Data and its analysis are the essence of financial management. Ensuring the accuracy of data, certifying the tools used to process and report it, and ensuring the control environment surrounding supporting processes are of unique interest to auditors. MPS services work with the auditing function to create confidence that all of the elements within these activities with respect to asset-liability management (ALM) are satisfactory.
ALM and Other Financial Model Verification
MPS model risk assessments provide industry-leading solutions for verifying and validating that an ALM model meets business best practice requirements, specific OCC 2000-16 mandates, and Sarbanes-Oxley related issues. They provide the high confidence level that only a truly independent certification, produced by experienced ALM model users and financial management experts, can bring.
ALM model verifications need to verify basic data, category definitions, contractual inputs, behavior assumptions, and validate forecast outputs. The conceptual fit of the model for the institution is also of interest -- is the current model the right model based on institution size, balance sheet complexity, and other identifiable criteria? Further areas in need of examination are the control environment directly around the model and its users and then the ALCO process.
MPS can verify any ALM model (in-house or out-sourced) and other financial models as well, including mortgage pipeline software.
Financial Model Inputs Development
Not all behaviors in a financial institution's balance sheet are contractually specified. Core deposit re pricing, for example is at management's discretion. Core deposit supply and retention of funds (average life) behaviors are determined by depositors based on their criteria, as are loan prepayments and pay down on credit cards, etc. by borrowers. The inputs that specify these behaviors are often the weakest link in an ALM model, however, despite the fact that they have significant implications for forecast precision and reporting accuracy.
MPS has solutions for quantifying all dimensions of deposit and loan behaviors. These can be based on institution specific, statistically derived analyses or national index type behavior and value data.
Sarbanes-Oxley Section 404 Compliance
Financial managers rely on ALM models to produce many reporting inputs, from simple FAS 107 asset and liability valuations to the complex analyses of embedded interest rate risk (IRR) cited in SEC 10K reports. Model risk from a Sarbanes-Oxley 404 perspective can arise at three levels: (a) the model itself, (b) definitions of model inputs and assumptions, and (c) the control environment surrounding the model.
MPS has solutions for verifying ALM models that meet required Sarbanes-Oxley 404 tests for process control and reporting accuracy, as part of our ALM model verification service.