A Third of My Budget Was Spent in Dollars and Our Treasury Had Never Heard of It

In October, my department's budget for software and cloud services was established in pounds for the financial year that begins in April. However, last year, I exceeded the allocated amount by £160,000, without purchasing anything outside the planned budget. The discrepancy stemmed from the fluctuating exchange rate. During a review of the year's invoices with our treasury manager, it was revealed that about £2.3 million of our department's spending, encompassing a substantial portion of our department's expenses, had been billed in dollars or euros.

This included the cloud platform, transport management system, device management service, most security tools, and numerous smaller subscriptions purchased via credit cards. The pound sterling had depreciated by approximately seven percent against the dollar between the budgeting period and the spring. The treasury manager was taken aback not only by the overspend but also by the fact that she was unaware of this currency exposure.

The company had been actively engaging in currency forward contracts each month to offset fuel surcharges for European routes and the trailers imported. The IT department, too, had emerged as one of the business's significant spenders on dollars, a fact that had not been previously considered. In the past, nearly all purchases were made from British resellers in pounds and owned outright.

With the shift towards subscription-based models, currency exposure gradually entered our invoices through annual renewals, without anyone recognizing the need to address it. Each year, my team compiles a schedule of all contracts billed in foreign currencies, their renewal dates, and anticipated values, which is subsequently shared with the treasury for coverage of renewals in the spring using forward purchases, similar to fuel surcharges.

The budget is determined using a planning rate set by treasury, and any variance from this rate is reported as currency variance rather than as overspending in the IT department. At each renewal, we request a sterling price alongside the dollar amount, and two suppliers have been willing to provide a pound amount with a premium of less than two percent, which we have accepted.

Although this approach did not save us money individually, it shifted the unexpected financial impact from my January budget meeting to a department dedicated to managing such matters. My department has been actively involved in currency transactions for years, yet neither of us had noticed the significance because no one perceived a software renewal as a purchase of dollars.