Enterprise Risk Management & Fraud Sample Presentation
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My Presentation to Finance a few years ago with regards to Fraud and Risk Management and some examples of how to mitigate and control Fraud.
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Enterprise Risk Management & Fraud Sample Presentation
- 1. Alexander Larsen Fellow of the Institute of Risk Management
- 2. The Dot Com Scandal (2000) Corporate collapses and massive bankruptcies (early 2000s) 2008 -2009 Credit Crisis “Failure in Risk Management” 2010 BP Deepwater Horizon catastrophe
- 3. All organisations exist to achieve their objectives. The purpose of risk management is to manage the barriers to achieving these objectives. Today Identify & Manage Organization’s vision, Aims, Objectives
- 4. Enterprise Risk Management: The identification, assessment and management of those risks which may have either a positive or negative impact on the organisation’s assets, reputation or ability to meet objectives.
- 5. • 5 Achieve objectives Less risk averse Improve & enhance Reputation Corporate Governance Country / Industry Regulation Better decision making Improved business planning Improve Quality & Efficiency Demonstrates improvement
- 6. Early 2000’s - Computer Companies in the States faced a labour strike closing ports along the West Coast of America. While rivals floundered, perceptive risk management and around-the-clock communication with its Asian suppliers (Partnerships) and U.S. shippers meant that Dell had identified the potential problem six months earlier. 18 jumbo jets were chartered early resulting in a relatively undisrupted supply-chain and a massive boost to Dell’s reputation for reliability and customer service (not to mention subsequent profits!)
- 7. • 7 “Risk Management is not just about insurance” THIS IS REACTIVE RISK MANAGEMENT!!!! 80% of risks faced byof risks faced by organisations areorganisations are notnot insurable!insurable! ‘‘Chance orchoice’ - SOLACE/ZMMSChance orchoice’ - SOLACE/ZMMS
- 8. Risk Management can : Protect brand and reputation Provide protection should your current controls fail Provides more than just monetary recovery (insurance – remember 80% uninsurable) REACTIVE RISK MANAGEMENT : Loss of information needed for strategic operational decisions Loss of customer goodwill Loss of market share Reduced cash flow control Negative publicity Loss of employees to competition Cost of winning back lost customers Missed business opportunities Loss of employee knowledge Loss of vital and critical paper records
- 9. • Slide 9 Strategic Business Departmental Business Operational cross cutting issues affecting the achievement of organizational objectives Issues affecting the achievement of departmental objectives Issues affecting the achievement of operational objectives Partnerships Projects
- 11. Assess probability of occurrence and resulting impact for each risk against individual objectives based on defined scales Rank risks using a probability-impact matrix where the position in the matrix suggest risk management strategy Agree on how to Monitor risks – Ongoing Meetings etc. HighMediumLow Low Medium High IMPACT PROBABILITY Critical (high priority) Significant (medium priority) Negligible (low priority) 2 1 3 4 Assess probability and impact 1 2 3 4 Individual risk Rank individual risks RISK CRITICALITY ACTION 1 Critical Not accept, initiate actions 4 Critical Not accept, initiate actions 3 Significant Accep and monitor 2 Negligible Accept Risk RankingRisk Matrix Organization Obectives
- 13. Environmental & Safety Risk Compliance & Legal Risk Financial Risk Strategic & Market Risk Information Technology Risk Operational Risk Projects Risk HR Risk
- 14. 1. HR related Risks 2. Cyber Risks 3. Political Risks 4. Oil Price Fluctuation 5. FX Fluctuation 6. Supply Chain Risk 7. Failure of Acquisitions/JV’s 8. Major Fraud
- 15. Global Financial Meltdown Strong Risk Management in Silo’s without an overarching view (ERM) Bearings Bank – Nick Leeson Major fraud Nick Leeson preaching Risk Management ENRON Failure of ERM Major Fraud exposed ALL REACTIVE RISK MANAGEMENT
- 16. Risk Assessment
- 17. Impact (severity) How bad is it when it does happen? Likelihood (frequency / probability) how likely is it? How often does it happen? Ideally this should be done in a group environment and not in isolation. EVERYONE has information and experiences to contribute. This is not a science.
