ZenGRC Team

What Is Digital Risk Management?

ZenGRC Team · October 8, 2024 ·

Digital risk is created by the new technologies that a company adopts to help accelerate its digital transformation. Digital risk management refers to how a company assesses, monitors, and treats those risks that arise from digital transformation.

Digital risk management is a critical part of business management. Digital risk management focuses on the threats and risks to an organization’s data and the IT systems that process it.

As organizations embrace digital transformation, their information security teams must keep the business secure while enabling growth and innovation.

How Does Digital Risk Management Work?

All this means that chief information security officers (CISOs) must develop digital risk management strategies that consider these new technologies and provide better decision-making capabilities.

Since digital risk is created by the new technologies a company adopts, a digital risk management program must be unique to that organization. That said, a digital risk management program usually encompasses the risks associated with these technology categories: third-party organizations, mobile, big data, the Internet of Things, cloud computing, and social media.

For example, the risks associated with social media presence, such as phishing and account hacking, can introduce numerous threats to an organization and damage its reputation. If a company’s security team can’t secure the company’s social media accounts (which are its digital communication channels) then customers and potential customers will worry that their personal information is also at risk.

Benefits of Digital Risk Management

Digital risk management is important because without it, you can’t be sure that the technology you use is truly worth it; the new technology might introduce new risks even as you want it to solve old problems. For example, if a new consumer-facing app suddenly crashes for an hour due to cyber attacks or just a simple software error, that could result in poor customer experiences and bad publicity. A misconfigured application might expose personal customer data to attackers, exposing you to regulatory enforcement and civil lawsuits.

By detecting and assessing possible vulnerabilities in a business IT network, companies can best prepare for cyber assaults and strive to mitigate the effect of a cyber event if one occurs. In addition, a digital risk management program’s procedures and rules can guide future decision-making on limiting risk while focusing on corporate goals. Digital risk management also assists you in demonstrating compliance with numerous data security mandates and industry standards, such as the EU’s General Data Protection Regulation (GDPR).

How to Implement Effective Digital Risk Management

Before you start evaluating digital risks, first develop a solid, transparent risk assessment process. Then you can fine-tune that process to fit your company’s legal, regulatory, and contractual needs.

The following are the core activities of digital risk assessment:

Identify critical assets, such as IT systems, databases, websites, and payment processing systems; and determine their vulnerabilities.
Understand the threats to the business. Determining how threats behave can help companies tighten the cybersecurity of their systems.
Check for exposed assets. Companies should identify sources of unwanted online exposure, including social media, file-sharing sites, and Git repositories.

Develop a mitigating strategy to protect against digital risks. This includes:

Reducing the attack surface by identifying systems that are vulnerable and (as much as possible) removing them.
Assuring that IT security teams keep threat models updated by considering critical digital assets, including those associated with third-party organizations and supply chains.
Integrating digital risk management into general incident management processes.

In addition, companies should plan for continuous risk assessment because assessing risk on an ongoing basis will improve their cybersecurity posture and protect the value of the business.

Digital Risk Management With ZenGRC

Managing digital risk takes time, and it isn’t easy. As such, information security teams must first understand what digital risk is and the types of digital risk that exist, so they can implement the most effective cyber risk management strategies.

With ZenGRC, you obtain the visibility you need to stay ahead of risks and effectively convey the impact of risk on high-priority business activities. This contextual information enables you to prioritize investments and make sound business decisions while improving security.

ZenGRC has the resources you need to identify, analyze, and manage digital risk properly. Select the correct combination of controls, risks, and threats from a vast, pre-loaded content library to analyze the risk associated with your business process or endeavor. ZenGRC gives you sophisticated dashboards and analytics that go beyond standard heat maps.

The ZenGRC minimizes complexity, connects teams, and helps you stay ahead of threats by continually monitoring for changes that might negatively influence your risk posture by automatically developing linkages between business assets and processes, controls, and risks.

Schedule a demo to learn more about The ZenGRC.

Internal Controls to Prevent Financial Statement Fraud

ZenGRC Team · October 8, 2024 ·

“Cooking the books” is a phrase that refers to falsifying financial statements so one can commit accounting fraud. Perhaps the landmark example of cooking books was Enron, the U.S. energy company coasted on accounting fraud until it imploded in 2001, leading to the passage of the Sarbanes-Oxley Act the following year.

“SOX,” as the law is known, is intended to reduce the risk of accounting fraud and unreliable financial reporting among publicly traded companies – but financial fraud can still happen. When it does, the stock price can tumble and saddle shareholders with huge losses.

Moreover, perpetrating such frauds almost always invites legal trouble for the company, harming its financial position, competitiveness, and reputation.

Can Internal Controls Help to Prevent Fraud?

Yes.

In almost all accounting fraud cases involving financial statement manipulation, the manipulation happened because of weak or absent internal controls that gave executives at the company opportunity to engage in fraud.

