Transcript KPMG Screen Template

KPMG FORENSICSM
Risk Management
Reconstructed
Implementing fraud risk
intelligence practices
July 2011
Risk aversion vs. Risk intelligence
Risk Aversion
Risk Intelligence
Risk aversion ignores the basic principle of risk vs. reward. Companies should be averse to
unrewarded risks (e.g., ethical and non-compliance risks)
© 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
© 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.
Fraud risk management
Fraud and risk management
The design, implementation, and evaluation of programs
and controls that prevent, detect, and respond
appropriately to fraud and misconduct risks.
© 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 conditions
Incentive/Pressure
Opportunity
Rationalization
© 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 misconduct
Fraudulent 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 objectives
Prevent
fraud and
misconduct
Detect
occurrence
Respond
appropriately
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
Prevention
Detection
Response
Board/audit committee oversight
Executive and line management functions
Internal audit, compliance, and monitoring functions

Fraud and misconduct risk
assessment
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Hotlines and whistleblower
mechanisms

Internal investigation
protocols

Code of conduct and
related standards

Auditing and monitoring


Retrospective forensic data
analysis
Enforcement and
accountability protocols
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Disclosure protocols

Remedial action protocols

Employee and third-party
due diligence

Communication and
training

Process-specific fraud risk
controls

Proactive forensic data
analysis
© 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
© 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.
Anti-money laundering
compliance
The U.S. regulatory environment

Bank Secrecy Act (BSA) (1970)
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USA PATRIOT Act
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Office 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 compliance
The “Four Pillars” of AML Compliance
Policies,
Procedures,
and Internal
Controls
Designated
BSA/AML
Compliance
Officer*
Training and
Communication
Independent
Testing / Audit
* Should have Board-designated authority to carry out his/her role and responsibilities
© 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.
Anti-bribery and
corruption/FCPA
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 laundering
The FCPA prohibits bribery of foreign government officials

bribery by definition involves the transfer of money or property
The Money Laundering Control Act prohibits
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transfer of money or property derived from “specified unlawful activity”
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transfer of money or property for an unlawful purpose
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FCPA violation is an SUA
Therefore, payment of bribes in violation of the FCPA usually
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.
involves violations
Corruption risk for banks
The Bank’s clients

Potential AML reporting obligations

Bank’s client is engaged in corruption and the transactions are being
facilitated by the bank
The Bank itself

Engages through an employee or authorized agent in bribery to gain an
advantage
Acquired liability

Through 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
© 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.
Thank you
Sven Stumbauer
Director, KPMG LLP
[email protected]
+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.
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