Risk Management

New drive to mandate risk management as legal obligation

Lawyers Weekly — Fri, 13 Nov 2009 05:03:00 GMT

In the wake of the GFC a push to make risk management performance-based, compulsory, and backed by the full force and sanction of the law is well and truly under way.

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GFC yields mixed results across sectors for fraud levels

Lawyers Weekly — Mon, 09 Nov 2009 21:00:00 GMT

THE GLOBAL financial crisis has led to a rise in fraud within the financial services sector, but a drop in other industries such as construction, engineering and infrastructure, according to the Kroll Annual Global Fraud Report.

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Hostile takeover tactics

Lawyers Weekly — Thu, 23 Jul 2009 02:06:00 GMT

"Green shoots" wake corporate predators

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IT risk solution for pandemic

Lawyers Weekly — Thu, 23 Jul 2009 02:05:00 GMT

The alarming spread of so-called Swine Flu has prompted one software developer to adapt an existing governance, risk and compliance solution to help organsiations better maintain business continuity in face of the pandemic.

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Deal or No Deal? reveals risk aversion

Lawyers Weekly — Thu, 23 Jul 2009 02:00:00 GMT

In an innovative departure from the norm, a new study in the International Review of Finance used data from the popular television game show, Deal or No Deal?, to explore risk aversion and economic decision-making behaviours of individuals in a high-stakes setting

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AUSTRAC accepts Barclays undertakings

Lawyers Weekly — Thu, 23 Jul 2009 01:59:00 GMT

AUSTRAC has accepted enforceable undertakings from Barclays Bank.

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Downturn prompts risk review

Lawyers Weekly — Thu, 23 Jul 2009 01:57:00 GMT

A majority of corporate executives have reported a need to overhaul their approach to risk management. Mark Phillips reports.

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Time ticking on pandemic planning

Lawyers Weekly — Wed, 17 Jun 2009 04:18:00 GMT

The fact that swine flue has officially been designated a pandemic confirms that there is no time for complacency in contingency planning.

Although the World Health Organisation (WHO) has raised its pandemic flu alert to the top phase of its six-phase scale, indicating that the H1N1 virus has achieved sustained community transmission in a broad geography, according to AON Global Risk Consulting the declaration does not indicate a change in the severity of the current outbreak.

However, it has warned that influenza viruses are notoriously unpredictable and the so-called "swine flu" virus may mutate to become more severe at any time. Pandemics typically manifest in three or more waves of disease which may differ in severity and can occur at any time during the year.

"The WHO declaration is a signal that businesses worldwide must continue and indeed escalate vigilance in their pandemic planning efforts," said Aon Global Risk Consulting principal David Herbert. "This is not a time to be complacent, but rather an opportunity to anticipate possible scenarios and create contingency plans accordingly."

AON has identified six critical steps to protect employees, customers, supply chain partners, additional stakeholders and business assets:

Ensure the supply chain is uninterrupted by determining availability of backup suppliers;
Build a pandemic crisis communication plan, including a process for cascading critical messages to employees;
Develop a protocol to facilitate home working arrangements for employees;
Inform employees of any travel protocols/restrictions in place;
Look at succession planning for all levels of the organisation and ensure that - at a minimum - key functions have been addressed; and
Construct a plan of action addressing the incubation period (three to four days prior to onset of symptoms) in the event an employee is suspected of having the H1N1 flu virus at work, a family member is at risk or an employee has been exposed to the virus.

- Mark Phillips

Compliance failings fueling corruption

Lawyers Weekly — Wed, 20 May 2009 04:52:00 GMT

Only a tiny minority of senior business executives are confident that Australian companies are compliant with anti-corruption legislation.

SYDNEY: According to a poll of 40 senior business decision makers, including heads of compliance and risk managers across industries including financial services, insurance and real estate, an overwhelming 95 per cent believe that corruption is more likely to occur in the current economic environment, particularly as organisations look to do business with emerging markets in an attempt to cut costs. This is despite only 12 per cent of respondents having full confidence that Australian companies currently comply with Australia's anti-corruption legislation.

According to the Dow Jones study, titled Australian Anti-Corruption Compliance Perceptions, 77 per cent of the executives believe there is now a greater focus on anti-corruption as a result of the risks associated with the GFC, such as growing trade relationships with emerging markets that still have a high level of state-owned companies.

Unfortunately, as Dow Jones Risk and Compliance Solutions specialist Richard Butler noted, this focus on anti-corruption has not been converted to companies taking the necessary actions to ensure they comply with relevant legislation.

"As a result of several Federal Government initiatives to stimulate the economy, it is likely that the additional funding will also stimulate corruption," he said. "While perhaps not intentional, we are seeing a greater incidence of corrupt practices such as corporate gift-giving that can ultimately influence the decision-making process. This is a very serious issue."

