Expectations for transaction monitoring (TM) governance are quickly evolving due to the complexity of detection systems, the demand for additional operational oversight, increased regulatory scrutiny and the need for an adequate control framework to guarantee proper risk management.
The point of the article, of course, was that people must focus their attention in the correct places when considering what would most influence their quality of life. That same exact issue exists within organizations where the board and management must ensure that they build and sustain the long-term health of the company.
WHAT DOES COSO STAND FOR?
In 1992, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) developed a model for evaluating internal controls. This model has been adopted as the generally accepted framework for internal control and is widely recognized as the definitive standard against which organizations measure the effectiveness of their systems of internal control.
Many organizations have failed to keep pace with changing trends in risk and compliance. Resource allocation for many risk and compliance initiatives implemented under pressure of a crisis to demonstrate urgency and prioritization or regulators has proven to be unsustainable.
While strategy-setting defines an enterprise’s overall strategic direction, differentiating capabilities and required infrastructure, a business plan lays out how an organization intends to execute a strategy during an annual period or, if longer, the operating cycle. Organizations should ask themselves: How should risk be integrated into the annual business planning process?
Organizations have learned many lessons over the years from specific financial crises. For example, if a chief executive ignores the warning signs posed by the risk management function, resists contrarian information suggesting the corporate strategy is either not working or losing relevance, or fails to consider critical risks when evaluating whether to enter a new market or consummate a complex acquisition, the shareholders and other constituents can end up paying a high price.
What is the Second Line of Defense?
Essential to effective risk management, the lines-of-defense model is implicit in COSO’s internal control framework through the control environment, control, activities, monitoring and other components of an internal control system. It provides assurance to the board of directors, as the elected representatives of the shareholders to oversee the organization’s operations on their behalf, that risks are reduced to a manageable level as dictated by the organization’s appetite for risk. Much more than “segregating incompatible duties” and “ensuring checks and balances,” the lines-of defense model emphasizes a fundamental concept of risk management: From the boardroom to the customer-facing processes, managing risk is everyone’s responsibility.
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