BUINESS REPORT Executive Summary

Introduction
The scope of this report is to critically analyse and evaluate the account mapping process within Morgan Stanley Bank International Limited MSBIL and to propose methods to streamline and improve the process to ensure that the truth and fairness of the accounts are maintained. This will involve gaining an understanding of the loan approval process using a process flow diagram, understanding the key stakeholders of the process and drawing up a business case for possible action points to improve the process.

The reporting framework

Morgan Stanley Bank International Limited (MSBIL) is the European Lending arm of Morgan Stanley International Plc. It is incorporated in the United Kingdom with the purpose of providing Loans and advances to clients. It has branches in Italy and Korea as well as a Chinese bank as a subsidiary. Being a lending business incorporated in the UK, its main stakeholder from a reporting perspective is the Bank of England and the Prudential Review Authority (formerly the FSA). This raises the issue of reporting local UK GAAP as opposed to the US GAAP reporting followed by US incorporated entities. In order to assist in the local reporting process, MSBIL has its own reporting tool called Merlin. This is used by both the regulatory control team as well as Legal Entity Controllers to fulfil their monthly, quarterly and annual reporting responsibilities to the Bank of England, the management committee, the Board of Directors, The Audit committee and the PRA. Merlin uses information from the general ledger and matches this information with counterparty information from the product control and operations team. This serves to enhance the data by providing an added layer of granularity to the reporting process. The system then carries out automatic eliminations between branches based on account and cost center information for UK GAAP purposes and uses appropriate FX rates to translate balances from branches into GBP. The final output is an enhanced trial balance based on UK GAAP that can be used to produce the reports and which can be analysed in appropriate manner by both the teams. Figure 1.1 shows a simple process flow diagram for the Merlin process.

The current process

On a daily basis, the Legal entity controllers are responsible for mapping out new products or account and cost center combinations to the respective line item on the face of the financial statements.this is done during the information onsolidation phase (see Figure 1.1) The assumptions behind this process being that, being guardians of the firms accounts, that they are aware of the classification from a financial reporting perspective. However, this causes a number of issues Improper responsibility and accountability relationships:

Responsibility, when used in business affairs, as referring to a sphere of duty or obligation assigned to a person by the nature of that persons position, function, or work. Vincent E. Barry, Moral Issues in Business(Belmont, CA: Wadsworth, 1979). Geoff Hunt, accountability Accountability is the readiness or preparedness to give an explanation or justification to relevant others (stakeholders) for ones judgments, intentions, acts and omission when appropriately called upon to do so. Using the above definition, it is clear that currently the accountability and responsibility for product mapping lies within the legal entity control team. However, this poses problems from an internal control and operational point of view. As the Legal entity controllers are responsible for booking journals to these accounts, there is a risk of fraudulent activities taking place within the organisation due to lack of segregation of duties. This could cause both reputational and financial damages to the firm.

Operational Risk

The Legal Entity controllers are responsible for the external statutory reporting of the firm and as such they are maintain a very high-level view of the overall business. They have insufficient new product information at their disposal. This raises the level of operational risk involved in the mapping process as there is a risk of products being mapped incorrectly therefore affecting the truth and fairness of the financial statements. Moreover, the lack of a review process could increase the risk of errors going undetected. There is hence a need for a more business oriented approach with a well defined review structure.

Lack of documentation/ audit trail

As is evident from Figure 1.1. There is no documentation process involved during the mapping process and mappings are done an ad-hoc basis using judgement. This can cause issues particularly during employee turnover as what may be classified as an asset by one controller may be classified as Income by the other. Lack of documentation makes it impossible to check if proper formal procedures were followed whilst mapping these accounts. Hence omitting the accountability aspect of the process. Voluminous and manual work

Everyday, thousands of entries are passed through MSBIL. Some of them are to new account and cost center combinations as business complexity increases and new products enter the market.

From an operational perspective, the legal entity controllers are responsible for mapping products that they are not responsible for. This raises the risk of error in the mapping process

The legal entity controllers are both responsible for ensuring the proper mapping of the accounts on the face of the financial statements. However, as the entity is complex with more than one product, it becomes difficult to understand the nature of the underlying product and where it would sit on the balance sheet.

HERA process post a non functional Discussion Conclusions Recommendations References Appendices