Operational risk management is now more important to treasury managers than ever before, according to the results of the biennial Corporate Treasury Survey released today by Ernst & Young and the Finance and Treasury Association.
Operational risk management is now more important to treasury managers than ever before, according to the results of the biennial Corporate Treasury Survey released today by Ernst & Young and the Finance and Treasury Association.
In this year's survey, treasury managers ranked operational risk management as the second most important treasury function after cash management, up from fifth spot in the previous survey in 2004, Ernst & Young partner Ivan St Clair said.
"The increased focus on operational risk has been partly driven by regulatory changes such as Sarbanes Oxley, ASX corporate governance principles and IFRS, and partly by boards and executive management," he said.
"It is interesting to note that rating agencies are also increasing their focus on operational risk."
Although operational risk management was regarded with greater importance compared to previous surveys, fewer organisations had documented treasury procedures, segregation of key duties and performance measurements in place.
"In the past 12 months many treasurers have spent so much time and effort in getting hedge accounting right that as a result they may have paid less attention to updating treasury procedural manuals," Mr St Clair said.
In total 181 treasury managers responded to the 2006 survey, the ninth in the biennial series designed to identify and report on trends in corporate treasury activity.
This year's results also revealed better overall reporting of information to boards, particularly liquidity and exposure analysis information.
Almost all organisations surveyed were undertaking and reporting analysis of their exposure to market prices.
FTA chief executive James Hewton said that in light of recent high profile convictions of directors, it was not surprising that boards were demanding better reporting of cash and liquidity, as well as exposures.
However while overall reporting to the board showed improvements, almost half the survey respondents don't report breaches of policy to the board.
"The board explicitly delegates its authority to management through the treasury policy, so it is difficult to accept that breaches, regardless of their nature, should not be reported at all times," Mr Hewton said.
Mr Hewton said the increased participation of board members in risk management committees reported in the survey was further evidence of directors taking a more active role in financial risk management activities.
The participation by board members in risk management committees has steadily increased over the past six years, from 18 per cent in the 2000 survey to 42 per cent this year.
This year's results also showed a notable increase in the responsibilities of treasuries compared to the previous survey, with the biggest increases in equity raising (27 per cent of respondents listed it as a responsibility compared with 19 per cent in 2004), dividend policy (27 per cent, up from 17 per cent) and insurance risk (33 per cent, up from 25 per cent).
"The increasing responsibilities of treasury managers highlights the need to retain and recruit multi-skilled staff," Mr St Clair said.
This may prove a challenge as the survey showed only seven per cent of treasurers who had recently recruited staff had found it easy to find appropriately qualified candidates.
Other findings revealed that while the transition to the new accounting standards was viewed as one of the major issues of the past 12 months, more than half reported that it had not impacted on their financial risk management activities.
