In mid-2008, having experienced the ignominy of two financial restatements that cited material weaknesses, Toyota Financial Services’ treasury controllership organization regrouped. A new risk oversight and management strategy was put in place to revive the confidence of dismayed senior management and other key stakeholders.
“We needed a more integrated framework and not organizational silos with little if any interplay between them,” says Amit Shroff, head of planning and market risk at Toyota Financial Services (TFS).
Last year was a difficult one for all car companies, and as the largest U.S. auto lender, TFS was in the crosshairs. A large and frequent borrower, the company depends on its ability to hedge, manage and value debt and derivatives positions. While changes to TFS’ products and to U.S. GAAP had increased the importance of valuation, its internal controls had difficulty keeping up. New valuation and accounting systems were years behind schedule. After the restatements, concerns grew that beleaguered debt investors would turn their backs on TFS’ debt. “Valuation is a core competency for growth and success in today’s world, and we did not have the skill set or other capabilities to achieve it,” says Wei Shi, vice president and head of the treasury and finance group at Toyota Financial. Enterprise risk management was tapped as the way to integrate controllership and treasury, improve TFS’ valuations capability, mitigate risk and repair the company’s internal controls. “We now have an ERM framework for risk identification, prioritization, remediation and reporting, with an enhanced focus on governance,” Shi says. “It has given us more visibility, alignment and cross-checking capabilities.” As part of the strategy, Treasury created a new function to provide specialist valuation skills. Existing spreadsheets and processes were redesigned to improve transparency.
“Most importantly, we have developed a mind shift of more open risk communication and an enhanced focus on governance,” Shi says. In the fiscal year ended March 31, TFS had no material weaknesses, Shi notes. “The confidence of key stakeholders is restored.”