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Uncertainty: Preparing for the Known and the Unknowables

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If there’s one thing that is certain in business, it is uncertainty. – Stephen Covey

AERMP – In  response  to  a  question  directed  at  the  United  States  Secretary  of  Defense,  Donald Rumsfeld at a U.S. Department of Defense (DoD) news briefing on February 12, 2002, about the lack of  evidence  linking the government of  Iraq  with the supply of  weapons of mass destruction to terrorist groups, Rumsfeld stated:

Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known “knowns”; there are things we know we know. We also know there are known “unknowns”; that is to say we know there are some things we do not know. But there are also unknown  unknowns—the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.

Since then the words have crept into the risk management parlance and every risk manager must be familiar with the meanings and applications in this contemporary times.


Lets try to separate them for proper understanding


The things we know that we know. Another meaning of this is certainty. When we are certain about something or an occurrence of a particular thing, it becomes a KNOWN KNOWN. For instance, it is certain that there will always be water in the ocean. There will always be night and day. There will always be volatility in the global oil market. Nations will always rise against nations in the search for supremacy to determine which country is more powerful and to protect their ‘selfish’ interests politically. This usually lead to turmoil and a lot of distortion in the global economies, with attendant pronounced effect on the global money and capital markets.

Lets take a look at an example of KNOWN KNOWN in the banking sector that we may be familiar with; the issue of  fraud in banks. Yes, it is a KNOWN KNOWN that no matter how little the magnitude, there will always be fraud in banks. The regulators know this, and this is why they make the set-up of Audit, Control and Risk Management a sine qua non for any organization or set of people that applies for banking license.

The reasons for fraudulent practices are usually due to several factors ranging from executive greed and recklessness, background of staff, etc. For instance, since banks are equal opportunity employers, they are bound to employ people from diverse backgrounds. As an example, some of the staff that are employed and put in charge of millions as cash or note counters have never handled N100,000 cash at a single time in their life either as their own, their parents own or in their former working place before joining the bank. Therefore some in that situation cannot manage the transition to a job which exposes them to sudden huge cash running into millions. They must steal. However, this does not mean that those who are from affluent background will not steal. It is definitely not a criterion.

Let’s quickly look at 2 CASES to buttress the above explanation:


A staff was employed as a teller in one of the new generation banks, and joined the bank with a Masters degree on the recommendation of his uncle, the Chairman of that bank. On a particular day he paid a customer packs of money containing N1000 notes, totalling N100,000. When the customer got back home he recounted the money and found that it was short by N5000. He came back to the bank to complain but the teller insisted that the customer collected the whole amount before leaving the counter.

When it became a heated argument the manager instructed the branch resident auditor to ‘isolate’ the teller and balance his transaction for the day even though the day had not ended. This was done and there was no cash overage, meaning that the teller was right and the customer, wrong; if truly there was an underpayment of N5000, it would have resulted into an overage in the teller’s books. The customer was not satisfied and insisted he would not leave the banking hall until justice was seen to be done and his N5000 returned to him.

Because of the stalemate, the auditor decided to do something unusual – he insisted he must conduct a more detailed search on the teller, including his dress – the suit he wore to the office that day. The manager and the head of operations agreed with the auditor. At the end of the thorough search, the N5000 was found neatly tucked in one of the inner pockets of the suit worn by the teller. A Masters’ degree holder, regular staff (not contract), given the banking job due to the chairman’s (his uncle) connection, certain to get his dues in the bank in terms of promotion and rapid career growth, stole N5000!!! He later confessed to the crime and was thereafter, dismissed.


Another case is that of a Managing Director of a Licenced Micro Finance Bank in Lagos. The CBN recently visited the bank and carried out a comprehensive audit of its operations for a defined period of time.  At  the  conclusion  of  the  exercise,  a  disturbing  report  was  handed over to the board to recover all the micro loans running into millions of naira, though in relatively smaller denominations each, being micro facilities. The board, in order not to incur the wrath of CBN which may lead to the revocation of the MFBs licence, set up a high powered committee and appointed the MD to take direct charge of the recoveries and report directly to the Supervising Director (also a former banker who was appointed by the board to monitor the recovery of long outstanding debts of the bank).

