Question

One of the largest losses in history from unauthorized securities trading involved a securities trader for the French bank Societe Generale. The trader was able to circumvent internal controls and create more than $7 billion in trading losses in six months. The trader apparently escaped detection by using knowledge of the bank's internal control systems learned from a previous back-office monitoring job. Much of this monitoring involved the use of software to monitor trades. In addition, traders were usually kept to tight trading limits. Apparently, these controls failed in this case

What general weaknesses in Societe Generale's internal controls contributed to the occurrence and size of the losses?

Answer 1

The loss in the Societe Generale indicates the weekness in the internal control system. The losses can be avoided with better internal control system.

1.Seperation of duties is the first one the trader can monitor the software. Hidden trade can be easily found out.

2.The trader should be under oversigh. The order beyand our limit should be stopped and should be approved by the higher officials.

3.Required vacation time required to alter the managers if the trader is not having direct control on the trade.

Alloction of work and control system are two best things to avoid losses.