The existence and nature of risk management committees in Australian companies

A risk management committee (RMC), as a newly evolving sub-committee of the board of directors, functions as a key governance support mechanism in the oversight an organisation’s risk management strategies, policies and processes. However, empirical evidence on the factors associated with the existence and the type of RMCs remains scant. Using an agency theory perspective, this study investigates the association between board factors such as proportion of non-executive directors, CEO duality, and board size; as well as, other firm-related factors (e.g. auditor type, industry, leverage, and complexity), and (1) the existence of a RMC, and (2) the type of RMC (namely, a separate RMC versus one that is combined with the audit committee). Data was collected from the annual reports of the top 300 ASX-listed companies. The results, based on logistic regression analyses, indicate that RMCs tend to exist in companies with an independent board chairman and larger boards. Further, the results also indicate that in comparison to companies with a combined RMC and audit committee, those with a separate RMC are more likely to have larger boards, higher financial reporting risk and lower organisational complexity. The findings of this study provide additional information on the use and design of RMCs in a voluntary setting.

The money laundering risk posed by low-risk financial products in South Africa : findings and guidelines

Purpose – The purpose of this paper is to investigate the level and nature of criminal abuse of financial products that are classified as posing a low anti-money laundering/combating of financing of terrorists (AML/CFT) risk in South Africa to determine the effectiveness of the simplified due diligence measures that apply to these products.

Design/methodology/approach – The paper presents empirical research on the views of bank officials and law enforcement officials regarding the criminal abuse of South African financial products that are subject to simplified customer due diligence controls.

Findings – South Africa's AML/CFT laws allow certain deposit-taking institutions and money remitters to implement simplified customer due diligence measures in relation to specific low-risk products that are mainly designed to allow previously unbanked persons to access financial services. The paper finds that the products have been abused by criminals but that the incidence of such abuse and the amounts involved are low. The paper investigates possible weaknesses in the current system that allow limited criminal abuse to occur. It concludes with a number of guidelines that emerge from the study and are of value to regulators that wish to implement a similar system.

Originality/value – The South African AML/CFT scheme in relation to low-risk products is of interest to many international regulators that are grappling with the interplay between effective AML/CFT controls and the impact of strict controls on the ability of socially and economically excluded persons to access appropriate financial services. This paper provides evidence that appropriately designed controls can facilitate financial inclusion while limiting the risk of criminal abuse.

Safeguarding Australia from cyber-terrorism : a proposed cyber-terrorism SCADA risk framework for industry adoption

Terrorist groups are currently using information and communication technologies (ICTs) to orchestrate their conventional physical attacks. More recently, terrorists have been developing a new form of capability within the cyber-arena to  coordinate cyber-based attacks. This paper identifies that cyber-terrorism capabilities are an integral, imperative, yet under-researched component in establishing, and enhancing cyber-terrorism risk assessment models for SCADA systems.

This paper is an extension of work previously published by Beggs and Warren 2008, it presents a high level overview of a cyber-terrorism SCADA risk framework that has been adopted and validated by SCADA industry practitioners. The paper proposes a managerial framework which is designed to measure and protect SCADA systems from the threat of cyber-terrorism within Australia. The findings and results of an industry focus group is presented in support of the developed framework for SCADA industry adoption and acceptance.

Are firms hedging or speculating? The relationship between financial derivatives and firm risk

The focus of this article is an investigation of the relationship between the use of financial derivatives and firm risk using a sample of Australian firms. Our results suggest that this relationship is nonlinear in nature. Specifically, the use of financial derivatives is associated with a risk reduction for moderate derivative users. Derivative usage among extensive derivative users, on the other hand, appears to lead to an increase in firm risk. Nevertheless, compared to firms that do not make use of derivatives, there is no evidence that extensive derivative users are exposed to a risk level in excess of that of nonderivative users. The results are, therefore, indicative of a hedging motive behind the use of financial derivatives.

Market liquidity risk factor and financial market anomalies : evidence from the Chinese stock market

The Chinese stock market is an order-driven market and hence its characteristics are structurally different from quote-driven markets. There are no studies that consider the role of the market liquidity risk factor in determining cross-sectional stock returns in a model including financial market anomalies for order-driven markets. Our aim is to test whether financial market anomalies such as firm size, the book-to-market ratio, the turnover rate, and momentum both with and without the inclusion of the market liquidity risk factor in the case of the Chinese stock market can explain cross-sectional stock returns. The empirical framework is based on the model proposed by Avramov and Chordia (AC, 2006). Our main finding is that the AC model can capture financial market anomalies except momentum when we include the market liquidity risk factor on the Chinese stock market.

Extractive industry financial accounting : where to from here?

By far the most important, difficult and complex policy issue to resolve in the context of the extractive industry concerns the accounting for preproduction costs and mineral reserves, and the disclosure of relevant supplementary data about them. The accounting profession has been unable to settle this particular issue, except in the most contrived of senses. Indeed, many consider the issue to be unresolvable. This paper focuses on the primary financial statements and proposes a partial solution to the issue. The Proposed Method describes a set of new procedures and primary financial statements that are intended to be more serviceable and possess greater predictive power than is currently the case.

