RISK MEASURES IN ASSET & LIABILITY MANAGEMENT

Banks are exposed to several major risks in the course of their business - e.g. credit risk, interest rate risk, Foreign exchange risk, equity / commodity price risk, liquidity risk and operational risks.

The initial focus of the ALM function would be to enforce the risk management

Discipline, i.e, managing business after assessing the risks involved. The objective of good risk management programs should be that these programs will evolve into a strategic tool for bank management.

ALM process:

The scope of ALM function can be described as follows:

· Liquidity risk management

· Management of market risks

(including Interest Rate Risk)

· Funding and capital planning

· Profit planning and growth projection

· Trading risk management

The guidelines given here mainly address Liquidity and Interest Rate risks.

Liquidity Risk Management

 Measuring and managing liquidity needs are vital activities of commercial banks. By assuring a bank's ability to meet its liabilities as they become due, liquidity management can reduce the probability of an adverse situation developing. The importance of liquidity transcends individual institutions, as liquidity shortfall in one institution can have repercussions on the entire system. Bank management should measure not only the liquidity positions of banks on an ongoing basis but also examine how liquidity requirements are likely to evolve under crisis scenarios. Experience shows that assets commonly considered as liquid like Government securities and other money market instruments could also become illiquid when the market and players are unidirectional. Therefore liquidity has to be tracked through maturity or cash flow mismatches. For measuring and managing net funding requirements, the use of a maturity ladder and calculation of cumulative surplus or deficit of funds at selected maturity dates is adopted as a standard tool.

 The Maturity Profile as given could be used for measuring the future cash flows of banks in different time buckets. The time buckets, given the Statutory Reserve cycle of 14 days may be distributed as follow:

i) 1 to 14 days

ii) 15 to 28 days

iii) 29 days and up to 3 months

iv)  Over 3 months and up to 6 months

v) Over 6 months and up to 12 months

vi) Over 1 year and up to 2 years

vii) Over 2 years and up to 5 years

viii) Over 5 years

 Within each time bucket there could be mismatches depending on cash inflows and outflows. While the mismatches up to one year would be relevant since these provide early warning signals of impending liquidity problems, the main focus should be on the short-term mismatches viz., 1-14 days and 15-28 days. Banks, however, are expected to monitor their cumulative mismatches (running total) across all time buckets by establishing internal prudential limits with the approval of the Board / Management Committee. The mismatch during 1-14 days and 15-28 days should not in any case exceed 20% of the cash outflows in each time bucket. If a bank in view of its asset -liability profile needs higher tolerance level, it could operate with higher limit sanctioned by its Board / Management Committee giving reasons on the need for such higher limit.

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INTRODUCTION TO IFRS

Introduction to IFRS

In an increasingly interconnected global economy, many market participants are

considering the question of whether it is possible or desirable to move toward a

more uniform global “language” for financial reporting. The proponents of this idea argue that a uniform set of global accounting standards, supported by strong governance, independent standard-setting and a sound regulatory framework, could benefit investors and businesses alike. Others suggest that trying to establish a uniform set of global standards would run the risk of overlooking the unique economic, political, cultural, legal and regulatory realities that exist in different nations and regions.

Over the past decade, this global discussion has intensified. In 2001, the International Accounting Standards Board (IASB) adopted the first iteration of International Financial Reporting Standards (IFRS) to serve as a possible pathway for establishing uniform global accounting standards. Since then, IFRS has been adopted or become accepted in over 100 countries. Over this same period, the Financial Accounting Standards Board (FASB) and the IASB have begun an effort to

converge IFRS and the Generally Accepted Accounting Principles in the United

States (US GAAP), essentially working to make the two sets of accounting standards increasingly similar to each other. More recently, some market participants have raised the possibility of transitioning entirely from US GAAP to IFRS for public company financial reporting in the United States.

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FRAUD DETECTION AND CONTROL

What is a Fraud?

In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual. The specific legal definition varies by legal jurisdiction, but fraud is a crime, and is also a civil law violation.

Defrauding people of money is presumably the most common type of fraud.

Fraud can be committed through many methods, including mail, wire, phone, and the internet (computer crime and internet fraud).

