Treasury on the Move​
“My background was originally in accounting, audit and tax. In treasury, you’re in a position where you can influence things and change things, rather than being reactive and recording what has already happened. Treasury is something different, it is about making things better, resolving issues.”
Malcolm Grant | Chief of Treasury, IOM
IOM Treasury Profil
About IOM:

International Organization for Migration, or IOM, is the world’s leading organization that provides services and assistance concerning migration – dealing with the diverse and complex aspects in this field. Established in 1951, IOM has been working closely with various partners – governmental, intergovernmental and non-governmental. They promote international cooperation on migration issues to assist in the search for practical solutions to migration problems and provide humanitarian assistance to migrants in need. With 165 member states, 401 IOM offices, missions, and over 9,000 employees worldwide, IOM is a very complex organization – and this is mirrored in their treasury operations.

For many organizations, all you need to do is look at their core business to find out what challenges their treasury is faced with. In most cases, you have certain revenues on one hand and certain costs on the other, and in most traditional businesses, these and similar aspects are the driving factors behind the work of the treasury department. IOM is different: simply considering cash and checking traditional business parameters is of no help here. The organization, and in turn the treasury department are truly unique: their business – though some might consider it a passion – stems from the suffering of people who have been displaced from their home or who have returned after years in exile. For many organizations, all you need to do is look at their core business to find out what challenges their treasury is faced with. In most cases, you have certain revenues on one hand and certain costs on the other, and in most traditional businesses, these and similar aspects are the driving factors behind the work of the treasury department. IOM is different: simply considering cash and checking traditional business parameters is of no help here. The organization, and in turn the treasury department are truly unique: their business – though some might consider it a passion – stems from the suffering of people who have been displaced from their home or who have returned after years in exile.

“We are a humanitarian organization – and very shortly we’re going to be part of the UN family. Our work is concerned with managing migration in an orderly way and all the services that are necessary to make this happen,” explains Malcolm Grant, Chief of Treasury. “But our work is not just about getting people who have been displaced from A to B, and from B to A. We do much more than that. We also offer many programs in connection with health and migration and have issues such as labor migration, remittances, international labor laws and many other support processes on the agenda. All of these measures aim to cope with the consequences of migration.”

Both emigration and immigration have increased considerably in recent years. As a consequence, the organization with headquarters in Geneva (Switzerland) and offices and missions in many countries has grown almost ten-fold in the last decade. IOM’s diverse activities are defining factors for the work of Malcolm Grant and his treasury team. The vast amount of hotspots where IOM’s assistance is needed also has a particularly great impact on their work:

“Our organization works in a large number of different locations, over 160 countries in total. The missions in the field need to rely on adequate funds, ready to use as and when they need them. They count on our support. Another very relevant factor is that we operate in particularly challenging and difficult locations. This morning for example, I was dealing with an issue in Libya, but I could also cite Sudan, Burundi or several other countries. Our job and our challenge is to keep those missions working – in terms of cash and liquidity issues, but also when it comes to risk management. That can be FX exposures, as we are working with more than 100 currencies around the world. Cash and liquidity management certainly are common issues for all businesses, but maybe with a different flavor at IOM.”

Expenses for targeted humanitarian projects (in 2016, this amounted to USD 2 billion) are met by project-specific donations. Budgets are often tight and only cover the costs of a specific project. The Syria crisis with all its awful repercussions illustrates how IOM operates: Canada commits to taking in a sizeable number of refugees from this region and commissions IOM to handle the process. This ranges from selecting migrants, to the logistics of resettlement and integration support in the target country. IOM takes on responsibility for the entire “service chain.” This also involves drawing up a budget that needs to be approved by the commissioning party (in this case Canada), as the country carries the costs and transfers the money to IOM. The project can start as soon as the money has been paid, and the missions in the field get started. Projects are pre-financed, and this requires accurate budgeting and an exact estimation of the efforts that are going to be required.

“We have a business plan with specific deliverables and costs for each project. This plan is presented to or negotiated with the donor. When they’re satisfied with the business plan for the project, we get the funds. In 98% of all projects, we are prepaid. So we can always forecast that we are going to have 5 or 6 months of cash and can be fairly confident about this figure.”

Some “typical” treasury issues are of great relevance to IOM; others have low priority – for example liquidity planning and forecasting. Liquidity planning at IOM is very manageable, as the projects are prefunded. What’s more, funding is never arranged through banks but generally through project financing. Prepayments make IOM substantially cash long, meaning they often amass “heaps of money” before the sums are then used as part of a project. Nevertheless, interest returns – or given negative interest rates also interest expenses – are basically irrelevant when it comes to the total volume.

