Setting up a Treasury in Romania for Skanska

In 2011, after more than nine years running treasury and risk management in one of the largest construction companies in Poland, Skanska SA, I was invited to start the company’s operations in Romania, which would be concerned with construction and office development. The idea was to establish and finance an organisation that could  support a medium-sized business with a turnover of EUR 50-100m and approximately 150 employees.

By early 2012 there were six of us who were to start this venture for Skanska. It was the company’s first greenfield entry in a new country in over 20 years, so we had to make our plans as we went along. Finance had to cover all three of the main activities: accounting (and reporting), management and treasury.

The starting point was very simple: we had bank accounts with one international bank and a small accountancy firm looking after the accounts.  IFRS compliance was carried out manually in Excel.

When establishing finance and treasury I always had in mind where and how finance is established in an organisation: are we back office, front office? But I strongly believe that this question is no longer relevant. A modern organisation cannot function without finance. In order to describe  the finance function, I like to use the ‘pit stop’ concept, imagining  that our company is a Formula One team,  competing against all the other teams. The most visible person is the driver – he/she is driving to win. This could be our sales people or project managers. But the driver will never win the race without her/his team. You need someone to prepare everything – the car, the fuel, the tyres, and you will have people like those in the pit stop who are visible plus the rest of the crew who are hidden but essential. The same is true of your company: do you actually see treasury performing? Most of the time you don’t, but if proper cash management is not in place, your company will go bankrupt very quickly.

So when I started designing the financial enabling function I looked at the expected set-up, current and future processes and available resources. And, as always, resources were limited.

Expected set-up

The three main roles in a finance team are  accounting – they record and report the past; treasury – they make sure that the present is handled in a proper way; and analysis – they assess the past and estimate  what the future will be. 

Processes

First, I made a list of all the processes: 

Accounting: registration of invoices, booking of bank statements, coding of costs, scanning of invoices, etc. 

Tax: tax authorisation, preparation of tax settlements. Reporting: group and statutory reports.

Treasury: analysis of currency exposures, forex transactions, reporting transactions, setting up and managing cash management – including payment processes, cash handling and arranging finance.

Management: cost analysis, budget reviews (forecast meetings), managerial support for business decisions (e.g., pricing of offers).

Next, I separated the processes into simple and complicated ones and  decided  who should perform them,  either juniors or seniors. Another separation was between ‘visible’ (pit stop) and ‘hidden’ or ‘invisible’ (crew) processes. The final grouping was done based on the criterion of whether the processes were needed for either statutory or group (company) requirements.

Resources

The analysis of available resources was simple – there was just me and Excel. But then I started exploring where to find resources at a reasonable and optimal cost. I came to the following conclusions:

Accounting and Tax: most processes fall into the hidden group, and  should neither involve nor be visible to the business (our Formula One driver). But part of their function was required because of Skanska’s group rules and part because of local Romanian regulations. Back home in Poland I had a trusted group of excellent and open-minded colleagues who could support me, but we  knew that in Romania we would need to tender for local statutory accounting services.

Treasury: although my heart and soul belong to treasury, I knew that it would be impossible to  run everything myself. I grouped the processes again into visible (analysis of currency exposures) and invisible (forex deals, cash management). 

Management: most visible to the business. I knew I had to recruit, induct and train an excellent local person.

Finally I had to pick an accounting and treasury management (TMS) system. We decided  to adjust one of the group systems used in Poland to the Romanian operations.

Summary of preparatory stage

The analysis revealed the optimum set-up: statutory tax and accounting – outsourced to an external provider; group accounting and reporting – use in-house resources.

Treasury: visible parts to be done by management in co-operation with treasury, the rest to be done by in-house treasury resources. Administration should be done locally. 

Implementation 

I first contacted the managers of treasury and accounting in my previous organisation. They were very eager to start this adventure as they saw it as a great opportunity to broaden their team’s experience. In order to have approval  from the Skanska HQ we prepared a business case comparing the implementation of a completely local team vs the combination of local and regional resources. 

The implementation stage was both easy and hard. The Polish team was great and very engaged in the establishment of the new set-up. The implementation of systems, new banking arrangements  and relationships went very smoothly.

