CTP - Chapter 1

Independent Directors

- A member of the board of directors that is deemed to have no material affiliation with the company. "No material affiliation" can mean a lot of things depending on the criteria, but some examples include that they have not shareholders, they do not work for the company, or have not worked for the company for a long period of time, is not an auditor, etc. - For NYSE listed companies, the board must be made mostly of Independent Directors

Guidelines for Independent Directors

- Independent directors must make up a majority of the board. - Independent directors must not have worked with the company as an auditor (or for the company) in the last 5 years (cooling off period) - Cannot be an owner (ex. shareholder) or officer of the company.

What 4 Treasury Management Objectives are identified as "Working Capital Management"?

- Maintain Liquidity - Optimize Cash Resources - Maintain Access to Short Term Financing - Manage Investments

Internal Auditor

- Manages the process to assure that controls and procedures are in place and followed as established. This helps assure that the company is protected from fraud, inaccuracies, inefficiencies and the various losses and issues that accompany these risks. - Typically reports to the board of directors

Primary duties of Treasurer

- Overall financial risk and FX risk - External financing (Long and Short) - Bank and FI relationship - Day to day liquidity and cash management - ST and LT investments - Creating treasury policies and procedures - Manage payments (international and domestic)

6 tasks are identified for Daily Cash Management

- Preparing cash position worksheet - Monitor cash balance / deposits - Collect, concentrate and disburse cash as needed - Invest and borrow ST as needed - Reconcile and research bank charges and transactions, errors, etc - Work as needed with other areas: A/R, AP, accounting, etc

Benefits of SSC

- Reduced cost associated with having multiple locations - Process standardization - Increased quality and provide more timeliness - Increased strategic flexibility

Challenges of Corporate Governance

- Separation of ownership from decisions. The stockholders have invested and technically are owners of the company, but management can make decisions with little involvement or oversight of the stock holders. - Conflicts similar to this can happen in small, medium and large companies, whether private, publicly traded, for profit or non-profit.

Controller Responsibilities

- Technically responsible for financial reporting tasks, but can also be responsible for a lot of other tasks: A/R, Financial Planning, Financial Analysis, Financial IS, Accounting. - As with all responsibilities, this can change from one company to the next.

Agency Problem

- The issue that Management of a company may act in their own best interest instead of acting in the best interest of the shareholders. - The concern that management of a company is more interested in its own self-interest than in the interest of the shareholders of the company. - The goal of a company is to increase the net worth of its shareholders.

Cost Center

A department is considered a Cost Center if it is a support function that the company requires. This could be the Treasury department if it is only used to perform payments, manage bank accounts, report figures, etc.

Profit Center

A department that makes money for the company. For Treasury, this would mean that the department is utilizing and investing funds in a way that has positive returns, while supporting other functions for the company (buying/selling securities, FX, etc).

Shared Service Center

A format that not only Centralizes Treasury that's used company-wide, but also other departments like HR and AP. As companies grow, this model becomes more and more attractive.

Checks and Balances to monitor Management Performance

According to Essentials, there are multiple corporate governance guidelines that help protect investors: "board of directors and independent directors requirements, shareholder meetings, independent external auditors and regulatory agencies"

Primary goal of Treasury Management according to Essentials of Treasury Management, 4th Ed

Essentials explains that the "primary goal of Treasury Management is to manage the cash and related financial assets of an organization as efficiently as possible to provide the financial flexibility needed to achieve the organization's objectives in a manner consistent with the organizations overall strategic plan."

Accounts Receivable Manager

Generally responsible for payment posting, monitoring and collecting of payments for Accounts Receivables.

Centralized Treasury

Large or multinational corporations may choose to centralize Treasury operations (as well as operations for other departments) in an effort to make the process most efficient. Although this allows Treasury more control over operations and information, it can make it difficult for field locations to make decisions or build local relationships.

Decentralized Treasury

Many companies choose decentralized Treasury and allow field locations better control over Treasury decisions. Although may reduce the cost savings and level of control that come with centralized Treasury, many companies choose this because field locations either do not want to give up control that they've always had, or field locations could be located in another country.

Investor Relations Manager

Provides accurate and timely information to stockholders and bondholders. That information could be annual reports, briefings, information to potential investors, or responses to questions from current and potential investors. This position normally reports directly to the CFO.

Risk Manager

Responsible for all areas of risk and insurance to the company, which can include financial risk. Also can be involved with disaster recovery and contingency planning

Credit Manager

Responsible for any extension of credit, including Accounts Receivables and lines of credit. He/she also assures that these forms of credit are collected and paid as agreed.

Cash Manager:

Responsible for day to day cash management operations: daily cash, current accounts, and potentially bank relationships.

Assistant Treasurer

Responsible for day to day treasury operations

Accounts Payable Manager

Responsible for making sure payments are made to vendors and suppliers. Makes sure that payments are given according to the credit terms, if there are any, and reviews invoices, matches invoices to purchase orders and schedules payments.

Investor Relations

Responsible for the release of information to stock and bondholders of the company. This is not limited to financial information but could be any time of information that is relevant to the company's current and future shareholders or bondholders.

Corporate Governance

The "management" of company managers to make sure that they act in the best interest of the company and its shareholders

Treasury Functions Approved by the Board of Directors Essentials

The board needs to approve authority for Treasury to perform certain tasks and manage certain functions: - Open/Close/Modify bank accounts - Establish forms of credit - Manage investments and make investment decisions - Issue debt and equity securities - Manage and execute risk management strategies

According to Essentials of Treasury Management, 4th Ed, how is Treasury Management Defined?

Treasury Management "covers the safeguarding and efficient use of financial assets for the benefit of a company and its various stakeholders."