Category Archives: Oversight

Cost of (non-)Compliance

“U.S. Bancorp Is Charged, Fined in Laundering Case,” The Wall Street Journal, February 16, 2018 B2.  Bank fined over $600 million and criminally charged with laundering money.  And placed under a deferred prosecution agreement, which is always an adventure.

Bank allegedly constructed and operated its controls on money laundering “‘on the cheap.'”  Think of the money they saved!

Their shareholders, not so much.

How much would having adequate controls and filing required suspicious activity reports have cost?  More or less than $600 million?

A key compliance requirement for banks is to have adequate money laundering controls.  What does it say about the directors and officers that this bank didn’t have them?  Who’s responsible for this failure (i.e., who’s duty was it to prevent this?)?  Who’s getting canned?

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Filed under Board, Compliance, Compliance, Controls, Corporation, Directors, Duty, Duty of Care, Employees, Governance, Internal controls, Oversight, Oversight, Protect assets, Protect information assets, To report

Lessons learned?

I am not sure what to say about the Nunes memo about the DOJ and the FBI and the FISA court, and classified information and governance and compliance.  Too political to be educational.

So, the right-hand news item instead.  “Fed Limits Wells Fargo Growth, Replaces Directors,” The Wall Street Journal, February 3, 2018 A1.  Following a pretty bad year or two, following the customer cramming schedule or the auto insurance.  A former CEO. Lower bonuses.  Now the government takes control of a large bank and replaces the directors.  Restricts the bank’s future growth.  A 6% stock value drop, before this week’s really bad sell-off.  Cost: $300-400 million. Government says, “We cannot tolerate pervasive and persistent misconduct at any bank ….”

What’s the value of compliance?  Is it the possible loss of your ability to control your company?  Is this a lesson for directors, in that they may lose their positions (but they don’t have to refund their fees)(yet- the derivative suits are coming soon).  They didn’t even do that to BP!  The Chief Risk Officer is also retiring later this year.

Business case for compliance or better risk management?  For knowing what’s going on in your company?  Not sure what the lesson is for the shareholders.

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Filed under Board, Business Case, Compliance, Compliance, Compliance Verification, Controls, Corporation, Directors, Duty, Duty of Care, Employees, Governance, Inform market, Inform shareholders, Internal controls, Oversight, Oversight, Protect assets, Risk, Risk Assessment, Risk assessment, Supervision, To report

Vendors

“U.S. Probes Supplier to VW,” The Wall Street Journal, February 1, 2018 B2.  Engineering firm under criminal investigation for alleging helping VW cook the emissions tests – altering the nature of the information provided to the government.  See also, “Robert Bosch Workers Face Probe,” The Wall Street Journal, February 1, 2018 B3. (Similar allegations, but involving Chrysler).

Are you concerned about your vendors?  Do you make sure they comply with law?  Do you appreciate the data that confirms your own compliance?  What’s it worth to have that data be accurate?

Were this a blog about Crisis Management and Emergency Response, there would be an entry here about what you should do when you hear that someone else in your industry has been doing something bad.

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Filed under Accuracy, Board, Compliance, Compliance, Compliance Verification, Controls, Corporation, Data quality, Definition, Directors, Duty, Duty of Care, Employees, Governance, Information, Internal controls, Oversight, Oversight, Protect assets, Protect information assets, Third parties, Value, Vendors

Snoopy cried

“Shares of MetLife Plunge on Big Charge,” The Wall Street Journal, January 31, 2018 B16. MetLife needed to increase its reserves after “losing track of possibly tens of thousands of retirees owned monthly pension payments.”  Loses 9% of share value (and this was before the big drop this week!).  This was after they reduced their reserves earlier, resulting in increased revenues.  The day earlier, “Pension Snafu Hits MetLife Results,” The Wall Street Journal, January 30, 2018 B1. A “records mistake.”  Huh?

People have been and will be fired.  Will any senior executives take the hit?  What exactly is the company’s business?  Where was the Board on this?  Do they refund any of their fees?  At least the company admitted a material weakness in its financial systems.  Is the CFO nervous about what he/she signed?  Did the boost affect anyone’s bonus?  Did this affect the market?

This was not a records mistake.  It was a conscious decision.  Who decided to reduce the reserves and just forget about the pensioners who weren’t easy to find?

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Filed under Accuracy, Board, Compliance, Compliance, Compliance Verification, Controls, Corporation, Data quality, Directors, Duty, Duty of Care, Employees, Governance, Internal controls, Investor relations, Oversight, Oversight

Willie Sutton?

Willie Sutton (a famous bank robber) was reportedly asked, “Why do you rob banks?” He reportedly said, “Because that’s where the money is.” https://www.snopes.com/quotes/sutton.asp

“Hackers Plunder Crypto Exchange,” The Wall Street Journal, January 27, 2018 B5. More than $500 million in credits hacked from the Coincheck site in Japan.  One assumes virtual banks are easier to rob than brick and mortar banks.

This is a concrete example of the cost of a cyber breach.  But it also follows on from an earlier post (Law School Exam Question) equating cash money and information, in terms of value.

If businesses (including the Board of Directors) treated information assets as cash, and managing, protecting, and controlling the organization’s information as currency, would that be “information governance”?  Why do they handle information assets differently?  Why should the Board and the officers get a pass on this?  The shareholders certainly don’t.

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Filed under Board, Controls, Corporation, Directors, Duty, Duty of Care, Employees, Governance, Internal controls, IT, Oversight, Oversight, Ownership, Protect, Protect assets, Protect information assets, Security, Third parties, Value

GE

GE, fresh from the embarrassing disclosure that the Board didn’t know about the two-jet policy, is now being questioned by the SEC over its accounting practices.

“GE Faces An SEC Probe of Accounts,” The Wall Street Journal, January 25, 2018 A1.  Questions arise over how GE accounted for revenue on long-term projects.

How did the Board miss this, too?  The new CEO must be beside himself.  Welcome to the party.

 

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Filed under Accuracy, Board, Compliance, Compliance, Controls, Corporation, Culture, Culture, Directors, Duty, Employees, Governance, Inform market, Inform shareholders, Internal controls, Oversight, Oversight

Risk versus cost

“Investors Turn to ‘Drive By’ Home Appraisals, Adding Risk,” The Wall Street Journal, January 22, 2018 A1.  A method that is illegal when used for a single home is used to quickly and cheaply (quick and dirty?) value large collections of houses, which are then used as collateral.

These values are then used as collateral on billions of dollars of bonds.  Isn’t that comforting?  Think of the money they are saving!

For now.

Do you know what information underpins your decisions?  Does the Board?  Does the market?  What could go wrong?

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Filed under Accuracy, Board, Controls, Corporation, Data quality, Duty, Governance, Information, Oversight, Oversight, Protect assets, Value