Leveraging Technology to Drive Best Practices in Risk Management
by Cynthia Stimpel, Manager, Financial Risk Management, South African Airways
Increasing sophistication in treasury management technology has led to a major change in the way that corporate treasuries manage their operational and financial risk. At South African Airways (SAA), we strive for continuous improvement across all aspects of our business, including treasury. Because the management of financial and operational risk is a key treasury responsibility, we have invested significantly in effective policies, secure processes and accurate, timely reporting in all risk related areas. This article outlines some of the ways in which we manage operational and financial risk at SAA, leveraging our best-in-class treasury technology infrastructure.
Enforcing segregation of duties
Looking first at operational risk, we have implemented a structured front, middle and back office treasury organisation to enable effective segregation of duties. Our front office dealers take responsibility for execution strategy, dealing and hedging. Our middle office monitors risk, limits and compliance. Back office users manage cash and liquidity, including bank account reconciliation and cash flow forecasting, and manage post-trade activities such as settlement and confirmation.
It is not enough, however, simply to divide responsibilities across different individuals or teams within the treasury department: segregation of duties must also be enforced at a process and systems level. An efficient and secure treasury management system (TMS) is therefore essential to a well-controlled treasury department. We first implemented SunGard’s AvantGard Quantum solution (‘Quantum’) in 2006 based on its ability to support our requirements for straight-through processing (STP) and integrated processing, revaluation, and real-time reporting.
The TMS has played a critical role in delivering an efficient treasury management strategy. For this reason, it is important to conduct periodic treasury management system reviews to ensure that the solution continues to meet an organisation’s evolving functional, technical and usability requirements, and remains at the forefront of treasury innovation. We therefore reviewed the TMS market once again in 2014.
Evolving transaction processes
Dealing processes have changed substantially over recent years as a result of both regulatory changes and TMS software improvement. In the past, dealers wrote out three-part deal slips and kept one in front office, gave one to an administrator and sent one to middle office. Today, deal input is a one-step process: dealers either input the deal details directly into the TMS, or this information is imported from an online dealing system. At SAA, our dealers input transactions directly into Quantum From that point, the flow of deals takes place automatically, with check points and controls managed by middle or back office such as approvals, settlement checking and confirmation matching. We have implemented controls in Quantum that allow only authorised middle office and senior management users to approve transactions, while front office users are also prevented from undertaking tasks such as revaluation, settlement, confirmation and uploading rates on which revaluations are based.
Financial and process integrity
Detailed user profiles that allow us to configure in detail the responsibilities of each user are very important in demonstrating financial and process integrity, and are monitored regularly by Middle Office, IT and the auditors. Internal and external auditors review detailed system generated audit reports, which detail all treasury activities. Additionally, they sit with users to check that they are physically prevented from undertaking unauthorised activities, and that these attempts are logged. The management and compliance reports that we are able to produce from Quantum have been essential in helping us meet internal and external audit requirements.