Risk Profiles and Fraud Detection in Societe Generale

The review report discusses the fraud committed by Jerome Kerviel trader on the turbo warrant markets, highlighting various risk profiles such as market, operational, and financial risks faced by Societe Generale. The report identifies key drivers for the position outlines in the report, areas of focus including equity derivative division, delta one desk, risk and earnings, techniques, emails, timetable of events, reconciliation investigation, official earnings, and provisions. It also highlights risk issues that need to be brought to the attention of the Societe Generale board, including fraud risk, operational risk, and financial risk.

Review Report

Executive Summary
The review of society general report 2008 discusses the fraud committed by the Jerome Kerviel
trader on the turbo warrant markets. The report explains the risk profiles which includes various
risk faced by the company such as fraud, credit, operational, and market. The fifteen areas are
focused for consideration by societe generale senior executives such as equity derivative
division, a timetable of events, official earnings and others. The three risk issues include fraud,
operational and financial risk which needs to be highlighted to the societe generale board.

Introduction
In this present paper, we will discuss the review of societe generale report 2008 and the risk
profiles are identified then the key drivers outlined in the reports. The paper also describes the
areas to be focused on the consideration by a senior executive of societe generale, an order in
which the areas are prioritized, and risk issues that needed to be highlighted to the societe
generale board.
The society generale is the group of expertise which is funded in 1864. The aim of the group is to
become the relationship-focused bank. The core elements of the company are team spirit,
responsibility, innovation, and commitment. It is the third largest multinational bank of France.
1. Risk profiles
The risk profile is defined as the evolution of an organization’s willingness of risk taking and the
threats which are exposed by the company. The risk profile is necessary for mitigating the risk
and threats of an organization. The risk profile determines the type of risk faced by the society
general .Following is the risk which is determined in the report:
1. Market risk:
The market risk is defined as the risk due to fluctuations in the performance of the financial
market. It is also known as a systematic risk which can't be eliminated through diversification,
but it can be eliminated through hedging. The marker risk occurs due to the recession, change in
interest rate, terrorist attacks and others. It is discussed in the societe generale report.
2. Operational risk

It is defined as the risk which includes the risk of the breakdown of people, system, and
internal procedures. It involves the risk element related to the human resource of the
company.
3. Fraud risk
It is the major risk which impacts on the business and it can even shut down the business.
The factor due to which the fraud occurs nature of the items, nature of control environment,
and pressures. The policy discusses this risk which impacts on the results.
4. Counterparty risk
It is defined as the risk to another party of a contract in which the contractual obligations will
be fulfilled by the counterparty. It is considered as the default risk in the financial contracts.
It should be considered at the time of evolution. The counterparty risk is determined in the
societe generale report.
5. Credit risk
It is defined as the risk which arises from the customer or borrower. It includes the loss of
principle and interest. It arises due to inability to make payment by the consumers. It is
discussed in the report.
6. Country risk
It is defined as the collection of risk which is linked with the investment in a foreign country.
It includes political risk, economic risk, exchange rate risk, transfer risk, and sovereign risk.
The country risks various according to the country for example in some countries the risk is
high which discourage the foreign investment. The country risk can be minimized such as
exchange rate risk which can be reduced through marginal loss of profit potential.

7. Compliance risk
It includes the legal, reputational damages and administrative risk. The report also considers
these risks which can be reduced by following the government regulations.
Key drivers for the position outlines in report
The poor performance and fail to control are the failure key indicators which are outlined in the
report. It determines the fraud done by Jerome Kerviel which is not controlled by the company.
2. Area of focus
The areas of focus are considered to determine the fraud committed by the Jerome Kerviel trader
on the turbo warrant markets. Following are the areas of focus:
1. Equity derivative division
The section is focused on determining the fraud committed by the Jerome Kerviel. The
equity derivate market is focused on determining the investment done by Jerome Kerviel
in the derivative market which helps to predict the amount of fraud.
2. Delta one desk
The delta one products are defined as the financial derivatives that have no optionality.
The holder gets the gain exposure easily. It is focused to determine an amount of trading
done by Jerome Kerviel.
3. Risk and earnings
The company has identified 947 fraudulent transaction which helps to hide the earnings
through off market prices. It helps to determine the real earnings of the company.
4. Techniques

It is focused to determine the technique which is used to conceal its positions and to reveal
the unwarranted character of the entries done by him.
5. Emails
It is focused to determine the untruthful replies through forged emails which support on
many occasions.
6. Timetable of events
It is focused to determine the fraudulent activities done by Jerome Kerviel.
7. Reconciliation investigation
It is focused to find the possible way for reconciling the equity positions. The
reconciliation investigation has also confirmed the size of losses.
8. Official earnings
It is focused to determine the official earnings from the concealed position which helps to
determine the fraudulent amount.
9. Provisions:
The seven provisions are made by the trading assistant who generates EURO 1.5 Billion
which shows that the earnings are generated from fraudulent trading’s.
10. Supervision at the first level:
The resignation of manager then they company does not find any immediate manager
which allows him to do massive fraudulent because of an absence of monitoring by delta
one manager. So this needs to be focused.
11. Responsibility
The responsibility of registering all the order in order to monitor the trading by traders
which is not done by DLP manager and it helps to detect the fraud.

12. Proprietary activities
The activities are focused because it includes arbitrage of competitors and the earnings of
3 Million which is less than 25 Million.
13. Impact of fraud:
The fraud impacts on the initial margin requirements, margin calls and cash flows.
14. Operational activities:
The complete inspection of operational activities is done to determine the fraud in
operational activities.
15. Whole investigation:
The complete investigation is focused which helps to determine the actual fraud done by
Jerome Kerviel.
Priorities of areas
Following are the priorities in chronological order:
1. Timetable of events
2. Techniques
3. Risk and earnings
4. Official earnings
5. Equity derivative division
6. Delta one desk
7. Reconciliation investigation
8. Supervision at the first level
9. Proprietary activities
10. Operational activities

11. Emails
12. Responsibility
13. Provisions
14. Impact of fraud
15. Whole investigation
3. Highlighted risk issues
Following are the various risk issues which need to be highlighted to the society generale board:
1. fraud risk
The fraud is done by the Jerome Kerviel which is a major issue that needs to be highlighted
by the societe generale board because it impacts the earnings of the company.
2. Operational risk
The operational activities are carried by the human resource which needs to be highlighted to
the societe generale board to predict the fraudulent activities.
3. Financial risk
The financial risk includes various risks such as loss in financial transactions. It leads to the
loss of money by the shareholders which are a major issue that needs to be highlighted to the
society generale board.
Recommendations
From the above analysis, it can be recommended that the company must evaluate the trading
done by the managers at every level which includes various activities such as operating,
proprietary and others which help to reduce the fraud risk.

Conclusion
It can be concluded that the fraud done by Jerome Kerviel is due to less monitoring and
supervision by the company at every level due to which the fewer earnings are shown in the
company's accounts.

References
(2016). Retrieved 28 October 2016, from
https://www.societegenerale.com/sites/default/files/12%20May%202008%20The%20report
%20by%20the%20General%20Inspection%20of%20Societe%20Generale.pdf