Alarmingly, almost half (48.5 per cent) of survey respondents indicated that those in senior leadership positions in Australian companies only have minimal knowledge of anti-corruption legislation, leaving the door open to the risk of judgment errors. Thirty-five per cent believed board members and senior executives did not supply sufficient resources to combat or prevent corrupt practices.

"Anti-corruption enforcement needs to come from the top," Butler said. "Australian senior executives need to realise that anti-corruption is a business issue and not just a compliance issue that is relegated to the compliance manager. The reputational and financial cost of non-compliance is far greater than the alternative."

Acts such as the Crimes Act 1914, the Criminal Code Act 1995 and Proceeds of Crime Act 2002 list a number of corruption offences including bribery of a public official, falsifying a document and forgery. In addition, Australia has become party to various international conventions to fight corruption, including the United Nations Convention Against Corruption and the Organisation for Economic Corruption and Development Convention on Combating Bribery of Foreign Officials in International Business Transactions.

"While trust needs to be inherent within every company, senior executives cannot rely on ethics alone to stamp out corrupt practices," Butler warned. "The backbone of any compliance strategy is sound technology that can deliver the necessary checks to clarify the grey areas that exist around corruption and corporate culture."

- Mark Phillips

Risk set for major shakeup

Lawyers Weekly — Fri, 08 May 2009 06:38:00 GMT

Drastic risk management reform is inevitable, with better governance and transparency at the top of the agenda.

A survey of 334 financial services executives by the Economist Intelligence Unit on behalf of business analytics software and services company, SAS, has revealed that only a third think the principles of risk management in financial services remain sound and are confident that policy-makers can formulate an effective response to the current economic crisis.

The study, released at the Premier Business Leadership Series held in London this week, confirmed that risk management reform within institutions will be far-reaching and comprehensive. More than half of respondents said they have conducted, or plan to conduct, a thorough overhaul of theirrisk management, including improvements to data quality and availability, strengthening risk governance, moving towards a firm-wide approach to risk, and deeper integration of risk within lines of business.

Although the GFC has eroded confidence in risk, the survey's findings underscore the need for financial institutions to weave performance management closely with risk governance. All departments, not just lending, need a clearer picture of risk adjusted performance and the behaviors that influence it. From marketing to sales, each needs to ensure their strategy positively impacts results and that their actions are not unknowingly contributing to, or hiding risk concentrations.

Tower Group senior research director Virginia Garcia echoed the sentiment: "Although technology is not to blame for the widespread financial crisis, rigid technology and business processes have undoubtedly made it difficult for many FSIs [financial services institutions] to respond rapidly and effectively. This situation reinforces the business case for a more agile and intelligent enterprise architecture to mitigate risk by helping FSIs adjust to volatile business dynamics."

Even though less than one-third of respondents felt regulators handled the financial crisis properly, they agreed that transparency needs to be heavily emphasised within proposed reforms. They pointed to greater disclosure of off-balance-sheet vehicles, stronger regulation of credit rating agencies, and the central clearing for over-the-counter derivatives as initiatives thought to be most beneficial to the financial services industry.

Respondents identified poor data quality, lack of expertise and a lack of risk culture among the broader business as barriers to improving risk management in their organisation. As noted in previous SAS surveys, data governance continued to be a fundamental issue for risk management initiatives. Only 40 per cent said the importance of risk management is widely understood throughout their company, suggesting that more needs to be done to embed a strong culture risk culture in financial institutions.

"Now more than ever, this survey confirms the need for the players in financial markets to make transparency a major part of a comprehensive overhaul of risk and performance management to make better business decisions," said SAS Global Risk Practice head Allan Russell. "The key will be investment in a risk infrastructure that supports a holistic view of risk within organisations, embedded within day-to-day operations and overall business strategy."

-Mark Phillips

Flu threat warning to employers

Lawyers Weekly — Thu, 30 Apr 2009 01:27:00 GMT

Australian employers should take Swine Flu precautions immediately, but at the same time they have been urged not to over-react to the outbreak.

Australian employers need to take steps now to limit the exposure of workers to swine flu, according to workplace relations and occupational health and safety experts.

As has been widely reported, the World Health Organisation has just raised its flu pandemic alert from four to five, signaling that a pandemic is imminent.

"As with SARS and Bird Flu, employers have a duty of care toward staff working in or travelling through areas where infections are reported," said Michael Tooma, leader of Deacons' OH&S practice. "From a safety perspective, they must review optional travel requirements and what risk-free alternatives such as videoconferencing are available, visits to high risk regions, and policies regarding return to work afterward to ensure they continue to provide a safe working environment

"In the 2003 SARS pandemic, we saw situations where staff did not want to continue to travel through high risk areas and where employees back home did not want to work in proximity with a colleague who had travelled to a high risk area and was exhibiting flu-like symptoms."

