Complete Analysis, Measure and Mitigation Proposal.

1. Operational Risk
Risk Assessment
Submitted by:
Jose Luis Espinoza
Authored by:
Oscar Armando Espinoza Salazar
Date:
March
Issue:
Envíos de Dinero Waived Transactions
Descriptive Narrative:
The Envíos de Dinero had a new fee schedule that could discount or waive the
transaction fee.
Introduction:
Customers are eligible to send money to Mexico
and obtain a discount on the remittance transaction fee. To qualify the following
requirements must be met:
• Discount Level 1.
a. Prior month average balance under $250.00
• Discount Level 2.
a. New Savings Account Customer without prior month average
balance or prior month minimum average balance $250.00
b. The transfer must be to a Mexico account or Envío de Dinero card.
Country Amount Discount Discount
Level 1 Level 2
Mexico 1 - 1,000 $3.00 $8.00
1,001 - 2,000 $4.00 $12.00
2,001 - more $5.00 $20.00
1

2. Operational Risk
Analysis
A. Transactions and Face Value
The Transactions and Face Value analysis was based on information provided
by System1 and BTS2.
.
U.S. Dollars
Average per Transaction:
January $
Median weekly earnings from painters,
construction and maintenance $494.003
employees:
Average Monthly Fee Income:
January
Average Fee Income per Transaction:
January $
Average Monthly Foreign Exchange
Income:
January
Average Foreign Exchange Income per
Transaction:
January
Note:
The above data does not consider the Change of Instructions fee, transactions
and face value.
1
Money Transfers Transactions and Face Value, Business Intelligence Center (BIC) inquiries from MIS
area of the Finance Department. January
2
“REAL Sales Report ACTUAL” from Armando Guijarro (Former Controller Officer) and
“Real up to .xls” excel monthly report from MIS area of the Finance Department.
3
U.S. Department of Labor, Bureau of Labor Statistics. “Household Data Annual Averages”, 39. Median
weekly earnings of full-time wage and salary workers by detailed occupation and sex 2004. Page 253.
2

3. Operational Risk
Chart 1: Total Transactions Cycle (Number of Transactions)4
TOTAL TRANSACTIONS 20XX TOTAL TRANSACTIONS 20XX TOTAL TRANSACTIONS 20XX
TOTAL TRANSACTIONS 20XX TREND
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
R
R
R
Y
R
Y
ST
H
BE
IL
E
LY
BE
AR
BE
AY
AR
BE
C
N
R
U
AR
JU
EM
M
EM
JU
M
U
AP
TO
U
G
BR
VE
N
AU
M
PT
EC
C
JA
O
FE
O
SE
D
N
January- April May June- August Oct Nov Dec
March July
Chart 2: Total Face Value Cycle (in thousands)
TOTAL FACE VALUE 20YY TOTAL FACE VALUE 20YY TOTAL FACE VALUE 20YY
TOTAL FACE VALUE 20YY TREND
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
R
R
R
Y
Y
R
ST
H
IL
E
LY
AY
BE
AR
BE
BE
AR
BE
C
N
R
U
AR
JU
M
EM
JU
M
EM
AP
U
TO
U
G
BR
VE
N
AU
M
PT
EC
C
JA
FE
O
O
SE
D
N
4
The transactions do not include the Receiver Name Modification (RNMs).
3

4. Operational Risk
Chart 3: Total Number of Branches and Average Monthly Sales per Branch (in
thousands)
Number of Branches Average Face Value per Branch
XXX YYY
XXX XXX
XXX
XXX
YYY XXX YYY
XXX
XXX
XXX
XXX XXX YYY
XXX
XXX YYY XXX YYY
XXX XXX YYY
XXX
YYY
XXX YYY
YYY
XXX YYY
XXX YYY
-
Chart 4: Average Monthly Sales per Branch (in thousands)
XXX
-35%
YYY
From January From August
4