A company’s internal controls are the defenses against the misstatement of financial results – regardless of whether those misstatements are caused by deliberate fraud or by innocent mistake. Internal controls assure the audit committee, board of directors, and senior management that the company’s financial reporting is reliable and compliant with applicable laws and regulations.

Implementing various types of internal controls to increase transparency and accountability in the system is imperative. Multiple checks and balances deter employees from fudging financial information and indulging in fraudulent activities and accounting behaviors.

A system of internal controls and audit trails, combined with vigorous documentation requirements, verification, and sign-off, can also improve fraud detection and prevention, ultimately reducing fraud risk and protecting the organization from harm.

What Are Internal Controls Over Financial Reporting?

Internal controls are those practices used by a firm to assure that its rules are followed. As developed by COSO, Committee on Sponsoring Organizations, a framework for effective internal control will help the company to achieve:

Reliable financial reporting
Compliance with rules and regulations
Strong business operations

According to the COSO framework, an effective internal control system must have five interrelated “components,” which come from how the business is run daily:

The control environment at the highest level of the firm. This includes factors like the “tone at the top” in ethics and the efficiency with which the board’s audit committee oversees financial reporting at the highest level.
Risk assessment to evaluate risks associated with the various procedures and data sources used to produce the company’s financial reporting.
Control activities to address the risks that have been identified.
Information and communication to gather and disseminate information about risks to those responsible for financial reporting or risk management.
Monitoring to assure continued vigilance in operations, compliance, and financial reporting even as the company evolves over time.

Internal Controls to Prevent Financial Statement Fraud

Internal controls to address the risk of fraud financial statements and reports begin at the transaction level of accounting. They can also be instituted outside the accounting function, to improve oversight of financial processes, maintain the integrity of financial statements, and strengthen the company’s operations.

The following internal controls are basic steps any business can take to reduce fraud risk.

Segregation of Duties

“Segregation of duties” is the principle that no single person in the accounting department should have multiple responsibilities that could let the person commit fraud. For example, record-keeping, authorization, and review activities should be divided among different employees. Segregation reduces the risk of error and inappropriate actions that may lead to fraud.

At the very least, organizations should segregate the duties for:

Receiving cash or checks
Preparing deposits
Handling cash receipts and deposits
Reconciling deposits and other transactions
Writing checks
Preparing financial statements

Implement a Reconciliation Process

A systematic, formal reconciliation process for all key accounts is a critical internal control. For example, all incoming check logs should be reconciled against deposits. In addition, regularly examine bank statements and canceled checks to assure that bills are not issued out of sequence (which can indicate the presence of missing reviews and fraudulent activities).

Examining canceled checks (processed and cleared by the bank) is vital to assure that only authorized personnel sign checks. Likewise, one should verify that all endorsements, reimbursements, and expenditures are appropriate and that all vendors are legitimate.

In alignment with the segregation of duties, an independent person who doesn’t have bookkeeping or check signing responsibilities should be in charge of reconciliation. The reconciliation report should be signed and dated by this authorized person to document that the reconciliation was performed, when, and by whom.

It’s also a good idea to inform all employees that accounts will be reviewed and reconciled regularly, and that any discrepancies will be investigated thoroughly. This awareness can reduce the temptation to manipulate financial statements.

Use an External Auditor

Financial statement fraud is often perpetrated by management. Therefore, an auditor with good credentials should examine financial statements annually to prevent this from happening. (For publicly traded companies in the United States, for example, annual external audits are required by law.)

Provide Board of Directors Oversight

The board of directors should oversee all operations and management. In particular, the board should:

Compare actual revenue and spending to budgeted income and expenses, to find and investigate significant variations, mismatches, or errors.
Review the check register or general ledger.
Assure that the approval of all financial and audit procedures, as well as substantial expenditures, are documented.
Evaluate C-suite performance against written job descriptions.
Require independent external auditors to present the annual financial statements.

Review Inventory, Journal Entries, and Electronic Transfers

Internal controls to review inventory, equipment, and other assets are also vital. Inventory counts should be done randomly throughout the year by a person who isn’t incentivized to misreport. General journal entries should also be reviewed at least monthly. Any large or unusual amounts should be noted and investigated as red flags.

Wire transfers, particularly to offshore bank accounts, are a favored method of fraud. Therefore, audit or compliance officers should regularly review such transactions to assure that all are legitimate, involve authorized parties, and are supported by appropriate documentation.

Set a Strong Tone at the Top

A vibrant environment of internal accounting controls can only exist with a strong tone at the top. Management should demonstrate ethical behavior, commit to integrity and honesty, and lead by example. It would help if you communicated all ethics, values, and procedures across the enterprise through written policies.

It would be best if you created policies for the following:

Cash disbursements, receipts, and reconciliations
Expense and travel reimbursements
Petty cash access, receipts, and reconciliation
Voiding checks
Blank check access and storage
Purchasing guidelines
Conflicts of interest

The consequences of disobeying these procedures should also be written and straightforward. Board members should approve every policy.

