21 February 2009

Oversight Risk: Evidence of Compliance...

In light of the tremendous announcements of corporate and financial malfeasance over the past few months, there is a "cramdown" in the works. The US Office of the Special Inspector General for the Troubled Relief Asset Program (SIGTARP) is gearing up.

The Office of the Special Inspector General for the Troubled Asset Relief Program ("SIGTARP") was established by the Emergency Economic Stabilization Act of 2008 ("EESA").

Under EESA, the Special Inspector General has the responsibility, among other things, to conduct, supervise and coordinate audits and investigations of the purchase, management and sale of assets under the Troubled Asset Relief Program ("TARP"). SIGTARP’s goal is to promote economic stability by assiduously protecting the interests of those who fund the TARP programs - i.e., the American taxpayers - by facilitating transparency in TARP programs.

Transparency and effective oversight in the TARP will be accomplished in coordination with other relevant oversight bodies, and by robust criminal and civil enforcement against those, whether inside or outside of Government, who waste, steal or abuse TARP funds.

The Special Inspector General, Neil M. Barofsky, was confirmed by the Senate on December 8, 2008, and was sworn into office on December 15, 2008.

As the new Stimulus Package works it's way to the local and state governments additional oversight will be placed on the bidding, procurement and contracting processes. Compliance with federal and state laws will become ever so vital as funds are applied under TARP in the mortgage markets and "shovel ready" projects are funded for maintenance and repair of critical infrastructures.

As the government ramps up to spend trillions of dollars to revive the economy, loopholes in federal law and a shortage of FBI agents assigned to investigate white-collar crime could lead to a big payday for perpetrators of mortgage fraud and other schemes.

That's the view of lawmakers who want to extend federal fraud laws to private mortgage companies that aren't regulated at the federal level, and provide $155 million a year to the U.S. Justice Department to triple the number of active mortgage-fraud task forces and help the FBI rebuild its white-collar investigation program.

So what should a Chief Compliance Office or Vice-President of Operational Risk Management at an institution be concerned with over the next few years? Get ready. First and foremost, the Board of Directors will be focused on "Corporate Governance Strategy Execution." Public institutions who have most recently taken on the role of becoming a more traditional bank in order to become eligible for government funds are most at risk. Some of these include traditional insurance companies and credit or charge card institutions. This is because they have not had the controls, staff and policy programs in place to effectively deal with all of the new banking regulations and compliance mechanisms the oversight agencies will be scrutinizing during their audits.

Securities and Exchange Commission Chairman Mary Schapiro plans to look into whether the boards of banks and other financial firms conducted effective oversight leading up to the financial crisis, according to SEC officials, part of efforts to intensify scrutiny of the top levels of management and give new powers to shareholders to shape boards.

As she examines what went wrong, Schapiro is also considering asking boards to disclose more about directors' backgrounds and skills, specifically how much they know about managing risk, said the officials,

As new sources of funding flow to the organizations for redistribution to consumers or small businesses the oversight process must be implemented up front. The human factors will play a tremendous role in how ethics are either applied consistently or are absent all together, in day to day operations. Boards of Directors will ensure that corporate management are injecting the correct amount of corporate governance and compliance management oversight to keep human behavior and red flags in check. Operational Risk Managers will be busy expanding their breadth and reach into the corporate enterprise for years to come.