Service Centers helps Treasury gain efficiencies and enhance control.
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The CFO agenda - globalization Shared services and outsourcing are key transformation enablers
…but the value proposition extends well beyond cost reduction
Administrative savings
■ Economy of scale – consolidation, skill mix, productivity■ Economy of place – labor arbitrage, labor availability
Process and service excellence
Transformational impact
Business focus
Flexibility
Compliance and control
■ Simplification, standardization and best practice deployment■ Continuous improvement and service quality management■ Customer satisfaction and demand management
■ Automation, self-service, digitization■ Aggregation/reduction of 3rd party spend; cash management■ Data and information management; analytics
■ BU focus on business specific activity: Revenue generation and production■ SSC focus on leveraging expertise across back-office
■ Adaptive to changes in the business model■ Ease of integrating acquisitions; cost variability
■ Improved process documentation, visibility and data integrity■ Simplified compliance monitoring, reporting and transparency■ Business continuity and disaster recovery planning
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 10
The CFO agenda - globalization Treasury technology
• Visibility• Productivity• Disparate processes• Audit risk
Protocols and Networks - SWIFT, EBICs, other regional banking networksFormats – EDI, SWIFT, etc.
Globalization
Trea
sure
r
CFO
Multi language / Multi currencies
Financial systems (ERP); 3rd party market data providers
Global Connectivity
Localization
Integration
Centralization Services Payment factories; In-house banking
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
11
Generate improved free cash flow
Robust cash forecasting, controlling and monitoring
Working capital and cash flow culture
Benefits realized
Reduce net debt
Improved DCF-based
valuation
Minimization of new monies
required
Enhanced visibility and
reliability
Increased stakeholder confidence
Tactical skills
Cash forecasting
Receivables PayablesTreasury
managementInventory
managementControlling
Organizational capability
Board level sponsorship
Communication and buy-in
Training and coaching
Contingency mindset
Reward structure
To realize opportunities to generate cash, it is important to have the relevant organizational skills and tactical ability in place
The CFO agenda – cash efficiency Realization of cash generating opportunities requires a cash flow culture
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The CFO agenda – Cash Efficiency Bank account rationalization
■ Significant administrative cost savings
■ Improved cash visibility and cash availability, resulting in reduced borrowing costs and/or higher overnight investment earnings
■ Reduced number of bank accounts with corresponding reduction in direct monthly banking charges, including fees for redundant services associated with these accounts such as positive pay
■ More efficient cash concentration/ZBA processes, with a corresponding reduction in itemized fees due to fewer transfer/sweep transactions
■ Reduced number of bank accounts reduces fraud risks, with reduction in less active/less monitored accounts
■ Reduced in ongoing account documentation costs (e.g., maintenance of authorized account signatories)
■ Potential reduction in number of banking partners
Financial Benefits
■ Increased control (centralization) over a cash flows improves strategic decision making and enhances ability to rapidly deploy funds where needed
■ Better visibility and control of cash improves the accuracy of the cash forecasting process
■ Potential to identify additional process improvements in daily Treasury Management System (TMS) processes
Other Benefits
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The CFO agenda – Cash Efficiency SWIFT Connectivity
SWIFT Net allows corporations to connect and exchange financial information securely and reliably.
SWIFT is solely a carrier of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. As a data carrier, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity
Consistent data
■ Robust information providing rich details about the transactions
■ Receive information more efficiently
■ Providing visibility into transactions more expeditiously
■ Support improved liquidity management and intra-day reconciliation
Better information
■ Standardized information directly from account holding bank (or via your aggregator)
■ Centralized reporting – 24/7
■ Multi bank relationship management
■ Improved efficiencies and STP
Benefits
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 14
The CFO agenda – cash efficiency Treasury technology
• Inefficient investing and borrowing
Liquidity management; cash forecasting with historical scoring
Cash Efficiency
Trea
sure
r
CFO
Centralizing 3rd party payments; supply chain financing
To support information sharing and insight into cash movement (i.e. AR & AP)
Cash Management & Cash Forecasting
Payments
Integration
Funding and Investing Track and manage funding and investing instruments
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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The CFO agenda – governance risk and controlsTreasury governance processes
Treasury
Board and
Senior Executive
Team
Business Units
Governance Are roles, responsibilities and accountabilities clear around the management
of cash and risk generated by the strategic business process? Do you operate a three lines of defense model? Is cash and risk management uniformly embedded in your organization? Do you have an effective organization structure for the management of cash
and risk? Is your cash and risk management culture what you want it to be? Reporting and Data
Is cash and risk data coming from multiple sources to provide a true picture?
