Risk & Compliance

Any operation with material impact on financial reporting and regulatory compliance requirements must manage significant risk factors. An HR Employee Service function operates within such a risky environment. An effective and legally compliant focused internal risk and controls management strategy is the cornerstone of proactive mitigation of risks. This article will summarize an industry standard controls framework and examine key concepts applicable to the elements of this framework.

HR Employee Services Risk Environment

Within the Payroll & Employee Reimbursement functions there are a myriad of fiduciary risks with potential impact on financial reporting processes, risk of financial loss, and significant regulatory compliance risk. Benefits Administration is impacted by legal compliance requirements as well as financial reporting and fiduciary risk impacts in areas of retirement and stock benefits management. Relocation is faced with compliance to immigration laws and complex tax regulation. Employee information services must manage risk related to data privacy and legal risk (liability) caused by potential dissemination of incorrect information.

A global organization’s risk profile is also inherently more complex due to differences in laws, regulation and culture. Within such a complex risk environment, effective risk and controls management is critical, in order to achieve operational objectives.

Controls management is important to help meet key business goals:

  • Staying “legal”.
  • Anticipating and mitigating business risks.
  • Conducting business with uncompromising ethics.
  • Safeguarding assets and limiting liability/exposure.

Risk Assessment Elements

Risk assessment is a proactive risk mitigation process, enabling the detection of new risks and verifying the effectiveness of existing control activities. Risk assessments, when executed properly, require time and resource investment. Therefore, risk assessments should be well-planned and prioritized in order to assure a focus on the “riskiest” areas, based on financial and legal compliance violation risk criteria. This part of the framework includes a number of activities. Risk mapping is a planning process. Risk assessment is a detailed analysis of existing processes as well as those within process & system improvement projects. Lastly, self-audits assure that key new controls derived from the risk assessments are working as designed, post implementation.

Risk mapping: The purpose of this analysis is to identify an organization’s “riskiest” areas/processes and prioritize these as candidates for a detailed risk assessment analysis. A generally higher level review of the operational environment, it takes into account management concerns, environmental changes, and recent audit and quality issues. The result of a risk mapping analysis should be a list of operational areas graded by level of potential risk impact to the organization’s objectives. This is often best depicted in a roadmap of planned risk assessment activity over a 6-12 month period.

Risk assessment (RA): This is a detailed analysis and assesses the effectiveness of controls.The purpose is to identify any controls weaknesses.

The flow of analysis is as follows:

  • Identify focus areas and scope.
  • Identify the business objective.
  • Understand the business processes.
  • Identify and prioritize the business risk.
  • Evaluated for effectiveness (or existence) of controls.
  • Develop plans to close gaps – then execute the plan.

In conclusion, risk and controls management is a critical element for business success. A progressive, legally compliant and competitive HR employee services organization requires a structured risk and controls management strategy.