Treasurers Under Investigation

• DOI: http://doi.org/10.1002/jcaf.22048
• Published date: 01 May 2015
• Date: 01 May 2015
• Author: David Shapiro

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© 2015 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com). DOI 10.1002/jcaf.22048

This article was originally published in Volume 24, Number 1 of The Journal of Corporate Accounting and Finance.

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David Shapiro

OVERVIEW

Directly or indi-

rectly, the questionable

performance of the trea-

sury function (“Trea-

sury”) lies within the text

and subtext of numer-

ous financial scandals

and investigations,

domestic and interna-

tional. As Treasury’s

primary object of con-

cern—cash and other

liquid assets—is char-

acterized by inherently high risk

(i.e., theoretically, these assets can

readily be converted into cash),

it is not surprising that the risks

of fraud and mismanagement

require the treasury function to

be designed, implemented, moni-

tored, and audited with continu-

ous diligence. The uncertainty

of cash flows—short-term and

long-term—lies at the core of the

treasurer’s dilemma. A survey of

some of these investigations pro-

vides illumination about how to

prevent them.

Currently, Treasury has

been challenged in cases making

headlines throughout the world.

By way of example, see Exhibit

1, which summarizes how some

fact patterns (i.e., conditions) fell

short of demands made upon

it (i.e., criteria), causing demon-

strable harms to the entity and

its stakeholders and the econ-

omy (i.e., effects).

These cases illustrate the

abuse and/or illicit use of Trea-

sury. Though the listed institu-

tions are financial, similar types

of misconduct could occur in

Treasury for nonfinancial sec-

tor organizations. Preventable

harmful effects may be caused

by intentional misconduct or

unintentional management. The

risks for both of these types of

causes may be mitigated by a

well-designed, effectively oper-

ated, and continuously tested

treasury (cash) management sys-

tem. Compliance systems using

automated controls originating

from within the entity as well

as those applied by

independent consul-

tants and vendors

from outside the

entity are a useful

part of a sound trea-

sury management

system.

TREASURY

FUNCTION

The objectives of

Treasury are three-

fold: (a) to maximize

the (consolidated) entity’s rate

of return; (b) to assure adequate

liquidity to meet daily, weekly,

and monthly operational

needs; and (c) to minimize lost

opportunity cost. These objec-

tives transcend the entirety of

organizational activities—from

operations to financing to

investing—including those rec-

ognized on the balance sheet

and profit-and-loss statement

recognized activities to those

deemed off-balance-sheet enti-

ties and transactions.

Treasury is composed of five

basic processes: (a) obtaining

financing; (b) forecasting cash

requirements; (c) investments;

(d) risk-return analysis, and (e)

corporate (operational) gov-

ernance. The time horizon for

Questionable actions by treasurers lie at the heart

of many financial scandals and investigations. Cash

and liquid assets—a primary concern of treasur-

ers—have inherently high risk. So it is not surpris-

ing that the risks of treasury fraud and misman-

agement require special design, monitoring, and

auditing—all with continuous diligence. The author

takes a look at some recent cases where treasur-

ers have been under investigation, and reveals

insights about how to prevent such disasters.

© 2015 Wiley Periodicals, Inc.

Treasurers Under Investigation