Certified Treasury Professional Treasury Operations and Controls Questions and Answers — Questions and Answers
Question 1: A mid-sized company's treasury department has one employee who is responsible for initiating wire transfers, maintaining the vendor master file, and reconciling the bank account at the end of the month. Which of the following internal control principles is most significantly violated in this scenario?
- Dual control
- Segregation of duties (Correct answer)
- Physical security of assets
- Independent review
Correct answer: Segregation of duties
The scenario describes a single person having control over multiple, conflicting parts of a transaction lifecycle (initiation, record-keeping, and reconciliation). This is a classic violation of segregation of duties, which is designed to prevent one person from being able to commit and conceal fraud or errors.
Question 2: What is the primary purpose of a corporate investment policy for managing short-term cash surpluses?
- To maximize the rate of return on all available cash.
- To satisfy the requirements of external auditors for financial reporting.
- To outline the specific securities to be purchased and their maturity dates.
- To provide a framework for ensuring the safety of principal and maintaining adequate liquidity. (Correct answer)
Correct answer: To provide a framework for ensuring the safety of principal and maintaining adequate liquidity.
The primary objectives of a short-term investment policy are, in order of importance, capital preservation (safety), liquidity, and then yield (return). The policy provides a guiding framework with approved instruments, counterparties, and limits, rather than specifying exact purchases.
Question 3: A company's treasury department is developing a business continuity plan (BCP) to ensure it can continue critical functions during a significant operational disruption. Which of the following is a critical component of this plan?
- Procedures for accessing banking platforms from an alternate site. (Correct answer)
- The annual budget for treasury department salaries and bonuses.
- A list of the company's top ten customers by revenue.
- A historical record of foreign exchange rates for the past five years.
Correct answer: Procedures for accessing banking platforms from an alternate site.
A BCP is focused on maintaining essential operations during a disaster or disruption. Having established procedures to access critical systems, like banking platforms, from a backup location is a fundamental part of ensuring treasury functions (e.g., making payments, monitoring cash) can continue.
Question 4: A treasury manager is conducting a detailed review of the company's monthly bank account analysis statement. The statement shows collected balances, an earnings credit rate (ECR), and fees for various services like wire transfers and lockbox processing. What is the primary objective of this review?
- To verify the accuracy of the company's internal cash forecast.
- To select a new primary banking partner for the company.
- To identify and negotiate reductions in excessive bank service charges. (Correct answer)
- To calculate the company's weighted average cost of capital (WACC).
Correct answer: To identify and negotiate reductions in excessive bank service charges.
The account analysis statement provides a detailed breakdown of bank service usage and associated costs. A primary reason for reviewing it is to ensure the fees are accurate, reasonable for the services rendered, and to identify opportunities for cost savings, such as by negotiating better rates or changing service levels.
Question 5: Under the Sarbanes-Oxley Act (SOX) of 2002, which aspect of treasury operations receives the most significant scrutiny regarding internal controls over financial reporting (ICFR)?
- The negotiation of credit facility covenants with lenders.
- The process for selecting a Treasury Management System (TMS) vendor.
- The documentation and testing of controls around cash management and payment processes. (Correct answer)
- The strategic hedging decisions for foreign currency exposure.
Correct answer: The documentation and testing of controls around cash management and payment processes.
SOX, particularly Section 404, requires management to assess and report on the effectiveness of their internal controls over financial reporting. Cash is a highly material and high-risk account, so the processes and controls surrounding cash handling, disbursements, and reconciliation are a primary focus of SOX compliance efforts within treasury.
Question 6: A global corporation is considering implementing a Treasury Management System (TMS). Which of the following is a primary strategic benefit of adopting a TMS?
- It guarantees higher returns on short-term investments.
- It provides centralized visibility and control over global cash positions. (Correct answer)
- It automatically ensures compliance with all local and international tax laws.
- It eliminates the need for bank relationship management.
Correct answer: It provides centralized visibility and control over global cash positions.
A core function and major benefit of a TMS is to aggregate data from various bank accounts and subsidiaries worldwide. This provides the central treasury team with a comprehensive, near-real-time view of global cash, which enhances control, improves forecasting, and facilitates more effective liquidity management.
Certified Treasury Professional Treasury Operations and Controls Questions and Answers
A mid-sized company's treasury department has one employee who is responsible for initiating wire transfers, maintaining the vendor master file, and reconciling the bank account at the end of the month.
Which of the following internal control principles is most significantly violated in this scenario?