We established new relationships with banks with which the Skanska group was already familiar in other markets. As FX transactions accounted for a large chunk of our wallet we decided to have a two-bank strategy in order to provide an element of competition. Responsibilities were split  so that a newly hired manager first spent some time in the Polish treasury on a ‘training on the job’ exercise. She then analysed the cash flows and identified  forex exposure. The transactions were done by the Polish treasury team, mostly with local Romanian banks. We also implemented the Skanska Group’s currency exposure reports. Treasury was responsible for them, but in close co-operation with reporting. 

Cash management was done with one main bank. After looking at various possible solutions, we decided to use the group’s available cash to finance the local venture via a cash pooling arrangement. For this we chose a bank that offered us a banking system that we could use in both Poland and Romania. 

One of the main concerns was the security of payments. In order to avoid any risk of fraud we decided that the payment process would be done in relation to invoice processing. It was essential to combine accounting with treasury. When tendering for the local accounting services one of the criteria was whether  the potential supplier would  be able to use our ERP system. Once this was established, we made sure that the payment and cost authorisation was carried out in two separate and independent processes. All the payments were generated by the accounting team in Poland and uploaded securely (both encrypted and with digital signature), into the banking system of the Romanian cash management bank. Simultaneously the local managers would make the authorisation in the ERP system. Only a payment that was authorised by both teams could be executed.

The accounting and reporting services were organised in the same way.  I made one very important decision, which was taken: against the advice of my accountants:  I decided to make the entries in the IFRS ledger first and then translate them into the local statutory ledger. I based this  decision on the fact that I had to report to the group on a monthly basis, much more often than was required by local regulations. Although this was very different  from the approach of most accounting teams, it was easier for me to take such a decision, as I was not an accountant and I did not see any reason to do it otherwise. After six years this system has proved  workable and compliant (having passed  many audits), and it makes everybody’s life easier. It has now been implemented across the whole region by Skanska.

Challenges

After a few months of co-operation with my old colleagues from Poland I accidently overheard something that I found amusing at first: “There is one thing worse than having Maciej as a boss: it’s having him as a client”. We had to fix this situation. Very quick we identified the main problems: we were physically far away from each other (1,500 km) and we had different opinions about what is a ‘good’ service. 

We started with the second issue first. We agreed and signed a service level agreement (SLA) that was then communicated  to both the finance team and  the local business team. Then we had to remind ourselves that we are one team. We began to have much more interaction via Skype and telephone. Emails are effective, but they endanger human relationships. Frequent visits between Romania and Poland were organised. We had to recognise that on one hand we were a team, but on the other hand we had a business relationship,  not like that between a company and a client, but more a business joint venture with a common goal, but also clear responsibilities. 

Another issue that was flagged early on, was something that many people who use outsourcing do not understand. You outsource work and processes, but not responsibility. This is something that I kept in mind as the local CFO. We established a kind of ‘demanding client concept’ – I recruited one person, a financial controller, to be the interface between the local business organisation and the shared service. This person was also responsible for verifying that the SLA was being followed by all involved parties. 

Next steps

After spending three and a half years in Romania I was asked by Skanska to go back to Poland and become the CFO of our office development operations.  I was welcomed back in Poland by a finance team, which we began to change in the manner we had established in Romania. Within a few months we transferred the treasury and reporting process to our Polish colleagues who were responsible for the Romanian operations. 

This exercise involved similar steps to the Romanian set-up: identification and grouping of processes, evaluation of resources, implementation. As the local finance team was understaffed, due to some organisational changes, we had to transfer a lot of processes to the shared finance function. It also involved the move of some staff, but as they in fact kept their main responsibilities (servicing the Polish development company) the process was smooth.

Today the shared finance function, which is part of Skanska Poland, services the development arm of Skanska in Poland, Romania, the Czech Republic and Hungary. I am happy and proud to be their ‘internal client’ and one of the people  who have driven this process from the beginning. 

Summary

I strongly believe that the pit stop concept, if properly applied, allows the separation  of the visible business processes from the invisible ones. It is necessary to remember that all processes are essential, to a modern business.

Map, group and re-organise your processes. Try to do it yourself – consultants will not be able to do it for you, they will be expensive and will just use their own particular methods which may not fit your business. 

Invest in resources – treasury is a specialised function. You will need a team and a treasury management system.

Always remember  that  the collaboration with the shared finance function is a special relationship. It is based on a business partnership, but you also need to be colleagues with the same goal. 

If you are the local manager, it is still your responsibility. Make sure you have proper interface and management in place.