2nd VOLUME OF THE NEWS LETTER

LINKEDIN NEWSLETTER – 2ND EDITION – RAMESHCHANDRAN VADALI

INTERNAL AUDIT

·        Remote Audit

·        An auditor is a watchdog and not a bloodhound.

·        Audit Work Program for monitoring Entity-Level Controls.

·        Why are Internal Auditors who are Independent Assurance Providers asked to do Risk Assessment which is an Operations Function?

·        Risk-Based Audit Plan – is it a Myth?

INTERNAL CONTROLS

·        Internal Audit Controls.

·        IT Internal Controls.

·        Gaps in Internal Controls.

·        Designing Internal Controls.

RISK MANAGEMENT

·        Specialist areas of Risk Management.

·        Risk Mitigation and Risk Adaptation.

·        Risk Perception with examples.

·        The common misconception about Risk Maturity.

·        Three lines of Defense Model.

·        Risk Assessment -whom to conduct.

·        Risk Appetite.

·        COSO Fraud Risk Framework.

GENERAL

·        Supply Chain Analytics.

·        Soft Skills to develop in the first 5 years of a Career.

·        Over-Hiring Risks.

·        Checklist of items to consider for a Quarterly Accounting Closure.

·        Abundance Mindset.

·        Micro-Management.

INTERNAL AUDIT

REMOTE AUDIT

Remote audit refers to an audit that is conducted remotely, without the need for the auditor to be physically present at the auditee's location.

Remote audits are becoming increasingly popular due to advancements in technology and the need to conduct audits more cost-effectively and efficiently.

Remote audits can be conducted in a variety of ways, including through video conferencing, remote access to systems and data, and document sharing.

The auditor and the auditee can communicate and exchange information in real time, allowing for a more collaborative and interactive audit process.

Remote audits can be used for a range of audit activities, including:

INTERNAL AUDITS:

Internal auditors can conduct remote audits to assess the effectiveness of internal controls, and compliance with policies and procedures, and to identify opportunities for improvement.

SUPPLIER AUDITS:

Remote audits can be used to assess the performance and compliance of suppliers, without the need for the auditor to travel to the supplier's location.

CERTIFICATION AUDITS:

Remote audits can be used to conduct certification audits, such as ISO 9001, ISO 14001, and ISO 27001, allowing certification bodies to certify organizations remotely.

REGULATORY AUDITS:

Remote audits can be used by regulatory bodies to assess compliance with regulatory requirements, without the need for the auditor to visit the auditee's location.

Remote audits can provide a more flexible, efficient, and cost-effective way to conduct audits, while still ensuring that the audit objectives are met and the necessary evidence is obtained.

However, it is important to ensure that the remote audit process is robust and that the necessary security measures are in place to protect the confidentiality and integrity of the audit process and the data being shared.

AN AUDITOR IS A WATCHDOG AND NOT A BLOODHOUND

The statement "Auditor is a watchdog and not a bloodhound" is a commonly used phrase in the field of auditing. It means that the primary role of an auditor is to function as a "watchdog" to ensure that financial statements are prepared fairly and accurately and to detect and prevent fraud or errors.

As a watchdog, an auditor is responsible for monitoring a company's financial reporting practices, procedures, and controls, and ensuring that they comply with applicable laws, regulations, and accounting standards. The auditor's objective is to provide reasonable assurance to the users of financial statements that the information presented is dependable and free from material misstatements.

On the other hand, a bloodhound is a type of dog known for its ability to track scents and hunt down prey. In the context of auditing, a bloodhound might represent an auditor who is aggressively searching for evidence of wrongdoing, rather than simply fulfilling their role as a watchdog.

ALTERNATE NOTE

There is nothing inherently wrong with the message "Auditor is a watchdog and not a bloodhound," as it is a commonly used phrase in the field of auditing to describe the role of auditors. However, it is important to recognize that this phrase does have some limitations and may be interpreted in diverse ways.

One potential issue with the message is that it could be misinterpreted to suggest that auditors should not be actively searching for fraud or wrongdoing. While auditors are not necessarily expected to uncover every instance of fraud, they are still responsible for performing their audits with professional skepticism and maintaining a questioning mind.

Another issue with the message is that it might be perceived as downplaying the importance of auditors' investigative skills and techniques. While auditors are primarily responsible for providing reasonable assurance that financial statements are free from material misstatement, they may need to use investigative techniques to uncover potential fraud or other irregularities.

In summary, while the phrase "Auditor is a watchdog and not a bloodhound" is a commonly used message, it is important to recognize that it has limitations and may be subject to interpretation. Auditors should perform their duties with the highest level of professional skepticism and diligence, regardless of whether they are acting as a watchdog or a bloodhound.

AUDIT WORK PROGRAM FOR MONITORING ENTITY-LEVEL CONTROLS:

Obtain an understanding of the organization's control environment, including its tone at the top, ethics policies, and management's philosophy and operating style.

Review and assess the effectiveness of the organization's internal control policies and procedures related to the following areas:

·       Segregation of duties and access controls

·       Hiring and onboarding procedures

·       Performance management and disciplinary policies

·       Training and development programs

·       Communication policies and practices

·       Risk assessment and management processes

·       Compliance with laws and regulations

Evaluate the design and operating effectiveness of the organization's monitoring activities, including the following:

·       Quality assurance programs

·       Self-assessment and self-monitoring activities

·       Performance indicators and key risk indicators

·       Internal audit function

Test the operating effectiveness of selected controls, including the following:

·       Review documentation of control activities

·       Observe control activities being performed

·       Interview personnel responsible for performing control activities

·       Reconcile system-generated reports to source documents

Document and communicate findings and recommendations for improvement to management.

