What's Neu - News from the The NeuGroup Network of Peer Groups

The Engineering and Construction Treasurers’ Peer Group had their seventh meeting this week which was sponsored and hosted in New York by founding sponsor BNP Paribas. The meeting agenda covered a wide range of topics including fraud, inter-company transactions, treasury dashboards, economic and bank market update, doing more with less – comfortably, and a member profile. The following are a few highlights from the discussions:

Dashboards – what you want them to see. Dashboards have a variety of purposes including tracking key metrics and data points, reporting within treasury, reporting to executive management and showcasing treasury. What gets included in a dashboard is dependent on ease of access and reportability. But the key content should be a mix of what the audience wants to see and what the author wants the audience to see. Common data points include tracking of cash balances and cash flow (ideally by entity and/or region), debt capacity and utilization, counterparty exposure, and contingent obligations such as LC’s, corporate guarantees and acquisition contingencies.

Credit – “It’s here. It’s cheap. Do it”. That was the summary statement by Renaud-Franck Falce with BNP Paribas regarding the state of the bank credit markets. His exhortation was to take advantage of the cheap liquidity and lock in your credit needs for as long and as low as you can. There is considerable bank appetite for revolving credit, letter of credit lines and bridge loans. But there is less appetite for term loans. The one caveat is that banks are signing up for lower commitment levels requiring more participants in the syndications.

Balancing Security with BCP. Most members have experienced some element of fraud in their treasury, some with actual monetary losses. The group had quite a discussion on their experiences with creative fraudsters who have been successful at penetrating the fortresses of large corporations. Breaches covered the gamut of old fashioned cooking the books to intercepting passwords into bank systems and transferring money. One operational challenge that surfaced is balancing precautions with the need for business continuity planning. Some members have elected to disallow anyone from accessing bank systems from outside the office (such as from a hotel or coffee shop), believing the risk is too great that login credentials will fall into the wrong hands. However, many companies rely on employee laptops to conduct treasury business in the event the office is disabled. One solution that surfaced was to have people in other offices trained to intercede in the event of a corporate site disruption.

Members will be meeting again in October in Chicago and expect to have an in-depth discussion on the cross-border currency pooling opportunities developing in China.

The Engineering & Construction Treasurers’ Peer Group started in 2010 as a suggestion of BNP Paribas who believed this industry would benefit from being part of a NeuGroup.

We thank all the participants at the Internal Auditors’ Peer Group (IAPG) meeting on May 15-16 at HP in Palo Alto. A special thanks goes to MetricStream for their support and presentation on GRC. Judging by the opening session discussion, the internal audit function continues to evolve and expand – sometimes to areas that make auditors less comfortable. In some instances, members have added an advisory role to their mandate. But for some this raised the question of when is one an auditor and when an advisor? Are they mutually exclusive? If an advisor, are you an auditor at the same time? Depending on the company, that answer varies. For some it’s the size of the issue: if it’s a big mature issue, you’re an auditor; if it’s a simpler process – say, pointing out the potential issues of an upcoming project – then it’s advisory. This tension ran through out the meeting, as it often does at IAPG sessions.

Further meeting highlights included:

• Audit universe continues to expand. One member presented on how they are managing the continued expansion of the audit universe, which continues to expand at a rapid clip. The company’s current coverage structure had to change to keep up. Therefore, it adopted a new approach: American Process Quality Control (APQC), which was designed from a manufacturing standpoint but can be used for audit. The benefits are that APQC is a timeless process that won’t change based on organizational changes or on the size of the audit universe.
• ERM still pinch point. One of the outcomes from a lively discussion on enterprise risk management was that there is still a question of how much involvement and/or ownership there should be when it comes to IA and ERM; most group companies it seems adhere to the IA as “third line of defense” model. At one company, however, IA oversees ERM, where the chief audit executive is “more than a program manager” when it comes to managing who actually owns the risks (this was in response to one member who said at his company, the business units own their risks and he feels he’s the program manager).
• GRC tools used for proactive risk-based audits. MetricStream presented on the end-goal for Internal Audit to leverage technology to harness Big Data and provide a framework for collaborative risk assessment across functions. Members are closer to the starting point of using GRC tools for more proactive risk-based audits, however, as very few make use of GRC functionality outside of their audit functions.

Thanks again to all IAPG meeting participants for your active contributions to the meeting sessions. We look forward to our next meeting scheduled for October 28-29.

 The Internal Auditors’ Peer Group was formed in March 2006 to serve chief audit executives at IP-rich MNCs. The IAPG joins our Corporate ERM Group to serve more comprehensive risk managers in the NeuGroup Network.

Europe challenges treasurers to find further efficiencies.