From a workplace relations perspective, here at home global employers should prepare to manage concerns and queries from staff working in or travelling through areas where infections are reported, he maintained.

Research firm Gartner, however, has cautioned enterprises against overreacting to the outbreak, suggesting that they should take the event as a wake-up call and review and test their pandemic response plans.

"Business continuity management (BCM) and disaster recovery (DR) professionals and other stakeholders should use the widespread concern over swine flu as an opportunity to prevent their enterprises from becoming victims of uncertainty, panic, misinformation and a lack of preparedness to increase enterprise awareness of the potential business impact of a widespread outbreak of disease," said Gartner principal research analyst, Richard De Lotto.

"Enterprises in all regions and across all industries should complete their review of BCM/DR response plans and fill in any missing elements as a matter of urgency. Starting today IT managers should meet with senior executives, line-of-business managers and other high level decision-makers to plan, test, and add capacity to ensure the sustainability of what is likely to be a predominantly work-at-home environment."

It is estimated that a true pandemic could cause absenteeism rates of 40 per cent or higher for enterprises and their business partners and suppliers, resulting in severe operational disruptions. For this reason, it is imperative that they appreciate the urgent need to develop and implement pandemic response planning.

"In today's global business environment, IT professionals must recognise and include extremely specific elements within their response plans that will overcome their organisation's operational vulnerabilities which are not confined to the organisation's specific geographic locations," warned Gartner vice president and fellow, Ken McGee. "These vulnerabilities also exist in the next town, adjacent states, neighboring countries, or even on the other side of the planet, where their suppliers, customers, external professional service providers and so on are located."

US regulators investigate Australian subsidiaries

Lawyers Weekly — Thu, 23 Apr 2009 01:15:00 GMT

The adequacy of local anti-corruption measures has been put under the spotlight

At least two Australian subsidiaries of US companies have undergone significant reviews by US investigators into possible breaches of the US Foreign Corrupt Practices Act in the past 12 months.

Of late, breaches have resulted in significant fines: a recent example by an electrical engineering multinational resulted in up to US$2.4 billion. Locally, investigations into possible breaches in one Australian subsidiary resulted in up to 60 interviews within that company relating to transactions spanning more than a decade.

Alarmingly, however, the Deloitte survey shows that one in five (22 per cent) of senior executives of large corporations around the world have serious doubts about whether their own anti-corruption program adequately addresses the risk of corruption in their industry.

Further, analysis of the results of Fortifying Anti-Corruption throughout Today's Corporation reveals that Asia Pacific respondents are even less confident than their US and Western European counterparts about the adequacy of their anti-corruption practices (23.2 per cent in Asia Pacific, compared to 18.7 per cent in the US and 16.9 per cent in Western Europe respectively). By far, however, the most doubtful are Eastern European respondents (42.1 per cent).

According to Deloitte Asia Pacific Leader of Forensics, Tim Phillipps, the findings must ring a bell with the many Australian corporates doing business in Asia and beyond.

"Current economic conditions increase the risk of fraud, bribery and corruption and will often create conditions in which corruption is more readily identified, and yet tends to get lessening levels of attention due to more pressing and urgent business matters," he said. "However, managing corruption risk is a paramount business concern in these volatile times."

Asia Pacific participants in the survey, who represented 30 per cent of the 329 respondents, were also significantly less confident in whether the programs address risk according to the geographic areas in which they do business (30.3 per cent in Asia Pacific compared to 15.2 per cent in North America and 21.7 per cent in Western Europe).

"This reveals that Asia Pacific respondents are particularly aware of the influence of culture and geography when it comes to corruption risk in the region," Phillipps said.

The survey goes on to reveal that considering the risk, roughly one-third of all respondents (32.1 per cent), no matter where the location, believe that more should be spent on anti-corruption programs.

- Mark Phillips

ERM failings fuelled GFC

Lawyers Weekly — Mon, 20 Apr 2009 04:50:00 GMT

RMIA president Brian Roylett has blamed a lack of positive risk management culture for contributing to the global financial crisis.

Many organisations have failed to adopt effective enterprise-wide risk management cultures and behaviours, adding fuel to the global financial crisis, according to Risk Management Institution of Australasia (RMIA) president, Brian Roylett.

Speaking at a recent Lloyd's of London business briefing, he maintained that there had been no systemic failure of risk management as a business discipline but, rather, "perhaps we have failed risk management".

Roylett criticised some boards of directors which, during unprecedented economic growth and profitability, had begun to reward executive management for achieving outstanding financial performance without due consideration to the "risk and opportunity equation - the higher the financial returns the greater the risks to the organisation".

However, he noted that not all organisations in a particular industry group, including the financial services sector, had sustained identical fates during the crisis.