Set Up a Fraud Hotline

A confidential hotline to report fraud allows employees to report any possible manipulation of financial statements safely. When whistleblowers are protected, they are more likely to feel safe raising a red flag and unlikely to leave the organization. Insiders are your best chance of detecting and preventing fraud. (SOX requires all publicly traded companies to establish internal hotlines. Other laws require companies to strive to prevent retaliation against whistleblowers.)

Leverage ZenGRC to Mitigate the Risk of Fraud

Financial statement fraud may not be as accessible or familiar as other types of fraud, such as asset misappropriation. It can, however, still cause severe problems for your organization. Adequate internal controls can protect your organization from such misstatement frauds.

Mitigate the risk of financial statement fraud by improving visibility into your risk environment with ZenGRC. Identify relevant risks, improve risk assessments, and see where they’re changing to reduce your risk of fraud.

ZenGRC offers a single source of truth to help you streamline your risk management program. Policies and procedures are revision-controlled and easy to find in the document repository. Workflow management features offer easy tracking, automated reminders, and audit trails. Insightful reporting and dashboards give visibility to gaps and high-risk areas to reach auditing standards.

To see how ZenGRC works, schedule a demo.

How to Implement Effective Compliance Testing

ZenGRC Team · October 8, 2024 ·

Compliance testing, also known as conformance testing, is a periodic, independent, and objective assessment of compliance-related processes or controls. As the name implies, you’re testing those controls to see how well they actually work.

Compliance testing plays a major role in identifying vulnerabilities in existing compliance risk management controls; many regulations also require testing as part of an organization’s compliance obligations, and testing should follow an established process, as well as a risk-based approach.

All that said, testing can be a complicated endeavor. This article will unpack the best practices typically involved, so that you can understand the issues here and plan your own testing program wisely.

What Are the Benefits of Compliance Testing?

Compliance testing has multiple benefits that help to assure your IT systems work as planned. For example, testing can identify which of your employees might not understand compliance obligations that your business has, and then you can follow up with extra training as needed. Testing might also uncover defective technical controls around, say, encryption; which you could then correct with new controls.

Continued testing through a monitoring program means you’ll find potential threats and weaknesses before a cybersecurity risk comes to fruition. You can think of compliance monitoring and testing as preventive measures, such as visiting the doctor annually, even if you don’t feel sick.

Steps to Effective Compliance Testing

To minimize risk and make certain that your compliance management system is working correctly, you must have an effective compliance testing program in place. These tests will help your company to avoid legal violations, which can be complicated and costly to resolve. By following the steps below, you can create a testing process that will catch potential problems before they occur. Consider employing automation for some of these steps to give your compliance officer or compliance team stronger tools.

