Developing Risk Skills: An Investigation of Business Risks and Controls at Prudential Insurance Company of America

Abstract

The Prudential Insurance Company was involved in the largest life insurance churning scam of the 1980s and early 1990s. At the time, Prudential had weak business controls, and its corporate culture was characterized as ineffective and loose. However, this scandal is rooted in something deeper than a poor control environment. Prudential was a company facing several risks; many company decisions allowed these risks to have a dramatic impact on the company. As a result, its weak control environment came to the forefront, allowing the churning scam to reach its record levels. This case demonstrates the value of identifying and assessing risks in an organization. Further, the case demonstrates how to build control solutions to match the risks. Learning how to manage risks is a valuable skill for business professionals. In fact, the AICPA's Special Committee on Assurance Services (AICPA 1997), also known as the Elliott Committee, identified risk assessment as one of the emerging assurance services offered by CPAs.

Operational risk and reputation in the financial industry

“…Major operational events have drawn a lot of attention in the press and in the academic literature: the Barings bank losing 1.4 billion USD from rogue trading in is branch in Singapore leading to the failure of the whole institution (Ross, 1997;Stonham, 1996;Sheaffer et al, 1998); Allied Irish Banks losing 750 MM USD in rogue trading (Dunne and Helliar, 2002), or Prudential Insurance incurring 2 billion USD settlement in class action lawsuit (Walker et al, 2001), to name a few. These events, as well as developments such as the growth of e-commerce or changes in banks' risks management have led regulators and the banking industry to recognize the importance of operational risk in shaping the risk profiles of financial institutions.…”

Handoffs and Medication Errors: A Community Hospital Case Study

“…To better understand the quality of information transfer in handoffs, we propose using an information quality lens. Accountants have long employed various techniques to identify and address information quality issues in transaction processing systems and related business processes through which financial data flow [14,22,36]. Auditors help to verify that information quality is assured throughout a process and in related systems and databases [18,20].…”

Medication errors, handoff processes and information quality

“…We contend that ACT techniques (ISACA, 1998; Kaplan et al , 1998) can fruitfully augment BPM analysis by revealing specific IQ flaws in a medication administration process and by guiding the selection of appropriate controls. ACT underlies auditors' techniques for analyzing IQ issues in financial transactions and related systems and processes (Walker et al , 2001; Dunn et al , 2003; Kiger and Rose, 2004). It is the transaction focus of ACT that makes it particularly suited to the current study (i.e.…”