...InTouch

 

  

       Issue 7    

 


Welcome

As we begin the new year, risk management continues to increase in prominence for the right and wrong reasons.  On one hand, organisations now accept risk management as an integral part of enterprise governance. On the other, many organisations are growing concerned about increasing  costs.

Historically, many organisations have not made a significant investment in risk management processes, so any expenditure on risk management is seen as an 'additional' cost. 

Escalating cost will be one of the biggest issues facing risk managers and CFO’s in 2005.  They will need to shift their focus from responding to regulatory changes to improving and integrating their risk management processes to achieve both effectiveness and efficiency.

Enjoy this issue of InTouch

Tony Harb

Director, InConsult

 

Risk Management & Compliance

  • Large auditing firms in Australia may face comprehensive scrutiny of their work papers, partners' pay, independence, quality control and discipline under a deal between US and Australian regulators expected by the middle of the 2005.

  • Security firm Chubb Aust has been fined $1.51M for criminal breaches of the Trade Practices Act for accepting payment for services it could not render.  Chubb's own internal investigation into the allegations, concluded that its compliance systems  "were not operating effectively".

  • The federal Government is considering amending current law to include the prospect of jail sentences so that "hardcore" cartel behaviour by corporations would be classified as a crime.

  • In the first sentence under Sarbanes-Oxley, a former partner of Ernst & Young, was sentenced to 12 months in federal prison, ordered to pay a US$5,000 fine and undergo two years of supervised release for his part in altering and falsifying accounting records.

  •  A survey by accounting firm RSM Bird Cameron found that 4in 10 CEO's lack sufficient knowledge of new financial reporting standards to competently sign the required declaration for company annual reports.

  • According to the Productivity Commission, the two competition regulators in Australia and New Zealand should move towards a single system for vetting trans-Tasman merger applications.  In further developments, both countries agreed to set up a council to supervise trans-Tasman banking as part of their goal to achieve a single economic market.


Financial Services Brief

  • After several senior executive departures from the Commonwealth Bank, APRA was concerned about the loss of risk management staff in it's global markets division.  After discussions with APRA supervisory staff,  it is believed the regulator is satisfied with the CBA's response, including the succession plan.

  • In response to a slowing home loan market, APRA has again warned banks against reducing their credit standards and increasing credit risk to improve their lending.

  • After failing to take full ownership of AXA Asia Pacific, AXA Chief executive has ruled out the sale of the insurers Australian business.

  • In its annual industry review, banking consultancy Mercer Oliver Wyman has concluded that "top-line revenue growth is the most powerful lever in achieving sustained shareholder value creation in financial services".  Former NAB chief executive Nobby Clark's agrees.  In his view, the pursuit of short-term profit through cost-cutting will not deliver sustainable earnings and can cause major structural damage.

  • Recent tort reforms to ease the crisis in the insurance industry have resulted to a considerable decline in the number of cases being fought in the courts.

    National figures released by the Productivity Commission indicate that claims in district courts have fallen by 14,200 cases or 31 per cent and civil claims have fallen nationally by more than 43,000 cases in the three years since governments began tightening access to the justice system

  • The federal government has announced a two month independent inquiry to investigate claims that United Medical Protection (UMP) had reportedly taken advantage of the Government's special financial backing to gain an edge over its competitors.

  • Global ratings agency Moody's has raised concerns that premiums in the general insurance sector has peaked increasing the risk of price war across selected product lines.

  • AMP, Australia's biggest life insurer and second largest funds manager has returned to the black for the first time in 3 years, revealing a full year net profit of $934 million and announcing plans to return $750 million to its shareholders.


Corporate Governance, Compliance

and Enterprise Risk Management 

...Made Simple

InConsult Pty Ltd · L12, 35 Pitt Street · Sydney NSW 2000
Tel: (+612) 9241 1344  · Fax: (+612) 9253 3001
© 2005 All rights reserved

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We are moving!

 

From Monday 28th February 2005, our new contact details are:

 

L12, 35 Pitt St

SYDNEY NSW 2000

 

PO Box R653

Royal Exchange NSW 1225

 

Phone: 02 9241 1344

Fax: 02 9253 3001

 

Unfortunately, it is not possible to forward from our old number to the new number, so please amend your records.

 

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Managing Risk:

Your 2005 to do list

So you think the last few years have been tough? 

By now, you've mapped your processes, developed compliance programs, identified risks, evaluated controls, tested controls and maybe you've had time to make some improvements!  What now?

If you haven't done so already, here is a quick to do list for 2005.

1. Continue to identify and evaluate emerging risk and compliance issues that are likely to affect your organisation.  Asses their potential impact on processes and resources and start developing strategies to ensure you meet regulatory deadlines.

2. Look for opportunities to integrate processes to save valuable resources, time and money.  Risk management and compliance activities tend to evolve 'reactively'.  Consequently, some processes may be fragmented. 

3. Find the right balance between keeping your risk management framework simple and using complex processes and technology.  Using complicated spreadsheets, flowchart packages and access databases can overcomplicate risk management processes and increases the risk of failure.

4. Analyse your compliance costs. Once your heart rate returns to normal, identify areas in your risk management processes that can be improved by integration or technology. 

5. Communicate your plan to key stakeholders early to ensure there are no conflicting deadlines and allow time for resource planning.

Remember, risk management costs are ‘front heavy’ that is, they require considerable investment at the beginning but costs can be managed down thereafter in line with risk exposure, experience and improved process integration.

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INCREASING FRAUD RISK IN PUBLIC SECTOR

According to the NSW Auditor-General, NSW Government departments are not doing enough to stop fraud risk, leaving the state exposed to a potential $3bn loss. 

The Auditor General believes:

- Departments have ineffective fraud control strategies.

- The weakest areas were customer, community and employee awareness of fraud prevention programs, fraud risk assessment, and investigation standards.

- Departments should tighten up reporting systems and consider installing software programs to catch fraudulent activities.

 -Fraud control strategies should be given legislative backing.

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Next Issue:

Managing Outsourcing Risk