Policy, Assurance, and Compliance

The Triad of Control Effectiveness

In the complex landscape of modern business, ensuring effective controls is not just a requirement but a necessity for sustainable success. Control effectiveness is predicated on the optimal operation of three critical elements: Policy, Assurance, and Compliance. Each of these elements carries its weight, and any shortcomings in one can compromise the overall effectiveness of a control system. Let's dive deeper into these three elements to understand their interconnectedness and their individual importance.

Policy: The Blueprint of Management Systems

The policy element is akin to the architectural blueprint of a building. It outlines the fundamental philosophies, norms, and values upon which an organization is built. This includes but is not limited to procedures, protocols, guidance, forms, and standards.

Policies answer the essential questions:

• Why: The rationale behind particular processes or controls.
• What: The specific processes or controls that need to be in place.
• When: The timing for implementing or executing these controls.
• Who: The roles and responsibilities for each process.
• Where: The specific locations or departments where these processes apply.
• How: The methods for implementing these controls.

Without a robust policy framework, the control system lacks a foundational structure, which can lead to operational chaos and inefficiency.

Assurance: Building Confidence in Execution

Assurance complements the Policy by ensuring that the blueprint can be actualized effectively. This involves aspects like training, capability, competency, funding, resources, and communication. In essence, assurance provides the "muscle" to enact policies.

For example, an organization may have a well-drafted data protection policy, but without sufficient training and resources, the policy will remain a paper tiger. Thus, assurance aims to instill confidence that policies can and will be executed according to their design.

Compliance: The Feedback Loop for Continuous Improvement

The role of compliance is to monitor and validate the effectiveness of both the Policy and Assurance elements. Through tools like audits, inspections, certifications, system logs, incident reports, and management reports, an organization can assess how well it is adhering to its policies and whether the assurance mechanisms are effective.

Non-compliance could be a result of gaps in either Policy or Assurance, or both. Therefore, Compliance serves as a feedback loop, continuously fine-tuning the system for optimal performance.

The Interdependent Triad

These elements are not standalone pillars but components of an interconnected triad. A failure in any one can lead to a cascading effect:

• Weak Policies: Without clear policies, Assurance mechanisms can be misguided, and Compliance checks may lack focus.
• Insufficient Assurance: Even with the best policies and compliance checks, inadequate assurance will result in poor execution.
• Lax Compliance: Without rigorous compliance, it is impossible to identify flaws in Policy or Assurance, leading to a cycle of ineffectiveness.

Therefore, all three elements must be strong and function in harmony to ensure a high control effectiveness rating.

Conclusion

In summary, the triad of Policy, Assurance, and Compliance serves as the backbone of effective control systems. Each element is crucial, and any one of them can be the limiting factor in achieving control effectiveness. As such, organizations should invest equally in developing and sustaining these three critical elements to ensure a resilient and robust control environment.

Download a free example of a fully worked Control Effectiveness Rating Scheme.

Julian has worked in risk management on five continents over the past 35 years and is the author of several best-selling books on risk management which you can find the books at his Amazon Affiliate link.