Over the past 20 years a microfinance industry has emerged in response to the lack of access to formal financial services for most of the world’s poor. But the demand for services still outstrips capacity and every MFI wants to grow to better meet the need.MFI growth, however, often strains the internal systems and changes the institutional dynamics, whether personnel, credit operations, or reporting, and thus the already high operating risks become more critical.
This course will review the basic concepts of risk management in MFIs and focus on key areas of operating risks, and in particular, the risk of fraud. The objectives of the course are to:
Day 1: The course will begin with an overview of an MFI institutional values, accountability and culture, as they form the rationale for work in internal controls and fraud prevention. Risk and risk management will also be discussed: an overview of the topic, specific microfinance risks, the risk management feedback loop, roles and responsibilities of risk management and in particular operational risk management.
Day 2: Content will cover an overview of internal control systems, specifically the control environment, procedures and the key elements of the system. Accounting controls and the limitation of internal controls are also included. We will also include an overview of fraud in MFIs – common types of fraud, detecting fraud, reducing the likelihood of fraud and the key vulnerabilities and challenges MFIs face in their environment.
Day 3: The primary focus is on preventive controls – human resources, including contributing factors to employee fraud, effective staff motivation, human resource policies, the response to fraud and an employee code of conduct. The preventive controls of policies and procedures cover topics of accounting for cash receipts and disbursements, bank reconciliations, special control procedures, the segregation of duties, and fraudulent means of obtaining cash.
Day 4: The final preventive control – loan information systems discusses characteristics unique to MFIs, the loan administration system, the loan tracking system and areas of risk in the loan tracking MIS. Internal Audit covers the basic roles and responsibilities of an Internal Auditor, characteristics and qualifications of the Auditor, and how an internal audit should be conducted. Topics about the External Audit include the differences between internal and external audit, how an external audit is conducted, why MFI external audits often fail to deliver and how to evaluate proposals for an external audit.
