Is your Company Vulnerable? A Walkthrough on Brighter side of Risk Management and Compliance.

Let us begin with understanding “Risk”. Risk is the future ambiguity about diversion from expected incomes or results. It measures the uncertainty that a decision maker is willing to take in the given situation to achieve his return targets.
What is Risk Analysis?
“Risk Analysis” is the process of evaluating the probability of an adverse event occurring within the corporate environmental sector. It is the study of the fundamental uncertainty of a given course of action like of a project’s success or failure, minimize future negative unexpected events and generate a range of possible outcomes of a decision made or action taken.
However, it is practically impossible for a person to have an establishment level view of risk traverse across different departments within the business. This is where Risk Analysis and fraud analysis play a vital role. With the exponential growth in data, traditional methods of risk/fraud detection may not be enough to detect or prevent such an event.
Types of Risk Analysis
Uncertainties or risks can prevent an enterprise from achieving their project goals or objectives. So, it is crucial to detect them at the earliest to handle their effective responses. Firstly, classifying risks as Qualitative Risk and Quantitative Risk Analysis is important to gauge and prioritize risks.
Talking of quantitative risk analysis, it does not identify and evaluate risks with numerical and quantitative ratings. It simply prioritizes individual risks for further analysis by assessing their probability of occurrence by a written definition, an assessment of the extent of impact and redress plans in the case of an adverse event stirring in.
Now the question is how do we perform a qualitative risk assessment?
For this we first identity or mark risks for further analysis and then do an impact evaluation after which we describe them in terms such as very high, high, moderate, low, very low. Separating the different outcomes from best to worst provides a reasonable spread of insight for a risk manager.
Quantitative risk analysis can be summed up as building a model of determining statistics to assign numerical values to risk, examining the collective identified individual risks and other sources of uncertainty on overall objectives. It quantifies the risk exposure and determines cost and schedule contingencies.
Current Risk Model
Most of the companies use COSO Framework to determine the effectiveness and efficiency of operations, reliability of financial reporting, compliance with applicable laws and regulations. The COSO model is a process effected by an organization’s board of directors and management designed to provide reasonable assurance of the achievement of its goals and objectives.
COSO model uses 5 components to achieve its business’s mission, strategy and targets. (COSO Cube)
Control Environment, Risk Assessment, Control Activities, Information and Communication, Monitoring.
These components establish the basis for thorough internal control within the company through directed leadership, shared values and a culture that emphasizes accountability for control. The various risks facing the company are identified and assessed routinely at all levels and within all functions in the organization. The entire system of internal control is monitored continuously, and problems are addressed timely.

Phases of Risk Management
Generally, risk management can be organized as:
Phase 1: Identifying the risk:
To begin with, analyze the risk segment by screening the internal and external organization environment to look for quantifiable changes that can have an adverse impact on the company’s operations and strategy. This process will help understand if the organization is equipped to measure the risk.
Phase 2: Assessing the Risk:
This stage comprises of characterizing a risk valuation process to examine the level of risk exposure. Once the integration has been determined, a matrix can be used to determine the risk priority as low, medium and high.
Phase 3: Reviewing and Controlling the risk:
At this stage, the firm determines the risk magnitude, which is the combination of possibility and consequence to mitigate risks to a residual level which is in line with risk appetite. Then we assess the top ranked risks and set out a plan to treat these risks to realize tolerable risk levels.
Phase 4: Monitoring and Support:
Finally, we prepare a strategy to control environment for measuring efficacy, thresholds, tolerance and control testing.
Few Examples of Risk:
a. Commercial banks to hedge foreign exchange exposure of overseas loans.
b. Department stores in the possibility of reduced revenues due to a global recession.
c. Break Even Analysis – Not able to meet revenue targets.
d. Transaction fraud for a credit card company.
e. Project delay risk for a construction company.
f. The risk of accounting errors.
g. Lower than expected demand for your products.
h. The risk that sales forecasts will be inaccurate.
i. Risks related to procuring goods and services.
Understanding Risk
Almost all sorts of medium or large businesses require a mechanism of risk analysis to undertake strategic decision making and tactical risk mitigation measures. While most stakeholders are concerned about downside risk, mathematically, risk is the variance both to the downside and the upside. An analyst starts by determining the potential risks that your business faces. The negative events that could occur are weighed against a measure of likelihood that the event will occur. Finally, there are attempts to estimate the extent of the impact if the event happens. An outline is prepared using several analysis, charts and diagrams to convey the impact of risk.
How Analytics Help?
Analytic solutions have the ability of increasing or decreasing specific risks which can change the present and future risk profile of the company.
For example:
a. The procurement team would want to have vendor analytics conducted wherein assessment of strengths and weaknesses of existing and forthcoming suppliers in terms of capacity, sales revenue, reputation, stocks, service and pricing are analyzed.
b. The enterprise risk management team would want to use analytics to detect and monitor entity level risks and performance of its related controls. They will also leverage analytics done at business process levels to evaluate the risk at an enterprise level. Analytics can also easily be deployed to monitor status of open risk items.
c. The Finance team can implement analytics to monitor and check on duplicate payments, unauthorized transactions, false invoices and inappropriate expense booked. The Finance team could also leverage analytics to strategically improve their working capital requirements by balancing vendor and customer credit terms.
d. HR & payroll team can use analytics to investigate if there are any duple/ ghost employees kept on the payroll with pay being diverted elsewhere or to track an employee who requests for advance payroll. Also, timesheet frauds can be detected where an employee fabricates timesheets to inflate hours,
e. Sales & Marketing can analyze and control the misuse of marketing spends or self-authorized payments, check for any inflation in sales numbers to receive higher commissions using analytics.
Analytics can help in detecting key risk indicators, provide early warning signs of frauds, identify red flags while cutting down unnecessary costs associated with frequent ineffective audits. However, focused audits help in identifying and fixing root causes and is the most powerful exercise when coupled with Analytics.
With risk analytics data can be organized by assessing structured and unstructured data. This exercise can help in giving insights to potential threats. Further, preparation of risk reports will give enough information to take the best course of action while evaluating existing risks.
Our Methodology
We combine the power of analytics to analyze 100% of population and detect early warning signs or potential red flags within the business processes. The results are shared on a real-time basis to the Internal / External Audit team to help in identify root cause, eliminating false positives and giving feedback on the data model. The Audit team is laser-focused on its objectives as all substantive analysis are conducted prior to start of the audit. They spend lesser but highly effective time in their audit fieldwork.
Risks are an eternal part of the commercial world, but one factor that will give you a competitive edge is how you deal with them. Analytics will always provide quality insights to help mitigate common risks.
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