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What Does a Compliance Management System Look Like?

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Automated tools allow your compliance management system (CMS) to work effectively. That said, a CMS is less technology unto itself and more like a corporate compliance program, where multiple, distinct pieces of a larger whole all work together.

Specifically, a compliance management system looks like a collection of policies, procedures, and processes governing all compliance efforts. But as more companies use technology across all parts of the enterprise and more compliance requirements focus on cybersecurity, IT security is becoming an increasingly central part of the CMS.

So how does a modern CMS program operate? This article will explore that question.

What is a Compliance Program?

A compliance program helps a company to meet its legal requirements and to comply with applicable laws and regulations. Ideally, your CMS is an integrated system to govern that program, which should include employee training, focused business processes, operational reviews, and corrective action strategies.

The Federal Deposit Insurance Corp. (FDIC), a primary U.S. banking regulator, defines a CMS as how an institution:

  • Learns about its compliance responsibilities;
  • Assures that employees understand these responsibilities (via a compliance training program);
  • Assures that compliance requirements are incorporated into business processes;
  • Reviews operations to confirm that responsibilities are carried out and requirements are met; and
  • Takes corrective action and updates materials as necessary.

An effective compliance management system, the FDIC continues, typically includes:

  • Board and management oversight;
  • The compliance program itself; and
  • Regular audits of the compliance program.

What Is the Difference Between a Compliance Program and a Compliance Plan?

A public, written document, known as a compliance plan, outlines the rules an organization intends to follow while putting compliance aspects into practice. This document must accurately reflect the organization’s compliance obligations at any given moment, and be reviewed and revised regularly to stay current with the organization’s compliance initiatives. It is a living, breathing document.

A compliance program, in contrast, consists of formal organizational mechanisms designed to avoid, recognize, and address possible issues brought up by staff members and other stakeholders.

A compliance plan is one of the foundational elements necessary to create an effective compliance program, but a compliance program cannot be only a written document. Rather, it is a way of thinking and an operational model for how a business has formed its compliance culture. A compliance program that works is not a “thing in a box.” The best compliance initiatives develop over time.

What Is Compliance Risk?

Deloitte defines compliance risk as “the 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.”
In other words, compliance risk is your organization’s potential failure to meet its compliance responsibilities. And in numerous industries, the price of non-compliance can be painfully high. In banking, for example, the FDIC, the Office of the Comptroller of the Currency (OCC), or the Consumer Financial Protection Bureau (CFPB) are stringent regulators that can impose high fines for compliance issues. Let’s look at several examples.

The OCC

In June 2020, the OCC warned banks about compliance risks related to the COVID-19 pandemic.

In its Semiannual Risk Perspective, the OCC warned that “compliance risk is elevated due to a combination of altered operations, employees working remotely, and the requirement to operationalize new federal, state and proprietary programs designed to support consumers,” including the CARES Act and Paycheck Protection Program (PPP).

The OCC also cautioned against interest rate risks, operational risks (again, heightened because of COVID-19), increased cybersecurity risks, compliance risks related to the Bank Secrecy Act (BSA), consumer compliance issues, and fair lending as areas of concern.

FDIC

The FDIC in 2020 advised financial institutions to have risk management programs that allow them “to identify, measure, monitor, and control the risks related to social media,” especially regarding consumer complaints that may arise over the platform.

Even institutions that don’t use social media should, “following a risk assessment … still consider the potential for negative comments or complaints that may arise within the many social media platforms described above, and, when appropriate, evaluate what, if any, action it will take to monitor for such comments and respond to them.”

CFPB

The Consumer Financial Protection Bureau is a consumer protection agency that responds to consumer complaints. For example, in 2018 the CFPB levied a $1 billion fine against Wells Fargo Bank for “unfair, deceptive, or abusive acts and practices” (UDAAP) associated with home and auto loans.

So compliance risk management requires a complex web of compliance activities (from change management to compliance monitoring, and much more) to assure that all enterprise business units conform to applicable laws. A compliance management system orchestrates that work in an efficient, productive way.

How to Create an Effective CMS

While it’s easy to assume that a CMS focuses on how your financial institution protects customers and avoids money laundering, market transactions are increasingly digital, using technologies vulnerable to unauthorized access.
Therefore a CMS should focus on protecting data and responding to consumer complaints. Here’s how to create a compliance management program:

Board of Directors

Your compliance program starts with your board of directors. The board sets the business objectives for your organization to manage and mitigate risks.

Compliance Program

A compliance program consists of written policies and procedures, training, monitoring, and corrective actions.

These policies and procedures traditionally focus on fair lending and mortgage servicing issues. But as financial firms increasingly use software-as-a-service (SaaS) platforms for data collection or communications, you need to consider how to avoid privacy violations and remain compliant with the Graham-Leach-Bliley Act (GLBA).
For example, if you plan to use digital technology for loan servicing, you need to assure that your vendor establishes controls to keep consumer protections in place.

Consumer Complaint Management Program

You need to be able to respond to consumer complaints and inquiries while also tracking, monitoring, and analyzing them. You also must protect your customer data from unauthorized access that affects its integrity, availability, and confidentiality.

Compliance Audit

Besides simply having a compliance program, you need to engage third-party auditors to ascertain whether your organization and IT suppliers comply with requirements.
Regarding IT infrastructure, the Consumer Financial Protection Bureau Supervision and Examination Manual expressly incorporates security requirements of the Gramm-Leach-Bliley Act (GLBA) and the Electronic Funds Transfer Act.

