Professor Elam

Thursday Sept15, 2011

UBS  has reported a loss of some $2 Billion due to unauthorized ( and I might add unsuccessful) trades by someone in their London Office. So much for the security of Swiss banks!  Please read this article as it details the recent international banking problems, as well as the concern of the Swiss legislature for its two largest banks.

You will also learn there was a large loss at Societe General a few years back. And before that a Rogue Trader literally destroyed Barings Bank in England. I suggested to Jim Hackard that we show that movie this spring in our Second Saurday Series. 

There are important lessons here for both accounting and particularly non accounting majors. As a manager you want strong Internal Controls. Internal controls are a system that insures things are properly functioning. It makes incidents like this difficult to 'pull off.'  Aside from the money which was lost, this of courses give another poor public perception of UBS which was already reeling from its sub prime difficulties. And I suspect a few people will lose their jobs. 

Indeed it is hard to imagine how a Swiss Bank which certainly has an internal audit department.What one wonders were they doing while this was happening?  Certainly a loss of that magnitude did not happen in a trade or two. Discussing all the internal controls necessary to prevent something like this is beyond a blog post. Section 404 b of SARBOX requires an examination of internal control by the external auditor.