Follow up on management's corrective actions to ensure they have been implemented effectively.

Document and communicate the results of the audit to key stakeholders, including the audit committee and external auditors.

Continuously monitor and evaluate the organization's control environment and make recommendations for improvements as necessary.

WHY ARE INTERNAL AUDITORS WHO ARE INDEPENDENT ASSURANCE PROVIDERS ASKED TO DO RISK ASSESSMENT WHICH IS AN OPERATIONS FUNCTION:

Internal audits are typically conducted to identify risks and improve internal controls within an organization. The observations raised in internal audits can provide valuable insights that can be used to strengthen an organization's risk management processes. Here are some steps to use observations raised in internal audits in the risk management process:

Review internal audit observations: The first step is to review the internal audit observations carefully. These observations may highlight risks or weaknesses in the organization's processes or controls.

Categorize risks: Once you have reviewed the observations, categorize the risks identified into different categories. This will help you prioritize risks and develop a risk management plan accordingly.

Assess the impact of risks: The next step is to assess the impact of each identified risk on the organization. This will help you determine the severity of the risk and the level of resources needed to manage it.

Develop risk management strategies: Based on the assessment, develop risk management strategies to mitigate the identified risks. These strategies should be tailored to the specific risks and should address their root causes.

Assign responsibilities: Assign responsibilities for implementing the risk management strategies to specific individuals or departments within the organization.

Monitor progress: Regularly monitor progress in implementing the risk management strategies and assess their effectiveness. This will help you identify any areas that need improvement and adjust your risk management plan accordingly.

By using the observations raised in internal audits in the risk management process, organizations can identify and mitigate risks before they become major problems. This can help improve the overall effectiveness and efficiency of the organization and ensure its long-term success.

RISK-BASED AUDIT PLAN – IS IT A MYTH

Creating a risk-based audit plan is not a myth but a standard practice used by organizations and auditing professionals to manage risk and allocate resources effectively.

A risk-based audit plan involves identifying and assessing potential risks that could impact an organization's objectives, such as financial reporting, compliance, and operational efficiency. Once these risks are identified, the audit team can prioritize the areas that require the most attention and allocate resources accordingly.

The process of creating a risk-based audit plan involves a structured approach, which typically includes conducting a risk assessment, identifying audit objectives, developing audit procedures, and determining the scope of the audit. The plan should also consider relevant regulations, laws, and industry standards that apply to the organization.

Step 1: Conduct a Risk Assessment

The first step in creating a risk-based audit plan is to conduct a risk assessment. This involves identifying potential risks that could impact an organization's objectives, such as financial reporting, compliance, and operational efficiency. The risk assessment can be performed using various techniques such as interviews, surveys, and data analysis.

Step 2: Identify Audit Objectives

Once potential risks have been identified, the next step is to determine the audit objectives. Audit objectives are the specific goals that the audit team wants to achieve during the audit. These objectives are typically tied to the risks identified in the risk assessment.

For example, if the risk assessment identified a risk related to data privacy, one of the audit objectives might be to assess the effectiveness of the organization's data privacy controls.

Step 3: Develop Audit Procedures

After the audit objectives have been identified, the audit team can develop audit procedures. Audit procedures are the specific tasks that the audit team will perform to achieve the audit objectives.

For example, if the audit objective is to assess the effectiveness of the organization's data privacy controls, the audit team may perform tasks such as reviewing policies and procedures, interviewing key personnel, and testing data access controls.

Step 4: Determine the Scope of the Audit

Finally, the audit team must determine the scope of the audit. The scope of the audit is the specific areas of the organization that will be audited. The scope should be determined based on the audit objectives and the risks identified in the risk assessment.

For example, if the audit objective is to assess the effectiveness of the organization's data privacy controls, the audit team may focus on the systems and processes that oversee sensitive data.

In summary, a risk-based audit plan involves a structured approach to identify potential risks, determine audit objectives, develop audit procedures, and determine the scope of the audit. This approach helps organizations prioritize their audit activities and allocate resources effectively to manage risk.

INTERNAL CONTROLS

INTERNAL AUDIT CONTROLS

Internal audit controls refer to the procedures and policies put in place by an organization to ensure the effectiveness of its internal audit function.

These controls are designed to ensure that internal audit activities are conducted in a systematic, objective, and thorough manner and that the results of internal audits are dependable, accurate, and timely.

Examples of internal audit controls include:

INDEPENDENCE AND OBJECTIVITY:

Ensuring that the internal audit function is independent of the activities it is auditing and that it maintains an objective perspective throughout the audit process.

RISK ASSESSMENT:

Conducting a risk assessment to identify potential risks and focusing audit activities on areas of higher risk.

AUDIT PLANNING:

Developing a detailed audit plan that includes objectives, scope, and methodology, as well as the resources and timeline required for the audit.

EVIDENCE GATHERING:

Using appropriate and sufficient evidence to support audit findings and conclusions.

QUALITY ASSURANCE:

Implementing quality assurance measures to ensure that internal audit activities are conducted by professional standards and that the results of internal audits are dependable, accurate, and timely.

Effective internal audit controls are essential for any organization to ensure that its internal audit function provides valuable insights and recommendations for improvement.

By establishing strong internal audit controls, organizations can help to ensure that internal audit activities are conducted effectively and efficiently, that the results of internal audits are dependable and accurate, and that the organization is better positioned to identify and address potential risks and issues.

