Asset Acceptance Capital Corp. A Practical Approach to Enterprise - - PowerPoint PPT Presentation

Asset Acceptance Capital Corp.

A Practical Approach to Enterprise Risk Management

Detroit Chapter IIA September 14, 2010

1

Presenters

• Jeffrey S. Bankowski, CIA, CPA, CFF

Jeff is currently the Vice President of Strategy, Analytics, and Shared Services for Asset Acceptance Capital

• Corp. In his current role, Jeff is responsible for Corporate Strategy, Portfolio Management, M&A, Analytics,

Direct Marketing, and Shared Service operations. Previously, Jeff was the Director of Internal Audit for Asset Acceptance. Jeff has also served as the Chief Accounting Officer and Director of Worldwide Accounting Operations for Teksid Aluminum and has held financial and operational roles with BP, KPMG, and the Chicago Mercantile Exchange. He currently serves on the Board of Governors for the Detroit Chapter IIA.

• Keith Carlson, CIA

Keith is the Internal Audit Manager for Asset Acceptance Capital Corp., which is a leading purchaser and collector of charged-off consumer debt. In his current role, Keith is responsible for ensuring that the day to day activities of the audit department are completed to goal. More specifically, he is responsible for ensuring that the Sarbanes-Oxley initiative as well as the Company’s process improvement audits are completed for the audit year. Keith has 16 years of internal audit experience and prior to his current position, Keith has worked in an internal capacity at Credit Acceptance Capital Corporation, General Motors, Conseco and Allstate. Keith has experience with Enterprise Risk Management, risk-based auditing, and data mining techniques.

2

Agenda and Table of Contents

• Company Overview
• Profile
• Collections
• Portfolio Summary
• Company Strategy
• Enterprise Risk Management at AACC
• ERM
• Discipline
• Internal Audit’s Role
• Tools Used
• Successes
• Challenges
• Next Steps
• How to use?

3

AACC - Company Profile

• Leading purchaser and collector of charged-off consumer debt with

roots dating to 1962

• Unpaid obligations originating at credit card issuers, consumer finance

companies, healthcare providers, retail merchants, telecommunications and other utility providers

• From January 1, 2000 through December 31, 2009, purchased 1,090

portfolios with face value of $40.4 billion, investing $998.0 million for an average of 2.47 percent of face value

• Headquartered in Warren, Michigan
• Public Company since February 2004
• Nasdaq: AACC
• Credit Facility – required to be rated by Moody’s and S&P

4

Company Collections Overview

• 1,009 Total Account Representatives
• Call Center Collections in MI, OH, FL, TX, AZ, IL, India
• Legal Collections
• In-house in MI, OH, FL, TX, AZ, IL, MD, NJ, VA
• Forwarding network
• Other Collections
• Primarily Agency network which is used to manage capacity

5

Collection Channels at Asset Acceptance Capital Corp. FY2009 Legal Collections

42.4% of Cash Collections

FY2009 Call Center Collections

42.6% of Cash Collections

FY2009 Other Collections

15.0% of Cash Collections

Portfolio Summary

6

Total Face Value: $40.4 Billion

Portfolio by Industry

General Purpose Credit Cards , 51.7% Private Label Credit Cards , 14.4% Telecommunicatio ns/Utility/Gas , 7.9% Healthcare , 6.4% Health Club , 4.0% Auto Deficiency , 3.4% Other Installment Loans , 3.4% Other(1) , 8.8%

• Positioning the company for growth
• Drive additional capacity through off-shore initiative
• Increase purchasing - expect 2010 levels to exceed historical levels
• Improving our competitive positioning
• Improved operational efficiencies
• Improved analytics
• Optimizing our capital structure
• Amended credit facility
• Review capital markets
• Enhancing our financial discipline
• Cost optimization
• ABM and Business Intelligence applications

7

AACC Corporate Strategy

Enterprise Risk Management – Why? AACC Senior Management determined that an approach to identify, assess, and evaluate critical risks – that could be detrimental to the Company – was essential to its long term growth and prosperity.

8

• ERM is about establishing the oversight, control and discipline to

drive continuous improvement of an organization’s risk management capabilities in a constantly changing operating environment

• Ensuring Asset has the right capabilities for managing the most

important risks, and getting away from managing risk through pure brute force

9

What is ERM to AACC?

