03 Mar 2008, David Benyon, Operational Risk & Regulation
LONDON – Senior financial directors at investment banks are increasingly at risk of being personally accountable for frauds and errors arising from inadequate transparency for financial controls, according to financial consultant and software provider Business Control Solutions (BCS).
“The most fundamentally important area to have control is around your balance sheet. It’s old fashioned cash in cash out. Does it reconcile and what’s happening?” said Nigel Walder, chief executive officer at BCS.
Accountability used to be satisfied by manual recording and box ticking, moving to Excel and other computing tools in the past decade to automate some of that process and perform the mechanics and log the information, but with limited transparency for the overall process and all the actors involved. This can leave senior directors increasingly at risk amid the growing demands for transparency in the post-Enron environment.
Mike Bush, head of product development at BCS, said: “The senior manager no longer has an excuse to say ‘well I didn’t know about this’ because it’s so easy now to see down to the lowest level of granularity required. Ignorance can no longer be bliss. There is a personal responsibility that the senior manager in a finance department has to ensure that controls are met.”
New accounts are created each day in vast numbers but may be left unassigned for reconciliation, meaning should they slip through the net of internal controls, unassigned and orphaned accounts can lie hidden and exposed to frauds and errors, then effecting reconcilers’ accountability after ownership.
“The process involved in verifying that those accounts are correct is quite a laborious, time-intensive process, but a critical control for the bank. If they get that wrong then obviously the balance sheet could be misrepresented, you could potentially be in regulatory breach, and from a personal perspective, the director who has responsibility for signing off that account could be personally liable for prosecution,” said Bush.
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