Case study: IAG
Tailored outsourced Treasury Solution Cuts Costs and Reduces Risk
When Mark Gold was appointed to the position of Deputy Treasurer with IAG in 2007, the company was extending its reach into global markets and becoming more of an international player.
“Because we were buying business assets in foreign jurisdictions, we were creating substantial foreign exchange exposures,” said Mark. “We wanted to hedge these exposures and needed an infrastructure that would support us in this, which would also manage reporting and accounting requirements.”
Up until this point, these functions had been managed internally on systems not specifically designed or configured for the purpose. “I was already acquainted with Oakvale Treasury’s service offering and so I made contact with them to delve further,” said Mark.
Mark and other representatives from IAG met with Oakvale Treasury to appraise their service model, the Acorn™ Online Treasury Management system. Mark identified that Acorn™ could offer the hosting, reporting and accounting functionality they required.
Together Mark and the Oakvale team worked out a model that would support IAG’s needs.
“We plotted the lifecycle of a deal and worked out who would do what,” said Mark. “We also developed a template and a defined set of instructions to manage the process.”
In implementing the solution, IAG has retained responsibility for deal execution and the relationships with counterparties. In turn, Oakvale hosts and confirms the transaction and initiates payments through third party bank arrangements. IAG confirms and releases the payment when it becomes due.
“The model we developed has proved very robust,” said Mark. “Along the way, together we’ve also made enhancements such as introducing new products and currencies. For example, we are currently introducing the Chinese currency and Oakvale have been able to modify their system to accommodate this.”
IAG has also built an interface between Acorn™ and IAG’s general ledger, which Mark said was a reasonably simple thing to do. This has meant that IAG is able to procure data that precisely matches their accounting department’s requirements quickly and easily.
Mark said that prior to the arrangement with Oakvale, IAG had 3 full time equivalent (FTE) staff supporting the functions now outsourced to Oakvale. The cost to IAG of Oakvale’s services currently equates to approximately 0.25 FTE.
Furthermore, reconciliations were previously performed monthly, whereas since partnering with Oakvale, they are now done daily. The increased frequency of reporting has reduced risk significantly as the IAG team now has access to daily data instead of waiting for a month.
“The speed and accuracy of reporting has a huge bearing on us, particularly as we are managing a $2 billion foreign exchange portfolio,” said Mark. “Partnering with Oakvale has greatly reduced costs and risk, and improved service standards substantially.”
The interface that was developed between Acorn™ and IAG’s general ledger has meant that monthly data is reconciled by Day 2 of each month, compared with Day 10 to 12 which was the case prior to the arrangement with Oakvale.
“Oakvale are very responsive to our requirements,” said Mark. “For example, IAG recently conducted a NZ$325 million bond issue in New Zealand and Oakvale ran a system test for us a month beforehand to ensure everything would work smoothly.”
Mark said there are just 4 people on the IAG treasury team and so it is valuable to have access to the Oakvale team. “Segregation of duties is vital to us and it would not be possible on our own with such a small team,” he said. “For example, it is beneficial to have different people confirming and executing a deal, as it is to have different people entering a payment and authorising it. It’s good to have an extra pair of eyes reviewing transactions. The organisation draws comfort from this as it’s a valuable way to guard against fraud or negligence.”
Mark believes that Oakvale offers good value for money. “We appreciate the open lines of communication that exist between us as well as our quarterly meetings and service meetings,” he said. “Oakvale have a relatively stable staff, so that makes it easy for us to work together. They speak our language.”
- Access to online foreign exchange trading platforms e.g. 360T
- Transaction capture
- Portfolio analysis and valuation
- Confirmation generation and matching
- Online treasury payment and system support
- Management reporting
- Hedge accounting testing and compliance (AASB 139 / IFRS 9)
- AASB 7 sensitivity analysis and compliance
- Treasury accounting support
- Temporary operational assistance
IAG uses the Acorn™ system which offers:
- Online access to portfolios – 24 hrs a day, 7 days per week
- Mark to market valuations calculated using independent market feeds
- Security, reliability and privacy
- Full hedge accounting capability
- Comprehensive reporting with access to over 100 reports including:
- Cash flow reports – highlighting upcoming flows and cash positions
- Transaction reports – tracking ongoing corporate actions and audit reporting
- Position reports – showing portfolio positions combined with market valuations
- Risk reports - analysing ongoing exposures with sensitivity analysis
Contact Oakvale Treasury today for more information about our comprehensive and flexible range of specialist treasury services.