As your customers engage in more electronic funds transfers, you need to assure that your financial institution incorporates a review of the controls over vulnerabilities to data. Independent auditors can provide objective expertise to verify compliance.

Who Needs to Be Involved?

As with any compliance requirement, your CMS incorporates a variety of internal and external parties.

Senior Management

Once the board establishes business objectives, senior management begins the vendor risk management (VRM) process. As part of this process, senior management reviews internal and external written documents to assure that the vendor’s security practices align with your required controls. VRM is a starting place for the management oversight required in most regulations.

Compliance Officer

Most financial institutions have compliance officers who oversee the CMS. This individual is in charge of everything from researching updates to reviewing risk profiles, policies, procedures, and processes.

The compliance officer must also maintain insight into how your organization handles information and vendors.

Front-Line Employees

Your front-line employees are the first line of defense against improper access to customer data. Whether it’s your loan or deposit staff, controls must assure that these employees create safe passwords and that only authorized staff can access the information.

In addition, your CMS should assure that all employees are appropriately trained based on their role within your organization.

Why Is a Corporate Compliance Program Important?

Primarily because the state, federal, and international authorities have ramped up their actions against corporate misconduct, including the imposition of significant financial fines; that’s why.

The most straightforward approach for a business to avoid those fines is to show that it made a sincere effort to abide by its regulatory obligations. This evidence (which the business may subsequently provide to law enforcement) is produced by compliance programs.

For instance, if you require staff members to take periodic training on the Foreign Corrupt Practices Act (FCPA), teaching them that paying bribes to foreign government officials is illegal, then you can demonstrate to the government: “Here are all our training records. As you can see, this employee attended the course 12 times in 10 years.”

In addition, if you cooperate with investigators and provide evidence of your employee’s involvement in an FCPA violation, such as email records, prosecutors are more inclined to prosecute the employee individually rather than the firm.

Evidence of a successful corporate compliance program shows that the organization is aware of the regulations and laws and makes earnest efforts to abide by them. If your company doesn’t implement a compliance program or cannot prove periodic compliance training, the firm could be liable for its employee’s misconduct.

What Are the Elements of an Effective Compliance Program?

The compliance program ties together several components of compliance activities. It typically covers everything, from evaluation and prevention to cooperation and enforcement.

Such programs are best viewed as a collection of several steps, rules, and regulations. This aids a business in uniformly adhering to compliance standards across all divisions. A compliance program is also a dynamic system of operation that benefits all industries equally.

One of its primary responsibilities is supporting and implementing new rules; businesses need to make changes swiftly without wasting resources. Other justifications for the requirement of a compliance program include:

  • To provide guidelines for operations
  • Effective risk management
  • To align corporate practices with moral principles
  • To implement the appropriate controls
  • To implement supervision procedures
  • To establish a compliance culture
  • To successfully address violations and breaches

Here are seven crucial components of a compliance program that fulfill these demands.

Guidelines and Practices

Written policies that define a company’s expectations serve as the foundation of a compliance program. A prime example is the firm’s code of conduct or code of ethics, which applies to the board of directors and all employees. The code of conduct trains, informs, and guides staff members and outside parties on how to act appropriately throughout business interactions.

Policies and procedures also support an effective compliance program. For example, business processes integrated with segregation of duties controls ensure requirements are implemented and enforced.

Committee for Compliance

One of the most critical jobs is program supervision. A compliance manager serves as the chair of the in-house group that manages all compliance initiatives. Representatives from senior management and business operations make up these committees. They are in charge of assuring that the compliance policies are carried out effectively.

A subcommittee may be in charge of implementation and execution. Regular assessments are essential to the program. In addition to internal audits and supervision, this committee contributes to developing a compliance culture.

Risk Evaluation

Risk assessment is a continuous activity that improves the organization’s awareness of risk areas. As a result, the compliance manager and his or her team will be able to detect high risks and prioritize their remediation with the aid of accurate risk assessments over time.

The goal of the risk assessment, which must be carried out as part of a comprehensive approach following a compliance program, is to identify potential issues in advance. Every firm should conduct thorough risk analyses at least once a year or before introducing new products or services.

Any business must go through this process, which is best managed by a compliance program. Without it, there may be wasted time or compartmentalized risk management, which has a poor track record.

Regulations and Standards

Companies need to follow established compliance frameworks to avoid non-compliance. Compliance regulations for financial institutions differ from compliance in healthcare, so it’s crucial to understand the applicable laws. A successful compliance program depends on your industry, your organization’s risk areas, and the required internal controls.

Internal controls are essential for assuring procedures are followed as planned, but that’s not all. You must establish applicable standards and documentation to confirm that your organization’s compliance program is alive and well. Controls, including standard operating procedures (SOP) and other methods, assist in ensuring this.

Communication and Education

Training is an essential component of a successful compliance program. Everyone who is a member of the organization, both locally and internationally, must be informed about compliance, including corporate officers, employees, and third parties.

The training should cover applicable laws and rules, company policies, and prohibited behaviors. Compliance programs have established protocols to support business efforts in delivering this training. For example, an audience mapping program will have procedures for each step, from audience response to audience reaction.

Without the organized approach provided by a focused program, businesses risk losing their employees’ interest or losing sight of the goal. Unfortunately, compliance training is frequently included simply as onboarding and then ignored. Annual training routines are recommended.

Reporting

The human resources team often addresses compliance-related issues and infractions requiring disciplinary action. Maintaining total compliance, however, necessitates active feedback from all parties. The compliance committee should be involved in reporting.