IT INTERNAL CONTROLS

IT internal controls are specific processes, policies, and procedures designed to ensure that an organization's IT systems and data are secure, reliable, and effective.

These controls help to protect against unauthorized access, data loss or corruption, and other risks that could negatively impact an organization's IT infrastructure.

Key IT internal control concepts include:

Access controls: Measures to limit access to IT systems and data based on user roles and privileges. This includes implementing strong password policies, two-factor authentication, and restricting access to sensitive data.

Change management: The process of managing changes to IT systems and data, including documenting and approving changes, testing changes before implementation, and ensuring that changes are properly authorized.

Backup and disaster recovery: Procedures for backing up critical IT data and systems and ensuring that they can be quickly restored in the event of a disaster or other disruptive event.

Network security: Measures to protect an organization's network infrastructure from unauthorized access, including firewalls, intrusion detection systems, and encryption.

Incident management: Procedures for responding to security incidents and breaches, including identifying the cause of the incident, containing the impact, and preventing future incidents.

System development life cycle (SDLC): A process for developing, testing, and implementing new IT systems and software. This includes requirements gathering, design, coding, testing, and deployment.

Monitoring and logging: The process of monitoring IT systems and applications for unusual activity and logging events for later review.

This includes analyzing logs to detect security incidents and performance issues.

GAPS IN INTERNAL CONTROLS

Gaps in internal controls can indicate several potential issues or risks within an organization. Here are some examples:

Risk of fraud or error: When there are gaps in internal controls, it can increase the risk of fraud or errors occurring within the organization. This is because, without proper controls in place, it may be easier for employees or other individuals to take advantage of weaknesses in the system.

Lack of compliance: If internal controls are not being properly followed or implemented, it can indicate a lack of compliance with laws, regulations, or industry standards. This can lead to legal or financial penalties, as well as damage to the organization's reputation.

Inefficiencies in operations: Gaps in internal controls can also indicate inefficiencies in the organization's operations. For example, if there are no clear procedures for how tasks should be completed, it can lead to confusion, duplication of effort, and wasted time.

Poor decision-making: Without accurate and reliable information provided by internal controls, decision-makers may not have the necessary data to make informed decisions. This can lead to poor decision-making, which can have negative impacts on the organization's performance.

Lack of accountability: Internal controls are designed to ensure accountability within the organization. When there are gaps in controls, it can lead to a lack of accountability, making it difficult to determine who is responsible for certain actions or outcomes.

Gaps in internal controls should be identified and addressed as quickly as possible to minimize potential risks to the organization. Regular monitoring and testing of internal controls can help identify areas where improvements are needed.

DESIGNING INTERNAL CONTROLS

Designing internal controls involves identifying potential risks to an organization's objectives and putting in place policies, procedures, and systems to mitigate those risks. The process typically includes the following steps:

Identify objectives: Determine the specific objectives that the internal control system is intended to support, such as the integrity of financial statements, the safeguarding of assets, or compliance with laws and regulations.

Identify risks: Analyze the potential threats to the organization's objectives, such as fraud, operational failures, or compliance violations. Consider both internal and external factors that could negatively impact the organization.

Design control activities: Develop specific policies, procedures, and systems that will help to mitigate identified risks. Examples of control activities include the segregation of duties, regular audits, and access controls.

Implement controls: Put the control activities into practice and ensure that they are being followed consistently. This may include training employees on the new controls, monitoring compliance, and making adjustments as necessary.

Monitor and evaluate: Continuously monitor the effectiveness of the internal control system and make any necessary adjustments. This may include regular testing of controls, performing internal audits, and reviewing any incidents or exceptions that occur.

It is important to keep in mind that internal control systems should be flexible and adaptable. Because the internal and external environment of an organization is constantly changing, internal control systems should be reviewed and updated regularly to ensure that they are still effective in addressing the organization's risks.

RISK MANAGEMENT

SPECIALIST AREAS OF RISK MANAGEMENT

Risk management is a broad and interdisciplinary field that involves identifying, assessing, and mitigating risks across various industries and domains. There are several specialist areas of risk management, including:

FINANCIAL RISK MANAGEMENT:

This involves managing risks related to financial instruments, such as stocks, bonds, derivatives, and currencies. Financial risk management includes identifying and assessing market risks, credit risks, liquidity risks, and operational risks that may arise in financial institutions and other organizations.

INFORMATION SECURITY RISK MANAGEMENT:

This involves managing risks related to the security of information and data within an organization. Information security risk management includes identifying and assessing risks related to data breaches, cyber-attacks, and data theft, and implementing appropriate security measures to mitigate these risks.

ENVIRONMENTAL RISK MANAGEMENT:

This involves managing risks related to environmental hazards and sustainability issues. Environmental risk management includes identifying and assessing risks related to climate change, natural disasters, pollution, and other environmental hazards and implementing appropriate measures to minimize the impact of these risks.

SUPPLY CHAIN RISK MANAGEMENT:

This involves managing risks related to the supply chain, including the procurement of raw materials, manufacturing, transportation, and distribution of products. Supply chain risk management includes identifying and assessing risks related to disruptions in the supply chain, such as natural disasters, political instability, and other external factors, and implementing appropriate measures to minimize the impact of these risks.

OPERATIONAL RISK MANAGEMENT:

This involves managing risks related to internal processes, people, and systems within an organization. Operational risk management includes identifying and assessing risks related to errors, fraud, and other operational failures, and implementing appropriate controls and procedures to mitigate these risks.