Are users of cash and risk management information inundated with reports, dashboards and information making effective decision making difficult?
Are there redundant cash and risk management reports?
Do you lack confidence in your decisions because of poor data quality?
Is risk reporting timely?
Processes and Systems Do you experience duplicative processes in your operations? Do you have process inefficiencies caused by systems that
don’t interface? Are cash and risk management practices embedded in your
business as usual processes? Are the systems and processes both forward and historical
looking?
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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Risk / return-based
performance evaluation
Risk return-based decision making
Risk limits and monitoring
Delegations of authority
Risk appetite
• Include returns, relative to risks, taken by business units• Ensures appropriate incentives given to business unit
leaders
• Approach to make decisions based on return, given risk• Allows for common, objective lens through which to
decide
• Lays out maximum risks by type and group/department• Reporting on cross-functional and key risks
• Lays out who (by name) makes what types and magnitudes of decisions
• Spells out escalation approach
• Defined by Board and senior management• Lays out the types of risks and magnitude of risks (and
corresponding returns) the company is willing to take
The CFO agenda – Governance Risk & Controls Risk governance practices
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 17
The CFO agenda – governance risk and controls Treasury Technology
• Audit risk• Fraud• Higher costs
Segregation of duties; approvals and notifications; configurable process templates
Governance risk and controls Tr
easu
rer
CFO
On everything; historical; reporting
Data at rest and in motion; passwords; digital signatures; SOC 1 / SOC 2; Dual factor authentication
Workflow
Audit trails
Security
Bank Relationship Management
Bank account management; signatories; fee analysis; workflow based bank change management processes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
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Regulation Impact to Corporates
FAS157 / IFRS 7FAS133 / IFRS 9
FAS 157/133 / IFRS 13
Generate valuations for derivative financial instrumentsDevelop new framework to account for derivative transactionsIncorporate credit risk in all valuations
Sarbanes-Oxley 302 / 404 (US)
CFO needs to attest to audit and controls existence- Treasury must prove they exist internally- CFO must formally agree they exist externally
EMIR (Europe)Dodd-Frank (US)
Tracking of net new information, including unique transaction identifiers (including by business unit)Reporting of all derivative transactions to central trade repositoriesCentral clearing of derivatives (proposed)
SEPA (Europe)
Bank Accounts – switch to IBANsOutgoing Payments – switch to new SEPA SCT formatsDirect Debits – switch to new SEPA SDD formatsDirect Debits – refresh mandates w/ customer and bank
The CFO agenda – regulatory and market changes
© 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 302339
19
Regulation Impact to Corporates
FBAR (US)
For American companies and residents
Must track all foreign accounts + signatories + max balance of account in prior 12 months
Reporting by corporates and on personal tax reporting
Specific forms (fun!) for both corporates and personal
BASEL III
Direct impact to corporates = nothingIndirect impact is significant-Increased borrowing costs (banks less likely to lend)-Increased hedging costs (higher premiums offered)-Emphasis on non-balance sheet lending (e.g. SCF)-Push towards internal financing (netting & IHB)
FTT (Europe)Must calculate and pay significant taxes on borrowing and derivative transactionsIncreased costs to borrow and hedge
The CFO agenda – regulatory and market changes
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 20
The CFO agenda – regulatory and market changesTreasury Technology
• Reporting and timing • Rapid new and changing
regulatory changes – software not updated
Greater regulatory compliance (Basel III, Dodd-Frank, FACTA, FBAR, SEPA, EMIR)
Regulatory and market changes Tr
easu
rer
CFO
Key performance indicators; historical and predictive analysis; data integration
Updated frequently with new compliance capabilities without change management cost and pain
Reporting
Analytics
SaaS
© 2014 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL. 21
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