Create a requirements library Whether your company already has a small compliance testing program or you’re developing a new program, the first thing you have to do is build a requirements library. That library establishes the requirements that apply to your company. You will use it to identify the existing controls (or lack thereof) that mitigate your company’s compliance risk.A requirements library is an inventory of in-scope requirements that you will use to identify the compliance risks to your organization. To establish the library, you must identify all the statutory, regulatory compliance, or contractual requirements that apply to your company’s operations.You might want to first consider consulting with a subject matter expert in your industry who can help you identify the in-scope requirements. Then work with the executives from each business unit, including your legal team, to assure you capture all applicable requirements.Next, map the requirements to their applicable business functions and work with the business unit executives to define the compliance risks. This can take the form of an internal audit. You should also validate the applicability of the requirements with the business owners to help them clearly understand the importance of each requirement and what could happen if it’s not met.Once you’ve mapped the requirements and identified the risks, you should identify the controls you have in place to mitigate the compliance risks. This is a great opportunity to determine how many controls mitigate each compliance risk; it’s also where you should focus on compliance testing in the future, to minimize duplicate testing.Ultimately the requirements library should be a “single source of truth” for your company’s compliance requirements. Maintaining the requirements library within a governance, risk, and compliance (GRC) software tool assures that you preserve the integrity of that source of truth. You can also implement compliance controls to prevent unauthorized users from making unintended additions, deletions, or other changes that could compromise the requirements library.
Conduct a compliance risk assessment Begin this step by defining the parameters of the compliance risk assessment, including the categories, risk profiles, and factors you will measure, as well as the data sources that will be used to conduct the risk assessment.The next step is to evaluate the inherent risk for each risk – that is, the risk of violating a requirement when your business process has no controls to prevent that risk at all. Then evaluate the effectiveness of the control that does mitigate this risk, and consider what’s left over: the residual risk that still exists even after the control is in place.Use the residual risk to prioritize which controls should be tested first or most often. The higher the residual risk, even after a control is in place, the more often you want to test that control.
Develop the compliance testing methodology After performing the risk assessment, develop a compliance testing methodology to determine how you’ll test in-scope requirements or their associated controls.To develop the testing methodology, you have to define the following:
- Testing approach, including purpose, scope, and objective.
- Sampling method that you’ll use when performing testing.
- Process you’ll follow when you identify compliance violations or issues.
- Remediation methods when you find defective controls.
- Reporting requirements, including stakeholders.
Communicate the testing methodology Communicate the testing methodology to the business unit that’s being audited as well as to the relevant parties and member firms that perform the testing to reduce duplication of efforts.Communicating a clearly defined methodology early in the testing process can minimize resistance from the teams being audited, by letting them know what they should expect and when.Your methodology may evolve every year as your compliance program becomes more mature. For example, your objective for the first year may just be to assure that all areas comply with the applicable laws by testing all the requirements in the library. In succeeding years, you won’t need to limit compliance testing just to verify compliance. You may also want to test the controls that mitigate the compliance risk.
Establish the testing schedule
Use the residual risk established in the compliance risk assessment to determine how often you should test for each requirement. The schedule will vary depending on the size of your team and the company’s objectives. For example:
- High residual risk: quarterly (or more frequently)
- Medium residual risk: semiannually
- Low residual risk: annually
Group the requirements by business function or overall regulation, and state when each of these groups will be tested. Add the established timeframe as a data point in your risk assessment to confirm that you have testing coverage for all requirements. Once you’ve completed the schedule, communicate it to the business units so they all understand when you’ll be testing them and what you’ll be testing against.
Perform testing Notify the business units about the planned audits well in advance, and include what you’ll require of process owners and department heads. Allocate enough time to submit document requests and review the evidence you’ve gathered.Obtain the data and materials you’ll need to perform testing against the regulatory requirements. Then test per the established testing methodology you’ve communicated to the audited business unit. This ensures that your testing process stays consistent by eliminating confusion and frustration for the leaders of your business units.Document the testing programs and preserve evidence of the results of the testing. Follow up on findings to assure that the issues or control gaps you’ve identified aren’t false positives.Communicate the final results to the business units and obtain the approval or agreement from the affected business function on any issues you’ve identified. When you’ve completed all the testing steps, draft and issue the final report of your results to the relevant parties, such as the audit committee.
Implement an issues management process Once you’ve identified and confirmed the issues or control gaps, you must follow an issues management process to manage those issues from identification through remediation. Start by entering the issues you’ve identified in the issues management system (JIRA, for example). Then assign ownership by determining which business function is responsible for the compliance violation based on the mapping you did when you were creating the requirements library.Determine the severity of the compliance violation on your company. When you rate violations of law, you should also assess the pervasiveness, duration, and severity of the violation.Be sure to document the underlying cause of each issue and work with the affected business units to document the remediation plan to address that underlying cause, including milestones you want to achieve and when you want to achieve them.
Validate remediation When you’ve completed the milestones of the remediation plan, validate that the plan worked as intended. Validation should assure that the corrective actions addressed the immediate issue and that the long-term remediation prevents the issue from recurring. You may be required to perform the test again to validate that the remediation plan worked. You will also need evidence that you completed the remediation plan.
Monitor sustainability You should establish a period of sustainability that must be achieved before closing the issue – for example, the compliance violation should not occur again for at least two months. Based on the organization’s risk appetite, you could increase the number of months.At the end of the sustainability period, you must gather and maintain evidence that the issue did not recur. If the issue does not recur, then you can close the issue. However, if the issue did recur during the sustainability period, you’ll have to reestablish the underlying cause and adjust the remediation plan accordingly.

ZenGRC Offers a GRC Solution for Compliance

If you operate in a regulated environment, you’re expected to have a compliance management system. If you want your compliance management system to be effective, you must perform testing against the statutory, regulatory, or contractual requirements that affect your company.

Performing compliance testing in an ad-hoc manner can lead to increased regulatory scrutiny since you won’t be able to provide evidence that you have a fully functioning compliance testing program.

By following these steps, you’ll be able to get your company’s compliance testing program off the ground.

Contact ZenGRC today to get a demo and see how we can help you with your compliance needs.

How to Define Objectives Under ISMS?

ZenGRC Team · October 7, 2024 ·

In today’s digital age, protecting your organization’s information assets is paramount. An information security management system (ISMS) plays a crucial role in this endeavor, providing a structured approach to managing and protecting company information. This article explores how an ISMS supports risk management, its key elements, the main security objectives, and how to define and make your organization’s information security objectives both measurable and actionable. Lastly, we introduce ZenGRC as your comprehensive software solution for risk management and information security.

How does an ISMS support risk management?

An ISMS supports risk management by providing a systematic framework for identifying, evaluating, and managing information security risks. It includes policies, procedures, and controls designed to protect an organization’s information assets from threats and vulnerabilities.

By aligning with international standards such as ISO 27001, an ISMS assures a continuous review and improvement process. This allows organizations to adapt to new threats and maintain the confidentiality, integrity, and availability of their information.

Key Elements to Look for in an Information Security Management System (ISMS)

When safeguarding your information assets, the selection of an ISMS is a pivotal decision. A robust ISMS offers a comprehensive framework for managing and protecting these assets efficiently and effectively. Here’s a deeper dive into the essential elements that underline a competent ISMS.