Internal hotlines should also be available for employees to report compliance issues anonymously; this fosters a culture of compliance. Traditional reporting methods might not provide this, and employees are less inclined to produce quality reports if they are concerned about retaliation or losing their job.

Surveillance and Audits

Robust compliance programs include continuous monitoring, and businesses greatly benefit from it. It is a vital component of risk assessment since it enables prompt identification of potential dangers. Additionally, periodic audits are mandated by compliance frameworks. These enhance internal controls, address risk management requirements, and drive employee accountability.

Streamline Your Compliance Program with ZenGRC

Several compliance frameworks are available to help your CMS work effectively, and technology tools can automatically eliminate manual tasks to drive program effectiveness.
With ZenGRC compliance, workflow, and risk management capabilities, you can bundle many tasks required by a CMS into a single tool.

The compliance dashboards, metrics, and audit management features provide insight into the strengths and weaknesses of your IT infrastructure, showing how well you’re protecting data privacy. In addition, task prioritization and workflow tagging allow you to better communicate with other stakeholders to assure nothing falls through the cracks.

Worry-free compliance management is the Zen way. Contact us for a demo for more information on how ZenGRC can enable your CMS.

Information Security vs. Cybersecurity: Main Differences

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Cybersecurity and information security are often assumed to be synonymous terms. They’re not. On the contrary, they have several critical differences that security professionals should understand, if you want to deliver the best protection and risk management possible to your organization.

This article will explore those differences, review how they affect your organization, and provide tips on how you can leverage both to create a robust, holistic security posture.

What is Cybersecurity?

“Cybersecurity” refers to an ecosystem of technologies, methodologies, and processes, such as firewalls and antivirus software, best practices, and cybersecurity frameworks. The objective is to protect an organization’s information and communication technologies (ICT) from cyberattacks. These ICT assets include:

  • Enterprise on-premises networks
  • Cloud-based infrastructure
  • Computer systems, mobile devices, endpoints, servers, and other devices
  • Software programs and applications
  • Data

Cybersecurity frameworks and practices aim to protect these assets from cyber threats that originate from or via the Internet. Cybersecurity strategies are comprehensive, including:

  • Network security
  • Application security
  • Cloud security
  • Operational security
  • Critical infrastructure security
  • Physical security
  • Stakeholder awareness and education

Cybersecurity tools and practices aim to prevent cybercriminals and data thieves from gaining unauthorized access to enterprise resources and data, since that unauthorized access can damage business-critical information technology infrastructure, disrupt business and operational continuity, or allow cyber extortion and corporate espionage.

Why is Cybersecurity Important?

As the cyber threat landscape expands, robust cybersecurity is more important than ever.

All organizations are vulnerable to cyber threats and attacks, such as phishing, malware (malicious software), ransomware, man-in-the-middle (MitM) attacks, and distributed denial of service (DDoS) attacks. Many organizations are also at risk of password theft and compromise due to brute force attacks, hash cracking, and keyloggers.

To stay safe from such attacks, all organizations need robust cybersecurity, regardless of their size, type, or industry.

In 2021, the cost of cybercrime topped $6 trillion. In the future, cyber attacks will increase in scale, scope, and frequency as digital technologies evolve, global supply chains become more complex, and the number of interconnected and internet-connected devices increases. By 2025, the cost of cybercrime is expected to surge to $10.5 trillion.

The bottom line: Every organization needs strong cybersecurity processes, tools, and practices to protect assets and data from determined cybercriminals and data thieves.

What is Information Security?

According to one survey, security professionals needed 228 days in 2020 to identify a security breach and 80 days to contain it. That’s more than seven months just to identify a breach and almost three months to remediate it! To identify threats and breaches quickly, and to mitigate them before they can cause too much damage, organizations need a robust information security program.

The National Institute of Standards and Technology (NIST) defines information security as: “The protection of information and information systems from unauthorized access, use, disclosure, disruption, modification, or destruction in order to provide confidentiality, integrity, and availability.”

Modern businesses house most or all of their information within electronic sources. Before the proliferation of computing and digital resources, however, many businesses kept their information in filing cabinets. Some still do!

Information security – also known as “infosec” or data security – is concerned with protecting all of this information, both physical and digital. This information may be “at rest” or “in motion.”

What is the CIA Triad in Information Security?

Confidentiality, integrity, and availability are known as “the CIA triad.”
Confidentiality means assuring that only authorized users can access enterprise information and preventing unauthorized access or disclosure. Integrity is about maintaining data accuracy, trustworthiness, consistency, and reliability. Finally, availability means information is easily accessible to authorized users without disruptions to enterprise systems.

Why is Information Security Important?

Infosec practices and security operations encompass a broader protection of enterprise information. Without infosec, we would overlook the proper disposal of paper information and the physical security of data centers. Cybersecurity also neglects risks coming from non-cyber-related sources, such as fires and natural disasters.

The combination of the CIA triad is also an important feature of infosec. For instance, integrity covers malicious data manipulation along with innocent typographical errors. Categorizing threats and safeguards into the CIA triad helps organizations to evaluate risk from a different lens.

Cybersecurity vs. Information Security: What Do I Need?

Honestly, you need both. The extent of each will depend on the IT resources and information systems used in your organization.

You need a robust cybersecurity program focused on threats coming through the internet to damage your network systems and steal your digital data.

Modern hackers use all kinds of threat vectors, including malware, ransomware, phishing, as well as cyber frauds to attack devices, Internet of Things (IoT) systems, cloud computing infrastructure, and data. To prevent cyber-attackers from exploiting your resources and obtaining sensitive information, you need comprehensive cybersecurity.