5. Operational Risk
Table 1: Average Monthly Transactions per Branch (Number of Transactions)
AVG
BRANCH HISTORICAL
NAME MONTHY
TYPE TRANSACT DATA
FROM TO
CONVERTED / Top 5
CONVERTED / Top 5
CONVERTED / Top 5
CONVERTED / Top 5
CONVERTED / Top 5
NEW
NEW
NEW
NEW
NEW
NEW
NEW
NEW
NEW
NEW
VB
NEW
VB
VB
VB
5

6. Operational Risk
B. Fees and Discount
The analysis is based on information provided by System5, Marketing and
Product Department6 and BTS7.
Diagram 1: Envíos de Dinero New Promotion / New Fee Schedule (Effective Feb
19th, 20XX)+
Non Customer Customer Customer
Country Amount Fee Fee * Fee **
1– 8 5 0
1,000
Mexico – 8 0
1,001 2,000 12 0
–
2,001 more 20 15
1– 8 8 8
El Salvador Honduras 1,000
–
Guatemala Colombia 1,001 1,200 15 15 15
–
Nicaragua Argentina 1,201 1,500 20 20 20
–
Dominican Rep. Ecuador 1,501 more 30 30 30
1– 20
1,000 20 20
Uruguay – 30
1,001 1,200 30 30
Bolivia – 40
1,201 1,500 40 40
– 50
1,501 more 50 50
* Conditions ** Conditions
Bancomer Savings
1. Savings Customer 1. Savings Customer
Previous
Customermonth average balance >=
2. Previous month average balance >= $250
$250
3. Transfer to an account
+Marketing and Product Department Presentation.
5
“Promo MTfinal- javier.xls”, Business Intelligence Center (BIC) inquiries from MIS area of the Finance
Department. June
6
“Branches Committee Feb Marketing”, Power Point Presentation from Marketing and Product
Department. February
7
“8606 –Agent Activity detail / Commissions and Fees”, MSB Platform Version 1.1.9.9 report. February
6

7. Operational Risk
Diagram 2: Systems involved in the Envíos de Dinero Promotion.
Metavante
Teller Insigth
Teller Insigth
MSBPlatform
Version 1.1.9.9
(POS)
Systems are completely independent.
I. Teller Insight
June Number of %
Transaction
s
Promotion Money Transfer Inquiries 100%
Match with POS Transactions %
Match with POS Transactions and %
Discount Applied
7

8. Operational Risk
Chart 5: Money Transfer Promotion Inquiries (Number of Transactions)
Total Inquiries Total Match POS
XX
XX
XX
XX XX
XX
YY
YY YY YY
XX YY
YY
YY
XXYY XXYY
Jun Jul Aug Sep Oct Nov Dec Jan Feb
20XX 20YY
Table 2: Money Transfer Promotion Inquiries by branch (Number of
Transactions)
Total
Total Effective
Branch Name
Inquiries
Match
POS
ness *Information from June
1 67%
2 68%
3 73%
4 64%
5 60%
6 66%
7 66% Total Total Match
8 55% Branch Name Effectiveness
Inquiries POS
9 51%
10 34% Max
11 64% Min
12 71% Mean
13 71% Standard Deviation
14 75% Median
15 56%
16 70%
17 70%
18 69%
19 53%
20 71%
21 55%
22 66%
23 71%
24 62%
25 76%
26 74%
27 54%
28 65%
29 72%
30 78%
31 63%
32 20%
Grand Total 62%
8

9. Operational Risk
II. MSB Platform (POS)
Table 3: Waived Transactions by Movement Type (June )
CAN SALE NET SALE
# C $ # CONF $ CONF
# $
REFU
# ND $
RN
# M $
Total Of
# Net $
Chart 6: Waived Transactions Analysis (June ))
Discount POS Transactions
NO
MATCH
DISCOUNT NOT
66% APPLIED
6%
, 33%
28%
DISCOUNT APPLIED
TOTAL:
MATCH
9