Policy Framework

A strong policy framework is the cornerstone of an effective ISMS. It encompasses a comprehensive set of policies that articulate the organization’s commitment to information security, and defines roles, responsibilities, and expectations for employees and other stakeholders. These policies should cover a wide range of areas, including data protection, access control, incident response, and employee conduct. The goal is to create a cohesive and enforceable framework that governs all aspects of information security within the organization.

Risk Management

At the heart of any ISMS is the risk management process. This involves identifying potential threats to information assets, assessing the vulnerabilities that could be exploited by these threats, and evaluating the impact of such exploits on the organization.

Following this assessment, the organization must prioritize risks based on their potential impact and likelihood of occurrence. This helps executives to reach informed decisions on how to mitigate the risks effectively. The process assures that resources are allocated efficiently, focusing on the most significant threats to information security.

Control Selection and Implementation

Following the risk assessment, next is to select and implement appropriate information security controls. These controls are safeguards or countermeasures designed to mitigate identified risks to an acceptable level. The controls can be administrative (policies and procedures), technical (software and hardware), or physical (security guards and access control systems). The selection of controls should be guided by the principle of achieving maximum risk reduction with optimal resource usage, and they should be regularly reviewed and updated to assure continued effectiveness against evolving threats.

Performance Measurement

To gauge the effectiveness of an ISMS, performance measurement mechanisms are crucial. These mechanisms can include both qualitative and quantitative metrics, such as the number of security incidents, the effectiveness of incident response, compliance rates with security policies, and employee awareness levels. Regular audits and reviews are essential components of performance measurement, providing insights into the ISMS‘s effectiveness and areas for improvement.

Continuous Improvement

In the dynamic landscape of information security, continuous improvement is essential. An ISMS must include a feedback loop that allows for regular reviews of its effectiveness and efficiency, incorporating lessons learned from security incidents, audits, and the changing threat landscape. This process of continual enhancement assures that the ISMS remains aligned with the organization’s objectives and can adapt to new threats, technologies, and business requirements.

What are the main security objectives of ISMS?

The primary goal of an ISMS is to protect and secure an organization’s information assets. To achieve this, the ISMS focuses on several key security objectives:

Confidentiality

Confidentiality assures that information is accessible only to those with authorized access. This means protecting sensitive data from unauthorized disclosure, whether intentional or accidental. Mechanisms to uphold confidentiality include encryption, access control systems, and stringent authentication processes.

Integrity

Integrity maintains the accuracy and completeness of information. This objective assures that data is not altered in an unauthorized manner, whether in storage, processing, or transit. Controls to assure integrity include checksums, digital signatures, and robust access controls that limit who can modify data.

Availability

Availability assures that information and related services are accessible to authorized users when needed. This means protecting against disruptions to access, whether from technical failures, cyberattacks, or natural disasters. Strategies to enhance availability include redundant systems, backup and recovery procedures, and capacity planning.

Compliance

Compliance with laws, regulations, and contractual obligations related to information security is a critical objective. This includes adhering to laws such as the EU’s General Data Protection Directive (GDPR) for data protection, industry-specific regulations such as HIPAA for healthcare data, and any contractual agreements that dictate security standards. Compliance involves regular audits, employee training, and the implementation of controls tailored to meet these regulatory requirements.

By focusing on these objectives, an ISMS provides a structured approach to managing and protecting information assets, assuring that they remain secure, reliable, and available to support the organization’s goals.

Defining Your Organization’s Information Security Objectives Under ISMS

Establishing clear and actionable information security objectives is a critical step in implementing an effective ISM). The objectives guide your organization’s security efforts and assure alignment with broader business goals. Here’s a detailed approach to defining your organization’s information security objectives.

Understanding Business Context

The first step in defining your information security objectives is to gain a deep understanding of your organization’s business context. This involves identifying both internal and external factors that can influence your information security strategy.

Internally, this might include your company’s mission, values, culture, and operational processes. Externally, it involves understanding the market in which your organization operates, including competitors, regulatory landscape, and evolving threats. Identifying stakeholders both internal (employees, management, board members) and external (customers, partners, regulators), and understanding their expectations regarding information security is also crucial.

This comprehensive overview helps assure that your ISMS is tailored to your specific organizational context and can effectively support its needs.

Risk Assessment

A thorough risk assessment is required to define targeted information security objectives. This involves identifying the information assets that are critical to your organization’s operations and assessing the threats and vulnerabilities associated with these assets.

By evaluating the potential impact of these risks on your business operations, you can prioritize them based on their likelihood and the severity of their potential impact. This prioritization helps you focus your information security efforts on areas that matter most, and assures that resources are allocated efficiently to mitigate risks that pose the greatest threat to your organization.

Aligning with Business Goals

Your information security objectives should not exist in isolation. Rather, they should be closely aligned with your overall business goals and objectives. For instance, if your business is focused on digital transformation, your information security objectives might emphasize protecting digital assets and assuring the secure adoption of new technologies. Similarly, if expanding into new markets is a key business goal, compliance with international data protection regulations might be a primary objective. Aligning information security objectives with business goals assures that your ISMS not only protects your organization from threats but also supports its growth and success.