An information security program considers non-cyber threats, which can also be devastating to your organization. Even if you don’t store paper documents, do you have a printer in the office? You need information security policies defining which print-outs must be shredded versus thrown in the trash.

In general, most businesses use both physical and electronic data, so you need a broad-ranging information security and cybersecurity program to:

  • Protect your ICT assets and sensitive data
  • Prevent unauthorized access to your computing environment
  • Prevent unauthorized access to physical documents
  • Reduce the size of the cyber attack surface and minimize the risk of cyber attacks
  • Prevent data breaches, information theft, and compromise
  • Prevent long-term advanced persistent threats (APTs)
  • Protect information during non-cyber events, such as natural disasters, power outages, or fire

As part of this program, you need strong cybersecurity and information security tools, as well as robust practices around governance, risk management, and compliance. Artificial intelligence (AI) and machine learning tools are also available to “learn” from threat data, identify cybersecurity threats faster, and minimize their harm.

Protect Your Business Assets and Information with ZenGRC

ZenGRC enables information security and cybersecurity professionals to create a solid security program to protect enterprise information and minimize the threat of cyber attacks.

With ZenGRC, you can view your security stance through a centralized, integrated platform. You can also streamline risk assessments and identify critical threats to your assets. Protect your resources and data by first understanding where risks and vulnerabilities exist and how they are changing.

Leverage ZenGRC’s rich suite of intuitive tools and dashboards to improve risk management in your organization. To see how ZenGRC can guide your organization to infosec and cybersecurity confidence, schedule a free demo today.

Strategies for Digital Risk Protection

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No lock has ever been invented that was completely secure; if an intruder is determined to get in, he or she can usually find a way.

So it is for houses and buildings – and the same principle is just as true for cybersecurity. Hence cybersecurity risk management is crucial to prevent and mitigate cyber threats.

To combat those threats, businesses need to develop digital risk management. We can define that as the processes used to assess, monitor, and treat the risks that arise from the digital business processes that are so common today. More specifically, within digital risk management are the active measures that businesses can take to protect their assets: digital risk protection.

What is Digital Risk Protection?

Digital risk protection (DRP) refers to cybersecurity measures that aim to prevent data breaches, malware, identity theft, and other forms of cyber crime. DRP is the active piece of the cybersecurity puzzle, and is an imperative for every organization.
DRP generally addresses external threats and internal dangers.

Digital risk protection solutions are critical for today’s security teams and risk management processes- especially when the average cost of a data breach now tops $4.2 million, according to the 2021 Verizon Data Breach Investigations Report.

Many firms opt to add a DRP solution to their existing cybersecurity stack rather than replace existing solutions entirely, because digital risk protection is a relatively new cybersecurity category.

Why is Digital Risk Protection Important?

No enterprise can thrive without being online in some form. Each new online connection, however, increases an organization’s attack surface, making it more likely that the company will be hacked. Some steps that are wise from a business development perspective, but also increase inherent cybersecurity risk:

  • Moving retail to the cloud to enable seamless omni-channel shopping;
  • Hiring and managing personnel using a human resources application;
  • Enabling application developers to collaborate online;
  • Collecting payments using a third-party processor;
  • Automating factories using the Internet of things (IoT);
  • Marketing and advertising on social media sites.

Digital connections are essential. Without them, your organization won’t be able to keep its critical business functions running smoothly. At the same time, it’s imperative to have measures in place to comply with a growing roster of cybersecurity standards, privacy laws, and regulations to protect your customers and your brand.

Common Types of Digital Risk

To make digital risk protection easier, you must consider a few common digital threats that organizations should aim to avoid.

Every type of digital risk affects cybersecurity. Because these risks occur throughout the digital landscape, disruptions in one kind of risk could have repercussions in others.

Data Leakage

A data leak exposes sensitive information that could become a data breach. When organizations or their vendors accidentally leak their data, they are at a higher risk of a data breach. As a result, a data leakage security solution must track data leaking inside and outside the vendor network.

Third-Party Risk

This refers to all risks introduced by service providers and third parties working with your enterprise. This could include data breaches, intellectual property theft, and financial data theft.

Technology

Any hazards associated with cloud architectural changes, the use of new platforms such as IoT devices, or new IT systems can lead to digital risk.

Compliance

Digital risks can be associated with non-compliance with regulatory requirements. These risks are often introduced with the adoption of new technologies or the addition of vendors operating in highly regulated industries.

Process Automation

Compatibility difficulties are risks that develop when automated procedures are adjusted. Process automation risks may occur due to initiatives to improve customer service or thanks to new business models.

Data Privacy

Any threat to the security of sensitive data is considered a data security risk – for example, personally identifiable information or financial data left exposed to public view online.

How to Create a Digital Risk Protection Program

Digital risk protection is a cyber risk management strategy consisting of two main components: Identifying risks and threats, and then mitigating them.

