CASE STUDY 6
DEVELOPMENT OF METHODOLOGY FOR COMPUTER ASSISTED INFORMATION SYSTEMS AUDITING By: Mario Žgela, M Sc
SISTEM INFORMASI DAN PENGENDALIAN INTERNAL
Chitarani Kartikadewi - 1406524682
Desi Susanti - 1406524695
Karina Ayu Ditriani - 1406524713
Analysis of Some Cases Resulting in Significant Losses or Bankruptcies During 1990's and 2000's, there are several companies that severe bankruptcies or significant financial losses, especially banking industries. Usually, losses and bankruptcies are caused by inadequate risk control mechanisms especially in area of operational risks. To be specific, the lack of control in using information systems and computer technologies are the main reason of the losses and bankruptcies. In certain cases inappropriate information systems management can result in such systemic domino effects. It is important to prevent domino effects in baking industry, which is one of major tasks of central banks and financial supervising and auditing authorities. Unfortunately, some recorded losses and bankruptcies were caused not only by local failures but also by macro and even global negative economic impacts.
Barings Bank Bankruptcy Case
Subject: Nick Leeson (head of front and back offices in Barings Bank Singapore branch) Fraud: Engaged in unauthorized trading in futures and options Assumptions for Fraud:
Motivation: Huge amount of money was at Leeson disposal
Knowledge: Leeson possessed very well knowledge on processes in front and back offices Opportunity: Leeson was manager controlling processes in both front and back offices; he was a key person in change management of business applications supporting the trading Access to assets: Leeson had access to financial assets through business applications. Fraud Schemes:
Leeson gambled on the future direction of the Japanese markets. He hoped contract prices will go up in the future. In this instance, even a percent change of the price could create millions worth profit or loss. Using account 88888, which "related to errors" were omitted from report regularly sent to bank's headquarters in London. Using his control of IT Department, he gave instructions to application programmers how to change report application. The programmers were only executing Leeson's orders without many questions. How the Fraud Concealed:
Leeson managed to make false representation that he was in fact making profits for the bank. Leeson submitted false reports to HQ London which included the misrepresentation of the profitability of the trading. Leeson presented a number of false trading and accounting transactions to management. There was no suspicion from the management, since Leeson was recognized as an extremely successful trader in Barings Bank. Impact of the Fraud:
By 31st of December 1994 the losses are 208 million pounds Sterling. In 1995 bank went bankruptcy and it was taken over by Dutch banking group ING for 1 pound Sterling. How the Fraud Revealed:
Transactions on account 88888 held details on Leeson's unauthorized trading. Loss on account 88888 to 208 million pounds Sterling.
Fraud Detection Failure:
Reconciliation and report check (double check) in HQ London were absent. Refusal of internal audit recommendation of reconciliation procedure and separation of duties in front and back office, which Leeson was the person in charge of both of them. Independent auditors did not recover any anomalies in organization and control procedures.
Allied Irish Banks (AIB) Case
Subject: John Rusnak (front office employee)
Fraud: Rusnak controlled and changed value at risk, the most important measure value used by AIB in order to monitor its forex exchange trades.
Directly changing the values in the spreadsheet calculation of the value at risk used by other employees in risk control unit, while the employee relied on...
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