What is risk mapping? What is its purpose? How are internal audit and risk mapping closely connected? Analysis.
Economic crises, armed conflicts, global pandemics, climate change, political uncertainties, cyberattacks, corruption…: organizations operate in an increasingly unstable world. In this context, risk management is gaining prominence within organizations. Emphasizing risk management enables better anticipation and the development of appropriate defense strategies.
Risk mapping is the central tool of risk management. As a cross-functional project within the company, its development can be entrusted, depending on context and organization, to the risk manager, a member of the risk management committee, an external consultant… Tailored to each process, risk mapping is also a valuable tool in the internal audit toolkit.
What is Risk Mapping?
A Visual Representation of Risks
Risk mapping is a tool for identifying, assessing, prioritizing, and monitoring risks internal to the company (endogenous) and external (exogenous).
As a graphical and visual representation, it facilitates understanding of risks. These are classified according to their criticality, which is assessed based on two factors: the severity of their impact and the probability of their occurrence.
Risk mapping can be comprehensive for the entire company or partial. This is the case, for example, with risk mapping related to corruption. Since 2017, it must be implemented by entities with more than 500 employees and their subsidiaries, in compliance with the Sapin 2 law.
To be effective and relevant, the mapping must be dynamic and updated, generally at least once a year.
Why Develop and Deploy Risk Mapping?
“Why develop risk mapping?” amounts to asking the question “why implement a risk management policy?” Because mapping is only a tool. It serves as the basis for defining an action plan to control and reduce risk levels.
Regardless of their size, organizations have a strategic, financial, and commercial interest in developing risk management, at their scale. Effective risk management provides assurance to clients and partners that the company operates in compliance with laws and regulations, secures data, and ensures operational continuity of its activities. It is also a means of protecting its assets and property. To be even more effective, comprehensive risk mapping can be broken down into mini mappings, by process and by project. These are essential tools in the context of internal audits.
Understanding the Connections Between Internal Audit and Risk Mapping
What is Internal Audit?
An internal audit structure is essential in banking institutions, insurance companies, as well as in publicly traded commercial companies and all companies raising public funds. It is also an increasingly common function in large organizations and those operating in sensitive strategic sectors. Internal auditors have a mission of assurance, evaluation, support, and advisory. They intervene at the request of management to analyze and measure the effectiveness of processes and activities within the company. Their missions include a set of recommendations leading to the implementation of action plans.
Internal Audit, Co-Pilot of Risk Mapping
In the absence of a risk manager, the internal audit department may in certain situations be entrusted with responsibility for risk mapping. However, while an internal auditor possesses all the skills to build it, it is much more difficult to ensure its operational implementation. How could they objectively control a process for which they are responsible? Internal audit, on the other hand, has full legitimacy to contribute to the identification and assessment of risks. Its participation is even desirable. It has a comprehensive view of all organizational processes. When conducting an audit, it naturally analyzes the strengths and weaknesses of the process and major risks. Its reports therefore provide very valuable information to enrich risk mapping.
Internal Audit, Evaluator of Risk Mapping
The internal audit team has the responsibility to evaluate the organization’s overall risk management framework. This mission is inscribed in the International Professional Practices Framework (IPPF) for internal audit. Standard 2120 specifically states that “The internal audit activity must evaluate the effectiveness of the organization’s risk management processes and contribute to their improvement.” The auditor’s objective? To provide assurance to management that the framework enables efficient management of the entity’s major risks.
Within the scope of this mission, internal audit is able to ensure, among other things, control of the mapping, its updating, its implementation, and its monitoring.
Risk Mapping, a Tool Serving Internal Audit
Mapping, a Central Tool in the Internal Auditor’s Toolkit
Risk mapping is one of the essential operational tools of internal audit. An audit can incorporate a mini mapping. With this tool, the auditor analyzes the risks inherent to the activity and the controls implemented.
Comprehensive risk mapping, supplemented by these mini mappings performed in each audit:
- Assists the auditor in their advisory mission to management. Making decisions often involves arbitrating between different risks.
- Enables the auditor to monitor major risks identified in their audits and the implementation and effectiveness of their recommendations.
Mini mappings are an essential source for feeding, updating, and monitoring the organization’s comprehensive risk mapping.
Dedicated Software to Ensure Reliability of Audit and Risk Mapping
Conducting an audit requires rigor, consistency, and thoroughness. The auditor constantly juggles numerous contacts, multiple documents, and information.
Software dedicated to internal audit enables customization and reliability of planning and execution of the mission. All documents and information are centralized and tracked. Collaborative features for sharing, automatic reminders, and planning offer a real gain in productivity and time. The tool can also simplify the drafting, distribution, and monitoring of recommendations and action plans. Another advantage? These software solutions generally include a dedicated risk mapping feature to facilitate its development and real-time updating. In summary, risk mapping is the fundamental cross-functional tool for deploying an effective risk management policy and optimizing the execution of internal audits within the organization. Using internal audit software integrating both components ensures rigorous and thorough audits and mappings.