Identification

Identification includes the following steps:

  • Inventory all digital assets, including computers, network and data center equipment, servers, software, and mobile devices.
  • Map the organization’s complete digital footprint, linking digital assets to IP addresses, applications, social media sites, third-party vendors, temporary development and quality assurance environments, email accounts, and any other digital channels that hackers could exploit.
  • Restrict employees from downloading non-approved applications (also known as “shadow IT”) to organizational devices.
  • List the potential risks, including third-party and internal and external threats to all these assets and internet-facing services.
  • Monitor and collect real-time threat intelligence on the following:
    • Attack indicators. Signs that your organization was a victim of a cybersecurity attack, data found online or in the dark web, login attempts, fake social media accounts, scams posing as coming from your organization (which can be a precursor to customer phishing), and other anomalies including social engineering.
    • Data loss or leaks. Found in unauthorized database postings or the dark web, online postings of sensitive data or documents, and data breach attempts or incidents.
    • Vulnerabilities. Which areas in your systems and networks expose you to attack or malware? Examples are expired security socket layer (SSL) certificates, open ports, and inadequately secured login pages. Employees with access to sensitive information can also pose risks, especially if disgruntled or poorly trained.

Mitigation

Mitigation involves putting controls or mechanisms in place to reduce your risk of cyber attack and to hinder the success of an attack should it occur. This is the digital equivalent of hiding your valuables out of sight to avoid attracting thieves. You would also take measures to install locks, cameras, and other safeguards as extra precautions to deter their efforts.

In cybersecurity, a variety of controls protect your systems and networks. Identity access management (IAM) establishes who can access sensitive data. Security policies protect data by requiring the developer environment to be separate from the production environment. Anti-malware and anti-virus software are valuable tools to safeguard systems from cyber threats.

How do you know which mitigation measures to implement? Frameworks for risk management and cybersecurity can be great resources; they provide lists of suggested controls and other mitigation techniques helpful for your DRP program. These frameworks include:

Automate Your Digital Risk Protection Program with ZenGRC

The work of identifying, monitoring, and mitigating cyber risk is complex and time-consuming. Since criminals work around the clock, there’s no time for your security team to rest. A comprehensive digital risk protection solution is imperative, along with automated security tools, to streamline processes.

ZenGRC helps you identify, monitor, manage, and mitigate risks to your organization. Templates guide you through the risk assessment process to help you understand your risk landscape and prioritize mitigation activities.

Workflow management features offer easy tracking, automated reminders, and audit trails. The ZenGRC feature enables integration with popular tools such as Jira, ServiceNow, and Slack, assuring seamless adoption within your enterprise.
Insightful reporting and dashboards provide visibility to gaps and high-risk areas. By better understanding your risk landscape, you can take action to protect your business from cyberattacks, avoid costly data breaches, and monitor the security posture of your supply chain.

Worry-free digital risk, cybersecurity, and compliance management that frees you to focus on your business and bottom line: That’s the Zen way. Schedule a demo today!

Risk Assessment vs Risk Analysis

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Although people often use the words “assess” and “analyze” interchangeably, the terms are not synonymous in risk management. Each one has a specific meaning, and the distinction between the two is important.

A risk assessment forms the backbone of your overall risk management plan. A risk analysis is one piece of the assessment process, where you determine the likelihood and criticality of each risk, and then assign each risk a score based on your findings. Just as we explain in our article on risk appetite versus risk tolerance, these are relevant terms you should review.

What is Risk?

Business risk is a threat to a company’s ability to meet its objectives. Put another way, risk refers to the fact that an organization’s ambitions may not work out as planned or that its objectives might go unmet.

Risks are not always the fault of the business. Risk can be affected by numerous external factors, including natural disasters, global pandemics, raw material prices, increased levels of competition, or changes to current government regulations.

What Is a Risk Assessment?

A risk assessment evaluates all the potential risks to your organization’s ability to do business. These include project risks, enterprise risks, control risks, and inherent risks.

A risk assessment consists of two main parts: risk identification and risk analysis. Each component comprises several necessary actions.

In security, risk assessments identify and analyze external and internal threats to enterprise data integrity, confidentiality, and availability. This includes potential threats to information systems, devices, applications, and networks. A risk analysis is conducted for each identified risk, and security controls are pinpointed to mitigate or avoid these threats.

Security risk assessment models typically involve these elements:

  • Identifying the organization’s critical technology assets as well as the sensitive data those devices create, store, or transmit;
  • Creating a risk profile for each asset;
  • Assessing cybersecurity risks for all critical assets;
  • Mapping all critical assets’ interconnections;
  • Prioritizing which assets to address after an IT security breach;
  • Developing a mitigation plan with security controls for each risk;
  • Preventing or minimizing attacks and vulnerabilities;
  • Monitoring risks, threats, and vulnerabilities on an ongoing basis.

Security risk assessments are essential not just for cybersecurity but also for regulatory compliance. For example, the Health Information Portability and Accountability Act (HIPAA) requires periodic security risk assessments.

In addition, the National Institute of Standards and Technology’s (NIST) Special Publication 800-53, Guide for Conducting Risk Assessments, provides a framework for the information security risk assessment process.

Many organizations use risk management and compliance software to help them manage all the tasks associated with risk assessment, analysis, and management.
Security risks aren’t the only type of risk that organizations face. Here are some others:

  • Financial risk
  • Audit risk
  • Credit risk
  • Compliance risk
  • Reputational risk
  • Competitive risk
  • Legal risk
  • Economic risk
  • Operational risk
  • Third-party risk
  • Quality risk

What is the Risk Assessment Process?

Risk assessment happens in four steps.

  1. Risk Identification

    Various types of hazards must be considered. Information security and cybersecurity risks often bubble to the top in a world connected with technology, uut you would be remiss if you only focused on technology-related risks. A risk register helps document and categorize the output from the risk identification process.

