Why waiting to invest in a TMS could cost you more than it could save

By Kyriba March 26, 2015

There are apparently 500 million Excel users worldwide. I’m one. You’re one too, no doubt. Whether it’s being used to manage corporate finances or as a nice way to track your March Madness brackets, there’s no doubt that the humble spreadsheet has become a mainstay of office life.

However, that doesn’t mean that they should remain the primary tool for large organizations to manage their millions or billions of dollars of cash. While spreadsheets may have done a perfectly acceptable job when there were few better alternatives, the risk that they present to organizations with complex, often global treasury operations is just too great to ignore. So, in the same way that, for example, platforms such as salesforce.com have superseded custom-created Access databases for tracking sales activity and performance (or looking back even further, with the email replacing the fax), it’s time for forward-thinking treasury teams to upgrade from spreadsheets to a dedicated treasury management solution, similarly delivered in the cloud.

So, the question is: when is a good time to take the leap to a standalone treasury solution? The issue is that for many organizations, it’s viewed as a nice-to-have. “Sure, the ability to automate bank entries would be nice and save our team a couple of hours a day, but we already have everything on spreadsheets, we all know how to use them, and they’re basically free – what else can a treasury system do for us?” In short, it can save your butt. To provide an illustration of the risk that spreadsheets present, here’s a quote taken from a report on one organization’s trading loss.

“During the review process, additional operational issues became apparent. For example, the model operated through a series of Excel spreadsheets, which had to be completed manually, by a process of copying and pasting data from one spreadsheet to another.1

The organization? JP Morgan. The loss? About $6.4 billion.

While this is obviously a very extreme example, there are many scenarios where a TMS – with its ability to automatically extract data from bank portals without the need for rekeying, as well as set up workflows, alerts and separation of duties – can prevent both accidental and malicious incidents within an organization, that could cost millions of dollars.

Here are a couple of hypothetical examples:

  • You had a $20M interest payment on a bond issuance that was due on February 1, 2015. Due to a spreadsheet error resulting from a date convention mixup with your British counterpart, the wire payment was planned for February 1 (a Sunday), but could not be sent until the next day, February 2. The impact can range from late payment penalties to a breach of bond agreement and potential default, as well as a significant reputational risk. All of this could have been avoided with a system that enables you to set up alerts and exceptions for payment processing.
  • A subsidiary submitted an intercompany funding request for $1m to fund its supplier payments. However, the Treasury Analyst missed the funding request email and the payment arrived one day late, resulting in an overdraft in the local bank account. A central system with a payment dashboard can allow you to quickly and easily identify any outstanding payment requests.
  • An employee outside the treasury team installed keystroking spyware on treasury’s laptops to capture UserIDs and passwords for their primary banking portal. The employee initiated and approved fraudulent payments totaling $20M and consequently fled the country. This could have been avoided by implementing safeguards such as IP filtering, digital signatures and two-factor authentication.

You may read these and say “this could never happen to me,” but there are enough horror stories out there to show that it does happen. Often.

We’ve talked a lot about the positive benefits that a TMS can provide an organization, such as the ability to reduce idle cash, or provide deep insight and help drive strategic financial decision-making. However, what should be equally important in consideration is its ability to minimize the risk of a major financial snafu taking place at an organization. Making the investment in a TMS after the fact may prevent this from happening again, but it will probably be too late to rectify the situation (or save the treasurer’s job!).

So while the treasury department will never completely move away from spreadsheets (just like how the paperless office has never come to bear, despite what we heard 20 years ago), the question should no longer be “can we afford to invest in treasury technology?” but “can we not afford to invest in it?”

Resources

1.  Report of JPMorgan Chase & Co. Management Task Force Regarding 2012 CIO Losses, page 127

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