REPUTATIONAL RISK MANAGEMENT:

This involves managing risks related to an organization's reputation and brand image. Reputational risk management includes identifying and assessing risks related to negative publicity, customer complaints, and other reputational risks, and implementing appropriate measures to minimize the impact of these risks.

In summary, the specialist areas of risk management are diverse and reflect the wide range of risks that organizations face in today's complex and uncertain environment. Effective risk management requires a systematic and proactive approach to identify, assess, and mitigate risks across different domains and industries.

RISK MITIGATION AND RISK ADAPTATION

Risk Mitigation and risk adaptation are two important strategies used to manage risks in different domains, such as business, finance, engineering, or security.

Risk mitigation refers to the process of identifying, assessing, and reducing the likelihood and impact of risks by implementing preventive measures or controls. Risk mitigation aims to minimize the negative consequences of potential risks by reducing their likelihood, severity, or frequency. Examples of risk mitigation strategies include insurance, diversification, redundancy, contingency planning, and cybersecurity measures.

Examples

Insurance: Purchasing insurance policies is a common risk mitigation strategy that helps individuals and organizations protect against financial losses due to unexpected events. For example, a business might purchase property insurance to cover damage to their physical assets, or liability insurance to protect against lawsuits.

Diversification: Spreading investments across different asset classes or sectors is a way to mitigate the risk of losses due to market volatility or specific events affecting a particular industry or company. For example, an investor might allocate their portfolio to stocks, bonds, and real estate to diversify their risk exposure.

Cybersecurity Measures: Implementing security protocols, firewalls, and backup systems are essential risk mitigation strategies to protect against cyber threats such as data breaches or hacking. For example, a company might require employees to use multi-factor authentication and install antivirus software to prevent unauthorized access to their data.

Risk Adaptation refers to the process of adjusting to or accommodating risks by developing resilience and flexibility to cope with their consequences. Risk adaptation acknowledges that some risks may be unavoidable or unpredictable, and thus, it focuses on building the capacity to respond and adapt to changing circumstances. Examples of risk adaptation strategies include disaster preparedness, emergency response planning, crisis management, and business continuity planning.

Examples

Business Continuity Planning: Developing a business continuity plan is a risk adaptation strategy that prepares companies for unexpected disruptions such as natural disasters or supply chain disruptions. A business continuity plan outlines how to continue essential operations and resume normal activities as soon as possible. For example, a company might have backup servers or alternate workspaces to use in case of a power outage.

Emergency Response Planning: Emergency response planning is a risk adaptation strategy that prepares individuals and organizations for crises such as medical emergencies, natural disasters, or terrorist attacks. Emergency response plans outline the steps to take in case of an emergency, such as evacuating the premises or contacting emergency services.

Disaster Preparedness: Disaster preparedness involves taking proactive measures to minimize the impact of natural disasters such as hurricanes, earthquakes, or floods. Disaster preparedness actions may include creating an emergency kit with essential supplies, preparing an evacuation plan, and securing vulnerable infrastructure such as roofs or windows. For example, a homeowner might install hurricane shutters and reinforce their roof to reduce the risk of damage during a storm.

In summary, risk mitigation aims to prevent or reduce risks, while risk adaptation focuses on adapting to or coping with risks that cannot be eliminated. Both strategies are essential components of risk management, and their effectiveness depends on the specific context, nature, and severity of the risks involved.

RISK PERCEPTION WITH EXAMPLES

Risk perception refers to how people subjectively evaluate the likelihood and severity of potential risks.

It is shaped by numerous factors, such as subjective experiences, cultural background, media coverage, and cognitive biases.

FEAR OF FLYING AND HEIGHTS:

Some people are afraid of flying despite statistics showing that it is one of the safest modes of transportation. This fear may be caused by a lack of control, uncertainty, or past negative experiences.

VACCINE HESITANCY:

Some people are hesitant to get vaccinated due to concerns about side effects or mistrust of the medical establishment. This can result in lower vaccination rates, which can increase the risk of outbreaks of infectious diseases.

FEAR OF TERRORISM:

The fear of terrorism is often disproportionate to the actual risk, as the likelihood of being a victim of a terrorist attack is low. However, media coverage and government messaging can amplify this fear and lead to overreactions or irrational policies.

CLIMATE CHANGE DENIAL:

Some people deny the reality of climate change or downplay its severity, despite overwhelming scientific evidence. This may be due to ideological beliefs, mistrust of scientists, or cognitive biases such as confirmation bias.

RISK-TAKING BEHAVIOR:

Some people engage in risky behaviors such as drug use, reckless driving, or extreme sports. This may be due to a desire for excitement, peer pressure, or a belief that the benefits outweigh the risks.

Risk perception is a complex and multifaceted phenomenon that can have important consequences for individual behavior and public policy.

THE COMMON MISCONCEPTION ABOUT RISK MATURITY

One common misconception about risk maturity is that it can be achieved through the implementation of a STANDARDIZED SET OF RISK MANAGEMENT PRACTICES OR FRAMEWORKS. While these tools can certainly help organizations manage risk, they do not necessarily lead to greater risk maturity on their own.

True risk maturity involves a more comprehensive and integrated approach to risk management that incorporates NOT ONLY TOOLS AND FRAMEWORKS, but also organizational culture, leadership, and decision-making processes. It requires a deep understanding of the risks that an organization faces, as well as the ability to anticipate and respond to emerging risks.

