Dyman & Associates Risk Management Projects: How can you improve your internal controls?
by Jerry Breacker Dyman & Associates Risk Management ProjectsHow
can you improve your risk management and internal controls?
A quick search of the internet
will pull up tons of material on risk management and internal controls, to help
you improve your business. All organizations, be they private sectors,
not-for-profit or public sector bodies have to adhere to whichever set of
governance codes they fall under. One example is the UK Corporate Governance
Code that is published by the Financial Reporting Council for listed companies
that either have to comply or explain why not. The Sept 2012 version includes
code C.2.1 which states:
‘The board should, at least
annually, conduct a review of the effectiveness of the company’s risk
management and internal control systems and should report to
shareholders that they have done so. The review should cover all material
controls, including financial, operational and compliance controls.’
So, we have the codes and we have
a good take-up, which means everything should be fine. But if you want to
improve your risk management and internal controls, you will want to find out
if your workforce needs any more training in this topic. I recently carried out
a very informal experiment to see if I could spot any obvious room for
improvement in the way business risk is being managed. One rainy winter
evening, I scanned the Times Newspaper (16th January 2014) and extracted the
following snippets of information:
·
Front page:
Hundreds of teachers accused of sex crimes.
·
Police crime
figures gave been stripped of the official quality assurance mark by the
statistics office after recent claims they were fiddled.
·
US
investigators interviewed staff at Citigroup in London as they stepped up an
inquiry into alleged manipulation of foreign exchange markets.
·
News page
15: Staff at a care home tied a grandmother to a chair to stop her wandering,
according to a report that said more than a quarter of families had claimed
that relatives had suffered poor treatment in care homes or by careers in their
own homes.
·
Page 18: The
official regime of four-yearly inspections is failing to ensure the welfare of
animals in Britain’s 300 zoos and animal parks, a study has found.
·
Page 21:
Liberal democrat women reacted furiously last night after the party announced
that it would be taking no further action against a peer accused of sexual
harassment.
·
Page 23: In
a ruling late on Friday night, which has received relatively little attention
here, the appeals court in New Orleans ruled that the settlement reached by BP
in 2012, hours before the trial over the disaster was due to start at the New
Orleans district court, should stand – even if it meant that people and
businesses who have suffered no loss due to the oil spill will benefit.
·
Page 28:
Solid gold bathroom fittings, a fraudulent mausoleum and a vast subterranean
cache of booze have brought down one of China’s most powerful generals and caused
the People’s Liberation Army’s worst corruption scandal for years.
·
Page 30:
Washington. The US military has suspended 34 officers in charge of launching
nuclear missiles for cheating at a proficiency test.
·
Business
page 36: On credit rating agencies. ‘The world has changed dramatically since
the collapse of the US sub-prime market in 2008, which triggered the credit
crunch. Jose Pocas Esteves, the ARC chief executive, said, ‘ARC and its five
founding partners believe that the old methods and approaches are no longer
sufficient for the post-Lehman financial sector landscape.’
·
Page 39: it
has long been suspected that too many fund managers make too much from clients
for doing too little. Now this theory is to be tested rigorously.
·
Law page 53:
The RSPCA is one of the most popular charities in the UK… yet a key part of its
activities (prosecutions) has seen its image tarnished. A series of cases has
led to criticism that it is over zealous and politically or financially
motivated….The charity has now announced a review of its prosecution work…
·
Sport page
58: Bernie Ecclestone, the Formula One chief executive, is expected to face
formal charges over secret payments to a German banker, it was reported last
night.
The problem is that risk is
something that just won’t go away and no one is exempt. My sample is a quick
look at one newspaper on one particular day. Regulators act as referees and to
slightly misquote the late, great football manager, Bill Shankly:
‘The problem with referees is
that they know all the rules but don’t always understand the game.’ Learn this here now.
We really need to get real since
many employees ‘game’ their targets, their result and most of what they do at
work to suit themselves. I can’t think of many people who put the needs of
their employer above their own personal interests. Which means your
improvements to risk management and internal control have to be set within the
culture at work, to make any real sense. One way forward is to re-write the
Corporate Governance Code to move away from an annual accountant-centric event
that means very little to most people, to a more straightforward version. My
suggested re-write of the code would be:
‘The board should establish a
control strategy that is resilient in responding to the changing risk landscape
and which ensures all employees retain key risks to acceptable levels through
the design, implementation and review of sound controls. The control strategy
should guard against fraud, waste, reckless behavior, excessive caution,
short-termism and suboptimal results; and be subject to on-going review and
disclosed to shareholders on an annual basis.’
In this way we would hope to see four things
firmly in place in all organizations:
1) A board that takes responsibility for the
risk culture in their organization.
2) Management and teams who understand their
key risks and the difference between acceptable and unacceptable behavior.
3) A suitable range of controls that help
guard against fraud, waste, reckless behavior, excessive caution, short-termism
and suboptimal results.
4) A transparent review process that ensures
the above is happening.
If these four things are
happening the hope is that there will be fewer headlines that undermine all
kinds of organizations, and which ultimately damage the reputation of global
economies. I asked whether there is a need to train employees to improve the
way they manage risk and sharpen their business controls. I feel the answer is;
‘yes there is’ – which is why Business Controls Training will continue to develop
a range of standalone e-learning courses for elearningmarketplace.co.uk.
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