Continuous Risk Management: Conceptualizing a Continuous Risk Management Framework (Part 1)

Series Introduction

The evolution of technology is changing the way organizations do business, and the internal audit function is no exception. Internal auditors have the opportunity to become change agents by embracing technology to drive broader transformation within an organization. The proper use of such technology can be leveraged to deliver powerful analytics to monitor and mitigate risk effectively and efficiently. This enables companies focus on high-risk areas concurrently as the speed of risk continues to accelerate, providing additional assurance throughout the internal audit process. In a time when material mistakes resulted in more restatements year over year by publicly traded companies, organizations need to leverage technology in ensuring effective internal controls[1].

In the first of a three-part series, this article examines the foundational elements of integrating technology and automation for internal audits.

Continuous Risk Management

Continuous risk management reconceptualizes the risk management paradigm. For this series, continuous risk management can be defined as technology-enabled risk management and mitigation that enables all stakeholders across an enterprise to concurrently and collaboratively perform effective risk management. Holistically leveraging technology means implementing some form of a continuous risk management process.

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The continuous assurance process integrates all three lines of defense (Operation Management, Compliance and Internal Audit) within the risk assurance process. There are numerous benefits to this process: for example, organizations that implement the continuous assurance process can become more predictive in their monitoring and management of risks, and therefore can expediently respond to the speed of risk occurrence. Such a skill set is increasingly necessitated by a more interconnected and integrated business world.

Continuous Assurance & Risk Assessment Frequency

One of the benefits of building a continuous assurance function is the cyclical feedback loop it creates, which leads to concurrent risk assessment updates where applicable. It is possible to evolve to a “continuous risk assessment” paradigm over time.


Control Data: Transaction Reports, Control Measures, Testing Results, Functional Fluctuations

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Risk Data: Risk Indicators, Market Indicators, Threshold Measures, Predictive Elements & Algorithms

Conclusion

A variety of internal and external factors should be considered in developing a continuous assurance process, and the level and intensity of implementation will vary based on an evaluation of these considerations. Developing a continuous assurance function, as well as the cyclical feedback loop it creates, allows for the evolution to a continuous risk monitoring environment. By moving to a continuous risk management model, organizations can begin to monitor in real time the health of their risk and controls environment. In the following two parts to this series, we investigate analytic considerations, and considerations for continuous internal auditing.

Reference

[1] Auditing: Time for an Adjustment?

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