Stakeholder Involvement

Engaging stakeholders as you define information security objectives is essential for several reasons. First, it helps assure that these objectives are relevant and realistic, taking into account the insights and concerns of those who will be affected by or responsible for implementing the ISMS. Second, involving stakeholders from different parts of the organization promotes a culture of security awareness and commitment, as stakeholders are more likely to support objectives they had a hand in creating. This involvement can range from soliciting feedback through surveys or interviews to involving representatives from various departments in the planning process.

By following these steps, you can assure that your information security objectives are well-defined, aligned with your business strategy, and supported across your organization. This strategic approach not only enhances the effectiveness of your ISMS but also helps in building a resilient and secure organizational environment.

Making Your Information Security Objectives Measurable and Actionable

To assure effectiveness, information security objectives should be SMART: Specific, Measurable, Achievable, Relevant, and Time-bound. This involves:

Setting clear metrics. Define clear metrics and benchmarks to measure progress towards each objective.
Action plans. Develop detailed action plans outlining how each objective will be achieved, including resources required, responsibilities, and timelines.
Regular review. Set up a regular review process to assess progress, adapt to changes, and make necessary adjustments to objectives and plans.

Making your information security objectives measurable and actionable presents numerous benefits that are critical for the effective management and protection of an organization’s information assets. Some of the key advantages are below.

Enhanced Focus and Efficiency

By defining clear, measurable goals, organizations can prioritize their security efforts, focusing on the most critical areas that require attention. This prioritization helps in allocating resources more efficiently, assuring that time, budget, and personnel are directed towards initiatives that will have the most significant impact on the organization’s security posture. It transforms the often abstract concept of “improving security” into tangible, achievable targets, facilitating more effective planning and execution of security strategies.

Improved Accountability and Performance

Measurable and actionable objectives facilitate a culture of accountability within an organization. When objectives are clearly defined, it becomes easier to assign responsibility for specific outcomes to teams or individuals. This clarity helps in tracking progress against each objective, enabling management to evaluate performance accurately and address any areas of underperformance. It also motivates employees by giving them clear targets to aim for and providing a sense of achievement as these targets are met.

Better Risk Management

Actionable objectives assure that risk management efforts are focused and aligned with the organization’s broader risk profile and tolerance levels. By setting measurable goals for risk reduction, organizations can more effectively monitor their risk exposure and make informed decisions about where to invest in security controls. This active approach to risk management helps to mitigate potential threats and also demonstrates due diligence and compliance with regulatory requirements.

Enhanced Decision-Making

Quantifiable security objectives provide a solid foundation for decision-making. With specific metrics in place, organizations can assess the effectiveness of their security measures in real-time and adjust their strategies as needed. This agility is crucial in responding to the ever-changing threat landscape and assuring that security practices remain relevant and effective. Moreover, measurable results can be used to justify security investments to stakeholders, highlighting the value of information security initiatives in protecting organizational assets.

Increased Stakeholder Confidence

Finally, making information security objectives measurable and actionable increases confidence among stakeholders, including customers, investors, and regulatory bodies. Demonstrating a commitment to achieving specific, quantifiable security outcomes shows that an organization takes the protection of its information assets seriously. This not only enhances the organization’s reputation but also builds trust, which is essential in today’s data-driven business environment.

ZenGRC Is Your Risk Management & Information Security Solution

ZenGRC is designed to be the cornerstone of your organization’s risk management and information security policy and cyber security strategy. Offering a comprehensive suite of tools, ZenGRC streamlines and simplifies the complex processes of managing risks and assuring compliance with relevant regulations and standards.

ZenGRC’s user-friendly interface and automated workflows facilitate a more efficient and effective approach to identifying, assessing, and mitigating risks. By providing a centralized platform for all your governance, risk management, and compliance (GRC) needs, ZenGRC enhances visibility into your risk landscape and security posture, enabling more informed decision-making and strategic planning.

Moreover, ZenGRC’s capabilities extend beyond risk management to support robust information security management. It integrates seamlessly with existing IT and security systems to offer real-time insights into vulnerabilities and to assure that security controls are continuously monitored and optimized. With its powerful analytics and customizable reporting features, ZenGRC empowers organizations to track progress, report on compliance and risk metrics effectively, and demonstrate due diligence to stakeholders.

Whether you’re looking to fortify your information security, streamline compliance processes, or enhance your overall risk management strategy, ZenGRC provides a scalable and adaptable solution that grows with your organization, assuring long-term resilience and compliance.

Learn how ZenGRC can help ease the burden of data exfiltration detection by scheduling a demo today. That’s worry-free compliance and incident response planning — the Zen way.

The Relationship Between Internal Controls and Internal Audits

ZenGRC Team · October 7, 2024 ·

Any modern organization looking to navigate today’s risk environment successfully needs both strong internal controls and ongoing internal audits. There can, however, be confusion between these two terms.

