A Coordinated Approach to Risk Management – October 2014

This topic relates to internal controls.

In addition to financial risks, two other major risk management concerns for companies are strategic risks and regulatory risks. While it is common that more emphasis is placed on strategic risks, the CFO must strike a balance between the two. This can be accomplished by a comprehensive and balanced approach to risk management that addresses both types of risk.

Strategic risks generally concern measuring and detecting the potential for fraud or loss when entering new markets; business conducted overseas or with non-US customers; making and selling new products; using new suppliers; and partnering with or acquiring another company. Regulatory risks include government regulation of activities through efforts such as financial reform; health care reform; anti-corruption regulations; payment card industry regulations; trade issues; and labor issues. Though many regulations are particularly applicable to the government contracting, health care, and financial industries, in reality, they affect all industries.

In order to have internal controls that approach all of these areas in a comprehensive, yet balanced manner, your firm should take several steps:

• Streamline testing activities in a way that monitors risk across business functions
• Utilize state of the art technology that is compliance-specific.
• Utilize data analytics to increase efficiency; and identify patterns, trends and relationships.
• Ensure those who execute these efforts have the requisite skill sets, knowledge, and experience. These employees need to know the industry and understand what it takes to uncover risks.

Identifying and understanding regulatory risks up front will save time and costs as well as help avoid undue oversight from third parties.

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