The Institute of Internal Auditors in Qatar in association with Qatar University's Scientific Accounting Association hosted a very successful seminar at the Millennium hotel recently. The presenter, Stephen Andersen, Partner, PricewaterhouseCoopers an international consultancy firm, addressed on the topic "Risk Management in the context of the present financial turmoil.The capacity filled attendees of 150 consisting of Auditors, Finance Managers, Risk Managers and Businessmen were all eager to learn from the speaker's first hand experience. He recently moved to Qatar from UK and Europe practice over 15 years

The prolific speaker aptly took the audience along the road of the destruction caused in his view mainly through theculture that was broken". Culture drives risk management said Stephen. He also emphasized that risk management models are fantastic, but you cannot rely on them solely. Businessmen should be asking more "What if " questions. He referred to the corporate memory that lasts only seven years. We tend to forget the lessons of the past, and while the music was playing the dancing continued.

The presentation was neatly structured to give the audience ample food for thought. With a simplistic graphical explanation he detailed the core of the problem in sub-prime lending, investing in stinking assets (mortgage backed bonds/securities), focusing on short term profits and funding long term assets with short term liabilities. In the process, Finance companies, Rating agencies and Brokers neatly packaged the deals and sold it with varying interest rates fragmented on the quality of mortgages. Banks in general ignored key indicators such as cost to income ratio, asset quality and liquidity. With the global financial fall- out, liquidity dried up internationally, trust was lost and fear set in. A reluctance to lend set in globally and Governments started bail out plans.

Stephen then analyzed what went wrong with risk management at the hands of a bank he was advising. This institution, relying on the consultants to develop a strategy, fervently followed a growth strategy. They grew income focused on the subprime market's packaged deals. The value at risk models were supporting their strategy, but sight was lost of the fact that in this strategy you could lose everything anytime. The  black swan event  was not visualized. The lesson being: Management models are often attractive, but one cannot fully rely on them. Stephen listed a number of other supporting factors, such as limited focus on profitability, lack of challenge by the Board on the strategy, very limited growth in infrastructure, inappropriate risk metrics, very limited attention on the Balance sheet with heavy focus on profit and loss etc. From governance perspective there was also a lack of challenge on a holistic review. He also referred to the current exercise in UK related to employee compensation and how reward schemes are driven on behavior. The key challenge is:  How to reward people for taking the correct amount of risk. How to ensure staying with right corporate culture

The next part Stephen addressed  How could Qatari business learn through this debacle? He suggested asking questions such as: Do you put over-reliance on strategy consultants? Do you know your growth agenda? Is your growth profitable? Do you challenge it sufficiently? Is the governance in the organization sound? Are committees performing? Is there sufficient training and succession planning? Is your risk management end-to-end? What risk reporting do you have? How adequate is the new business approval process? Is liquidity management effective? Is your compensation strategy protecting the long term franchise?

In the speaker's view Internal Audit never had a more important role to play than now. His action plan for Internal Auditors include: Enterprise wide stress and scenario analysis, review of the investment portfolio, reviews on Corporate, Retail portfolios sustainability, liquidity requirements, what is the risk infrastructure as well as Basel II readiness. The CEO and business management takes the responsibility for escalating risk matters, but the Internal Auditor, needs to shout very loud, in the wake of non compliance.

In his list of top five risks for financial institutions, Stephen has as number one, liquidity, then credit risk, credit spreads, derivatives and macro-economic trends.