Thread by @SAH16928046

The Psychology of Human Misjudgement - Charlie Munger Full Speech via @YouTube

well, if one can get around the accounting and auditing systems, you can commit fraud on a massive scale.
That is what rogue traders do!
But, financial institutions have invested big time in hiring quants who can write codes and Greek symbols which board members don't comprehend

It's brilliant if your standard fraud risk assessor aka auditor and the quantitative risk manager can use the #Benford #Law to identify, proactively measure and control fraud risk-related predicate financial crimes.
But, first, do the basic work, before leapfrogging.

Most of the organizations fail not because they don't hire the right person, but, on the contrary, they select the wrong person for the position.
Sinister professionals are the last thing a company needs to overcome vulnerabilities.
Robots and computers don't commit crimes.

Having a Criminal Minded Person, doing the most sensitive work in an organization is the biggest operational risk, which can have unintended consequences.
#Murphy #Law

The former #BCCI is the best example of how fraud risk permeated at the highest level.
This bank, with its humble origins in the City, became a global brand in the financial services, recruiting top talent from global business schools back in the 1980s, mobilizing billions of $s.

So, many human misjudgements we see in the financial services industry.
Nic Nielson and the #Baring Debacle has become synonymous with treasury rogue trading and fraud-related activities, which is now taught in crime risk management courses.
Auditors failed to detect and inform.

What of the banking and other financial services businesses failures registered during the Global Financial Crisis that kicked off in 2007?
If you do a root-cause analysis, the very premise of such activities falls within the domain of financial white-collar crime & #fraud risk.

How on earth can a banker with basic training underwrite retail loans in the home financing sector, without undertaking strict client due diligence, or proper default risk assessment, which is an essential feature of loan examination as laid down in the credit manual?
#GFC #FED

The Supervisors aka Board Members, the regulators, the Auditors, the Forensic Accountants and Investigators, and the Risk Managers alongside the Compliance and Governance Gurus, must separate fraud from human incompetence
The lines are getting blurred.
This needs special training

Human incompetence and misjudgement are often misconstrued as #fraud and predicated financial crimes, such as money laundering, etc.
This is due to a lack of training and understanding on the part of risk controllers at Fis.

I remember investigating a branch relationship manager who was promoting private banking products and cross-selling third party white labelled products using SLAs as per bank approved policy.
The chap never filled out the KYC forms right
That wasn't defrauding! just incompetence

In fact, no Risk Management, Compliance or Governance Matrix ought to be considered to be exhaustive in the absence of #Fraud Risk Policy and Financial #Crime Risk Management Controls
Especially, #Banks should learn from past misjudgements, with the intention not to repeat those!

For that to happen the turf-war among stakeholders, and decision-makers must end.
In most companies, where risk, compliance, finance, and other departments coexist, there is an interface, which is not healthy for rational decision making.
#CRO #CFO #CAE #CCO #CIO

For e.g. potential informational fraud which might occur due to Materiality Misstatement Risk, in preparation of the financial statements, and its reporting, thereof, can trigger an Armageddon between auditors and finance, each blaming the other.
Risk Mgmt can only arbitrate!

The biggest instigator of fraud and predicated financial crimes in any office setting, including banks and other financial services firms, is the communications system, for e.g. the Phone.
Authorizations done over email, instead of proper memo writing, is also a Suspicious habit

In most of the banks and Fis where Treasury or Investment Management Desks exist, the trader/ dealer voice trades over the official phone lines are usually recorded to create an audit trail
If a trader is using his personal mobile or any other IMS to interact, that is suspicious.

Reconcile the blotter with the #MIS.
All trade deals recorded within the system must show on the deal blotter.
If there is excessive cancellation of trades or erasing of details using the rubber or overwriting, that explains culpability on the part of a potential #rogue #trader.

A way to control rogue trades, and potential fraud risks and crimes, is to see how often the traders opt to go out on vacations.
If a trader does not want a break from work during an approved holiday season or does not make use of sanctioned leaves, that means something is fishy!

In my entire career as a risk manager, I have noticed one thing!!
Those who come to the office first thing in the morning and leave after everyone else has left, are usually suspicious people who need to be monitored.
Here the HR Desk must play its due role and seek explanations.

#Fraud #Risk leads to actual financial crimes!
What can go wrong will go wrong!
Financial Institutions and other companies that deal with client money & their own books must create effective controls and policies to hedge against such nefarious activities before it's too LATE!

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