What is the opinion or perspective on this? Please raisethoughtful questions, analyze relevant issues, build on ideas,synthesize across readings and discussions, expand the perspective,and appropriately challenge assumptions and perspectives.
Significance of assessing risk in the internal controlprocess: The significance of assessing risk in theinternal control process is to mitigate against issues that wouldinhibit an entities ability to achieve its mission, goals, andobjectives. The responsibility of assessing risk will typicallyfall to management and is only as successful as the manager’sexperience and judgement. Our text reads “Judgement is a criticalelement in defining the likelihood and impact of a negativeevent.”[1] (Ives & Hancox, 2014, p.67) Our text goes on to listthe characteristics of a person with good judgement as discernment,reasoning and rationality, perception, penetrating mind, andinsight.
The importance of assessing the likelihood and impact of anegative event lends to the analysis of managing risk. If a risk ishighly likely, but has a low level of impact, managing the risk mayentail accepting the risk and doing nothing at all. On the otherhand, if the risk is highly likely and has a high level of impact,managing the risk will fall into the risk prevention category andmanagement will need to come up with a plan for prevention.
Risks can vary greatly, they can consist of internal risk,external risk, risk to business operations, financial risk, etc.Where I work, we have had a number of recent retirements and itcame to our attention that there are several critical processesthat do not have proper backup support. For example, we identifieda risk that could prohibit the agency’s ability to run payroll. Weonly have one person that knows how to run payroll in the entireagency, and if something were to happen to that person, it would bevery difficult for the agency to process payroll on time. Afteridentifying the risk, we put a plan in place to train a backup forpayroll. We have also written in to our business practices that theperson responsible for backing up payroll will process payroll atleast once every six months in order to remain knowledgeable in theprocess.
[1] Martin Ives and David Hancox, Government PerformanceAudit in Action (Albany, New York, 2014), p.67.
