Risk cate g ories Securit as risks ha v e been classifed into three main cate g ories contr act and acquisition oper ational assignment and fnancial risks The Contr act risks and acquisition risks cate g or y encompasses the risks related to enterin g into a cus tomer contr act and the risks related to the acquisition of a new business The Oper ational assignment risks and ope r ational inte gr ation risks cate g or y includes risks that are associated with our daily oper ations and the ser vices w e pro vide for our cus tomer s such as when ser vices do not meet the required s t andar ds and result in loss dama g e or bodily in jur y This cate g or y also encompasses all risks related to the Contr act risks and acquisition risks Oper ational assignment risks and oper ational inte gr ation risks Financial risks and fnancial inte gr ation risks K e y risks Contr act risk risk that unreasonable obliga tions and risks are undert ak en in the contr act ent ailin g unbalanced terms for the t ype of assignment in ques tion such as unreasonable liabilit y unrealis tic ser vice le v els or unfa v or able pricin g mechanisms These factor s could impact mar g ins and proft abilit y Acquisition risk risk that the due dilig ence process and other activi ties do not identif y all necessar y information for makin g the proper decision from a fnancial per spec tiv e but also from a cul tur al per spectiv e and or that the share purchase a greement is not properly s tructured for mana g in g risks related to fndin g s from the process Assignment e x ecution risk risk that a greed contr actual requirements are not met which in turn could adv er sely impact the contr act portfolio churn r ate gro wth cus tomer relations and Securit as reput ation Compliance re gulator y and other risk risk that re gulator y and other require ments are not met which could result in lo w er qualit y hig her cos ts los t income dela ys penalties fnes or reput ational dama g e IT failure risk risk of not bein g able to mana g e disruptions in an efectiv e manner which could cause signifcant disruption to the oper ations afect the accur ac y and timeliness of reportin g and potentially cause reput ational dama g e Securit as V alues and Ethic s risk noncompliance with the Securit as Code of Ethic s requirements can ultimately result in reput ational dama g e los t re v enues penal ties fnes etc Price risk risk of not bein g able to mana g e price w a g e increases in a desired manner which could lead to deterior ated mar g ins M ana g ement es timates and assumption risks risk that account balances and of balance sheet items with hig h subjectivit y such as g ood will contr act portfolios deferred con sider ations pro visions for bad debt pensions le gal e xposures risk reser v es deferred t ax es contin g ent liabilities etc are not properly scrutiniz ed resultin g in an inaccur ate present ation of the fnancial position Mitigation In or der to mana g e contr act risks in a s tructured w a y in the oper ations w e use a business risk e v aluation model kno wn as the S cale which is part of Securit as mana g ement model the T ool b ox The model e v aluates the assignment risk contr act terms and fnancial aspects for a more det ailed description of ho w the model w orks refer to www securit as com The Group has formal policies and guidelines for defnin g the appro v al process and authorization le v els for new contr acts as w ell as ho w to mana g e e xis t in g contr acts In addition oper ations are pro tected b y a cus tomiz ed Securit as insur ance progr am should unforeseen e v ents occur Since contr act risk is a k e y risk Securit as monitor s this throug h re views called dia gnos tic s to tes t the efectiv eness of controls in the contr act mana g ement process The areas re view ed include whether the Scale is properly used and under s tood whether local policies comply with Group policies whether appro v al has been obt ained at the designated le v el whether s t andar d contr acts ha v e been used where possible and whether appropriate follo w up procedures are in place The Group has formal acquisition policies and guidelines for defnin g the appro v al process per t ainin g to acquisitions to ensure that all business acquisitions are appropri ately appro v ed and rig or ously analy z ed to deter mine the possible fnancial and oper ational implica tions of the acquisition Policies co v er such areas as appro v al le v els share purchase a greement deal s tructures due dilig ence checklis ts and ho w the due dilig ence is to be per formed with re gar d to internal and e xternal resources dependin g on the char acteris tic s of the acquisition The Group also conducts pos t acqui sition appr aisals on a peri odic basis Local procedures for securit y ser vices should include a pro cess for writ ten site ins tructions ensurin g the y are defned upto date kno wn and under s tood The Group polic y requires local human resources policies co v er in g the areas of hirin g emplo y ees ret ainin g emplo y ees de v el opment and tr ainin g and com pliance with rele v ant la ws and re gulations Proper recruitment procedures and the tr ainin g and super vision of securit y ofcer s are import ant for mitigatin g the risk of inappropriate assignment e x ecution It is mandator y that local processes include procedures to ensure compliance with rele v ant la ws and re gula tions that there is an assigned responsibilit y for recurrin g re view and that action plans are in place for addressin g an y issues identifed The re view proce dures in the Group are also designed to iden tif y an y chan g es in re gulator y require ments that ma y afect Securit as activities and to t ak e the appro priate actions Group IT policies and guidelines require con trols o v er IT disrup tions includin g such areas as risk assess ment and contin g enc y plans co v erin g all rele v ant areas includin g re gular updates and tes tin g Implement ation of a s tructured compliance sys tem based on the Securit as V alues and Ethic s Code one of the k e y corpor ate policies and the launch of Securit as Int egrit y Line which is the Group r e p o r t i n g sys tem for noncom pliance issues with the Code F or more det ails on all activities related to this refer to pa g es 2430 The Group monitor s and focuses on price w a g e increases on a re gular basis The pro cesses include mea surement communi cation tr ainin g and support for emplo y ees in v olv ed in the pricin g of our ser vices at the inception of a contr act and for price adjus t ments Financial risks are mainly mana g ed throug h the continuous measurement and monitorin g of fnancial per for mance with the help of Securit as fnancial model read more on pa g es 5051 This model identifes cert ain k e y fgures that are vit al to the proft abilit y of the oper ations and facili t ates the detection and handlin g of risks It is mandator y that es timates are documented signed and autho riz ed b y the appropriate parties M onthly re views include the analysis of account balances and of balance sheet items with hig h subjectivit y The accur ac y of assumptions used in pension plan measurement is moni tored In addition to the use of e xter nal actuaries for each plan the Group also ret ains actuarial advisor s to advise on the Group s o v er all pension e xposure The Group has a s tructured process that focuses on the accur ac y of the assumptions used and a re view of pension reportin g and g o v ernance Examples of risks and ho w the y are mana g ed 42 Securit as Annual R eport 2012 G o v ernance and mana g ement Boar d of Director s report on corpor ate g o v ernance and internal control