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Breakdowns in internal controls in bank trading information systems: The case of the fraud at Société Générale

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  • Baker, C. Richard
  • Cohanier, Bruno
  • Leo, Nancy J.

Abstract

The purpose of this paper is to examine the failure to detect breakdowns in internal controls in a major bank's trading information systems related to a fraud perpetuated by a mid-level derivatives trader. Specifically, this paper examines the events uncovered at Société Générale, a large French bank, in January 2008. The paper addresses the question whether the apparent breakdowns in internal controls were caused by the fraudulent activities of a single trader acting alone or whether there may have been a certain level of acceptance of these activities on the part of the bank hierarchy as long as the trader was making a profit. The conclusion of the paper is that bank management may have overlooked overrides of internal controls over bank trading information systems during periods when risky trading practices resulted in profits, but that management quickly took action to correct the internal control overrides when the trading practices led to losses, thus re-emphasizing the crucial importance of tone at the top in the internal control environment. The paper will also address current and future potential research which may have prevented the fraud at Société Générale.

Suggested Citation

  • Baker, C. Richard & Cohanier, Bruno & Leo, Nancy J., 2017. "Breakdowns in internal controls in bank trading information systems: The case of the fraud at Société Générale," International Journal of Accounting Information Systems, Elsevier, vol. 26(C), pages 20-31.
    • Handle: RePEc:eee:ijoais:v:26:y:2017:i:c:p:20-31
    DOI: 10.1016/j.accinf.2017.06.002
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    Citations

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    Cited by:

    1. Mohammed AL-Sharairi & Atallah Al-Hosban & Hussan Thnaibat, 2018. "The impact of the Risks of the Input of Accounting Information Systems on Managerial Control, Accounting Control and Internal Control in Commercial Banks in Jordan," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(2), pages 1-96, January.
    2. S Michel & A Michaud-Trévinal & F Cocula, 2019. "Net Impacts in Front Office IS: a First Operationalization of Delone and McLean Model in the Banking Sector," Post-Print hal-02467423, HAL.
    3. Dr. Solomon Abeki, 2023. "Internal Control System and Financial Statement Fraud of Quoted Banks in Nigeria," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 7(9), pages 1158-1200, September.
    4. Audeh Ahmad Bani Ahmad, 2018. "The Internal Auditing Procedures Effectiveness in Using Accounting Information System to Assess Fraud in Jordanian Commercial Banks," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 8(3), pages 291-298, July.
    5. Olha Starenka, 2020. "Essence and Place of Operational Control in the Economic Control System," Oblik i finansi, Institute of Accounting and Finance, issue 3, pages 114-121, September.

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