Today, the importance of the Middle Office continues to grow. Historically, this role has always been a part of the Natural Gas Industry validation process. It greatly increased in stature and importance due to the Sarbanes Oxley Act (SOX) which required companies to develop and sustain stringent internal controls as a result of major accounting and financial scandals in the 2000’s.
At the highest level, the role of the Middle Office is to ensure that transactions from the Front Office (Trading and Logistics) that make it to the Back Office (Accounting Settlement) are correct and compliant. All transactions are scrutinized and analyzed per predefined controls that are designed to find anomalies that are then either explained or managed and resolved to provide more accurate and reliable results.
In order to achieve this the Middle Office Control is designed to Detect, Correct, and Prevent any possible errors flowing from the Front Office to the Back Office.
- Detection is intended to identify all errors and inconsistencies as they are input.
- Correction is intended to fix mistakes and irregularities from reoccurring whenever they are found.
- Prevention is the most effective form of internal controls because they are intended to intercept errors or irregularities before they even occur.
Fundamentally, through the Detection, Correction, and Prevention processes the Middle Office is better able to ensure more accurate transactions from the Front Office to 3rd Parties to the Back Office. In essence the Middle Office provides the assurance that is required by the industry and regulators that a company’s Accounting, Settlement, and Reporting Information is compliant and correct.
Over the next few blog posts, we will be discussing the three different focal areas that the Middle Office targets to ensure compliance.
- Marketing - the purchase and sale of Natural Gas
- Services - the logistical services required to deliver the gas
- Assets - the storage & imbalances held by 3rd Party providers
Rise Services, Industry Consultant and Provider of ETRM Systems.