Our client’s need

Banks and their regulators use financial models in a variety of areas including financial instrument valuation, market and credit risk measurement and control, and financial forecasting. Models are essential in managing large and complex institutions, and reliance on models that are inaccurate or inappropriate may lead to poor or costly decisions. For this reason, organizations should implement policies and procedures to ensure appropriate documentation and validation of all mission-critical and important models.

One of our financial institution clients, who knew the importance of using effective models in their business, wanted to mitigate risk within their models and contacted Baker Tilly.

Baker Tilly solution

The industry and risk professionals at Baker Tilly approached this project from a Valued Business Advisor perspective. They held a broad discovery and brainstorming session with the client to fully understand their financial models, discuss leading practices in the industry, and explore potential solutions. 

With Baker Tilly’s assistance, the client planned and executed a comprehensive internal audit program. This included their business processes and internal controls related to certain financial instrument valuation requirements, system platforms and interfaces, and documentation requirements. A specialized Baker Tilly team was assembled based on the following skills necessary to provide the client with a comprehensive solution:

• Bank processing
• Compliance
• Technology
• Process mapping and facilitation
• Governance and controls

Some of the specific activities performed include: 

• Reviewing and updating valuation processes
• Reviewing the process for preparing analysis of overnight index swaps (OIS) and London interbank offered rates (LIBOR)
• Evaluating adequacy of internal controls to ensure completeness and accuracy
• Reviewing financial model documentation, change control and retention, contractual and market data inputs, and other related control processes that support independent model validation
• Assessing compliance with required validation standards

Results achieved

Baker Tilly worked with the client throughout the project, shared insights, and transferred knowledge to their team. Results included:

• Enhanced financial modeling processes based on a thorough assessment, identification of findings, and recommendations for remediation
• Detailed process flows to document and enhance their current methods along with the policies and procedures that support their risk management framework
• Work performed was also used to meet a portion of the client’s Sarbanes-Oxley requirements  

For more information on this topic, or to learn how Baker Tilly banking specialists can help, contact our team.