Risk Management Reconstructed Implementing fraud risk intelligence practices July 2011 KPMG FORENSIC SM

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  • Risk Management Reconstructed

    Implementing fraud risk intelligence practices

    July 2011KPMG FORENSICSM

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Risk aversion vs. Risk intelligence

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Major considerations for financial institutions Fraud risk Anti-money laundering compliance Anti-bribery and corruption/FCPA

  • Fraud risk management

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    The design, implementation, and evaluation of programs and controls that prevent, detect, and respond appropriately to fraud and misconduct risks.

    Fraud and risk management

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Sample fraud and misconduct conditionsOpportunityIncentive/PressureRationalization

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Sample categories of fraud and misconductFraudulent financial reporting (e.g., improper revenue recognition, overstatement of assets, understatement of liabilities)Misappropriation of assets (e.g., theft of cash, physical assets or intellectual property)Revenue or assets gained by fraudulent or illegal acts (e.g., deceptive sales practices, market rigging, over-billing customers)Expenses or liabilities avoided by fraudulent or illegal acts (e.g., improper avoidance of tax liabilities, wage and hour abuses, falsifying information provided to regulators)Expenses or liabilities incurred for fraudulent or illegal acts (e.g., commercial kickbacks, bribery of domestic or foreign officials)Other misconduct (e.g., other violations of legal, regulatory or ethical standards)

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Antifraud program objectivesPreventfraud and misconductDetectoccurrenceRespondappropriately once discovered

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Sample antifraud program elements

    PreventionDetectionResponseBoard/audit committee oversight Executive and line management functions Internal audit, compliance, and monitoring functionsFraud and misconduct risk assessmentCode of conduct and related standardsEmployee and third-party due diligenceCommunication and trainingProcess-specific fraud risk controlsProactive forensic data analysisHotlines and whistleblower mechanismsAuditing and monitoringRetrospective forensic data analysisInternal investigation protocolsEnforcement and accountability protocolsDisclosure protocolsRemedial action protocols

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Putting it all together

  • Anti-money launderingcompliance

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    The U.S. regulatory environmentBank Secrecy Act (BSA) (1970) USA PATRIOT ActOffice of Foreign Assets Control (OFAC)Foreign Corruption Practices Act (FCPA)

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Risk-based approach to AML complianceThe Four Pillars of AML CompliancePolicies, Procedures, and Internal ControlsDesignated BSA/AML Compliance Officer*

    * Should have Board-designated authority to carry out his/her role and responsibilitiesTraining and CommunicationIndependent Testing / Audit

  • Anti-bribery and corruption/FCPA

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Corruption risk for banks

    More than 1 trillion dollars is paid in bribes each year* * Source: World Bank Institute

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Interplay between FCPA and money launderingThe FCPA prohibits bribery of foreign government officialsbribery by definition involves the transfer of money or property The Money Laundering Control Act prohibitstransfer of money or property derived from specified unlawful activitytransfer of money or property for an unlawful purposeFCPA violation is an SUA Therefore, payment of bribes in violation of the FCPA usually involves violations of the Money Laundering Control Act

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Corruption risk for banksThe Banks clientsPotential AML reporting obligationsBanks client is engaged in corruption and the transactions are being facilitated by the bank

    The Bank itselfEngages through an employee or authorized agent in bribery to gain an advantage

    Acquired liabilityThrough violations committed by entity acquired

    2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

    Putting it All Together

  • Thank youSven StumbauerDirector, KPMG LLPsstumbauer@kpmg.com+1-305-913-2772

  • 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. The KPMG name, logo and cutting through complexity are registered trademarks or trademarks of KPMG International.All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

    ***********Means to Fight Money Laundering and Terrorist Financing/Leaders Guide****