Regular readers of this blog undoubtedly are familiar with the FCPA and related Justice Department and SEC enforcement activities. On a personal note, I remember well when the FCPA was enacted, as I took on responsibility in my firm for providing our clients with analysis, guidance, and support materials to help deal with the new law. Emphasis was put as much on the Act’s internal control provisions, which require (with somewhat different terminology) effective systems of internal control over financial reporting – this of course, long before SOX. Companies did look at their internal control systems for opportunities for strengthening, but without required management reporting or auditor involvement, we did not see the kind of focus that came in more recent years under SOX. Significant attention was given to the bribery provisions, though with little regulatory enforcement activity for many years, attention subsequently waned.
But life under the FCPA now is very different. It’s reported that in the last four years 58 companies paid almost $4 billion in settlements – including Siemens (whose securities are traded in the U.S.) paying $800 million each to the German and U.S. regulators – and 42 individuals have been convicted. Early this year, for example, an oil company executive was sentenced to a two and one-half prison term. “I am truly sorry,” he said, “I lost touch.” At the moment some 78 companies are reportedly under investigation, including the likes of Alcoa, Avon, Goldman Sachs, HP, Pfizer, and Wal-Mart – it remains to be seen whether they will be formally charged. And we know that Rupert Murdoch’s News Corporation, among others, is in regulators’ sights.
There has been pushback by business, saying regulators have been overzealous and thereby stifling legitimate business initiatives – especially so with their going after not only companies but individual executives as well. The United States Chamber of Commerce is looking to have the law amended, with a Chamber official recently noting “The last time I checked, we were not living in a police state.” But enforcement officials don’t seem to be perturbed, with the assistant Attorney General making clear that the Department is expanding its staff and enforcement actions are on the rise. With that said, discussions between the groups have begun, and desired guidance may be forthcoming.
What to do? Clearly there’s no silver bullet. Close attention needs to be paid to ensuring strong compliance programs – which, importantly, the DOJ has said it will look to in a positive way when considering enforcement actions. Yes, further clarity has been requested from the Department in that regard, and we know about concerns with Dodd-Frank’s whistleblower provisions, but that shouldn’t stop compliance officers and senior managements from continuing efforts to strengthen internal programs. Many law and other firms have provided guidance on identifying high-risk areas and steps to be taken, which certainly are worth serious consideration. Among important areas of focus are risk assessment, policy management, clear authorities and fixed responsibility among line managers, real time communication, close monitoring by line management as well as compliance and internal audit personnel, and immediate and decisive action when red flags appear. It’s not easy, but with the Act in place and regulators expanding scope, close attention is critical.
Erwin Boeren 270002C43V ERWIN.BOEREN@NL.IBM.COM | | Tags:  ibm solvency insight dashboarding governance grc management openpages risk reporting basel cognos ii compliance | 0 Comments | 2,857 Visits
With the brand-new IBM Cognos Insight you can now connect to your IBM OpenPages environment from your desktop. You always have that moment that you need the information on a report but just a bit different than the standard report provides to you. The solution is here now, IBM Cognos Insight!
Insight is a powerful, intuitive desktop solution, that can read many different data sources from Excel to datawarehouses. Even your real time IBM OpenPages environment!
And it is not only reporting and dashboarding but it also lets you create what if scenarios on the fly! How would my risk exposure be if in one risk category the loss impact increases with 15%? Two clicks and you know the answer! And then you can comment on your report, which gives your colleagues more information on the context the moment you share your workspace.
How easy can risk reporting be???
For more tour on how IBM Cognos Insight please look at : http
Blog post by Erwin Boeren
Senior Governance, Risk & Compliance specialist IBM
Twitter : http
Erwin Boeren 270002C43V ERWIN.BOEREN@NL.IBM.COM | | Tags:  watson erwin risk governance grc compliance management ii business analytics solvency ibm boeren basel | 0 Comments | 1,856 Visits
IBM Watson found a job as a risk expert!