- 18. Likelihood Impact 5 3 1 2 4 ECA B D Likelihood: (in the next 12 months) A Almost Impossible B Low C Medium D High E Almost Certain Impact: I Negligible II Marginal III Moderate IV Major V Catastrophic
- 19. Scale Description Service Levels / Objectives Reputation Financial (%-age of annual operating budget) 1 Negligible Insignificant fall in service levels, insignificant effect on objectives, i.e. resource stretch Public concern restricted to local complaints < 20% 2 Marginal Marginal fall in service levels,some objectives not met Minor negative local/ public/ media attention and complaints 20% - 40% 3 Moderate Moderate fall in service levels,several key objectives not met Adverse national media public attention 40% - 60% 4 Major Major fall in service levels, majority of key objectives not met. Serious negative nationlal or regional criticism 60% - 80% 5 Catastrophic Catastrophic fall in service quality, complete failure of objectives. Prolonged international, regional and national condemnation > 80% Scale Description 1 Almost Impossible 2 Low 3 Medium 4 High 5 Almost Certain
- 20. Risk Analysis & Management
- 21. Action/controls already in place Adequacy of action/control to address risk Required management action/control Responsibility for action Critical success factors & KPI’s Review frequency Key dates [actions/controls already being done that relate to this risk/cluster] [how effective are the actions/controls already in place?] [new actions/controls required to manage the risk down to its target score] [the person responsible for this action plan being carried out] [what will success look like? How will performance indicators have improved] [frequency of reviewing this action plan] [Milestones/deadlines] ]
- 22. The use of Internal Controls protects not only the employer, but also the employee. If departmental internal controls are weak and poorly monitored, it increases the chance that fraud or errors could be overlooked. ERM helps identify which internal controls should be established to minimize the identified risks. Internal Controls are everyone’s responsibility to: Prevent loss of resources Ensure reliable financial information Ensure compliance with governing laws and regulations Ensure efficiency and effectiveness of operations
- 23. How can companies proactively manage the risk of Fraud?
- 24. Financial services Call centres at banks Etc. Fraud Reporting Via Risk Committee to Management Committee IT Security and Fraud HR Recruitment checks (history of fraud?) Supply Chain requirements Vetting 3rd party staff based on pre agreed requirements Educating customers banks emails etc. Major JV or Acquisition Due Diligence – Partners, Country of operation, ethical or environmental history etc.
Editor's Notes
- Every wave of business failures leaves a legacy of lessons learned. For example, the dot.com bubble in the late 1990s highlighted the need to look for solid business fundamentals and growth strategies, and not just fictitious market driven gains. The Enron era emphasized the importance of financial reporting integrity, transparency and accountability. [CLICK] The 2008 credit crisis and the latest BP Oil Spill highlighted a key root cause related to the lack of an effective early detection systems, however, more fundamentally in all these cases, is the need to strike a balance between value creation and value preservation. [CLICK]
- Achievement of objectives by identifying the barriers to achievement become less risk averse in innovation improve business planning through a risk based decision making process focus on outcomes not processes focus on doing what makes a difference demonstrates commitment to continuous improvement better governance - and demonstration of it to stakeholders
- CLICK Some may ask, doesn’t Saudi Aramco already have ERM in place? CLICK
- In these coming slides, I will be describing some of the specifics of an ERM program. To start with, an ERM process is far more comprehensive as it analyzes a wider universe, such as, Strategic and Market risks, Financial, Legal, HR, Safety and Environmental, IT, Projects and Operational risks throughout the entire company. An ERM process seeks to identify, quantify and manage those risks and align business decisions with the risk tolerances. [CLICK]
- CLICK Some may ask, doesn’t Saudi Aramco already have ERM in place? CLICK
- CLICK Some may ask, doesn’t Saudi Aramco already have ERM in place? CLICK
- In the past, fraud management was driven at the product level. Major firms are now beginning to consider fraud at a strategic level. These strategies and plans were typically developed by heads of risk, financial crime or fraud functions. And they were monitored by senior executive committees, such as risk or security groups, or fraud ‘steering groups’ which were relatively new bodies set up to look at fraud on a more holistic basis. These groups were typically chaired by heads of risk, financial crime, audit or, at an insurer, claims.