"Many major corporations have demonstrated true organisational resilience during difficult times, primarily due to reinforcing a sound, enterprise-wide risk management culture across all business activities of the organisation," he said.

Roylett urged organisations to create a liability risk management culture and adopt enterprise-wide risk management standards, guidelines and frameworks.

"Develop the internal competencies to effectively manage liability risk exposures and determine the organisation's risk thresholds - that is, the capacity of the business to retain financial risk and manage appropriate levels of retained risk," he said, adding that the status of the insurance market cycle influenced the degree to which organisations implemented effective liability risk management, practices and procedures.

"During intense market competition among underwriters, an organisation's liability risk management plan may have minimal influence on premiums."

He maintained that soft market conditions created an internal impression within insured organisations that an effective liability risk management capability was not a determining factor in setting premium pricing, resulting in less emphasis on liability management and controls. Hardening market conditions created a "temporary" focus on liability risk management, often resulting in superficial measures being implemented to satisfy underwriters' requirements, he said.

- Mark Phillips

More regulation a worry for in-house counsel

Lawyers Weekly — Thu, 16 Apr 2009 05:59:00 GMT

Australian in-house counsels are far from confident of their ability to deal with an expected sharp increase in regulator activity.

An overwhelming 72 per cent of in-house counsel practitioners expect to see an increase in regulator activity in the next 12 months, and yet two-thirds (62 per cent) are not confident they could identify and produce all relevant electronic documents in response to a legal or regulatory production request.

The findings are part of Deloitte's In-house Counsel Survey, which interviewed 209 in-house lawyers from the Australian private and public sectors.

"Given the current economic conditions, this result does highlight the need of corporates to look at ways they should prepare for and manage the process," says Deloitte Forensic Data Practice lead partner, Nicholas Adamao. "The anticipated increase in the level of regulatory enquiry is consistent with local and international governments demanding regulatory bodies utilise their investigative and enforcement powers in the wake of the global financial crisis.

"The pressure to deal with regulatory compliance typically falls on the shoulders of in-house counsel. Given the tight timelines for compliance, many may find they are not able to meet those deadlines nor suggest how long it may take for them to put forward their case."

According to Adamao, sound management should include putting the right systems and processes in place to facilitate document production, and if necessary engaging external consultants to assist.

Interestingly, 20 per cent of survey respondents cited providing regulatory compliance legal advice as one of the busiest areas of their legal practice. They also believed that the demand for advice about regulatory compliance will increase in the next 12 months.

In addition, more than half of respondents (56 per cent) indicated that their organisation has been required to produce documents in electronic form in the past 12 months.

"This figure is quite high, and may become even higher in the next 12 months," Adamao predicts.

However, the cost of electronic discovery remains a key concern. More than half of respondents (53 per cent) believed that electronic production and discovery will increase the costs of litigation.

- Mark Phillips

Bean counter image irks accountants

Lawyers Weekly — Thu, 12 Mar 2009 03:44:00 GMT

SYDNEY: Worsening economic conditions are having a negative impact on Australian accounting and finance professionals to the extent that very few are any longer interested in attaining the top job.

According to a new survey by recruitment specialist Robert Half, just one-quarter (23 per cent) of local professionals aspire to be a chief information officer (CFO), despite an overwhelming 73 per cent reporting confidence in attaining the role given the opportunity.

Robert Half Victorian director, Andrew Brushfield, says the findings are likely a sign of the economic times, where employees have increasingly lowering expectations of job opportunities available to them.

"The economic crisis has, for the short-term, dimmed the likelihood of CFO level progression for many accountants and finance professionals," he states. "But that is not to say those in the finance field hold no optimism at all, as they are confident the CFO role would be within their reach if the opportunity was available

"The reality is that these roles are in short supply in Australia at the moment. However, we expect to see career aspirations regain momentum when the economy starts to re-stabilise."

Aspiration levels for the CFO role were also low in Hong Kong (46 per cent), Singapore (41 per cent) and New Zealand (32 per cent). They were even more dismal in places like the UK (16 per cent), Japan (16 per cent), France (14 per cent) and Netherlands (11 per cent).

The survey also found that 48 per cent of those involved in accounting and finance believe they are still most commonly seen as stereotypically boring, rather than for more desired traits such as being professional, trustworthy and commercially aware. In contrast, only 7 per cent think being described as "boring" is fair and accurate. They instead consider themselves professional (64 per cent), trustworthy (50 per cent), detail oriented (48 per cent), and commercially aware (22 per cent).

"The traditional view of accountants has been one of introverted 'bean counters' who spend all their time dealing with numbers, rather than interacting with people," Brushfield says. "The reality is that accounting and finance now covers a wide diversity of roles, going from the 'bean counter' all the way through to financial investigation, business analysis and planning, and company leadership."

- Mark Phillips