IBM Watson goes to work in financial services as a risk expert. One of the largest Financial Services institutes and IBM now partner to enhance and simplify the consumer banking experience with faster, more accurate decisions, better risk assessment, and more targeted customer offers.
IBM Watson is transforming expectations for how technology can help individuals live and work in better ways. Its ability to make sense of vast quantities of unstructured information, communicate in natural human language, learn from experience, and offer confidence weighted responses is already a game changer in healthcare. Focusing these capabilities on financial services brings new possibilities for higher service levels to an expanded set of users.
For those who do
not know IBM Watson, Watson is an artificial intelligence computer system
capable of answering questions posed in natural language, developed in IBM's
DeepQA project. As a test of its abilities, Watson competed on the quiz show
Jeopardy!, in the show's only huma
Now what will that bring to our Financial Service clients? Potentially as an assistant to client service professionals to help deliver evidence-based recommendations across multiple areas of the bank, including: credit card; private banking; wealth management; and call centers. Since IBM Watson can think faster than any human being it is able to make cross checks, prevent fraud, determine risk, etc. It is able to analyze data such as client information, online news reports, blogs, Twitter feeds, analyst reports, regulations, credit ratings, and government securities filings which can help to suggest options targeted to a consumers' individual circumstances.
Blog post by Erwin Boeren
Senior Governance, Risk & Compliance specialist IBM
Richard Steinberg 270004HRBG email@example.com | | Tags:  dodd-frank risk risk_management openpages | 0 Comments | 976 Visits
If you’re in or work with the financial services industry, you probably know about the late December holiday "gift" from the U.S. Federal Reserve – proposed rules implementing provisions of the Dodd-Frank Act which could have a profound effect on how boards and managements deal with risk. In any event, you’ll want to keep in mind that the Fed is accepting comments only for the next month – until March 31.
The proposed rules are far-reaching, including requirements for risk-based capital and leverage, liquidity, stress tests, sing
The risk committee is required to "document and oversee, on an enterprise-wide basis, the risk-management practices of the company's worldwide operations." The committee would be chaired by an independent director, and at least one member needs to have risk-management expertise commensurate with the company's size, complexity, and other risk-related factors. Further, its members are expected to understand risk-management principles and practices relevant to the company, with specified experience in risk management. And there are rules for a committee charter, meetings, and documentation.
The committee’s responsibilities include reviewing and approving an appropriate risk-management framework commensurate with the company's size and other factors. The framework’s scope is outlined, including requirements for risk limits appropriate to each line of business, policies and procedures for risk-management practices, processes for identifying and reporting risks, monitoring compliance with risk limits and procedures, and specification of management's authority and independence to carry out risk-management responsibilities. Additionally, the larger covered companies will need to appoint a chief risk officer in charge of implementing and maintaining the risk-management framework and practices approved by the risk committee, with the rules specifying responsibilities and qualifications for the CRO and reporting relationships.
If not already under way, now is the time to analyze the proposal and its implication, and let the Fed know what changes are needed. If interested, you might want to tune into the upcoming IBM OpenPages webinar where I’ll be discussing the proposed rules, their implications and the challenges they present – March 8, 2:00 pm Eastern Time.
Erwin Boeren 270002C43V ERWIN.BOEREN@NL.IBM.COM | | Tags:  compliance grc governance manufacturing smarter energy&utilities openpages risk enterprise deloitte project | 0 Comments | 1,760 Visits
Smarter Project Risk
Last week I came across project risk, and not for the first time! So, time to spend some words on this topic.
Especially organizations in Energy&Utilities and Manufacturing have huge risks in their assets and in their projects. You think you have all risks identified through the standard risk identification process and you just missed that elephant?! This might impact your yearly financial result or worse!
This is why more and more clients start to look at Project Risk methodologies. My client happened to use the PMBOK methodology. In this methodology you consider standard project phases including standard risks and controls. This is great, since you have most of the standard risks covered. But what about that risk that is just not standard? This is where gate reviews will help you. These gate reviews are held after every project phase. Each gate review contains questions used to identify risks, holds monitoring methodologies to check status and behavior and contains audit like activities. Key element here is that all findings roll up to top level so no significant risk can be missed.
all works for what we call manageable risks, but what about risks that you
cannot manage? How will you anticipate on this? Well these risks can be covered
by sensitivity analysis, simulations and business continuity management.