10. Operational Risk
Chart 7: Waived Transactions History (July ))
REFUND RNM NET SALE CONF
XX YY
X
YY
XX
Z
X X
Y YY
XX X
YY
X
XX
Z
Z YY
Y Z
XX
Z Z Y
Z Z YY
Z
XX Z
YY
Z Z Z Z
XX Z
X Z YY
YZ Z Z Z Z
0 0
7 8 9 1 2 3 4 5 6 7 8 9 1 2 3
10 11 12 10 11 12
20XX 20YY 20ZZ
Table 4: Waived by Destination (July )
Destination Transactions % Transactions Fees % Fees Discounts % Discounts
MEXIC
O SALVADOR
EL
PERU
GUATEMALA
ARGENTIN
A
ECUADO
R
NICARAGUA
COLOMBIA
BOLIVIA
HONDURA
S
BRAZIL
INDIA
Grand Total
Average Discount per Transaction
Mexico
Others
10

11. Operational Risk
Table 5: Waived by Branch (excluding Mexico destination)
*Information from July
Branch_Name Transactions % Transactions Fees % Fees Discounts % Discounts
12% 11% 13%
15% 13% 11%
9% 9% 8%
9% 11% 8%
5% 6% 7%
5% 6% 6%
5% 5% 6%
7% 8% 6%
3% 3% 4%
1% 3% 4%
4% 3% 3%
3% 2% 3%
4% 3% 3%
3% 2% 2%
2% 2% 2%
1% 1% 2%
2% 1% 2%
1% 2% 1%
2% 1% 1%
2% 1% 1%
1% 1% 1%
1% 1% 1%
1% 1% 1%
1% 1% 1%
0% 1% 1%
0% 1% 1%
1% 1% 1%
1% 1% 0%
0% 0% 0%
Grand Total 100% 100% 100%
Max 13%
Min 0%
Mean 3%
Standard Deviation 3%
Median 2%
Table 6: Waived Monthly Average (excluding Mexico destination)
Transactions Discount Discount
Note
Monthly Average Monthly Average Variation
136% New branches and Promotion
25% New Fee Schedule
11

12. Operational Risk
Chart 8: 20XX Waived (excluding Mexico Destination)
-
XXX
XXX
(YY)
XXX
(YY)
XXX
37%
XXX
(YY)
32%
Promotion / Feb 19
XXX
20XX_January 20XX_February 20XX_March
Chart 8: Number of Discounts by Amount (excluding Mexico Destination)
XX
X
XX 1
Y 1.6
2
XX
2.5
X 2.9
3
XX 4
Y 5
6
XX 7
8
X
10
XX
12
14
15
XX
Y 18
X 20
25
XX
30
40
XX 50
0
7 8 9 1 2 3 4 5 6 7 8 9 1 2 3
10 11 12 10 11 12
20XX 20YY 20ZZ
12

13. Operational Risk
Table 7: Top Discounts by Customer (excluding Mexico destination)
Customer Name Customer Name POS Destination Branch_Name 20XX 20YY 20ZZ Grand Total NOTE
-600 Security
-136
-278
-2
-416
-30
-169
-148
-347
-215
-100
-315
-246
-8
-249
-257
-170
-56
-226
-192
-184
-24
-10
-122
-156
-180
-160
-8 Utilities
-151
-159
-150
C. Mystery Shopper8
Telephone call directly to the branch: Do I have to pay a fee for a change of
recipient if I sent my transfer with the promotion and to an account?
Branch Result Note
Visit the branch and it will We are creating
be decided at that customer expectation.
moment.
Yes The system is unable to
do it.
Yes The system is unable to
do it.
No, the system is THIS IS THE CORRECT
unable to bring the ANSWER.
money back from an
account in Mexico.
8
Compliance Department on April 14, 20XX. Random branch selection.
13