We would like to thank all the participants in our European Treasurers’ Peer Group (EUROTPG) meeting last week at Nokia in Geneva for the active discourse. We also appreciate the contribution of Chatham Financial for updating members on key EMIR obligations for corporate end-users of derivatives.  Here are some key meeting highlights:

• Pooling efficiencies. Evolving company structures and European standardization are enabling several members to delayer their cash pooling efforts and reduce the treasury infrastructure required to manage them. Bank Mendes Gans’ (BMG) service remains a standout enabler and is also recognized as a “bank agnostic” overlay which is advantageous from a bank relationship management point of view. Unfortunately, there is an “accounting psychology” that stands in the way of eliminating physical collection and payment accounts in many countries.  Pooling efficiencies are needed, as members focus on mobilizing all available liquidity, while also looking pro-actively at what they will do if European short-term yields go negative.
• NFC or NFC+? With regard to EMIR, the European equivalent of the US Dodd-Frank Act, the most critical aspect was to clearly determine if your treasury activities fall under the Non-Financial Counterparty (NFC) category or the NFC+ category, where they exceed thresholds for speculative derivatives use. The latter will have margining considerations for non-cleared transactions. Both have daily valuation and timely confirmation requirements (as of 15 March 2013) and will have portfolio reconciliation, compression and dispute resolution requirements (from 15 September 2013). Questions still remain regarding how FX fits into EMIR across Europe, although there is a possibility that the US exception for FX will influence the Europeans to grant a similar exception in EMIR. On the trade reporting side, questions arose as to how exactly reporting would work when a company amends an existing trade.
• Cross-border transactions still in regs limbo. Another outstanding concern is the treatment of cross-border transactions; neither Europe nor the US has finalized rules on this. For transactions involving a US and an EU entity, both Dodd‐Frank and EMIR will apply until/unless there is a “substituted compliance” or recognition regime in place. A key issue here – one that is subject to a regulatory stalemate at the moment – is whether either side will recognize equivalency on a regime basis or on a requirement-by-requirement basis. The US has indicated an inclination to go with the latter with Europe inclined to the former, hence the stalemate.
• Legacy concerns holding back SEPA prep.  Many members’ payment and collection mechanisms in Europe have used legacy formats for so long that companies are concerned about the repercussions of implementing new SEPA formats, even the IBANs. The people who implemented the legacy systems are long gone, and this doubles the concern about the unforeseen consequence that might be triggered by even basic changes. With IT and programming resources in short supply, big-bang adoption of the SEPA formats proves difficult.  Italy and Spain, in particular, face similar issues from a country perspective.

Again, we appreciate the sharing by our EUROTPG members on these and other topics covered at the meeting last week.

The NeuGroup’s European Treasurers’ Peer Group was launched in February 2008 for regional treasurers of MNCs based in Europe. This membership group joins our Latin American Treasury Managers’ Peer Group and our Asia Treasurers’ Peer Group to form the regional portion of the NeuGroup Network serving the treasury profession.

PayPal pilots Deutsche Bank Accounts Receivable Manager for SEPA.

NeuGroup-member company PayPal was a pilot customer for Deutsche Bank’s Accounts Receivable Manager (ARM) for SEPA product. As highlighted in a special supplement for International Treasurer, ARM for SEPA is a great example of how banks can go much further to help improve centralized payment processing efficiency if their customers will take the tactical first steps like convert their bank accounts to the new IBAN.

“What IBANs do is provide a structure for the bank account number that is validated across all banks within SEPA in exactly the same way,” says Arthur Brieske, Global Head of Commercialization, Global Transaction Banking, Deutsche Bank. Thus, IBANs are ready-made to serve as unique identifiers for routing of payments. Deutsche Bank used this identifying feature in its ARM for SEPA product so that companies can link customers’ payments to their required remittance information via an IBAN.

The further advantage of this approach is that it makes customers’ collection platforms more bank agnostic,” notes Mr. Brieske, “since any SEPA-compliant bank’s systems will be set up to work with IBANs.”

Deutsche Bank also took this IBAN benefit and applied it to virtual accounts. Corporates with a centralized collection platform using ARM for SEPA can set-up virtual accounts with IBANs for all of their business units and ask customers to remit to these accounts. Since these virtual accounts are mapped to the physical collection accounts, corporates gain flexibility to both consolidate the number of physical collection accounts now and in the future without having to go out to their sales channel again. Often the customer has no idea they are remitting to anything other than a local bank account.

Meanwhile, the required payment reference information sent with the payment directly to the virtual collection account of the recipient is much more likely to remain intact and be auto-reconciled. Deutsche Bank says that many firms using this platform have a real chance of obtaining 100 percent auto-reconciliation.

In the case of PayPal, the structure makes use of millions of IBANs for its customers, allowing fully-automated payer identification. Until it helped develop ARM, PayPal had to contend with an unacceptable amount of returned payments on a daily basis. Additionally, the company had to battle payments with missing or inconsistent information, which then had to be processed manually. This was an unacceptable user experience, according to Katja Lehr, Senior Manager for Global Core Payments at PayPal. And as a global organization, it was important for PayPal to have a single solution which works throughout Europe, “while also providing the look and feel of a local solution to our users,” she said.

Do other member companies have similar SEPA-related projects to report (please comment below)?

For more about how to add value via SEPA, see the International Treasurer special supplement sponsored by Deutsche Bank.