Especially sensitivity analysis and business continuity analysis will help you.
For simulations you will need data, and a significant amount of data. Only in
case you have many similar projects running in a regular cycle you will be able
to generate enough risk identifications and losses to be able to make a sensible
Now the system is in place, and now we are in control? Wrong! This is where the real work starts. How do I get my organization to adopt risk in her daily business? How do I get input with the right quality? How do I make everyone a risk manager? This takes time and effort. Guide your people in how to make the assessments and make them part of it. Give them back where they contributed to, and make their life easier. That is what we call Smarter Risk.
IBM OpenPages and Deloitte have put together a Risk Methodology for project risk where all these technologic and organizational aspects come together and can be integrated in your enterprise risk platform.
Blog post by Erwin Boeren
Senior Governance, Risk & Compliance specialist IBM
Twitter : http
Richard Steinberg 270004HRBG firstname.lastname@example.org | | Tags:  global cro mf risk | 0 Comments | 979 Visits
A recent Congressional hearing on MF Global has shed more light on how well the company did, or didn’t, handle its risk management responsibilities. A couple of weeks ago the House Financial Service Committee’s oversight panel heard testimony from the firm’s chief risk officers. As CRO, Michael Roseman in 2010 raised concerns about the firm’s European Sovereign debt positions, reportedly clashing with top executives but in any event seeing to it that the board of directors was informed of what was going on. (For more on this, you can look back to my December 15 posting.) Then in early 2011 MF Global hired a new chief risk officer, Michael Stockman, who like CEO Jon Corzine was a former Goldman guy. One Congressman reportedly said it appeared “Stockman was hired to tell Mr. Corzine what he wanted to hear,” and another called him a “yes man.” Whether that’s fair or not is debatable, though one wonders why the change of CROs was made in the first place. In defense, Stockman said that for the first several months of his tenure he believed the firm’s “risk profile associated with the company’s European sovereign debt position was acceptable in light of then-prevailing market conditions,” but “as credit markets deteriorated in the summer of 2011, I came to the view that it would be prudent for the company to mitigate the increased risks.” Whether his initial assessment was justified and whether he pushed hard and timely enough with management and the board certainly is questionable.
Fascinating here is what was said by the Congressmen doing the questioning, reportedly saying to Stockman that it was up to the chief risk officer to “rein in their bosses risk taking.” If that indeed was said, then it shows a sad lack of understanding of what a chief risk officer’s role truly is. In highly summarized form, if the role is structured well, the CRO is responsible for establishing a process within the organization where managers timely identify, analyze, and manage risk, with communications systems in place to ensure appropriate upstream reporting. The reporting element is critical, not only within the organizational infrastructure but also going to the very top. The CRO needs to be sure top management and ultimately the board of directors are fully apprised of significant risks. And if management refuses to inform the board, then the CRO has to do it him/herself. CRO Roseman seems to have made sure the board was apprised.
A CRO’s job is not easy, especially when a company takes on what can only be deemed unusually high risk positions. The CRO needs to be sure the risks are identified, analyzed and reported, which seems to be the case here. The board was apprised of the risks when Roseman was CRO, and we’re told the directors considered the risks and acquiesced. A board of course should probe deeply enough to truly understand the risks and surrounding circumstances. If those actions occurred, and the CRO was convinced the board had sufficient understanding and insight, then he has done his job – which does not, as the Congressmen asserted, include the CRO himself reining in the risks.
No doubt more insights will emerge and the picture of what happened will become clearer. Investigators might even find out what happened to the more than $1 billion (one estimate is as high as $1.6 billion) of “missing” customer money, and whether internal controls were faulty or overridden as the firm was about to go under. In any event, it’s important that the different roles of a CEO, CRO and board be fully understood. The CRO does not and cannot be responsible for the ultimate actions of a CEO and board of directors. The CRO’s role includes seeing that top management and the board understand the risks and make well-informed judgments. And yes, those judgments may ultimately prove to be bad, or even fatal as was the case with MF Global.