It is mainly FX issues and the corresponding FX risks that are of great relevance to the treasury department. Again, the example of Canada taking in Syrian refugees illustrates this nicely: Canada funds the project in CAD, and the budget is in this currency. However, some expenses (for example flights) are incurred in CHF or in EUR (for example transportation to the airport). Different currencies are involved, and any number of constellations would be possible here. Take another example: the Iraqi government wants to hold elections but realizes that a substantial part of the electorate lives in exile. They commission IOM to enable expatriates to vote and to ensure no irregularities occur – and this in all places with a large Iraqi population. In situations like this, not only CHF, EUR and CAD play a role but many other currencies. Given the great diversity of projects, it is easy to see why this is a challenge for the treasury department:

“One of our main challenges is risk management. That can be FX exposure risk, country risk, counterparty risk, operational risk, internal risk etc. This is a huge area and a big challenge because we’re present in more than 160 countries with people of various different backgrounds who might need more or less help. We are very small in the center but very widely disbursed. Supporting and controlling risk in all those various locations is a huge challenge for us. We run about 2,500 to 3,000 projects, and all these projects are individually budgeted for in one single currency. So our reference currency is whatever that project is in – it’s all over the place. So hedging is a huge challenge, starting with identifying the base currency for identifying FX risks.”

IOM has a very broad currency portfolio, whoever commissions a project determines the project reporting (base) currency, and the project is budgeted accordingly. This can involve many different currencies. Achieving an overview of all foreign currencies and the FX exposure is a challenge in itself.

“IOM prepares its annual financial statements in USD but we report to each donor in the currency they have chosen. A substantial number of projects are USD-denominated but a significant number is also in other currencies, such as CHF or EUR. Our FX exposure risk is spread across more than one reference currency. It is our job to ensure that FX volatilities don’t impact our missions in the various hotspots worldwide,” explains Malcolm Grant.

IOM focuses on conversion risks and the corresponding costs. While currencies such as CHF, USD, GBP, EUR, the Scandinavian currencies, CAD or AUD always need to be monitored closely, the treasury team wants to do even more than that. Malcolm Grant’s team aims to take advantage of heterogeneous FX exposures on one hand (on an individual project basis and for all projects) and FX requirements on the other hand. They act as an in-house bank and try to rely on natural hedging wherever possible.

“Project managers are responsible for assessing the impact of FX risk on their particular project, for example how currencies that they are procuring will impact on the reference currency for that project. All projects are then put together and relevant currencies and risks are assembled. Getting the net picture is really crucial. It is my job to look at this overview and net globally. How can we achieve natural hedging and will this be sufficient? Do we have the right balance of currencies?”

This is a very complex endeavor that requires “legwork” from the missions. The treasury team is currently working on this issue and sees enormous potential. A number of transactions have already been centralized, which has led to considerable savings. But there are some things central treasury will never be able to manage on their own: local know-how and the fastest possible conversion methods in the field are important factors in this difficult and unique business that often entails funding needs at short notice. This makes collaborating with the missions indispensable, and decentralizing specific processes and tasks helps balance the workload in the medium term. A lot of lobbying is still needed to achieve this, and IOM as an organization still has a steep learning curve ahead of it in this respect.

“IOM seems to run a sort of parallel treasury world. On one hand, we have one part that is highly decentralized. This affects payments to vendors and salaries that are handled on a mission level. On the other hand, we have a highly centralized component in the overall cash management support structures. That has to change – we need to move towards regional solutions for both sides. We need to see regional payment centers, regional payment factories in order to achieve efficiencies and work with fewer banking partners. This is actually happening. We have Shared Service Centers in Manila in the Philippines and also in Panama which are beginning to take on more and more functionalities as we evolve certain control aspects down into effective regional hubs and improve the balance between centralized and decentralized elements.”

Three employees from IOM’s treasury team of seven are based in the Shared Service Center in Manila and support the missions with selected services, in particular in connection with payments and payments processing.

“Being present in 160 countries also means having bank accounts in these countries. Let’s take the example of a mission in Ukraine needing to make a payment in Sterling. They don’t have a Sterling bank account. We want them to save money on making a cross-border transfer. We have a Sterling bank account, so we settle the payment on behalf.”

The scenario described by Malcolm Grant highlights two particularities: for one, it shows that IOM as an organization has a unique status not to be confused with common legal entities in businesses. In any other business, if a Ukrainian subsidiary asked their “sister” in Manila to make a payment on their behalf, then legal questions in connection with FX transactions in Ukraine would be the predominant issue. Even provided these questions could all be resolved, the entity in Manila would still have to enter a receivable to be paid by the Ukrainian company on an intercompany account. The situation for IOM is different: their special status as an international organization means they’re treated as one single legal entity, making FX issues in Ukraine irrelevant. They also act as one entity when running missions in various countries, doing away with internal payables and receivables. Moreover, IOM has established a standardized, bank-independent payments system that not only serves to optimize payments and corresponding processes in Geneva but also to capture and process payment orders in Manila. In a transparent and constructive manner, the team collaborates across all borders on one shared platform.

