Internal Audit for Treasury Market Risk Management - Bank Management - Lecture Slides, Slides of Banking and Finance

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Internal Audit for Treasury Market Risk Management Docsity.com Treasury Dealing Room • Authorized by the bank’s risk management committee. • Interface to international and domestic financial markets. • Clearing house for matching. • Managing and controlling market risk. • Provide funding, liquidity, investment support Docsity.com Internal Control System • Dealing slip for each transaction by the trading desk – Nature of deal – Number of counter parties – Direct deal or deal through a broker – Amount of securities traded – Price of securities traded – Contract date and time Docsity.com System of Treasury Deal • No substitution of counter party once trading has been conducted. • No substitution of security purchased or sold once trading has been conducted. • Maintenance of independent books of accounts by the accounts section. • Maintenance of Subsidiary General Ledger (SGL) account and Bank Receipt records. • Reconciliation of bank’s books with balances in the books of public debt office at quarterly intervals Docsity.com Reporting to Top Management • Reports on a weekly basis. • Details of transactions in securities. • Details of SGL transfer forms issued by other banks that have bounced. • Bank receipts outstanding for more than one month. • Review of investment transactions. Docsity.com Treasury Risk • Interest rate risk – Possibility that interest rates adversely affects the bank’s financial position – Bank’s earnings measured through net interest margin – Economic valuation of banks Docsity.com Treasury Risk • Foreign exchange rate risk – Loss suffered by banks due to adverse movement of exchange rate • Credit Risk – Possible loss of principal and or interest • Operational risk – Risk of direct or indirect loss from inadequate internal processes, people, systems, external events Docsity.com Market Risk Limit • Past performance of the trading unit • Experience and expertise of the traders • Quality of internal control • Pricing, valuation and measurement systems in place • Projected level of trading activity • Liquidity of products and markets • Efficiency of systems in place to settle trades Docsity.com Risk Based Internal Audit • Review of risk systems • Compliance with money laundering regulations • Identification of potential internal business risks • Identification of measures and systems to control risks • Establishment of corrective parameters • Follow up of review reports by the internal audit committee Docsity.com Stages of Internal Audit Docsity.com Business Risk Risk and Audit Matrix High High Risk Very High Extreme Risk Risk Medium Medium High Risk Very High Risk Risk Low Low Risk Medium High Risk Risk Low Medium High Control Risk Docsity.com Checklist for Internal Audit II. Organisation Structure • Treasury activities are supervised by an officer independent of day-to-day activities. • Effective segregation of key duties (treasury dealing, settlement of accounting, reconciliation of accounts). • Policies and procedures are documented and easily accessible to all staff. Docsity.com Checklist for Internal Audit II. Organisation Structure • Defined job descriptions and delegations for key treasury positions. • Availability of sufficient resources to operate the treasury effectively. • Segregation between functions of authorization, execution and recording of transactions. Docsity.com Checklist for Internal Audit III. Personnel: Training, Compliance and Performance • Trained personnel. • Verification of employees’ references. • Verification of documents signed by employees at the time of joining. Docsity.com Checklist for Internal Audit VI. Recording Control i) Control over Documents • Timely and accurate execution of money market deals and recordings. • Receipt of all documents and statements from concerned parties (brokers, bankers, lenders, etc.). • Numbering and filing of copies for ease reference. Docsity.com Checklist for Internal Audit VI. Recording Control ii) Control over Accounting Procedures • Adequate systems to track all matured investments. • Accurate recording and accounting of positions. • Counter checking of records by an independent person. Docsity.com Checklist for Internal Audit VI. Recording Control ii) Control over Accounting Procedures • All deals are recorded in the General Ledger. • Account reconciliation has been done and time frame has been set for clearing all outstanding items. • Inspection of source documents. Docsity.com Checklist for Internal Audit IX. Investment • Review and follow up of investment strategy. • Authority level and monetary limits set for investment in different instrument. • Documentation of list of investments. • Analyse of investment portfolio statements. • Holding of investments in the bank’s name. • Documents with regard to ownership of investments. Docsity.com Checklist for Internal Audit IX. Investment • Bank utilises third party investment managers. • Control of the investment managers’ activities. • Appraisal of investment managers • Compliance of investment policies by investment managers. • Evaluation of internal / external investment managers’ performance. Docsity.com Checklist for Internal Audit X. Documentation for Derivative Transactions (i) Usage of International Swaps and Derivatives Association (ISDA) documentation, with suitable modifications. (ii) Confirmation for each derivative transaction with details of the terms of the contract such as gross amount, rate, value date, etc. Docsity.com