Fraud is a legal and not an accounting concept. For this reason, the accountants have traditionally chosen to treat it as a concept alien to them.

There are four elements to any fraud:

• A false representation of a material nature (either misstatement or omission of a material fact)

• Knowledge that the representation is false, or reckless disregard for truth

• Reliance: The person receiving the representation has reasonably and justifiably

relied on it

• Damages: Such receiving party has sustained financial damages from all of the above.

Acts which may constitute criminal fraud include:

§  bait and switch

§  bankruptcy fraud, is a US federal crime that can lead to criminal prosecution under the charge of theft of the goods or services,

§  charlatanism (psychic and occult),

• confidence tricks such as the 419 fraud, Spanish Prisoner, and the shell  game

§  creation of false companies or "long firms"

§  embezzlement, taking money which one has been entrusted with on behalf of another party,

§  false advertising

§  false billing

§  false insurance claims

§  forgery of documents or signatures,

§  health fraud, selling of products of spurious use, such as quack medicines,

§  tax fraud, not filing revenues or illegally avoiding taxes (tax evasion), in some countries tax fraud is also prosecuted under false billing or tax forgery

§  social fraud, committing fraud to get social security benefits

§  identity theft

§  investment frauds, such as Ponzi schemes

§  marriage fraud to obtain immigration benefits INA s204(c)(1).

§  securities frauds such as pump and dump

§  taking payment for goods sold online, by mail or phone, such as tickets, with no intention of delivering them.

 Fraud has nine elements:

1.   a representation of an existing fact;

2.   its materiality;

3.   its falsity;

4.   the speaker's knowledge of its falsity;

5.   the speaker's intent that it shall be acted upon by the plaintiff;

6.   plaintiff's ignorance of its falsity;

7.   plaintiff's reliance on the truth of the representation;

8.   plaintiff's right to rely upon it; and

9.   consequent damages suffered by plaintiff.

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FINANCIAL PRUDENCE IN HOSPITAL MANAGEMENT

WHAT IS FINANCIAL PRUDENCE

This is the practice of cost consciousness, cost control, cost rationing, relating costs to benefits and preventing or avoiding financial wastages, all aimed at financial efficiency and profitability. But the Chambers dictionary defines prudence as wise or careful in conduct, shrewd or thrifty in planning ahead, wary or discreet.

Financial prudence is a term that is only synonymous with financial activities, but for financial prudence to be practicable, the following factors must be present:

A         There must be a person, business, project, organization or institution

B           Capital/Financial Assets must be involved

C          There must be objectives to be achieved

D         Information must be available

E          A financial plan must be in place

In Accounting, there is a basic convention called “Prudence”. This convention demands that great care should be exercised in the recognition of profit, while all known losses are adequately provided for. There is also the Prudential guideline in banking business in Nigeria which supports the above convention.

When financial prudence is absent in your Hospital management, the followings are commonly found:

·        A situation of financial plan-less-ness

·        No financial purpose, No financial focus and No financial direction

·        Incessant quarrel among management and staff arising from unfulfilled financial expectations.

·        Poor job performance and no motivation

·        Carefree  attitude among staff

·        Fear of using initiatives

·        Lack of Commitments

·        Teeming and lading (method of misappropriation of cash received, by falsifying records of subsequent transaction)

·        Low morale

·        Staff and Contractors Alliance

·        Wage War

·        Fraud

·        Corruption

To establish a mechanism for financial prudence in your Hospital, two fundamental issues must be adequately addressed.

·        Financial Planning  (with a time related budget arising there-from)

·        An Effective Internal Control System

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FINANCE FOR NON-FINANCE MANAGERS

Finance and Business Managers

In a free enterprise system, the aim of business managers is to make the maximum profit without jeopardizing the long term interest and stability of the enterprise. In other words the OPTIMUM profit. Basically, this means.

1.           Achieving an acceptable return on investment

2.           Maintaining adequate working capital and preserving the ability to settle short term creditors with reasonable promptness.

3.           Paying proper attention to the image of the enterprise and giving reasonable consideration to the interest of shareholders, long term lenders, customer, tax authority, host community and every other stake holders.