• Proactively identify and better manage Asset’s risks
• Distribute resources to better seize opportunities and improve

risk mitigation

• Minimize unacceptable variability and losses
• Respond systematically to our changing business environment
• Clarify responsibility and accountability for managing risk
• Improve Executive and Board communication including reporting
• Protect Asset’s reputation in the marketplace

10

What ERM Provides to AACC

Progression of ERM at AACC

11 Business (Unit) Risk Management Sarbanes- Oxley Enterprise Risk Management Financial risks, hazards and internal controls Business risk and internal controls, taking a risk-by-risk approach Business risk and opportunities, taking an entity-level portfolio view of risk Protect enterprise value Protect enterprise value Protect and enhance enterprise value Treasury, insurance and

• perations

Business managers accountable Documented and applied across the enterprise, at every level and unit Finance and operations Management Strategy-setting Selected risk areas, units and processes Selected risk areas, units and processes Enterprise-wide

2004………………….........................2008………………………….Current

How did AACC get here?

A Roadmap for Success:

• Training on the concepts (Discipline) of ERM
• Internal Audit Director Point Person
• Interview Key Leaders within AACC
• Ask “What are the main risks?”
• Educate/Train leaders on ERM
• Break out groups
• Training conducted throughout the Company
• Spear headed by Director of IAD and Controller
• Rollout Phase
• Once training complete (always on-going) rolled out to all areas of the Company

12

Internal Audit Role in ERM

• Leading the Company towards ERM
• Finding opportunity in change
• Using risk management techniques to address

pressing concerns

• Adapting techniques to fit the Company
• Transition over to Management

Management owns ERM!

13

Internal Audit’s Role in ERM - Do’s and Don'ts

14 Source: IIA UK & Ireland

Discipline of ERM at AACC

• Foundation – establish common terms including (stated objectives for the

Company, risk frame work, and rating guidelines established) ensuring they meeting the Company’s strategy, including mission, vision, and values

• Risk Identification – interview key players to determine what keeps them up at

night

• Risk Assessment – using rating guidelines, assess potential impact and likelihood
• f occurrence
• Risk Response – work to establish risk responses, starting with basic concepts

(accept, avoid, etc) and then detail the response, including Key Risk Indicators

• Risk Evaluation & Monitoring – Monitor metrics and KPI’s in order to make

adjustments to resources

15

Company Mission, Strategy & Values

Risk Identification Risk Response Risk Assessment Risk Evaluation & Monitoring Risk Management Foundation

Discipline of ERM at AACC

• Point of departure – “Processes are stable and many policies are in
• place. Some gaps are present in that responses may be reactionary.”

Where were we?

• How – keep it simple and understandable
• Focus on risk identification and ranking
• Identify key risk events through interviews
• Provide standard guidelines for rankings, based on a 1-10 scale with 1 being the lowest

risk or the most controlled

• Develop Key Risk Indicators (“KRI”)
• Point of arrival – “Process benchmarks are achievable. Corrective

action is taken when limits are exceeded.” Where are we headed?

16

Tools - Generic Risk Model Framework

17 Strategic Risks

Environmental Risk

• Competitor
• Client Wants
• Technological Innovation
• Sensitivity
• Stakeholder Relations
• Capital Availability
• Sovereign/Political
• Industry
• Financial Markets
• Catastrophic Losses

Governance

• Company Culture
• Board Effectiveness

Reputation

• Image and Branding
• Stakeholder Relations

Environmental/Strategic

• Environmental Scan
• Business Model/ Business

Portfolio

• Valuation and Planning
• Measurement (Strategy)

Reporting Risks

Business Reporting

• Budget and Planning
• Accounting Information
• Financial Reporting

Evaluation

• Taxation
• Compensation and Benefits
• Investment Evaluation

Compliance Risks

Environmental

• Legal
• Regulatory

Operations

• Compliance

Integrity

• Management Fraud
• Employee/Third
• Party Fraud
• Unauthorized Use
• Illegal Acts
• Business Reporting
• Regulatory Reporting

