Risk Assessment
To properly manage their operations, managers need to determine the level of financial and compliance risk they are willing to assume. Risk assessment is one of management's responsibilities and enables management to act pro-actively in reducing unwanted surprises. Failure to consciously manage these risks can result in a lack of confidence that financial and compliance goals will be achieved.
With management team members, ask the following questions:
- What can go wrong?
- Where are we most vulnerable?
- Where is our greatest exposure?
- What types of transactions in our area provide the most risk?
- Do we have "liquid" assets or assets which have alternative uses?
- How can someone bypass the internal controls?
- What potential risk areas could cause adverse publicity?
Benchmark with others in similar situations. Are there risks in their areas that could occur in your area?
Analyze financial data. (Where is the high volume or large dollars?)
Below are some types of transactions that may pose higher risks to departments/colleges:
- Assets with Alternative Uses (i. e., computers)
- Cash Receipts (continuing education programs, gifts, endowments, special events, bookstore, athletic programs, performances, etc).
- Consultant Payments and Other Payments for Services
- Travel Expenditures
- Scholarships
- Payments to Non-Vendors
- Equipment Delivered Directly to Department
- Purchase Exemptions (sole source)
- Payroll (rates, changes, terminations)
- Equipment on Location
- Software Licensing Issues
- Intellectual Property
- Confidential Information
- Grants (meeting terms, not overspending)
These are transaction types that deserve a conscious risk review.
In evaluating the potential impact of risk, both quantitative and qualitative costs need to be addressed. Quantitative costs include the cost of property, equipment, or inventory; cash dollar loss; damage and repair costs, cost of defending a lawsuit, etc.
Qualitative costs can have wide-ranging implications to a university. These costs may include:
- Loss of public trust
- Loss of future grants, gifts and donations
- Injury to the school's reputation
- Increased legislation
- Violation of laws
- Default on a project
- Bad publicity
- Decreased enrollment
Last Updated: November 17, 2008 (kp).
