Relining Treasury's Brakes

While Sarbanes-Oxley's impact on treasury remains unclear, companies are requiring cash management staff to reevaluate and tighten their controls.

For much of the 1980s and 1990s, treasury staffs were directed to proceed full speed ahead in providing the high-octane capital that drove corporations forward. Now those same functions are being asked to work on the brakes, to make sure they can prevent unpleasant surprises. Senior executives want to show that their companies are being driven safely, and treasury is one area where controls need to be conspicuous.

"The last thing any financial executive wants is for losses to be announced on his or her watch, with the implication that their operation was not properly controlled," notes Cathy Gregg, partner in the Chicago-based consulting firm Treasury Strategies Inc.

A control-loving culture already dominates treasury, so most cash management teams are responding to the new emphasis on controls by checking and fine-tuning processes rather than undergoing a cultural revolution. Still, they face some intimidating roadblocks on the journey to meeting heightened governance expectations.

Opening a Can of Sarbanes

Last year's accounting scandals galvanized -- and, in some cases, traumatized -- corporate executives, who watched TV footage of esteemed colleagues being handcuffed and taken off to jail. Treasuries are not sitting directly on the burner, as their CFOs are. Nevertheless, they're feeling some Sarbanes-Oxley heat as consultants give mixed signals about how much of the law and new SEC regulations apply to cash managers.

Eastman Chemical Co., a chemical manufacturer in Kingsport, Tenn., continues to rely on audits, but it has made them more thorough. "The auditors are testing in more detail now than they did in the past," reports Michael Watts, manager of global liquidity. "And they're applying a lower threshold of materiality. Things that might have been excused as inadvertent booking errors in the past are now getting more attention." Mindful that some of the recent scandals reached top finance executives, Eastman has shifted control over audits from the CFO to the general counsel, Watts explains.

"Corporate America doesn't like Sarbanes-Oxley -- considers it busywork, and much of it is -- but the [heart] of that legislation is that companies have to rethink their controls, and that is a healthy process," insists Kevin Grant, vice president and treasurer of cement supplier Lafarge North America Inc. in Herndon, Va.

Sarbanes-Oxley can provide the mandate treasury departments need to review risks and put in place best practices, suggests Craig Jeffery, senior vice president at Wachovia Bank in Atlanta. "You can resent it as an unnecessary expense or use it to put the shop in order," he says. "Most treasuries are not where they should be. Too often, one person can initiate a nonrepetitive wire. Too often, one person can set up a new vendor and approve payments to that vendor. Too often, policies are not consistently applied across all banks."