infr as tructure necessar y for runnin g the business includin g such functions as IT human resources and le gal The Financial risks and fnancial inte gr ation risks cate g or y includes risks related to fnancial reportin g as w ell as fnancial risks related to e xternal fnancin g needs and currenc y e xposure T o allo w the divisions countries and re g ions to focus fully on their oper ations the mana g ement of cert ain risks such as fnancin g and currenc y i s c e n t ra l i ze d to the Group T reasur y Centre to the greates t pos sible e xtent 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 43 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