Another common misconception is that RISK MATURITY IS A STATIC STATE that can be achieved and maintained indefinitely. Risk maturity is a dynamic process that requires ongoing effort and adaptation to changing circumstances. As new risks emerge and the business environment evolves, organizations must continuously reassess their risk management strategies and adjust their practices accordingly.

Risk management is ONLY FOR LARGE ORGANIZATIONS - Risk management is important for organizations of all sizes, as every organization faces risks that could impact their operations, finances, and reputation.

Risk management is only necessary for HIGH-RISK INDUSTRIES - While some industries may face more inherent risks than others, every organization faces a level of risk that needs to be managed.

Risk management is ALL ABOUT AVOIDING RISK - Risk management is about identifying and mitigating risks, but it is not always possible or desirable to completely avoid all risks. Some risks may need to be accepted or transferred.

Risk management is only the RESPONSIBILITY OF THE RISK MANAGEMENT DEPARTMENT - Every employee has a role to play in risk management, and it is important to create a culture of risk awareness and management throughout the organization.

Risk management IS A ONE-TIME PROCESS - Risk management is an ongoing process that requires regular assessment, monitoring, and review to ensure that risks are effectively managed.

Risk management is ONLY FOCUSED ON NEGATIVE RISKS - Risk management should also consider positive risks, or opportunities, which could benefit the organization if managed properly.

Risk management CAN ELIMINATE ALL RISKS - While risk management can help organizations reduce their exposure to risks, it cannot eliminate all risks.

Risk management is ONLY NECESSARY FOR EXTERNAL RISKS - Internal risks, such as operational or compliance risks, can also have a significant impact on an organization and should be managed accordingly.

Risk management is a SEPARATE PROCESS FROM STRATEGIC PLANNING - Risk management should be integrated into strategic planning to ensure that risks are considered in the organization's overall decision-making process.

Risk management is A GUARANTEE AGAINST FAILURE - While risk management can help organizations reduce the likelihood and impact of risks, it cannot guarantee success or prevent all failures.

In summary, risk maturity is not simply a matter of implementing standardized risk management tools and practices, but rather a complex and ongoing process that requires a comprehensive approach to risk management and a commitment to continuous improvement.

THREE LINES OF DEFENCE MODEL

The Three Lines of Defence model is a risk management framework that is widely used by organizations to manage risks effectively. The model provides a clear delineation of roles and responsibilities for risk management across an organization.

THE THREE LINES OF DEFENCE MODEL CONSISTS OF THREE DISTINCT LINES OF DEFENCE:

First Line of Defence: The first line of defense comprises the operational staff and management responsible for executing business processes and managing risks in their day-to-day activities. The first line of defense is responsible for identifying, assessing, and managing risks within their areas of responsibility.

Second Line of Defence: The second line of defense comprises risk management and compliance functions that support and oversee the first line of defense. The second line of defense provides guidance, tools, and expertise to help the first line of defense manage risks effectively. The second line of defense also monitors and reports on risk management activities across the organization.

Third Line of Defense: The third line of defense comprises the internal audit function, which provides independent assurance of the effectiveness of the first and second lines of defense. The third line of defense conducts audits and reviews to assess the effectiveness of the risk management framework and the controls in place to manage risks.

The Three Lines of Defence model helps organizations manage risks more effectively by providing a clear delineation of roles and responsibilities for risk management across the organization. The model promotes a collaborative approach to risk management, with each line of defense playing a complementary role in managing risks.

The model also helps organizations to meet regulatory requirements and provide assurance to stakeholders that risks are being managed effectively. By implementing the Three Lines of Defence model, organizations can establish a robust risk management framework that is aligned with their objectives and helps them to achieve their strategic goals.

RISK ASSESSMENT -WHOM TO CONDUCT

A risk assessment should be conducted by individuals or teams who have the necessary skills and expertise to identify and evaluate potential risks. Depending on the nature and complexity of the organization, a risk assessment may be conducted by internal or external resources or a combination of both.

Internal resources that may conduct a risk assessment include:

Risk Management Department: Many organizations have a dedicated risk management department that is responsible for identifying and evaluating risks across the organization.

Internal Audit Department: Internal auditors are often involved in assessing risks and evaluating the effectiveness of internal controls.

Compliance Department: Compliance professionals are responsible for ensuring that the organization complies with applicable laws and regulations, which often involves identifying and mitigating potential risks.

External resources that may conduct a risk assessment include:

External Auditors: External auditors may be engaged to provide an independent assessment of the organization's financial reporting and internal controls.

Consulting Firms: Consulting firms may be engaged to provide specialized expertise in areas such as cybersecurity, data privacy, or supply chain risk management.

Regulatory Agencies: In some cases, regulatory agencies may conduct risk assessments to evaluate compliance with applicable laws and regulations.

In summary, a risk assessment should be conducted by individuals or teams who have the necessary skills and expertise to identify and evaluate potential risks. The specific resources involved may vary depending on the nature and complexity of the organization.

RISK APPETITE

Question: How can I fix my risk appetite?

Answer: Fixing your risk appetite requires a careful examination of your current mindset and approach to risk-taking. Here are some steps that you can take:

What is the first step in fixing my risk appetite?

Start by assessing your current risk appetite. Ask yourself how much risk you are willing to take on and how much you are comfortable with. This will help you understand where you currently stand and what changes you need to make.

What is risk tolerance, and why is it important?

Determine your risk tolerance, which is the amount of risk you are willing to take on given your financial goals and personal circumstances. Your risk tolerance should be aligned with your investment objectives and goals.