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DEVELOPING EXECUTIVE MANAGEMENT CAPACITY

Executive Management Capacity can be defined as the ability of individual executive managers and organizations or organizational units to perform functions effectively, efficiently and sustainably. This definition has three important aspects: first, it indicates that capacity is not a passive state but is part of a continuing process; secondly, it ensures that human resources and the way in which they are utilized are central to capacity development; and thirdly, it requires that the overall context within which organizations undertake their functions will also be a key consideration in strategies for capacity development.

The term 'executive management capacity development' does not, of course, imply that there is no executive management capacity in existence; executive management capacity development includes the building up and strengthening of capacity but it also includes retaining existing capacity, improving the utilization of capacity, and retrieving capacity which has been eroded or destroyed. Thus, executive management capacity development does not take place simply through training and additional staff, but requires that skilled people be used effectively, retained within organizations that need their skills, and motivated to perform their tasks.

·      Competitive Factors

Integration and globalization of markets have opened up competitive opportunities for businesses and organizations. The competitive factors that shape such issues as price, quality, sales, marketing, production, technology, timely delivery/logistics and profitability are driven by the following executive management capacity dimensions:
Training and Education: effective performance of any function requires a well trained human resource base of managerial, professional and technical personnel. This involves both specialized training and professional education, and in-service training needed for role-specific activities. This dimension is concerned with how people are educated and trained, and how they are attracted or directed to careers within particular organizations. It had been tested and proven that the most profit driven and cost-conscious managers are those equipped with up-to-date skills.

 Organizations and their management: effective performance requires the utilization and retention of skilled people. Thus, capacity development must include the organizational structures, processes and management systems, in particular the personnel management systems, which make the best use of skilled human resources, and which ensure their retention and continued motivation.

The network and linkages among Organizations/Departments: there is a need to consider the

network of organizations, departments or institutions that facilitate or constrain the achievement of

particular tasks. The accomplishment of many tasks requires the coordinated activities of a range of organizations/departments and any particular organization may belong to several task networks. How these networks function, and the nature of formal and informal interactions among them, are important aspects of organizational performance. These networks will often straddle the public and private sectors even where primary responsibility for a function rests with a public sector

organizational unit

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DEVELOPING AND IMPLEMENTING COMPETENCY FRAMEWORK

Definition

"Competence" is a combination of knowledge, skills and behavior or the state or quality of being adequate or well qualified, to perform a specific role/task

Defining and measuring effectiveness – especially the performance of workers – is a critical part of your job as a manager.

The question is: How do you define the skills, behaviors, and attitudes that workers need to perform their roles effectively? How do you know they're qualified for the job? In other words, how do you know what to measure?

Some people think formal education is a reliable measure. Others believe more in on-the-job training, and years of experience. Still others might argue that personal characteristics hold the key to effective work behavior.

All of these are important, but none seems sufficient to describe an ideal set of behaviors and traits needed for any particular role. Nor do they guarantee that individuals will perform to the standards and levels required by the organization.

A more complete way of approaching this is to link individual performance to the goals of the business. To do this, many companies use ‘competencies.' These are the integrated knowledge, skills, judgment, and attributes that people need to perform a job effectively. By having a defined set of competencies for each role in your business, it shows workers the kind of behaviors the organization values, and which it requires to help achieve its objectives. Not only can your team members work more effectively and achieve their potential, but there are many business benefits to be had from linking personal performance with corporate goals and values.

Defining which competencies are necessary for success in your organization can help you do the following:

·         Ensure that your people demonstrate sufficient expertise.

·         Recruit and select new staff more effectively.

·         Evaluate performance more effectively.

·         Identify skill and competency gaps more efficiently.

·         Provide more customized training and professional development.

·         Plan sufficiently for succession.

·         Make change management processes work more efficiently.

How can you define the set of practices needed for effective performance? You can do this by adding a competency framework to your talent management program. By collecting and combining competency information, you can create a standardized approach to performance that's clear and accessible to everyone in the company. The framework outlines specifically what people need to do to be effective in their roles, and it clearly establishes how their roles relate to organizational goals and success.

These are the steps you need to take to develop a competency framework in your organization.

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