How do you conduct a compliance risk assessment?


If you are running a business, you should conduct a regular compliance risk assessment. Read on to find out what a compliance risk assessment is, and how your business should go about conducting one.

What is a Compliance Risk Assessment?

A compliance risk assessment is an investigation into the ways that your company may not be meeting its compliance obligations. This analysis should be well-rounded, looking into all of the compliance duties that industry standards, rules and laws impose upon you, as well as how well your company is or is not meeting those expectations.

What is Compliance Risk?

Compliance risk is the risk of your organisation having to face consequences from regulators in the event of non-compliance.

Sanctions could include expensive corrective actions, disgorgement of profits gained through improper means or monetary penalties. In addition to this, there will likely be legal costs and the potential for civil lawsuits, as well as damage to your reputation.

A compliance risk assessment measures the difference between what you are required to do for regulation standards and what your compliance program actually achieves. This will help regulators to determine any sanctions and their severity.

What Steps are involved in a Compliance Risk Assessment?

Identify the risks

Work out which regulation compliance standards are relevant for your business, and document your main information systems, workflows and transactions. Work out if there are any areas within these which might suggest non-compliance.

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Identify potential risks and outcomes

Once you understand all the potential areas for non-compliance risks in your business, take note of the potential outcomes and who would be affected. This is a great thing to have for auditing, as well as for future risk mitigation strategies.

Prioritise risks and outcomes and find solutions

Rather than trying to tackle all the problems you find at once, take the time to order your identified risks in terms of priority. Address those risks you find that have the most severe outcomes first, and work your way down the list.

As well as finding the solutions to your current problems, try to work out how you may be able to detect any future violations to protect you and your business from any unexpected non-compliance sanctions. Test your controls to make sure they are stable and prevent all potential risks as far as possible.

Re-visit and re-evaluate your compliance program regularly

It is important to remember that a corporate compliance program should exist as a part of your permanent business plan. Over time as your business grows the risks associated will change, so you need to stay up to date on legislation and compliance laws. Regularly monitor and reevaluate your controls by repeating the above steps. This is particularly important whenever your business is growing.

Framework for compliance risk assessments

The most commonly accepted framework for compliance risk modelling is the Committee of Sponsoring Organizations (COSO) framework for internal control.

Compliance consultants will provide company higher-ups with the COSO framework and give guidance for the creation and application of internal controls for every business no matter how established they are. They provide an approach which gives the organisation flexibility to design, implement and execute its own internal controls and work out how everything will operate and function together.

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The framework will also offer businesses a method of both identifying and evaluating risks, as well as functions for developing appropriate strategies which include risk and fraud prevention. IT allows businesses to expand controls beyond simply financial reporting to include compliance and operational aims. There are also features which are made to maximise risk reduction as well as eliminate redundancies and inefficiencies in any controls.

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