Tip: Understand business risk and internal controls
Compliance Monitor, June 9, 2004
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Before beginning a risk assessment, you must understand the nature of business risk and internal controls.
Internal controls are processes developed by boards of directors and management to provide reasonable assurance for achieving the organization's objectives in the following categories:
However, internal controls cannot prevent fraud: They only provide a framework for mitigating it.
Use the risk-prevention model from the Committee of Sponsoring Organizations of the Treadway Commission (COSO). According to this model, internal controls consist of the following five interrelated components:
1. Control environment: To do this, organization leadership must set the proper "tone at the top." This will help all employees learn internal controls and play an active role in lowering risk.
2. Risk assessment: Do this to establish consistent objectives that are linked at different levels throughout the organization. These objectives form a basis for how your organization should manage risks.
3. Control activities: To do this, create policies and procedures to ensure that the organization carries out management directives.
4. Information and communication: This is critical to ensure that information flows both up and down the chain of command.
5. Monitoring: This helps you monitor the course of operations.
This tip was excerpted from Patient Safety Meets Corporate Compliance by James A. Kopf, F. Lisa Murtha, Esq., and Rory Jaffe, MD, MBA. Copyright 2004 by HCPro Inc. For more information, click here.
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