AGENCE FRANCE TRESOR is tasked with managing the government debt and cash positions under the most secure conditions in the interest of the taxpayer.
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Audit objectives and performance indicators
Objective: Attain a constant standard of quality in risk management that minimises the number of incidents
Risk management must be up to market standards with regard to negotiable debt management and cash management. The system should spot problems and incidents arising in debt and cash transactions as soon as possible, avert them and measure their impact. This objective is determined by the absolute requirement of having a credit balance on the account with the Banque de France. It is also determined by the range of AFT’s transactions, which involve different settlement systems and counterparties in other countries.
Two sets of indicators have been developed to assess whether this objective is achieved.
Quality indicators relating to AFT’s control system
First sub-indicator: this lists the number of incidents or violations of internal procedures. The procedures define the types of trades authorised, execution procedures, risk limits, powers of signature, and controls to be implemented. A quantitative and qualitative indicator, it tracks incidents, which are classified in three categories: violations of powers of signature, violations of risk limits and violations of execution procedures. This is an internal quality measurement relating to AFT’s organisation and compliance with requirements.
No violations of procedures were reported in 2010.
Second sub-indicator: this tracks external ratings of the internal control system. External auditors conduct an annual audit of AFT’s operations for this indicator. One of their tasks is to verify that AFT’s procedures are appropriate for its activities and the risks incurred. For this assessment, the auditors refer to CRBF Regulation 97-02. Their assessment looks at the control system for transactions and internal procedures, the accounting and reporting system, the system for measuring risks and results, and the risk management and supervision system.
The external auditors’ report for 2010 upheld the rating awarded in 2009 and deemed that the procedures ensured secure trading and financial reporting.
Indicators tracking debt and cash transaction execution incidents
Different types of incidents represent varying degrees of risk for AFT. They are classified into three categories:
The first sub-indicator: tracks the number of incidents that have a negative impact on the balance on the account at the Banque de France, for example, when a counterparty fails to honour its financial commitments (11 in 2009 and 3 in 2010). This indicator fell in 2010, confirming the robustness of the organisation of controls at AFT.
The second sub-indicator: this tracks the number of incidents that have no impact or a positive impact on the account balance. These incidents are less serious, but they are signs of problems nonetheless. For example, AFT may find that its end-of-day balance is greater than expected, and thus be unable to invest the funds or unable to obtain the best return (34 incidents in 2009 and 5 in 2010).
This sharp drop concerned both repos and margin calls. In its investment policy in 2010, cash managers gave priority to unsecured deposits, which rose 20% while repos fell 30%. It is therefore not surprising that there should have been fewer incidents involving repos. These incidents had no effect on the interest income earned on the account, which even improved in the vast majority of cases. Incidents on margin calls also dropped sharply, from 16 in 2009 to 1 in 2010, even though there was no significant change in the number of margin calls.
Several years ago, AFT added an indicator to track the quality of operational execution of transactions to the criteria it uses to assess bank counterparties that are also primary dealers.
The third sub-indicator: this tracks the number of incidents relating to the systems involved in transactions, including failures and problems with AFT’s internal information systems, problems with market systems, such as the systems run by EUROCLEAR, or problems with the computer system at the Banque de France (3 in 2009 and 15 in 2010).
System-related incidents stem primarily from problems with connections to Banque de France applications, market systems (EUROCLEAR) and AFT’s internal applications. However, the increase was attributable to a more systematic recording of incidents than to any real deterioration in the quality of information systems.
The objective set for prudential supervision has thus resulted in fewer incidents.
MAJ : 02 Jan. 2012