Risk management

The correct operation of a trading department has never been more important given developments in global and local commodity markets. As transactions carried out by the trading department are both speculative deals and end customer sourcing, the appropriate set-up of authorizations and controls plays a key role.

We often see that the control environment and the set-up of processes allow traders to manipulate closed deals and make reclassifications between individual portfolios – the speculative portfolio versus end customers. Such ‘reclassifications’ affect both the profitability of speculative trades and the profitability of supplies to end customers.

One of our projects provides a good example. A company’s top management asked us to identify the reason why monthly management reports showed profits but, at the end of the accounting period, the financial statements showed losses in millions.

The project’s output included the development of internal guidelines, policies, and mandates for trading in individual types of products and the set-up of functional internal controls able to early identify and prevent actions contravening the company’s plans. These outputs were then implemented into the IT system which enabled real-time transaction tracking and evaluation, and monitoring of individual portfolios. The project’s outcome is a functional and, above all, transparent execution of the trading process and the overall operation of the purchase department, and the management of individual portfolios, which allowed the client to better manage the company and achieve better economic results.