This guide aims to eliminate that confusion by explaining the meaning and importance of internal controls and internal audits. It unpacks the differences between them and explores how they work together to help organizations manage risk, operate efficiently, and assure business continuity.

What Are Internal Controls?

COSO (Committee of Sponsoring Organizations) defines an “internal control” as a process that can provide reasonable assurance that an organization’s operations are efficient, its financial disclosures are reliable, and its regulatory compliance objectives are met.

Less formally, internal controls refer to the rules, policies, procedures, tools, and other mechanisms implemented by an organization to increase transparency, promote accountability, assure the integrity of financial and accounting information, and reduce the risk of fraud.

A system of internal controls is usually directed by senior management and the board of directors. The primary goal is to provide reasonable assurance around:

Information integrity, accuracy, and timeliness
Compliance with applicable laws and regulations
Accurate internal procedures and policies
Financial reporting reliability, accuracy, and timeliness
Operational efficiency, productivity, and profitability
Asset safeguarding and the prevention of asset misappropriation or manipulation
Fraud prevention

Why Are Internal Controls Important?

Internal controls became more important in the wake of several high-profile accounting frauds in the late 1990s and early 2000s. Later scandals after the 2008 financial crisis also increased the importance of robust internal controls.

Laws and regulations like the Sarbanes-Oxley Act (SOX) require publicly traded companies to have a system of internal controls. Industry-specific regulations and compliance frameworks such as PCI-DSS and HIPAA also drive the need for robust and reliable internal controls.

When controls are built into the organization’s day-to-day operations and business processes, they can help prevent errors and irregularities. They empower employees to identify problems and take corrective action to fix these issues. Ultimately, well-implemented and maintained controls enable companies to achieve their established objectives and goals more efficiently.

Although internal controls can be expensive to implement and require effort to maintain, the alternative – a lack of controls – can cause a lot of problems:

Poorly functioning processes
Inefficient operations
Low employee productivity
Fraud
Costly errors

Any of the above can result in financial losses, increase customer churn, cause compliance-related issues, harm the organization’s reputation, and even invite legal trouble.

Key Components of Internal Control

An internal control is a process to improve and maintain the quality of the organization’s operations or compliance posture. Internal controls processes are driven by tools and technologies and maintained with the help of policies, procedures, and manuals. Ultimately, however, the people using internal controls at every level of the company define its success.

The internal control process consists of five interconnected elements that determine the internal control system’s overall strength or weakness. Together, these elements provide reasonable assurance that controls enable the organization to meet its objectives.

These elements are:

Control Environment

The control environment influences the discipline, structure, and effectiveness of internal controls. It incorporates multiple elements, such as:

Management philosophy
Technical competence of employees
Behavioral and ethical values
Assignment of authority and responsibility
How people are organized, managed, and developed

The control environment also sets the “tone from the top” that guides the rest of the enterprise.

Control Activities

Control activities are the various procedures, approvals, verifications, reviews, and authorizations implemented to carry out proper risk responses. Depending on the organization and its risk landscape, these activities can be very diverse. Examples of control activities include:

Inventory counts
Physical security
Segregation of duties
Enforcing purchasing limits
Enforcing multiple authorizations for transactions above a certain amount

Risk Assessment

Ongoing risk assessment is a critical component of the controls ecosystem. As part of this analysis, organizations must consider the likely impact and probability of each risk to minimize any possible impact or damage.

Risk assessments provide a basis for risk management and mitigation. It’s essential to perform these assessments regularly to assure that the proper controls are in place to mitigate and manage existing and evolving risks.

Information and Communication

To verify adequate controls are in place and that they work as well as they should, it’s crucial to capture and share relevant information throughout the organization. This information could be in the form of emails, reports, dashboards, meetings, and surveys.

To maximize the effectiveness of internal controls, this information should be in a structure and form that people can understand. Communication should also be timely, accurate, clear, and flow seamlessly across every level of the organization.

Monitoring

All internal controls must be monitored regularly to evaluate their performance and efficacy over time. Monitoring helps identify and correct control gaps before they can harm the organization. Monitoring can be done via monthly or quarterly reviews of performance reports, metrics, and internal audit procedures.

Two Types of Internal Control Activities

In general, internal controls improve operating effectiveness, protect the organization from risk, and help minimize loss in case of an adverse event. Controls achieve these goals through preventive or detective methods.

Preventive Controls

Preventive controls aim to thwart risks and threats before they can happen. They allow organizations to find, assess, and fix potential problems before those problems even occur. They reduce the probability of errors, improve process accuracy, and prevent fraud.

Common examples of preventive controls include:

Segregation of duties (or separation of duties)
Pre-approvals and authorizations of financial transactions
Verification of invoices, expense vouchers, and timesheets
Access controls for information systems using passwords, two-factor authentication
Employee cybersecurity training
Physical security of premises, inventory, cash, and data centers
Double-entry accounting

Detective Controls

Detective controls are also critical since they are needed to find problems, irregularities, or errors after those issues occur. Detective controls also help prevent the recurrence of these errors, strengthen quality control, and boost the organization’s cybersecurity, compliance, and legal posture.

