Understanding Risk

Certain events, which have happened in the recent past, have got me thinking about the concept of risk and risk management itself. When organizations or their management state that they are managing risk, do they fully appreciate, what risk is all about?

The scandal at Volkswagen and the closure of Imperial Bank in Kenya, a few days should really be a wakeup call for anybody with the responsibility of managing any organization.

I am sure, risk management reports at both entities indicated that management had put in place measures to manage the various risks that the two organizations would face.

Many organizations spend much time worrying about operational risks, more so to protect their jobs, but as the two events demonstrate, the ultimate question that management should ask is – What threatens our ultimate Survivor? Have we done enough to ensure we will be operating tomorrow?

After all the hard work that employees have put in, it is not right that something beyond them, that could have been managed, threatens their livelihoods. While facts are unclear about who did what at VW, it is clear that shortcuts were taken in order to meet short-term gains (sales and profits). Clearly, somebody did not think about the consequences of being caught and therefore exposing the organization to financial implications that will be felt for a long term. Something that could have been fixed technically, with little financial implication now threatens the existence of VW, as we know it….to quote VW’s new CEO "Technical solutions to the problems are within view. However, the business and financial consequences are not yet clear,"

While it is not clear of what happened at Imperial Bank, the implications of CBK’s action are far reaching – over 500 jobs are at risk, Shs 58 billion of depositors money and Shs 2 billion of bond holders funds is at risk.

As a bank CEO, what should be keeping you awake, meeting the half-year numbers or providing confidence to depositors and investors that their money and investment is safe?

As a CEO or CFO, it’s important to have the big picture about your organization, look beyond the numbers…ask yourself, will my risk management ensure profitability and survival in 10 years’ time or will I work to ensure I meet the numbers as long as I am here….and the rest will somehow sort itself?

Risk management is beyond making your Internal Auditors and your Board Audit Chair happy……there are wider implications…think about your staff, your investors, the society just to name but few….see the big picture?

Pointers for Fighting Fraud

The September/October 2014 issue of the Fraud magazine carried an article by Dr Joseph T Wells, Founder and Chairman of the Association of Certified Fraud Examiners on 10 pointers of fighting fraud.

Here is the list as:

1     Be nice and smile often –although fraud fighting is an adversarial process, it doesn’t mean you cant be nice….as a matter of fact the best fraud examiners and investigators ive met are also the nicest..they smile a lot, even when staring down crooks..it completely disarms them.

2     Do your homework first – don’t talk to suspects until you have done your homework

3     Develop a fraud theory – in order to investigate a case have a theory of how it happened. Learn how to develop these theories.

4     Don’t overcomplicate a case - ..”if you investigate enough frauds, you will learn that the offender almost always finds the easiest way to commit the crime…”

5     If you don’t know what to do next, stop – if you get to the point where you don’t know what to do next, stop. ..take a breather

6     Don’t overstep your authority – investigations must be guided by law…you cannot coerce people..or obtain documents secretly that you are not entitled to. Nothing good comes out overstepping your authority

7     Always look for more leads – the work of an investigator is to develop leads. People to talk to, documents to review and places to look. If you develop enough leads the case will solve itself.

8     Be very careful about expressing opinions – investigations should result in facts coming out. A report should clearly explain itself.

9     Books and records don’t commit fraud: people do – don’t get carried away by numbers…look for intent.

10   Understand what the framers of the constitution intended – no matter where you come from…the point is that..dont be out there to get someone. “It’s better that 100 guilty persons should escape than one innocent person should suffer” Benjamin Franklin