Erwin Boeren 270002C43V ERWIN.BOEREN@NL.IBM.COM | | Tags:  compliance enterprise egrc iii management grc solvency software audit selection openpages risk tooling governance ii basel and | 0 Comments | 2,579 Visits
Governance, Risk and Compliance software selection process
A client of mine recently asked me about what I have seen as the most effective way to run a selection process. Now I know this may seems a conflict of interest, a GRC solution vendor writing on the GRC software selection process and the need for a GRC platform. Still I think I can give you some dos and donts on a GRC software selection process since I have been there many times.
Let’s start with the need for a GRC software platform. Why do you need such?
Of course investing in a solution needs a compelling event. Either the cost for risk management and compliance becomes very high, or the process takes too long to be responsive to stakeholders or the 'in control' statement cannot be guaranteed any longer. Also external regulators can advise you to implement software.
Before you start thinking about a GRC platform carefully review the risk and compliance maturity level of your organization and the scope of the problem. This will help you make the judgment between 2 approaches. First approach is what we call 'point solution', second approach is 'enterprise solution'.
The first approach, Point Solution, is best when the compelling event is there but the scope is limited to one area. On a single point of your GRC activities you have a pain that must be resolved in a fairly short term. In this case you can search for specific capabilities with specific knowledge. You can make a selection of vendors that operate in the area where you have the pain and select the partner that understands your area. Of course you might want to consider your ambition on the long term. If your long term ambition is Enterprise wide GRC integration you might still look at enterprise vendors and use the specific area as a 'pilot' for further extension.
The second approach, Enterprise Solution, is best when the compelling event is on the integration of Governance, Risk and Compliance. The term risk and control convergence often comes up here. This approach requires a lot more work than the point solution and may have cultural impact. You might consider a second party to help you go through this project. A second party (consulting firm) can help you in making critical decisions and in reviewing your current (silo based) approach to GRC. They can keep the holistic view for you. Every silo needs to be reviewed and mapped to the enterprise approach. This will not come without discussions and sacrifices!
So the need is there, now how to make your selection?
In the first point solution approach there are just two considerations, short term or long term? In case of the short term do NOT select an enterprise vendor and go for the right point solution. Advantages are lower cost and shorter implementation time. Second consideration, long term, means a selection between enterprise GRC software vendors and consider the first phase as a pilot for the enterprise approach. Still you might want to involve a consulting firm with specific knowledge.
In the second enterprise approach you will go for an enterprise vendor. This is where you want to be careful in setting up your selection. I personally have seen many of these selection processes since I have been in such selections. And this is where I want to give you some guidance to save you a lot of time and money.
First do NOT expect the enterprise vendors to differentiate on functionality. The GRC software market has made an evolution in the last 10 years that have resulted in a fairly high mature software market. So a 'beauty contest' is a waste of money and resources. Outcome will be equal for all vendors and you will be stuck between your user community and the vendors in the process. You might get questions from your management team why you spend so much time and resources without any outcome.
Secondly involve your end users in the selection process early, but do not expect 20 people working in silos to come to one single conclusion. Again you will end up in a long discussion with no outcome. Have a small group of people (3 preferably) to make the selection.
Thirdly make your selection criteria known upfront and make them measurable. Also involve the vendors in the process and be open to them. If you are open and honest you will get transparent, open and honest answers. If you hide, vendors will hide! Criteria should be based on experience in your market, understanding of your organization, size and financial stability, ability to deliver in time and within budget, alignment of implementation approach to your implementation methodology and the cultural fit.
Again this may look preaching to the choir but I hope I just saved you time and money that you can invest in your implementation.