  2. Determine Who and What Could Be Affected

    After identifying hazards and risks, consider how they are harmful and the possible outcomes. For example, what kinds of damages or injuries could result? Do they harm regulatory compliance? Who is at risk: employees, customers, other stakeholders? Each risk may pose a single threat or be dangerous in more ways than one.

  3. Analyze Risks and Prevent Them

    After identifying the risks, it’s time to perform the risk analysis and develop action plans. Assess the risk probability and criticality. Implement controls and risk response plans to prevent and mitigate risk.

    You are not expected to eliminate all risks since this is often not feasible. You should, however, take measures proportionate to the level of risk. This means that risks presenting a higher threat must receive more comprehensive control measures than lower-risk hazards. A risk matrix helps prioritize which risks need immediate attention.

  4. Check the Risk Assessment

    Environments are ever-changing. Ensure risk assessments are reviewed periodically. They should always be inclusive of all potential risks and new risks.

What is a Risk Analysis?

Risk analysis is the phase where you’ll examine each identified risk and assign it a score using one of two types of the scoring system: quantitative or qualitative. These scores help you prioritize your risks so you know which ones to address first and the best ways to address them.

Quantitative scoring assigns specific dollar amounts to the risk factors under consideration.

  • What would be the cost to the organization if the risk were to happen? This is known as “single loss expectancy” (SLE).
  • How often should you expect the risk to happen? Once per year assigns an annual rate of occurrence (ARO) of 1; once every 10 years, and ARO of 0.1.

To calculate the financial risk in a given year, multiply the SLE by the ARO.
Qualitative scoring is more subjective and uses a risk assessment matrix that typically involves four factors:

  • Likelihood: What’s the probability of occurrence: the probability that the risk will happen?
  • Impact: If the risk event occurred, what is the impact of the risk? How much would it harm your project, function, or enterprise?
  • Velocity: How quickly would your project, function, or enterprise feel the impact?
  • Materialization: What’s the potential severity of the impact? To measure this score, add the impact and velocity scores and divide by 2.

You can use mitigations or controls to reduce a risk’s potential impact, velocity, and severity scores.

In the risk analysis phase, it’s also essential to determine your organization’s risk appetite and risk tolerance.

The COSO Enterprise Risk Management framework defines risk appetite as “the amount of risk, on a broad level, an organization is willing to accept in pursuit of stakeholder value.”

Risk tolerance, the framework states, “reflects the acceptable variation in outcomes related to specific performance measures linked to objectives the entity seeks to achieve.”

What is the Risk Analysis Process?

The risk analysis process entails the quantification of uncertainties. Estimating the potential impacts helps to develop the risk analysis framework. By employing risk analysis methods, action plans can be implemented to prevent, mitigate, or cope with risks.

  1. Identification and Quantification of Uncertainties

    The objective in risk analysis is to pinpoint each uncertainty point and measure its magnitude to the best of your knowledge. Identifying and quantifying uncertainties is a crucial step in risk analysis.

  2. Estimation of Their Potential Impact

    It is necessary to estimate the impact of the various uncertainties. For instance, you may be unable to forecast the exact demand for your company’s product; however, once you know our costs and margins, you can often estimate the impact on your net profit.
    Having done this, you can build a model that enables your organization to calculate the results for any given entry.

  3. Development of a Risk Analysis Framework

    Once you perform these steps, your risk analysis model is set up. This model will have unknown inputs, uncertain variables, assumptions, or inputs.
    The model computes the outcomes for any particular input set of values. In contrast to other models, a risk analysis model requires you to think in ranks: Given that the entries are unknown and have many different values, the results are uncertain and may take on a wide range of values.

  4. Formulation of Risk Management Actions

    Since a simulation of the risk management plan produces many potential values for the results you are interested in, it is essential to analyze the outcomes.
    For instance, we can synthesize the array of results using several types of statistics, such as the mean or median or the value at risk. Graphs and other risk management tools help visualize the results, such as frequency graphs and accumulated frequency graphs.

Identification: What’s involved?

You’ll need to use your imagination and envision worst-case scenarios for the risk identification phase, from natural disasters to economic ones.

What if a fire broke out in your building? What if someone stole your proprietary secrets? What if the economy crashed? What if ransomware locked your systems? What if a competitor undercuts your prices?

During the risk identification process, it’s essential to keep in mind that nobody can see into the future. New risks could emerge for which you have no plan (yet). Therefore, it’s also essential to keep your options open and your risk management process and program flexible. Plan to review your risk list regularly and establish contingency plans for new risks.

So What’s the Difference Between Risk Analysis and Assessment?

Risk assessment is considered the whole process where all types of risks are identified. Risk analysis is a step within the structure mentioned above, where each risk level is defined. Both are components within the larger whole known as risk management or risk evaluation.

It is essential to conduct various types of risk assessments to reveal all potential threats, whether they already exist or before they are generated.

It also generates a series of benefits such as avoiding data breaches, justifying the need for a cybersecurity program, cost-benefit analysis related to security risks, among others.

Prioritizing your Risks

Once you’ve assigned scores to your risks, you can categorize them according to their priority. For example, many enterprises allocate rankings of “high priority,” “medium priority,” or “low priority.”

High Priority

A ransomware attack, in which malicious actors use malware to lock you out of your systems and demand payment to restore your access, would fall under this category. So would a zero-day attack, in which hackers exploit a previously unknown vulnerability.

Medium Priority

A medium-risk event might be a former employee stealing information after being terminated. Reviewing your organization’s employee-access policies would be a control against this risk’s materializing. A robust employee termination process coordinated between human resources and IT would help mitigate this risk.