Financial

• Price
• Liquidity
• Credit

Empowerment

• Leadership
• Authority/Limit
• Outsourcing
• Performance Incentives
• Change Readiness
• Communications

Information Technology

• Relevance
• Integrity
• Access
• Availability
• Infrastructure

Operations

• Customer Satisfaction
• Human Resources
• Knowledge Capital
• Product Development
• Efficiency
• Capacity
• Performance Gap
• Scalability
• Cycle Time
• Sourcing
• Channel Effectiveness
• Partnering
• Business Interruption
• Product/Service Failure
• Health and Safety
• Trademark/Brand Erosion
• Selling Price
• Company Structure
• Resource Allocation
• Lifecycle
• Debtor Satisfaction

Operational Risks

Tools – Risk Assessment

• Define risk areas and activities – based on interviews
• Provide a short risk name
• Provide a detailed description of the risk – as much detail as needed
• Assign a risk ranking for both Impact and Likelihood
• Forms the basis for prioritizing based on a ranking between 1 (low) to 10 (high)
• Focus will be on the top 10 highest risk – based on the Inherent Risk calculation

18

Tools - Risk Responses

Response Detail / Example Avoidance Disposal of an asset Deciding not to engage in a course of action / activity Reduction Establish operational limits Reallocating capital or other resources Diversification of offerings Sharing Insurance Entering into a joint venture Outsourcing Acceptance Self-insuring Accepting the risk as it stands Relying on natural offset / hedge

19

Risk responses guide the action that will align risks with our risk tolerance

Tools – Generic Heat Map

20

Employee Retention Strategy Cash Misappropriation Financial Statement Manipulation Debtor Liquidation Capital Structure - Equity India Partnership Leadership Real Estate Management Override 1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Likelihood Impact

TOP TEN RISK

Employee Retention Strategy Cash Misappropriation Financial Statement Manipulation Debtor Liquidation Capital Structure - Equity India Partnership Leadership Real Estate Management Override

Tools – Monitoring and Risk Responses

• During the ongoing risk monitoring, provide a presentation for each of

the top 10 risks

• What is the Company going to do to respond to this risk (planning)
• How is the Company monitoring that risk
• Where does the Company need to focus (changes)
• Develop multiple KPIs or Metrics if necessary

21

Dashboard Reporting

22

Successes

1Q10 – Begin building monitoring templates for each top

• risk. Define why this is identified as a risk, the Company’s

response to the risk, any mitigating strategies or controls

2Q10 – Develop Key Performance Indicators. Identify the

measurement and monitoring process, how we will know if

• ur strategy is successful

22

23

Challenges

Beginning Stages:

• What ERM means – understanding of the discipline
• Shift focus from financial risks to more strategic
• Applying ERM to “their” area

Future Challenges:

• Maintain momentum
• Understand the impact of Risk – how does risk affect particular areas
• Risk Tolerance – appetite for risk
• Keep everyone focused – keep moving forward

23

24

Next Steps

• 3Q10 – Develop a plan for incorporating mitigating

strategies and controls. Begin to include the mitigating strategies and controls in the internal audit program

• 4Q10 – Build the monitoring dashboard. Develop a quick

snapshot of the status of the risks and our action plans Ongoing – review risks and re-prioritize

24

To-Do’s = Capabilities Maturity Model

Capabilities Maturity Model (“CMM”) is the future state for ERM after we move past the basics

25

26

How do I start with ERM?

Roll it out small …. Start with the basics!!

• Get buy in
• Create a charter
• Get a sponsor at the executive level
• Select a corporate initiative/objective
• Create a cross cultural team (HR, Finance, Ops, IT, Mkt, etc)
• Dive into who supports the corporate initiative/objective
• Meet with them as a team and assess their support to the selected initiative
• Dive into what could go wrong with the goal
• Assess the level of impact and likelihood of the what could go wrong
• Identify the risk mitigation activity
• Assess the level of residual risk remaining
• Take it back to the sponsor and work with the sponsor to get it to the full executive team
• Repeat……….

THEN, work with getting a risk appetite developed and start cumulating the inherent and residual risk levels to match against the risk appetite.

26

27

Questions/Comments

Jeff Bankowski Jbankowski@Assetacceptance.com Keith Carlson Kcarlson1@Assetacceptance.com

27