Spreadsheet: sally_beck__33828__Opn Risk
Sheet: Sheet1

 | Enron Metals : Operational Risk Assessment
 | 1) Control Weaknesses
 | Throughout the business process operational difficulties are being experienced which are resulting in control "failures" indicative of a stretched operational platform:
 | No. | Business Process Under Strain |  | Example of Control "Failure"
 | 1) | Pre-Execution
 |  | - Market Data - reliability of feeds |  | - servers occasionally crashing
 |  | - CACS/DASH - understanding of policies and procedures |  | - uncertainty of use and appropriate sign-offs
 |  | - Pricing and Valuation - lack of a supportable analytical methodology |  | - no supportable methodology for long dated curves
 |  | - Origination in Regional Offices - oversight |  | - variety of outstanding issues
 |  | - Trader Authorisations and mandates |  | - due to be reissued
 |  | - LME trading sessions - logistics of travel arrangements |  | - delays in checking outgoing confirmations
 | 2) | Execution/Trade Capture
 |  | - New York activity - accountability and timeliness/reliability of input |  | - frequent of input errors and omissions
 |  | - Montreal/New York activity - process review and consignment stocks |  | - resolution due end October
 |  | - London activity - potential for process improvements/automation, e.g. EL bridge |  | - IT resource constrained
 |  | - AS400 knowledge - training required
 |  | - Inventory Financing - significant implications |  | - no clearly defined process
 | 3) | Position/Risk Reporting
 |  | -AS400 Reports - flexibility of system reports |  | - EOL standard reporting not currently possible
 |  | - Limit Monitoring - granularity of limits allocated |  | - VaR limits not yet allocated to business units
 |  | - Maturity Gap - appropriateness of methodology |  | - confusion about how to manage violations
 |  | - IR/FX risk - tracking and reporting |  | - see [NAME]'s paper seeking clarification
 | 4) | Inventory Tracking
 |  | - Timeliness of actualisation's/movements in system |  | - regular position reconciliation's not performed
 |  | - Accuracy/quality/granularity of data in system |  | - dependent on spreadsheets
 |  | - Inventory Financing - implications
 |  | - Spreadsheets - scope for process improvements
 | 5) | Documentation
 |  | - Legally approved templates - not in production |  | - delays getting approved language in production
 |  | - Legal support - ongoing
 |  | - Compliance - definition of rules
 | 6) | Settlements/Cash Management
 |  | - Functional groups - hand-offs |  | - see weekly metrics
 |  | - Bank reconciliation process |  | - bank reconciliations not performed for 3 weeks
 |  | - New model - transition plan |  | - payment instructions not set up in TWS and payments made to incorrect counterparty on several occassions
 | 7) | P&L Reporting
 |  | - P&L attribution/explanation |  | - production difficulties resulting in late publication
 |  | - Henry Bath
 |  | - Structured Trading
 |  | - Softs |  | - client reporting problems
 |  | - IR/FX P&L |  | - not possible to segregate/monitor FX/IR P&L
 | 8) | Trade Accounting
 |  | - Balance Sheet - substantiation |  | - cash not posted to accounts on a timely basis
 |  | - Account ownership - clarification |  | - broker reconciliation's not performed for 5 weeks
 |  | - Secondary cost accruals verification and reconciliation |  | - reconciliation's not complete
 | 9) | Financial Reporting
 |  | - US GAAP
 |  | - Cashflow |  | - very high maintenance resulting in unauthorised/unplanned overdrafts
 |  | - Regulatory - FSA and LME |  | - see LME letter entitled "Compliance Failures"
 | 10) | General
 |  | - Certainty of staff resources |  | - high levels of staff absences, largely stress induced
 |  | - SAP |  | - 1st January "go-live" in jeopardy
 |  | - AS400 prioritisation |  | - constantly changing
 |  | - Training
 | 2) Control Assessment "Themes"
 | Themes can be drawn from the above which we have categorised to help define actions:
 |  | Non-Discretionary |  | Discretionary
 | External | 1) Inventory Management |  | 3) Key Person Dependency
 |  | 2) Recycling/Project Cook
 |  | 5) High Volume/Low Margin
 |  | 6) Daily Reporting
 | Internal | 7) Enron Understanding of the Business |  | 4) Inflexible Infrastructure
 |  | 8) Remote Offices |  | 9) Control Sensitive Platform
 |  | 13) Process Efficiency |  | 10) Acceptance of Spreadsheets
 |  |  |  | 11) Historical Lack of Investment
 |  |  |  | 12) MG Plc not Fully Integrated
 |  |  |  | 14) Integrity of Systems
 |  |  |  | 15) Transparency of Business Process
 | notes :
 | - risks have been colour coded red, amber and green to denote perceived level of risk posed
 | - they have also been further categorised to help identify those risks that we have some discretion on how to manage, and those that are a consequence of the business environment.