How can I analyze my investment portfolio to determine if it aligns with my risk tolerance?

Analyze your investment portfolio to determine if it aligns with your risk tolerance and investment objectives. If you find that you are invested in assets that are too risky, consider reallocating your investments to lower-risk assets.

How can education help me manage my risk more effectively?

Educate yourself on the different types of investments and their associated risks. This will help you make more informed investment decisions and help you manage your risk more effectively.

Should I consider consulting with a financial advisor?

Consider consulting with a financial advisor who can help you assess your risk tolerance and recommend investments that are aligned with your investment objectives.

What is the importance of practicing discipline when it comes to investing?

Finally, practice discipline when it comes to investing. Stick to your investment plan and avoid making impulsive decisions based on emotions or short-term market movements.

By following these steps, you can adjust your risk appetite to better align with your financial goals and personal circumstances.

Question: How can I determine my risk tolerance?

Answer: Determining your risk tolerance is an important step in fixing your risk appetite. To determine your risk tolerance, you should consider your financial goals, investment objectives, and personal circumstances. Ask yourself questions like:

What is my investment timeframe?

What is my investment goal?

What is my investment experience?

How much can I afford to lose?

How much risk am I willing to take on to achieve my investment goals?

Once you have a clear understanding of your risk tolerance, you can begin to make changes to your investment strategy.

Question: How can I educate myself on different types of investments and their associated risks?

Answer: Educating yourself on different types of investments and their associated risks is an important step in managing your risk effectively. Here are some ways to educate yourself:

Read books, articles, and online resources on investing and risk management.

Attend seminars or webinars on investing and risk management.

Join online forums or discussion groups on investing and risk management.

Consider taking an online course or certification program on investing and risk management.

The more you learn about investing and risk management, the better equipped you will be to make informed decisions about your investment strategy.

Question: What are some common mistakes to avoid when trying to fix your risk appetite?

Answer: When trying to fix your risk appetite, there are a few common mistakes you should avoid. These include:

Making impulsive investment decisions based on emotions or short-term market movements.

Failing to diversify your investments.

Ignoring your risk tolerance and investing in assets that are too risky.

Overreacting to market volatility and making drastic changes to your investment strategy.

Failing to regularly review and adjust your investment strategy as your circumstances change.

By avoiding these common mistakes and focusing on making informed, disciplined investment decisions, you can successfully fix your risk appetite and achieve your investment goals.

COSO FRAUD RISK FRAMEWORK

The COSO Fraud Risk Management Framework is a comprehensive framework developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) to help organizations manage fraud risks. The framework guides organizations to establish an effective fraud risk management program.

The COSO Fraud Risk Management Framework consists of five components:

Governance and culture:

This component is all about establishing an anti-fraud culture within the organization. To do this, the tone at the top needs to be set by the board and senior management. They need to promote ethical values and ensure that employees understand the importance of fraud risk management. An effective code of conduct can help to reinforce these values.

Fraud risk assessment:

This component involves identifying and assessing fraud risks that could affect the organization's objectives. To do this, organizations need to consider internal and external factors that could contribute to fraud. For example, internal factors could include weaknesses in the control environment, while external factors could include changes in the economic environment or increased competition.

Fraud control activities:

This component involves the design and implementation of control activities to prevent, detect, and respond to fraud risks. This includes policies and procedures, internal controls, and monitoring activities. For example, organizations may implement segregation of duties to ensure that no single individual has too much control over a particular process.

Fraud investigation and corrective action:

This component involves the organization's response to detected fraud. If fraud is detected, an investigation needs to be conducted to determine the extent of the fraud and who is responsible. Once this is determined, corrective actions need to be taken to prevent the same fraud from occurring again in the future.

Fraud risk monitoring:

This component involves ongoing monitoring of fraud risks, fraud control activities, and fraud investigations. This includes periodic assessments of the effectiveness of the organization's fraud risk management program. For example, organizations may conduct internal audits to identify any weaknesses in their fraud risk management program.

Overall, the COSO Fraud Risk Management Framework provides organizations with a comprehensive approach to managing fraud risks. By following this framework, organizations can minimize the impact of fraud incidents and protect themselves against future fraud risks. It is important to note that fraud risk management is an ongoing process that requires regular assessment and updating to ensure that the organization is effectively managing its fraud risks.

GENERAL

SUPPLY CHAIN ANALYTICS

Supply chain analytics refers to the use of data analysis techniques and tools to gain insights into supply chain operations and improve efficiency, reduce costs, and optimize performance. It involves the collection, processing, and analysis of data from various sources along the supply chain, including suppliers, manufacturers, distributors, retailers, and customers.

The primary goal of supply chain analytics is to help organizations make data-driven decisions and gain a competitive advantage by identifying areas for improvement and optimizing the supply chain processes. It can be used to forecast demand, optimize inventory levels, track shipments, identify bottlenecks, and reduce supply chain risks.

Some of the common techniques and tools used in supply chain analytics include data visualization, predictive modeling, machine learning, and artificial intelligence. By leveraging these techniques, organizations can gain a deeper understanding of their supply chain operations and make more informed decisions to improve performance and profitability.

Demand forecasting:

Supply chain analytics can be used to analyze historical sales data, market trends, and other factors to forecast demand accurately. This helps organizations optimize their inventory levels and avoid stock-outs or overstocking.

Supplier performance analysis:

Organizations can use supply chain analytics to analyze supplier performance data, such as on-time delivery, quality, and cost. This helps them identify the best suppliers to work with and negotiate better contracts.

