To achieve effective compliance, organizations must regularly undergo compliance risk assessments to identify areas of improvement better and reduce vulnerabilities. Compliance professionals must have a concrete understanding of their compliance obligations and potential vulnerabilities. To do this, compliance teams must assess and evaluate any potential compliance risks and prioritize them based on their potential impact on the organization. Throughout this blog, we will discuss what a compliance risk assessment is, how it works, and what it does, followed by steps organizations can follow to implement a compliance risk assessment effectively.
A compliance risk assessment is an analysis of an organization that determines how the organization might or might not meet compliance obligations. Whether those obligations come from regulation or company values, the compliance risk assessment should have a holistic view of the organization’s strengths and weaknesses and how the organization can improve to best mitigate risk.
Effective compliance risk assessments are extremely important for any organization as failure to comply with regulatory standards can significantly impact an organization. Compliance violations can put significant strain on the organization through fines, costs of investigations, civil lawsuits, or loss of reputation to customers. In many cases, organizations have been penalized less just because they showed proof that the organization was at least trying to comply with specific standards rather than blatantly ignoring them.
6 Steps for Implementing a Compliance Risk Assessment
Risk is everywhere, and without having a complete understanding of vulnerabilities, organizations put themselves in a dangerous position of being penalized. Organizations can use these 6 steps to implement a compliance risk assessment effectively:
- Identify the risks. The first step to any effective compliance risk assessment is identifying potential risks and vulnerabilities. Without understanding the risks your organization faces, there is little you can do to prevent them better. Begin by identifying key workflows, processes, transactions, and information systems and determine whether any of these may not meet designated compliance requirements. If any of them have the potential not to meet needs, note them.
- Identify outcomes. Once specific areas of your organization are identified for vulnerabilities, begin to determine the outcomes and how they impact the organization’s finances, reputation, and how the vulnerabilities could affect various parties.
- Prioritize Once outcomes have been identified, you will likely find many potential vulnerabilities. While the long-term goal should be to eliminate or at least mitigate these risks effectively, the fact of the matter is that you will be unlikely to do so. Compliance teams should then prioritize the identified risks and vulnerabilities based on the severity of the outcome and then address the more severe problems first. To do this, begin by identifying problems within the deployed controls; where do these controls fail? Can they be changed? Do they need to be replaced? Can we detect violations of controls? Etc.
- Implementation. Once flawed controls are identified and more effective ones have been developed, it is time to implement them. However, before the final implementation throughout the organization, the created controls must be adequately tested. The goal of control is to mitigate risks, and the only way to determine if a control is effective at doing so is to test it. Once control is believed to be effective, it can then be implemented in the organization, and you can then move on to another risk.
- Re-evaluation and alterations. Once a control has been implemented the work does not end there. Compliance standards along with business operations are constantly changing and controls need to change with it. Without consistently monitoring implemented controls they can quickly become out of date and ineffective at solving the problems they were designed to fix. Organizations must constantly be re-evaluating their controls and adapting and replacing them when deemed necessary.
- Documentation. Now that an effective method for identifying risk, I’m creating and implementing controls, and re-evaluating their success, it is now pivotal that the organizations keep accurate and up-to-date records on the process to give defensible evidence as to the methods and practices the organization has adopted to best follow compliance regulations. Emails and spreadsheets are not effective means of doing so as auditors can claim that the documents were modified. Several information and technology architectures will provide this service and better uphold authenticity in the eyes of an auditor.
Managing compliance-related risk can be an overwhelming and daunting task for any organization as compliance standards and ethical obligations, as well as business operations, change seemingly every day. With the growing complexity of the world of compliance, organizations must consistently undergo a compliance risk assessment to ensure that the organization is protected from legal fines and reputational hurdles. Organizations should follow the previously listed steps to undergo an effective compliance risk assessment and better ensure the longevity of the organization.
This can be a challenging task for compliance teams, fortunately, they are not alone in the challenge. There are numerous information and technology architectures available with tools designed to assist an organization’s journey to effective compliance greatly.
Organizations need to develop an integrate, agile, and collaborative compliance program and frameworks like VComply – built on a common information architecture and framework. VComply’s system and compliance architecture allow for compliance, risk management and assessment activities to be coordinated across different departments and functions of the organization, assisting the organization in breaking silos and making more informed business decisions.