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Risk management audits review a company’s risk management measures to ensure they are relevant, timely, and effective. Separating the risk management function from the audit creates a natural separation of duties and ensures multiple employees are aware of the plan. External auditors can enhance the process and provide recommendations. Audits are typically not frequent but are necessary for a thorough review.
Risk management is the process a business goes through to identify, assess and prioritize risks. During a risk management audit, the company will employ an internal or external individual to review the risk management measures adopted by a company. Auditors will review specific risk management plans to ensure they are relevant, timely and effective. Companies will use audits as part of the risk management process to ensure that the plan or procedures do not become outdated if not used frequently.
Separating the risk management function from risk management audit allows a business to have a second set of eyes to review risk management plans. This also creates a natural separation of duties within the company. Segregation of duties ensures that an employee does not have too much responsibility or control over an internal company function. Another benefit of this separation is to ensure that multiple employees are aware of a company’s risk management plan. This ensures that an employee’s absence does not create a risk in and of itself or within the organisation.
Using an external auditor for the risk management audit can further enhance this process to ensure that the company has created an adequate plan for risk management. Companies in some industries may also benefit from an external auditor’s knowledge of an industry and the ability to offer recommendations for reviewing the risk management plan. Companies that need certification from an external agency will also benefit from an external risk management audit. For example, companies seeking funds from banks or lenders may need to provide an auditor’s statement detailing the company’s risk management and risk prevention plan.
The risk management audit process will typically follow a few basic steps, although audits are usually individual to each company. The audit will begin with a meeting to discuss the scope of the audit and determine which risks the company’s management team believes are most dangerous to the company. Following this initial meeting, the auditors will develop a written sample selection plan and test methods to determine the effectiveness of the company’s risk management plan against the possibility of each risk.
Conducting an audit is typically not a frequent process. Audits are both time-consuming and expensive, which are two significant drawbacks to this process. Most companies conduct an informal review of their risk management plan internally. Formal audits are an annual or semi-annual event that allows the company to undergo a thorough review. Most of the time, this audit will be separate from the company’s financial audit, as the procedures are different for each type of audit.
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