Route optimization:

Supply chain analytics can be used to optimize delivery routes and reduce transportation costs. By analyzing data on traffic, road conditions, and other factors, organizations can choose the most efficient routes for their deliveries.

Inventory optimization:

Supply chain analytics can help organizations optimize their inventory levels by analyzing data on sales trends, lead times, and other factors. This helps them reduce excess inventory and improve cash flow.

Risk management:

Supply chain analytics can be used to identify and mitigate supply chain risks, such as supplier disruptions or transportation delays. By analyzing data on supplier performance, transportation routes, and other factors, organizations can proactively manage these risks and minimize their impact.

SOFT SKILLS TO DEVELOP IN THE FIRST 5 YEARS OF A CAREER

Several soft skills are important to develop in the first 5 years of a career:

Communication skills:

The ability to communicate effectively with colleagues, superiors, and clients is crucial in any job. You should improve your verbal and written communication skills, as well as your ability to listen actively and empathetically.

Time management skills:

Being able to prioritize tasks, manage your time effectively, and meet deadlines is essential in any job. You should learn to plan your workday, avoid procrastination, and work efficiently. Work on PRIORITIES instead of time management.

Adaptability:

Being able to adapt to changing circumstances, learn new skills, and adjust to new environments is crucial in today's fast-paced work environment. You should be open to new experiences, embrace change, and be willing to learn from your mistakes.

Teamwork:

Most jobs require working as part of a team. You should be able to collaborate effectively with others, contribute to team goals, and be open to feedback and constructive criticism.

Problem-solving:

Being able to identify and solve problems is a key skill in any job. You should be able to think critically, analyze data, and develop creative solutions to complex problems.

Creativity:

The ability to think freely and produce innovative ideas is highly valued in many industries. Developing your creative skills can help you solve problems more effectively and find innovative solutions.

Diligence:

Paying attention to details can help you avoid mistakes and improve the quality of your work. Being meticulous can also help you identify opportunities for improvement and find ways to streamline processes.

Conflict resolution:

Being able to resolve conflicts constructively is important in any workplace. You should learn how to identify the root causes of conflicts, listen actively to all parties involved, and find mutually beneficial solutions.

Networking:

Building strong relationships with colleagues, mentors, and industry leaders can help you advance your career. You should attend industry events, connect with others on social media, and seek out mentors to help guide your career development.

Flexibility:

Being able to adapt to changing circumstances and take on new responsibilities is important in any career. You should be open to new experiences, be willing to learn new skills, and be flexible in your approach to work.

OVER-HIRING RISKS

RISKS OF OVER-HIRING IN GENERAL:

Increased labor costs: Over-hiring can lead to an increase in labor costs, which can impact the company's profitability.

Decreased productivity: Over-hiring can lead to a lack of work for employees to do, which can reduce their productivity.

Decreased employee morale: When employees feel that their jobs are at risk due to over-hiring, it can lead to a decrease in morale and job satisfaction.

Lack of innovation: Over-hiring can stifle innovative ideas and approaches, leading to a lack of innovation and creativity.

Increased competition and conflict: With too many employees, there can be increased competition and conflict among them, leading to a negative

impact on the company's success.

Communication difficulties: Over-hiring can lead to difficulties in communication, leading to confusion and miscommunication.

Reduced decision-making speed: Over-hiring can lead to indecisiveness, slowing down the decision-making process.

Reduced accountability: Over-hiring can make it difficult to determine who is accountable for specific decisions and outcomes.

Difficulty in managing employee performance: Over-hiring can make it challenging to manage employee performance and ensure that everyone is working towards the same goals.

Increased turnover: Over-hiring can lead to a lack of job security, resulting in increased turnover rates.

RISKS OF OVER-HIRING IN TOP MANAGEMENT:

Increased bureaucracy: Over-hiring in top management can lead to an increase in bureaucracy, slowing down decision-making and implementation.

Communication difficulties: With too many top managers, communication can become difficult, leading to confusion and miscommunication.

Lack of decision-making: Over-hiring in top management can lead to indecisiveness, as too many managers may want to have a say in decisions, slowing down the decision-making process.

Reduced accountability: With too many top managers, it can be difficult to determine who is accountable for specific decisions and outcomes.

Increased conflict: Over-hiring in top management can lead to increased conflict and competition among the managers, which can be detrimental to the company's success.

Difficulty in maintaining a shared vision: With too many top managers, it can be challenging to maintain a shared vision for the company's goals and objectives.

Lack of diversity of ideas: Over-hiring in top management can lead to a lack of diversity of ideas, as too many managers may have similar backgrounds and experiences.

Increased costs: Over-hiring in top management can lead to increased costs, as top managers typically command higher salaries and benefits.

Reduced flexibility: Over-hiring in top management can make it difficult to be flexible and respond quickly to changes in the market or industry.

Difficulty in implementing change: With too many top managers, it can be challenging to implement change, leading to indecisiveness and delays.

CHECKLIST OF ITEMS TO CONSIDER FOR A QUARTERLY ACCOUNTING CLOSURE:

?      Reconcile bank accounts: Ensure that all bank accounts are reconciled, and all outstanding items have been cleared.

?      Review accounts receivable and accounts payable: Verify that all customer and vendor invoices have been processed and reconciled.

?      Check fixed assets: Ensure that all fixed assets have been recorded correctly and that any disposals or additions have been properly documented.

