Unfortunately, disaster can strike at a moment's notice. It's one of the reasons why industry-leading businesses and organizations focus so intently on risk activating risk controls. In a recent survey, financial organizations have paid up $42 billion in fees for non-compliance infractions. Moreover, 73% of compliance and risk managers admitted that they were not aware of non-compliance penalties of up to $5 million.
So, what does your organization need to do to avoid costly risk and compliance issues? To start, we recommend conducting a risk assessment of your products, services, processes and systems. It's a key component of an improved risk management and compliance posture, and it has helped hundreds of organizations to strengthen their risk management process.
How to Perform a Risk Control Self-Assessment in 3 Simple Steps
A risk assessment is the process of identifying risks that your organization might face. By identifying risks proactively, you can better respond to existing and emerging threats. Additionally, risk assessment increases overall risk awareness across multiple business sectors.
Ideally, organizations should perform or refresh risk assessments once a year, depending on varying factors such as the size and complexity of the organization and the significance of events that may occur throughout the year. Typically the analysis should be started either in the 3rd or 4th quarter of the organization's year-end.
It is important to have a team of specialists that work cohesively together to manage risks.
Here are the key steps to perform an effective risk control self-assessment.
#1: Identify Material Risks
Start by identifying the risks associated with your products, services and other activities. Examples of these risks include compliance risk, operational risk, strategic risk, financial risk, reputational risk, and legal risk. You can identify risks through surveys, interviews, prior audit or supervisory findings, and data analysis, to name a few. Use the risks identified to create a risk taxonomy, i.e., group and categorize the risks. After you've identified and categorized your risks, you want to assess their inherent risk. Inherent risk is the level or volume of risk relative to your products, services and other activities prior to risk mitigation strategies. Inherent risk is characterized by low, moderate, high, or critical rating.
#2: Identify and Assess Controls
Next, identify controls, processes, policies, and procedures in place to mitigate inherent risks. Some common controls include:
Physical controls are essential for any organization. For example, a time safe is an effective physical control a company can utilize to protect cash held on the premises. Another great example is video surveillance with data backup. Video is an excellent way to protect your physical assets from intruders and minimize theft on your organization's property.
Technical Controls are such things as regular password changes, controlled access to accounting systems, firewall protection, and protective data measures.
Administrative controls are adjustments in work procedures to establish and implement training of safety procedures and policies. These controls also generate appropriate approaches to hiring and firing of employees.
After you've identified controls and other mitigating activities that are in place to address risks, you want to evaluate the quality of your risk management activities by assessing the controls to make sure that they are not only appropriately designed to mitigate associated risks but that they are also operating effectively.
#3: Determine Residual Risks
Finally, determine residual risk. Residual risk is the risk that remains after you've taken into account existing controls and other risk management activities. Unfortunately, not all risks can be eliminated. As such, it's essential to have a clear course of action for residual risks.
Evaluating the residual risks involves determining what additional practices and procedures need to be put in place to bring the remaining risks within the organization's defined risk appetite — control and detection risks.
Your risk response options include:
- Accept the risk
- Mitigate the risk
- Avoid/transfer the risk
After all risks have been accounted for and evaluated, you can better understand and align long term goals and values with your defined risk posture.
Conduct a Risk Assessment With Compliance Core
Don't conduct a risk assessment alone. Compliance Core understands how crucial risk assessment and mitigation is to the success of your business or organization and we're here to help.
“As a securities Trading Company, compliance is of utmost importance and in our experience, the value of working with Compliance Core is immeasurable. When you work with them, they don’t simply give you a cookie-cutter approach. They step into your company and explore your processes. They invest wholeheartedly in the process and strategize with a clear vision that is operationally sound and effectively designed to reduce your risk to an acceptable level.” - Clem M., CEO, CGM Trading, LLC.
Organizations usually underestimate how much effort is involved in getting a risk assessment done right. Since the costs of an improperly performed risk assessment can be steep, it’s best not to do it alone. You need the advice and guidance of an expert to make sure nothing falls through the cracks. We understand how crucial risk assessment and mitigation are to the success of your business or organization. We are here to help.
To kickstart your risk management and compliance program, we recommend taking our self-assessment quiz. Use these findings to identify gaps and take your organization's risk management and compliance posture to the next level. After the quiz, you'll be given an opportunity to schedule a free consultation to discuss results.