One  of  the  debtors  who  collected  a  micro  facility  of N150,000  in  Lagos  had  relocated  to  Osun State. The outstanding balance to be paid by him at that time remained about N100,000  so after continuous pressure, the man agreed to make some payment. Since the debtor was in Osun state and the Unit micro finance bank does not have a branch in the state, the obvious arrangement to make was for the debtor to pay into the correspondent bank of the MFB, for onward transfer to the MFB’s account of the debtor. Instead of this arrangement that is considered tidy and official, the MD decided to give the debtor his own personal account for the remittance of his debts. Indeed most MFB’s customers are usually ignorant of most of the bank’s procedures and whatever the manager or other officials of the bank says is usually taken as the official position. Many of the microfinance operators have exploited this for their own gain and to the detriment of the customers.


The customer at a point made a payment of N45,000 into the MD’s account, out of the debt. Same day, the MD and Supervising Director were going through all recoveries made in detail, and the promises by debtor customers to pay were also duly followed up. Since the customers particulars (names and telephone numbers) were supplied for the follow up, and copies made for every member of the team, the director just decided to be calling some of the customers directly, at random, instead of absolutely relying on the MD and the other members. Fortunately one of the numbers the director called was the man that paid N45,000. He told the director that he made a payment of N45,000 into the account of the MD a day before. When the director heard this, he pretended like as if he didn’t hear anything, so after some time during the exercise, he demanded for an update on all customers that paid that week. The MD then mentioned the customer along others and he said he paid in N40,000, without mentioning that the money was also paid into his personal account.

The director (since he had already spoken to the customer and had confirmed the amount paid) asked the MD again to confirm how much was paid and the MD still insisted on N40,000. Shortly after this, the MD took an excuse to go and ease himself and came back after few minutes. He was asked again to confirm the amount and he mentioned the same N40,000. After the third answer by the MD that the debtor paid N40,000, then the director requested that he (director) be excused for few minutes. He left the venue of the meeting and called the debtor, told him what the MD said and warned him to clarify for the last time so that he, the debtor would not be an accomplice to a crime that he did not commit. It was then the debtor opened up and told the director what transpired between him and the MD. He said with a tone of finality that he paid in 45k, but the MD called him about half an hour earlier (obviously when he left the meeting, pretending to go and ease himself) and begged him seriously that he should claim to have paid N40,000, because, according to the MD, he would lose his job if the customer says the truth that he paid 45k, that the customer was his only saving ‘grace’.

The director finally came back to the meeting and confronted the MD with the facts from customer and directed the MD to go and print his personal statement of account to show his innocence. At this point the MD knew that the game was up, and therefore confessed to the director. He was dismissed same day. For stealing N5000!!!. The MD of a licenced MFB, who had an official car maintained by the bank, apart from some few other privileges!!!

The above cases are not unusual, but a regular occurrence in banks. For instance, NDIC in its 2017 Annual report of the banking sector confirmed a total of 320 cases of staff related fraud in 2017. A breakdown,  according  to  nairametrics,  shows  that  Officers  and  Executive  Assistants,  as  well  as Managers, accounted for 25.9% and 21.3% of the total fraud cases during the year, while Messengers, Drivers, Cleaners, Security Guards constituted 4.1% of the total fraud cases. Figures obtained from NDIC website confirms the total amount involved in fraudulent activities recorded in that year alone to be N12.01 billion out of which the expected / actual loss was N2.37billion.

It is therefore a KNOWN KNOWN that wherever people are involved there will always be risks (especially people risk or operational risk) to be managed.

The ‘beauty’ of the KNOWN KNOWN risk events is that since the occurrence of such is a certainty, it can be provided against. An example is insurance of vehicles against accident. This is because certainly there will be accidents on roads… To be continued


AERMP is the foremost professional body for risk management practice in Nigeria. We are an independent, not-for-profit institute, duly registered and approved by the Federal Government of Nigeria (under the Company and Allied Matters Act 1990) to set professional standards in enterprise risk management practice among the practitioners in all industries and sectors (both private and public). For more  information: https://aermp.org/

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