Friday, 25 January 2008

French Bank Loses $7.2 Billion

Did you hear the one about the rogue trader who cost a French bank two years worth of profits? These days, it's nothing new. We seem to hear about people routinely circumventing companies' control systems and causing an uproar, whether for personal gain or not. One part of the news coverage caught my attention though:

Kerviel shocked and impressed executives with the complexity and scale of his trades. Using his knowledge of Societe Generale's control systems, gleaned in his former monitoring role, he escaped detection. Most of his positions went unnoticed by colleagues and superiors as Kerviel covered his tracks.

Kerviel (the rogue trader) appears to have had inside knowledge that he used to his advantage. This bald statement flies in the face of the reason for internal controls. Every employee should understand their employer's control systems. The problem is that people rely on the "systems" rather than taking personal responsibility. I'm willing to bet that the knowledge Kerviel used focused more on knowing which people would approve his trades without looking at them than at uncovering some hidden weakness in the system.

As a manager I worked for once commented, "computers do not control people, people control people". It doesn't matter how good the system's reports are if people don't look at them and act on them.

Think of that the next time someone from accounting sticks a pile of 50 payments on your desk for your signature. By signing them you are saying "I agree." By initialing the work of a clerk in your department you are saying, "I agree". Think I'm exaggerating? Next time you're standing in line at the bank, watch a junior teller take something to their supervisor for their initials and watch how much attention the supervisor pays to the transaction.

Then take a look at your own organization. In an energized system, everyone understands their responsibility and fulfills it.