14. Operational Risk
D. Transactions Review
The branches were reviewed for existence of
documentation according to the Policy and Procedure9
Table 8: Number of Transaction Reviewed (Discount Transaction between
)
Discount % Reviewed
Branch Reviewed Total
Transactions (Reviewed/Transactions) 20XX 20YY
1245 27 2% 0 27 27
To Mexico
1441 23 2% 0 23 23
Total 2,686 50 0 50 50
To Other 580 29 5% 11 18 29
Country 302 21 7% 4 17 21
Total 882 50 15 35 50
1825 56 3% 11 45 56
Total
1743 44 3% 4 40 44
Total 3,568 100 15 85 100
Table 9: Results Reviewed Transaction
Discount Transactions
Account
Document No Branch
Branch Holder with Incorrect
Storaged Employee No Description Manager
No Account Destination
(Not in Signature
Number
Branch)
To Mexico 0 2 1 0 13 0
(50) 4 2 0 1 2 0
Total 4 4 1 1 15 0
8% 8% 2% 2% 30% 0%
To Other
0 3 0 3 3 9
Country
(50) 0 0 0 0 9 18
Total 0 3 0 3 12 27
0% 6% 0% 6% 24% 54%
Total 0 5 1 3 16 9
(100) 4 2 0 1 11 18
Total 4 7 1 4 27 27
4% 7% 1% 4% 27% 27%
9
Intranet, IT & Operations/ Operations/ Waiving a Transaction Fee http://intranet.pri/Intranet/Policies.aspx
as of April 17, 20XX.
14

15. Operational Risk
E. Policy and Procedure10
1. Promotional Campaigns
1• M
2. Special Circumstances
1• A
0
2•
3
4• T
3. Documentation
1• A
2• T
3
e.g.: Account Holder X _____________________
e.g.: Problems with previous Wire Transfer X _____________________________
e.g.: Employee Benefit X _____________________
4. Management discretion
1• A
•T
10
Intranet, IT & Operations/ Operations/ Waiving a Transaction Fee
http://intranet.pri/Intranet/Policies.aspx as of April 17, 20XX.
15

16. Operational Risk
Risk Assessment
Description of Risk Factor: Incorrect application of the discount or waive fee on
the Envíos de Dinero process to countries other than Mexico.
Methodology: Direct. Historical experience provides records of previous losses.
Areas / Function / People: Branch Employees.
Loss Type: Direct. Loss is clearly identifiable.
Risk Class Name: PROCESSES (PR).
Risk Class Code: 102.Ineffective Control (Ineffectiveness in the control of
operations).
Magnitude of the Loss (Severity): Level 3. The risk factor can cause a loss
between $100.00 to $1,000.00 U.S. Dollars. The amount is defined based on the
Averaged Discount Transactions from July (Excluding
Mexico). The average is ( )= per Discount.
Frequency: High. The risk factor happens more than one time per year.
Annual Loss Frequency (Probability): Scale 11. The risk factor happens about
xxx times per day ( annual occurrences). The occurrence is based on
transactions, which represents a monthly average of
times 12 months.
Potential Economical Impact/Loss: $000 * =$
16

17. Operational Risk
Conclusion
The incorrect application of the discount or waived fee on the Envíos de Dinero
to countries other than Mexico stands for a potential annual economic loss of
. The Branches misunderstanding of the application of the
Envíos de Dinero Promotion may result in the incorrect discount of fees.
Recommendation
• Enforce the correct operation of the discount transaction on the Branches:
o System
 Teller Validation of the Customer as winner on the
Promotion Money Transfer option.
o POS System
 Include the savings account number in the customer
information and verify that this number match with the record
on Teller Insight.
 Add a pop up screen to request manager’s authorization to
process a discount transaction. Branch Manager, Assistant
Manager, Operation Support or Sales Associate should have
the authorization to approve a discount.
 Keep records of the officer that approved the discount.
 Modify the payment order application receipt to include
space for the following:
• Date
• Type of promotion
• Customer’s signature as acknowledgement
• Amount waived
• Officer that authorized the discount.
o Employees
 Reinforce training on the Envíos de Dinero Promotion / New
Fee Schedule for those branches with a high error ratio.
• Provide a simple Check list to the Branches that will assist the Teller to
verify the following:
o That the customer has a Saving Account
o That the money transfer destination is Mexico
o That it is a Level 1 Discount
 Saving Account under $250.00
o That it is a Level 2 Discount
 New Savings Account Customer without prior month
average balance or prior month minimum average balance
$250.00
 The transfer must be to a Mexico account or Envío de
Dinero card.
17

18. Operational Risk
• Dedicate time to the former Bank branches in order to promote the Money
Service Business (MSB) products, Envíos de Dinero and Check Cashing,
due to the low volume operate.
18