?      Review inventory: Verify that all inventory has been correctly valued and accounted for.

?      Verify payroll and benefits: Confirm that all employee payroll and benefits have been processed accurately and that all payroll taxes and deductions have been reconciled.

?      Reconcile general ledger accounts: Review all general ledger accounts to ensure that all transactions have been properly recorded and reconciled.

?      Verify accruals and deferrals: Confirm that all accruals and deferrals have been properly recorded, and any necessary adjustments have been made.

?      Review financial statements: Check the income statement, balance sheet, and cash flow statement for accuracy and completeness.

?      Evaluate internal controls: Assess the effectiveness of internal controls and identify any areas for improvement.

?      Document any significant transactions or events: Ensure that any significant transactions or events have been properly documented and disclosed.

?      Verify tax compliance: Confirm that all necessary tax filings have been completed accurately and submitted on time.

?      Review intercompany transactions: Ensure that all intercompany transactions have been recorded properly and reconciled.

?      Check for unrecorded liabilities: Look for any liabilities that may have been incurred but have not yet been recorded in the books.

?      Confirm revenue recognition: Verify that revenue recognition policies have been applied consistently and accurately.

?      Assess bad debts: Evaluate the allowance for doubtful accounts and adjust, as necessary.

?      Review leases: Ensure that all leases have been recorded correctly and that any lease liabilities have been properly accounted for.

?      Check for impairment: Evaluate the carrying value of long-lived assets and goodwill for impairment.

?      Verify compliance with accounting standards: Confirm that all accounting policies and procedures are compliant with relevant accounting standards.

?      Evaluate cash management: Assess cash management policies and procedures and ensure that all cash transactions have been recorded accurately.

?      Review any new accounting standards or pronouncements: Assess any new accounting standards or pronouncements that may impact the financial statements.

By incorporating these additional items into your quarterly accounting closure checklist, you can help ensure that all areas of the financial statements are thoroughly evaluated and accurately reflected in the financial statements.

ABUNDANCE MINDSET

An abundance mindset is a way of thinking that focuses on the opportunities and possibilities that exist in life, rather than on limitations and scarcity.

It is characterized by a positive outlook, a belief in one's ability to achieve goals, and a willingness to take risks.

Gratitude:

People with an abundance mindset are grateful for what they have in life and focus on their blessings rather than their problems.

Positive thinking:

An abundance mindset is characterized by positive thinking and a belief that opportunities exist around every corner.

Focus on possibilities:

Those with an abundance mindset focus on the possibilities that exist, rather than on the limitations and obstacles that may be in their way.

Willingness to take risks:

People with an abundance mindset are not afraid to take risks and try new things. They believe in their ability to overcome challenges and achieve success.

Generosity:

An abundance mindset is also characterized by a willingness to share and help others. People with an abundance mindset believe that there is enough for everyone and that by sharing their resources and knowledge, they can create more abundance for themselves and others.

The abundance mindset is a powerful way of thinking that can help individuals to achieve their goals, overcome obstacles, and create more opportunities in life. By focusing on gratitude, positive thinking, and a willingness to take risks, people with an abundance mindset can achieve greater success and fulfillment in all areas of their lives.

MICRO-MANAGEMENT

Micro-management is a style of management where a manager closely observes and controls the work of their employees.

This can involve excessively scrutinizing the work of employees, controlling the smallest details of their work, and not allowing employees to make their own decisions.

The effects of micromanagement can be detrimental to the employees, the Manager, and the organization.

DECREASED EMPLOYEE MORALE:

Micromanagement can lead to decreased employee morale as employees may feel disempowered and not trusted to do their jobs effectively. This can lead to decreased job satisfaction, increased turnover, and reduced productivity.

STIFLED CREATIVITY AND INNOVATION:

When employees are micromanaged, they may not have the opportunity to be creative and innovative in their work. This can limit the organization's potential for growth and success.

INCREASED STRESS AND BURNOUT:

 Micromanagement can lead to increased stress and burnout for employees as they feel constantly scrutinized and controlled. This can have negative effects on their mental health and overall well-being.

MISSED OPPORTUNITIES:

When managers focus on controlling every detail of their employees' work, they may miss opportunities for growth and development. This can prevent the organization from taking advantage of innovative ideas and opportunities.

LACK OF TRUST:

Micromanagement can create a lack of trust between employees and their managers. When employees feel that their work is constantly being scrutinized, they may feel that their manager does not trust them or value their work.

WASTED TIME AND RESOURCES:

Micromanagement can be a time-consuming and resource-intensive process. Managers who spend excessive amounts of time monitoring their employees may neglect other important tasks and projects.

REDUCED EFFICIENCY:

When managers are constantly monitoring and controlling their employees, it can lead to a slower and less efficient work process. Employees may feel constrained and be less likely to take risks or make decisions that could lead to increased efficiency.

INHIBITED LEARNING AND DEVELOPMENT:

When employees are micromanaged, they may not have the opportunity to gain experience from their mistakes or develop their skills. This can limit their potential for growth and development within the organization.

DECREASED COMMUNICATION:

 Micromanagement can lead to decreased communication between employees and their managers. Employees may be hesitant to share their ideas and opinions, which can stifle collaboration and teamwork.

NEGATIVE IMPACT ON THE MANAGER'S REPUTATION:

Employees may view the manager as controlling or insecure, which can undermine their authority and influence.

Managers need to find a balance between monitoring their employees and giving them autonomy, they need to do their jobs effectively. This can lead to a more positive work environment and greater success for the organization.