Low Priority

If your buildings are adequately secured, the probability might be low of someone’s breaking into your offices and stealing devices. If those devices don’t contain any information, the likelihood of a data loss may also be low or nil. Since there is no urgency associated with this risk, you might decide to review your device-risk-mitigation controls annually.

Manage Risk with ZenGRC

Keeping track of everything all at once and all the time can seem impossible, especially for cyber risk. Threat actors continually switch and evolve their tactics and technologies – and so must you, or risk losing control of your systems, data, and brand.

Instead of using spreadsheets for your risk management strategies, adopt ZenGRC to streamline evidence and audit management for all of your compliance frameworks. ZenGRCs risk and workflow management software is intuitive and simple to use.

ZenGRC helps you pinpoint risks by probing your systems and finding cybersecurity and compliance gaps. Then, it enables you to prioritize those risks and assign tasks to your team members. The user-friendly dashboards let you see the status of each risk and what needs to be done to address it.

Workflow management features offer easy tracking, automated reminders, and audit trails. The ZenGRC feature enables integration with popular tools, such as Jira, ServiceNow, and Slack, ensuring seamless adoption within your enterprise.
With ZenGRC, risk management takes care of itself – leaving you to other, more pressing concerns, like boosting your business and your bottom line.

Worry-free GRC is the Zen way. Schedule a demo now for your free consultation.

Internal Controls & Fraud Prevention

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Fraud is a constant concern for businesses and other corporate organizations everywhere. According to PwC’s Global Economic Crime and Fraud Survey 2020, 47 percent of U.S. companies had experienced fraud in the previous 24 months. Another 35 percent were asked to pay a bribe.


In its 2021 report, the Association of Certified Fraud Examiners (ACFE) found that 71 percent of anti-fraud experts believed that fraud levels at their organizations would increase in the coming 12 months.


These findings (and many more) show that fraud is a widespread risk that can affect any organization, its business continuity, and its reputation. So what can your organization do to minimize the possibility of fraud and mitigate its potential harm?
Strong internal controls.


This article explores why your organization needs robust internal anti-fraud controls. It also explains the six essential controls that should be a part of your internal control system.

What Is Corporate Fraud?

Corporate fraud refers to illegal or deceptive actions committed by an internal or external perpetrator against a business for personal or financial gain. Unlike inadvertent errors or mistakes, fraud involves deliberate and malicious acts. Fraud can cause irrevocable harm to employees, investors, customers, partners, and creditors.


Fraud is often difficult to detect. Internal fraudsters might engage in fraudulent activity for years by taking advantage of their “trusted insider” status. Some perform highly complicated accounting schemes that only an expert can detect and understand. Others rely on a lack of visibility within the organization to execute fraudulent behaviors “under the radar.”

Types of Corporate Frauds

There are three primary types of fraud: corruption, asset misappropriation, and financial statement fraud.

Corruption

Corruption schemes usually involve employees misusing their position to influence business transactions for their benefit. Bribery, extortion, and conflicts of interest are the most common types of corporate fraud.

Asset Misappropriation

Also known as insider fraud, asset misappropriation can be committed by an insider such as a company director or employee, or by an outsider such as a third-party vendor.


One common way to perpetrate asset misappropriation fraud is to steal cash before or after it has been recorded in the company’s accounting books. In some fraud cases, fraudsters also steal cash receipt equivalents, such as vouchers or credit notes.


Some other common types of asset misappropriation fraud are:

  • Stealing company data, intellectual property, or business secrets;
  • Embezzlement by creating false invoices or by implementing a “ghost employee” scheme;
  • Making false expense claims for reimbursement;
  • Stealing non-cash assets.

Financial Statement Fraud

Employees or senior management create fictitious revenues, understate revenues, hide liabilities, or inflate assets in financial statement fraud. The goal is to paint a false picture of the organization’s financial performance, usually to boost the company’s market value or attract new investors. Improper disclosures are also a type of financial statement fraud.


Financial statement fraud is the least common type of fraud, but it attracts a lot of attention when it occurs. These schemes can take years to detect. Moreover, they can result in battered stock prices, job cuts, and huge losses for investors and shareholders.


These consequences came to pass when the Enron scandal broke in 2001. When news broke about a massive financial misstatement fraud at Enron, its share price quickly collapsed from around $90 to less than $1. Eventually shareholders lost over $74 billion and the company went bankrupt.


The collapse of Enron, along with several other corporate frauds circa 2001, led to enactment of the Sarbanes-Oxley Act in 2022.

What Is the Cost of Corporate Fraud?

In 2018 the average corporate loss arising from fraud was $2.75 million. Even private companies and small businesses were not exempt, suffering a median annual loss of $164,000 due to fraud. The most common fraud schemes that resulted in such losses included:

  • Corruption;
  • Wire transfer schemes;
  • Expense reimbursement schemes;
  • Payroll fraud;
  • Inventory theft;
  • Cash larceny;
  • Check tampering;
  • Financial statement fraud.

In its 2018 Report to the Nations Global Study on Fraud and Abuse, ACFE predicted that U.S. Businesses would lose around 5 percent of their gross revenues to fraud. The most significant contributing factor was the lack of strong internal controls.


By 2019, fraud events cost businesses $5.127 trillion each year. To put this into perspective, it represents almost 70 percent of the $7.442 trillion the world spent on annual healthcare costs.


In a 2020 PwC survey, respondents reported that they had lost $42 billion due to fraud losses and that this cost directly hit their bottom line. Another 13 percent of victim companies lost $50 million or more.


