An independent report looking into Home Capital Group’s risk-control functions in 2015 found the company severely lacking, according to documents obtained by BNN. Auditor KPMG was brought in to examine the alternative lender’s practices in the wake of the income fraud scandal that enveloped the company and found that its aggressive growth strategy came at the expense of prudent managerial oversight.

In examining Home Capital’s inner workings, KPMG said the company took a “one-dimensional” view of risk management, focusing almost exclusively on the collateral backing its loans instead of the character of the borrower and the capacity to repay the loan in a timely manner.

Home Capital has declined to comment on the matter. 

KPMG noted two key factors that amplified the lender’s woes, the first being lax risk management in underwriting.

“The first contributing factor was an aggressive growth strategy which created multiple large-scale new initiatives, divided the attention of the oversight functions and prevented the appropriate prioritization of operational risk and fraud-related controls,” the report read. “The resulting increase in volumes created a serious shortage of resources and skills among the Underwriting groups.”

KPMG noted the number of brokers the firm dealt with rose to 4,000 in 2014 from 2,500 four years prior, a massive workload increase that had no corresponding boost to internal resources and tools.

KPMG said the second major factor contributing to the income fraud was the botched implementation of a custom-built software program used to vet clients, writing that the handover from one system to another failed to meet proper business standards.

“When the legacy platform was then turned off without parallel run of the new system, substantial system issues were apparent for Originations,” the report read. “As a result, underwriting processes were without either automated controls or effective system support for years, and the oversight functions in turn lacked reliable and timely monitoring data.”

The auditor also decried a lack of internal communication at the firm, which it said exacerbated any existing operational problems.

“We detected that a siloed mentality exists between the Business and Oversight functions which prevents strong cross functional dialogue, and that Risk and Compliance are not necessarily viewed as a partner to be consulted,” the report read.

KPMG said that as a result, the Office of the Superintendent of Financial Institutions’ warnings over increased fraud in the broker channel was not communicated throughout the firm, and no follow-up actions took place.

Home Capital said on its second-quarter conference call that it has shored up its risk-management practices in the wake of the scandal.