The French finance ministry has slammed Société Génerale, saying they knew there were deficiencies in their approach to controlling risk prior to rogue trader Jérome Kerviel's disastrous run. Finextra reports that:
French Finance Minister Christine Lagarde told reporters that SocGen failed to apply appropriate controls over Jérome Kerviel, who was allegedly able to use loopholes in controls and circumvent risk management procedures to make a series of unauthorised bets on European futures...
...Lagarde told reporters that SocGen missed a number of "alarms", most notably in November when derivatives exchange Eurex alerted the French bank about the positions in Kerviel's book.
These statements appear to back up what I thought earlier when I said that:
If the allegations are right, then Kerviel was executing what forensically is a simple and common fraud accountants term ‘teeming and laldling.’ Borrowing from Peter to pay Paul. The fact Kerviel managed to hoodwink superiors indicates both failed process and a lack of basic audit understanding. Given the background to this spectacular case, you have to wonder where this spreads. In my opinion, it isn’t just a matter of security but a fundamental lack of understanding around risk by everyone involved including both internal and external auditors.
While Legarde's statement answers some of the issues, I have a feeling this case will reveal further deficiencies in the bank's control systems.