Are you looking for a comprehensive risk assessment template for growing your business? It’s tempting to try to do risk management in-house, but considering how detrimental and costly that could be to your business, is that really the best way?
StockX is facing a class-action lawsuit due to a breach in their cybersecurity. Allegedly, hackers stole crucial customer information and sold it on the dark web, infuriating consumers. Had StockX paid closer attention to their cybersecurity risks and efforts, they might not be facing a lawsuit.
Don’t let something like this derail the growth of your business. Let’s dive into the essentials every risk assessment template should have, and we’ll provide you with a template to get you started.
The Best Audit Risk Assessment Template for Growing Businesses
Before we dive too deep into the elements of a risk assessment template, let’s define what a risk assessment is. A risk assessment is the process of identifying potential risks surrounding your business activities and assessing them by the likelihood of occurrence and the severity of the impact it poses to your firm.
At a glance, there a three simple ways to immediately improve the risk assessment process, including:
- Know Your Process: Developing an effective risk assessment starts with understanding your processes. One of the best ways to understand your process is through the use of business process maps. Process maps provide a frame of reference for identifying and discussing risks, controls, inputs, outputs, and handoffs. Also, process maps serve as a visual aid that can assist you in determining process and control effectiveness. While process maps will vary in complexity, starting with even the most basic process flow can assist you in visualizing, understanding, and explaining a process.
- Identify and Document Applicable Risks: Risk can be defined as the probability or threat of damage, injury, liability, loss, or any other negative outcome that may impact the achievement of missions or business objectives. Risks can be either internal or external. Risk identification helps to effectively understand, measure, monitor, and control risks across the organization. If gaps in the process are left unaddressed, it could lead to a negative impact such as operational failures, failure to adhere to applicable laws and regulations, financial loss, etc.
- Prioritize Compliance: Identify and map applicable laws, regulations, and guidance.
The benefit of performing a risk assessment is that you can act preventively vs. reactively and minimize any damage potential risks could cause — like the lawsuit StockX is facing.
1. Risk Identification
When identifying potential risks, you need to closely examine every aspect of your company — from your workflow processes to your financial records. In doing so, you’ll be able to spot any activity that could spell disaster for your organization and add it to your list of risks.
You’ll also want to identify risk owners for each item on your list. Who is going to ensure that each risk is appropriately mitigated and all required actions are executed swiftly?
Additionally, you’ll want to brush up on all the applicable laws and regulations, so you know for sure everything you’re doing complies.
2. Inherent Risk Rating
Inherent risks are those that exist just because your business exists. They are the risks that come with the day-to-day operations and activities your business participates in. As a financial institution, human error is one of the biggest risks you’re facing. Human error results in inaccurate financial records, such as an employee inadvertently adding or leaving off an extra zero or two.
When assessing inherent risks, it's practical to rate them on a scale such as low, moderate, high, and critical (or low, moderate, high) when it comes to the likelihood each risk could occur. Then rate them on a scale of 0-10 (or similar scale) for the severity of the impact they would have.
For example, the risk of human error we mentioned before would be critical if you have a person manually inputting this type of information. The severity of impact would be a 10 because one misplaced or forgotten zero could be extremely costly and disastrous.
However, if this is an automated process, the risk may be rated as anything other than critical — since the chances of an error occurring may be pretty low. You would rate the severity of impact the same as you would with a human error because the results of it occurring would be the same.
3. Control Identification
Controls are what you put in place within your systems and processes to help mitigate inherent risks. The use of an automated system — as we mentioned above — is one example of a control. You know that human error is more likely to occur if a human is doing the work, so to mitigate this risk, you removed the human and replaced them with the automated software. But just because a process is automated doesn't de facto remove the risk of inaccurate or incomplete information. It would depend on the controls embedded in the system.
You’ll need to identify and document all the controls in place and specify who performs each step. The purpose of the control and its correlation to the risk should be completely clear.
Assign a control owner for each control like you did with risks and be sure to provide instructions on the frequency in which the control is performed.
4. Control Assessment
After identifying all the processes, risks, applicable laws and regulations, and associated controls, you need to perform a control assessment. A control assessment lets you get a clear picture of how well the controls you currently have in place are performing.
- Are they adequately designed to mitigate the associated risks (design effectiveness)?
- Are they successfully mitigating the associated risks (operating effectiveness)?
- Are errors or discrepancies still falling through the cracks?
Performing a control assessment lets you know what controls are fine just as they are, and which ones need more attention or replaced with a better solution.
5. Residual Risk Rating
After performing a control assessment, you'll have a much better idea of which risks are already properly mitigated and which ones you need to take a closer look at.
These leftover risks are called residual risks, i.e., these are the risks left over after taking into account the control environment. From here, you can assess the quality of risk management and determine what the response should be to mitigate leftover risk if those risks are still outside of your risk appetite.
6. Risk Response
The next step you'd need to take is to determine how your firm will respond to gaps in the control environment uncovered during the risk assessment. When it comes to taking action, you have a few different options to choose from. You can:
- Accept the risk and choose to do nothing. If you choose to accept the risk, make sure this decision is documented and revisited at least once a year to confirm that risk acceptance is still the appropriate response
- Transfer the risk (e.g., taking out liability insurance on contract employees)
- Share the risk (e.g., changes in pricing that impact the final cost of a product or service rendered are share between the seller and the buyer vs. being wholly absorbed by the seller)
- Mitigate the risk by implementing new controls
Once you’ve determined the action you’ll take for each risk, you’ll want to monitor their effectiveness to ensure you're getting the desired results. Plan to refresh your risk assessment at least annually.
In-House or Outsource
The last step is determining who will be responsible for overseeing your company’s risk management and assessment. Are you going to use internal resources, or are you going to hire a company that provides risk management services and additional resources your firm wouldn’t have access to otherwise?
You can take our free risk assessment template and try and do this internally, but you’d be missing out on all the benefits a provider brings.
Streamline Risk Assessment With Compliance Core
When you hire a provider, like Compliance Core, you not only get the benefit of our industry expertise and experience, continuous improvement efforts, and expert monitoring — you get access to our customized risk management and regulatory compliance technology solution.
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