By now you may have heard of the 31 year old, lower level trader at Société Générale, one of the largest banks in France, who apparently made some unauthorized bad bets on European equity indexes using futures contracts, resulting in a €4.9 billion ($7.2 billion) loss for the company. The trader had managed to fraudulently bet some €50 billion ($72 billion) that those indexes would rise. Why’d he do it? As of now it appears that he did not profit from these trades. Maybe his boss ticked him off. Maybe it was the thrill. Regardless, this wouldn’t have happened if there was risk management.
While you may not have a trading operation and your firm may not be able to place such outsized bets, perhaps you should consider if your internal controls are strong enough to prevent an employee from pulling off a fraud with disastrous consequences. For many firms, this usually centers around cash management. But it encompasses more, such as who exactly is able to enter the firm into agreements. You want to think the best of your employees, but prudence requires sound policies and procedures.