 | 3) Planned Actions
 | The current plan to mitigate the above operational risks is as follows:
 | No. | Operational Risk |  | Mitigation Plan |  | Action
 | 1) | Inventory Management
 |  | A detailed operational plan needs to be implemented to support the off-balance sheet financing structure |  | Operational plan being developed as well as fundamental review of inventory management processes |  | Howard & Tim P2 - various
 | 2) | Recycling/Project Cook
 |  | An integration plan/strategy needs to be developed and implemented |  | Business strategy being formulated, Controller being hired and [NAME] developing an integration plan |  | [NAME] Lead
 | 3) | Key Person Dependency
 |  | Key people stretched to point of being unable to support increases in transaction flow and/or the introduction of additional 'new' products |  | Need to layer additional resources into the group to create a scaleable and flexible resource base |  | [NAME] Resource Plan
 | 4) | Inflexible Infrastructure
 |  | IT platform and business processes are not designed to accommodate change |  | Need to create a 'change' mentality |  | [NAME] & [NAME] IT/AS400 Prioritisation Plan
 | 5) | High Volume/Low Margin (EML)
 |  | Can't stop the tap making it difficult to recover from busy periods - business support very focused on getting through the day to day - not enough investment in forward planning |  | Have an agreed, properly funded, resource plan |  | [NAME] & [NAME] IT/AS400 Prioritisation Plan and Resource Plan
 | 6) | Daily Reporting (EML)
 |  | Regulatory and exchange based daily and periodic reporting requirements |  | Risk assessment required to understand requirements better and consequences of non-delivery |  | [NAME] end-Oct
 | 7) | Enron Understanding of the Business
 |  | Enron has been actually increasing operational risk by pulling apart the existing infrastructure without a proper understanding of how to reassemble it without causing significant operational problems... |  | Business process changes to be managed more carefully - change requests have to be supported by well thought out plans and BUC's have to sign-off |  | [NAME] and [NAME] to ensure compliance
 | 8) | Remote Offices
 |  | [NAME] and mandates for agency offices need to be clarified |  | Restatement to be submitted by end-October |  | [NAME], Lloyd Fleming & [NAME]
 | 9) | Control Sensitive Platform
 |  | Fully integrated environment means that a system/business process failure is 'catastrophic' - everything grinds to a halt |  | Metrics would flag stesses in the system in advance of a 'meltdown' |  | [NAME], Kevin Rhodes & [NAME] to develop
 | 10) | Acceptance of Spreadsheets
 |  | Lots of manual spreadsheet based workarounds to complement inflexible AS400 platform |  | Business led actively managed IT prioritisation |  | [NAME] & [NAME] IT/AS400 Prioritisation Plan
 | 11) | Historical Lack of Investment
 |  | Infrastructure development and planning too commercially led |  | Segregation of Commercial and Commercial Support functions to ensure accountability for infrastructure rests with dedicated Support staff |  | [NAME] to agree with Mike2
 | 12) | MG Plc not Fully Integrated
 |  | Disparate business segments not being managed cohesively |  | no silo's |  | MO Functional Groups already defined
 | 13) | Process Efficiency
 |  | Despite the scope for process improvements, the business flows are managed in an overall efficient manner |  | Ongoing - process improvements continue to be identified and implemented |  | [NAME] & [NAME] IT/AS400 Prioritisation Plan
 | 14) | Integrity of Systems
 |  | AS400 has been described as 'bullet proof' |  | None required
 | 15) | Transparency of Business Process
 |  | Owing to the P&L falling out of a daily Trial Balance, if something goes wrong alarm bells tend to ring throughout the business process |  | None required