cash flow analysis
Yet Another Scandal
The Allied Irish Bank Case
Written by Hans Raj Nahata and Felix Stauber under supervision of Professor Michael Pinedo, Stern School of Business, New York University. For classroom use only.
Introduction
This is a short story of failures. It is rather a chilling story of how a single person, under the most common work circumstances, can lose $750 millions! And he does so, by bullying his subordinates, intimidating his colleagues, threatening his supervisors, bribing his counter-parties, forging documents, falsifying the data, and betting more and more after having lost the most. A perfect example of "escalation of commitment". A fantastic case of complacence over compliance. This is only the first reaction: Sensationalism ends here. The core of the case is a clear reflection of:
Misalignment between the business strategy and operations strategy.
Broken procedures, inadequate policies, conflict of interest, sub-optimal decisions making, etc.
Historians tend to report each other. Luckily, we are not historians, and thus not obliged to report just the facts in the chronological order. Nor are we inclined to project Mr Rusnack as a two-horned clever imp. Instead, processes, procedures and policies are the foci of our investigation. Since hindsight is always 20/20 we will take the liberty of discussing “if onlys”.
We invite the reader to first get acquainted with the bank, and then with the scandal. We need to do this because both the site and the events of crime are important to analyze the mis-doings of the individuals and (more importantly) weakness of the system. At this point, the reader is urged to peruse the appendices on “An Overview of Foreign Exchange Markets”, and “A Primer On Operations Risk”. Our understanding of “People Failures” and “Process Failures” follows next. To gain an insight into this scandal we have also compared it with the infamous Barings case.
We must warn the reader that
The Allied Irish Bank Case
Written by Hans Raj Nahata and Felix Stauber under supervision of Professor Michael Pinedo, Stern School of Business, New York University. For classroom use only.
Introduction
This is a short story of failures. It is rather a chilling story of how a single person, under the most common work circumstances, can lose $750 millions! And he does so, by bullying his subordinates, intimidating his colleagues, threatening his supervisors, bribing his counter-parties, forging documents, falsifying the data, and betting more and more after having lost the most. A perfect example of "escalation of commitment". A fantastic case of complacence over compliance. This is only the first reaction: Sensationalism ends here. The core of the case is a clear reflection of:
Misalignment between the business strategy and operations strategy.
Broken procedures, inadequate policies, conflict of interest, sub-optimal decisions making, etc.
Historians tend to report each other. Luckily, we are not historians, and thus not obliged to report just the facts in the chronological order. Nor are we inclined to project Mr Rusnack as a two-horned clever imp. Instead, processes, procedures and policies are the foci of our investigation. Since hindsight is always 20/20 we will take the liberty of discussing “if onlys”.
We invite the reader to first get acquainted with the bank, and then with the scandal. We need to do this because both the site and the events of crime are important to analyze the mis-doings of the individuals and (more importantly) weakness of the system. At this point, the reader is urged to peruse the appendices on “An Overview of Foreign Exchange Markets”, and “A Primer On Operations Risk”. Our understanding of “People Failures” and “Process Failures” follows next. To gain an insight into this scandal we have also compared it with the infamous Barings case.
We must warn the reader that