“IOM really wants to move even more towards a just-in-time-allocation of the funds to our missions. Historically, what we have always done is send them a month’s worth of money upfront. That money is ‘sitting’ in their bank account and potentially even represents a risk depending on where that money is, with whom and in which country. So having increased visibility and also access through cash pools means that we can feed these accounts much more easily, much more frequently and in this way minimize money sitting in accounts around the world. This makes us more efficient and secure.”

IOM literally has accounts “all around the world.” Around 160 missions have approx. 600 accounts with around 150 banks. IOM would like to further consolidate the number of banks they work with. This is an important project but not easy to implement. For example, in order to transfer money to Iran or South Sudan, you either need to make use of special institutions that are exempt from sanctions and can make these payments or to use other licensed financial service providers. And it’s not enough to transfer funds into these countries. Local banks also need to be in a position to keep the money safe, making sure it actually reaches the beneficiary and benefits the project. Some projects are allocated an OFAC license straight away, i.e. direct permission to transfer money via otherwise heavily sanctioned channels. In most cases however, it is the treasury department that needs to find ways to get the money to its destination. The diplomatic status of local entities can be of help here. Only recently, a local judge ordered a freeze on all bank accounts in a specific region in connection with a traffic offense. Fortunately, Malcolm Grant’s team was able to persuade the concerned banking partners to ignore the court order and unilaterally rely on IOM’s stated diplomatic privileges and immunities, pending the very slow process of having confirmation of these rights sent to the banks by the Ministry of Foreign Affairs in the country. The accounts in question, that held several million USD, remained accessible – however this was surely not a run-of-the-mill treasury task.

One area where IOM is like everyone else is the consolidation of payments:

“At the moment we’re working actively to manage our SWIFT connection. A couple of weeks ago we went live to effect payments, and this is a very significant step. We also collect MT940s and bank statements via SWIFT to ensure really strong day-to-day visibility on cash positions and to monitor where cash positions are building up in ‘funny’ locations or currency. We’re now in a position where we can see if we need to act immediately, and not just in several weeks’ time when Accounting catches up.”

The team is proud that the implementation of SWIFT has led to the automatic processing in Geneva of electronic account statements for approx. 60-70% of the money supply. They will up this number to over 95% by the end of 2016. This represents around 50% of all existing accounts. A number of small local accounts that are of relevance for cash supply are not included in this process because the efforts involved would not be justified and they’re not relevant enough.

The treasury team frequently has to deal with unexpected issues. Let’s take Africa where an increasing number of people have an eWallet on their cellphone but many fewer have a bank account than in developed countries. One of the Western European missions actually still uses word processing on a PC to create manual transfers to then personally take them to the bank, adorned by two signatures – “straight through processing” so to speak. The treasury department needs to pay heed to both factors and integrate them in the overall structure. Their top priority is to create transparency around which funds are available where, and they achieve this through good collaboration. Malcolm Grant is convinced that IOM partially owes an overall more effective organization (not just for payments but also in connection with exchanging all kinds of data) to the support of their systems. Visibility is key when it comes to his wish to achieve better control, clearer rules and clear-cut standards for the whole organization:

“Without a treasury management system, we had no effective place to collect data. To effect payments we used many different platforms. We have been able to consolidate everything in one single platform for effecting payments, centrally in Geneva. We also use that data in liquidity planning and combine it with all our investment data to get a really good snapshot picture. This enables us to have a very effective dashboard, to manage liquidity and investments and to make our life easier.”

Opening bank accounts, processing FX deals or transferring funds (either as bank transfer or physically, e.g. to the next airport) are all subject to precise risk assessment in the future. The treasury wants to capture all risks, sort them by relevance and probability and derive guidelines and training materials from them. In particular people working in the field are to use e-learning technologies to get to know regulations. This is meant to prevent misuse and fraud and to make workflows more secure and more efficient. However, none of this replaces clear and respectful communication with the missions. Culture-specific factors are to be considered as well as the organization’s philosophy of working together – and not about giving orders from high up. This process can sometimes be difficult and time-consuming but it always pays off in the end: everyone from Geneva to Manila to Africa is on the same page. In the future, IOM will be registered as a UN organizational unit and this will also affect responsibilities and tasks for the treasury department. The crises throughout the world always call for increasingly comprehensive action and will see the organization grow even further. Flexibility and the ability to adjust in an ever changing environment are constant issues. For Malcolm Grant, this is what makes his job so interesting:
IOM serves those who’re on the move. For the treasury department, this means trying to find the best possible solutions for efficiently transporting cash, processing payments and reducing FX conversion costs on a daily basis. They’re the ones who make sure that the entire organization has as many resources as possible in exactly the places where they’re needed. So in a way, the treasury embodies the whole world of IOM: moving towards a better future.

IOM is a non-profit organization that pursues humanitarian and social objectives. As part of the “We Love Treasury – and we Love to Help” program, BELLIN supports them with a free of charge tm5 license.

IOM is a non-profit organization that pursues humanitarian and social objectives. As part of the “We Love Treasury – and we Love to Help” program, BELLIN supports them with a free of charge tm5 license.

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