Fraud costs have also increased in other countries. For example, businesses in Britain now lose a staggering £137 billion annually to fraud. Costs have also gone up in Canada, from $2.87 lost per $1 of fraud in 2020 to $3.02 lost per $1 of fraud in 2021.

The Importance of Internal Controls for Preventing Fraud

Regardless of how fraud is perpetrated, most incidents occur due to an outdated, weak internal control system. Without a robust control environment, fraudsters can exploit a weakness or take advantage of their position or influence to commit a fraudulent activity. Effective internal controls minimize the possibility of fraud and its repercussions.


Hence the bedrock of any corporate fraud prevention program is a strong internal controls environment. Simply put, to protect your organization from fraud, you must lock down your system of internal controls. Moreover, your internal control process should include three types of internal controls:

  • Preventive controls to prevent fraud from happening;
  • Detective controls to identify and minimize the harm of fraud that has already occurred;
  • Corrective controls to address and fix problems that may lead to fraud, cause financial losses, or damage the organization’s reputation.

Six Key Controls to Help Protect Against Fraud

Here are six critical internal controls that can help improve fraud detection and protect your organization from fraud losses.

A Strong Code of Conduct and Ethics

ACFE’s 2020 Report to the Nations cited a robust code of conduct is a valuable anti-fraud control. The code sets the tone from the top and provides a clear roadmap about which behaviors are and are not acceptable. Defining these expectations will help safeguard the company’s reputation, prevent regulatory fines, and avoid legal litigation.


A well-written code of conduct outlines your organization’s mission, vision, values, principles, and commitments. More importantly, it links them to expected ethical and moral standards of professional behavior. It serves as a benchmark to assess behaviors and hold employees accountable if they are non-compliant.


The code of conduct should include these policies to articulate expectations and guide behaviors:

  • Whistleblower policy;
  • Incident response plan;
  • Executive-specific policies;
  • Code of business ethics;
  • Anti-fraud policy;
  • Conflicts of interest;
  • Financial and fiscal policies around:
    • Cash disbursements;
    • Expense reimbursements;
    • Travel reimbursements;
    • Petty cash.

A Robust Internal Reporting System

Employees detect a large portion of corporate fraud cases. A confidential hotline, an internal website or portal, or another type of reporting mechanism provides employees with the means to report suspected fraudulent activities.


It’s essential to make this system anonymous since most whistleblowers hesitate to report incidents openly to employers; they fear reprisals, job loss, or other punishment. The anonymous reporting system and whistleblower policy should be used in tandem to detect and investigate fraud.

Segregation of Duties

Segregating duties (also known as separation of duties) is a critical internal control to reduce fraud risk. It means that no single person has multiple duties that can give him or her the power to engage in fraudulent activities.


For example, all activities related to financial record-keeping, authorization, reconciliations, and reviews should be divided among different employees. This separation of tasks will ensure that a single person cannot retain custody of a transaction and manipulate any resulting assets. Segregation reduces the risk of inappropriate actions.

Internal Audits

Solid internal audit procedures limit the risk of fraud. Along with management reviews, internal audits are critical to assess existing anti-fraud controls and assure they remain effective and up-to-date. Internal auditors can also search for fraud and mitigate potential damages. These auditors must know how to assess fraud risk.


To ensure that the internal audit system is working well, executive management should:

  • Evaluate the organization’s fraud response plan, including its key processes and investigation methodologies;
  • Decide who will carry out fraud investigations;
  • Clarify how internal audits will investigate fraud and assess any failures of existing controls;
  • Check if internal auditors have the required skills to carry out fraud investigations.

External Audits

While robust internal audits are crucial to prevent fraud, working with external auditors is also critical. An independent external auditor can bring objectivity and impartiality to the controls audit process. External audits can also deter employees from indulging in fraudulent behaviors, who will know there’s an additional mechanism to get caught.


External auditors typically work with internal auditors to analyze current anti-fraud controls, recommend appropriate changes to policies and procedures, and help with implementation.

Up-to-Date Documentation

Accounting records and other kinds of documentation can help reduce fraud because they increase visibility and make it easier to audit different types of transactions and activities. It’s imperative to document financial transactions to ensure that no one is “cooking the books” or doing anything that may affect the quality and accuracy of financial reporting.


For instance, all sales receipts and bank account deposit preparations should be documented. This will allow authorized personnel to perform bank reconciliations and verify that the receipts were deposited into the bank, which reduces asset misappropriation or other types of fraud.


Some other ways to prevent fraud with documentation are:

  • Use “for deposit only” stamps on all incoming checks;
  • Avoid using a signature stamp;
  • Require two or more signatures on checks above a specified amount;
  • List all checks on a log before handing them to an authorized person for depositing receipts;
  • Require supervisors to approve employees timesheets before payroll is processed;
  • Examine all canceled checks to ensure that third parties are recognized and legitimate.

Along with the six controls explained here, you can also hire trustworthy experts like Certified Fraud Examiners (CFE) and Certified Public Accountants (CPA) to help establish anti-fraud policies and controls.

Leverage ZenGRC to Mitigate Fraud Risk in Your Organization

ZenGRC can improve visibility into your risk environment. ZenGRC streamlines your anti-fraud and fraud risk management program by documenting internal controls, regulatory requirements, and audit records.


It is a single source of truth that ensures your organization is always audit-ready. 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 provide visibility to gaps and high-risk areas.


Schedule a free demo to see how ZenGRC can seamlessly fit into your risk management and anti-fraud program.