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Over the last few years, I have had the opportunity to consult many different organizations who have received compliance-risk assessment questionnaires from their clients. Most organizations do not understand that being out of compliance is a threat posed to a company’s financial, organizational, or reputational standing resulting from violations of laws, regulations, codes of conduct, or organizational standards of practice.

More and more, I have noticed that though each questionnaire may have a different format, they are all asking essentially for the same information. As these investigations tend to be lengthy and extensive, the responsibility of identifying and reporting is left up to the organization itself. And since these questionnaires cover both strategic / operational topics along with technical risks, many levels within the organization, throughout various departments, must take on some of the responsibility of identifying what, if anything is in place.

Here is what you need to know about risk exposure and mitigating compliance risks:

Organizations need to understand risk exposure

Exposing an organization to any level of risk can have devastating consequences, not only internally, but also across the client’s business ecosystem. With the absence of any tools or methodologies to help identify risk, organizations are exposing themselves to 4 broad categories:

  • Legal impact: Including regulatory or legal action affecting the organization or employees which can include fines, imprisonment, or the seizure of product
  • Financial impact: Usually including significant negative impacts to the profitability of an organization, future earnings, or investor confidence
  • Business impact: covering events that could adversely disrupt an organization’s ability to operate
  • Reputational impact: One of the most misunderstood impacts which can be the costliest. This includes negative press, loss of customer trust and decreased employee morale. The best run organizations, pre-risk event, can see a 50% increase in market value.

Assessing your exposure to compliance risks

There are several critical questions organizations should ask related to compliance and risk and ways to mitigate those risks:

  • What types of compliance failures would create significant brand risk or reputational damage? What is the likely impact of that damage on the organization’s market value, sales, profit, customer loyalty, or ability to operate?
  • What types of compliance missteps could cause the organization to lose its ability to sell or deliver products/services for a period of time?
  • Is the organization doing enough to inform customers, investors, third parties, and other stakeholders about its vision and values? Is it making the most of ethics, compliance, and risk management investments as potential competitive differentiators?
  • What are the total compliance costs—beyond salaries and benefits at the centralized level—and how are costs aligned with the most significant compliance risks that could impact the brand or result in significant fines, penalties, and/or litigation?
  • What are the personal and professional exposures of senior leadership?

Assessing your exposure to compliance risks

There are several critical questions organizations should ask related to compliance and risk and ways to mitigate those risks:

  • What types of compliance failures would create significant brand risk or reputational damage? What is the likely impact of that damage on the organization’s market value, sales, profit, customer loyalty, or ability to operate?
  • What types of compliance missteps could cause the organization to lose its ability to sell or deliver products/services for a period of time?
  • Is the organization doing enough to inform customers, investors, third parties, and other stakeholders about its vision and values? Is it making the most of ethics, compliance, and risk management investments as potential competitive differentiators?
  • What are the total compliance costs—beyond salaries and benefits at the centralized level—and how are costs aligned with the most significant compliance risks that could impact the brand or result in significant fines, penalties, and/or litigation?
  • What are the personal and professional exposures of senior leadership?

When consulting with clients, I wanted to provide a high-level view of my typical engagements. The goal is to identify a set of services that enable my team to match the areas of risk a client is being asked to report on to the service and reporting capabilities of the tools we use. This gives us the highest level of confidence that when there is a monitored control item violation, we’re not relying on human interaction to alert us. A continuous, proactive approach to identifying and reporting risk and compliance violations, and a well-documented incident response plan goes a long way to protecting your brand.

If you would like to know more about compliance and risk or how your organization can mitigate potential compliance and risk violations, click the link below!

Regards, 

 

George Phipps, 

President | COO