Some common detective controls are:

Internal audits
External audits
Inventory, cash, and supplies counts
Regular reconciliations of transactions
Organizational performance reviews
Exception reports
Analytical reviews
Trend analyses
Financial statements and reports, like balance sheets
Comparing actuals versus budgets

When detective controls identify a problem or risk, corrective controls are implemented to fix the problem. Two such controls are ledger verification and the adjustment of entries in the accounting system.

Internal controls can also be classified as:

Hard controls: tangible controls including policies, procedures, segregation of duties, and so forth
Soft controls: intangible controls such as organizational culture, tone at the top, and the company’s ethical climate

In addition, controls can be manual and performed by human controllers (such as security guards) or happen automatically (such as software bots). Finally, some controls are required to operate at a predetermined level to reduce the risk to an acceptable level. In contrast, others may be “secondary” – that is, not essential, but still desirable to help a process run smoothly and efficiently.

What Are Internal Audits?

An internal audit is an objective and unbiased evaluation of the organization’s internal controls, accounting processes, and corporate governance systems to measure their effectiveness.

As part of an audit, internal auditors will test the organization’s processes and internal controls, and then provide opinions about the controls’ quality, performance, and effectiveness. In addition, the auditor will report findings and recommendations to develop action plans to fix any gaps.

To be truly effective at improving the controls environment, the audit of internal controls must be:

Comprehensive
Unbiased and objective
Regular and ongoing
Transparent
Focused on improvement rather than on assigning blame

Why Are Internal Audits Important?

Internal audits are critical because they:

Guide the evaluation and assessment of internal controls
Reveal problems in the controls environment, activities, and monitoring structure
Allow the organization to correct any lapses before they are discovered in an external audit

Through an internal audit, management can understand if the company’s financial information and accounting records are accurate and authentic. They can also assess whether the organization is meeting its compliance objectives, if any gaps in operations exist, and if there are any costly liabilities.

Internal audits can also reveal whether employees are engaging in potentially fraudulent or unethical behaviors. Internal audits play a vital role in a company’s corporate governance ecosystem.

How Do Companies Use Both Internal Controls and Internal Audits?

Why Both Controls and Audits are Required

A lack of internal controls can be a severe problem for organizations that fall under laws and regulations such as SOX and HIPAA (Health Insurance Portability and Accountability Act). Without effective internal controls, the company is more susceptible to risk and fraud. Top management may even face criminal penalties for failing to establish these controls.

While internal controls are essential, they can only provide reasonable assurance about their effectiveness – which can be limited by human judgment, error, or even greed. Sometimes these controls can be circumvented through collusion.

Personnel may also override internal controls. They might do this for valid reasons to improve operational efficiency in cases where internal controls are poorly designed. Employees might also override internal controls for malicious purposes, such as to perpetrate a ghost employee scheme or to give an external party access to sensitive IT systems or data.

To keep internal controls strong, therefore, organizations also need internal audits to:

Evaluate existing controls
Ensure that they work as intended
Assess the internal governance process and system

Internal Audits Versus Internal Controls

An internal audit is performed at specific times for self-assessment. The implementation of internal controls, meanwhile, is an ongoing activity. The internal audit function should be strategically developed to provide reasonable assurance about the effectiveness and functionality of the company’s internal controls.

Internal audits should help the organization understand its risk environment and assess whether its current internal controls are effective at mitigating these risks. The audit should also be action-oriented to help improve control activities.

The Relationship Between Internal Audits and Internal Controls

The Three Lines of Defense Model developed by the Institute of Internal Auditors shows the relationship between internal controls and internal audits.

According to this model, internal controls are part of the first line of defense – that is, the operating business units. For most companies, controls are part of day-to-day operational management and administration. Operations managers are accountable to senior managers and the board of directors for achieving the department’s goals.

The second line of defense consists of elements such as compliance, risk management, financial control, security, and quality. These groups anticipate and monitor risks, providing guidance to the first line.

The audit committee and internal auditors are the third line of defense. The internal audit team assesses the effectiveness of the first and second lines. The function may report directly to the board, senior management, and the audit committee.

Manage Internal Controls and Audits with ZenGRC

The right software can help you manage and streamline your internal controls and internal audits. A platform such as ZenGRC can bring greater consistency, reliability, and transparency into your controls ecosystem and audits program.

Take advantage of its single-pane-of-glass view, pre-loaded content library, benchmark reports, risk heat maps, and built-in integrations to improve risk assessment and boost cybersecurity.

With its advanced visibility, integrated experiences, and complete views of control environments, you can improve operational performance, maintain the integrity and reliability of financial reporting, and prevent fraud.

Ask the ZenGRC team for a hands-on demo of ZenGRC. Schedule a demo today.