A critical analysis of techniques for risk mitigation in the construction industry

Risks exist in every form of construction project. The risks associated with construction projects are often diverse and varied and the management of these risks is nowadays considered compulsory in order to achieve project success. This paper analyses the diverse strategies of risk mitigation that have been employed in construction projects. These strategies are classified into analysed categories of procurement strategies. contingency and co-operative approach along with the utilisation of a designated risk manager. The analysis showed that in order to improve risk mitigation within the construction industry, there is a requirement tor an industry based standard. This standard will improve the efficiency and effectiveness of the risk mitigation response technique to risk management.

Facing up to the risks in commercially focused university-industry R&D partnerships

The number of university–industry R&D partnerships (UIPs) has increased significantly over the past decade, in most OECD countries and in Australia, yet the study of risk in such commercially focused collaborative ventures is still a developing area. This review paper seeks to contribute to debate on this increasingly important phenomenon by addressing three key areas of risks for universities in entering such collaborations. The commercialization of research findings presents particular risks to universities, most notably the possibility of financial loss, which has a greater impact than for companies in cross‐sector collaborations. Another major type of risk faced by universities is relational risk, and this can significantly alter the trust dynamics that underpin research and innovation. There are also institutional risks to universities and their research staff engaged in commercializable R&D and, ultimately, to their reputation as a neutral source of expertise. It is argued there is a need for universities in Australia to develop comprehensive policies to manage the risks of commercialization and R&D collaboration with industry partners.

Major quantitative techniques for risk analysis in the construction industry : a comparative analysis

Risk analysis is one of the critical functions of the risk management process. It relies on a detailed understanding of risks and their possible implications. Construction projects, because of their large and complex nature, are plagued by a variety of risks which must be considered and responded to in order to ensure project success. This study conducts an extensive comparative analysis of major quantitative risk analysis techniques in the construction industry. The techniques discussed and comparatively analyzed in this report include: Programme Evaluation and Review Technique (PERT), Judgmental Risk Analysis Process (JRAP), Estimating Using Risk Analysis (ERA), Monte Carlo Simulation technique, Computer Aided Simulation for Project Appraisal and Review (CASPAR), Failure Modes and Effects Analysis technique (FMEA) and Advanced Programmatic Risk Analysis and Management model (APRAM). The findings highlight the fact that each risk analysis technique addresses risks in any or all of the following areas – schedule risks, budget risks or technical risks. Through comparative analysis, it has been revealed that a majority of risk analysis techniques focus on schedule or budget risks. Very little has been documented in terms of technical risk analysis techniques. In an era where clients are demanding and expecting higher quality projects and finishes, project managers must endeavor to invest time and resources to ensure that the few existing technical risk analysis techniques are developed and further refined, and that new technical risk analysis techniques are developed to suit the current construction industries requirements.

Financial systems and mechanisms of growth in different conditions of country risk

This article uses panel data from 1976 to 2003 to investigate the ways in which banking and stock markets influence economic growth in situations of high and low country risk. The mean and Standard Deviation (SD) of country risk are adopted to classify 28 countries into Low Risk Low Volatility (LRLV) and High Risk High Volatility (HRHV) subgroups. Through the technique of error correction-based panel co-integration developed by Westerlund (2007), several results are obtained. First, LRLV countries can expand the capitalization of stock market to enhance long-term economic growth. Second, HRHV countries, on the other hand, use two distinct strategies to promote long-term economic growth. Initially they develop their equity markets, which promote economic growth directly. Strengthened equity markets, in turn, aid in the development of credit markets, which subsequently brings an economic boom. Finally, regardless of selected subgroups, the contribution of stock market capitalization to economic growth appears to be substantially larger than that of bank credit, highlighting the importance of stock markets.

A proposed approach to systematically identify and monitor the corporate political activity of the food industry with respect to public health using publicly available information.

Unhealthy diets represent one of the major risk factors for non-communicable diseases. There is currently a risk that the political influence of the food industry results in public health policies that do not adequately balance public and commercial interests. This paper aims to develop a framework for categorizing the corporate political activity of the food industry with respect to public health and proposes an approach to systematically identify and monitor it. The proposed framework includes six strategies used by the food industry to influence public health policies and outcomes: information and messaging; financial incentive; constituency building; legal; policy substitution; opposition fragmentation and destabilization. The corporate political activity of the food industry could be identified and monitored through publicly available data sourced from the industry itself, governments, the media and other sources. Steps for country-level monitoring include identification of key food industry actors and related sources of information, followed by systematic data collection and analysis of relevant documents, using the proposed framework as a basis for classification of results. The proposed monitoring approach should be pilot tested in different countries as part of efforts to increase the transparency and accountability of the food industry. This approach has the potential to help redress any imbalance of interests and thereby contribute to the prevention and control of non-communicable diseases.

Money laundering and terror financing risk management of low risk financial products and services in South Africa

When the South African anti-money laundering regulations were drafted in 2002, the Minister of Finance made an exemption to protect so-called mass market banking services products for the poor against negative compliance impact by the new system. This exemption, known as Exemption 17, relaxes the requirement to identify and verify a client’s residential address. Exemption 17 was amended in 2004 to facilitate the launch of a basic bank account, the Mzansi account. This account has proved to be hugely popular. According to the FinScope 2007 survey 10% of South African adults claimed to hold a Mzansi account.