Where debt and investment management usually breaks

This process usually breaks where a deal moves from the dealer to the back office, where forecasts depend on other teams, and where limits or hedge records are checked after the fact. Each break leaves traces: unmatched confirmations, manual payments, retrospective approvals and journals posted by hand at close.

Trade capture and confirmation

The first handoff sits between the person who agrees a deal and the person who confirms it. Deals done by phone or chat get booked late, or booked with the wrong value date, rate or counterparty account. The back office then matches against a counterparty confirmation that disagrees with the system.

The sign is a queue of unmatched confirmations that nobody owns. Look also for amendments made after settlement instructions were released. When the same dealer both books and amends trades, segregation has quietly gone.

Settlement instructions and bank details

Standing settlement instructions often live in email folders or a shared spreadsheet. A bank changes a correspondent account, the update reaches one person, and the next payment fails or goes astray.

Watch for payments released manually outside the treasury system. Watch also for call-back verification that is logged as done but has no record of who was called. Failed settlements tend to repeat with the same few counterparties.

Bank relationships and mandates

Authorised signatory lists drift out of date as people leave. Account inventories miss dormant accounts opened for a past project. Banks then hold payments, or a know-your-customer refresh arrives as a surprise and freezes activity.

An easy test is to compare the bank's mandate letter with the internal signatory list. Any difference means the internal list is not the one that actually governs.

Liquidity forecasting

Cash forecasts rely on inputs from business units, payables and payroll. Those inputs come in late or are copied forward from last period. Treasury then funds on guesswork.

Symptoms include idle balances sitting in operating accounts, overnight overdrafts, and short notice drawdowns on credit facilities. Another tell is a variance commentary written after the money has already moved, explaining the miss and not predicting it.

Issuer and counterparty limits

Investment policy sets limits by issuer, rating and tenor. In practice the check often happens in a spreadsheet after the deal is agreed. A downgrade gets noticed at month end, not on the day.

Breaches reported retrospectively are the clearest signal. So are approvals dated after the trade date, and policy exceptions granted by email once and then treated as permanent.

Foreign currency and interest rate hedging

Hedge requests from the business frequently arrive without the underlying exposure detail. Treasury executes, but the hedge documentation needed for hedge accounting is not prepared at inception. At quarter end the accountants find the hedge cannot qualify.

On the interest rate side, rate fixings and swap resets are often entered by hand. A missed reset produces wrong accruals that surface weeks later. Covenant calculations depend on these same figures, so an error can travel into lender reporting.

Indicators here are hedges rolled forward to avoid booking a loss, and late reclassifications between hedge reserves and profit or loss.

Accounting and reporting

The treasury system and the general ledger rarely agree without effort. Valuations from banks differ from those in the system. Accrued interest is calculated on different day count conventions in each place.

The giveaway is a set of recurring manual journals at close, each with a comment like "true up per treasury". If the reconciliation between subledger and ledger is cleared by a plug figure, the break has not been fixed, only hidden.

Workarounds that become the process

Most of the above is held together by shadow tools. A dealer keeps a personal blotter. Someone in accounting maintains a schedule of swaps that the system does not hold correctly. These tools work until their owner is on leave.

Ask to see every spreadsheet that feeds a payment, a limit check or a journal. Each one marks a place where the documented flow and the real one have parted.

Questions to ask the people who run it

What is documented and what happens on a busy day are often different. These questions tend to surface the gap:

• When a deal is done by phone, who books it, and how soon?
• Which confirmations are still unmatched right now, and why?
• Where are settlement instructions kept, and who can change them?
• When was the signatory list last checked against what the banks hold?
• Which business units send forecast inputs late, and what does treasury assume when they do?
• How is an issuer downgrade picked up, and by whom?
• Which policy exceptions are currently in force, and who approved them?
• Who prepares hedge documentation, and at what point in the deal?
• Which rate fixings are keyed by hand?
• What manual journals are posted at every close, and what do they correct?
• Which spreadsheets would cause trouble if their owner left tomorrow?

The answers that matter most are the hesitant ones. A pause before replying usually means the step depends on one person's memory.

APQC's Process Classification Framework® (PCF) is an open standard developed by APQC, a nonprofit that promotes benchmarking and best practices worldwide. To download the full PCF or to view definitions and measures, please visit www.apqc.org/pcf.