Richard Steinberg 270004HRBG email@example.com | | Tags:  erm coso | 0 Comments | 794 Visits
In case you were too busy watching your kids open their holiday presents you might have missed a “gift” for you – COSO’s updated internal control framework. During the holiday season the draft was exposed for public comment, so if you haven’t already done so, you might want to get your hands on it and tell COSO what you think, and how it might be further improved.
In looking over the draft you’ll see that the fundamental concepts and structure remain. The definition of internal control, the five components, and the COSO cube are unchanged. So are the three categories of objectives, except that the reporting category is expanded to include all reporting by an entity: financial and non-financial, internal and external. This brings the internal control framework in line with how the reporting category of objectives is defined in COSO’s Enterprise Risk Mana
Other enhancements include:
You’ll see the term “ICEFR” (pronounced ice-eh-fer), which is the acronym for internal control over external financial reporting. Because of the importance of the internal control framework for reporting under such requirements as Sarbanes-Oxley, COSO decided to offer a separate guidance document highlighting how the framework can be effectively applied for that purpose. It’s organized around the five internal control components, containing approaches for and examples of their application, with direct linkage to the principles and attributes in the framework. It’s important to keep in mind that the ICEFR guidance is just that, guidance; it will neither replace nor modify the framework. It will be exposed for comment later on this spring.
Well, it’s a case of speak now, or…. If you’re involved in any way with internal control, you’ll want to provide your input on the document. By the way, I’m biased in a positive way – for full disclosure, I was the lead PwC project partner of the team that developed the original Framework, played a similar role with the COSO ERM framework, and advised the project team that developed this updated framework. But you may have different views, and it’s important to make them known. The comment period ends March 31.
Richard Steinberg 270004HRBG firstname.lastname@example.org | | Tags:  fraud risk_management | 0 Comments | 852 Visits
We know the Olympus Corp. suffered a major management fraud. Financial statements were manipulated to hide huge losses, resulting in its stock price dropping like a rock and jeopardizing the company’s listing status and indeed existence in its current form. For more on the fraud, you may want to look at my October 15, 2011 blog posting.
Those looking at this fiasco may well be asking why this fraud, which had been going on for more than a decade, wasn’t brought to light any sooner – that is, before newly appointed CEO Michael Woodford began to smell a rat. Well, now it’s come out that one critical element in detecting and possibly preventing fraud at the highest management levels – which is having an effective whisleblowing process – wasn’t in place at Olympus. Sure, they had a process, but now it’s reported that the very executives perpetrating the fraud were in charge of the hotline! It’s said that the company’s internal auditors and other employees wanted the whistleblower system to be run by outside parties, but at least one of the executives alleged to have been driving the fraud objected and won out. According to an independent panel investigating the fraud, the corporate atmosphere was such that the hotline was “significantly disabled.” Is it essential to have the hotline outsourced? No. But it is critical that company personnel feel comfortable that their communications will not come back to haunt them, which is said not to be the case at Olympus.
Much has been written about management fraud, and what internal controls are needed to prevent or detect it. But my experience is that it really comes down to four key factors. One is having a culture of integrity and ethical values, with the “right” tone at the top of the organization and open communication channels. Another is a board of directors (and audit committee) that is independent and providing effective oversight. One more is an effective internal audit function. And then there’s an effective whistleblower process. Based on what’s been reported, Olympus evidently didn’t have any of these big four – we don’t know much about the functioning of its internal audit function, but now learn that the company is suing the former internal auditor along with two other executives who an independent panel said “orchestrated the scheme.” So is it surprising that such a fraud could have existed for so long? In light of its governance, risk management and internal control processes, the answer is “not really.”
When we look at the potential of management fraud, it’s critical to look at these four elements. If even one is missing, the chance of fraud going undetected increases greatly. And no one should proceed with the odds stacked in favor of bad actors.
Erwin Boeren 270002C43V ERWIN.BOEREN@NL.IBM.COM | | Tags:  risk operational grc compliance ibm openpages solvency governance | 0 Comments | 1,599 Visits
Solvency II and the need for Operational Risk
Blog post from Erwin Boeren, Governance Risk &
Blog post from Erwin Boeren, Governance Risk &